As filed electronically with the Securities and Exchange Commission on
February 26, 1999
(File No. 2-17613)
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
Post-Effective Amendment No. 107 [ X ]
and
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940
Amendment No. [ X ]
IVY FUND
(Exact Name of Registrant as Specified in Charter)
Via Mizner Financial Plaza
700 South Federal Highway - Suite 300
Boca Raton, Florida 33432
(Address of Principal Executive Offices)
Registrant's Telephone Number: (800) 777-6472
C. William Ferris
Mackenzie Investment Management Inc.
Via Mizner Financial Plaza
700 South Federal Highway - Suite 300
Boca Raton, Florida 33432
(Name and Address of Agent for Service)
Copies to:
Joseph R. Fleming, Esq.
Dechert Price & Rhoads
Ten Post Office Square, South - Suite 1230
Boston, MA 02109
[ X ] It is proposed that this Post-Effective Amendment become
effective on April 30, 1999 pursuant to paragraph (a)(1) of Rule
485.
<PAGE>
THIS POST-EFFECTIVE AMENDMENT NO. 107 TO THE REGISTRATION STATEMENT OF IVY FUND
(THE "REGISTRANT") CONTAINS SEPARATE PROSPECTUSES AND STATEMENTS OF ADDITIONAL
INFORMATION RELATING TO THE NINETEEN INVESTMENT SERIES OF THE REGISTRANT, AND IS
BEING FILED FOR THE PURPOSE OF COMPLYING WITH THE NEW DISCLOSURE REQUIREMENTS
UNDER FORM N-1A (WHICH BECAME EFFECTIVE ON JUNE 1, 1998). THIS FILING IS
SEPARATE FROM, AND IN NO WAY SUPERSEDES, POST-EFFECTIVE AMENDMENT NO. 105 AND
NO. 106 TO THE REGISTRANT'S REGISTRATION STATEMENT RELATING TO IVY INTERNATIONAL
STRATEGIC BOND FUND AND IVY EUROPEAN OPPORTUNITIES FUND, RESPECTIVELY (TWO NEW
SERIES OF THE REGISTRANT).
<PAGE>
IVY FUND
CROSS REFERENCE SHEET
Post-Effective Amendment No. 107 contains one Prospectus and
Statement of Additional Information for each of the nineteen series of
Ivy Fund (the "Registrant").
ITEMS REQUIRED BY FORM N-1A:
PART A:
ITEM 1 FRONT AND BACK COVER PAGES: Front and back cover pages
ITEM 2 RISK/RETURN SUMMARY: INVESTMENTS, RISKS AND PERFORMANCE :
Principal Investment Strategies;
Principal Risks
ITEM 3 RISK/RETURN SUMMARY: FEE TABLE: Fees and Expenses
ITEM 4 INVESTMENT OBJECTIVES, PRINCIPAL INVESTMENT STRATEGIES, AND
RELATED RISKS: Principal Investment
Strategies; Principal Risks; Additional Information About
Investment Strategies And Risks
ITEM 5 MANAGEMENT'S DISCUSSION OF FUND PERFORMANCE: Not applicable
ITEM 6 MANAGEMENT, ORGANIZATION AND CAPITAL STRUCTURE: Management
ITEM 7 SHAREHOLDER INFORMATION: Shareholder Information
ITEM 8 DISTRIBUTION ARRANGEMENTS: Shareholder Information
ITEM 9 FINANCIAL HIGHLIGHTS INFORMATION: Not applicable
PART B
ITEM 10 COVER PAGE AND TABLE OF CONTENTS: Cover Page; Table of Contents
ITEM 11 FUND HISTORY: General Information
ITEM 12 DESCRIPTION OF THE FUND AND ITS INVESTMENTS AND RISKS:
Investment Objectives, Strategies and
Risks; Investment Restrictions; Appendix A
ITEM 13 MANAGEMENT OF THE FUND: Investment Advisory And Other Services
ITEM 14 CONTROL PERSONS AND PRINCIPAL HOLDERS OF SECURITIES: Trustees
and Officers
ITEM 15 INVESTMENT ADVISORY AND OTHER SERVICES: Investment Advisory
And Other Services
ITEM 16 BROKERAGE ALLOCATION AND OTHER PRACTICES: Brokerage Allocation
ITEM 17 CAPITAL STOCK AND OTHER SECURITIES: Capitalization and Voting
Rights
ITEM 18 PURCHASE, REDEMPTION AND PRICING OF SHARES: Special Rights and
Privileges; Capitalization and
Voting Rights; Net Asset Value
ITEM 19 TAXATION OF THE FUND: Taxation
ITEM 20 UNDERWRITERS: Distribution Services
ITEM 21 CALCULATION OF PERFORMANCE DATA: Performance Information
ITEM 22 FINANCIAL STATEMENTS: Financial Statements
<PAGE>
[Front Cover Page]
PROSPECTUS April ___, 1999
IVY FUND - Ivy Asia Pacific Fund
Ivy Fund (the "Trust") is a registered open-end investment company currently
consisting of nineteen separate portfolios. This Prospectus relates to the Class
A, Class B, Class C and Advisor Class shares of Ivy Asia Pacific Fund (the
"Fund"). No other shares are offered in this Prospectus.
The Securities and Exchange Commission has not approved or disapproved these
securities or passed upon the adequacy of this Prospectus. Any representation to
the contrary is a criminal offense.
[Insert all logos]
<PAGE>
TABLE OF CONTENTS
SUMMARY
ADDITIONAL INFORMATION ABOUT INVESTMENT STRATEGIES AND RISKS
MANAGEMENT
SHAREHOLDER INFORMATION
ACCOUNT APPLICATION
HOW TO RECEIVE MORE INFORMATION ABOUT THE FUND
SHAREHOLDER INQUIRIES
<PAGE>
SUMMARY
Investment The Fund's principal investment objective is long-term
objective: growth. Consideration of current income is secondary to this
principal objective.
Principal The Fund invests primarily in equity securities issued in
investment Asia-Pacific countries, which include China, Hong Kong,
strategies: India, Indonesia, Malaysia, Pakistan, the Philippines,
Singapore, Sri Lanka, South Korea, Taiwan, Thailand and
Vietnam. The Fund might engage in foreign currency exchange
transactions and forward foreign currency contracts to
control its exposure to certain risks.
Principal risks: The main risks to which the Fund is exposed in carrying out
its investment strategies are the following:
Management risk: The Fund's manager might not select
securities that perform as well as the securities held by
other mutual funds with investment objectives that are
similar to those of the Fund.
Market risk: Common stocks represent a proportionate
ownership interest in a company. The market value of common
stock can fluctuate significantly even where "management
risk" is not a factor, so you could lose money if you redeem
your Fund shares at a time when the Fund's stock portfolio
is not performing as well as expected. The market value of
common stock can fluctuate significantly, so you could lose
money if you redeem your Fund shares at a time when the
Fund's stock portfolio is not performing as well as
expected.
Foreign security and emerging market risk: Investing in
foreign securities involves a number of economic, financial
and political considerations that are not associated with
the U.S. markets and that could affect the Fund's
performance favorably or unfavorably, depending upon
prevailing conditions at any given time. Among these
potential risks are:
greater price volatility;
comparatively weak supervision and regulation of securities exchanges,
brokers and issuers;
higher brokerage costs;
fluctuations in foreign currency exchange rates and related conversion
costs;
adverse tax consequences; and
settlement delays.
The risks of investing in foreign securities are more acute
in countries with developing economies. Since the securities
markets of many Asia-Pacific countries fall into this
category, the Fund is exposed to the following additional
risks:
securities that are even less liquid and more volatile than those in
more developed foreign countries;
unusually long settlement delays;
less stable governments that are susceptible to sudden
adverse actions (such as nationalization of businesses,
restrictions on foreign ownership or prohibitions
against repatriation of assets);
abrupt changes in exchange rate regime or monetary policy;
restrictions on repatriation of capital;
unusually large currency fluctuations and currency conversion costs;
and
high national debt levels (which may impede an
issuer's payment of principal and/or interest on
external debt).
Who should invest*: The Fund may be appropriate for investors seeking
long-term growth potential, but who can accept
potentially dramatic fluctuations in capital value in the
short-term.
* You should consult with your financial advisor before deciding whether
the Fund is an appropriate investment choice in light of your
particular financial needs and risk tolerance.
<PAGE>
Performance Bar Chart and Table:
The information in the following chart and table provides some
indication of the risks of investing in the Fund by showing changes in
the Fund's performance from year to year and how the Fund's average
annual returns since its inception on January 1, 1997 compare with
those of a broad measure of market performance. The Fund's past
performance is not an indication of how the Fund will perform in the
future.
Annual Total Returns for Class A Shares as of December 31, 1998:*
-------------------------
1997 1998
* Any applicable sales charges and account fees are not
reflected, and if they were the returns shown above would be
lower. The returns for the Fund's other three classes of
shares during these periods were different from those of Class
A because of variations in their respective expense
structures.
Best quarter: ______% (Q__ 199__)
Worst quarter: ______% (Q__ 199__)
Average Annual Total Returns (for the periods ending December 31, 1998):*
Past year: Since inception:**
Class A: ______% ______%
Class B: ______% ______%
Class C: ______% ______%
Advisor Class:*** N/A N/A
[Index]: ______% ______%
* Performance figures reflect any applicable sales charges.
** The inception date for all Classes other than Advisor Class
was January 1, 1997. Advisor Class shares were first offered
on January 1, 1998.
*** The Fund has had no outstanding Advisor Class shares.
<PAGE>
Fees and Expenses:
The following tables describe the fees and expenses that you may pay if
you buy and hold shares of the Fund:
Shareholder Fees (fees paid directly from your investment):
Maximum Sales Charge (Load) Imposed on
Purchases (as a percentage of Maximum Deferred Sales Charge (Load)
offering price): as a percentage of original purchase
price):
Class A: 5.75% none
Class B: none 5.00%
Class C: none 1.00%
Advisor Class: none none
Annual Fund Operating Expenses (expenses that are deducted from Fund
assets):
Distribution Total Expenses Net Fund
Management and/or Other Annual Waived or Operating
Fees: Service Expenses: Fund Reimbursed:* Expenses:*
(12b-1) Operating
Fees: Expenses
Class A: 1.00% .25% $_______ $_______ $_______ $_______
Class B: 1.00% 1.00% $_______ $_______ $_______ $_______
Class C: 1.00% 1.00% $_______ $_______ $_______ $_______
Advisor 1.00% none $_______ $_______ $_______ $_______
Class:
* The Fund's Manager has agreed to waive and/or reimburse the
Fund's fees and expenses to the extent necessary to ensure
that the Fund's Annual Fund Operating Expenses do not exceed
the amounts shown in the far right column above.
Example:
The following example is intended to help you compare the cost of
investing in the Fund with the cost of investing in other mutual funds.
The example assumes that you invest $10,000 in the Fund for the time
periods indicated and then redeem all of your shares at the end of
those periods (with additional information shown for Class B and Class
C shares based on the assumption that you do not redeem your shares at
that time). The example also assumes that your investment has a 5%
return each year and that the Fund's operating expenses remain the
same. Although your actual costs may be higher or lower, based on these
assumptions your costs would be as follows:
1 Year: 3 Years: 5 Years: 10 Years:
------ ------- ------- --------
Class A: $______ $______ $______ $______
Class B: $______ $______ $______ $______
Class B (no redemption): $______ $______ $______ $______
Class C: $______ $______ $______ $______
Class C (no redemption): $______ $______ $______ $______
Advisor Class: $______ $______ $______ $______
<PAGE>
ADDITIONAL INFORMATION ABOUT INVESTMENT STRATEGIES AND RISKS
Principal strategies:
The Fund's manager seeks to achieve the Fund's investment objective of
long-term growth by investing primarily in securities issued in
countries throughout the Asia Pacific region, which includes China,
Hong Kong, India, Indonesia, Malaysia, Pakistan, the Philippines,
Singapore, Sri Lanka, South Korea, Taiwan, Thailand and Vietnam. The
Fund usually invests in at least three different countries, and does
not intend to concentrate its investments in any particular industry.
Countries are selected on the basis of a mix of factors that include
long-term economic growth prospects, anticipated inflation levels, and
the effect of applicable government policies on local business
conditions.
Individual securities are selected on the basis of value indicators
(such as earnings, cash flow and growth potential) and are reviewed for
fundamental financial strength. Investment decisions typically are
based on earnings estimates over a five-year period, with stocks
normally purchased from within the cheapest 20% of the market universe
and sold once they are valued within the top 20%.
Principal risks:
General market risk: As with any mutual fund, the value of the Fund's
investments and the income they generate will vary daily and generally
reflect market conditions, interest rates and other issuer-specific,
political or economic developments. The Fund's share value will
decrease at any time during which its security holdings or other
investment techniques are not performing as well as anticipated, and
you could therefore lose money by investing in the Fund depending upon
the timing of your initial purchase and any subsequent redemption.
Other risks: Since the Fund invests heavily in Asia Pacific countries,
many of which have economies or securities markets that are relatively
undeveloped, the Fund is more susceptible to the risks associated with
these types of securities than a fund that invests primarily in more
established markets. Following is a description of these risks, along
with the risks commonly associated with the other securities and
investment techniques that the Fund's portfolio manager considers
important in achieving the Fund's investment objective or in managing
the Fund's exposure to risk (and that could therefore have a
significant effect on the Fund's returns). Other investment techniques
that the Fund may use, but that do not play a key role in the Fund's
overall investment strategy, are described in the Fund's Statement of
Additional Information (see back cover page for information on how you
can receive a free copy).
Common Stocks: Common stocks represent a proportionate ownership
interest in a company. As a result, the value of common stock
rises and falls with a company's success or failure. The market
value of common stock can fluctuate significantly, with smaller
companies being particularly susceptible to price swings.
Transaction costs in smaller company stocks may also be higher
than those of larger companies.
Depository Receipts: The Fund may acquire interests in foreign
issuers in the form of sponsored or unsponsored American
Depository Receipts ("ADRs"), Global Depository Receipts ("GDRs")
and similar types of depository receipts. ADRs typically are
issued by a U.S. bank or trust company and represent ownership of
the underlying securities issued by a foreign corporation. GDRs
and other types of depository receipts are usually issued by
foreign banks or trust companies. The Fund's investments in ADRs,
GDRs and other depository receipts are viewed as investments in
the underlying securities.
Depository receipts can be difficult to price and are not always
exchange-listed. Unsponsored depository programs also are
organized independently without the cooperation of the issuer of
the underlying securities. As a result, information concerning the
issuer may not be as current or as readily available as in the
case of sponsored depository instruments, and their prices may be
more volatile than if they were sponsored by the issuers of the
underlying securities.
Foreign Securities: Investing in foreign securities involves a
number of economic, financial and political considerations that
are not associated with the U.S. markets and that could affect the
Fund's performance favorably or unfavorably, depending upon
prevailing conditions at any given time. For example, the
securities markets of many foreign countries may be smaller, less
liquid and subject to greater price volatility than those in the
U.S. Foreign investing may also involve brokerage costs and tax
considerations that are not usually present in the U.S. markets.
Many of the Fund's securities also are denominated in foreign
currencies and the value of the Fund's investments as measured in
U.S. dollars may be affected favorably or unfavorably by changes
in foreign currency exchange rates and exchange control
regulations. Currency conversion can also be costly.
Other factors that can affect the value of the Fund's foreign
investments include the comparatively weak supervision and
regulation by some foreign governments of securities exchanges,
brokers and issuers, and the fact that many foreign companies may
not be subject to uniform accounting, auditing and financial
reporting standards. It may also difficult to obtain reliable
information about the securities and business operations certain
foreign issuers. Settlement of portfolio transactions may also be
delayed due to local restrictions or communication problems, which
can cause the Fund to miss attractive investment opportunities or
impair its ability to dispose of securities in a timely fashion
(resulting in a loss if the value of the securities subsequently
declines).
Special Emerging Market Concerns: The risks of investing in foreign
securities are heightened in countries with new or developing economies.
Among these additional risks are the following:
securities that are even less liquid and more volatile than those in
more developed foreign countries;
less stable governments that are susceptible to sudden
adverse actions (such as nationalization of businesses,
restrictions on foreign ownership or prohibitions against
repatriation of assets);
increased settlement delays;
unusually high inflation rates (which in extreme cases can cause the
value of a country's assets to erode sharply);
restrictions on repatriation of capital;
unusually large currency fluctuations and currency conversion costs
(see "Foreign Currencies" below); and
high national debt levels (which may impede an issuer's
payment of principal and/or interest on external debt).
Foreign Currencies: Investing in foreign securities typically involves
the use of foreign currencies. The value of the Fund's assets, as measured
in U.S. dollars, may be affected favorably or unfavorably by changes in
foreign currency exchange rates and exchange control regulations. Currency
conversions can also be costly.
Foreign Currency Exchange Transactions and Forward Foreign
Currency Contracts: The Fund may, but is not required to, use
foreign currency exchange transactions and forward foreign
currency contracts to hedge certain market risks (such as interest
rates, currency exchange rates and broad or specific market
movement). These investment techniques involve a number of risks,
including the possibility of default by the counterparty to the
transaction and, to the extent the Fund's judgment as to certain
market movements is incorrect, the risk of losses that are greater
than if the investment technique had not been used. For example,
there may be an imperfect correlation between the Fund's portfolio
holdings of securities denominated in a particular currency and
the forward contracts entered into by the Fund. An imperfect
correlation of this type may prevent the Fund from achieving the
intended hedge or expose the Fund to the risk of currency exchange
loss. In addition, although the use of these investment techniques
for hedging purposes should tend to minimize the risk of loss due
to a decline in the value of the hedged position, they also tend
to limit any potential gain that might result from an increase in
the position's value.
Illiquid Securities: The Fund may invest up to 15% of its net
assets in "illiquid securities," which are assets that may not be
disposed of in the ordinary course of business within seven days
at roughly the value at which the Fund has valued the assets. Some
of these may by "restricted securities," which cannot be sold to
the public without registration under the Securities Act of 1933
(in the absence of an exemption) or because of other legal or
contractual restrictions on resale. Thus, while illiquid
securities may offer the potential for higher returns than more
readily marketable securities, there is a risk that the Fund will
not be able to dispose of them promptly at an acceptable price.
Other Investment Companies: The Fund may invest up to 10% of its
total assets in the shares of other investment companies. As a
shareholder of an investment company, the Fund would bear its
ratable share of the fund's expenses (which often include an
asset-based management fee). The Fund could also lose money by
investing in other investment companies, since the value of their
respective investments and the income they generate will vary
daily based on prevailing market conditions.
Temporary Defensive Positions: The Fund may from time to time
take a temporary defensive position and invest without limit in
U.S. Government securities, investment-grade debt securities, and
cash and cash equivalents such as commercial paper, short-term
notes and other money market securities. When the Fund assumes
such a defensive position it may not achieve its investment
objective. Investing in debt securities also involves both
interest rate and credit risk. Generally, the value of debt
instruments rises and falls inversely with fluctuations in
interest rates. For example, as interest rates decline the value
of debt securities generally increases. Conversely, rising
interest rates tend to cause the value of debt securities to
decrease. The market value of debt securities also tends to vary
according to the relative financial condition of the issuer. Bonds
with longer maturities tend to be more volatile than bonds with
shorter maturities.
Borrowing: For temporary or emergency purposes (such as meeting
shareholder redemption requests within the time periods specified
under the Investment Company Act of 1940), the Fund may borrow up
to one third of the value of its total assets from qualified
banks. Borrowing may exaggerate the effect on the Fund's share
value of any increase or decrease in the value of the securities
it holds. Money borrowed will also be subject to interest costs.
The Fund has a policy of not purchasing securities whenever the
Fund's outstanding borrowings exceed 10% of the value of the
Fund's total assets. Where this occurs, the Fund could miss out on
attractive investment opportunities.
Other Important Information:
Year 2000 Risks: Many computer software and hardware systems in use
today cannot distinguish between the year 2000 and the year 1900
because of the way dates are encoded and calculated (the "Year 2000
Problem"). The inability of computer-based systems to make this
distinction could have a seriously adverse effect on the handling of
securities trades, pricing and account services worldwide. The Fund's
service providers are taking steps that each believes are reasonably
designed to address the Year 2000 Problem with respect to the computer
systems that they use. The Fund believes these steps will be sufficient
to avoid any material adverse impact on the Fund. At this time,
however, there can be no assurance that significant problems will not
occur (which either directly or indirectly may cause the Fund to lose
money).
MANAGEMENT
Investment Advisor:
Ivy Management, Inc. ("IMI"), located at Via Mizner Financial Plaza,
700 South Federal Highway, Boca Raton, Florida 33432, provides
investment advisory and business management services to the Fund. IMI
is an SEC-registered investment advisor with over $____ billion in
assets under management, and provides similar services to the other
eighteen series of the Trust. For the Fund's fiscal year ending
December 31, 1998, the Fund paid to IMI a fee equal to ___% of the
Fund's average net assets.
Portfolio Management:
The Fund is managed by a team of investment professionals that is
supported by research analysts who acquire information on regional and
country-specific economic and political developments and monitoring
individual companies. These analysts use a variety of research sources
that include:
brokerage reports;
economic and financial news services;
company reports; and
information from third party research firms (ranging from large
investment banks with global coverage to local research houses).
In many cases, particularly in emerging market countries, IMI's
research analysts also conduct primary research by:
meeting with company management;
touring facilities; and
speaking with local research professionals.
<PAGE>
SHAREHOLDER INFORMATION
PRICING OF FUND SHARES:
The Fund calculates its share price by dividing the value of the Fund's
net assets by the total number of its shares outstanding as of the
close of regular trading (usually 4:00 p.m. Eastern time) on the New
York Stock Exchange on each day the Exchange is open for trading
(normally any weekday that is not a national holiday).
Each portfolio security that is listed or traded on a recognized stock
exchange is valued at the security's last sale price on the exchange
on which it was purchased. If no sale is reported at that time, the
average between the last bid and asked prices is used. Securities and
other Fund assets for which market prices are not readily available
are priced at their "fair value" as determined by IMI in accordance
with procedures approved by the Fund's Board of Trustees. IMI may also
price a foreign security at its "fair value" if events materially
affecting the value of the security occur between the close of the
foreign exchange on which the security is principally traded and the
time as of which the Fund prices its shares. Fair value pricing under
these circumstances is designed to protect existing shareholders from
dilution of their share value caused by short-term investors trading
into and out of the Fund at at time when the Fund's share price,
calculated by ordinary pricing methods, is undervalued. When such fair
value pricing occurs, however, there may be some period of time during
which the Fund's share price and/or performance information is not
available.
The number of shares you receive when you place a purchase order, and
the payment you receive after submitting a redemption request, is based
on the Fund's net asset value next determined after your instructions
are received in proper form by Ivy Mackenzie Services Corp. (the Fund's
transfer agent) or by your registered securities dealer. Each purchase
and redemption order is subject to any applicable sales charge (see
"Distribution Arrangements" below). Since the Fund normally invests in
securities that are listed on foreign exchanges that may trade on
weekends or other days when the Fund does not price its shares, the
Fund's share value may change on days when shareholders will not be
able to purchase or redeem the Fund's shares.
HOW TO BUY SHARES:
Purchasing Fund shares involves "Choosing the Appropriate Class of
Shares" and "Submitting Your Purchase Order". Please read these
sections below carefully before investing.
Choosing the Appropriate Class of Shares - The essential features of
the Fund's different classes of shares are described below. If you do
not specify on your Account Application which class of shares you are
purchasing, it will be assumed that you are purchasing Class A shares.
The Fund has adopted separate distribution plans pursuant to Rule
12b-1 under the 1940 Act for its Class A, B and C shares that allow
the Fund to pay distribution and other fees for the sale and
distribution of its shares and for services provided to shareholders.
Because these fees are paid out of the Fund's assets on an on-going
basis, over time they will increase the cost of your investment and
may cost you more than paying other types of sales charges.
Class A Shares: Class A shares are sold at net asset value plus a
maximum sales charge of 5.75% (the "offering price"). The sales
charge may be reduced or eliminated if certain conditions are met
(see "Additional Purchase Information" below). Class A shares are
subject to a .25% Rule 12b-1 service fee.
Class B Shares: Class B shares are offered at net asset value,
without an initial sales charge, but subject to a contingent
deferred sales charge ("CDSC") that declines from 5% to zero on
certain redemptions within six years of purchase. Class B shares
are subject to a .75% Rule 12b-1 distribution fee and a .25% Rule
12b-1 service fee, and convert automatically into Class A shares
eight years after purchase.
Class C Shares: Class C shares are offered at net asset value,
without an initial sales charge, but subject to a CDSC of 1% for
redemptions within the first year of purchase. Class C shares are
subject to a .75% Rule 12b-1 distribution fee and a .25% Rule
12b-1 service fee.
Advisor Class Shares: Advisor Class shares are offered to certain
classes of investors at net asset value, without any sales load or
Rule 12b-1 fees.
The following table displays the various investment minimums, sales
charges and expenses that apply to each class.
<TABLE>
<S> <C> <C> <C> <C>
- -------------------- --------------------- --------------------- --------------------- -------------------
Class A Class B Class C Advisor Class
- -------------------- --------------------- --------------------- --------------------- -------------------
- -------------------- --------------------- --------------------- --------------------- -------------------
Minimum Initial $10,000
Investment* $1,000 $1,000 $1,000
- -------------------- --------------------- --------------------- --------------------- -------------------
- -------------------- --------------------- --------------------- --------------------- -------------------
Minimum Subsequent
Investment* $100 $100 $100 $250
- -------------------- --------------------- --------------------- --------------------- -------------------
- -------------------- --------------------- --------------------- --------------------- -------------------
Initial Sales Maximum 5.75%, with None None None
Charge options for a
reduced or waiver
of initial sales
charge
- -------------------- --------------------- --------------------- --------------------- -------------------
- -------------------- --------------------- --------------------- --------------------- -------------------
CDSC None, except on Maximum 5.00%, 1.00% for the first None
certain NAV declines over six year
purchases years
- -------------------- --------------------- --------------------- --------------------- -------------------
- -------------------- --------------------- --------------------- --------------------- -------------------
Service and 0.25% Service fee 0.75% Distribution 0.75% Distribution None
Distribution Fees fee and 0.25% fee and 0.25%
Service fee Service fee
- -------------------- --------------------- --------------------- --------------------- -------------------
</TABLE>
* Minimum initial and subsequent investments for retirement plans are
$25.
ADDITIONAL PURCHASE INFORMATION:
Class A Shares - Class A shares are sold at a public offering
price equal to their net asset value per share ("NAV") plus an
initial sales charge, as set forth below (which is reduced as the
amount invested increases):
<TABLE>
<S> <C> <C> <C>
-------------------------------- ---------------------- ------------------ ----------------------
Sales Charge as a Sales Charge as Portion of Public
Percentage of Public a Percentage of Offering Price
Offering Price Net Amount Retained by Dealer
Amount Invested Invested
-------------------------------- ---------------------- ------------------ ----------------------
-------------------------------- ---------------------- ------------------ ----------------------
Less than $50,000 5.75% 6.10% 5.00%
-------------------------------- ---------------------- ------------------ ----------------------
-------------------------------- ---------------------- ------------------ ----------------------
$50,000 but less than $100,000 5.25% 5.54% 4.50%
-------------------------------- ---------------------- ------------------ ----------------------
-------------------------------- ---------------------- ------------------ ----------------------
$100,000 but less than $250,000 4.50% 4.71% 3.75%
-------------------------------- ---------------------- ------------------ ----------------------
-------------------------------- ---------------------- ------------------ ----------------------
$250, 000 but less than 3.00% 3.09% 2.50%
$500,000
-------------------------------- ---------------------- ------------------ ----------------------
$500,000 or over* 0.00% 0.00% 0.00%
-------------------------------- ---------------------- ------------------ ----------------------
</TABLE>
* A CDSC of 1.00% applies to Class A shares that are redeemed
within two years of the end of the month in which they were
purchased.
Class A shares that are acquired through reinvestment of dividends
or distributions are not subject to any sales charges.
HOW TO REDUCE YOUR INITIAL SALES CHARGE:
"Rights of Accumulation" permits you to pay the sales charge
that applies to the cost or value (whichever is higher) of all
Ivy Fund Class A shares you own.
A "Letter of Intent" permits you to pay the sales charge that
would apply to your cumulative purchase of Fund shares over a
13-month period (certain restrictions apply).
HOW TO ELIMINATE YOUR INITIAL SALES CHARGE:
You may purchase Class A shares at NAV (without an initial sales
charge or a CDSC) through any one of the following methods:
through certain investment advisors and financial planners who charge
a management, consulting
or other fee for their services;
under certain qualified retirement plans;
as an employee or director of Mackenzie Investment Management Inc. or
its affiliates;
as an employee of a selected dealer; or
through the Merrill Lynch Daily K Plan (the "Plan"), provided
the Plan has at least $3 million in assets or over 500 or more
eligible employees. Class B shares of the Fund are made
available to Plan participants at NAV without a CDSC if the
Plan has less than $3 million in assets or fewer than 500
eligible employees. For further information see "Group
Systematic Investment Program" in the SAI.
You may also purchase Class A shares at NAV if you are investing
at least $500,000 through a dealer or agent. Ivy Mackenzie
Distributors, Inc. ("IMDI"), the Fund's distributor, may pay the
dealer or agent (out of IMDI's own resources) for its distribution
assistance according to the following schedule:
------------------------------- -------------------------------
Purchase Amount Commission
------------------------------- -------------------------------
------------------------------- -------------------------------
First $3,000,000 1.00%
------------------------------- -------------------------------
------------------------------- -------------------------------
Next $2,000,000 0.50%
------------------------------- -------------------------------
------------------------------- -------------------------------
Over $5,000,000 0.25%
------------------------------- -------------------------------
Certain trust companies, bank trust departments, credit unions,
savings and loans and other similar organizations may also be
exempt from the initial sales charge on Class A shares.
Class B and Class C Shares - Class B and Class C shares are not
subject to an initial sales charge but are subject to a CDSC. If
you redeem your Class C shares within one year of purchase they
will be subject to a CDSC of 1%, and Class B shares redeemed
within six years of purchase will be subject to a CDSC at the
following rates:
--------------------- --------------------
CDSC as a
Percentage of
Year Since Purchase Dollar Amount
Subject to Charge
--------------------- --------------------
First 5%
--------------------- --------------------
--------------------- --------------------
Second 4%
--------------------- --------------------
--------------------- --------------------
Third 3%
--------------------- --------------------
--------------------- --------------------
Fourth 3%
--------------------- --------------------
--------------------- --------------------
Fifth 2%
--------------------- --------------------
--------------------- --------------------
Sixth 1%
--------------------- --------------------
--------------------- --------------------
Seventh and 0%
thereafter
--------------------- --------------------
The CDSC for both Class B and Class C shares will be assessed on
an amount equal to the lesser of the current market value or the
original purchase cost of the shares being redeemed. No charge
will be assessed on increases in account value above the original
purchase price or on reinvested dividends and distributions.
The CDSC for Class B shares is waived for:
Certain post-retirement withdrawals from an IRA or other
retirement plan if you are over 59 1/2 years old.
Redemptions by certain eligible 401(a) and 401(k) plans and
certain retirement plan rollovers.
Redemption resulting from a tax-free return of excess
contribution to an IRA.
Withdrawals resulting from shareholder death or disability
provided that the redemption is requested within one year of
death or disability.
Withdrawals through the Systematic Withdrawal Plan of up to
12% per year of your account value at the time the plan is
established.
Both Class B shares and Class C shares are subject to an ongoing
service and distribution fee at a combined annual rate of up to
1.00% of the portfolio's average net assets attributable to its
Class B or Class C shares. The ongoing distribution fees will
cause these shares to have a higher expense ratio than that of
Class A and Advisor Class shares. IMDI uses the money that it
receives from the deferred sales charge and the distribution fees
to cover various promotional and sales related expenses, as well
as expenses related to providing distributions services, such as
compensating selected dealers and agents for selling these shares.
Approximately eight years after the original date of purchase,
your Class B shares will be converted automatically to Class A
shares. Class A shares are subject to lower annual expenses than
Class B shares. The conversion from Class B shares to Class A
shares is not considered a taxable event for federal income tax
purposes. Class C shares do not have a similar conversion
privilege.
Advisor Class - Advisor Class shares are offered only to
institutions and certain individuals, and are not subject to an
initial sales charge or a CDSC, nor to ongoing service or
distribution fees.
SUBMITTING YOUR PURCHASE ORDER:
INITIAL INVESTMENTS:
Complete and sign the Account Application appearing at the end of this
Prospectus. Enclose a check payable to Ivy Fund (see page [XX] for
minimum initial investments.) Deliver your application materials to
your registered representative or selling broker, or send them to one
of the addresses below:
By Regular Mail: By Courier:
Ivy Mackenzie Services Corp. Ivy Mackenzie Services Corp.
P.O. Box 3022 700 South Federal Hwy.
Boca Raton, FL 33431-0922 Boca Raton, FL 33432
BUYING ADDITIONAL SHARES:
There are several ways to increase your investment in the Fund:
By Mail - Send your check with a completed investment slip
(attached to your account statement) or written instructions
indicating the account registration, fund number or name, and
account number.
Mail to one of the addresses above.
Through Your Broker - Deliver to your registered representative
or selling broker the investment slip attached to your statement,
or written instructions, along with your payment.
By Wire - Purchases may also be made by wiring money from your
bank account to your Ivy account. Your bank may charge a fee for
wiring funds. Before wiring any funds, please call IMSC at (800)
777-6472. Wiring instructions are as follows:
First Union National Bank of Florida
Jacksonville, FL
ABA #063000021
Account #2090002063833
For further credit to:
Your Ivy Fund Account Number
Your Fund Number and Account Number
By Automatic Investment Method - You can authorize to have funds
electronically drawn each month from your bank account and
invested as a purchase of shares into your Ivy Fund account.
Complete sections [XX] and [XX] of the Account Application.
HOW TO REDEEM SHARES:
SUBMITTING YOUR REDEMPTION ORDER:
You may redeem your Fund shares through your registered securities
dealer or directly through IMSC. If you choose to redeem through your
registered securities dealer, the dealer is responsible for properly
transmitting redemption orders in a timely manner. If you choose to
redeem directly through IMSC, you have several ways to submit your
request:
By Mail - Send your written redemption request to IMSC at one of
the addresses on page XX of this Prospectus. Be sure that all
registered owners listed on the account sign the request.
Signature guarantees and supporting legal documentation may be
required. When you redeem, IMSC will normally send redemption
proceeds to you on the next business day, but may take up to seven
days (or longer in the case of shares recently purchased by
check).
By Telephone - Call IMSC at (800) 777-6472 to redeem from your
account. In order to process your redemption order by telephone,
you must have telephone redemption privileges on your account.
IMSC employs reasonable procedures that require personal
identification prior to acting on redemption instructions
communicated by telephone to confirm that such instructions are
genuine. In the absence of such procedures, the Fund or IMSC may
be liable for any losses due to unauthorized or fraudulent
telephone instructions.
By Systematic Withdrawal Plan (SWP) - You can authorize to have
funds electronically drawn each month from your Ivy Fund account
and deposited directly into your bank account. Certain minimum
balances and minimum distributions apply. Complete sections XX of
the Account Application to add this feature to your account.
Receiving Your Redemption Proceeds - You can receive redemption
proceeds through a variety of payment methods:
By Check - Unless otherwise instructed, checks will be made
payable to the current account registration and sent to the
address of record.
By Federal Funds Wire - Proceeds will be wired on the next
business day to a pre-designated bank account. Requests by
telephone can only be accepted for amounts up to $50,000. Your
account will be charged $10 each time redemption proceeds are
wired to your bank, and your bank may also charge you a fee for
receiving a Federal Funds wire.
By Electronic Funds Transfer - For SWP redemptions only.
Important Redemption Information:
A CDSC may apply to certain Class A share redemptions, to Class B
shares redeemed within six years of purchase, and to Class C
shares that are redeemed within one year of purchase.
All redemptions are made at the NAV next determined after a
redemption request has been received in good order. Requests for
redemptions must be received by 4:00 p.m. Eastern time to be
processed at the NAV for that day. Any redemption request in good
order that is received after 4:00 p.m. Eastern time will be
processed at the price determined on the following business day.
If you own shares of more than one class of the Fund, the Fund
will redeem first the shares having the highest 12b-1 fees.
Any shares subject to a CDSC will be redeemed last unless you
specifically elect otherwise.
The Fund may (on 60 days' notice) redeem the accounts of
shareholders whose investment, including sales charges paid, has
been less than $1,000 for more than 12 months.
The Fund may take up to seven days (or longer in the case of
shares recently purchased by check) to send redemption proceeds.
The Fund may make payment for redeemed shares in the form of
securities of the Fund taken at current values.
HOW TO EXCHANGE YOUR FUND SHARES:
You may exchange your Fund shares for shares of another Ivy fund,
subject to certain restrictions (see "Important Exchange Information"
below).
Submitting Your Exchange Order - You may submit an exchange request to
IMSC as follows:
By Mail - Send your written exchange request to IMSC at one of
the addresses on page XX of this Prospectus. Be sure that all
registered owners listed on the account sign the request.
By Telephone - Call IMSC at (800) 777-6472 to authorize an
exchange transaction. In order to process your exchange order by
telephone, you must have telephone exchange privileges on your
account. IMSC employs reasonable procedures that require personal
identification prior to acting on exchange instructions
communicated by telephone to confirm that such instructions are
genuine. In the absence of such procedures, the Fund or IMSC may
be liable for any losses due to unauthorized or fraudulent
telephone instructions.
IMPORTANT EXCHANGE INFORMATION:
You must exchange into the same share class you currently own.
Exchanges are considered taxable events and may result in a
capital gain or a capital loss for tax purposes.
It is the policy of the Fund to discourage the use of the
exchange privilege for the purpose of timing short-term market
fluctuations. The Fund may therefore limit the frequency of
exchanges by a shareholder or cancel a shareholder's exchange
privilege if at any time it appears that such market timing
strategies are being used.
DIVIDENDS AND DISTRIBUTIONS:
The Fund generally declares and pays dividends and capital gain
distributions (if any) at least once a year.
Dividends and distributions are "reinvested" in additional Fund
shares unless you request to receive them in cash.
Reinvested dividends and distributions are added to your account
at NAV and are not subject to a CDSC regardless of which share
class you own.
Cash dividends and distributions can be sent to you:
BY MAIL - a check will mailed to the address of record unless
otherwise instructed.
BY ELECTRONIC FUNDS TRANSFER ("EFT") - your proceeds will be
directly deposited into your bank account.
To change your dividend and/or distribution options, call IMSC at
(800) 777-6472.
TAX CONSEQUENCES:
Distributions you receive from the Fund are reinvested in additional
shares of the same class of the Fund unless you elect to receive them
in cash. Dividends ordinarily will vary from one class to another.
The Fund intends to declare and pay dividends monthly. The Fund will
distribute net investment income and net realized capital gains, if
any, at least once a year. The Fund may make an additional distribution
of net investment income and net realized capital gains to comply with
the calendar year distribution requirement under the excise tax
provisions of Section 4982 of the Internal Revenue Code of 1986, as
amended (the "Code").
Dividends paid out of the Fund's investment company taxable income
(including dividends, interest and net short-term capital gains) will
be taxable to you as ordinary income. If a portion of the Fund's income
consists of dividends paid by U.S. corporations, a portion of the
dividends paid by the Fund may be eligible for the corporate
dividends-received deduction. Distributions of net capital gains (the
excess of net long-term capital gains over net short-term capital
losses), if any, are taxable to you as long-term capital gains,
regardless of how long you have held your shares. Dividends are taxable
to you in the same manner whether received in cash or reinvested in
additional Fund shares.
If shares of the Fund are held in a tax-deferred account, such as a
retirement plan, income and gain will not be taxable each year.
Instead, the taxable portion of amounts held in a tax-deferred account
generally will be subject to tax as ordinary income only when
distributed from that account.
A distribution will be treated as paid to you on December 31 of the
current calendar year if it is declared by the Fund in October,
November or December with a record date in such a month and paid by the
Fund during January of the following calendar year.
In certain years, you may be able to claim a credit or deduction on
your income tax return for your share of foreign taxes paid by the
Fund. Upon the sale or other disposition of your Fund shares, you may
realize a capital gain or loss which will be long-term or short-term,
generally depending upon how long you held your shares.
The Fund may be required to withhold U.S. Federal income tax at the
rate of 31% of all distributions payable to you if you fail to provide
the Fund with your correct taxpayer identification number or to make
required certifications, or if you have been notified by the Internal
Revenue Service ("IRS") that you are subject to backup withholding.
Backup withholding is not an additional tax. Any amounts withheld may
be credited against your U.S. Federal income tax liability.
Fund distributions may be subject to state, local and foreign taxes.
You should consult with your tax adviser as to the tax consequences of
an investment in the Fund, including the status of distributions from
the Fund under applicable state or local law.
<PAGE>
IVY ASIA PACIFIC FUND
<TABLE>
<CAPTION>
CLASS A CLASS B CLASS C
-------------------- ----------------- -----------------
1998 1997(A) 1998 1997(A) 1998 1997(A)
SELECTED PER SHARE DATA -------- -------- ------- ------- -----------------
<S> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of period......... $ 10.00 $10.00 $10.00
------- ------- ------
Income (loss) from investment operations
Net investment income (loss) (b).......... .02 -- --
Net realized and unrealized loss on
investment transactions.................. (3.98) (4.00) (3.99)
------- ------- ------
Total from investment operations....... (3.96) (4.00) (3.99)
------- ------- ------
Less distributions
From net investment income................ .01 -- --
In excess of net investment income........ .02 .01 .02
------- ------- ------
Total distributions.................... .03 .01 .02
------- ------- ------
Net asset value, end of period............... $ 6.01 $ 5.99 $ 5.99
======= ======= ======
Total return (%)............................. (39.58) (39.96) (39.94)
RATIOS AND SUPPLEMENTAL DATA
Net assets, end of period (in thousands)..... $ 692 $ 929 $ 764
Ratio of expenses to average net assets(c)
With expense reimbursement(%)............... 2.11 2.86 2.74
Without expense reimbursement(%)............ 10.17 10.92 10.80
Ratio of net investment income (loss) to
average net assets(%)(b).................... .63 (.12) --
Portfolio turnover rate(%)................... 1 1 1
Average commission rate...................... $ .0070 $.0070 $.0070
</TABLE>
- - ---------------
<TABLE>
<S> <C>
(a) The Fund commenced operations on January 1, 1997.
(b) Net investment income (loss) is net of expenses reimbursed
by manager.
(c) Total expenses include fees paid indirectly through an
expense offset arrangement.
</TABLE>
<TABLE>
<CAPTION>
ADVISOR CLASS
SHARES
1998
SELECTED PER SHARE DATA -------------
<S> <C>
Net asset value, beginning of period.........
Income (loss) from investment operations
Net investment income (loss) (b)..........
Net realized and unrealized loss on
investment transactions..................
Total from investment operations.......
Less distributions
From net investment income................
In excess of net investment income........
Total distributions....................
Net asset value, end of period...............
Total return (%).............................
RATIOS AND SUPPLEMENTAL DATA
Net assets, end of period (in thousands).....
Ratio of expenses to average net assets(c)
With expense reimbursement(%)...............
Without expense reimbursement(%)............
Ratio of net investment income (loss) to
average net assets(%)(b)....................
Portfolio turnover rate(%)...................
Average commission rate......................
</TABLE>
<PAGE>
ACCOUNT APPLICATION
Please mail applications and checks to: Ivy Mackenzie Services Corp.,
P.O. Box 3022, Boca Raton, FL 33431-0922.
(This application should not be used for retirement accounts for which
Ivy Fund is custodian.)
Account Number:
(Fund Use Only)
Dealer #:
Branch #:
Rep. I.D. #:
Acct. Type:
Soc Cd:
Div Cd:
CG Cd:
Exc Cd:
Red Cd:
1. REGISTRATION
/ / Individual / / Joint Tenant / / Estate / / UGMA/UTMA / /
Corporation / / Partnership / / Sole Proprietor / / Trust / / Other
Date of Trust
Owner, Custodian or Trustee
Co-owner or Minor
Minor's State of Residence
Street
City
State
Zip Code
Phone Number -- Day
Phone Number -- Evening
2. TAX ID
Citizenship: / / U.S. / / Other ________________
Social Security Number
Tax Identification Number
Under penalties of perjury, I certify by signing in Section 8 below
that: (1) the number shown in this section is my correct taxpayer
identification number (TIN), and (2) I am not subject to backup
withholding because: (a) I have not been notified by the Internal
Revenue Service (IRS) that I am subject to backup withholding as a
result of a failure to report all interest or dividends, or (b) the IRS
has notified me that I am no longer subject to backup withholding.
(Cross out item (2) if you have been notified by the IRS that you are
currently subject to backup withholding because of underreporting
interest or dividends on your tax return.) Please see the "Tax
Consequences" section of the Prospectus for additional information on
completing this section.
3. DEALER INFORMATION
The undersigned ("Dealer") agrees to all applicable provisions in this
Application, guarantees the signature and legal capacity of the
Shareholder, and agrees to notify IMSC of any purchases made under a
Letter of Intent or Rights of Accumulation.
Dealer Name
Branch Office Address
City
State
Zip Code
Representative's Name and Number
Representative's Phone Number
Authorized Signature of Dealer
4. INVESTMENTS
A. Enclosed is my check ($1,000 minimum) for $_____________ made
payable to ________________ [Fund Name]. Please invest it in
Class A __ Class B __ Class C __ or Advisor Class __ shares.
B. I qualify for an elimination of the sales charge due to the
following privilege (applies only to Class A shares):
__ New Letter of Intent (if ROA or 90-day backdate
privilege is applicable, provide account(s)
information below.)
__ ROA with the account(s) listed below.
__ Existing Letter of Intent with account(s) listed
below.
Fund Name(s)
Account Number(s)
If establishing a Letter of Intent, you will need to purchase
Class A shares over a thirteen-month period in accordance with
the provisions in the Prospectus. The Aggregate amount of
these purchases will be at least equal to the amount indicated
below (see Prospectus for minimum amount required for reduced
sales charges).
/ / $50,000
/ / $100,000
/ / $250,000
/ / $500,000
C. FOR DEALER USE
Confirmed trade orders: [Confirm Number, Number of Shares,
Trade Date]
5. DISTRIBUTION OPTIONS
I would like to reinvest dividends and capital gains into additional
shares in this account at net asset value unless a different option is
checked below.
/ / Reinvest all dividends and capital gains into additional shares of a
different Ivy fund. Fund Name Account Number
/ / Pay all dividends in cash and reinvest capital gains into additional
shares in this Fund or a different Ivy fund. Fund Name Account Number
/ / Pay all dividends and capital gains in cash.
I REQUEST THE ABOVE CASH DISTRIBUTION, SELECTED IN C OR D
ABOVE, BE:
/ / Sent to the address listed in the registration.
/ / Sent to the special payee listed in Section 7A / / (By Mail) 7B / /
(By E.F.T.)
6. OPTIONAL SPECIAL FEATURES
A. / / Automatic Investment Method (AIM)
- I wish to invest _________________ / / once per month / /
twice / / 3 times / / 4 times
- My bank account will be debited on the _________ day of the
month
Please invest $___________________ each period starting in the
month of __________________ in
---------------------------.
Fund Name
/ / Class A
/ / Class B
/ / Class C
/ / Advisor Class
/ / I have attached a voided check to ensure my correct bank
account will be debited.
B. SYSTEMATIC WITHDRAWAL PLANS**
I wish to automatically withdraw funds from my account in
_________________[Fund name].
/ / Monthly / / Quarterly / /Semiannually / / Annually
/ / Once / / Twice / / 3 times / / 4 times per month
I request the distribution be:
/ / Sent to the address listed in the registration.
/ / Sent to the special payee listed in Section 7.
/ / Invested into additional shares of the same class of a different
Ivy fund.
Fund Name
Account Number
Amount $__________________(Minimum $50) starting on or about the
-_______ day of the month
-_______ day of the month
-_______ day of the month*
NOTE: Account minimum: $5,000 in shares at current offering price
C. FEDERAL FUNDS TRANSFER FOR REDEMPTION PROCEEDS**
I authorize the Agent to honor telephone instructions for the
redemption of Fund shares up to $50,000. Proceeds may be wire
transferred to the bank account designated ($1,000 minimum).
(Complete Section 7B)
TELEPHONE EXCHANGES** / / YES / / NO
I authorize exchanges by telephone among the Ivy funds upon
instructions from any person as more fully described in the
Prospectus. To change this option once established, written
instructions must be received from the shareholder of record
or the current registered representative.
If neither box is checked, the telephone exchange privilege
will be provided automatically.
TELEPHONIC REDEMPTIONS** / / YES / / NO
The Fund or its agents are authorized to honor telephone
instructions from any person as more fully described in the
Prospectus for the redemption of Fund shares. The amount of
the redemption shall not exceed $50,000 and the proceeds are
to be payable to the shareholder of record and mailed to the
address of record. To change this option once established,
written instructions must be received from the shareholder of
record or the current registered representative.
If neither box is checked, the telephone redemption privilege
will be provided automatically.
* There must be a period of at least seven calendar
days between each investment/withdrawal period.
** This option may not be used if shares are issued in
certificate form.
7. SPECIAL PAYEE
A. MAILING ADDRESS
Please send all disbursements to this special payee:
Name of Bank or Individual
Account Number (If Applicable)
Street
City/State/Zip
B. FED WIRE / E.F.T. INFORMATION
Financial Institution
ABA #
Account #
Street
City/State/Zip
(Please attach a voided check)
8. SIGNATURES
Investors should be aware that the failure to check the "No" under
Section 6D or 6E above means that the Telephone Exchange/Redemption
Privileges will be provided. The Fund employs reasonable procedures
that require personal identification prior to acting on
exchange/redemption instructions communicated by telephone to confirm
that such instructions are genuine. In the absence of such procedures,
the Fund may be liable for any losses due to unauthorized or fraudulent
telephone instructions. Please see "How to Exchange Your Fund Shares"
and "How to Redeem Your Fund Shares" in the Prospectus for more
information on these privileges.
I certify to my legal capacity to purchase or redeem shares of the Fund
for my own account or for the account of the organization named in
Section 1. I have received a current Prospectus and understand its
terms are incorporated in this application by reference. I am
certifying my taxpayer information as stated in Section 2.
THE INTERNAL REVENUE SERVICE DOES NOT REQUIRE YOUR CONSENT TO ANY
PROVISION OF THIS DOCUMENT OTHER THAN THE CERTIFICATIONS REQUIRED TO
AVOID BACKUP WITHHOLDING.
------------------------------
Signature of Owner, Custodian, Date
Trustee or Corporate Officer
------------------------------
Signature of Joint Owner, Date
Co-Trustee or Corporate Officer
(Remember to sign Section 8)
<PAGE>
[Back Cover Page]
HOW TO RECEIVE MORE INFORMATION ABOUT THE FUND
Additional information about the Fund and its investments is contained in the
Fund's Statement of Additional Information dated April ___, 1999 (the "SAI"),
which is incorporated by reference into this Prospectus, and the Fund's annual
and semi-annual reports to shareholders. The Fund's annual report includes a
discussion of the market conditions and investment strategies that significantly
affected the Fund's performance during its most recent fiscal year. The SAI and
the Fund's annual and semi-annual reports are available upon request and without
charge from the Distributor at the following address and phone number:
Ivy Mackenzie Distributors, Inc.
Via Mizner Financial Plaza
700 South Federal Highway
Boca Raton, Florida 33432
(800) 456-5111
Information about the Fund (including the SAI and the Fund's annual and
semi-annual reports) may also be reviewed and copied at the SEC's Public
Reference Room in Washington, D.C. (please call 1-800-SEC-0330 for further
details). Information about the Fund is also available on the SEC's Internet
Website (www.sec.gov), and copies of this information may be obtained, upon
payment of a copying fee, by writing the Public Reference Section of the SEC,
Washington, D.C. 20549-6009.
SHAREHOLDER INQUIRIES
Please call Ivy Mackenzie Services Corp., the Fund's transfer agent, at
1-800-777-6472 regarding any other inquiries about the Fund.
Investment Company Act File No. 811-1028
<PAGE>
[Front Cover Page]
PROSPECTUS April ___, 1999
IVY FUND - Ivy Bond Fund
Ivy Fund (the "Trust") is a registered open-end investment company currently
consisting of nineteen separate portfolios. This Prospectus relates to the Class
A, Class B, Class C, Class I and Advisor Class shares of Ivy Bond Fund (the
"Fund"). No other shares are offered in this Prospectus.
The Securities and Exchange Commission has not approved or disapproved these
securities or passed upon the adequacy of this Prospectus. Any representation to
the contrary is a criminal offense.
[Insert all logos]
<PAGE>
TABLE OF CONTENTS
SUMMARY
ADDITIONAL INFORMATION ABOUT INVESTMENT STRATEGIES AND RISKS
MANAGEMENT
SHAREHOLDER INFORMATION
ACCOUNT APPLICATION
HOW TO RECEIVE MORE INFORMATION ABOUT THE FUND
SHAREHOLDER INQUIRIES
<PAGE>
SUMMARY
Investment The Fund seeks a high level of current income.
objective:
Principal The Fund normally invests at least 65% of its total assets in
investment grade corporate bonds investment and U.S. Government securities
strategies: that mature in more than 13 months. The Fund may invest up to 35%
of its net assets in low-rated debt securities (commonly
referred to as "high yield" or "junk" bonds). Other securities
and investment techniques that the Fund's manager considers
important in achieving the Fund's investment objective (or in
controlling the Fund's exposure to risk) include:
zero coupon bonds;
securities acquired on a "when-issued" basis; and
derivative transactions (such as options, futures and
forward foreign currency contracts).
Principal The main risks to which the Fund is exposed in
risks: carrying out its investment strategies are the following:
Management risk: The Fund's manager might not select
securities that perform as well as the securities held by
other mutual funds with investment objectives that are
similar to those of the Fund.
Debt security risk: The value of debt instruments generally
rises and falls inversely with fluctuations in interest
rates. The Fund's debt security investments are susceptible
to decline in a rising interest rate environment even where
"management risk" is not a factor, so you could lose money
if you redem your Fund shares at a time when the Fund's debt
portfolio is not performing as well as expected. The market
value of debt securities also tends to vary according to the
relative financial condition of the issuer. As much as 35%
of the Fund's debt security holdings may be considered below
investment grade (commonly referred to as "high yield" or
"junk" bonds). Low-rated debt securities can provide higher
yields due to the increased risk that the issuer will be
unable to meet its obligations on interest or principal
payments at the time called for by the debt instrument. For
this reason, however, these bonds are considered speculative
and could significantly weaken the Fund's returns if the
issuer defaults on its payment obligations.
Foreign security and emerging market risk: The Fund may
invest up to 20% of its net assets in foreign issuers.
Investing in foreign securities involves a number of
economic, financial and political considerations that are
not associated with the U.S. markets and that could affect
the Fund's performance favorably or unfavorably, depending
upon prevailing conditions at any given time. Among these
potential risks are:
greater price volatility;
comparatively weak supervision and regulation of securities exchanges,
brokers and issuers;
higher brokerage costs;
fluctuations in foreign currency exchange rates and related conversion
costs;
adverse tax consequences; and
settlement delays.
The risks of investing in foreign securities are more acute
in countries with developing economies.
Derivatives risk: The Fund may, but is not required to, use
a range of derivative investment techniques to hedge various
market risks (such as interest rates, currency exchange
rates, and broad or specific equity or fixed-income market
movements) or to enhance potential gain. The use of these
derivative investment techniques involves a number of risks,
including the possibility of default by the counterparty to
the transaction and, to the extent the judgment of the
Fund's manager as to certain market movements is incorrect,
the risk of losses that are greater than if the derivative
technique(s) had not been used.
Who should invest:* The Fund may be appropriate for investors seeking
current income, but who can accept moderate fluctuations in
capital value in the short-term.
* You should consult with your financial advisor before deciding whether
the Fund is an appropriate investment choice in light of your
particular financial needs and risk tolerance.
<PAGE>
Performance Bar Chart and Table:
The information in the following chart and table provides some
indication of the risks of investing in the Fund by showing changes in
the Fund's performance from year to year and how the Fund's average
annual returns since its inception on September 6, 1985 compare with
those of a broad measure of market performance. The Fund's past
performance is not an indication of how the Fund will perform in the
future.
Annual Total Returns for Class A Shares as of December 31, 1998:*
- -------------------------------------------------------------------
1989(a) 1990(a) 1991(a) 1992(a) 1993(a) 1994(a) 1994(b) 1995 1996 1997 1998
* Any applicable sales charges and account fees are not
reflected, and if they were the returns shown above would be
lower. The returns for the Fund's other four classes of shares
during these periods were different from those of Class A
because of variations in their respective expense structures.
Best quarter: ______% (Q__ 199__)
Worst quarter: ______% (Q__ 199__)
Average Annual Total Returns (for the periods ending December 31, 1998):*
Past year: Past 5 years: Past 10 years: Since inception:**
--------- ------------ ------------- ---------------
Class A: ______% ______% ______% ______%
Class B: ______% ______% N/A ______%
Class C: ______% N/A N/A ______%
Class I:*** N/A N/A N/A N/A
Advisor Class: ______% N/A N/A ______%
[Index]: ______% ______% ______% ______%
* Performance figures reflect any applicable sales charges.
** The inception dates for the Fund's five classes of shares were
as follows: Class A, September 6, 1985; Class B and Class I,
April 1, 1994; Class C, April 30, 1996; and Advisor Class,
January 1, 1998.
*** The Fund has had no outstanding Class I shares.
Fees and Expenses:
The following tables describe the fees and expenses that you may pay if
you buy and hold shares of the Fund:
Shareholder Fees (fees paid directly from your investment):
Maximum Sales Charge (Load) Imposed on Maximum Deferred Sales
Purchases (as a percentage of Charge (Load) (as a
offering price): percentage of original
purchase price):
Class A: 4.75% none
Class B: none 5.00%
Class C: none 1.00%
Class I: none none
Advisor none none
Class:
Annual Fund Operating Expenses (expenses that are deducted from Fund
assets):
Management Distribution and/or Other Total Annual Fund
Fees:* Service (12b-1) Fees: Expenses: Operating Expenses:
Class A: 0.75% .25% $_______ $_______
Class B: 0.75% 1.00% $_______ $_______
Class C: 0.75% 1.00% $_______ $_______
Class I:** 0.75% none $_______ $_______
Advisor 0.75% none $_______ $_______
Class:
* Management Fees are reduced to .50% for net assets over $100 million.
** The Fund has had no outstanding Class I shares.
<PAGE>
Example:
The following example is intended to help you compare the cost of
investing in the Fund with the cost of investing in other mutual funds.
The example assumes that you invest $10,000 in the Fund for the time
periods indicated and then redeem all of your shares at the end of
those periods (with additional information shown for Class B and Class
C shares based on the assumption that you do not redeem your shares at
that time). The example also assumes that your investment has a 5%
return each year and that the Fund's operating expenses remain the
same. Although your actual costs may be higher or lower, based on these
assumptions your costs would be as follows:
1 Year: 3 Years: 5 Years: 10 Years:
------ ------- ------- --------
Class A: $______ $______ $______ $______
Class B: $______ $______ $______ $______
Class B (no redemption): $______ $______ $______ $______
Class C: $______ $______ $______ $______
Class C (no redemption): $______ $______ $______ $______
Class I $______ $______ $______ $______
Advisor Class: $______ $______ $______ $______
<PAGE>
ADDITIONAL INFORMATION ABOUT INVESTMENT STRATEGIES AND RISKS
Principal strategies:
The Fund seeks to achieve its investment objective of a high level of
current income by investing primarily in investment grade corporate
bonds (which are rated Baa or higher by Moody's or BBB or higher by
S&P) and U.S. Government securities that mature in more than 13 months.
The Fund may invest up to 35% of its net assets in low-rated debt
securities (commonly referred to as "high yield" or "junk" bonds). As
much as 20% of the Fund's portfolio may be invested in foreign
securities.
The Fund's manager focuses its investment efforts on corporate bonds
with stable or improving credit profiles. Individual securities are
selected on the basis of factors such as comparative yields and credit
quality, and where appropriate, country-specific currency and interest
rate trends.
Principal risks:
General market risk: As with any mutual fund, the value of the Fund's
investments and the income they generate will vary daily and generally
reflect market conditions, interest rates and other issuer-specific,
political or economic developments. The Fund's share value will
decrease at any time during which its security holdings or other
investment techniques are not performing as well as anticipated, and
you could therefore lose money by investing in the Fund depending upon
the timing of your initial purchase and any subsequent redemption.
Other risks: Since the Fund invests heavily in domestic and foreign
debt instruments, the Fund is more susceptible to the risks associated
with these types of securities than a fund that is more diversified in
its holdings. Following is a description of these risks, along with the
risks commonly associated with the other securities and investment
techniques that the Fund's portfolio manager considers important in
achieving the Fund's investment objective or in managing the Fund's
exposure to risk (and that could therefore have a significant effect on
the Fund's returns). Other investment techniques that the Fund may use,
but that do not play a key role in the Fund's overall investment
strategy, are described in the Fund's Statement of Additional
Information (see back cover page for information on how you can receive
a free copy).
Debt Securities: Investing in debt securities involves both
interest rate and credit risk. Generally, the value of debt
instruments rises and falls inversely with fluctuations in
interest rates. For example, as interest rates decline the value
of debt securities generally increases. Conversely, rising
interest rates tend to cause the value of debt securities to
decrease. The Fund's portfolio is therefore susceptible to the
decline in value of the debt instruments it holds in a rising
interest rate environment. The market value of debt securities
also tends to vary according to the relative financial condition
of the issuer. Bonds with longer maturities tend to be more
volatile than bonds with shorter maturities.
The Fund may at any given time invest a significant portion of
its assets in low-rated debt securities (sometimes referred to as
"high yield" or "junk" bonds). In general, low-rated debt
securities offer higher yields due to the increased risk that the
issuer will be unable to meet its obligations on interest or
principal payments at the time called for by the debt instrument.
For this reason, these bonds are considered speculative and could
significantly weaken the Fund's returns.
The Fund may also invest in zero coupon bonds, which are debt
obligations issued without any requirement for the periodic
payment of interest (and are issued at a significant discount from
face value). Because the income from zero coupon bonds is
recognized currently, for Federal income tax purposes, in the
amount of the unpaid, accrued interest and the Fund generally
would be required to distribute dividends representing that income
to shareholders currently (even though the Fund has not actually
received any income proceeds), the Fund could be forced to sell
other portfolio securities at a disadvantageous time and/or price
in order to meet its distribution obligations.
Foreign Securities: Investing in foreign securities involves a
number of economic, financial and political considerations that
are not associated with the U.S. markets and that could affect the
Fund's performance favorably or unfavorably, depending upon
prevailing conditions at any given time. For example, the
securities markets of many foreign countries may be smaller, less
liquid and subject to greater price volatility than those in the
U.S. Foreign investing may also involve brokerage costs and tax
considerations that are not usually present in the U.S. markets.
Other factors that can affect the value of the Fund's foreign
investments include the comparatively weak supervision and
regulation by some foreign governments of securities exchanges,
brokers and issuers, and the fact that many foreign companies may
not be subject to uniform accounting, auditing and financial
reporting standards. It may also difficult to obtain reliable
information about the securities and business operations certain
foreign issuers. Settlement of portfolio transactions may also be
delayed due to local restrictions or communication problems, which
can cause the Fund to miss attractive investment opportunities or
impair its ability to dispose of securities in a timely fashion
(resulting in a loss if the value of the securities subsequently
declines).
Special Emerging Market Concerns: The risks of investing in foreign
securities are heightened in countries with developing economies. Among
these additional risks are the following:
securities that are even less liquid and more volatile than those in
more developed foreign countries;
less stable governments that are susceptible to sudden
adverse actions (such as nationalization of businesses,
restrictions on foreign ownership or prohibitions against
repatriation of assets);
increased settlement delays;
abrupt changes in exchange rate regime or monetary policy;
restrictions on repatriation of capital;
unusually large currency fluctuations and currency conversion costs
(see "Foreign Currencies" below); and
high national debt levels (which may impede an issuer's
payment of principal and/or interest on external debt).
Foreign Currencies: Investing in foreign securities can involve the
use of foreign currencies. The value of the Fund's assets, as measured in
U.S. dollars, may be affected favorably or unfavorably by changes in
foreign currency exchange rates and exchange control regulations. Currency
conversions can also be costly.
Derivative Investment Techniques: The Fund may, but is not
required to, use certain derivative investment techniques to hedge
various market risks (such as interest rates, currency exchange
rates and broad or specific market movements) or to enhance
potential gain. Among the derivative techniques the Fund might use
are options, futures and forward foreign currency contracts.
Using put and call options could cause the Fund to lose money by
forcing the sale or purchase of portfolio securities at
inopportune times or for prices higher (in the case of put
options) or lower (in the case of call options) than current
market values, by limiting the amount of appreciation the Fund can
realize on its investments, or by causing the Fund to hold a
security it might otherwise sell.
Futures transactions (and related options) involve other types of
risks. For example, the variable degree of correlation between
price movements of futures contracts and price movements in the
related portfolio position of the Fund could cause losses on the
hedging instrument that are greater than gains in the value of the
Fund's position. In addition, futures and options markets may not
be liquid in all circumstances and certain over-the-counter
options may have no markets. As a result, the Fund might not be
able to close out a transaction before expiration without
incurring substantial losses (and it is possible that the
transaction cannot even be closed). In addition, the daily
variation margin requirements for futures contracts would create a
greater ongoing potential financial risk than would purchases of
options, where the exposure is limited to the cost of the initial
premium.
Using forward foreign currency contracts involves the risk that
there may be an imperfect correlation between the Fund's portfolio
holdings of securities denominated in a particular currency and
the forward contracts entered into by the Fund. An imperfect
correlation of this type may prevent the Fund from achieving the
intended hedge or expose the Fund to the risk of currency exchange
loss.
Illiquid Securities: The Fund may invest up to 15% of its net
assets in "illiquid securities," which are assets that may not be
disposed of in the ordinary course of business within seven days
at roughly the value at which the Fund has valued the assets. Some
of these may by "restricted securities," which cannot be sold to
the public without registration under the Securities Act of 1933
(in the absence of an exemption) or because of other legal or
contractual restrictions on resale. Thus, while illiquid
securities may offer the potential for higher returns than more
readily marketable securities, there is a risk that the Fund will
not be able to dispose of them promptly at an acceptable price.
"When-Issued Securities": Buying a security on a "when-issued" or
firm commitment basis involves the risk that the security will
lose value before the settlement date.
Temporary Defensive Positions: The Fund may from time to time
take a temporary defensive position and invest without limit in
U.S. Government securities, investment-grade debt securities, and
cash and cash equivalents such as commercial paper, short-term
notes and other money market securities. When the Fund assumes
such a defensive position it may not achieve its investment
objective.
Borrowing: For temporary or emergency purposes (such as meeting
shareholder redemption requests within the time periods specified
under the Investment Company Act of 1940), the Fund may borrow up
to 10% of the value of its total assets from qualified banks.
Borrowing may exaggerate the effect on the Fund's share value of
any increase or decrease in the value of the securities it holds.
Money borrowed will also be subject to interest costs.
Other Important Information:
European Monetary Union: On January 1, 1999, a new European currency
called the "Euro" was introduced and adopted for use by eleven European
countries. The transition to daily usage of the Euro, including
circulation of Euro bills and coins, will occur during the period from
January 1, 1999 through December 31, 2001. Certain European Union (EU)
members, including the United Kingdom, did not officially implement the
Euro on January 1, 1999 and may cause market disruptions when and if
they decide to do so. Where this occurs, the Fund could experience
investment losses.
Year 2000 Risks: Many computer software and hardware systems in use
today cannot distinguish between the year 2000 and the year 1900
because of the way dates are encoded and calculated (the "Year 2000
Problem"). The inability of computer-based systems to make this
distinction could have a seriously adverse effect on the handling of
securities trades, pricing and account services worldwide. The Fund's
service providers are taking steps that each believes are reasonably
designed to address the Year 2000 Problem with respect to the computer
systems that they use. The Fund believes these steps will be sufficient
to avoid any material adverse impact on the Fund. At this time,
however, there can be no assurance that significant problems will not
occur (which either directly or indirectly may cause the Fund to lose
money).
MANAGEMENT
Investment Advisor:
Ivy Management, Inc. ("IMI"), located at Via Mizner Financial Plaza,
700 South Federal Highway, Boca Raton, Florida 33432, provides
investment advisory and business management services to the Fund. IMI
is an SEC-registered investment advisor with over $____ billion in
assets under management, and provides similar services to the other
eighteen series of the Trust. For the Fund's fiscal year ending
December 31, 1998, the Fund paid to IMI a fee equal to ___% of the
Fund's average net assets.
Portfolio Management:
The Fund is managed by IMI's Fixed Income Team. Among the research
sources and techniques that team members use during the investment
decisionmaking process are:
issuer financial statements;
discussions with company managers and Wall Street analysts;
credit rating agency opinions; and
various financial publications.
<PAGE>
SHAREHOLDER INFORMATION
PRICING OF FUND SHARES:
The Fund calculates its share price by dividing the value of the Fund's
net assets by the total number of its shares outstanding as of the
close of regular trading (usually 4:00 p.m. Eastern time) on the New
York Stock Exchange on each day the Exchange is open for trading
(normally any weekday that is not a national holiday).
Each portfolio security that is listed or traded on a recognized stock
exchange is valued at the security's last sale price on the exchange
on which it was purchased. If no sale is reported at that time, the
average between the last bid and asked prices is used. Securities and
other Fund assets for which market prices are not readily available
are priced at their "fair value" as determined by IMI in accordance
with procedures approved by the Fund's Board of Trustees. IMI may also
price a foreign security at its "fair value" if events materially
affecting the value of the security occur between the close of the
foreign exchange on which the security is principally traded and the
time as of which the Fund prices its shares. Fair value pricing under
these circumstances is designed to protect existing shareholders from
dilution of their share value caused by short-term investors trading
into and out of the Fund at at time when the Fund's share price,
calculated by ordinary pricing methods, is undervalued. When such fair
value pricing occurs, however, there may be some period of time during
which the Fund's share price and/or performance information is not
available.
The number of shares you receive when you place a purchase order, and
the payment you receive after submitting a redemption request, is based
on the Fund's net asset value next determined after your instructions
are received in proper form by Ivy Mackenzie Services Corp. (the Fund's
transfer agent) or by your registered securities dealer. Each purchase
and redemption order is subject to any applicable sales charge (see
"Distribution Arrangements" below). Since the Fund may invest in
securities that are listed on foreign exchanges that may trade on
weekends or other days when the Fund does not price its shares, the
Fund's share value may change on days when shareholders will not be
able to purchase or redeem the Fund's shares.
HOW TO BUY SHARES:
Purchasing Fund shares involves "Choosing the Appropriate Class of
Shares" and "Submitting Your Purchase Order". Please read these
sections below carefully before investing.
Choosing the Appropriate Class of Shares - The essential features of
the Fund's different classes of shares are described below. If you do
not specify on your Account Application which class of shares you are
purchasing, it will be assumed that you are purchasing Class A shares.
The Fund has adopted separate distribution plans pursuant to Rule
12b-1 under the 1940 Act for its Class A, B and C shares that allow
the Fund to pay distribution and other fees for the sale and
distribution of its shares and for services provided to shareholders.
Because these fees are paid out of the Fund's assets on an on-going
basis, over time they will increase the cost of your investment and
may cost you more than paying other types of sales charges.
Class A Shares: Class A shares are sold at net asset value
plus a maximum sales charge of 4.75% (the "offering price"). The
sales charge may be reduced or eliminated if certain conditions
are met (see "Additional Purchase Information" below). Class A
shares are subject to a .25% Rule 12b-1 service fee.
Class B Shares: Class B shares are offered at net asset value,
without an initial sales charge, but subject to a contingent
deferred sales charge ("CDSC") that declines from 5% to zero on
certain redemptions within six years of purchase. Class B shares
are subject to a .75% Rule 12b-1 distribution fee and a .25% Rule
12b-1 service fee, and convert automatically into Class A shares
eight years after purchase.
Class C Shares: Class C shares are offered at net asset value,
without an initial sales charge, but subject to a CDSC of 1% for
redemptions within the first year of purchase. Class C shares are
subject to a .75% Rule 12b-1 distribution fee and a .25% Rule
12b-1 service fee.
Class I and Advisor Class Shares: Class I and Advisor Class
shares are offered to certain classes of investors at net asset
value, without any sales load or Rule 12b-1 fees.
The following table displays the various investment minimums, sales
charges and expenses that apply to each class.
<TABLE>
<S> <C> <C> <C> <C> <C>
- ------------------- ------------------ ----------------- ------------------ -------------- --------------
Class A Class B Class C Class I Advisor Class
- -------------------- ------------------ ----------------- ------------------ -------------- --------------
- -------------------- ------------------ ----------------- ------------------ -------------- --------------
Minimum Initial $5,000,000 $10,000
Investment* $1,000 $1,000 $1,000
- -------------------- ------------------ ----------------- ------------------ -------------- --------------
- -------------------- ------------------ ----------------- ------------------ -------------- --------------
Minimum Subsequent
Investment* $100 $100 $100 $ 10,000 $ 250
- -------------------- ------------------ ----------------- ------------------ -------------- --------------
- -------------------- ------------------ ----------------- ------------------ -------------- --------------
Initial Sales Maximum 4.75%, None None None None
Charge with options for
a reduced or
waiver of
initial sales
charge
- -------------------- ------------------ ----------------- ------------------ -------------- --------------
- -------------------- ------------------ ----------------- ------------------ -------------- --------------
CDSC None, except on Maximum 5.00%, 1.00% for the None None
certain NAV declines over first year
purchases six years
- -------------------- ------------------ ----------------- ------------------ -------------- --------------
- -------------------- ------------------ ----------------- ------------------ -------------- --------------
Service and 0.25% Service fee 0.75% 0.75% None None
Distribution Fees Distribution Distribution Fee
Fee and 0.25% and 0.25%
Service Fee Service Fee
- -------------------- ------------------ ----------------- ------------------ -------------- --------------
</TABLE>
* Minimum initial and subsequent investments for retirement plans are $25.
ADDITIONAL PURCHASE INFORMATION:
Class A Shares - Class A shares are sold at a public offering
price equal to their net asset value per share ("NAV") plus an
initial sales charge, as set forth below (which is reduced as the
amount invested increases):
<TABLE>
<S> <C> <C> <C>
- -------------------------------- ---------------------- ------------------ ----------------------
Sales Charge as a Sales Charge as Portion of Public
Percentage of Public a Percentage of Offering Price
Offering Price Net Amount Retained by Dealer
Amount Invested Invested
- -------------------------------- ---------------------- ------------------ ----------------------
- -------------------------------- ---------------------- ------------------ ----------------------
Less than $50,000 4.75% 6.10% 5.00%
- -------------------------------- ---------------------- ------------------ ----------------------
- -------------------------------- ---------------------- ------------------ ----------------------
$50,000 but less than $100,000 % 5.54% 4.50%
- -------------------------------- ---------------------- ------------------ ----------------------
- -------------------------------- ---------------------- ------------------ ----------------------
$100,000 but less than $250,000 % 4.71% 3.75%
- -------------------------------- ---------------------- ------------------ ----------------------
- -------------------------------- ---------------------- ------------------ ----------------------
$250, 000 but less than % 3.09% 2.50%
$500,000
- -------------------------------- ---------------------- ------------------ ----------------------
$500,000 or over* % 0.00% 0.00%
- -------------------------------- ---------------------- ------------------ ----------------------
</TABLE>
* A CDSC of 1.00% applies to Class A shares that are redeemed
within two years of the end of the month in which they were
purchased.
Class A shares that are acquired through reinvestment of dividends
or distributions are not subject to any sales charges.
HOW TO REDUCE YOUR INITIAL SALES CHARGE:
"Rights of Accumulation" permits you to pay the sales charge
that applies to the cost or value (whichever is higher) of all
Ivy Fund Class A shares you own.
A "Letter of Intent" permits you to pay the sales charge that
would apply to your cumulative purchase of Fund shares over a
13-month period (certain restrictions apply).
HOW TO ELIMINATE YOUR INITIAL SALES CHARGE:
You may purchase Class A shares at NAV (without an initial sales
charge or a CDSC) through any one of the following methods:
through certain investment advisors and financial planners who charge
a management, consulting or other fee for their services;
under certain qualified retirement plans;
as an employee or director of Mackenzie Investment Management Inc. or
its affiliates;
as an employee of a selected dealer; or
through the Merrill Lynch Daily K Plan (the "Plan"), provided
the Plan has at least $3 million in assets or over 500 or more
eligible employees. Class B shares of the Fund are made
available to Plan participants at NAV without a CDSC if the
Plan has less than $3 million in assets or fewer than 500
eligible employees. For further information see "Group
Systematic Investment Program" in the SAI.
You may also purchase Class A shares at NAV if you are investing
at least $500,000 through a dealer or agent. Ivy Mackenzie
Distributors, Inc. ("IMDI"), the Fund's distributor, may pay the
dealer or agent (out of IMDI's own resources) for its distribution
assistance according to the following schedule:
------------------------------ -------------------------------
Purchase Amount Commission
------------------------------ -------------------------------
------------------------------ -------------------------------
First $3,000,000 1.00%
------------------------------ -------------------------------
------------------------------ -------------------------------
Next $2,000,000 0.50%
------------------------------ -------------------------------
------------------------------ -------------------------------
Over $5,000,000 0.25%
------------------------------ -------------------------------
Certain trust companies, bank trust departments, credit unions,
savings and loans and other similar organizations may also be
exempt from the initial sales charge on Class A shares.
Class B and Class C Shares - Class B and Class C shares are not
subject to an initial sales charge but are subject to a CDSC. If
you redeem your Class C shares within one year of purchase they
will be subject to a CDSC of 1%, and Class B shares redeemed
within six years of purchase will be subject to a CDSC at the
following rates:
--------------------- --------------------
CDSC as a
Percentage of
Year Since Purchase Dollar Amount
Subject to Charge
--------------------- --------------------
First 5%
--------------------- --------------------
--------------------- --------------------
Second 4%
--------------------- --------------------
--------------------- --------------------
Third 3%
--------------------- --------------------
--------------------- --------------------
Fourth 3%
--------------------- --------------------
--------------------- --------------------
Fifth 2%
--------------------- --------------------
--------------------- --------------------
Sixth 1%
--------------------- --------------------
--------------------- --------------------
Seventh and 0%
thereafter
--------------------- --------------------
The CDSC for both Class B and Class C shares will be assessed on
an amount equal to the lesser of the current market value or the
original purchase cost of the shares being redeemed. No charge
will be assessed on increases in account value above the original
purchase price or on reinvested dividends and distributions.
The CDSC for Class B shares is waived for:
Certain post-retirement withdrawals from an IRA or other
retirement plan if you are over 59 1/2 years old.
Redemptions by certain eligible 401(a) and 401(k) plans and
certain retirement plan rollovers.
Redemption resulting from a tax-free return of excess
contribution to an IRA.
Withdrawals resulting from shareholder death or disability
provided that the redemption is requested within one year of
death or disability.
Withdrawals through the Systematic Withdrawal Plan of up to
12% per year of your account value at the time the plan is
established.
Both Class B shares and Class C shares are subject to an ongoing
service and distribution fee at a combined annual rate of up to
1.00% of the portfolio's average net assets attributable to its
Class B or Class C shares. The ongoing distribution fees will
cause these shares to have a higher expense ratio than that of
Class A, Class I and Advisor Class shares. IMDI uses the money
that it receives from the deferred sales charge and the
distribution fees to cover various promotional and sales related
expenses, as well as expenses related to providing distributions
services, such as compensating selected dealers and agents for
selling these shares.
Approximately eight years after the original date of purchase,
your Class B shares will be converted automatically to Class A
shares. Class A shares are subject to lower annual expenses than
Class B shares. The conversion from Class B shares to Class A
shares is not considered a taxable event for federal income tax
purposes. Class C shares do not have a similar conversion
privilege.
Class I and Advisor Class - Class I and Advisor Class shares are
offered only to institutions and certain individuals, and are not
subject to an initial sales charge or a CDSC, nor to ongoing
service or distribution fees. Class I shares also bear lower fees
than Class A, Class B, Class C and Advisor Class shares.
SUBMITTING YOUR PURCHASE ORDER:
INITIAL INVESTMENTS:
Complete and sign the Account Application appearing at the end of this
Prospectus. Enclose a check payable to Ivy Fund (see page [XX] for
minimum initial investments.) Deliver your application materials to
your registered representative or selling broker, or send them to one
of the addresses below:
By Regular Mail: By Courier:
Ivy Mackenzie Services Corp. Ivy Mackenzie Services Corp.
P.O. Box 3022 700 South Federal Hwy.
Boca Raton, FL 33431-0922 Boca Raton, FL 33432
BUYING ADDITIONAL SHARES:
There are several ways to increase your investment in the Fund:
By Mail - Send your check with a completed investment slip
(attached to your account statement) or written instructions
indicating the account registration, fund number or name, and
account number.
Mail to one of the addresses above.
Through Your Broker - Deliver to your registered representative
or selling broker the investment slip attached to your statement,
or written instructions, along with your payment.
By Wire - Purchases may also be made by wiring money from your
bank account to your Ivy account. Your bank may charge a fee for
wiring funds. Before wiring any funds, please call IMSC at (800)
777-6472. Wiring instructions are as follows:
First Union National Bank of Florida
Jacksonville, FL
ABA #063000021 Account
#2090002063833 For further credit
to:
Your Ivy Fund Account Number
Your Fund Number and Account Number
By Automatic Investment Method - You can authorize to have funds
electronically drawn each month from your bank account and
invested as a purchase of shares into your Ivy Fund account.
Complete sections [XX] and [XX] of the Account Application.
HOW TO REDEEM SHARES:
SUBMITTING YOUR REDEMPTION ORDER:
You may redeem your Fund shares through your registered securities
dealer or directly through IMSC. If you choose to redeem through your
registered securities dealer, the dealer is responsible for properly
transmitting redemption orders in a timely manner. If you choose to
redeem directly through IMSC, you have several ways to submit your
request:
By Mail - Send your written redemption request to IMSC at one of
the addresses on page XX of this Prospectus. Be sure that all
registered owners listed on the account sign the request.
Signature guarantees and supporting legal documentation may be
required. When you redeem, IMSC will normally send redemption
proceeds to you on the next business day, but may take up to seven
days (or longer in the case of shares recently purchased by
check).
By Telephone - Call IMSC at (800) 777-6472 to redeem from your
account. In order to process your redemption order by telephone,
you must have telephone redemption privileges on your account.
IMSC employs reasonable procedures that require personal
identification prior to acting on redemption instructions
communicated by telephone to confirm that such instructions are
genuine. In the absence of such procedures, the Fund or IMSC may
be liable for any losses due to unauthorized or fraudulent
telephone instructions.
By Systematic Withdrawal Plan (SWP) - You can authorize to have
funds electronically drawn each month from your Ivy Fund account
and deposited directly into your bank account. Certain minimum
balances and minimum distributions apply. Complete sections XX of
the Account Application to add this feature to your account.
Receiving Your Redemption Proceeds - You can receive redemption
proceeds through a variety of payment methods:
By Check - Unless otherwise instructed, checks will be made
payable to the current account registration and sent to the
address of record.
By Federal Funds Wire - Proceeds will be wired on the next
business day to a pre-designated bank account. Requests by
telephone can only be accepted for amounts up to $50,000. Your
account will be charged $10 each time redemption proceeds are
wired to your bank, and your bank may also charge you a fee for
receiving a Federal Funds wire.
By Electronic Funds Transfer - For SWP redemptions only.
Important Redemption Information:
A CDSC may apply to certain Class A share redemptions, to Class B
shares redeemed within six years of purchase, and to Class C
shares that are redeemed within one year of purchase.
All redemptions are made at the NAV next determined after a
redemption request has been received in good order. Requests for
redemptions must be received by 4:00 p.m. Eastern time to be
processed at the NAV for that day. Any redemption request in good
order that is received after 4:00 p.m. Eastern time will be
processed at the price determined on the following business day.
If you own shares of more than one class of the Fund, the Fund
will redeem first the shares having the highest 12b-1 fees.
Any shares subject to a CDSC will be redeemed last unless you
specifically elect otherwise.
The Fund may (on 60 days' notice) redeem the accounts of
shareholders whose investment, including sales charges paid, has
been less than $1,000 for more than 12 months.
The Fund may take up to seven days (or longer in the case of
shares recently purchased by check) to send redemption proceeds.
The Fund may make payment for redeemed shares in the form of
securities of the Fund taken at current values.
HOW TO EXCHANGE YOUR FUND SHARES:
You may exchange your Fund shares for shares of another Ivy fund,
subject to certain restrictions (see "Important Exchange Information"
below).
Submitting Your Exchange Order - You may submit an exchange request to
IMSC as follows:
By Mail - Send your written exchange request to IMSC at one of
the addresses on page XX of this Prospectus. Be sure that all
registered owners listed on the account sign the request.
By Telephone - Call IMSC at (800) 777-6472 to authorize an
exchange transaction. In order to process your exchange order by
telephone, you must have telephone exchange privileges on your
account. IMSC employs reasonable procedures that require personal
identification prior to acting on exchange instructions
communicated by telephone to confirm that such instructions are
genuine. In the absence of such procedures, the Fund or IMSC may
be liable for any losses due to unauthorized or fraudulent
telephone instructions.
IMPORTANT EXCHANGE INFORMATION:
You must exchange into the same share class you currently own.
Exchanges are considered taxable events and may result in a
capital gain or a capital loss for tax purposes.
It is the policy of the Fund to discourage the use of the
exchange privilege for the purpose of timing short-term market
fluctuations. The Fund may therefore limit the frequency of
exchanges by a shareholder or cancel a shareholder's exchange
privilege if at any time it appears that such market timing
strategies are being used.
DIVIDENDS AND DISTRIBUTIONS:
The Fund generally declares and pays dividends and capital gain
distributions (if any) at least once a year.
Dividends and distributions are "reinvested" in additional Fund
shares unless you request to receive them in cash.
Reinvested dividends and distributions are added to your account
at NAV and are not subject to a CDSC regardless of which share
class you own.
Cash dividends and distributions can be sent to you:
BY MAIL - a check will mailed to the address of record unless
otherwise instructed.
BY ELECTRONIC FUNDS TRANSFER ("EFT") - your proceeds will be
directly deposited into your bank account.
To change your dividend and/or distribution options, call IMSC at
(800) 777-6472.
TAX CONSEQUENCES:
Distributions you receive from the Fund are reinvested in additional
shares of the same class of the Fund unless you elect to receive them
in cash. Dividends ordinarily will vary from one class to another.
The Fund intends to declare and pay dividends monthly. The Fund will
distribute net investment income and net realized capital gains, if
any, at least once a year. The Fund may make an additional distribution
of net investment income and net realized capital gains to comply with
the calendar year distribution requirement under the excise tax
provisions of Section 4982 of the Internal Revenue Code of 1986, as
amended (the "Code").
Dividends paid out of the Fund's investment company taxable income
(including dividends, interest and net short-term capital gains) will
be taxable to you as ordinary income. If a portion of the Fund's income
consists of dividends paid by U.S. corporations, a portion of the
dividends paid by the Fund may be eligible for the corporate
dividends-received deduction. Distributions of net capital gains (the
excess of net long-term capital gains over net short-term capital
losses), if any, are taxable to you as long-term capital gains,
regardless of how long you have held your shares. Dividends are taxable
to you in the same manner whether received in cash or reinvested in
additional Fund shares.
If shares of the Fund are held in a tax-deferred account, such as a
retirement plan, income and gain will not be taxable each year.
Instead, the taxable portion of amounts held in a tax-deferred account
generally will be subject to tax as ordinary income only when
distributed from that account.
A distribution will be treated as paid to you on December 31 of the
current calendar year if it is declared by the Fund in October,
November or December with a record date in such a month and paid by the
Fund during January of the following calendar year.
In certain years, you may be able to claim a credit or deduction on
your income tax return for your share of foreign taxes paid by the
Fund. Upon the sale or other disposition of your Fund shares, you may
realize a capital gain or loss which will be long-term or short-term,
generally depending upon how long you held your shares.
The Fund may be required to withhold U.S. Federal income tax at the
rate of 31% of all distributions payable to you if you fail to provide
the Fund with your correct taxpayer identification number or to make
required certifications, or if you have been notified by the Internal
Revenue Service ("IRS") that you are subject to backup withholding.
Backup withholding is not an additional tax. Any amounts withheld may
be credited against your U.S. Federal income tax liability.
Fund distributions may be subject to state, local and foreign taxes.
You should consult with your tax adviser as to the tax consequences of
an investment in the Fund, including the status of distributions from
the Fund under applicable state or local law.
<PAGE>
IVY BOND FUND(F)
<TABLE>
<CAPTION>
CLASS A
- ------------------------------------------------------------------------------------------------------------------
1998 1997 1996 1995 1994(A) 1994(B)
SELECTED PER SHARE DATA --------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
<C> <C>
Net asset value, beginning of
period............................ $ 9.80 $ 9.78 $ 9.01 $ 9.38 $ 10.34
-------- -------- -------- -------- --------
Income (loss) from investment
operations
Net investment income............ .80 .72 .67(e) .33(e) .63
Net realized and unrealized gain
(loss) on investments........... .42 .03 .84 (.29) (.60)
-------- -------- -------- -------- --------
Total from investment
operations................... 1.22 .75 1.51 .04 .03
-------- -------- -------- -------- --------
Less distributions
From net investment income....... .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........... .80 .73 .74 .41 .99
-------- -------- -------- -------- --------
Net asset value, end of period..... $ 10.22 $ 9.80 $ 9.78 $ 9.01 $ 9.38
======== ======== ======== ======== ========
Total return(%).................... 11.87 8.06 17.41 .43 .00
RATIOS AND SUPPLEMENTAL DATA
Net assets, end of period (in
thousands)........................ $106,497 $ 97,881 $108,840 $110,232 $120,073
Ratio of expenses to average net
assets
With expense reimbursement(%)..... -- -- 1.54 1.50 --
Without expense
reimbursement(%)................. 1.47 1.56 1.54 1.52 1.45
Ratio of net investment income to
average net assets(%)............. 7.08 7.36 7.09(e) 6.92(e) 6.19
Portfolio turnover rate(%)......... 71 90 93 44 78
</TABLE>
<TABLE>
<CAPTION>
CLASS B
-------------------------------------------------------------------------------
1998 1997 1996 1995 1994(A) 1994(C)
SELECTED PER SHARE DATA --------- -------- ------ ------- ------- -------
<S> <C> <C> <C> <C> <C>
<C> <C> <C>
Net asset value, beginning
of period.................. $ 9.80 $ 9.78 $ 9.01 $ 9.38 $ 9.82
------- ------ ------ ------ ------
Income (loss) from
investment operations
Net investment income..... .68 .64 .60(e) .30(e) .10
Net realized and
unrealized gain (loss) on
investments.............. .46 .04 .84 (.29) (.32)
------ ------ ------ ------ ------
Total from investment
operations............ 1.14 .68 1.44 .01 (.22)
------ ------ ------ ------ ------
Less distributions
From net investment
income................... .72 .64 .56 .29 .14
In excess of net
investment income........ -- .02 -- -- --
From net realized gain.... -- -- -- -- .08
In excess of net realized
gain..................... -- -- -- .09 --
From capital paid-in...... -- -- .11 -- --
------- ------ ------ ------ ------
Total distributions.... .72 .66 .67 .38 .22
------- ------ ------ ------ ------
Net asset value, end of
period..................... $ 10.22 $ 9.80 $ 9.78 $ 9.01 $ 9.38
======= ====== ====== ====== ======
Total return(%)............. 11.12 7.25 16.54 .06 (2.24)
RATIOS AND SUPPLEMENTAL DATA
Net assets, end of period
(in thousands)............. $18,499 $5,300 $5,184 $2,420 $ 761
Ratio of expenses to average
net assets
With expense
reimbursement(%).......... -- -- 2.29 2.25 --
Without expense
reimbursement(%).......... 2.21 2.29 2.29 2.27 2.20
Ratio of net investment
income to average net
assets(%).................. 6.35 6.62 6.34(e) 6.17(e) 5.44
Portfolio turnover
rate(%).................... 71 90 93 44 78
</TABLE>
<TABLE>
<CAPTION>
CLASS C
------------------------------------
1998 1997 1996(D)
SELECTED PER SHARE DATA --------- ------- -------
<S>
<C> <C> <C> <C>
Net asset value, beginning
of period.................. $9.82 $ 9.44
------ ------
Income (loss) from
investment operations
Net investment income..... .64 .39
Net realized and
unrealized gain (loss) on
investments.............. .48 .43
------ ------
Total from investment
operations............ 1.12 .82
------ ------
Less distributions
From net investment
income................... .70 .39
In excess of net
investment income........ -- .05
From net realized gain.... -- --
In excess of net realized
gain..................... -- --
From capital paid-in...... -- --
------ ------
Total distributions.... .70 .44
------ ------
Net asset value, end of
period..................... $10.24 $ 9.82
====== ======
Total return(%)............. 11.11 8.81
RATIOS AND SUPPLEMENTAL DATA
Net assets, end of period
(in thousands)............. $6,580 $ 618
Ratio of expenses to average
net assets
With expense
reimbursement(%).......... -- --
Without expense
reimbursement(%).......... 2.20 2.35
Ratio of net investment
income to average net
assets(%).................. 6.35 6.56
Portfolio turnover
rate(%).................... 71 90
</TABLE>
- -----------------
<TABLE>
<S> <C>
(a) For the six months ended December 31, 1994.
(b) For the year ended June 30.
(c) From April 1, 1994 (commencement of operations) to June 30,
1994.
(d) From April 30, 1996 (commencement of operations) to December
31, 1996.
(e) Net investment income is net of expenses reimbursed by
manager.
(f) Since January 1, 1995, Ivy Bond Fund's adviser has been IMI.
Prior to that date, the Fund's adviser was MIMI.
</TABLE>
<PAGE>
ACCOUNT APPLICATION
Please mail applications and checks to: Ivy Mackenzie Services Corp.,
P.O. Box 3022, Boca Raton, FL
33431-0922.
(This application should not be used for retirement accounts for which
Ivy Fund is custodian.)
Account Number:
(Fund Use Only)
Dealer #:
Branch #:
Rep. I.D. #:
Acct. Type:
Soc Cd:
Div Cd:
CG Cd:
Exc Cd:
Red Cd:
1. REGISTRATION
/ / Individual / / Joint Tenant / / Estate / / UGMA/UTMA / /
Corporation / / Partnership / / Sole Proprietor / / Trust / / Other
Date of Trust
Owner, Custodian or Trustee
Co-owner or Minor
Minor's State of Residence
Street
City
State
Zip Code
Phone Number -- Day
Phone Number -- Evening
2. TAX ID
Citizenship: / / U.S. / / Other ________________
Social Security Number
Tax Identification Number
Under penalties of perjury, I certify by signing in Section 8 below
that: (1) the number shown in this section is my correct taxpayer
identification number (TIN), and (2) I am not subject to backup
withholding because: (a) I have not been notified by the Internal
Revenue Service (IRS) that I am subject to backup withholding as a
result of a failure to report all interest or dividends, or (b) the IRS
has notified me that I am no longer subject to backup withholding.
(Cross out item (2) if you have been notified by the IRS that you are
currently subject to backup withholding because of underreporting
interest or dividends on your tax return.) Please see the "Tax
Consequences" section of the Prospectus for additional information on
completing this section.
3. DEALER INFORMATION
The undersigned ("Dealer") agrees to all applicable provisions in this
Application, guarantees the signature and legal capacity of the
Shareholder, and agrees to notify IMSC of any purchases made under a
Letter of Intent or Rights of Accumulation.
Dealer Name
Branch Office Address
City
State
Zip Code
Representative's Name and Number
Representative's Phone Number
Authorized Signature of Dealer
4. INVESTMENTS
A. Enclosed is my check ($1,000 minimum) for $_____________ made
payable to _________________ [Fund Name]. Please invest it in
Class A __ Class B __ Class C __ Class I __or Advisor Class __
shares.
B. I qualify for an elimination of the sales charge due to the
following privilege (applies only to Class A shares):
__ New Letter of Intent (if ROA or 90-day backdate
privilege is applicable, provide account(s)
information below.)
__ ROA with the account(s) listed below.
__ Existing Letter of Intent with account(s) listed
below.
Fund Name(s)
Account Number(s)
If establishing a Letter of Intent, you will need to purchase
Class A shares over a thirteen-month period in accordance with
the provisions in the Prospectus. The Aggregate amount of
these purchases will be at least equal to the amount indicated
below (see Prospectus for minimum amount required for reduced
sales charges).
/ / $50,000
/ / $100,000
/ / $250,000
/ / $500,000
C. FOR DEALER USE
Confirmed trade orders: [Confirm Number, Number of Shares,
Trade Date]
5. DISTRIBUTION OPTIONS
I would like to reinvest dividends and capital gains into additional
shares in this account at net asset value unless a different option is
checked below.
/ / Reinvest all dividends and capital gains into additional shares of a
different Ivy fund. Fund Name Account Number
/ / Pay all dividends in cash and reinvest capital gains into additional
shares in this Fund or a different Ivy fund. Fund Name Account Number
/ / Pay all dividends and capital gains in cash.
I REQUEST THE ABOVE CASH DISTRIBUTION, SELECTED IN C OR D
ABOVE, BE:
/ / Sent to the address listed in the registration.
/ / Sent to the special payee listed in Section 7A / / (By Mail) 7B / /
(By E.F.T.)
6. OPTIONAL SPECIAL FEATURES
A. / / Automatic Investment Method (AIM)
- I wish to invest _________________ / / once per month / /
twice / / 3 times / / 4 times
- My bank account will be debited on the _________ day of the
month
Please invest $___________________ each period starting in the
month of __________________ in
---------------------------.
Fund Name
/ / Class A
/ / Class B
/ / Class C
/ / Class I
/ / Advisor Class
/ / I have attached a voided check to ensure my correct bank
account will be debited.
B. SYSTEMATIC WITHDRAWAL PLANS**
I wish to automatically withdraw funds from my account in
____________________ Fund Name
/ / Monthly / / Quarterly / /Semiannually / / Annually
/ / Once / / Twice / / 3 times / / 4 times per month
I request the distribution be:
/ / Sent to the address listed in the registration.
/ / Sent to the special payee listed in Section 7.
/ / Invested into additional shares of the same class of a different Ivy
fund.
Fund Name
Account Number
Amount $__________________(Minimum $50) starting on or about the
-_______ day of the month
-_______ day of the month
-_______ day of the month*
NOTE: Account minimum: $5,000 in shares at current offering price
C. FEDERAL FUNDS TRANSFER FOR REDEMPTION PROCEEDS**
I authorize the Agent to honor telephone instructions for the
redemption of Fund shares up to $50,000. Proceeds may be wire
transferred to the bank account designated ($1,000 minimum).
(Complete Section 7B)
TELEPHONE EXCHANGES** / / YES / / NO
I authorize exchanges by telephone among the Ivy funds upon
instructions from any person as more fully described in the
Prospectus. To change this option once established, written
instructions must be received from the shareholder of record
or the current registered representative.
If neither box is checked, the telephone exchange privilege
will be provided automatically.
TELEPHONIC REDEMPTIONS** / / YES / / NO
The Fund or its agents are authorized to honor telephone
instructions from any person as more fully described in the
Prospectus for the redemption of Fund shares. The amount of
the redemption shall not exceed $50,000 and the proceeds are
to be payable to the shareholder of record and mailed to the
address of record. To change this option once established,
written instructions must be received from the shareholder of
record or the current registered representative.
If neither box is checked, the telephone redemption privilege
will be provided automatically.
* There must be a period of at least seven calendar
days between each investment/withdrawal period.
** This option may not be used if shares are issued in
certificate form.
7. SPECIAL PAYEE
A. MAILING ADDRESS
Please send all disbursements to this special payee:
Name of Bank or Individual
Account Number (If Applicable)
Street
City/State/Zip
B. FED WIRE / E.F.T. INFORMATION
Financial Institution
ABA #
Account #
Street
City/State/Zip
(Please attach a voided check)
8. SIGNATURES
Investors should be aware that the failure to check the "No" under
Section 6D or 6E above means that the Telephone Exchange/Redemption
Privileges will be provided. The Fund employs reasonable procedures
that require personal identification prior to acting on
exchange/redemption instructions communicated by telephone to confirm
that such instructions are genuine. In the absence of such procedures,
the Fund may be liable for any losses due to unauthorized or fraudulent
telephone instructions. Please see "How to Exchange Your Fund Shares"
and "How to Redeem Your Fund Shares" in the Prospectus for more
information on these privileges.
I certify to my legal capacity to purchase or redeem shares of the Fund
for my own account or for the account of the organization named in
Section 1. I have received a current Prospectus and understand its
terms are incorporated in this application by reference. I am
certifying my taxpayer information as stated in Section 2.
THE INTERNAL REVENUE SERVICE DOES NOT REQUIRE YOUR CONSENT TO ANY
PROVISION OF THIS DOCUMENT OTHER THAN THE CERTIFICATIONS REQUIRED TO
AVOID BACKUP WITHHOLDING.
------------------------------
Signature of Owner, Custodian, Date
Trustee or Corporate Officer
------------------------------
Signature of Joint Owner, Date
Co-Trustee or Corporate Officer
(Remember to sign Section 8)
<PAGE>
[Back Cover Page]
HOW TO RECEIVE MORE INFORMATION ABOUT THE FUND
Additional information about the Fund and its investments is contained in the
Fund's Statement of Additional Information dated April ___, 1999 (the "SAI"),
which is incorporated by reference into this Prospectus, and the Fund's annual
and semi-annual reports to shareholders. The Fund's annual report includes a
discussion of the market conditions and investment strategies that significantly
affected the Fund's performance during its most recent fiscal year. The SAI and
the Fund's annual and semi-annual reports are available upon request and without
charge from the Distributor at the following address and phone number:
Ivy Mackenzie Distributors, Inc.
Via Mizner Financial Plaza
700 South Federal Highway
Boca Raton, Florida 33432
(800) 456-5111
Information about the Fund (including the SAI and the Fund's annual and
semi-annual reports) may also be reviewed and copied at the SEC's Public
Reference Room in Washington, D.C. (please call 1-800-SEC-0330 for further
details). Information about the Fund is also available on the SEC's Internet
Website (www.sec.gov), and copies of this information may be obtained, upon
payment of a copying fee, by writing the Public Reference Section of the SEC,
Washington, D.C. 20549-6009.
SHAREHOLDER INQUIRIES
Please call Ivy Mackenzie Services Corp., the Fund's transfer agent, at
1-800-777-6472 regarding any other inquiries about the Fund.
Investment Company Act File No. 811-1028
<PAGE>
[Front Cover Page]
PROSPECTUS April ___, 1999
IVY FUND - Ivy China Region Fund
Ivy Fund (the "Trust") is a registered open-end investment company currently
consisting of nineteen separate portfolios. This Prospectus relates to the Class
A, Class B, Class C and Advisor Class shares of Ivy China Region Fund (the
"Fund"). No other shares are offered in this Prospectus.
The Securities and Exchange Commission has not approved or disapproved these
securities or passed upon the adequacy of this Prospectus. Any representation to
the contrary is a criminal offense.
[Insert all logos]
<PAGE>
TABLE OF CONTENTS
SUMMARY
ADDITIONAL INFORMATION ABOUT INVESTMENT STRATEGIES AND RISKS
MANAGEMENT
ACCOUNT APPLICATION
HOW TO RECEIVE MORE INFORMATION ABOUT THE FUND
SHAREHOLDER INQUIRIES
<PAGE>
SUMMARY
Investment The Fund's principal investment objective is long-term
strategies: capital growth. Consideration of current income is
secondary to this principal objective.
Principal The Fund invests primarily in the equity securities of
investment companies that are located or have a substantial business
strategies: presence in the China Region, which includes China, Hong
Kong, Taiwan, South Korea, Singapore, Malaysia, Thailand,
Indonesia and the Philippines. The Fund may also
invest in equity securities of companies whose current or
expected performance is considered to be strongly associated
with the China Region. To control its exposure to certain
risks, the Fund might engage in foreign currency exchange
transactions and forward foreign currency contracts.
Principal The main risks to which the Fund is exposed in
risks: carrying out its investment strategies are the following:
Management risk: The Fund's manager might not select
securities that perform as well as the securities held by
other mutual funds with investment objectives that are
similar to those of the Fund.
Market risk: Common stocks represent a proportionate
ownership interest in a company. The market value of common
stock can fluctuate significantly even where "management
risk" is not a factor, so you could lose money if you redeem
your Fund shares at a time when the Fund's stock portfolio
is not performing as well as expected. The market value of
common stock can fluctuate significantly, so you could lose
money if you redeem your Fund shares at a time when the
Fund's stock portfolio is not performing as well as
expected.
Foreign security and emerging market risk: Investing in
foreign securities involves a number of economic, financial
and political considerations that are not associated with
the U.S. markets and that could affect the Fund's
performance favorably or unfavorably, depending upon
prevailing conditions at any given time. Among these
potential risks are:
greater price volatility;
comparatively weak supervision and regulation of securities exchanges,
brokers and issuers;
higher brokerage costs;
fluctuations in foreign currency exchange rates and related conversion
costs;
adverse tax consequences; and
settlement delays.
The risks of investing in foreign securities are more acute
in countries with developing economies. Since the securities
markets of many China Region countries fall into this
category, the Fund may be exposed to one or more of the
following additional risks:
securities that are even less liquid and more volatile than those in
more developed foreign countries;
unusually long settlement delays;
less stable governments that are susceptible to sudden
adverse actions (such as nationalization of businesses,
restrictions on foreign ownership or prohibitions
against repatriation of assets);
abrupt changes in exchange rate regime or monetary policy;
restrictions on repatriation of capital;
unusually large currency fluctuations and currency conversion costs;
and
high national debt levels (which may impede an
issuer's payment of principal and/or interest on
external debt).
Who should invest:* The Fund may be appropriate for investors seeking
long-term growth potential, but who can accept potentially
dramatic fluctuations in capital value in the short-term.
* You should consult with your financial advisor before deciding whether
the Fund is an appropriate investment choice in light of your
particular financial needs and risk tolerance.
<PAGE>
Performance Bar Chart and Table:
The information in the following chart and table provides some
indication of the risks of investing in the Fund by showing changes in
the Fund's performance from year to year and how the Fund's average
annual returns since its inception on October 23, 1993 compare with
those of a broad measure of market performance. The Fund's past
performance is not an indication of how the Fund will perform in the
future.
Annual Total Returns for Class A Shares as of December 31, 1998:*
-------------------------------------
1993 1994 1995 1996 1997 1998
* Any applicable sales charges and account fees are not
reflected, and if they were the returns shown above would be
lower. The returns for the Fund's other three classes of
shares during these periods were different from those of Class
A because of variations in their respective expense
structures.
Best quarter: ______% (Q__ 199__)
Worst quarter: ______% (Q__ 199__)
Average Annual Total Returns (for the periods ending December 31, 1998):*
Past year: Since inception:**
Class A: ______% ______%
Class B: ______% ______%
Class C: ______% ______%
Advisor Class: ______% ______%
[Index]: ______% ______%
* Performance figures reflect any applicable sales charges.
** The inception date for the Fund's Class A and Class B shares
was October 23, 1993. The inception dates for the Fund's Class
C and Advisor Class Shares were April 30, 1996 and January 1,
1998, respectively.
<PAGE>
Fees and Expenses:
The following tables describe the fees and expenses that you may pay if
you buy and hold shares of the Fund:
Shareholder Fees (fees paid directly from your investment):
Maximum Sales Charge (Load) Imposed on Maximum Deferred Sales
Purchases (as a percentage of Charge (Load) (as a
offering price): percentage of original
purchase price):
Class A: 5.75% none
Class B: none 5.00%
Class C: none 1.00%
Advisor Class: none none
Annual Fund Operating Expenses (expenses that are deducted from Fund
assets):
Distribution Total Expenses Net Fund
Management and/or Other Annual Waived or Operating
Fees: Service Expenses: Fund Reimbursed:* Expenses:*
(12b-1) Fees: Operating
Expenses:
Class A: 1.00% .25% $_______ $_______ $_______ $_______
Class B: 1.00% 1.00% $_______ $_______ $_______ $_______
Class C: 1.00% 1.00% $_______ $_______ $_______ $_______
Advisor 1.00% none $_______ $_______ $_______ $_______
Class:
* The Fund's Manager has agreed to waive and/or reimburse the
Fund's fees and expenses to the extent necessary to ensure
that the Fund's Annual Fund Operating Expenses do not exceed
the amounts shown in the far right column above.
Example:
The following example is intended to help you compare the cost of
investing in the Fund with the cost of investing in other mutual funds.
The example assumes that you invest $10,000 in the Fund for the time
periods indicated and then redeem all of your shares at the end of
those periods (with additional information shown for Class B and Class
C shares based on the assumption that you do not redeem your shares at
that time). The example also assumes that your investment has a 5%
return each year and that the Fund's operating expenses remain the
same. Although your actual costs may be higher or lower, based on these
assumptions your costs would be as follows:
1 Year: 3 Years: 5 Years: 10 Years:
------ ------- ------- --------
Class A: $______ $______ $______ $______
Class B: $______ $______ $______ $______
Class B (no redemption):$______ $______ $______ $______
Class C: $______ $______ $______ $______
Class C (no redemption):$______ $______ $______ $______
Advisor Class: $______ $______ $______ $______
<PAGE>
ADDITIONAL INFORMATION ABOUT INVESTMENT STRATEGIES AND RISKS
Principal strategies:
The Fund seeks to achieve its investment objective of long-term capital
growth primarily by investing in the equity securities of companies
that are expected to benefit from the economic development and growth
of the China Region through a direct business connection (such as an
exchange listing or significant profit base) in one or more China
Region countries. The Fund may invest more than 25% of its assets in
the securities of issuers in a single China Region country, and could
have more than 50% of its assets invested in Hong Kong. The Fund
expects to invest the balance of its assets in the equity securities of
companies whose current or expected performance is considered to be
strongly associated with the China Region.
Countries are selected on the basis of a mix of factors that include
long-term economic growth prospects, anticipated inflation levels, and
the effect of applicable government policies on local business
conditions.
Individual securities are selected on the basis of value indicators
(such as earnings, cash flow and growth potential) and are reviewed for
fundamental financial strength. Investment decisions typically are
based on earnings estimates over a five-year period, with stocks
normally purchased from within the cheapest 20% of the market universe
and sold once they are valued within the top 20%.
Principal risks:
General market risk: As with any mutual fund, the value of the Fund's
investments and the income they generate will vary daily and generally
reflect market conditions, interest rates and other issuer-specific,
political or economic developments. The Fund's share value will
decrease at any time during which its security holdings or other
investment techniques are not performing as well as anticipated, and
you could therefore lose money by investing in the Fund depending upon
the timing of your initial purchase and any subsequent redemption.
Other risks: Since the Fund invests heavily in countries throughout the
China Region, many of which have economies and/or securities markets
that are relatively undeveloped, it is more susceptible to the risks
associated with these types of securities than a fund that invests
primarily in more established markets. Following is a description of
these risks, along with the risks commonly associated with the other
securities and investment techniques that the Fund's portfolio manager
considers important in achieving the Fund's investment objective or in
managing the Fund's exposure to risk (and that could therefore have a
significant effect on the Fund's returns). Other investment techniques
that the Fund may use, but that do not play a key role in the Fund's
overall investment strategy, are described in the Fund's Statement of
Additional Information (see back cover page for information on how you
can receive a free copy).
Common Stocks: Common stocks represent a proportionate ownership
interest in a company. As a result, the value of common stock
rises and falls with a company's success or failure. The market
value of common stock can fluctuate significantly, with smaller
companies being particularly susceptible to price swings.
Transaction costs in smaller company stocks may also be higher
than those of larger companies.
Depository Receipts: The Fund may acquire interests in foreign
issuers in the form of sponsored or unsponsored American
Depository Receipts ("ADRs"), Global Depository Receipts ("GDRs")
and similar types of depository receipts. ADRs typically are
issued by a U.S. bank or trust company and represent ownership of
the underlying securities issued by a foreign corporation. GDRs
and other types of depository receipts are usually issued by
foreign banks or trust companies. The Fund's investments in ADRs,
GDRs and other depository receipts are viewed as investments in
the underlying securities.
Depository receipts can be difficult to price and are not always
exchange-listed. Unsponsored depository programs also are
organized independently without the cooperation of the issuer of
the underlying securities. As a result, information concerning the
issuer may not be as current or as readily available as in the
case of sponsored depository instruments, and their prices may be
more volatile than if they were sponsored by the issuers of the
underlying securities.
Foreign Securities: Investing in foreign securities involves a
number of economic, financial and political considerations that
are not associated with the U.S. markets and that could affect the
Fund's performance favorably or unfavorably depending upon
prevailing conditions at any given time. For example, the
securities markets of many foreign countries may be smaller, less
liquid and subject to greater price volatility than those in the
U.S. Foreign investing may also involve brokerage costs and tax
considerations that are not usually present in the U.S. markets.
Many of the Fund's securities also are denominated in foreign
currencies and the value of the Fund's investments as measured in
U.S. dollars may be affected favorably or unfavorably by changes
in foreign currency exchange rates and exchange control
regulations. Currency conversion can also be costly.
Other factors that can affect the value of the Fund's foreign
investments include the comparatively weak supervision and
regulation by some foreign governments of securities exchanges,
brokers and issuers, and the fact that many foreign companies may
not be subject to uniform accounting, auditing and financial
reporting standards. It may also difficult to obtain reliable
information about the securities and business operations certain
foreign issuers. Settlement of portfolio transactions may also be
delayed due to local restrictions or communication problems, which
can cause the Fund to miss attractive investment opportunities or
impair its ability to dispose of securities in a timely fashion
(resulting in a loss if the value of the securities subsequently
declines).
Special Emerging Market Concerns: The risks of investing in foreign
securities are heightened in countries with developing economies. Among
these additional risks are the following:
securities that are even less liquid and more volatile than those in
more developed foreign countries;
less stable governments that are susceptible to sudden
adverse actions (such as nationalization of businesses,
restrictions on foreign ownership or prohibitions against
repatriation of assets);
increased settlement delays;
abrupt changes in exchange rate regime or monetary policy;
restrictions on repatriation of capital;
unusually large currency fluctuations and currency conversion costs
(see "Foreign Currencies" below); and
high national debt levels (which may impede an issuer's
payment of principal and/or interest on external debt).
Foreign Currencies: Investing in foreign securities typically involves
the use of foreign currencies. The value of the Fund's assets, as measured
in U.S. dollars, may be affected favorably or unfavorably by changes in
foreign currency exchange rates and exchange control regulations. Currency
conversions can also be costly.
Foreign Currency Exchange Transactions and Forward Foreign
Currency Contracts: The Fund may, but is not required to, use
foreign currency exchange transactions and forward foreign
currency contracts to hedge certain market risks (such as interest
rates, currency exchange rates and broad or specific market
movement). These investment techniques involve a number of risks,
including the possibility of default by the counterparty to the
transaction and, to the extent the Fund's judgment as to certain
market movements is incorrect, the risk of losses that are greater
than if the investment technique had not been used. For example,
there may be an imperfect correlation between the Fund's portfolio
holdings of securities denominated in a particular currency and
the forward contracts entered into by the Fund. An imperfect
correlation of this type may prevent the Fund from achieving the
intended hedge or expose the Fund to the risk of currency exchange
loss. In addition, although the use of these investment techniques
for hedging purposes should tend to minimize the risk of loss due
to a decline in the value of the hedged position, they also tend
to limit any potential gain that might result from an increase in
the position's value.
Illiquid Securities: The Fund may invest up to 15% of its net
assets in "illiquid securities," which are assets that may not be
disposed of in the ordinary course of business within seven days
at roughly the value at which the Fund has valued the assets. Some
of these may by "restricted securities," which cannot be sold to
the public without registration under the Securities Act of 1933
(in the absence of an exemption) or because of other legal or
contractual restrictions on resale. Thus, while illiquid
securities may offer the potential for higher returns than more
readily marketable securities, there is a risk that the Fund will
not be able to dispose of them promptly at an acceptable price.
Other Investment Companies: The Fund may invest up to 10% of its
total assets in the shares of other investment companies. As a
shareholder of an investment company, the Fund would bear its
ratable share of the fund's expenses (which often include an
asset-based management fee). The Fund could also lose money by
investing in other investment companies, since the value of their
respective investments and the income they generate will vary
daily based on prevailing market conditions.
Temporary Defensive Positions: The Fund may from time to time
take a temporary defensive position and invest without limit in
U.S. Government securities, investment-grade debt securities, and
cash and cash equivalents such as commercial paper, short-term
notes and other money market securities. When the Fund assumes
such a defensive position it may not achieve its investment
objective. Investing in debt securities also involves both
interest rate and credit risk. Generally, the value of debt
instruments rises and falls inversely with fluctuations in
interest rates. For example, as interest rates decline the value
of debt securities generally increases. Conversely, rising
interest rates tend to cause the value of debt securities to
decrease. The market value of debt securities also tends to vary
according to the relative financial condition of the issuer. Bonds
with longer maturities tend to be more volatile than bonds with
shorter maturities.
Borrowing: For temporary or emergency purposes (such as meeting
shareholder redemption requests within the time periods specified
under the Investment Company Act of 1940), the Fund may borrow up
to 10% of the value of its total assets from qualified banks.
Borrowing may exaggerate the effect on the Fund's share value of
any increase or decrease in the value of the securities it holds.
Money borrowed will also be subject to interest costs.
Other Important Information:
Year 2000 Risks: Many computer software and hardware systems in use
today cannot distinguish between the year 2000 and the year 1900
because of the way dates are encoded and calculated (the "Year 2000
Problem"). The inability of computer-based systems to make this
distinction could have a seriously adverse effect on the handling of
securities trades, pricing and account services worldwide. The Fund's
service providers are taking steps that each believes are reasonably
designed to address the Year 2000 Problem with respect to the computer
systems that they use. The Fund believes these steps will be sufficient
to avoid any material adverse impact on the Fund. At this time,
however, there can be no assurance that significant problems will not
occur (which either directly or indirectly may cause the Fund to lose
money).
MANAGEMENT
Investment Advisor:
Ivy Management, Inc. ("IMI"), located at Via Mizner Financial Plaza,
700 South Federal Highway, Boca Raton, Florida 33432, provides
investment advisory and business management services to the Fund. IMI
is an SEC-registered investment advisor with over $____ billion in
assets under management, and provides similar services to the other
eighteen series of the Trust. For the Fund's fiscal year ending
December 31, 1998, the Fund paid to IMI a fee equal to ___% of the
Fund's average net assets.
Portfolio Management:
The Fund is managed by a team of investment professionals that is
supported by research analysts who acquire information on regional and
country-specific economic and political developments and monitoring
individual companies. These analysts use a variety of research sources
that include:
brokerage reports;
economic and financial news services;
company reports; and
information from third party research firms (ranging from large
investment banks with global coverage to local research houses).
In many cases, particularly in emerging market countries, IMI's
research analysts also conduct primary research by:
meeting with company management;
touring facilities; and speaking with local research professionals.
<PAGE>
SHAREHOLDER INFORMATION
PRICING OF FUND SHARES:
The Fund calculates its share price by dividing the value of the Fund's
net assets by the total number of its shares outstanding as of the
close of regular trading (usually 4:00 p.m. Eastern time) on the New
York Stock Exchange on each day the Exchange is open for trading
(normally any weekday that is not a national holiday).
Each portfolio security that is listed or traded on a recognized stock
exchange is valued at the security's last sale price on the exchange
on which it was purchased. If no sale is reported at that time, the
average between the last bid and asked prices is used. Securities and
other Fund assets for which market prices are not readily available
are priced at their "fair value" as determined by IMI in accordance
with procedures approved by the Fund's Board of Trustees. IMI may also
price a foreign security at its "fair value" if events materially
affecting the value of the security occur between the close of the
foreign exchange on which the security is principally traded and the
time as of which the Fund prices its shares. Fair value pricing under
these circumstances is designed to protect existing shareholders from
dilution of their share value caused by short-term investors trading
into and out of the Fund at at time when the Fund's share price,
calculated by ordinary pricing methods, is undervalued. When such fair
value pricing occurs, however, there may be some period of time during
which the Fund's share price and/or performance information is not
available.
The number of shares you receive when you place a purchase order, and
the payment you receive after submitting a redemption request, is based
on the Fund's net asset value next determined after your instructions
are received in proper form by Ivy Mackenzie Services Corp. (the Fund's
transfer agent) or by your registered securities dealer. Each purchase
and redemption order is subject to any applicable sales charge (see
"Distribution Arrangements" below). Since the Fund normally invests in
securities that are listed on foreign exchanges that may trade on
weekends or other days when the Fund does not price its shares, the
Fund's share value may change on days when shareholders will not be
able to purchase or redeem the Fund's shares.
HOW TO BUY SHARES:
Purchasing Fund shares involves "Choosing the Appropriate Class of
Shares" and "Submitting Your Purchase Order". Please read these
sections below carefully before investing.
Choosing the Appropriate Class of Shares - The essential features of
the Fund's different classes of shares are described below. If you do
not specify on your Account Application which class of shares you are
purchasing, it will be assumed that you are purchasing Class A shares.
The Fund has adopted separate distribution plans pursuant to Rule
12b-1 under the 1940 Act for its Class A, B and C shares that allow
the Fund to pay distribution and other fees for the sale and
distribution of its shares and for services provided to shareholders.
Because these fees are paid out of the Fund's assets on an on-going
basis, over time they will increase the cost of your investment and
may cost you more than paying other types of sales charges.
Class A Shares: Class A shares are sold at net asset value
plus a maximum sales charge of 5.75% (the "offering price"). The
sales charge may be reduced or eliminated if certain conditions
are met (see "Additional Purchase Information" below). Class A
shares are subject to a .25% Rule 12b-1 service fee.
Class B Shares: Class B shares are offered at net asset value,
without an initial sales charge, but subject to a contingent
deferred sales charge ("CDSC") that declines from 5% to zero on
certain redemptions within six years of purchase. Class B shares
are subject to a .75% Rule 12b-1 distribution fee and a .25% Rule
12b-1 service fee, and convert automatically into Class A shares
eight years after purchase.
Class C Shares: Class C shares are offered at net asset value,
without an initial sales charge, but subject to a CDSC of 1% for
redemptions within the first year of purchase. Class C shares are
subject to a .75% Rule 12b-1 distribution fee and a .25% Rule
12b-1 service fee.
Advisor Class Shares: Advisor Class shares are offered to certain
classes of investors at net asset value, without any sales load or
Rule 12b-1 fees.
The following table displays the various investment minimums, sales
charges and expenses that apply to each class.
<TABLE>
<S> <C> <C> <C> <C>
- -------------------- --------------------- --------------------- --------------------- -------------------
Class A Class B Class C Advisor Class
- -------------------- --------------------- --------------------- --------------------- -------------------
- -------------------- --------------------- --------------------- --------------------- -------------------
Minimum Initial $10,000
Investment* $1,000 $1,000 $1,000
- -------------------- --------------------- --------------------- --------------------- -------------------
- -------------------- --------------------- --------------------- --------------------- -------------------
Minimum Subsequent
Investment* $100 $100 $100 $ 250
- -------------------- --------------------- --------------------- --------------------- -------------------
- -------------------- --------------------- --------------------- --------------------- -------------------
Initial Sales Maximum 5.75%, with None None None
Charge options for a
reduced or waiver
of initial sales
charge
- -------------------- --------------------- --------------------- --------------------- -------------------
- -------------------- --------------------- --------------------- --------------------- -------------------
CDSC None, except on Maximum 5.00%, 1.00% for the first None
certain NAV declines over six year
purchases years
- -------------------- --------------------- --------------------- --------------------- -------------------
- -------------------- --------------------- --------------------- --------------------- -------------------
Service and 0.25% Service fee 0.75% Distribution 0.75% Distribution None
Distribution Fees Fee and 0.25% Fee and 0.25%
Service Fee Service Fee
- -------------------- --------------------- --------------------- --------------------- -------------------
</TABLE>
* Minimum initial and subsequent investments for retirement plans are $25.
ADDITIONAL PURCHASE INFORMATION:
Class A Shares - Class A shares are sold at a public offering
price equal to their net asset value per share ("NAV") plus an
initial sales charge, as set forth below (which is reduced as the
amount invested increases):
<TABLE>
<S> <C> <C> <C>
-------------------------------- ---------------------- ------------------ ----------------------
Sales Charge as a Sales Charge as Portion of Public
Percentage of Public a Percentage of Offering Price
Offering Price Net Amount Retained by Dealer
Amount Invested Invested
-------------------------------- ---------------------- ------------------ ----------------------
-------------------------------- ---------------------- ------------------ ----------------------
Less than $50,000 5.75% 6.10% 5.00%
-------------------------------- ---------------------- ------------------ ----------------------
-------------------------------- ---------------------- ------------------ ----------------------
$50,000 but less than $100,000 5.25% 5.54% 4.50%
-------------------------------- ---------------------- ------------------ ----------------------
-------------------------------- ---------------------- ------------------ ----------------------
$100,000 but less than $250,000 4.50% 4.71% 3.75%
-------------------------------- ---------------------- ------------------ ----------------------
-------------------------------- ---------------------- ------------------ ----------------------
$250, 000 but less than 3.00% 3.09% 2.50%
$500,000
-------------------------------- ---------------------- ------------------ ----------------------
$500,000 or over* 0.00% 0.00% 0.00%
-------------------------------- ---------------------- ------------------ ----------------------
</TABLE>
* A CDSC of 1.00% applies to Class A shares that are redeemed
within two years of the end of the month in which they were
purchased.
Class A shares that are acquired through reinvestment of dividends
or distributions are not subject to any sales charges.
HOW TO REDUCE YOUR INITIAL SALES CHARGE:
"Rights of Accumulation" permits you to pay the sales charge
that applies to the cost or value (whichever is higher) of all
Ivy Fund Class A shares you own.
A "Letter of Intent" permits you to pay the sales charge that
would apply to your cumulative purchase of Fund shares over a
13-month period (certain restrictions apply).
HOW TO ELIMINATE YOUR INITIAL SALES CHARGE:
You may purchase Class A shares at NAV (without an initial sales
charge or a CDSC) through any one of the following methods:
through certain investment advisors and financial planners who charge
a management, consulting or other fee for their services;
under certain qualified retirement plans;
as an employee or director of Mackenzie Investment Management Inc. or
its affiliates;
as an employee of a selected dealer; or
through the Merrill Lynch Daily K Plan (the "Plan"), provided
the Plan has at least $3 million in assets or over 500 or more
eligible employees. Class B shares of the Fund are made
available to Plan participants at NAV without a CDSC if the
Plan has less than $3 million in assets or fewer than 500
eligible employees. For further information see "Group
Systematic Investment Program" in the SAI.
You may also purchase Class A shares at NAV if you are investing
at least $500,000 through a dealer or agent. Ivy Mackenzie
Distributors, Inc. ("IMDI"), the Fund's distributor, may pay the
dealer or agent (out of IMDI's own resources) for its distribution
assistance according to the following schedule:
- ------------------------------- -------------------------------
Purchase Amount Commission
- ------------------------------- -------------------------------
- ------------------------------- -------------------------------
First $3,000,000 1.00%
- ------------------------------- -------------------------------
- ------------------------------- -------------------------------
Next $2,000,000 0.50%
- ------------------------------- -------------------------------
- ------------------------------- -------------------------------
Over $5,000,000 0.25%
- ------------------------------- -------------------------------
Certain trust companies, bank trust departments, credit unions,
savings and loans and other similar organizations may also be
exempt from the initial sales charge on Class A shares.
Class B and Class C Shares - Class B and Class C shares are not
subject to an initial sales charge but are subject to a CDSC. If
you redeem your Class C shares within one year of purchase they
will be subject to a CDSC of 1%, and Class B shares redeemed
within six years of purchase will be subject to a CDSC at the
following rates:
--------------------- --------------------
CDSC as a
Percentage of
Year Since Purchase Dollar Amount
Subject to Charge
--------------------- --------------------
First 5%
--------------------- --------------------
--------------------- --------------------
Second 4%
--------------------- --------------------
--------------------- --------------------
Third 3%
--------------------- --------------------
--------------------- --------------------
Fourth 3%
--------------------- --------------------
--------------------- --------------------
Fifth 2%
--------------------- --------------------
--------------------- --------------------
Sixth 1%
--------------------- --------------------
--------------------- --------------------
Seventh and 0%
thereafter
--------------------- --------------------
The CDSC for both Class B and Class C shares will be assessed on
an amount equal to the lesser of the current market value or the
original purchase cost of the shares being redeemed. No charge
will be assessed on increases in account value above the original
purchase price or on reinvested dividends and distributions.
The CDSC for Class B shares is waived for:
Certain post-retirement withdrawals from an IRA or other
retirement plan if you are over 59 1/2 years old.
Redemptions by certain eligible 401(a) and 401(k) plans and
certain retirement plan rollovers.
Redemption resulting from a tax-free return of excess
contribution to an IRA.
Withdrawals resulting from shareholder death or disability
provided that the redemption is requested within one year of
death or disability.
Withdrawals through the Systematic Withdrawal Plan of up to
12% per year of your account value at the time the plan is
established.
Both Class B shares and Class C shares are subject to an ongoing
service and distribution fee at a combined annual rate of up to
1.00% of the portfolio's average net assets attributable to its
Class B or Class C shares. The ongoing distribution fees will
cause these shares to have a higher expense ratio than that of
Class A and Advisor Class shares. IMDI uses the money that it
receives from the deferred sales charge and the distribution fees
to cover various promotional and sales related expenses, as well
as expenses related to providing distributions services, such as
compensating selected dealers and agents for selling these shares.
Approximately eight years after the original date of purchase,
your Class B shares will be converted automatically to Class A
shares. Class A shares are subject to lower annual expenses than
Class B shares. The conversion from Class B shares to Class A
shares is not considered a taxable event for federal income tax
purposes. Class C shares do not have a similar conversion
privilege.
Advisor Class - Advisor Class shares are offered only to
institutions and certain individuals, and are not subject to an
initial sales charge or a CDSC, nor to ongoing service or
distribution fees.
SUBMITTING YOUR PURCHASE ORDER:
INITIAL INVESTMENTS:
Complete and sign the Account Application appearing at the end of this
Prospectus. Enclose a check payable to Ivy Fund (see page [XX] for
minimum initial investments.) Deliver your application materials to
your registered representative or selling broker, or send them to one
of the addresses below:
By Regular Mail: By Courier:
Ivy Mackenzie Services Corp. Ivy Mackenzie Services Corp.
P.O. Box 3022 700 South Federal Hwy.
Boca Raton, FL 33431-0922 Boca Raton, FL 33432
BUYING ADDITIONAL SHARES:
There are several ways to increase your investment in the Fund:
By Mail - Send your check with a completed investment slip
(attached to your account statement) or written instructions
indicating the account registration, fund number or name, and
account number.
Mail to one of the addresses above.
Through Your Broker - Deliver to your registered representative
or selling broker the investment slip attached to your statement,
or written instructions, along with your payment.
By Wire - Purchases may also be made by wiring money from your
bank account to your Ivy account. Your bank may charge a fee for
wiring funds. Before wiring any funds, please call IMSC at (800)
777-6472. Wiring instructions are as follows:
First Union National Bank of Florida
Jacksonville, FL
ABA #063000021
Account #2090002063833
For further credit to:
Your Ivy Fund Account Number
Your Fund Number and Account Number
By Automatic Investment Method - You can authorize to have funds
electronically drawn each month from your bank account and
invested as a purchase of shares into your Ivy Fund account.
Complete sections [XX] and [XX] of the Account Application.
HOW TO REDEEM SHARES:
SUBMITTING YOUR REDEMPTION ORDER:
You may redeem your Fund shares through your registered securities
dealer or directly through IMSC. If you choose to redeem through your
registered securities dealer, the dealer is responsible for properly
transmitting redemption orders in a timely manner. If you choose to
redeem directly through IMSC, you have several ways to submit your
request:
By Mail - Send your written redemption request to IMSC at one of
the addresses on page XX of this Prospectus. Be sure that all
registered owners listed on the account sign the request.
Signature guarantees and supporting legal documentation may be
required. When you redeem, IMSC will normally send redemption
proceeds to you on the next business day, but may take up to seven
days (or longer in the case of shares recently purchased by
check).
By Telephone - Call IMSC at (800) 777-6472 to redeem from your
account. In order to process your redemption order by telephone,
you must have telephone redemption privileges on your account.
IMSC employs reasonable procedures that require personal
identification prior to acting on redemption instructions
communicated by telephone to confirm that such instructions are
genuine. In the absence of such procedures, the Fund or IMSC may
be liable for any losses due to unauthorized or fraudulent
telephone instructions.
By Systematic Withdrawal Plan (SWP) - You can authorize to have
funds electronically drawn each month from your Ivy Fund account
and deposited directly into your bank account. Certain minimum
balances and minimum distributions apply. Complete sections XX of
the Account Application to add this feature to your account.
Receiving Your Redemption Proceeds - You can receive redemption
proceeds through a variety of payment methods:
By Check - Unless otherwise instructed, checks will be made
payable to the current account registration and sent to the
address of record.
By Federal Funds Wire - Proceeds will be wired on the next
business day to a pre-designated bank account. Requests by
telephone can only be accepted for amounts up to $50,000. Your
account will be charged $10 each time redemption proceeds are
wired to your bank, and your bank may also charge you a fee for
receiving a Federal Funds wire.
By Electronic Funds Transfer - For SWP redemptions only.
Important Redemption Information:
A CDSC may apply to certain Class A share redemptions, to Class B
shares redeemed within six years of purchase, and to Class C
shares that are redeemed within one year of purchase.
All redemptions are made at the NAV next determined after a
redemption request has been received in good order. Requests for
redemptions must be received by 4:00 p.m. Eastern time to be
processed at the NAV for that day. Any redemption request in good
order that is received after 4:00 p.m. Eastern time will be
processed at the price determined on the following business day.
If you own shares of more than one class of the Fund, the Fund
will redeem first the shares having the highest 12b-1 fees.
Any shares subject to a CDSC will be redeemed last unless you
specifically elect otherwise.
The Fund may (on 60 days' notice) redeem the accounts of
shareholders whose investment, including sales charges paid, has
been less than $1,000 for more than 12 months.
The Fund may take up to seven days (or longer in the case of
shares recently purchased by check) to send redemption proceeds.
The Fund may make payment for redeemed shares in the form of
securities of the Fund taken at current values.
HOW TO EXCHANGE YOUR FUND SHARES:
You may exchange your Fund shares for shares of another Ivy fund,
subject to certain restrictions (see "Important Exchange Information"
below).
Submitting Your Exchange Order - You may submit an exchange request to
IMSC as follows:
By Mail - Send your written exchange request to IMSC at one of
the addresses on page XX of this Prospectus. Be sure that all
registered owners listed on the account sign the request.
By Telephone - Call IMSC at (800) 777-6472 to authorize an
exchange transaction. In order to process your exchange order by
telephone, you must have telephone exchange privileges on your
account. IMSC employs reasonable procedures that require personal
identification prior to acting on exchange instructions
communicated by telephone to confirm that such instructions are
genuine. In the absence of such procedures, the Fund or IMSC may
be liable for any losses due to unauthorized or fraudulent
telephone instructions.
IMPORTANT EXCHANGE INFORMATION:
You must exchange into the same share class you currently own.
Exchanges are considered taxable events and may result in a
capital gain or a capital loss for tax purposes.
It is the policy of the Fund to discourage the use of the
exchange privilege for the purpose of timing short-term market
fluctuations. The Fund may therefore limit the frequency of
exchanges by a shareholder or cancel a shareholder's exchange
privilege if at any time it appears that such market timing
strategies are being used.
DIVIDENDS AND DISTRIBUTIONS:
The Fund generally declares and pays dividends and capital gain
distributions (if any) at least once a year.
Dividends and distributions are "reinvested" in additional Fund
shares unless you request to receive them in cash.
Reinvested dividends and distributions are added to your account
at NAV and are not subject to a CDSC regardless of which share
class you own.
Cash dividends and distributions can be sent to you:
BY MAIL - a check will mailed to the address of record unless
otherwise instructed.
BY ELECTRONIC FUNDS TRANSFER ("EFT") - your proceeds will be
directly deposited into your bank account.
To change your dividend and/or distribution options, call IMSC at
(800) 777-6472.
TAX CONSEQUENCES:
Distributions you receive from the Fund are reinvested in additional
shares of the same class of the Fund unless you elect to receive them
in cash. Dividends ordinarily will vary from one class to another.
The Fund intends to declare and pay dividends monthly. The Fund will
distribute net investment income and net realized capital gains, if
any, at least once a year. The Fund may make an additional distribution
of net investment income and net realized capital gains to comply with
the calendar year distribution requirement under the excise tax
provisions of Section 4982 of the Internal Revenue Code of 1986, as
amended (the "Code").
Dividends paid out of the Fund's investment company taxable income
(including dividends, interest and net short-term capital gains) will
be taxable to you as ordinary income. If a portion of the Fund's income
consists of dividends paid by U.S. corporations, a portion of the
dividends paid by the Fund may be eligible for the corporate
dividends-received deduction. Distributions of net capital gains (the
excess of net long-term capital gains over net short-term capital
losses), if any, are taxable to you as long-term capital gains,
regardless of how long you have held your shares. Dividends are taxable
to you in the same manner whether received in cash or reinvested in
additional Fund shares.
If shares of the Fund are held in a tax-deferred account, such as a
retirement plan, income and gain will not be taxable each year.
Instead, the taxable portion of amounts held in a tax-deferred account
generally will be subject to tax as ordinary income only when
distributed from that account.
A distribution will be treated as paid to you on December 31 of the
current calendar year if it is declared by the Fund in October,
November or December with a record date in such a month and paid by the
Fund during January of the following calendar year.
In certain years, you may be able to claim a credit or deduction on
your income tax return for your share of foreign taxes paid by the
Fund. Upon the sale or other disposition of your Fund shares, you may
realize a capital gain or loss which will be long-term or short-term,
generally depending upon how long you held your shares.
The Fund may be required to withhold U.S. Federal income tax at the
rate of 31% of all distributions payable to you if you fail to provide
the Fund with your correct taxpayer identification number or to make
required certifications, or if you have been notified by the Internal
Revenue Service ("IRS") that you are subject to backup withholding.
Backup withholding is not an additional tax. Any amounts withheld may
be credited against your U.S. Federal income tax liability.
Fund distributions may be subject to state, local and foreign taxes.
You should consult with your tax adviser as to the tax consequences of
an investment in the Fund, including the status of distributions from
the Fund under applicable state or local law.
<PAGE>
IVY CHINA REGION FUND
<TABLE>
<CAPTION>
CLASS A
-------------------------------------------------------------
1998 1997 1996 1995 1994
SELECTED PER SHARE DATA -------- -------- -------- ------- -------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of period......... $ 10.30 $ 8.58 $ 8.61 $11.55
------- ------- ------- -------
Income (loss) from investment operations
Net investment income (loss)(c)........... .02(d) .03 .14 .05
Net realized and unrealized gain (loss) on
investment transactions.................. (2.28)(d) 1.74 (.01) (2.91)
------- ------- ------- -------
Total from investment operations....... (2.26) 1.77 .13 (2.86)
------- ------- ------- -------
Less distributions
From net investment income................ -- .03 .14 .05
In excess of net investment income........ -- .02 -- .03
In excess of net realized gain............ -- -- .02 --
From capital paid-in...................... -- -- -- --
------- ------- ------- -------
Total distributions.................... -- .05 .16 .08
------- ------- ------- -------
Net asset value, end of period............... $ 8.04 $ 10.30 $ 8.58 $ 8.61
======= ======= ======= =======
Total return(%).............................. (21.94) 20.50 1.59 (24.88)
RATIOS AND SUPPLEMENTAL DATA
Net assets, end of period (in thousands)..... $12,020 $15,290 $12,855 $13,180
Ratio of expenses to average net assets(e)
With expense reimbursement(%)................ 2.44 2.20 2.20 2.20
Without expense reimbursement (%)............ 2.51 2.48 2.73 2.76
Ratio of net investment income (loss) to
average net assets (%)(c)................... .28 .32 1.61 .55
Portfolio turnover rate(%)................... 20 22 25 4
Average commission rate...................... $ .0050 $ .0050 N/A N/A
</TABLE>
<TABLE>
<CAPTION>
CLASS B
-----------------------------------------------------------
1998 1997 1996 1995 1994
SELECTED PER SHARE DATA -------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of
period............................ $ 10.28 $ 8.58 $ 8.61 $ 11.55
------- ------- ------- -------
Income (loss) from investment
operations
Net investment income
(loss)(c)...................... (.04)(d) (.04) .08 (.02)
Net realized and unrealized gain
(loss) on investment
transactions................... (2.28)(d) 1.74 (.02) (2.92)
------- ------- ------- -------
Total from investment
operations.................. (2.32) 1.70 .06 (2.94)
------- ------- ------- -------
Less distributions
From net investment income...... -- -- .08 --
In excess of net investment
income......................... -- -- -- --
In excess of net realized
gain........................... -- -- .01 --
------- ------- ------- -------
Total distributions.......... -- -- .09 --
------- ------- ------- -------
Net asset value, end of period..... $ 7.96 $ 10.28 $ 8.58 $ 8.61
======= ======= ======= =======
Total return(%).................... (22.57) 19.67 .83 (25.45)
RATIOS AND SUPPLEMENTAL DATA
Net assets, end of period (in
thousands)........................ $ 7,893 $ 8,995 $ 6,905 $ 7,336
Ratio of expenses to average net
assets(e)
With expense reimbursement...... 3.17 2.95 2.95 2.95
Without expense reimbursement... 3.24 3.23 3.48 3.51
Ratio of net investment income
(loss) to average net
assets(%)(c)...................... (.45) (.43) .86 (.20)
Portfolio turnover rate(%)......... 20 22 25 4
20 22
Average commission rate............ $ .0050 $ .0050 N/A N/A
</TABLE>
<TABLE>
<CAPTION>
CLASS C
---------------------------------
1998 1997 1996(B)
SELECTED PER SHARE DATA -------- ------- -------
<S> <C> <C> <C>
Net asset value, beginning of
period............................ $10.24 $ 9.44
------- ------
Income (loss) from investment
operations
Net investment income
(loss)(c)...................... (.03)(d) --
Net realized and unrealized gain
(loss) on investment
transactions................... (2.27)(d) .89
------- ------
Total from investment
operations.................. (2.30) .89
------- ------
Less distributions
From net investment income...... -- --
In excess of net investment
income......................... -- .09
In excess of net realized
gain........................... -- --
------- ------
Total distributions.......... -- .09
------- ------
Net asset value, end of period..... $7.94 $10.24
======= ======
Total return(%).................... (22.46) 9.39
RATIOS AND SUPPLEMENTAL DATA
Net assets, end of period (in
thousands)........................ $1,129 $ 449
Ratio of expenses to average net
assets(e)
With expense reimbursement...... 3.05 2.71
Without expense reimbursement... 3.12 2.99
Ratio of net investment income
(loss) to average net
assets(%)(c)...................... (.33) (.19)
Portfolio turnover rate(%)......... 20 22
Average commission rate............ N/A $.0050
</TABLE>
<TABLE>
<CAPTION>
ADVISOR CLASS
SHARES
1998
SELECTED PER SHARE DATA -------------
<S> <C>
Net asset value, beginning of period.........
Income (loss) from investment operations
Net investment income (loss) (b)..........
Net realized and unrealized loss on
investment transactions..................
Total from investment operations.......
Less distributions
From net investment income................
In excess of net investment income........
Total distributions....................
Net asset value, end of period...............
Total return (%).............................
RATIOS AND SUPPLEMENTAL DATA
Net assets, end of period (in thousands).....
Ratio of expenses to average net assets(c)
With expense reimbursement(%)...............
Without expense reimbursement(%)............
Ratio of net investment income (loss) to
average net assets(%)(b)....................
Portfolio turnover rate(%)...................
Average commission rate......................
</TABLE>
- - ---------------
<TABLE>
<S> <C>
(a) From October 23, 1993 (commencement) to December 31, 1993.
(b) From April 30, 1996 (commencement) to December 31, 1996.
(c) Net investment income (loss) is net of expenses reimbursed
by manager.
(d) Based on average shares outstanding.
(e) Beginning in 1995, total expenses include fees paid
indirectly, if any, through an expense offset arrangement.
</TABLE>
<PAGE>
ACCOUNT APPLICATION
Please mail applications and checks to: Ivy Mackenzie Services Corp.,
P.O. Box 3022, Boca Raton, FL
33431-0922.
(This application should not be used for retirement accounts for which
Ivy Fund is custodian.)
Account Number:
(Fund Use Only)
Dealer #:
Branch #:
Rep. I.D. #:
Acct. Type:
Soc Cd:
Div Cd:
CG Cd:
Exc Cd:
Red Cd:
1. REGISTRATION
/ / Individual / / Joint Tenant / / Estate / / UGMA/UTMA / /
Corporation / / Partnership / / Sole Proprietor / / Trust / / Other
Date of Trust
Owner, Custodian or Trustee
Co-owner or Minor
Minor's State of Residence
Street
City
State
Zip Code
Phone Number -- Day
Phone Number -- Evening
2. TAX ID
Citizenship: / / U.S. / / Other ________________
Social Security Number
Tax Identification Number
Under penalties of perjury, I certify by signing in Section 8 below
that: (1) the number shown in this section is my correct taxpayer
identification number (TIN), and (2) I am not subject to backup
withholding because: (a) I have not been notified by the Internal
Revenue Service (IRS) that I am subject to backup withholding as a
result of a failure to report all interest or dividends, or (b) the IRS
has notified me that I am no longer subject to backup withholding.
(Cross out item (2) if you have been notified by the IRS that you are
currently subject to backup withholding because of underreporting
interest or dividends on your tax return.) Please see the "Tax
Consequences" section of the Prospectus for additional information on
completing this section.
3. DEALER INFORMATION
The undersigned ("Dealer") agrees to all applicable provisions in this
Application, guarantees the signature and legal capacity of the
Shareholder, and agrees to notify IMSC of any purchases made under a
Letter of Intent or Rights of Accumulation.
Dealer Name
Branch Office Address
City
State
Zip Code
Representative's Name and Number
Representative's Phone Number
Authorized Signature of Dealer
4. INVESTMENTS
A. Enclosed is my check ($1,000 minimum) for $_____________ made
payable to ________________ [Fund Name]. Please invest it in
Class A __ Class B __ Class C __ or Advisor Class __ shares.
B. I qualify for an elimination of the sales charge due to the
following privilege (applies only to Class A shares):
__ New Letter of Intent (if ROA or 90-day backdate
privilege is applicable, provide account(s)
information below.)
__ ROA with the account(s) listed below.
__ Existing Letter of Intent with account(s) listed
below.
Fund Name(s)
Account Number(s)
If establishing a Letter of Intent, you will need to purchase
Class A shares over a thirteen-month period in accordance with
the provisions in the Prospectus. The Aggregate amount of
these purchases will be at least equal to the amount indicated
below (see Prospectus for minimum amount required for reduced
sales charges).
/ / $50,000
/ / $100,000
/ / $250,000
/ / $500,000
C. FOR DEALER USE
Confirmed trade orders: [Confirm Number, Number of Shares,
Trade Date]
5. DISTRIBUTION OPTIONS
I would like to reinvest dividends and capital gains into additional
shares in this account at net asset value unless a different option is
checked below.
/ / Reinvest all dividends and capital gains into additional
shares of a different Ivy fund.
Fund Name
Account Number
/ / Pay all dividends in cash and reinvest capital gains into
additional shares in this Fund or a different Ivy fund.
Fund Name
Account Number
/ / Pay all dividends and capital gains in cash.
I REQUEST THE ABOVE CASH DISTRIBUTION, SELECTED IN C OR D
ABOVE, BE:
/ / Sent to the address listed in the registration.
/ / Sent to the special payee listed in Section 7A / / (By Mail) 7B / /
(By E.F.T.)
6. OPTIONAL SPECIAL FEATURES
A. / / Automatic Investment Method (AIM)
- I wish to invest _________________ / / once per month / /
twice / / 3 times / / 4 times
- My bank account will be debited on the _________ day of the
month
Please invest $___________________ each period starting in the
month of __________________ in
---------------------------.
Fund Name
/ / Class A
/ / Class B
/ / Class C
/ / Advisor Class
/ / I have attached a voided check to ensure my correct bank
account will be debited.
B. SYSTEMATIC WITHDRAWAL PLANS**
I wish to automatically withdraw funds from my account in
_________________[Fund name].
/ / Monthly / / Quarterly / /Semiannually / / Annually
/ / Once / / Twice / / 3 times / / 4 times per month
I request the distribution be:
/ / Sent to the address listed in the registration.
/ / Sent to the special payee listed in Section 7.
/ / Invested into additional shares of the same class of a different Ivy
fund.
Fund Name
Account Number
Amount $__________________(Minimum $50) starting on or about the
-_______ day of the month
-_______ day of the month
-_______ day of the month*
NOTE: Account minimum: $5,000 in shares at current offering price
C. FEDERAL FUNDS TRANSFER FOR REDEMPTION PROCEEDS**
I authorize the Agent to honor telephone instructions for the
redemption of Fund shares up to $50,000. Proceeds may be wire
transferred to the bank account designated ($1,000 minimum).
(Complete Section 7B)
TELEPHONE EXCHANGES** / / YES / / NO
I authorize exchanges by telephone among the Ivy funds upon
instructions from any person as more fully described in the
Prospectus. To change this option once established, written
instructions must be received from the shareholder of record
or the current registered representative.
If neither box is checked, the telephone exchange privilege
will be provided automatically.
TELEPHONIC REDEMPTIONS** / / YES / / NO
The Fund or its agents are authorized to honor telephone
instructions from any person as more fully described in the
Prospectus for the redemption of Fund shares. The amount of
the redemption shall not exceed $50,000 and the proceeds are
to be payable to the shareholder of record and mailed to the
address of record. To change this option once established,
written instructions must be received from the shareholder of
record or the current registered representative.
If neither box is checked, the telephone redemption privilege
will be provided automatically.
* There must be a period of at least seven calendar
days between each investment/withdrawal period.
** This option may not be used if shares are issued in
certificate form.
7. SPECIAL PAYEE
A. MAILING ADDRESS
Please send all disbursements to this special payee:
Name of Bank or Individual
Account Number (If Applicable)
Street
City/State/Zip
B. FED WIRE / E.F.T. INFORMATION
Financial Institution
ABA #
Account #
Street
City/State/Zip
(Please attach a voided check)
8. SIGNATURES
Investors should be aware that the failure to check the "No" under
Section 6D or 6E above means that the Telephone Exchange/Redemption
Privileges will be provided. The Fund employs reasonable procedures
that require personal identification prior to acting on
exchange/redemption instructions communicated by telephone to confirm
that such instructions are genuine. In the absence of such procedures,
the Fund may be liable for any losses due to unauthorized or fraudulent
telephone instructions. Please see "How to Exchange Your Fund Shares"
and "How to Redeem Your Fund Shares" in the Prospectus for more
information on these privileges.
I certify to my legal capacity to purchase or redeem shares of the Fund
for my own account or for the account of the organization named in
Section 1. I have received a current Prospectus and understand its
terms are incorporated in this application by reference. I am
certifying my taxpayer information as stated in Section 2.
THE INTERNAL REVENUE SERVICE DOES NOT REQUIRE YOUR CONSENT TO ANY
PROVISION OF THIS DOCUMENT OTHER THAN THE CERTIFICATIONS REQUIRED TO
AVOID BACKUP WITHHOLDING.
------------------------------
Signature of Owner, Custodian, Date
Trustee or Corporate Officer
------------------------------
Signature of Joint Owner, Date
Co-Trustee or Corporate Officer
(Remember to sign Section 8)
<PAGE>
[Back Cover Page]
HOW TO RECEIVE MORE INFORMATION ABOUT THE FUND
Additional information about the Fund and its investments is contained in the
Fund's Statement of Additional Information dated April ___, 1999 (the "SAI"),
which is incorporated by reference into this Prospectus, and the Fund's annual
and semi-annual reports to shareholders. The Fund's annual report includes a
discussion of the market conditions and investment strategies that significantly
affected the Fund's performance during its most recent fiscal year. The SAI and
the Fund's annual and semi-annual reports are available upon request and without
charge from the Distributor at the following address and phone number:
Ivy Mackenzie Distributors, Inc.
Via Mizner Financial Plaza
700 South Federal Highway
Boca Raton, Florida 33432
(800) 456-5111
Information about the Fund (including the SAI and the Fund's annual and
semi-annual reports) may also be reviewed and copied at the SEC's Public
Reference Room in Washington, D.C. (please call 1-800-SEC-0330 for further
details). Information about the Fund is also available on the SEC's Internet
Website (www.sec.gov), and copies of this information may be obtained, upon
payment of a copying fee, by writing the Public Reference Section of the SEC,
Washington, D.C. 20549-6009.
SHAREHOLDER INQUIRIES
Please call Ivy Mackenzie Services Corp., the Fund's transfer agent, at
1-800-777-6472 regarding any other inquiries about the Fund.
Investment Company Act File No. 811-1028
<PAGE>
[Front Cover Page]
PROSPECTUS April ___, 1999
IVY FUND - Ivy Developing Nations Fund
Ivy Fund (the "Trust") is a registered open-end investment company currently
consisting of nineteen separate portfolios. This Prospectus relates to the Class
A, Class B, Class C and Advisor Class shares of Ivy Developing Nations Fund (the
"Fund"). No other shares are offered in this Prospectus.
The Securities and Exchange Commission has not approved or disapproved these
securities or passed upon the adequacy of this Prospectus. Any representation to
the contrary is a criminal offense.
[Insert all logos]
<PAGE>
TABLE OF CONTENTS
SUMMARY
ADDITIONAL INFORMATION ABOUT INVESTMENT STRATEGIES AND RISKS
MANAGEMENT
SHAREHOLDER INFORMATION
ACCOUNT APPLICATION
HOW TO RECEIVE MORE INFORMATION ABOUT THE FUND
SHAREHOLDER INQUIRIES
<PAGE>
SUMMARY
Investment The Fund's principal investment objective is long-term
objective: growth. Consideration of current income is secondary to
this principal objective.
Principal The Fund invests primarily in the equity securities of
investment companies that are located in, or are to benefit from,
strategies countries whose markets are generally considered to be
"developing" or"emerging". The Fund may invest more than
25% of its assets in a single country, but usually will hold
securities from at least three emerging market countries
in its portfolio. The Fund might engage in foreign currency
exchange transactions and forward foreign
currency contracts to control its exposure to certain risks.
Principal risks: The main risks to which the Fund is exposed in
carrying out its investment strategies are the following:
Management risk: The Fund's manager might not select
securities that perform as well as the securities held by
other mutual funds with investment objectives that are
similar to those of the Fund.
Market risk: Common stocks represent a proportionate
ownership interest in a company. The market value of common
stock can fluctuate significantly even where "management
risk" is not a factor, so you could lose money if you redeem
your Fund shares at a time when the Fund's stock portfolio
is not performing as well as expected. The market value of
common stock can fluctuate significantly, so you could lose
money if you redeem your Fund shares at a time when the
Fund's stock portfolio is not performing as well as
expected.
Foreign security and emerging market risk: Investing in
foreign securities involves a number of economic, financial
and political considerations that are not associated with
the U.S. markets and that could affect the Fund's
performance favorably or unfavorably, depending upon
prevailing conditions at any given time. Among these
potential risks are:
greater price volatility;
comparatively weak supervision and regulation of
securities exchanges, brokers and issuers;
higher brokerage costs;
fluctuations in foreign currency exchange rates and
related conversion costs;
adverse tax consequences; and
settlement delays.
The risks of investing in foreign securities are more acute
in countries with developing economies. Since the Fund
normally invests a substantial portion of its assets in
these countries, it is exposed to the following additional
risks:
securities that are even less liquid and more volatile
than those in more developed
foreign countries;
unusually long settlement delays;
less stable governments that are susceptible to sudden
adverse actions (such as nationalization of businesses,
restrictions on foreign ownership or prohibitions
against repatriation of assets);
abrupt changes in exchange rate regime or monetary
policy;
restrictions on repatriation of capital;
unusually large currency fluctuations and currency
conversion costs; and
high national debt levels (which may impede an
issuer's payment of principal and/or interest on
external debt).
Who should invest:* The Fund may be appropriate for investors seeking long-term
growth potential, but who can accept potentially dramatic fluctuations in
capital value in the short-term.
* You should consult with your financial advisor before deciding whether
the Fund is an appropriate investment choice in light of your
particular financial needs and risk tolerance.
<PAGE>
Performance Bar Chart and Table:
The information in the following chart and table provides some
indication of the risks of investing in the Fund by showing changes in
the Fund's performance from year to year and how the Fund's average
annual returns since its inception on November 1, 1994 compare with
those of a broad measure of market performance. The Fund's past
performance is not an indication of how the Fund will perform in the
future.
Annual Total Returns for Class A Shares as of December 31, 1998:*
--------------------------------
1994# 1995 1996 1997 1998
* Any applicable sales charges and account fees are not
reflected, and if they were the returns shown above would be
lower. The returns for the Fund's other four classes of shares
during these periods were different from those of Class A
because of variations in their respective expense structures.
# For the period November 1, 1994 (commencement) to December 21, 1994.
Best quarter: ______% (Q__ 199__)
Worst quarter: ______% (Q__ 199__)
Average Annual Total Returns (for the periods ending December 31, 1998):*
Past year: Since inception:**
Class A: ______% ______%
Class B: ______% ______%
Class C: ______% ______%
Advisor Class: ______% ______%
[Index]: ______% ______%
* Performance figures reflect any applicable sales charges.
* The inception date for the Fund's Class A and Class B shares
was November 1, 1994. The inception dates for the Fund's Class
C and Advisor Class shares were April 30, 1996 and January 1,
1998, respectively.
<PAGE>
Fees and Expenses:
The following tables describe the fees and expenses that you may pay if
you buy and hold shares of the Fund:
Shareholder Fees (fees paid directly from your investment):
Maximum Sales Charge (Load) Imposed on Maximum Deferred Sales
Purchases (as a percentage of Charge (Load) (as a
offering price): percentage of original
purchase price):
Class A: 5.75% none
Class B: none 5.00%
Class C: none 1.00%
Advisor Class: none none
Annual Fund Operating Expenses (expenses that are deducted from Fund
assets):
Distribution Total Annual Expenses Net Fund
Management and/or Other Fund Waived or Operating
Fees: Service Expenses: Operating Reimbursed*: Expenses*:
(12b-1) Fees: Expenses:
Class A: 1.00% .25% $_______ $_______ $_______ $_______
Class B: 1.00% 1.00% $_______ $_______ $_______ $_______
Class C: 1.00% 1.00% $_______ $_______ $_______ $_______
Advisor 1.00% none $_______ $_______ $_______ $_______
Class:
* The Fund's Manager has agreed to waive and/or reimburse the
Fund's fees and expenses to the extent necessary to ensure
that the Fund's Annual Fund Operating Expenses do not exceed
the amounts shown in the far right column above.
<PAGE>
Example:
The following example is intended to help you compare the cost of
investing in the Fund with the cost of investing in other mutual funds.
The example assumes that you invest $10,000 in the Fund for the time
periods indicated and then redeem all of your shares at the end of
those periods (with additional information shown for Class B and Class
C shares based on the assumption that you do not redeem your shares at
that time). The example also assumes that your investment has a 5%
return each year and that the Fund's operating expenses remain the
same. Although your actual costs may be higher or lower, based on these
assumptions your costs would be as follows:
1 Year: 3 Years: 5 Years: 10 Years:
------ ------- ------- --------
Class A: $______ $______ $______ $______
Class B: $______ $______ $______ $______
Class B (no redemption): $______ $______ $______ $______
Class C: $______ $______ $______ $______
Class C (no redemption): $______ $______ $______ $______
Advisor Class: $______ $______ $______ $______
<PAGE>
ADDITIONAL INFORMATION ABOUT INVESTMENT STRATEGIES AND RISKS
Principal strategies:
The Fund invests seeks to achieve its principal objective of long-term
capital growth by investing primarily in the equity securities of
companies that the Fund's manager believes will benefit from the
economic development and growth of emerging markets. The Fund considers
an emerging market country to be one that is generally viewed as
"developing" or "emerging" by the World Bank, the International Finance
Corporation or the United Nations.
The Fund usually invests its assets in at least three different
emerging market countries, and may invest at least 25% of its assets in
the securities of issuers located in a single country. Countries are
selected on the basis of a mix of factors that include long-term
economic growth prospects, anticipated inflation levels, and the effect
of applicable government policies on local business conditions.
Individual securities are selected on the basis of value indicators
(such as earnings, cash flow and growth potential) and are reviewed for
fundamental financial strength. Investment decisions typically are
based on earnings estimates over a five-year period, with stocks
normally purchased from within the cheapest 20% of the market universe
and sold once they are valued within the top 20%.
Principal risks:
General market risk: As with any mutual fund, the value of the Fund's
investments and the income they generate will vary daily and generally
reflect market conditions, interest rates and other issuer-specific,
political or economic developments. The Fund's share value will
decrease at any time during which its security holdings or other
investment techniques are not performing as well as anticipated, and
you could therefore lose money by investing in the Fund depending upon
the timing of your initial purchase and any subsequent redemption.
Other risks: Since the Fund invests heavily in the securities of
issuers located in emerging market countries, it is more susceptible to
the risks associated with these types of securities than a fund that
invests primarily in more developed countries. Following is a
description of these risks, along with the risks commonly associated
with the other securities and investment techniques that the Fund's
portfolio manager considers important in achieving the Fund's
investment objective or in managing the Fund's exposure to risk (and
that could therefore have a significant effect on the Fund's returns).
Other investment techniques that the Fund may use, but that do not play
a key role in the Fund's overall investment strategy, are described in
the Fund's Statement of Additional Information (see back cover page for
information on how you can receive a free copy).
Common Stocks: Common stocks represent a proportionate ownership
interest in a company. As a result, the value of common stock
rises and falls with a company's success or failure. The market
value of common stock can fluctuate significantly, with smaller
companies being particularly susceptible to price swings.
Transaction costs in smaller company stocks may also be higher
than those of larger companies.
Depository Receipts: The Fund may acquire interests in foreign
issuers in the form of sponsored or unsponsored American
Depository Receipts ("ADRs"), Global Depository Receipts ("GDRs")
and similar types of depository receipts. ADRs typically are
issued by a U.S. bank or trust company and represent ownership of
the underlying securities issued by a foreign corporation. GDRs
and other types of depository receipts are usually issued by
foreign banks or trust companies. The Fund's investments in ADRs,
GDRs and other depository receipts are viewed as investments in
the underlying securities.
Depository receipts can be difficult to price and are not always
exchange-listed. Unsponsored depository programs also are
organized independently without the cooperation of the issuer of
the underlying securities. As a result, information concerning the
issuer may not be as current or as readily available as in the
case of sponsored depository instruments, and their prices may be
more volatile than if they were sponsored by the issuers of the
underlying securities.
Foreign Securities: Investing in foreign securities involves a
number of economic, financial and political considerations that
are not associated with the U.S. markets and that could affect the
Fund's performance favorably or unfavorably depending upon
prevailing conditions at any given time. For example, the
securities markets of many foreign countries may be smaller, less
liquid and subject to greater price volatility than those in the
U.S. Foreign investing may also involve brokerage costs and tax
considerations that are not usually present in the U.S. markets.
Many of the Fund's securities also are denominated in foreign
currencies and the value of the Fund's investments as measured in
U.S. dollars may be affected favorably or unfavorably by changes
in foreign currency exchange rates and exchange control
regulations. Currency conversion can also be costly.
Other factors that can affect the value of the Fund's foreign
investments include the comparatively weak supervision and
regulation by some foreign governments of securities exchanges,
brokers and issuers, and the fact that many foreign companies may
not be subject to uniform accounting, auditing and financial
reporting standards. It may also difficult to obtain reliable
information about the securities and business operations certain
foreign issuers. Settlement of portfolio transactions may also be
delayed due to local restrictions or communication problems, which
can cause the Fund to miss attractive investment opportunities or
impair its ability to dispose of securities in a timely fashion
(resulting in a loss if the value of the securities subsequently
declines).
Special Emerging Market Concerns: The risks of investing in foreign
securities are heightened in countries with developing economies. Among
these additional risks are the following:
securities that are even less liquid and more volatile than those in
more developed foreign countries;
less stable governments that are susceptible to sudden
adverse actions (such as nationalization of businesses,
restrictions on foreign ownership or prohibitions against
repatriation of assets);
increased settlement delays;
abrupt changes in exchange rate regime or monetary policy;
restrictions on repatriation of capital;
unusually large currency fluctuations and currency conversion costs
(see "Foreign Currencies"
below); and
high national debt levels (which may impede an issuer's
payment of principal and/or interest on external debt).
Foreign Currencies: Investing in foreign securities typically involves
the use of foreign currencies. The value of the Fund's assets, as measured
in U.S. dollars, may be affected favorably or unfavorably by changes in
foreign currency exchange rates and exchange control regulations. Currency
conversions can also be costly.
Foreign Currency Exchange Transactions and Forward Foreign
Currency Contracts: The Fund may, but is not required to, use
foreign currency exchange transactions and forward foreign
currency contracts to hedge certain market risks (such as interest
rates, currency exchange rates and broad or specific market
movement). These investment techniques involve a number of risks,
including the possibility of default by the counterparty to the
transaction and, to the extent the Fund's judgment as to certain
market movements is incorrect, the risk of losses that are greater
than if the investment technique had not been used. For example,
there may be an imperfect correlation between the Fund's portfolio
holdings of securities denominated in a particular currency and
the forward contracts entered into by the Fund. An imperfect
correlation of this type may prevent the Fund from achieving the
intended hedge or expose the Fund to the risk of currency exchange
loss. In addition, although the use of these investment techniques
for hedging purposes should tend to minimize the risk of loss due
to a decline in the value of the hedged position, they also tend
to limit any potential gain that might result from an increase in
the position's value.
Illiquid Securities: The Fund may invest up to 15% of its net
assets in "illiquid securities," which are assets that may not be
disposed of in the ordinary course of business within seven days
at roughly the value at which the Fund has valued the assets. Some
of these may by "restricted securities," which cannot be sold to
the public without registration under the Securities Act of 1933
(in the absence of an exemption) or because of other legal or
contractual restrictions on resale. Thus, while illiquid
securities may offer the potential for higher returns than more
readily marketable securities, there is a risk that the Fund will
not be able to dispose of them promptly at an acceptable price.
Other Investment Companies: The Fund may invest up to 10% of its
total assets in the shares of other investment companies. As a
shareholder of an investment company, the Fund would bear its
ratable share of the fund's expenses (which often include an
asset-based management fee). The Fund could also lose money by
investing in other investment companies, since the value of their
respective investments and the income they generate will vary
daily based on prevailing market conditions.
Temporary Defensive Positions: The Fund may from time to time
take a temporary defensive position and invest without limit in
U.S. Government securities, investment-grade debt securities, and
cash and cash equivalents such as commercial paper, short-term
notes and other money market securities. When the Fund assumes
such a defensive position it may not achieve its investment
objective. Investing in debt securities also involves both
interest rate and credit risk. Generally, the value of debt
instruments rises and falls inversely with fluctuations in
interest rates. For example, as interest rates decline the value
of debt securities generally increases. Conversely, rising
interest rates tend to cause the value of debt securities to
decrease. The market value of debt securities also tends to vary
according to the relative financial condition of the issuer. Bonds
with longer maturities tend to be more volatile than bonds with
shorter maturities.
Borrowing: For temporary or emergency purposes (such as meeting
shareholder redemption requests within the time periods specified
under the Investment Company Act of 1940), the Fund may borrow up
to one third of the value of its total assets from qualified
banks. Borrowing may exaggerate the effect on the Fund's share
value of any increase or decrease in the value of the securities
it holds. Money borrowed will also be subject to interest costs.
The Fund has a policy of not purchasing securities whenever the
Fund's outstanding borrowings exceed 10% of the value of the
Fund's total assets. Where this occurs, the Fund could miss out on
attractive investment opportunities.
Other Important Information:
Year 2000 Risks: Many computer software and hardware systems in use
today cannot distinguish between the year 2000 and the year 1900
because of the way dates are encoded and calculated (the "Year 2000
Problem"). The inability of computer-based systems to make this
distinction could have a seriously adverse effect on the handling of
securities trades, pricing and account services worldwide. The Fund's
service providers are taking steps that each believes are reasonably
designed to address the Year 2000 Problem with respect to the computer
systems that they use. The Fund believes these steps will be sufficient
to avoid any material adverse impact on the Fund. At this time,
however, there can be no assurance that significant problems will not
occur (which either directly or indirectly may cause the Fund to lose
money).
MANAGEMENT
Investment Advisor:
Ivy Management, Inc. ("IMI"), located at Via Mizner Financial Plaza,
700 South Federal Highway, Boca Raton, Florida 33432, provides
investment advisory and business management services to the Fund. IMI
is an SEC-registered investment advisor with over $____ billion in
assets under management, and provides similar services to the other
eighteen series of the Trust. For the Fund's fiscal year ending
December 31, 1998, the Fund paid to IMI a fee equal to ___% of the
Fund's average net assets.
Portfolio Management:
The Fund is managed by a team of investment professionals that is
supported by research analysts who acquire information on regional and
country-specific economic and political developments and monitor
individual companies. These analysts use a variety of research sources
that include:
brokerage reports;
economic and financial news services;
company reports; and
information from third party research firms (ranging from large
investment banks with global coverage to local research houses).
In many cases, particularly in emerging market countries, IMI's
research analysts also conduct primary research by:
meeting with company management;
touring facilities; and
speaking with local research professionals.
<PAGE>
SHAREHOLDER INFORMATION
PRICING OF FUND SHARES:
The Fund calculates its share price by dividing the value of the Fund's
net assets by the total number of its shares outstanding as of the
close of regular trading (usually 4:00 p.m. Eastern time) on the New
York Stock Exchange on each day the Exchange is open for trading
(normally any weekday that is not a national holiday).
Each portfolio security that is listed or traded on a recognized stock
exchange is valued at the security's last sale price on the exchange
on which it was purchased. If no sale is reported at that time, the
average between the last bid and asked prices is used. Securities and
other Fund assets for which market prices are not readily available
are priced at their "fair value" as determined by IMI in accordance
with procedures approved by the Fund's Board of Trustees. IMI may also
price a foreign security at its "fair value" if events materially
affecting the value of the security occur between the close of the
foreign exchange on which the security is principally traded and the
time as of which the Fund prices its shares. Fair value pricing under
these circumstances is designed to protect existing shareholders from
dilution of their share value caused by short-term investors trading
into and out of the Fund at at time when the Fund's share price,
calculated by ordinary pricing methods, is undervalued. When such fair
value pricing occurs, however, there may be some period of time during
which the Fund's share price and/or performance information is not
available.
The number of shares you receive when you place a purchase order, and
the payment you receive after submitting a redemption request, is based
on the Fund's net asset value next determined after your instructions
are received in proper form by Ivy Mackenzie Services Corp. (the Fund's
transfer agent) or by your registered securities dealer. Each purchase
and redemption order is subject to any applicable sales charge (see
"Distribution Arrangements" below). Since the Fund normally invests in
securities that are listed on foreign exchanges that may trade on
weekends or other days when the Fund does not price its shares, the
Fund's share value may change on days when shareholders will not be
able to purchase or redeem the Fund's shares.
HOW TO BUY SHARES:
Purchasing Fund shares involves "Choosing the Appropriate Class of
Shares" and "Submitting Your Purchase Order". Please read these
sections below carefully before investing.
Choosing the Appropriate Class of Shares - The essential features of
the Fund's different classes of shares are described below. If you do
not specify on your Account Application which class of shares you are
purchasing, it will be assumed that you are purchasing Class A shares.
The Fund has adopted separate distribution plans pursuant to Rule
12b-1 under the 1940 Act for its Class A, B and C shares that allow
the Fund to pay distribution and other fees for the sale and
distribution of its shares and for services provided to shareholders.
Because these fees are paid out of the Fund's assets on an on-going
basis, over time they will increase the cost of your investment and
may cost you more than paying other types of sales charges.
Class A Shares: Class A shares are sold at net asset value
plus a maximum sales charge of 5.75% (the "offering price"). The
sales charge may be reduced or eliminated if certain conditions
are met (see "Additional Purchase Information" below). Class A
shares are subject to a .25% Rule 12b-1 service fee.
Class B Shares: Class B shares are offered at net asset value,
without an initial sales charge, but subject to a contingent
deferred sales charge ("CDSC") that declines from 5% to zero on
certain redemptions within six years of purchase. Class B shares
are subject to a .75% Rule 12b-1 distribution fee and a .25% Rule
12b-1 service fee, and convert automatically into Class A shares
eight years after purchase.
Class C Shares: Class C shares are offered at net asset value,
without an initial sales charge, but subject to a CDSC of 1% for
redemptions within the first year of purchase. Class C shares are
subject to a .75% Rule 12b-1 distribution fee and a .25% Rule
12b-1 service fee.
Advisor Class Shares: Advisor Class shares are offered to certain
classes of investors at net asset value, without any sales load or
Rule 12b-1 fees.
The following table displays the various investment minimums, sales
charges and expenses that apply to each class.
<TABLE>
<S> <C> <C> <C> <C>
- -------------------- --------------------- --------------------- --------------------- -------------------
Class A Class B Class C Advisor Class
- -------------------- --------------------- --------------------- --------------------- -------------------
- -------------------- --------------------- --------------------- --------------------- -------------------
Minimum Initial $10,000
Investment* $1,000 $1,000 $1,000
- -------------------- --------------------- --------------------- --------------------- -------------------
- -------------------- --------------------- --------------------- --------------------- -------------------
Minimum Subsequent
Investment* $100 $100 $100 $ 250
- -------------------- --------------------- --------------------- --------------------- -------------------
- -------------------- --------------------- --------------------- --------------------- -------------------
Initial Sales Maximum 5.75%, with None None None
Charge options for a
reduced or waiver
of initial sales
charge
- -------------------- --------------------- --------------------- --------------------- -------------------
- -------------------- --------------------- --------------------- --------------------- -------------------
CDSC None, except on Maximum 5.00%, 1.00% for the first None
certain NAV declines over six year
purchases years
- -------------------- --------------------- --------------------- --------------------- -------------------
- -------------------- --------------------- --------------------- --------------------- -------------------
Service and 0.25% Service fee 0.75% Distribution 0.75% Distribution None
Distribution Fees Fee and 0.25% Fee and 0.25%
Service Fee Service Fee
- -------------------- --------------------- --------------------- --------------------- -------------------
</TABLE>
* Minimum initial and subsequent investments for retirement plans are
$25.
ADDITIONAL PURCHASE INFORMATION:
Class A Shares - Class A shares are sold at a public offering
price equal to their net asset value per share ("NAV") plus an
initial sales charge, as set forth below (which is reduced as the
amount invested increases):
<TABLE>
<S> <C> <C> <C>
- -------------------------------- ---------------------- ------------------ ----------------------
Sales Charge as a Sales Charge as Portion of Public
Percentage of Public a Percentage of Offering Price
Offering Price Net Amount Retained by Dealer
Amount Invested Invested
- -------------------------------- ---------------------- ------------------ ----------------------
- -------------------------------- ---------------------- ------------------ ----------------------
Less than $50,000 5.75% 6.10% 5.00%
- -------------------------------- ---------------------- ------------------ ----------------------
- -------------------------------- ---------------------- ------------------ ----------------------
$50,000 but less than $100,000 5.25% 5.54% 4.50%
- -------------------------------- ---------------------- ------------------ ----------------------
- -------------------------------- ---------------------- ------------------ ----------------------
$100,000 but less than $250,000 4.50% 4.71% 3.75%
- -------------------------------- ---------------------- ------------------ ----------------------
- -------------------------------- ---------------------- ------------------ ----------------------
$250, 000 but less than 3.00% 3.09% 2.50%
$500,000
- -------------------------------- ---------------------- ------------------ ----------------------
$500,000 or over* 0.00% 0.00% 0.00%
- -------------------------------- ---------------------- ------------------ ----------------------
</TABLE>
* A CDSC of 1.00% applies to Class A shares that are redeemed
within two years of the end of the month in which they were
purchased.
Class A shares that are acquired through reinvestment of dividends
or distributions are not subject to any sales charges.
HOW TO REDUCE YOUR INITIAL SALES CHARGE:
"Rights of Accumulation" permits you to pay the sales charge
that applies to the cost or value (whichever is higher) of all
Ivy Fund Class A shares you own.
A "Letter of Intent" permits you to pay the sales charge that
would apply to your cumulative purchase of Fund shares over a
13-month period (certain restrictions apply).
HOW TO ELIMINATE YOUR INITIAL SALES CHARGE:
You may purchase Class A shares at NAV (without an initial sales
charge or a CDSC) through any one of the following methods:
through certain investment advisors and financial planners who charge
a management, consulting or other fee for their services;
under certain qualified retirement plans;
as an employee or director of Mackenzie Investment Management Inc. or
its affiliates;
as an employee of a selected dealer; or
through the Merrill Lynch Daily K Plan (the "Plan"), provided
the Plan has at least $3 million in assets or over 500 or more
eligible employees. Class B shares of the Fund are made
available to Plan participants at NAV without a CDSC if the
Plan has less than $3 million in assets or fewer than 500
eligible employees. For further information see "Group
Systematic Investment Program" in the SAI.
You may also purchase Class A shares at NAV if you are investing
at least $500,000 through a dealer or agent. Ivy Mackenzie
Distributors, Inc. ("IMDI"), the Fund's distributor, may pay the
dealer or agent (out of IMDI's own resources) for its distribution
assistance according to the following schedule:
------------------------------- -------------------------------
Purchase Amount Commission
------------------------------- -------------------------------
------------------------------- -------------------------------
First $3,000,000 1.00%
------------------------------- -------------------------------
------------------------------- -------------------------------
Next $2,000,000 0.50%
------------------------------- -------------------------------
------------------------------- -------------------------------
Over $5,000,000 0.25%
------------------------------- -------------------------------
Certain trust companies, bank trust departments, credit unions,
savings and loans and other similar organizations may also be
exempt from the initial sales charge on Class A shares.
Class B and Class C Shares - Class B and Class C shares are not
subject to an initial sales charge but are subject to a CDSC. If
you redeem your Class C shares within one year of purchase they
will be subject to a CDSC of 1%, and Class B shares redeemed
within six years of purchase will be subject to a CDSC at the
following rates:
--------------------- --------------------
CDSC as a
Percentage of
Year Since Purchase Dollar Amount
Subject to Charge
--------------------- --------------------
First 5%
--------------------- --------------------
--------------------- --------------------
Second 4%
--------------------- --------------------
--------------------- --------------------
Third 3%
--------------------- --------------------
--------------------- --------------------
Fourth 3%
--------------------- --------------------
--------------------- --------------------
Fifth 2%
--------------------- --------------------
--------------------- --------------------
Sixth 1%
--------------------- --------------------
--------------------- --------------------
Seventh and 0%
thereafter
--------------------- --------------------
The CDSC for both Class B and Class C shares will be assessed on
an amount equal to the lesser of the current market value or the
original purchase cost of the shares being redeemed. No charge
will be assessed on increases in account value above the original
purchase price or on reinvested dividends and distributions.
The CDSC for Class B shares is waived for:
Certain post-retirement withdrawals from an IRA or other
retirement plan if you are over 59 1/2 years old.
Redemptions by certain eligible 401(a) and 401(k) plans and
certain retirement plan rollovers.
Redemption resulting from a tax-free return of excess
contribution to an IRA.
Withdrawals resulting from shareholder death or disability
provided that the redemption is requested within one year of
death or disability.
Withdrawals through the Systematic Withdrawal Plan of up to
12% per year of your account value at the time the plan is
established.
Both Class B shares and Class C shares are subject to an ongoing
service and distribution fee at a combined annual rate of up to
1.00% of the portfolio's average net assets attributable to its
Class B or Class C shares. The ongoing distribution fees will
cause these shares to have a higher expense ratio than that of
Class A and Advisor Class shares. IMDI uses the money that it
receives from the deferred sales charge and the distribution fees
to cover various promotional and sales related expenses, as well
as expenses related to providing distributions services, such as
compensating selected dealers and agents for selling these shares.
Approximately eight years after the original date of purchase,
your Class B shares will be converted automatically to Class A
shares. Class A shares are subject to lower annual expenses than
Class B shares. The conversion from Class B shares to Class A
shares is not considered a taxable event for federal income tax
purposes. Class C shares do not have a similar conversion
privilege.
Advisor Class - Advisor Class shares are offered only to
institutions and certain individuals, and are not subject to an
initial sales charge or a CDSC, nor to ongoing service or
distribution fees.
SUBMITTING YOUR PURCHASE ORDER:
INITIAL INVESTMENTS:
Complete and sign the Account Application appearing at the end of this
Prospectus. Enclose a check payable to Ivy Fund (see page [XX] for
minimum initial investments.) Deliver your application materials to
your registered representative or selling broker, or send them to one
of the addresses below:
By Regular Mail: By Courier:
Ivy Mackenzie Services Corp. Ivy Mackenzie Services Corp.
P.O. Box 3022 700 South Federal Hwy.
Boca Raton, FL 33431-0922 Boca Raton, FL 33432
BUYING ADDITIONAL SHARES:
There are several ways to increase your investment in the Fund:
By Mail - Send your check with a completed investment slip
(attached to your account statement) or written instructions
indicating the account registration, fund number or name, and
account number.
Mail to one of the addresses above.
Through Your Broker - Deliver to your registered representative
or selling broker the investment slip attached to your statement,
or written instructions, along with your payment.
By Wire - Purchases may also be made by wiring money from your
bank account to your Ivy account. Your bank may charge a fee for
wiring funds. Before wiring any funds, please call IMSC at (800)
777-6472. Wiring instructions are as follows:
First Union National Bank of Florida
Jacksonville, FL
ABA #063000021
Account #2090002063833
For further credit to:
Your Ivy Fund Account Number
Your Fund Number and Account Number
By Automatic Investment Method - You can authorize to have funds
electronically drawn each month from your bank account and
invested as a purchase of shares into your Ivy Fund account.
Complete sections [XX] and [XX] of the Account Application.
HOW TO REDEEM SHARES:
SUBMITTING YOUR REDEMPTION ORDER:
You may redeem your Fund shares through your registered securities
dealer or directly through IMSC. If you choose to redeem through your
registered securities dealer, the dealer is responsible for properly
transmitting redemption orders in a timely manner. If you choose to
redeem directly through IMSC, you have several ways to submit your
request:
By Mail - Send your written redemption request to IMSC at one of
the addresses on page XX of this Prospectus. Be sure that all
registered owners listed on the account sign the request.
Signature guarantees and supporting legal documentation may be
required. When you redeem, IMSC will normally send redemption
proceeds to you on the next business day, but may take up to seven
days (or longer in the case of shares recently purchased by
check).
By Telephone - Call IMSC at (800) 777-6472 to redeem from your
account. In order to process your redemption order by telephone,
you must have telephone redemption privileges on your account.
IMSC employs reasonable procedures that require personal
identification prior to acting on redemption instructions
communicated by telephone to confirm that such instructions are
genuine. In the absence of such procedures, the Fund or IMSC may
be liable for any losses due to unauthorized or fraudulent
telephone instructions.
By Systematic Withdrawal Plan (SWP) - You can authorize to have
funds electronically drawn each month from your Ivy Fund account
and deposited directly into your bank account. Certain minimum
balances and minimum distributions apply. Complete sections XX of
the Account Application to add this feature to your account.
Receiving Your Redemption Proceeds - You can receive redemption
proceeds through a variety of payment methods:
By Check - Unless otherwise instructed, checks will be made
payable to the current account registration and sent to the
address of record.
By Federal Funds Wire - Proceeds will be wired on the next
business day to a pre-designated bank account. Requests by
telephone can only be accepted for amounts up to $50,000. Your
account will be charged $10 each time redemption proceeds are
wired to your bank, and your bank may also charge you a fee for
receiving a Federal Funds wire.
By Electronic Funds Transfer - For SWP redemptions only.
Important Redemption Information:
A CDSC may apply to certain Class A share redemptions, to Class B
shares redeemed within six years of purchase, and to Class C
shares that are redeemed within one year of purchase.
All redemptions are made at the NAV next determined after a
redemption request has been received in good order. Requests for
redemptions must be received by 4:00 p.m. Eastern time to be
processed at the NAV for that day. Any redemption request in good
order that is received after 4:00 p.m. Eastern time will be
processed at the price determined on the following business day.
If you own shares of more than one class of the Fund, the Fund
will redeem first the shares having the highest 12b-1 fees.
Any shares subject to a CDSC will be redeemed last unless you
specifically elect otherwise.
The Fund may (on 60 days' notice) redeem the accounts of
shareholders whose investment, including sales charges paid, has
been less than $1,000 for more than 12 months.
The Fund may take up to seven days (or longer in the case of
shares recently purchased by check) to send redemption proceeds.
The Fund may make payment for redeemed shares in the form of
securities of the Fund taken at current values.
HOW TO EXCHANGE YOUR FUND SHARES:
You may exchange your Fund shares for shares of another Ivy fund,
subject to certain restrictions (see "Important Exchange Information"
below).
Submitting Your Exchange Order - You may submit an exchange request to
IMSC as follows:
By Mail - Send your written exchange request to IMSC at one of
the addresses on page XX of this Prospectus. Be sure that all
registered owners listed on the account sign the request.
By Telephone - Call IMSC at (800) 777-6472 to authorize an
exchange transaction. In order to process your exchange order by
telephone, you must have telephone exchange privileges on your
account. IMSC employs reasonable procedures that require personal
identification prior to acting on exchange instructions
communicated by telephone to confirm that such instructions are
genuine. In the absence of such procedures, the Fund or IMSC may
be liable for any losses due to unauthorized or fraudulent
telephone instructions.
IMPORTANT EXCHANGE INFORMATION:
You must exchange into the same share class you currently own.
Exchanges are considered taxable events and may result in a
capital gain or a capital loss for tax purposes.
It is the policy of the Fund to discourage the use of the
exchange privilege for the purpose of timing short-term market
fluctuations. The Fund may therefore limit the frequency of
exchanges by a shareholder or cancel a shareholder's exchange
privilege if at any time it appears that such market timing
strategies are being used.
DIVIDENDS AND DISTRIBUTIONS:
The Fund generally declares and pays dividends and capital gain
distributions (if any) at least once a year.
Dividends and distributions are "reinvested" in additional Fund
shares unless you request to receive them in cash.
Reinvested dividends and distributions are added to your account
at NAV and are not subject to a CDSC regardless of which share
class you own.
Cash dividends and distributions can be sent to you:
BY MAIL - a check will mailed to the address of record unless
otherwise instructed.
BY ELECTRONIC FUNDS TRANSFER ("EFT") - your proceeds will be
directly deposited into your bank account.
To change your dividend and/or distribution options, call IMSC at
(800) 777-6472.
TAX CONSEQUENCES:
Distributions you receive from the Fund are reinvested in additional
shares of the same class of the Fund unless you elect to receive them
in cash. Dividends ordinarily will vary from one class to another.
The Fund intends to declare and pay dividends monthly. The Fund will
distribute net investment income and net realized capital gains, if
any, at least once a year. The Fund may make an additional distribution
of net investment income and net realized capital gains to comply with
the calendar year distribution requirement under the excise tax
provisions of Section 4982 of the Internal Revenue Code of 1986, as
amended (the "Code").
Dividends paid out of the Fund's investment company taxable income
(including dividends, interest and net short-term capital gains) will
be taxable to you as ordinary income. If a portion of the Fund's income
consists of dividends paid by U.S. corporations, a portion of the
dividends paid by the Fund may be eligible for the corporate
dividends-received deduction. Distributions of net capital gains (the
excess of net long-term capital gains over net short-term capital
losses), if any, are taxable to you as long-term capital gains,
regardless of how long you have held your shares. Dividends are taxable
to you in the same manner whether received in cash or reinvested in
additional Fund shares.
If shares of the Fund are held in a tax-deferred account, such as a
retirement plan, income and gain will not be taxable each year.
Instead, the taxable portion of amounts held in a tax-deferred account
generally will be subject to tax as ordinary income only when
distributed from that account.
A distribution will be treated as paid to you on December 31 of the
current calendar year if it is declared by the Fund in October,
November or December with a record date in such a month and paid by the
Fund during January of the following calendar year.
In certain years, you may be able to claim a credit or deduction on
your income tax return for your share of foreign taxes paid by the
Fund. Upon the sale or other disposition of your Fund shares, you may
realize a capital gain or loss which will be long-term or short-term,
generally depending upon how long you held your shares.
The Fund may be required to withhold U.S. Federal income tax at the
rate of 31% of all distributions payable to you if you fail to provide
the Fund with your correct taxpayer identification number or to make
required certifications, or if you have been notified by the Internal
Revenue Service ("IRS") that you are subject to backup withholding.
Backup withholding is not an additional tax. Any amounts withheld may
be credited against your U.S. Federal income tax liability.
Fund distributions may be subject to state, local and foreign taxes.
You should consult with your tax adviser as to the tax consequences of
an investment in the Fund, including the status of distributions from
the Fund under applicable state or local law.
<PAGE>
IVY DEVELOPING NATIONS FUND
<TABLE>
<CAPTION>
CLASS A
-----------------------------------------------------------
1998 1997 1996 1995 1994(A)
SELECTED PER SHARE DATA -------- ------- ------- ------ -------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of
period........................... $10.12 $ 9.05 $ 8.64 $10.00
------- ------- ------ -------
Income (loss) from investment
operations
Net investment income
(loss)(c)..................... .01 (.02) .01 --
Net realized and unrealized
gain (loss) on investment
transactions.................. (2.80) 1.09 .54 (1.36)
------- ------- ------ -------
Total from investment
operations................. (2.79) 1.07 .55 (1.36)
------- ------- ------ -------
Less distributions
From net investment income..... -- -- .01 --
In excess of net investment
income........................ .01 -- -- --
From net realized gain......... .30 -- .10 --
In excess of net realized
gain.......................... .20 -- .03 --
------- ------- ------ -------
Total distributions......... .51 -- .14 --
------- ------- ------ -------
Net asset value, end of period.... $ 6.82 $ 10.12 $ 9.05 $ 8.64
======= ======= ====== =======
Total return(%)................... (27.42) 11.83 6.40 (13.50)
RATIOS AND SUPPLEMENTAL DATA
Net assets, end of period (in
thousands)....................... $8,584 $ 9,925 $3,435 $ 611
Ratio of expenses to average net
assets(d)
With expense reimbursement(%).... 2.31 2.45 2.55 2.20
Without expense
reimbursement(%)............... 2.39 2.82 7.18 20.74
Ratio of net investment income
(loss) to average net
assets(%)(c)..................... .09 (.23) .24 .52
Portfolio turnover rate(%)........ 42 27 14 --
Average commission rate........... $.0020 $ .0018 N/A N/A
<CAPTION>
CLASS B
-------------------------------------------------------
1998 1997 1996 1995 1994(A)
SELECTED PER SHARE DATA -------- ------- ------ ------ -------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of
period........................... $10.04 $ 9.05 $ 8.64 $10.00
------- ------ ------ ------
Income (loss) from investment
operations
Net investment income
(loss)(c)..................... (.06) (.06 (.02) --
Net realized and unrealized
gain (loss) on investment
transactions.................. (2.76) 1.05 .51 (1.36)
------- ------ ------ ------
Total from investment
operations................. (2.82) .99 .49 (1.36)
------- ------ ------ ------
Less distributions
From net investment income..... -- -- -- --
In excess of net investment
income........................ .01 -- -- --
From net realized gain......... .28 -- .08 --
In excess of net realized
gain.......................... .16 -- -- --
------- ------ ------ ------
Total distributions......... .45 -- .08 --
------- ------ ------ ------
Net asset value, end of period.... $ 6.77 $10.04 $ 9.05 $ 8.64
======= ====== ====== ======
Total return(%)................... (27.93) 10.95 5.62 (13.60)
RATIOS AND SUPPLEMENTAL DATA
Net assets, end of period (in
thousands)....................... $8,488 $6,269 $ 945 $ 121
Ratio of expenses to average net
assets(d)
With expense reimbursement(%).... 3.09 3.20 3.30 2.95
Without expense
reimbursement(%)............... 3.17 3.57 7.93 21.49
Ratio of net investment income
(loss) to average net
assets(%)(c)..................... (.69) (.98) (.51) (.23)
Portfolio turnover rate(%)........ 42 27 14 --
Average commission rate........... $.0020 $.0018 N/A N/A
<CAPTION>
CLASS C
------------------------------
1998 1997 1996(B)
SELECTED PER SHARE DATA -------- ------- -------
<S> <C> <C> <C>
Net asset value, beginning of
period........................ $10.06 $ 9.89
------ ------
Income (loss) from investment
operations
Net investment income
(loss)(c).................. (.07) (.02)
Net realized and unrealized
gain (loss) on investment
transactions............... (2.76) .19
------ ------
Total from investment
operations.............. (2.83) .17
------ ------
Less distributions
From net investment income.. -- --
In excess of net investment
income..................... .01 --
From net realized gain...... .27 --
In excess of net realized
gain....................... .16 --
------ ------
Total distributions...... .44 --
------ ------
Net asset value, end of period. $ 6.79 $10.06
====== ======
Total return(%)................ (28.01) 1.73
RATIOS AND SUPPLEMENTAL DATA
Net assets, end of period (in
thousands).................... $2,420 $1,854
Ratio of expenses to average net
assets(d)
With expense reimbursement(%). 3.12 3.16
Without expense
reimbursement(%)............ 3.20 3.53
Ratio of net investment income
(loss) to average net
assets(%)(c).................. (.72) (.94)
Portfolio turnover rate(%)..... 42 27
Average commission rate........ $.0020 $.0018
<CAPTION>
ADVISOR CLASS
SHARES
1998
SELECTED PER SHARE DATA -------------
<S> <C>
Net asset value, beginning of period.........
Income (loss) from investment operations
Net investment income (loss) (b)..........
Net realized and unrealized loss on
investment transactions..................
Total from investment operations.......
Less distributions
From net investment income................
In excess of net investment income........
Total distributions....................
Net asset value, end of period...............
Total return (%).............................
RATIOS AND SUPPLEMENTAL DATA
Net assets, end of period (in thousands).....
Ratio of expenses to average net assets(c)
With expense reimbursement(%)...............
Without expense reimbursement(%)............
Ratio of net investment income (loss) to
average net assets(%)(b)....................
Portfolio turnover rate(%)...................
Average commission rate......................
</TABLE>
- - ---------------
(a) From November 1, 1994 (commencement) to December 31, 1994.
(b) From April 30, 1996 (commencement) to December 31, 1996.
(c) Net investment income (loss) is net of expenses reimbursed by manager.
(d) Beginning in 1995, total expenses include any fees paid indirectly through
an expense offset arrangement.
<PAGE>
ACCOUNT APPLICATION
Please mail applications and checks to: Ivy Mackenzie Services Corp.,
P.O. Box 3022, Boca Raton, FL 33431-0922.
(This application should not be used for retirement accounts for which
Ivy Fund is custodian.)
Account Number:
(Fund Use Only)
Dealer #:
Branch #:
Rep. I.D. #:
Acct. Type:
Soc Cd:
Div Cd:
CG Cd:
Exc Cd:
Red Cd:
1. REGISTRATION
/ / Individual / / Joint Tenant / / Estate / / UGMA/UTMA / /
Corporation / / Partnership / / Sole Proprietor / / Trust / / Other
Date of Trust
Owner, Custodian or Trustee
Co-owner or Minor
Minor's State of Residence
Street
City
State
Zip Code
Phone Number -- Day
Phone Number -- Evening
2. TAX ID
Citizenship: / / U.S. / / Other ________________
Social Security Number
Tax Identification Number
Under penalties of perjury, I certify by signing in Section 8 below
that: (1) the number shown in this section is my correct taxpayer
identification number (TIN), and (2) I am not subject to backup
withholding because: (a) I have not been notified by the Internal
Revenue Service (IRS) that I am subject to backup withholding as a
result of a failure to report all interest or dividends, or (b) the IRS
has notified me that I am no longer subject to backup withholding.
(Cross out item (2) if you have been notified by the IRS that you are
currently subject to backup withholding because of underreporting
interest or dividends on your tax return.) Please see the "Tax
Consequences" section of the Prospectus for additional information on
completing this section.
3. DEALER INFORMATION
The undersigned ("Dealer") agrees to all applicable provisions in this
Application, guarantees the signature and legal capacity of the
Shareholder, and agrees to notify IMSC of any purchases made under a
Letter of Intent or Rights of Accumulation.
Dealer Name
Branch Office Address
City
State
Zip Code
Representative's Name and Number
Representative's Phone Number
Authorized Signature of Dealer
4. INVESTMENTS
A. Enclosed is my check ($1,000 minimum) for $_____________ made
payable to ________________ [Fund Name]. Please invest it in
Class A __ Class B __ Class C __ or Advisor Class __ shares.
B. I qualify for an elimination of the sales charge due to the
following privilege (applies only to Class A shares):
__ New Letter of Intent (if ROA or 90-day backdate
privilege is applicable, provide account(s)
information below.)
__ ROA with the account(s) listed below.
__ Existing Letter of Intent with account(s) listed
below.
Fund Name(s)
Account Number(s)
If establishing a Letter of Intent, you will need to purchase
Class A shares over a thirteen-month period in accordance with
the provisions in the Prospectus. The Aggregate amount of
these purchases will be at least equal to the amount indicated
below (see Prospectus for minimum amount required for reduced
sales charges).
/ / $50,000
/ / $100,000
/ / $250,000
/ / $500,000
C. FOR DEALER USE
Confirmed trade orders: [Confirm Number, Number of Shares,
Trade Date]
5. DISTRIBUTION OPTIONS
I would like to reinvest dividends and capital gains into additional
shares in this account at net asset value unless a different option is
checked below.
/ / Reinvest all dividends and capital gains into additional
shares of a different Ivy fund.
Fund Name
Account Number
/ / Pay all dividends in cash and reinvest capital gains into
additional shares in this Fund or a different Ivy fund.
Fund Name
Account Number
/ / Pay all dividends and capital gains in cash.
I REQUEST THE ABOVE CASH DISTRIBUTION, SELECTED IN C OR D
ABOVE, BE:
/ / Sent to the address listed in the registration.
/ / Sent to the special payee listed in Section 7A / / (By Mail) 7B
/ / (By E.F.T.)
6. OPTIONAL SPECIAL FEATURES
A. / / Automatic Investment Method (AIM)
- - I wish to invest _________________ / / once per month / /
twice / / 3 times / / 4 times
- - My bank account will be debited on the _________ day of the month
Please invest $___________________ each period starting in the month
of __________________ in
---------------------------.
Fund Name
/ / Class A
/ / Class B
/ / Class C
/ / Advisor Class
/ / I have attached a voided check to ensure my correct bank
account will be debited.
B. SYSTEMATIC WITHDRAWAL PLANS**
I wish to automatically withdraw funds from my account in
_________________[Fund name].
/ / Monthly / / Quarterly / /Semiannually / / Annually
/ / Once / / Twice / / 3 times / / 4 times per month
I request the distribution be:
/ / Sent to the address listed in the registration.
/ / Sent to the special payee listed in Section 7.
/ / Invested into additional shares of the same class of a different Ivy
fund.
Fund Name
Account Number
Amount $__________________(Minimum $50) starting on or about the
- -_______ day of the month
- -_______ day of the month
- -_______ day of the month*
NOTE: Account minimum: $5,000 in shares at current offering price
C. FEDERAL FUNDS TRANSFER FOR REDEMPTION PROCEEDS**
I authorize the Agent to honor telephone instructions for the
redemption of Fund shares up to $50,000. Proceeds may be wire
transferred to the bank account designated ($1,000 minimum).
(Complete Section 7B)
TELEPHONE EXCHANGES** / / YES / / NO
I authorize exchanges by telephone among the Ivy funds upon
instructions from any person as more fully described in the
Prospectus. To change this option once established, written
instructions must be received from the shareholder of record
or the current registered representative.
If neither box is checked, the telephone exchange privilege
will be provided automatically.
TELEPHONIC REDEMPTIONS** / / YES / / NO
The Fund or its agents are authorized to honor telephone
instructions from any person as more fully described in the
Prospectus for the redemption of Fund shares. The amount of
the redemption shall not exceed $50,000 and the proceeds are
to be payable to the shareholder of record and mailed to the
address of record. To change this option once established,
written instructions must be received from the shareholder of
record or the current registered representative.
If neither box is checked, the telephone redemption privilege
will be provided automatically.
* There must be a period of at least seven calendar
days between each investment/withdrawal period.
** This option may not be used if shares are issued in
certificate form.
7. SPECIAL PAYEE
A. MAILING ADDRESS
Please send all disbursements to this special payee:
Name of Bank or Individual
Account Number (If Applicable)
Street
City/State/Zip
B. FED WIRE / E.F.T. INFORMATION
Financial Institution
ABA #
Account #
Street
City/State/Zip
(Please attach a voided check)
8. SIGNATURES
Investors should be aware that the failure to check the "No" under
Section 6D or 6E above means that the Telephone Exchange/Redemption
Privileges will be provided. The Fund employs reasonable procedures
that require personal identification prior to acting on
exchange/redemption instructions communicated by telephone to confirm
that such instructions are genuine. In the absence of such procedures,
the Fund may be liable for any losses due to unauthorized or fraudulent
telephone instructions. Please see "How to Exchange Your Fund Shares"
and "How to Redeem Your Fund Shares" in the Prospectus for more
information on these privileges.
I certify to my legal capacity to purchase or redeem shares of the Fund
for my own account or for the account of the organization named in
Section 1. I have received a current Prospectus and understand its
terms are incorporated in this application by reference. I am
certifying my taxpayer information as stated in Section 2.
THE INTERNAL REVENUE SERVICE DOES NOT REQUIRE YOUR CONSENT TO ANY
PROVISION OF THIS DOCUMENT OTHER THAN THE CERTIFICATIONS REQUIRED TO
AVOID BACKUP WITHHOLDING.
------------------------------
Signature of Owner, Custodian, Date
Trustee or Corporate Officer
------------------------------
Signature of Joint Owner, Date
Co-Trustee or Corporate Officer
(Remember to sign Section 8)
<PAGE>
[Back Cover Page]
HOW TO RECEIVE MORE INFORMATION ABOUT THE FUND
Additional information about the Fund and its investments is contained in the
Fund's Statement of Additional Information dated April ___, 1999 (the "SAI"),
which is incorporated by reference into this Prospectus, and the Fund's annual
and semi-annual reports to shareholders. The Fund's annual report includes a
discussion of the market conditions and investment strategies that significantly
affected the Fund's performance during its most recent fiscal year. The SAI and
the Fund's annual and semi-annual reports are available upon request and without
charge from the Distributor at the following address and phone number:
Ivy Mackenzie Distributors, Inc.
Via Mizner Financial Plaza
700 South Federal Highway
Boca Raton, Florida 33432
(800) 456-5111
Information about the Fund (including the SAI and the Fund's annual and
semi-annual reports) may also be reviewed and copied at the SEC's Public
Reference Room in Washington, D.C. (please call 1-800-SEC-0330 for further
details). Information about the Fund is also available on the SEC's Internet
Website (www.sec.gov), and copies of this information may be obtained, upon
payment of a copying fee, by writing the Public Reference Section of the SEC,
Washington, D.C. 20549-6009.
SHAREHOLDER INQUIRIES
Please call Ivy Mackenzie Services Corp., the Fund's transfer agent, at
1-800-777-6472 regarding any other inquiries about the Fund.
Investment Company Act File No. 811-1028
<PAGE>
[Front Cover Page]
PROSPECTUS April ___, 1999
IVY FUND - Ivy European Opportunities Fund
Ivy Fund (the "Trust") is a registered open-end investment company currently
consisting of nineteen separate portfolios. This Prospectus relates to the Class
A, Class B, Class C, Class I and Advisor Class shares of Ivy European
Opportunities Fund (the "Fund"). No other share are offered in this Prospectus.
The Securities and Exchange Commission has not approved or disapproved these
securities or passed upon the adequacy of this Prospectus. Any representation to
the contrary is a criminal offense.
[Insert all logos]
<PAGE>
TABLE OF CONTENTS
SUMMARY
ADDITIONAL INFORMATION ABOUT INVESTMENT STRATEGIES AND RISKS
MANAGEMENT
SHAREHOLDER INFORMATION
ACCOUNT APPLICATION
HOW TO RECEIVE MORE INFORMATION ABOUT THE FUND
SHAREHOLDER INQUIRIES
<PAGE>
SUMMARY
Investment The Fund's investment objective is long-term capital growth
objective: by investing in the securities markets of Europe.
Principal The Fund normally invests at least 65% of its total assets
investment in the equity securities of European companies, which may
strategies: include:
companies operating in Europe's emerging markets;
small capitalization companies in the more developed
markets of Europe; and
European companies of any size that provide special
investment opportunities (such as providing exceptional
value).
Other securities and investment techniques that the Fund's
manager considers important in achieving the Fund's
investment objective (or in controlling the Fund's exposure
to risk) include debt securities, up to 20% of which may be
low-rated (commonly referred to as "high yield" or "junk"
bonds) derivative transactions (such as options, and stock
index, interest rate and foreign currency futures
contracts).
Principal risks: The main risks to which the Fund is exposed in
carrying out its investment strategies are the following:
Management risk: The Fund's manager might not select
securities that perform as well as the securities held by
other mutual funds with investment objectives that are
similar to those of the Fund.
Market risk: Common stocks represent a proportionate
ownership interest in a company. The market value of common
stock can fluctuate significantly even where "management
risk" is not a factor, so you could lose money if you redeem
your Fund shares at a time when the Fund's stock portfolio
is not performing as well as expected. The market value of
common stock can fluctuate significantly, so you could lose
money if you redeem your Fund shares at a time when the
Fund's stock portfolio is not performing as well as
expected.
Small company risk: Securities of smaller companies may be
subject to more abrupt or erratic market movements than the
securities of larger more established companies, since they
tend to be thinly traded and because the companies are
subject to greater business risk. Transaction costs in
smaller company stocks may also be higher than those of
larger companies.
Debt security risk: The value of debt instruments generally
rises and falls inversely with fluctuations in interest
rates. The Fund's debt security investments are therefore
susceptible to decline in a rising interest rate
environment, even where "management risk" is not a factor.
The market value of debt securities also tends to vary
according to the relative financial condition of the issuer.
Certain of the Fund's debt security holdings may be
considered below investment grade (commonly referred to as
"high yield" or "junk" bonds). Low-rated debt securities can
provide higher yields due to the increased risk that the
issuer will be unable to meet its obligations on interest or
principal payments at the time called for by the debt
instrument. For this reason, however, these bonds are
considered speculative and could weaken the Fund's returns
if the issuer defaults on its payment obligations.
Foreign security and emerging market risk: Investing in
foreign securities involves a number of economic, financial
and political considerations that are not associated with
the U.S. markets and that could affect the Fund's
performance favorably or unfavorably depending upon
prevailing conditions at any given time. Among these
potential risks are:
greater price volatility;
comparatively weak supervision and regulation of
securities exchanges, brokers and issuers;
higher brokerage costs;
fluctuations in foreign currency exchange rates and
related conversion costs;
adverse tax consequences; and
settlement delays.
The risks of investing in foreign securities are more acute
in countries with developing economies.
Derivatives Risk: The Fund may, but is not required to, use
a range of derivative investment techniques to hedge various
market risks (such as interest rates, currency exchange
rates, and broad or specific equity or fixed-income market
movements). The use of these derivative investment
techniques involves a number of risks, including the
possibility of default by the counterparty to the
transaction and, to the extent the judgment of the Fund's
manager as to certain market movements is incorrect, the
risk of losses that are greater than if the derivative
technique(s) had not been used.
EURO Conversion Risk: On January 1, 1999, a new European
currency called the "Euro" was introduced and adopted for
use by eleven European countries. The transition to daily
usage of the Euro, including circulation of Euro bills and
coins, will occur during the period from January 1, 1999
through December 31, 2001. Certain European Union (EU)
members, including the United Kingdom, did not officially
implement the Euro on January 1, 1999 and may cause market
disruptions when and if they decide to do so. Where this
occurs, the Fund could experience investment losses.
Who should invest:* The Fund may be appropriate for investors seeking long-term
growth potential, but who can accept moderate fluctuations in capital value
in the short-term.
* You should consult with your financial advisor before deciding whether
the Fund is an appropriate investment choice in light of your
particular financial needs and risk tolerance.
<PAGE>
Fees and Expenses:
The following tables describe the fees and expenses that you may pay if
you buy and hold shares of the Fund:
Shareholder Fees (fees paid directly from your investment):
Maximum Sales Charge (Load) Imposed on Maximum Deferred Sales
Purchases (as a percentage of Charge(Load) (as a
offering price): percentage of original
purchase price):
Class A: 5.75% none
Class B: none 5.00%
Class C: none 1.00%
Class I: none none
Advisor none none
Class:
Annual Fund Operating Expenses (expenses that are deducted from Fund
assets):
Distribution Total Annual Expenses Net Fund
Management and/or Other Fund Waived or Operating
Fees: Service Expenses: Operating Reimbursed* Expenses*
(12b-1) Fees: Expenses:
Class A: 1.00% .25% $_______ $_______ $_______ $_______
Class B: 1.00% 1.00% $_______ $_______ $_______ $_______
Class C: 1.00% 1.00% $_______ $_______ $_______ $_______
Class I: 1.00% none $_______ $_______ $_______ $_______
Advisor 1.00% none $_______ $_______ $_______ $_______
Class:
* The Fund's Manager has agreed to waive and/or reimburse the
Fund's fees and expenses to the extent necessary to ensure
that the Fund's Annual Fund Operating Expenses do not exceed
the amounts shown in the far right column above.
<PAGE>
Example:
The following example is intended to help you compare the cost of
investing in the Fund with the cost of investing in other mutual funds.
The example assumes that you invest $10,000 in the Fund for the time
periods indicated and then redeem all of your shares at the end of
those periods (with additional information shown for Class B and Class
C shares based on the assumption that you do not redeem your shares at
that time). The example also assumes that your investment has a 5%
return each year and that the Fund's operating expenses remain the
same. Although your actual costs may be higher or lower, based on these
assumptions your costs would be as follows:
1 Year: 3 Years:
------ -------
Class A: $______ $______
Class B: $______ $______
Class B (no redemption): $______ $______
Class C: $______ $______
Class C (no redemption): $______ $______
Class I: $______ $______
Advisor Class: $______ $______
<PAGE>
ADDITIONAL INFORMATION ABOUT INVESTMENT STRATEGIES AND RISKS
Principal strategies:
The Fund seeks to achieve its principal objective of long-term capital
growth by investing primarily in the equity securities of companies
located or otherwise doing business in European countries and covering
a broad range of economic and industry sectors. The Fund may also
invest a significant portion of its assets in debt securities, up to
20% of which is considered below investment grade (commonly referred to
as "high yield" or "junk" bonds).
The Fund's manager follows a "bottom-up" approach to investing, which
focuses on prospects for long-term earnings growth. Company selection
is generally based on an analysis of a wide range of indicators (such
as growth, earnings, cash, book and enterprise value), as well as
factors such as market position, competitive advantage and management
strength. Country and sector allocation decisions are driven by the
company selection process.
Principal risks:
General market risk: As with any mutual fund, the value of the Fund's
investments and the income they generate will vary daily and generally
reflect market conditions, interest rates and other issuer-specific,
political or economic developments. The Fund's share value will
decrease at any time during which its security holdings or other
investment techniques are not performing as well as anticipated, and
you could therefore lose money by investing in the Fund depending upon
the timing of your initial purchase and any subsequent redemption.
Other risks: Since the Fund invests heavily in the equity securities of
European issuers, including those in developing or emerging markets, it
is more susceptible to the risks associated with these types of
securities than a fund that is more diversified. Following is a
description of these risks, along with the risks commonly associated
with the other securities and investment techniques that the Fund's
portfolio manager considers important in achieving the Fund's
investment objective or in managing the Fund's exposure to risk (and
that could therefore have a significant effect on the Fund's returns).
Other investment techniques that the Fund may use, but that do not play
a key role in the Fund's overall investment strategy, are described in
the Fund's Statement of Additional Information (see back cover page for
information on how you can receive a free copy).
Common Stocks: Common stocks represent a proportionate ownership
interest in a company. As a result, the value of common stock
rises and falls with a company's success or failure. The market
value of common stock can fluctuate significantly, with smaller
companies being particularly susceptible to price swings.
Transaction costs in smaller company stocks may also be higher
than those of larger companies.
Debt Securities: Investing in debt securities involves both
interest rate and credit risk. Generally, the value of debt
instruments rises and falls inversely with fluctuations in
interest rates. For example, as interest rates decline the value
of debt securities generally increases. Conversely, rising
interest rates tend to cause the value of debt securities to
decrease. The Fund's portfolio is therefore susceptible to the
decline in value of the debt instruments it holds in a rising
interest rate environment. The market value of debt securities
also tends to vary according to the relative financial condition
of the issuer. Bonds with longer maturities tend to be more
volatile than bonds with shorter maturities.
The Fund may at any given time invest a significant portion of
its assets in low-rated debt securities (sometimes referred to as
"high yield" or "junk" bonds). In general, low-rated debt
securities offer higher yields due to the increased risk that the
issuer will be unable to meet its obligations on interest or
principal payments at the time called for by the debt instrument.
For this reason, these bonds are considered speculative and could
significantly weaken the Fund's returns.
The Fund may also invest in zero coupon bonds, which are debt
obligations issued without any requirement for the periodic
payment of interest (and are issued at a significant discount from
face value). Because the income from zero coupon bonds is
recognized currently, for Federal income tax purposes, in the
amount of the unpaid, accrued interest and the Fund generally
would be required to distribute dividends representing that income
to shareholders currently (even though the Fund has not actually
received any income proceeds), the Fund could be forced to sell
other portfolio securities at a disadvantageous time and/or price
in order to meet its distribution obligations.
Depository Receipts: The Fund may acquire interests in foreign
issuers in the form of sponsored or unsponsored American
Depository Receipts ("ADRs"), Global Depository Receipts ("GDRs")
and similar types of depository receipts. ADRs typically are
issued by a U.S. bank or trust company and represent ownership of
the underlying securities issued by a foreign corporation. GDRs
and other types of depository receipts are usually issued by
foreign banks or trust companies. The Fund's investments in ADRs,
GDRs and other depository receipts are viewed as investments in
the underlying securities.
Depository receipts can be difficult to price and are not always
exchange-listed. Unsponsored depository programs also are
organized independently without the cooperation of the issuer of
the underlying securities. As a result, information concerning the
issuer may not be as current or as readily available as in the
case of sponsored depository instruments, and their prices may be
more volatile than if they were sponsored by the issuers of the
underlying securities.
Foreign Securities: Investing in foreign securities involves a
number of economic, financial and political considerations that
are not associated with the U.S. markets and that could affect the
Fund's performance favorably or unfavorably, depending upon
prevailing conditions at any given time. For example, the
securities markets of many foreign countries may be smaller, less
liquid and subject to greater price volatility than those in the
U.S. Foreign investing may also involve brokerage costs and tax
considerations that are not usually present in the U.S. markets.
Many of the Fund's securities also are denominated in foreign
currencies and the value of the Fund's investments as measured in
U.S. dollars may be affected favorably or unfavorably by changes
in foreign currency exchange rates and exchange control
regulations. Currency conversion can also be costly.
Other factors that can affect the value of the Fund's foreign
investments include the comparatively weak supervision and
regulation by some foreign governments of securities exchanges,
brokers and issuers, and the fact that many foreign companies may
not be subject to uniform accounting, auditing and financial
reporting standards. It may also difficult to obtain reliable
information about the securities and business operations certain
foreign issuers. Settlement of portfolio transactions may also be
delayed due to local restrictions or communication problems, which
can cause the Fund to miss attractive investment opportunities or
impair its ability to dispose of securities in a timely fashion
(resulting in a loss if the value of the securities subsequently
declines).
Special Emerging Market Concerns: The risks of investing in foreign
securities are heightened in countries with developing economies. Among
these additional risks are the following:
securities that are even less liquid and more volatile than those in
more developed foreign countries;
less stable governments that are susceptible to sudden
adverse actions (such as nationalization of businesses,
restrictions on foreign ownership or prohibitions against
repatriation of assets);
increased settlement delays;
abrupt changes in exchange rate regime or monetary policy;
restrictions on repatriation of capital;
unusually large currency fluctuations and currency conversion costs
(see "Foreign Currencies" below); and
high national debt levels (which may impede an issuer's
payment of principal and/or interest on external debt).
Foreign Currencies: Investing in foreign securities can involve the
use of foreign currencies. The value of the Fund's assets, as measured in
U.S. dollars, may be affected favorably or unfavorably by changes in
foreign currency exchange rates and exchange control regulations. Currency
conversions can also be costly.
Derivative Investment Techniques: The Fund may, but is not
required to, use certain derivative investment techniques to hedge
various market risks (such as interest rates, currency exchange
rates and broad or specific market movements) or to enhance
potential gain. Among the derivative techniques the Fund might use
are options, futures and forward foreign currency contracts.
Using put and call options could cause the Fund to lose money by
forcing the sale or purchase of portfolio securities at
inopportune times or for prices higher (in the case of put
options) or lower (in the case of call options) than current
market values, by limiting the amount of appreciation the Fund can
realize on its investments, or by causing the Fund to hold a
security it might otherwise sell.
Futures transactions (and related options) involve other types of
risks. For example, the variable degree of correlation between
price movements of futures contracts and price movements in the
related portfolio position of the Fund could cause losses on the
hedging instrument that are greater than gains in the value of the
Fund's position. In addition, futures and options markets may not
be liquid in all circumstances and certain over-the-counter
options may have no markets. As a result, the Fund might not be
able to close out a transaction before expiration without
incurring substantial losses (and it is possible that the
transaction cannot even be closed). In addition, the daily
variation margin requirements for futures contracts would create a
greater ongoing potential financial risk than would purchases of
options, where the exposure is limited to the cost of the initial
premium.
Using forward foreign currency contracts involves the risk that
there may be an imperfect correlation between the Fund's portfolio
holdings of securities denominated in a particular currency and
the forward contracts entered into by the Fund. An imperfect
correlation of this type may prevent the Fund from achieving the
intended hedge or expose the Fund to the risk of currency exchange
loss.
Illiquid Securities: The Fund may invest up to 15% of its net
assets in "illiquid securities," which are assets that may not be
disposed of in the ordinary course of business within seven days
at roughly the value at which the Fund has valued the assets. Some
of these may by "restricted securities," which cannot be sold to
the public without registration under the Securities Act of 1933
(in the absence of an exemption) or because of other legal or
contractual restrictions on resale. Thus, while illiquid
securities may offer the potential for higher returns than more
readily marketable securities, there is a risk that the Fund will
not be able to dispose of them promptly at an acceptable price.
Other Investment Companies: The Fund may invest up to 10% of its
total assets in the shares of other investment companies. As a
shareholder of an investment company, the Fund would bear its
ratable share of the fund's expenses (which often include an
asset-based management fee). The Fund could also lose money by
investing in other investment companies, since the value of their
respective investments and the income they generate will vary
daily based on prevailing market conditions.
Temporary Defensive Positions: The Fund may from time to time
take a temporary defensive position and invest without limit in
U.S. Government securities, investment-grade debt securities, and
cash and cash equivalents such as commercial paper, short-term
notes and other money market securities. When the Fund assumes
such a defensive position it may not achieve its investment
objective. Investing in debt securities also involves both
interest rate and credit risk. Generally, the value of debt
instruments rises and falls inversely with fluctuations in
interest rates. For example, as interest rates decline the value
of debt securities generally increases. Conversely, rising
interest rates tend to cause the value of debt securities to
decrease. The market value of debt securities also tends to vary
according to the relative financial condition of the issuer. Bonds
with longer maturities tend to be more volatile than bonds with
shorter maturities.
Borrowing: For temporary or emergency purposes (such as meeting
shareholder redemption requests within the time periods specified
under the Investment Company Act of 1940), the Fund may borrow up
to one third of the value of its total assets from qualified
banks. Borrowing may exaggerate the effect on the Fund's share
value of any increase or decrease in the value of the securities
it holds. Money borrowed will also be subject to interest costs.
Other Important Information:
European Monetary Union: On January 1, 1999, a new European currency
called the "Euro" was introduced and adopted for use by eleven European
countries. The transition to daily usage of the Euro, including
circulation of Euro bills and coins, will occur during the period from
January 1, 1999 through December 31, 2001. Certain European Union (EU)
members, including the United Kingdom, did not officially implement the
Euro on January 1, 1999 and may cause market disruptions when and if
they decide to do so. Where this occurs, the Fund could experience
investment losses.
Year 2000 Risks: Many computer software and hardware systems in use
today cannot distinguish between the year 2000 and the year 1900
because of the way dates are encoded and calculated (the "Year 2000
Problem"). The inability of computer-based systems to make this
distinction could have a seriously adverse effect on the handling of
securities trades, pricing and account services worldwide. The Fund's
service providers are taking steps that each believes are reasonably
designed to address the Year 2000 Problem with respect to the computer
systems that they use. The Fund believes these steps will be sufficient
to avoid any material adverse impact on the Fund. At this time,
however, there can be no assurance that significant problems will not
occur (which either directly or indirectly may cause the Fund to lose
money).
MANAGEMENT
Investment Advisor:
Ivy Management, Inc. ("IMI"), located at Via Mizner Financial Plaza,
700 South Federal Highway, Boca Raton, Florida 33432, provides
investment advisory and business management services to the Fund. IMI
is an SEC-registered investment advisor with over $____ billion in
assets under management, and provides similar services to the other
eighteen series of the Trust. For its services, IMI receives from the
Fund an annual fee equal to 1.00% of the Fund's average net assets.
Henderson Investment Management Limited ("Henderson"), 3 Finsbury
Avenue, London, England EC2M 2PA, serves as subadvisor to the Fund
under an Agreement with IMI. Henderson is an indirect, wholly owned
subsidiary of AMP Limited, an Australian life insurance and financial
services company located in New South Wales, Australia. For its
services, Henderson receives a fee from IMI that is equal, on an annual
basis, to .50% of the Fund's average net assets.
Portfolio Manager:
Stephen Peak, Executive Director of Henderson and head of Henderson's
European equities team, is primarily responsible for selecting the
Fund's portfolio of investments. Formerly a director and portfolio
manager with Touche Remnant & Co., Mr. Peak has 24 years of investment
experience.
<PAGE>
SHAREHOLDER INFORMATION
PRICING OF FUND SHARES:
The Fund calculates its share price by dividing the value of the Fund's
net assets by the total number of its shares outstanding as of the
close of regular trading (usually 4:00 p.m. Eastern time) on the New
York Stock Exchange on each day the Exchange is open for trading
(normally any weekday that is not a national holiday).
Each portfolio security that is listed or traded on a recognized stock
exchange is valued at the security's last sale price on the exchange
on which it was purchased. If no sale is reported at that time, the
average between the last bid and asked prices is used. Securities and
other Fund assets for which market prices are not readily available
are priced at their "fair value" as determined by IMI in accordance
with procedures approved by the Fund's Board of Trustees. IMI may also
price a foreign security at its "fair value" if events materially
affecting the value of the security occur between the close of the
foreign exchange on which the security is principally traded and the
time as of which the Fund prices its shares. Fair value pricing under
these circumstances is designed to protect existing shareholders from
dilution of their share value caused by short-term investors trading
into and out of the Fund at at time when the Fund's share price,
calculated by ordinary pricing methods, is undervalued. When such fair
value pricing occurs, however, there may be some period of time during
which the Fund's share price and/or performance information is not
available.
The number of shares you receive when you place a purchase order, and
the payment you receive after submitting a redemption request, is based
on the Fund's net asset value next determined after your instructions
are received in proper form by Ivy Mackenzie Services Corp. (the Fund's
transfer agent) or by your registered securities dealer. Each purchase
and redemption order is subject to any applicable sales charge (see
"Distribution Arrangements" below). Since the Fund normally invests in
securities that are listed on foreign exchanges that may trade on
weekends or other days when the Fund does not price its shares, the
Fund's share value may change on days when shareholders will not be
able to purchase or redeem the Fund's shares.
HOW TO BUY SHARES:
Purchasing Fund shares involves "Choosing the Appropriate Class of
Shares" and "Submitting Your Purchase Order". Please read these
sections below carefully before investing.
Choosing the Appropriate Class of Shares - The essential features of
the Fund's different classes of shares are described below. If you do
not specify on your Account Application which class of shares you are
purchasing, it will be assumed that you are purchasing Class A shares.
The Fund has adopted separate distribution plans pursuant to Rule
12b-1 under the 1940 Act for its Class A, B and C shares that allow
the Fund to pay distribution and other fees for the sale and
distribution of its shares and for services provided to shareholders.
Because these fees are paid out of the Fund's assets on an on-going
basis, over time they will increase the cost of your investment and
may cost you more than paying other types of sales charges.
Class A Shares: Class A shares are sold at net asset value
plus a maximum sales charge of 5.75% (the "offering price"). The
sales charge may be reduced or eliminated if certain conditions
are met (see "Additional Purchase Information" below). Class A
shares are subject to a .25% Rule 12b-1 service fee.
Class B Shares: Class B shares are offered at net asset value,
without an initial sales charge, but subject to a contingent
deferred sales charge ("CDSC") that declines from 5% to zero on
certain redemptions within six years of purchase. Class B shares
are subject to a .75% Rule 12b-1 distribution fee and a .25% Rule
12b-1 service fee, and convert automatically into Class A shares
eight years after purchase.
Class C Shares: Class C shares are offered at net asset value,
without an initial sales charge, but subject to a CDSC of 1% for
redemptions within the first year of purchase. Class C shares are
subject to a .75% Rule 12b-1 distribution fee and a .25% Rule
12b-1 service fee.
Class I and Advisor Class Shares: Class I and Advisor Class
shares are offered to certain classes of investors at net asset
value, without any sales load or Rule 12b-1 fees.
The following table displays the various investment minimums, sales
charges and expenses that apply to each class.
<TABLE>
<S> <C> <C> <C> <C> <C>
- -------------------- ------------------ ----------------- ------------------ -------------- --------------
Class A Class B Class C Class I Advisor Class
- -------------------- ------------------ ----------------- ------------------ -------------- --------------
- -------------------- ------------------ ----------------- ------------------ -------------- --------------
Minimum Initial $5,000,000 $10,000
Investment* $1,000 $1,000 $1,000
- -------------------- ------------------ ----------------- ------------------ -------------- --------------
- -------------------- ------------------ ----------------- ------------------ -------------- --------------
Minimum Subsequent
Investment* $100 $100 $100 $ 10,000 $ 250
- -------------------- ------------------ ----------------- ------------------ -------------- --------------
- -------------------- ------------------ ----------------- ------------------ -------------- --------------
Initial Sales Maximum 5.75%, None None None None
Charge with options for
a reduced or
waiver of
initial sales
charge
- -------------------- ------------------ ----------------- ------------------ -------------- --------------
- -------------------- ------------------ ----------------- ------------------ -------------- --------------
CDSC None, except on Maximum 5.00%, 1.00% for the None None
certain NAV declines over first year
purchases six years
- -------------------- ------------------ ----------------- ------------------ -------------- --------------
- -------------------- ------------------ ----------------- ------------------ -------------- --------------
Service and 0.25% Service fee 0.75% 0.75% None None
Distribution Fees Distribution Distribution Fee
Fee and 0.25% and 0.25%
Service Fee Service Fee
- -------------------- ------------------ ----------------- ------------------ -------------- --------------
</TABLE>
* Minimum initial and subsequent investments for retirement plans are
$25.
ADDITIONAL PURCHASE INFORMATION:
Class A Shares - Class A shares are sold at a public offering
price equal to their net asset value per share ("NAV") plus an
initial sales charge, as set forth below (which is reduced as the
amount invested increases):
<TABLE>
<S> <C> <C> <C>
- -------------------------------- ---------------------- ------------------ ----------------------
Sales Charge as a Sales Charge as Portion of Public
Percentage of Public a Percentage of Offering Price
Offering Price Net Amount Retained by Dealer
Amount Invested Invested
- -------------------------------- ---------------------- ------------------ ----------------------
- -------------------------------- ---------------------- ------------------ ----------------------
Less than $50,000 5.75% 6.10% 5.00%
- -------------------------------- ---------------------- ------------------ ----------------------
- -------------------------------- ---------------------- ------------------ ----------------------
$50,000 but less than $100,000 5.25% 5.54% 4.50%
- -------------------------------- ---------------------- ------------------ ----------------------
- -------------------------------- ---------------------- ------------------ ----------------------
$100,000 but less than $250,000 4.50% 4.71% 3.75%
- -------------------------------- ---------------------- ------------------ ----------------------
- -------------------------------- ---------------------- ------------------ ----------------------
$250, 000 but less than 3.00% 3.09% 2.50%
$500,000
- -------------------------------- ---------------------- ------------------ ----------------------
$500,000 or over* 0.00% 0.00% 0.00%
- -------------------------------- ---------------------- ------------------ ----------------------
</TABLE>
* A CDSC of 1.00% applies to Class A shares that are redeemed
within two years of the end of the month in which they were
purchased.
Class A shares that are acquired through reinvestment of dividends
or distributions are not subject to any sales charges.
HOW TO REDUCE YOUR INITIAL SALES CHARGE:
"Rights of Accumulation" permits you to pay the sales charge
that applies to the cost or value (whichever is higher) of all
Ivy Fund Class A shares you own.
A "Letter of Intent" permits you to pay the sales charge that
would apply to your cumulative purchase of Fund shares over a
13-month period (certain restrictions apply).
HOW TO ELIMINATE YOUR INITIAL SALES CHARGE:
You may purchase Class A shares at NAV (without an initial sales
charge or a CDSC) through any one of the following methods:
through certain investment advisors and financial planners
who charge a management, consulting or other fee for their
services;
under certain qualified retirement plans;
as an employee or director of Mackenzie Investment Management
Inc. or its affiliates;
as an employee of a selected dealer; or
through the Merrill Lynch Daily K Plan (the "Plan"), provided
the Plan has at least $3 million in assets or over 500 or more
eligible employees. Class B shares of the Fund are made
available to Plan participants at NAV without a CDSC if the
Plan has less than $3 million in assets or fewer than 500
eligible employees. For further information see "Group
Systematic Investment Program" in the SAI.
You may also purchase Class A shares at NAV if you are investing
at least $500,000 through a dealer or agent. Ivy Mackenzie
Distributors, Inc. ("IMDI"), the Fund's distributor, may pay the
dealer or agent (out of IMDI's own resources) for its distribution
assistance according to the following schedule:
------------------------------- -------------------------------
Purchase Amount Commission
------------------------------- -------------------------------
------------------------------- -------------------------------
First $3,000,000 1.00%
------------------------------- -------------------------------
------------------------------- -------------------------------
Next $2,000,000 0.50%
------------------------------- -------------------------------
------------------------------- -------------------------------
Over $5,000,000 0.25%
------------------------------- -------------------------------
Certain trust companies, bank trust departments, credit unions,
savings and loans and other similar organizations may also be
exempt from the initial sales charge on Class A shares.
Class B and Class C Shares - Class B and Class C shares are not
subject to an initial sales charge but are subject to a CDSC. If
you redeem your Class C shares within one year of purchase they
will be subject to a CDSC of 1%, and Class B shares redeemed
within six years of purchase will be subject to a CDSC at the
following rates:
--------------------- --------------------
CDSC as a
Percentage of
Year Since Purchase Dollar Amount
Subject to Charge
--------------------- --------------------
First 5%
--------------------- --------------------
--------------------- --------------------
Second 4%
--------------------- --------------------
--------------------- --------------------
Third 3%
--------------------- --------------------
--------------------- --------------------
Fourth 3%
--------------------- --------------------
--------------------- --------------------
Fifth 2%
--------------------- --------------------
--------------------- --------------------
Sixth 1%
--------------------- --------------------
--------------------- --------------------
Seventh and 0%
thereafter
--------------------- --------------------
The CDSC for both Class B and Class C shares will be assessed on
an amount equal to the lesser of the current market value or the
original purchase cost of the shares being redeemed. No charge
will be assessed on increases in account value above the original
purchase price or on reinvested dividends and distributions.
The CDSC for Class B shares is waived for:
Certain post-retirement withdrawals from an IRA or other
retirement plan if you are over 59 1/2 years old.
Redemptions by certain eligible 401(a) and 401(k) plans and
certain retirement plan rollovers.
Redemption resulting from a tax-free return of excess
contribution to an IRA.
Withdrawals resulting from shareholder death or disability
provided that the redemption is requested within one year of
death or disability.
Withdrawals through the Systematic Withdrawal Plan of up to
12% per year of your account value at the time the plan is
established.
Both Class B shares and Class C shares are subject to an ongoing
service and distribution fee at a combined annual rate of up to
1.00% of the portfolio's average net assets attributable to its
Class B or Class C shares. The ongoing distribution fees will
cause these shares to have a higher expense ratio than that of
Class A, Class I and Advisor Class shares. IMDI uses the money
that it receives from the deferred sales charge and the
distribution fees to cover various promotional and sales related
expenses, as well as expenses related to providing distributions
services, such as compensating selected dealers and agents for
selling these shares.
Approximately eight years after the original date of purchase,
your Class B shares will be converted automatically to Class A
shares. Class A shares are subject to lower annual expenses than
Class B shares. The conversion from Class B shares to Class A
shares is not considered a taxable event for federal income tax
purposes. Class C shares do not have a similar conversion
privilege.
Class I and Advisor Class - Class I and Advisor Class shares are
offered only to institutions and certain individuals, and are not
subject to an initial sales charge or a CDSC, nor to ongoing
service or distribution fees. Class I shares also bear lower fees
than Class A, Class B, Class C and Advisor Class shares.
SUBMITTING YOUR PURCHASE ORDER:
INITIAL INVESTMENTS:
Complete and sign the Account Application appearing at the end of this
Prospectus. Enclose a check payable to Ivy Fund (see page [XX] for
minimum initial investments.) Deliver your application materials to
your registered representative or selling broker, or send them to one
of the addresses below:
By Regular Mail: By Courier:
Ivy Mackenzie Services Corp. Ivy Mackenzie Services Corp.
P.O. Box 3022 700 South Federal Hwy.
Boca Raton, FL 33431-0922 Boca Raton, FL 33432
BUYING ADDITIONAL SHARES:
There are several ways to increase your investment in the Fund:
By Mail - Send your check with a completed investment slip
(attached to your account statement) or written instructions
indicating the account registration, fund number or name, and
account number.
Mail to one of the addresses above.
Through Your Broker - Deliver to your registered representative
or selling broker the investment slip attached to your statement,
or written instructions, along with your payment.
By Wire - Purchases may also be made by wiring money from your
bank account to your Ivy account. Your bank may charge a fee for
wiring funds. Before wiring any funds, please call IMSC at (800)
777-6472. Wiring instructions are as follows:
First Union National Bank of Florida
Jacksonville, FL
ABA #063000021
Account #2090002063833
For further credit to:
Your Ivy Fund Account Number
Your Fund Number and Account Number
By Automatic Investment Method - You can authorize to have funds
electronically drawn each month from your bank account and
invested as a purchase of shares into your Ivy Fund account.
Complete sections [XX] and [XX] of the Account Application.
HOW TO REDEEM SHARES:
SUBMITTING YOUR REDEMPTION ORDER:
You may redeem your Fund shares through your registered securities
dealer or directly through IMSC. If you choose to redeem through your
registered securities dealer, the dealer is responsible for properly
transmitting redemption orders in a timely manner. If you choose to
redeem directly through IMSC, you have several ways to submit your
request:
By Mail - Send your written redemption request to IMSC at one of
the addresses on page XX of this Prospectus. Be sure that all
registered owners listed on the account sign the request.
Signature guarantees and supporting legal documentation may be
required. When you redeem, IMSC will normally send redemption
proceeds to you on the next business day, but may take up to seven
days (or longer in the case of shares recently purchased by
check).
By Telephone - Call IMSC at (800) 777-6472 to redeem from your
account. In order to process your redemption order by telephone,
you must have telephone redemption privileges on your account.
IMSC employs reasonable procedures that require personal
identification prior to acting on redemption instructions
communicated by telephone to confirm that such instructions are
genuine. In the absence of such procedures, the Fund or IMSC may
be liable for any losses due to unauthorized or fraudulent
telephone instructions.
By Systematic Withdrawal Plan (SWP) - You can authorize to have
funds electronically drawn each month from your Ivy Fund account
and deposited directly into your bank account. Certain minimum
balances and minimum distributions apply. Complete sections XX of
the Account Application to add this feature to your account.
Receiving Your Redemption Proceeds - You can receive redemption
proceeds through a variety of payment methods:
By Check - Unless otherwise instructed, checks will be made
payable to the current account registration and sent to the
address of record.
By Federal Funds Wire - Proceeds will be wired on the next
business day to a pre-designated bank account. Requests by
telephone can only be accepted for amounts up to $50,000. Your
account will be charged $10 each time redemption proceeds are
wired to your bank, and your bank may also charge you a fee for
receiving a Federal Funds wire.
By Electronic Funds Transfer - For SWP redemptions only.
Important Redemption Information:
A CDSC may apply to certain Class A share redemptions, to Class B
shares redeemed within six years of purchase, and to Class C
shares that are redeemed within one year of purchase.
All redemptions are made at the NAV next determined after a
redemption request has been received in good order. Requests for
redemptions must be received by 4:00 p.m. Eastern time to be
processed at the NAV for that day. Any redemption request in good
order that is received after 4:00 p.m. Eastern time will be
processed at the price determined on the following business day.
If you own shares of more than one class of the Fund, the Fund
will redeem first the shares having the highest 12b-1 fees.
Any shares subject to a CDSC will be redeemed last unless you
specifically elect otherwise.
The Fund may (on 60 days' notice) redeem the accounts of
shareholders whose investment, including sales charges paid, has
been less than $1,000 for more than 12 months.
The Fund may take up to seven days (or longer in the case of
shares recently purchased by check) to send redemption proceeds.
The Fund may make payment for redeemed shares in the form of
securities of the Fund taken at current values.
HOW TO EXCHANGE YOUR FUND SHARES:
You may exchange your Fund shares for shares of another Ivy fund,
subject to certain restrictions (see "Important Exchange Information"
below).
Submitting Your Exchange Order - You may submit an exchange request to
IMSC as follows:
By Mail - Send your written exchange request to IMSC at one of
the addresses on page XX of this Prospectus. Be sure that all
registered owners listed on the account sign the request.
By Telephone - Call IMSC at (800) 777-6472 to authorize an
exchange transaction. In order to process your exchange order by
telephone, you must have telephone exchange privileges on your
account. IMSC employs reasonable procedures that require personal
identification prior to acting on exchange instructions
communicated by telephone to confirm that such instructions are
genuine. In the absence of such procedures, the Fund or IMSC may
be liable for any losses due to unauthorized or fraudulent
telephone instructions.
IMPORTANT EXCHANGE INFORMATION:
You must exchange into the same share class you currently own.
Exchanges are considered taxable events and may result in a
capital gain or a capital loss for tax purposes.
It is the policy of the Fund to discourage the use of the
exchange privilege for the purpose of timing short-term market
fluctuations. The Fund may therefore limit the frequency of
exchanges by a shareholder or cancel a shareholder's exchange
privilege if at any time it appears that such market timing
strategies are being used.
DIVIDENDS AND DISTRIBUTIONS:
The Fund generally declares and pays dividends and capital gain
distributions (if any) at least once a year.
Dividends and distributions are "reinvested" in additional Fund
shares unless you request to receive them in cash.
Reinvested dividends and distributions are added to your account
at NAV and are not subject to a CDSC regardless of which share
class you own.
Cash dividends and distributions can be sent to you:
BY MAIL - a check will mailed to the address of record unless
otherwise instructed.
BY ELECTRONIC FUNDS TRANSFER ("EFT") - your proceeds will be
directly deposited into your bank account.
To change your dividend and/or distribution options, call IMSC at
(800) 777-6472.
TAX CONSEQUENCES:
Distributions you receive from the Fund are reinvested in additional
shares of the same class of the Fund unless you elect to receive them
in cash. Dividends ordinarily will vary from one class to another.
The Fund intends to declare and pay dividends monthly. The Fund will
distribute net investment income and net realized capital gains, if
any, at least once a year. The Fund may make an additional distribution
of net investment income and net realized capital gains to comply with
the calendar year distribution requirement under the excise tax
provisions of Section 4982 of the Internal Revenue Code of 1986, as
amended (the "Code").
Dividends paid out of the Fund's investment company taxable income
(including dividends, interest and net short-term capital gains) will
be taxable to you as ordinary income. If a portion of the Fund's income
consists of dividends paid by U.S. corporations, a portion of the
dividends paid by the Fund may be eligible for the corporate
dividends-received deduction. Distributions of net capital gains (the
excess of net long-term capital gains over net short-term capital
losses), if any, are taxable to you as long-term capital gains,
regardless of how long you have held your shares. Dividends are taxable
to you in the same manner whether received in cash or reinvested in
additional Fund shares.
If shares of the Fund are held in a tax-deferred account, such as a
retirement plan, income and gain will not be taxable each year.
Instead, the taxable portion of amounts held in a tax-deferred account
generally will be subject to tax as ordinary income only when
distributed from that account.
A distribution will be treated as paid to you on December 31 of the
current calendar year if it is declared by the Fund in October,
November or December with a record date in such a month and paid by the
Fund during January of the following calendar year.
In certain years, you may be able to claim a credit or deduction on
your income tax return for your share of foreign taxes paid by the
Fund. Upon the sale or other disposition of your Fund shares, you may
realize a capital gain or loss which will be long-term or short-term,
generally depending upon how long you held your shares.
The Fund may be required to withhold U.S. Federal income tax at the
rate of 31% of all distributions payable to you if you fail to provide
the Fund with your correct taxpayer identification number or to make
required certifications, or if you have been notified by the Internal
Revenue Service ("IRS") that you are subject to backup withholding.
Backup withholding is not an additional tax. Any amounts withheld may
be credited against your U.S. Federal income tax liability.
Fund distributions may be subject to state, local and foreign taxes.
You should consult with your tax adviser as to the tax consequences of
an investment in the Fund, including the status of distributions from
the Fund under applicable state or local law.
<PAGE>
ACCOUNT APPLICATION
Please mail applications and checks to: Ivy Mackenzie Services Corp.,
P.O. Box 3022, Boca Raton, FL 33431-0922.
(This application should not be used for retirement accounts for which
Ivy Fund is custodian.)
Account Number:
(Fund Use Only)
Dealer #:
Branch #:
Rep. I.D. #:
Acct. Type:
Soc Cd:
Div Cd:
CG Cd:
Exc Cd:
Red Cd:
1. REGISTRATION
/ / Individual / / Joint Tenant / / Estate / / UGMA/UTMA / /
Corporation / / Partnership / / Sole Proprietor / / Trust / / Other
Date of Trust
Owner, Custodian or Trustee
Co-owner or Minor
Minor's State of Residence
Street
City
State
Zip Code
Phone Number -- Day
Phone Number -- Evening
2. TAX ID
Citizenship: / / U.S. / / Other ________________
Social Security Number
Tax Identification Number
Under penalties of perjury, I certify by signing in Section 8 below
that: (1) the number shown in this section is my correct taxpayer
identification number (TIN), and (2) I am not subject to backup
withholding because: (a) I have not been notified by the Internal
Revenue Service (IRS) that I am subject to backup withholding as a
result of a failure to report all interest or dividends, or (b) the IRS
has notified me that I am no longer subject to backup withholding.
(Cross out item (2) if you have been notified by the IRS that you are
currently subject to backup withholding because of underreporting
interest or dividends on your tax return.) Please see the "Tax
Consequences" section of the Prospectus for additional information on
completing this section.
3. DEALER INFORMATION
The undersigned ("Dealer") agrees to all applicable provisions in this
Application, guarantees the signature and legal capacity of the
Shareholder, and agrees to notify IMSC of any purchases made under a
Letter of Intent or Rights of Accumulation.
Dealer Name
Branch Office Address
City
State
Zip Code
Representative's Name and Number
Representative's Phone Number
Authorized Signature of Dealer
4. INVESTMENTS
A. Enclosed is my check ($1,000 minimum) for $_____________ made
payable to _________________ [Fund Name]. Please invest it in
Class A __ Class B __ Class C __ Class I __or Advisor Class __
shares.
B. I qualify for an elimination of the sales charge due to the
following privilege (applies only to Class A shares):
__ New Letter of Intent (if ROA or 90-day backdate
privilege is applicable, provide account(s)
information below.)
__ ROA with the account(s) listed below.
__ Existing Letter of Intent with account(s) listed
below.
Fund Name(s)
Account Number(s)
If establishing a Letter of Intent, you will need to purchase
Class A shares over a thirteen-month period in accordance with
the provisions in the Prospectus. The Aggregate amount of
these purchases will be at least equal to the amount indicated
below (see Prospectus for minimum amount required for reduced
sales charges).
/ / $50,000
/ / $100,000
/ / $250,000
/ / $500,000
C. FOR DEALER USE
Confirmed trade orders: [Confirm Number, Number of Shares,
Trade Date]
5. DISTRIBUTION OPTIONS
I would like to reinvest dividends and capital gains into additional
shares in this account at net asset value unless a different option is
checked below.
/ / Reinvest all dividends and capital gains into additional shares of a
different Ivy fund. Fund Name Account Number
/ / Pay all dividends in cash and reinvest capital gains into additional
shares in this Fund or a different Ivy fund. Fund Name Account Number
/ / Pay all dividends and capital gains in cash.
I REQUEST THE ABOVE CASH DISTRIBUTION, SELECTED IN C OR D
ABOVE, BE:
/ / Sent to the address listed in the registration.
/ / Sent to the special payee listed in Section 7A / / (By Mail) 7B / /
(By E.F.T.)
6. OPTIONAL SPECIAL FEATURES
A. / / Automatic Investment Method (AIM)
- I wish to invest _________________ / / once per month / /
twice / / 3 times / / 4 times
- My bank account will be debited on the _________ day of the
month
Please invest $___________________ each period starting in the
month of __________________ in
---------------------------.
Fund Name
/ / Class A
/ / Class B
/ / Class C
/ / Class I
/ / Advisor Class
/ / I have attached a voided check to ensure my correct bank
account will be debited.
B. SYSTEMATIC WITHDRAWAL PLANS**
I wish to automatically withdraw funds from my account in
____________________ Fund Name
/ / Monthly / / Quarterly / /Semiannually / / Annually
/ / Once / / Twice / / 3 times / / 4 times per month
I request the distribution be:
/ / Sent to the address listed in the registration.
/ / Sent to the special payee listed in Section 7.
/ / Invested into additional shares of the same class of a different Ivy
fund.
Fund Name
Account Number
Amount $__________________(Minimum $50) starting on or about the
- -_______ day of the month
- -_______ day of the month
- -_______ day of the month*
NOTE: Account minimum: $5,000 in shares at current offering price
C. FEDERAL FUNDS TRANSFER FOR REDEMPTION PROCEEDS**
I authorize the Agent to honor telephone instructions for the
redemption of Fund shares up to $50,000. Proceeds may be wire
transferred to the bank account designated ($1,000 minimum).
(Complete Section 7B)
TELEPHONE EXCHANGES** / / YES / / NO
I authorize exchanges by telephone among the Ivy funds upon
instructions from any person as more fully described in the
Prospectus. To change this option once established, written
instructions must be received from the shareholder of record
or the current registered representative.
If neither box is checked, the telephone exchange privilege
will be provided automatically.
TELEPHONIC REDEMPTIONS** / / YES / / NO
The Fund or its agents are authorized to honor telephone
instructions from any person as more fully described in the
Prospectus for the redemption of Fund shares. The amount of
the redemption shall not exceed $50,000 and the proceeds are
to be payable to the shareholder of record and mailed to the
address of record. To change this option once established,
written instructions must be received from the shareholder of
record or the current registered representative.
If neither box is checked, the telephone redemption privilege
will be provided automatically.
* There must be a period of at least seven calendar
days between each investment/withdrawal period.
** This option may not be used if shares are issued in
certificate form.
7. SPECIAL PAYEE
A. MAILING ADDRESS
Please send all disbursements to this special payee:
Name of Bank or Individual
Account Number (If Applicable)
Street
City/State/Zip
B. FED WIRE / E.F.T. INFORMATION
Financial Institution
ABA #
Account #
Street
City/State/Zip
(Please attach a voided check)
8. SIGNATURES
Investors should be aware that the failure to check the "No" under
Section 6D or 6E above means that the Telephone Exchange/Redemption
Privileges will be provided. The Fund employs reasonable procedures
that require personal identification prior to acting on
exchange/redemption instructions communicated by telephone to confirm
that such instructions are genuine. In the absence of such procedures,
the Fund may be liable for any losses due to unauthorized or fraudulent
telephone instructions. Please see "How to Exchange Your Fund Shares"
and "How to Redeem Your Fund Shares" in the Prospectus for more
information on these privileges.
I certify to my legal capacity to purchase or redeem shares of the Fund
for my own account or for the account of the organization named in
Section 1. I have received a current Prospectus and understand its
terms are incorporated in this application by reference. I am
certifying my taxpayer information as stated in Section 2.
THE INTERNAL REVENUE SERVICE DOES NOT REQUIRE YOUR CONSENT TO ANY
PROVISION OF THIS DOCUMENT OTHER THAN THE CERTIFICATIONS REQUIRED TO
AVOID BACKUP WITHHOLDING.
------------------------------
Signature of Owner, Custodian, Date
Trustee or Corporate Officer
------------------------------
Signature of Joint Owner, Date
Co-Trustee or Corporate Officer
(Remember to sign Section 8)
<PAGE>
[Back Cover Page]
HOW TO RECEIVE MORE INFORMATION ABOUT THE FUND
Additional information about the Fund and its investments is contained in the
Fund's Statement of Additional Information dated April ___, 1999 (the "SAI"),
which is incorporated by reference into this Prospectus, and the Fund's annual
and semi-annual reports to shareholders. The Fund's annual report includes a
discussion of the market conditions and investment strategies that significantly
affected the Fund's performance during its most recent fiscal year. The SAI and
the Fund's annual and semi-annual reports are available upon request and without
charge from the Distributor at the following address and phone number:
Ivy Mackenzie Distributors, Inc.
Via Mizner Financial Plaza
700 South Federal Highway
Boca Raton, Florida 33432
(800) 456-5111
Information about the Fund (including the SAI and the Fund's annual and
semi-annual reports) may also be reviewed and copied at the SEC's Public
Reference Room in Washington, D.C. (please call 1-800-SEC-0330 for further
details). Information about the Fund is also available on the SEC's Internet
Website (www.sec.gov), and copies of this information may be obtained, upon
payment of a copying fee, by writing the Public Reference Section of the SEC,
Washington, D.C. 20549-6009.
SHAREHOLDER INQUIRIES
Please call Ivy Mackenzie Services Corp., the Fund's transfer agent, at
1-800-777-6472 regarding any other inquiries about the Fund.
Investment Company Act File No. 811-1028
<PAGE>
[Front Cover Page]
PROSPECTUS April ___, 1999
IVY FUND - Ivy Global Fund
Ivy Fund (the "Trust") is a registered open-end investment company currently
consisting of nineteen separate portfolios. This Prospectus relates to the Class
A, Class B, Class C and Advisor Class shares of Ivy Global Fund (the "Fund"). No
other shares are offered in this Prospectus.
The Securities and Exchange Commission has not approved or disapproved these
securities or passed upon the adequacy of this Prospectus. Any representation to
the contrary is a criminal offense.
[Insert all logos]
<PAGE>
TABLE OF CONTENTS
SUMMARY
ADDITIONAL INFORMATION ABOUT INVESTMENT STRATEGIES AND RISKS
MANAGEMENT
SHAREHOLDER INFORMATION
ACCOUNT APPLICATION
HOW TO RECEIVE MORE INFORMATION ABOUT THE FUND
SHAREHOLDER INQUIRIES
<PAGE>
SUMMARY
Investment The Fund seeks long-term capital growth through a
objectives: flexible policy of investing in stocks and debt obligations
of companies and governments of any nation. Any income
realized will be incidental.
Principal The Fund invests primarily in the equity securities of
companies in at three different investment countries,
including the United States. The might engage in foreign
currency exchange strategies: transactions and foreign
currency contracts to control its exposure to certain risks.
Principal risks: The main risks to which the Fund is exposed in carrying out
its strategies are the following:
Management risk: The Fund's manager might not select
securities that perform as well as the securities held by
other mutual funds with investment objectives that are
similar to those of the Fund.
Market risk: Common stocks represent a proportionate
ownership interest in a company. The market value of common
stock can fluctuate significantly even where "management
risk" is not a factor, so you could lose money if you redeem
your Fund shares at a time when the Fund's stock portfolio
is not performing as well as expected. The market value of
common stock can fluctuate significantly, so you could lose
money if you redeem your Fund shares at a time when the
Fund's stock portfolio is not performing as well as
expected.
Foreign security and emerging market risk: Investing in
foreign securities involves a number of economic, financial
and political considerations that are not associated with
the U.S. markets and that could affect the Fund's
performance favorably or unfavorably, depending upon
prevailing conditions at any given time. Among these
potential risks are:
greater price volatility;
comparatively weak supervision and regulation of
securities exchanges, brokers and issuers;
higher brokerage costs;
fluctuations in foreign currency exchange rates and
related conversion costs;
adverse tax consequences; and
settlement delays.
The risks of investing in foreign securities are more acute
in countries with developing economies.
Who should invest:* The Fund may be appropriate for investors seeking
long-term growth potential, but who can accept
significant fluctuations in capital value in the
short-term.
* You should consult with your financial advisor before deciding whether
the Fund is an appropriate investment choice in light of your
particular financial needs and risk tolerance.
<PAGE>
Performance Bar Chart and Table:
The information in the following chart and table provides some
indication of the risks of investing in the Fund by showing changes in
the Fund's performance from year to year and how the Fund's average
annual returns since its inception on April 18, 1991 compare with those
of a broad measure of market performance. The Fund's past performance
is not an indication of how the Fund will perform in the future.
Annual Total Returns for Class A Shares as of December 31, 1998:*
- -------------------------------------------------------------------
1991(a) 1992(b) 1993(b) 1994(b) 1994(c) 1995 1996 1997 1998
* Any applicable sales charges and account fees are not
reflected, and if they were the returns shown above would be
lower. The returns for the Fund's other four classes of shares
during these periods were different from those of Class A
because of variations in their respective expense structures.
(a) For the period April 18, 1991 (commencement) to June 30, 1991.
(b) For the year ended June 30.
(c) For the six months ended December 31, 1994.
Best quarter: ______% (Q__ 199__)
Worst quarter: ______% (Q__ 199__)
Average Annual Total Returns (for the periods ending December 31, 1998):*
Past year: Past Five years: Since inception:**
Class A: ______% ______% ______%
Class B: ______% N/A ______%
Class C: ______% N/A ______%
Advisor Class: ______% N/A ______%
[Index]: ______% N/A ______%
* Performance figures reflect any applicable sales charges.
** The inception dates for the Fund's four classes of shares were
as follows: Class A, April 18, 1991; Class B, April 1, 1994;
Class C, April 30, 1996; and Advisor Class, January 1, 1998.
<PAGE>
Fees and Expenses:
The following tables describe the fees and expenses that you may pay if
you buy and hold shares of the Fund:
Shareholder Fees (fees paid directly from your investment):
Maximum Sales Charge (Load) Imposed on Maximum Deferred Sales
Purchases (as a percentage of Charge (Load) (as a
offering price): percentage of original
purchase price):
Class A: 5.75% none
Class B: none 5.00%
Class C: none 1.00%
Advisor none none
Class:
Annual Fund Operating Expenses (expenses that are deducted from Fund
assets):
Distribution Total Annual Expenses Net Fund
Management and/or Other Fund Waived or Operating
Fees:* Service Expenses: Operating Reimbursed** Expenses**
(12b-1) Fees: Expenses:
Class A: 1.00% .25% $_______ $_______ $_______ $_______
Class B: 1.00% 1.00% $_______ $_______ $_______ $_______
Class C: 1.00% 1.00% $_______ $_______ $_______ $_______
Advisor 1.00% none $_______ $_______ $_______ $_______
Class:
* Management Fees are reduced to .75% for net assets over $500 million.
** The Fund's Manager has agreed to waive and/or reimburse the
Fund's fees and expenses to the extent necessary to ensure
that the Fund's Annual Fund Operating Expenses do not exceed
the amounts shown in the far right column above.
<PAGE>
Example:
The following example is intended to help you compare the cost of
investing in the Fund with the cost of investing in other mutual funds.
The example assumes that you invest $10,000 in the Fund for the time
periods indicated and then redeem all of your shares at the end of
those periods (with additional information shown for Class B and Class
C shares based on the assumption that you do not redeem your shares at
that time). The example also assumes that your investment has a 5%
return each year and that the Fund's operating expenses remain the
same. Although your actual costs may be higher or lower, based on these
assumptions your costs would be as follows:
1 Year: 3 Years: 5 Years: 10 Years:
------ ------- ------- --------
Class A: $______ $______ $______ $______
Class B: $______ $______ $______ $______
Class B (no redemption): $______ $______ $______ $______
Class C: $______ $______ $______ $______
Class C (no redemption): $______ $______ $______ $______
Advisor Class: $______ $______ $______ $______
<PAGE>
ADDITIONAL INFORMATION ABOUT INVESTMENT STRATEGIES AND RISKS
Principal strategies:
The Fund seeks to achieve its principal objective of long-term capital
growth by investing primarily in the equity securities of companies
throughout the world. The Fund invests in a variety of economic
sectors, industry segments and individual securities in order to reduce
the effects of price volatility in any one area, and normally invests
its assets in at least three different countries (including the United
States).
Countries are selected on the basis of a mix of factors that include
long-term economic growth prospects, anticipated inflation levels, and
the effect of applicable government policies on local business
conditions.
The Fund's foreign securities are selected on the basis of value
indicators (such as earnings, cash flow and growth potential) and are
reviewed for fundamental financial strength. U.S. securities held in
the Fund's portfolio are chosen primarily on the basis of their
comparative growth potential.
Principal risks:
General market risk: As with any mutual fund, the value of the Fund's
investments and the income they generate will vary daily and generally
reflect market conditions, interest rates and other issuer-specific,
political or economic developments. The Fund's share value will
decrease at any time during which its security holdings or other
investment techniques are not performing as well as anticipated, and
you could therefore lose money by investing in the Fund depending upon
the timing of your initial purchase and any subsequent redemption.
Other risks: Since the Fund invests heavily in the equity securities of
foreign issuers, it is more susceptible to the risks associated with
these types of securities than a fund that invests primarily in the
securities of U.S. issuers and/or debt securities. Following is a
description of these risks, along with the risks commonly associated
with the other securities and investment techniques that the Fund's
portfolio manager considers important in achieving the Fund's
investment objective or in managing the Fund's exposure to risk (and
that could therefore have a significant effect on the Fund's returns).
Other investment techniques that the Fund may use, but that do not play
a key role in the Fund's overall investment strategy, are described in
the Fund's Statement of Additional Information (see back cover page for
information on how you can receive a free copy).
Common Stocks: Common stocks represent a proportionate ownership
interest in a company. As a result, the value of common stock
rises and falls with a company's success or failure. The market
value of common stock can fluctuate significantly, with smaller
companies being particularly susceptible to price swings.
Transaction costs in smaller company stocks may also be higher
than those of larger companies.
Depository Receipts: The Fund may acquire interests in foreign
issuers in the form of sponsored or unsponsored American
Depository Receipts ("ADRs"), Global Depository Receipts ("GDRs")
and similar types of depository receipts. ADRs typically are
issued by a U.S. bank or trust company and represent ownership of
the underlying securities issued by a foreign corporation. GDRs
and other types of depository receipts are usually issued by
foreign banks or trust companies. The Fund's investments in ADRs,
GDRs and other depository receipts are viewed as investments in
the underlying securities.
Depository receipts can be difficult to price and are not always
exchange-listed. Unsponsored depository programs also are
organized independently without the cooperation of the issuer of
the underlying securities. As a result, information concerning the
issuer may not be as current or as readily available as in the
case of sponsored depository instruments, and their prices may be
more volatile than if they were sponsored by the issuers of the
underlying securities.
Foreign Securities: Investing in foreign securities involves a
number of economic, financial and political considerations that
are not associated with the U.S. markets and that could affect the
Fund's performance favorably or unfavorably, depending upon
prevailing conditions at any given time. For example, the
securities markets of many foreign countries may be smaller, less
liquid and subject to greater price volatility than those in the
U.S. Foreign investing may also involve brokerage costs and tax
considerations that are not usually present in the U.S. markets.
Many of the Fund's securities also are denominated in foreign
currencies and the value of the Fund's investments as measured in
U.S. dollars may be affected favorably or unfavorably by changes
in foreign currency exchange rates and exchange control
regulations. Currency conversion can also be costly.
Other factors that can affect the value of the Fund's foreign
investments include the comparatively weak supervision and
regulation by some foreign governments of securities exchanges,
brokers and issuers, and the fact that many foreign companies may
not be subject to uniform accounting, auditing and financial
reporting standards. It may also difficult to obtain reliable
information about the securities and business operations certain
foreign issuers. Settlement of portfolio transactions may also be
delayed due to local restrictions or communication problems, which
can cause the Fund to miss attractive investment opportunities or
impair its ability to dispose of securities in a timely fashion
(resulting in a loss if the value of the securities subsequently
declines).
Special Emerging Market Concerns: The risks of investing in foreign securities
are heightened in countries with developing economies. Among these additional
risks are the following:
securities that are even less liquid and more volatile than those in
more developed foreign countries;
less stable governments that are susceptible to sudden
adverse actions (such as nationalization of businesses,
restrictions on foreign ownership or prohibitions against
repatriation of assets);
increased settlement delays;
abrupt changes in exchange rate regime or monetary policy;
restrictions on repatriation of capital;
unusually large currency fluctuations and currency conversion
costs (see "Foreign Currencies" below); and
high national debt levels (which may impede an issuer's
payment of principal and/or interest on external debt).
Foreign Currencies: Investing in foreign securities typically
involves the use of foreign currencies. The value of the Fund's
assets, as measured in U.S. dollars, may be affected favorably or
unfavorably by changes in foreign currency exchange rates and
exchange control regulations. Currency conversions can also be
costly.
Foreign Currency Exchange Transactions and Forward Foreign
Currency Contracts: The Fund may, but is not required to, use
foreign currency exchange transactions and forward foreign
currency contracts to hedge certain market risks (such as interest
rates, currency exchange rates and broad or specific market
movement). These investment techniques involve a number of risks,
including the possibility of default by the counterparty to the
transaction and, to the extent the Fund's judgment as to certain
market movements is incorrect, the risk of losses that are greater
than if the investment technique had not been used. For example,
there may be an imperfect correlation between the Fund's portfolio
holdings of securities denominated in a particular currency and
the forward contracts entered into by the Fund. An imperfect
correlation of this type may prevent the Fund from achieving the
intended hedge or expose the Fund to the risk of currency exchange
loss. In addition, although the use of these investment techniques
for hedging purposes should tend to minimize the risk of loss due
to a decline in the value of the hedged position, they also tend
to limit any potential gain that might result from an increase in
the position's value.
Illiquid Securities: The Fund may invest up to 15% of its net
assets in "illiquid securities," which are assets that may not be
disposed of in the ordinary course of business within seven days
at roughly the value at which the Fund has valued the assets. Some
of these may by "restricted securities," which cannot be sold to
the public without registration under the Securities Act of 1933
(in the absence of an exemption) or because of other legal or
contractual restrictions on resale. Thus, while illiquid
securities may offer the potential for higher returns than more
readily marketable securities, there is a risk that the Fund will
not be able to dispose of them promptly at an acceptable price.
Other Investment Companies: The Fund may invest up to 10% of its
total assets in the shares of other investment companies. As a
shareholder of an investment company, the Fund would bear its
ratable share of the fund's expenses (which often include an
asset-based management fee). The Fund could also lose money by
investing in other investment companies, since the value of their
respective investments and the income they generate will vary
daily based on prevailing market conditions.
Temporary Defensive Positions: The Fund may from time to time
take a temporary defensive position and invest without limit in
U.S. Government securities, investment-grade debt securities, and
cash and cash equivalents such as commercial paper, short-term
notes and other money market securities. When the Fund assumes
such a defensive position it may not achieve its investment
objective. Investing in debt securities also involves both
interest rate and credit risk. Generally, the value of debt
instruments rises and falls inversely with fluctuations in
interest rates. For example, as interest rates decline the value
of debt securities generally increases. Conversely, rising
interest rates tend to cause the value of debt securities to
decrease. The market value of debt securities also tends to vary
according to the relative financial condition of the issuer. Bonds
with longer maturities tend to be more volatile than bonds with
shorter maturities.
Borrowing: For temporary or emergency purposes (such as meeting
shareholder redemption requests within the time periods specified
under the Investment Company Act of 1940), the Fund may borrow up
to 10% of the value of its total assets from qualified banks.
Borrowing may exaggerate the effect on the Fund's share value of
any increase or decrease in the value of the securities it holds.
Money borrowed will also be subject to interest costs.
Other Important Information:
European Monetary Union: On January 1, 1999, a new European currency
called the "Euro" was introduced and adopted for use by eleven European
countries. The transition to daily usage of the Euro, including
circulation of Euro bills and coins, will occur during the period from
January 1, 1999 through December 31, 2001. Certain European Union (EU)
members, including the United Kingdom, did not officially implement the
Euro on January 1, 1999 and may cause market disruptions when and if
they decide to do so. Where this occurs, the Fund could experience
investment losses.
Year 2000 Risks: Many computer software and hardware systems in use
today cannot distinguish between the year 2000 and the year 1900
because of the way dates are encoded and calculated (the "Year 2000
Problem"). The inability of computer-based systems to make this
distinction could have a seriously adverse effect on the handling of
securities trades, pricing and account services worldwide. The Fund's
service providers are taking steps that each believes are reasonably
designed to address the Year 2000 Problem with respect to the computer
systems that they use. The Fund believes these steps will be sufficient
to avoid any material adverse impact on the Fund. At this time,
however, there can be no assurance that significant problems will not
occur (which either directly or indirectly may cause the Fund to lose
money).
MANAGEMENT
Investment Advisor:
Ivy Management, Inc. ("IMI"), located at Via Mizner Financial Plaza,
700 South Federal Highway, Boca Raton, Florida 33432, provides
investment advisory and business management services to the Fund. IMI
is an SEC-registered investment advisor with over $____ billion in
assets under management, and provides similar services to the other
eighteen series of the Trust. For the Fund's fiscal year ending
December 31, 1998, the Fund paid to IMI a fee equal to ___% of the
Fund's average net assets.
Portfolio Management:
Barbara Trebbi, a Senior Vice President of IMI, manages the foreign
portion of the Fund's portfolio. She is also Managing Director of
International Equities and a member of the Ivy international portfolio
management team. Ms. Trebbi joined IMI in 1988 and has 11 years of
professional investment experience. She is a Chartered Financial
Analyst and holds a graduate diploma from the London School of
Economics.
Paul P. Baran, a Senior Vice President of IMI, manages the domestic
portion of the Fund's portfolio. Before joining IMI, Mr. Baran was
Senior Vice President/Chief Investment Officer of Central Fidelity
National Bank. He has 24 years of professional investment experience
and is a Chartered Financial Analyst. He has an MBA from Wayne State
University.
<PAGE>
SHAREHOLDER INFORMATION
PRICING OF FUND SHARES:
The Fund calculates its share price by dividing the value of the Fund's
net assets by the total number of its shares outstanding as of the
close of regular trading (usually 4:00 p.m. Eastern time) on the New
York Stock Exchange on each day the Exchange is open for trading
(normally any weekday that is not a national holiday).
Each portfolio security that is listed or traded on a recognized stock
exchange is valued at the security's last sale price on the exchange
on which it was purchased. If no sale is reported at that time, the
average between the last bid and asked prices is used. Securities and
other Fund assets for which market prices are not readily available
are priced at their "fair value" as determined by IMI in accordance
with procedures approved by the Fund's Board of Trustees. IMI may also
price a foreign security at its "fair value" if events materially
affecting the value of the security occur between the close of the
foreign exchange on which the security is principally traded and the
time as of which the Fund prices its shares. Fair value pricing under
these circumstances is designed to protect existing shareholders from
dilution of their share value caused by short-term investors trading
into and out of the Fund at at time when the Fund's share price,
calculated by ordinary pricing methods, is undervalued. When such fair
value pricing occurs, however, there may be some period of time during
which the Fund's share price and/or performance information is not
available.
The number of shares you receive when you place a purchase order, and
the payment you receive after submitting a redemption request, is based
on the Fund's net asset value next determined after your instructions
are received in proper form by Ivy Mackenzie Services Corp. (the Fund's
transfer agent) or by your registered securities dealer. Each purchase
and redemption order is subject to any applicable sales charge (see
"Distribution Arrangements" below). Since the Fund normally invests in
securities that are listed on foreign exchanges that may trade on
weekends or other days when the Fund does not price its shares, the
Fund's share value may change on days when shareholders will not be
able to purchase or redeem the Fund's shares.
HOW TO BUY SHARES:
Purchasing Fund shares involves "Choosing the Appropriate Class of
Shares" and "Submitting Your Purchase Order". Please read these
sections below carefully before investing.
Choosing the Appropriate Class of Shares - The essential features of
the Fund's different classes of shares are described below. If you do
not specify on your Account Application which class of shares you are
purchasing, it will be assumed that you are purchasing Class A shares.
The Fund has adopted separate distribution plans pursuant to Rule
12b-1 under the 1940 Act for its Class A, B and C shares that allow
the Fund to pay distribution and other fees for the sale and
distribution of its shares and for services provided to shareholders.
Because these fees are paid out of the Fund's assets on an on-going
basis, over time they will increase the cost of your investment and
may cost you more than paying other types of sales charges.
Class A Shares: Class A shares are sold at net asset value
plus a maximum sales charge of 5.75% (the "offering price"). The
sales charge may be reduced or eliminated if certain conditions
are met (see "Additional Purchase Information" below). Class A
shares are subject to a .25% Rule 12b-1 service fee.
Class B Shares: Class B shares are offered at net asset value,
without an initial sales charge, but subject to a contingent
deferred sales charge ("CDSC") that declines from 5% to zero on
certain redemptions within six years of purchase. Class B shares
are subject to a .75% Rule 12b-1 distribution fee and a .25% Rule
12b-1 service fee, and convert automatically into Class A shares
eight years after purchase.
Class C Shares: Class C shares are offered at net asset value,
without an initial sales charge, but subject to a CDSC of 1% for
redemptions within the first year of purchase. Class C shares are
subject to a .75% Rule 12b-1 distribution fee and a .25% Rule
12b-1 service fee.
Advisor Class Shares: Advisor Class shares are offered to certain
classes of investors at net asset value, without any sales load or
Rule 12b-1 fees.
The following table displays the various investment minimums, sales
charges and expenses that apply to each class.
<TABLE>
<S> <C> <C> <C> <C>
- -------------------- --------------------- --------------------- --------------------- -------------------
Class A Class B Class C Advisor Class
- -------------------- --------------------- --------------------- --------------------- -------------------
- -------------------- --------------------- --------------------- --------------------- -------------------
Minimum Initial $10,000
Investment* $1,000 $1,000 $1,000
- -------------------- --------------------- --------------------- --------------------- -------------------
- -------------------- --------------------- --------------------- --------------------- -------------------
Minimum Subsequent
Investment* $100 $100 $100 $ 250
- -------------------- --------------------- --------------------- --------------------- -------------------
- -------------------- --------------------- --------------------- --------------------- -------------------
Initial Sales Maximum 5.75%, with None None None
Charge options for a
reduced or waiver
of initial sales
charge
- -------------------- --------------------- --------------------- --------------------- -------------------
- -------------------- --------------------- --------------------- --------------------- -------------------
CDSC None, except on Maximum 5.00%, 1.00% for the first None
certain NAV declines over six year
purchases years
- -------------------- --------------------- --------------------- --------------------- -------------------
- -------------------- --------------------- --------------------- --------------------- -------------------
Service and 0.25% Service fee 0.75% Distribution 0.75% Distribution None
Distribution Fees Fee and 0.25% Fee and 0.25%
Service Fee Service Fee
- -------------------- --------------------- --------------------- --------------------- -------------------
</TABLE>
* Minimum initial and subsequent investments for retirement plans are
$25.
ADDITIONAL PURCHASE INFORMATION:
Class A Shares - Class A shares are sold at a public offering
price equal to their net asset value per share ("NAV") plus an
initial sales charge, as set forth below (which is reduced as the
amount invested increases):
<TABLE>
<S> <C> <C> <C>
-------------------------------- ---------------------- ------------------ ----------------------
Sales Charge as a Sales Charge as Portion of Public
Percentage of Public a Percentage of Offering Price
Offering Price Net Amount Retained by Dealer
Amount Invested Invested
-------------------------------- ---------------------- ------------------ ----------------------
-------------------------------- ---------------------- ------------------ ----------------------
Less than $50,000 5.75% 6.10% 5.00%
-------------------------------- ---------------------- ------------------ ----------------------
-------------------------------- ---------------------- ------------------ ----------------------
$50,000 but less than $100,000 5.25% 5.54% 4.50%
-------------------------------- ---------------------- ------------------ ----------------------
-------------------------------- ---------------------- ------------------ ----------------------
$100,000 but less than $250,000 4.50% 4.71% 3.75%
-------------------------------- ---------------------- ------------------ ----------------------
-------------------------------- ---------------------- ------------------ ----------------------
$250, 000 but less than 3.00% 3.09% 2.50%
$500,000
-------------------------------- ---------------------- ------------------ ----------------------
$500,000 or over* 0.00% 0.00% 0.00%
-------------------------------- ---------------------- ------------------ ----------------------
</TABLE>
* A CDSC of 1.00% applies to Class A shares that are redeemed
within two years of the end of the month in which they were
purchased.
Class A shares that are acquired through reinvestment of dividends
or distributions are not subject to any sales charges.
HOW TO REDUCE YOUR INITIAL SALES CHARGE:
"Rights of Accumulation" permits you to pay the sales charge
that applies to the cost or value (whichever is higher) of all
Ivy Fund Class A shares you own.
A "Letter of Intent" permits you to pay the sales charge that
would apply to your cumulative purchase of Fund shares over a
13-month period (certain restrictions apply).
HOW TO ELIMINATE YOUR INITIAL SALES CHARGE:
You may purchase Class A shares at NAV (without an initial sales
charge or a CDSC) through any one of the following methods:
through certain investment advisors and financial planners
who charge a management, consulting or other fee for their
services;
under certain qualified retirement plans;
as an employee or director of Mackenzie Investment Management
Inc. or its affiliates;
as an employee of a selected dealer; or
through the Merrill Lynch Daily K Plan (the "Plan"), provided
the Plan has at least $3 million in assets or over 500 or more
eligible employees. Class B shares of the Fund are made
available to Plan participants at NAV without a CDSC if the
Plan has less than $3 million in assets or fewer than 500
eligible employees. For further information see "Group
Systematic Investment Program" in the SAI.
You may also purchase Class A shares at NAV if you are investing
at least $500,000 through a dealer or agent. Ivy Mackenzie
Distributors, Inc. ("IMDI"), the Fund's distributor, may pay the
dealer or agent (out of IMDI's own resources) for its distribution
assistance according to the following schedule:
------------------------------- -------------------------------
Purchase Amount Commission
------------------------------- -------------------------------
------------------------------- -------------------------------
First $3,000,000 1.00%
------------------------------- -------------------------------
------------------------------- -------------------------------
Next $2,000,000 0.50%
------------------------------- -------------------------------
------------------------------- -------------------------------
Over $5,000,000 0.25%
------------------------------- -------------------------------
Certain trust companies, bank trust departments, credit unions,
savings and loans and other similar organizations may also be
exempt from the initial sales charge on Class A shares.
Class B and Class C Shares - Class B and Class C shares are not
subject to an initial sales charge but are subject to a CDSC. If
you redeem your Class C shares within one year of purchase they
will be subject to a CDSC of 1%, and Class B shares redeemed
within six years of purchase will be subject to a CDSC at the
following rates:
--------------------- --------------------
CDSC as a
Percentage of
Year Since Purchase Dollar Amount
Subject to Charge
--------------------- --------------------
First 5%
--------------------- --------------------
--------------------- --------------------
Second 4%
--------------------- --------------------
--------------------- --------------------
Third 3%
--------------------- --------------------
--------------------- --------------------
Fourth 3%
--------------------- --------------------
--------------------- --------------------
Fifth 2%
--------------------- --------------------
--------------------- --------------------
Sixth 1%
--------------------- --------------------
--------------------- --------------------
Seventh and 0%
thereafter
--------------------- --------------------
The CDSC for both Class B and Class C shares will be assessed on
an amount equal to the lesser of the current market value or the
original purchase cost of the shares being redeemed. No charge
will be assessed on increases in account value above the original
purchase price or on reinvested dividends and distributions.
The CDSC for Class B shares is waived for:
Certain post-retirement withdrawals from an IRA or other
retirement plan if you are over 59 1/2 years old.
Redemptions by certain eligible 401(a) and 401(k) plans and
certain retirement plan rollovers.
Redemption resulting from a tax-free return of excess
contribution to an IRA.
Withdrawals resulting from shareholder death or disability
provided that the redemption is requested within one year of
death or disability.
Withdrawals through the Systematic Withdrawal Plan of up to
12% per year of your account value at the time the plan is
established.
Both Class B shares and Class C shares are subject to an ongoing
service and distribution fee at a combined annual rate of up to
1.00% of the portfolio's average net assets attributable to its
Class B or Class C shares. The ongoing distribution fees will
cause these shares to have a higher expense ratio than that of
Class A and Advisor Class shares. IMDI uses the money that it
receives from the deferred sales charge and the distribution fees
to cover various promotional and sales related expenses, as well
as expenses related to providing distributions services, such as
compensating selected dealers and agents for selling these shares.
Approximately eight years after the original date of purchase,
your Class B shares will be converted automatically to Class A
shares. Class A shares are subject to lower annual expenses than
Class B shares. The conversion from Class B shares to Class A
shares is not considered a taxable event for federal income tax
purposes. Class C shares do not have a similar conversion
privilege.
Advisor Class - Advisor Class shares are offered only to
institutions and certain individuals, and are not subject to an
initial sales charge or a CDSC, nor to ongoing service or
distribution fees.
SUBMITTING YOUR PURCHASE ORDER:
INITIAL INVESTMENTS:
Complete and sign the Account Application appearing at the end of this
Prospectus. Enclose a check payable to Ivy Fund (see page [XX] for
minimum initial investments.) Deliver your application materials to
your registered representative or selling broker, or send them to one
of the addresses below:
By Regular Mail: By Courier:
Ivy Mackenzie Services Corp. Ivy Mackenzie Services Corp.
P.O. Box 3022 700 South Federal Hwy.
Boca Raton, FL 33431-0922 Boca Raton, FL 33432
BUYING ADDITIONAL SHARES:
There are several ways to increase your investment in the Fund:
By Mail - Send your check with a completed investment slip
(attached to your account statement) or written instructions
indicating the account registration, fund number or name, and
account number.
Mail to one of the addresses above.
Through Your Broker - Deliver to your registered representative
or selling broker the investment slip attached to your statement,
or written instructions, along with your payment.
By Wire - Purchases may also be made by wiring money from your
bank account to your Ivy account. Your bank may charge a fee for
wiring funds. Before wiring any funds, please call IMSC at (800)
777-6472. Wiring instructions are as follows:
First Union National Bank of Florida
Jacksonville, FL
ABA #063000021
Account #2090002063833
For further credit to:
Your Ivy Fund Account Number
Your Fund Number and Account Number
By Automatic Investment Method - You can authorize to have funds
electronically drawn each month from your bank account and
invested as a purchase of shares into your Ivy Fund account.
Complete sections [XX] and [XX] of the Account Application.
HOW TO REDEEM SHARES:
SUBMITTING YOUR REDEMPTION ORDER:
You may redeem your Fund shares through your registered securities
dealer or directly through IMSC. If you choose to redeem through your
registered securities dealer, the dealer is responsible for properly
transmitting redemption orders in a timely manner. If you choose to
redeem directly through IMSC, you have several ways to submit your
request:
By Mail - Send your written redemption request to IMSC at one of
the addresses on page XX of this Prospectus. Be sure that all
registered owners listed on the account sign the request.
Signature guarantees and supporting legal documentation may be
required. When you redeem, IMSC will normally send redemption
proceeds to you on the next business day, but may take up to seven
days (or longer in the case of shares recently purchased by
check).
By Telephone - Call IMSC at (800) 777-6472 to redeem from your
account. In order to process your redemption order by telephone,
you must have telephone redemption privileges on your account.
IMSC employs reasonable procedures that require personal
identification prior to acting on redemption instructions
communicated by telephone to confirm that such instructions are
genuine. In the absence of such procedures, the Fund or IMSC may
be liable for any losses due to unauthorized or fraudulent
telephone instructions.
By Systematic Withdrawal Plan (SWP) - You can authorize to have
funds electronically drawn each month from your Ivy Fund account
and deposited directly into your bank account. Certain minimum
balances and minimum distributions apply. Complete sections XX of
the Account Application to add this feature to your account.
Receiving Your Redemption Proceeds - You can receive redemption
proceeds through a variety of payment methods:
By Check - Unless otherwise instructed, checks will be made
payable to the current account registration and sent to the
address of record.
By Federal Funds Wire - Proceeds will be wired on the next
business day to a pre-designated bank account. Requests by
telephone can only be accepted for amounts up to $50,000. Your
account will be charged $10 each time redemption proceeds are
wired to your bank, and your bank may also charge you a fee for
receiving a Federal Funds wire.
By Electronic Funds Transfer - For SWP redemptions only.
Important Redemption Information:
A CDSC may apply to certain Class A share redemptions, to Class B
shares redeemed within six years of purchase, and to Class C
shares that are redeemed within one year of purchase.
All redemptions are made at the NAV next determined after a
redemption request has been received in good order. Requests for
redemptions must be received by 4:00 p.m. Eastern time to be
processed at the NAV for that day. Any redemption request in good
order that is received after 4:00 p.m. Eastern time will be
processed at the price determined on the following business day.
If you own shares of more than one class of the Fund, the Fund
will redeem first the shares having the highest 12b-1 fees.
Any shares subject to a CDSC will be redeemed last unless you
specifically elect otherwise.
The Fund may (on 60 days' notice) redeem the accounts of
shareholders whose investment, including sales charges paid, has
been less than $1,000 for more than 12 months.
The Fund may take up to seven days (or longer in the case of
shares recently purchased by check) to send redemption proceeds.
The Fund may make payment for redeemed shares in the form of
securities of the Fund taken at current values.
HOW TO EXCHANGE YOUR FUND SHARES:
You may exchange your Fund shares for shares of another Ivy fund,
subject to certain restrictions (see "Important Exchange Information"
below).
Submitting Your Exchange Order - You may submit an exchange request to
IMSC as follows:
By Mail - Send your written exchange request to IMSC at one of
the addresses on page XX of this Prospectus. Be sure that all
registered owners listed on the account sign the request.
By Telephone - Call IMSC at (800) 777-6472 to authorize an
exchange transaction. In order to process your exchange order by
telephone, you must have telephone exchange privileges on your
account. IMSC employs reasonable procedures that require personal
identification prior to acting on exchange instructions
communicated by telephone to confirm that such instructions are
genuine. In the absence of such procedures, the Fund or IMSC may
be liable for any losses due to unauthorized or fraudulent
telephone instructions.
IMPORTANT EXCHANGE INFORMATION:
You must exchange into the same share class you currently own.
Exchanges are considered taxable events and may result in a
capital gain or a capital loss for tax purposes.
It is the policy of the Fund to discourage the use of the
exchange privilege for the purpose of timing short-term market
fluctuations. The Fund may therefore limit the frequency of
exchanges by a shareholder or cancel a shareholder's exchange
privilege if at any time it appears that such market timing
strategies are being used.
DIVIDENDS AND DISTRIBUTIONS:
The Fund generally declares and pays dividends and capital gain
distributions (if any) at least once a year.
Dividends and distributions are "reinvested" in additional Fund
shares unless you request to receive them in cash.
Reinvested dividends and distributions are added to your account
at NAV and are not subject to a CDSC regardless of which share
class you own.
Cash dividends and distributions can be sent to you:
BY MAIL - a check will mailed to the address of record unless
otherwise instructed.
BY ELECTRONIC FUNDS TRANSFER ("EFT") - your proceeds will be
directly deposited into your bank account.
To change your dividend and/or distribution options, call IMSC at
(800) 777-6472.
TAX CONSEQUENCES:
Distributions you receive from the Fund are reinvested in additional
shares of the same class of the Fund unless you elect to receive them
in cash. Dividends ordinarily will vary from one class to another.
The Fund intends to declare and pay dividends monthly. The Fund will
distribute net investment income and net realized capital gains, if
any, at least once a year. The Fund may make an additional distribution
of net investment income and net realized capital gains to comply with
the calendar year distribution requirement under the excise tax
provisions of Section 4982 of the Internal Revenue Code of 1986, as
amended (the "Code").
Dividends paid out of the Fund's investment company taxable income
(including dividends, interest and net short-term capital gains) will
be taxable to you as ordinary income. If a portion of the Fund's income
consists of dividends paid by U.S. corporations, a portion of the
dividends paid by the Fund may be eligible for the corporate
dividends-received deduction. Distributions of net capital gains (the
excess of net long-term capital gains over net short-term capital
losses), if any, are taxable to you as long-term capital gains,
regardless of how long you have held your shares. Dividends are taxable
to you in the same manner whether received in cash or reinvested in
additional Fund shares.
If shares of the Fund are held in a tax-deferred account, such as a
retirement plan, income and gain will not be taxable each year.
Instead, the taxable portion of amounts held in a tax-deferred account
generally will be subject to tax as ordinary income only when
distributed from that account.
A distribution will be treated as paid to you on December 31 of the
current calendar year if it is declared by the Fund in October,
November or December with a record date in such a month and paid by the
Fund during January of the following calendar year.
In certain years, you may be able to claim a credit or deduction on
your income tax return for your share of foreign taxes paid by the
Fund. Upon the sale or other disposition of your Fund shares, you may
realize a capital gain or loss which will be long-term or short-term,
generally depending upon how long you held your shares.
The Fund may be required to withhold U.S. Federal income tax at the
rate of 31% of all distributions payable to you if you fail to provide
the Fund with your correct taxpayer identification number or to make
required certifications, or if you have been notified by the Internal
Revenue Service ("IRS") that you are subject to backup withholding.
Backup withholding is not an additional tax. Any amounts withheld may
be credited against your U.S. Federal income tax liability.
Fund distributions may be subject to state, local and foreign taxes.
You should consult with your tax adviser as to the tax consequences of
an investment in the Fund, including the status of distributions from
the Fund under applicable state or local law.
<PAGE>
IVY GLOBAL FUND(A)
<TABLE>
<CAPTION>
CLASS A
- ------------------------------------------------------------------------------------------------------------------------
1998 1997 1996 1995 1994(B) 1994(C)
SELECTED PER SHARE DATA ------- ------- ------- ------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
<C>
Net asset value, beginning of period.... $ 13.17 $ 11.97 $ 11.23 $ 11.52 $ 10.62
------- ------- ------- ------- -------
Income (loss) from investment
operations
Net investment income (loss)......... .08 .08 .09(g) --(g) --(g)
Net realized and unrealized gain
(loss)
on investment transactions........... (1.23) 1.86 1.25 (.10) 1.79
------- ------- ------- ------- -------
Total from investment
operations....................... (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... .26 .18 -- -- --
From net realized gain............... .78 .48 .49 .09 .88
In excess of net realized gain....... -- -- .07 -- --
From capital paid-in................. -- -- -- .10 --
------- ------- ------- ------- -------
Total distributions............... 1.09 .74 .60 .19 .89
------- ------- ------- ------- -------
Net asset value, end of period.......... $ 10.93 $ 13.17 $ 11.97 $ 11.23 $ 11.52
======= ======= ======= ======= =======
Total return(%)......................... (8.72) 16.21 12.08 (1.00) 16.71
RATIOS AND SUPPLEMENTAL DATA
Net Assets, end of period (in
thousands)............................. $19,692 $24,152 $21,264 $19,327 $17,393
Ratio of expenses to average net assets
With expense reimbursement(%) -- -- 2.20 2.20 2.20
Without expense reimbursement(%)....... 2.07 2.18 2.46 2.34 2.42
Ratio of net investment income (loss) to
average net assets(%).................. .58 .58 .71(g) (.06)(g) .01(g)
Portfolio turnover rate(%).............. 45 43 53 23 85
Average commission rate................. $ .0100 $ .0181 N/A N/A N/A
<CAPTION>
</TABLE>
<TABLE>
<CAPTION>
CLASS B
-------------------------------------------------------------------------
1998 1997 1996 1995 1994(B) 1994(E)
SELECTED PER SHARE DATA ------- ------- ------- ------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of
period............................ $ 13.12 $ 11.97 $ 11.23 $ 11.52 $ 12.12
------- ------- ------- ------- -------
Income (loss) from investment
operations
Net investment loss............. (.02) (.02) --(g) (.03)(g) (.01)(g)
Net realized and unrealized gain
(loss) on investment
transactions................... (1.20) 1.85 1.25 (.12) (.04)
------- ------- ------- ------- -------
Total from investment
operations.................. (1.22) 1.83 1.25 (.15) (.05)
------- ------- ------- ------- -------
Less distributions
From net investment income...... .05 -- -- -- --
In excess of net investment
income......................... .26 .20 -- -- --
From net realized gain.......... .69 .48 .45 .08 .55
In excess of net realized
gain........................... -- -- .06 -- --
From capital paid-in............ -- -- -- .06 --
------- ------- ------- ------- -------
Total distributions.......... 1.00 .68 .51 .14 .55
------- ------- ------- ------- -------
Net asset value, end of period..... $ 10.90 $ 13.12 $ 11.97 $ 11.23 $ 11.52
======= ======= ======= ======= =======
Total return(%).................... (9.33) 15.30 11.25 (1.37) .38
RATIOS AND SUPPLEMENTAL DATA
Net assets, end of period (in
thousands)........................ $10,056 $ 8,968 $ 4,811 2,956 $ 376
Ratio of expenses to average net
assets
With expense reimbursement(%)..... -- -- 2.95 2.95 2.95
Without expense
reimbursement(%)................ 2.82 2.94 3.21 3.09 3.17
Ratio of net investment loss to
average net assets(%)............. (.18) (.17) (.04)(g) (.81)(g) (.74)(g)
Portfolio turnover rate(%)......... 45 43 53 23 85
Average commission rate............ $ .0100 $ .0181 N/A N/A N/A
</TABLE>
<TABLE>
<CAPTION>
CLASS C
----------------------------------
1998 1997 1996(F)
SELECTED PER SHARE DATA ------- -------- --------
<S> <C> <C> <C>
Net asset value, beginning of
period............................ $12.94 $ 13.31
------- -------
Income (loss) from investment
operations
Net investment loss............. (.02) (.01)
Net realized and unrealized gain
(loss) on investment
transactions................... (1.24) .42
------- -------
Total from investment
operations.................. (1.26) .41
------- -------
Less distributions
From net investment income...... .05 --
In excess of net investment
income......................... .26 .30
From net realized gain.......... .70 .48
In excess of net realized
gain........................... -- --
From capital paid-in............ -- --
------- -------
Total distributions.......... 1.01 .78
------- -------
Net asset value, end of period..... $10.67 $ 12.94
======= =======
Total return(%).................... (9.72) 3.07
RATIOS AND SUPPLEMENTAL DATA
Net assets, end of period (in
thousands)........................ $727 $ 71
Ratio of expenses to average net
assets
With expense reimbursement(%)..... -- --
Without expense
reimbursement(%)................ 2.82 3.77
Ratio of net investment loss to
average net assets(%)............. (.18) (1.01)
Portfolio turnover rate(%)......... 45 43
Average commission rate............ $.0100 $ .0181
</TABLE>
<TABLE>
<CAPTION>
ADVISOR CLASS
SHARES
1998
SELECTED PER SHARE DATA -------------
<S> <C>
Net asset value, beginning of period.........
Income (loss) from investment operations
Net investment income (loss) (b)..........
Net realized and unrealized loss on
investment transactions..................
Total from investment operations.......
Less distributions
From net investment income................
In excess of net investment income........
Total distributions....................
Net asset value, end of period...............
Total return (%).............................
RATIOS AND SUPPLEMENTAL DATA
Net assets, end of period (in thousands).....
Ratio of expenses to average net assets(c)
With expense reimbursement(%)...............
Without expense reimbursement(%)............
Ratio of net investment income (loss) to
average net assets(%)(b)....................
Portfolio turnover rate(%)...................
Average commission rate......................
</TABLE>
- - ---------------
<TABLE>
<S> <C>
(a) Since February 1, 1995, Ivy Global Fund's adviser has been
IMI. Prior to February 1, 1995, Ivy Global Fund's adviser
was MIMI.
(b) For the six months ended December 31, 1994.
(c) For the year ended June 30.
(d) From April 18, 1991 (commencement) to June 30, 1991.
(e) From April 1, 1994 (commencement) to June 30, 1994.
(f) From April 30, 1996 (commencement) to December 31, 1996.
(g) Net investment income (loss) is net of expenses reimbursed
by manager.
</TABLE>
<PAGE>
ACCOUNT APPLICATION
Please mail applications and checks to: Ivy Mackenzie Services Corp.,
P.O. Box 3022, Boca Raton, FL
33431-0922.
(This application should not be used for retirement accounts for which
Ivy Fund is custodian.)
Account Number:
(Fund Use Only)
Dealer #:
Branch #:
Rep. I.D. #:
Acct. Type:
Soc Cd:
Div Cd:
CG Cd:
Exc Cd:
Red Cd:
1. REGISTRATION
/ / Individual / / Joint Tenant / / Estate / / UGMA/UTMA / /
Corporation / / Partnership / / Sole Proprietor / / Trust / / Other
Date of Trust
Owner, Custodian or Trustee
Co-owner or Minor
Minor's State of Residence
Street
City
State
Zip Code
Phone Number -- Day
Phone Number -- Evening
2. TAX ID
Citizenship: / / U.S. / / Other ________________
Social Security Number
Tax Identification Number
Under penalties of perjury, I certify by signing in Section 8 below
that: (1) the number shown in this section is my correct taxpayer
identification number (TIN), and (2) I am not subject to backup
withholding because: (a) I have not been notified by the Internal
Revenue Service (IRS) that I am subject to backup withholding as a
result of a failure to report all interest or dividends, or (b) the IRS
has notified me that I am no longer subject to backup withholding.
(Cross out item (2) if you have been notified by the IRS that you are
currently subject to backup withholding because of underreporting
interest or dividends on your tax return.) Please see the "Tax
Consequences" section of the Prospectus for additional information on
completing this section.
3. DEALER INFORMATION
The undersigned ("Dealer") agrees to all applicable provisions in this
Application, guarantees the signature and legal capacity of the
Shareholder, and agrees to notify IMSC of any purchases made under a
Letter of Intent or Rights of Accumulation.
Dealer Name
Branch Office Address
City
State
Zip Code
Representative's Name and Number
Representative's Phone Number
Authorized Signature of Dealer
4. INVESTMENTS
A. Enclosed is my check ($1,000 minimum) for $_____________ made
payable to ________________ [Fund Name]. Please invest it in
Class A __ Class B __ Class C __ or Advisor Class __ shares.
B. I qualify for an elimination of the sales charge due to the
following privilege (applies only to Class A shares):
__ New Letter of Intent (if ROA or 90-day backdate
privilege is applicable, provide account(s)
information below.)
__ ROA with the account(s) listed below.
__ Existing Letter of Intent with account(s) listed
below.
Fund Name(s)
Account Number(s)
If establishing a Letter of Intent, you will need to purchase
Class A shares over a thirteen-month period in accordance with
the provisions in the Prospectus. The Aggregate amount of
these purchases will be at least equal to the amount indicated
below (see Prospectus for minimum amount required for reduced
sales charges).
/ / $50,000
/ / $100,000
/ / $250,000
/ / $500,000
C. FOR DEALER USE
Confirmed trade orders: [Confirm Number, Number of Shares,
Trade Date]
5. DISTRIBUTION OPTIONS
I would like to reinvest dividends and capital gains into additional
shares in this account at net asset value unless a different option is
checked below.
/ / Reinvest all dividends and capital gains into additional
shares of a different Ivy fund.
Fund Name
Account Number
/ / Pay all dividends in cash and reinvest capital gains into
additional shares in this Fund or a different Ivy fund.
Fund Name
Account Number
/ / Pay all dividends and capital gains in cash.
I REQUEST THE ABOVE CASH DISTRIBUTION, SELECTED IN C OR D
ABOVE, BE:
/ / Sent to the address listed in the registration.
/ / Sent to the special payee listed in Section 7A
/ / (By Mail) 7B
/ / (By E.F.T.)
6. OPTIONAL SPECIAL FEATURES
A. / / Automatic Investment Method (AIM)
- - I wish to invest _________________ / / once per month / /
twice / / 3 times / / 4 times
- - My bank account will be debited on the _________ day of the month
Please invest $___________________ each period starting in
the month of __________________ in
---------------------------.
Fund Name
/ / Class A
/ / Class B
/ / Class C
/ / Advisor Class
/ / I have attached a voided check to ensure my correct bank
account will be debited.
B. SYSTEMATIC WITHDRAWAL PLANS**
I wish to automatically withdraw funds from my account in
_________________[Fund name].
/ / Monthly / / Quarterly / /Semiannually / / Annually
/ / Once / / Twice / / 3 times / / 4 times per month
I request the distribution be:
/ / Sent to the address listed in the registration.
/ / Sent to the special payee listed in Section 7.
/ / Invested into additional shares of the same class of a different Ivy
fund.
Fund Name
Account Number
Amount $__________________(Minimum $50) starting on or about the
-_______ day of the month
-_______ day of the month
-_______ day of the month*
NOTE: Account minimum: $5,000 in shares at current offering price
C. FEDERAL FUNDS TRANSFER FOR REDEMPTION PROCEEDS**
I authorize the Agent to honor telephone instructions for the
redemption of Fund shares up to $50,000. Proceeds may be wire
transferred to the bank account designated ($1,000 minimum).
(Complete Section 7B)
TELEPHONE EXCHANGES** / / YES / / NO
I authorize exchanges by telephone among the Ivy funds upon
instructions from any person as more fully described in the
Prospectus. To change this option once established, written
instructions must be received from the shareholder of record
or the current registered representative.
If neither box is checked, the telephone exchange privilege
will be provided automatically.
TELEPHONIC REDEMPTIONS** / / YES / / NO
The Fund or its agents are authorized to honor telephone
instructions from any person as more fully described in the
Prospectus for the redemption of Fund shares. The amount of
the redemption shall not exceed $50,000 and the proceeds are
to be payable to the shareholder of record and mailed to the
address of record. To change this option once established,
written instructions must be received from the shareholder of
record or the current registered representative.
If neither box is checked, the telephone redemption privilege
will be provided automatically.
* There must be a period of at least seven calendar
days between each investment/withdrawal period.
** This option may not be used if shares are issued in
certificate form.
7. SPECIAL PAYEE
A. MAILING ADDRESS
Please send all disbursements to this special payee:
Name of Bank or Individual
Account Number (If Applicable)
Street
City/State/Zip
B. FED WIRE / E.F.T. INFORMATION
Financial Institution
ABA #
Account #
Street
City/State/Zip
(Please attach a voided check)
8. SIGNATURES
Investors should be aware that the failure to check the "No" under
Section 6D or 6E above means that the Telephone Exchange/Redemption
Privileges will be provided. The Fund employs reasonable procedures
that require personal identification prior to acting on
exchange/redemption instructions communicated by telephone to confirm
that such instructions are genuine. In the absence of such procedures,
the Fund may be liable for any losses due to unauthorized or fraudulent
telephone instructions. Please see "How to Exchange Your Fund Shares"
and "How to Redeem Your Fund Shares" in the Prospectus for more
information on these privileges.
I certify to my legal capacity to purchase or redeem shares of the Fund
for my own account or for the account of the organization named in
Section 1. I have received a current Prospectus and understand its
terms are incorporated in this application by reference. I am
certifying my taxpayer information as stated in Section 2.
THE INTERNAL REVENUE SERVICE DOES NOT REQUIRE YOUR CONSENT TO ANY
PROVISION OF THIS DOCUMENT OTHER THAN THE CERTIFICATIONS REQUIRED TO
AVOID BACKUP WITHHOLDING.
------------------------------
Signature of Owner, Custodian, Date
Trustee or Corporate Officer
------------------------------
Signature of Joint Owner, Date
Co-Trustee or Corporate Officer
(Remember to sign Section 8)
<PAGE>
[Back Cover Page]
HOW TO RECEIVE MORE INFORMATION ABOUT THE FUND
Additional information about the Fund and its investments is contained in the
Fund's Statement of Additional Information dated April ___, 1999 (the "SAI"),
which is incorporated by reference into this Prospectus, and the Fund's annual
and semi-annual reports to shareholders. The Fund's annual report includes a
discussion of the market conditions and investment strategies that significantly
affected the Fund's performance during its most recent fiscal year. The SAI and
the Fund's annual and semi-annual reports are available upon request and without
charge from the Distributor at the following address and phone number:
Ivy Mackenzie Distributors, Inc.
Via Mizner Financial Plaza
700 South Federal Highway
Boca Raton, Florida 33432
(800) 456-5111
Information about the Fund (including the SAI and the Fund's annual and
semi-annual reports) may also be reviewed and copied at the SEC's Public
Reference Room in Washington, D.C. (please call 1-800-SEC-0330 for further
details). Information about the Fund is also available on the SEC's Internet
Website (www.sec.gov), and copies of this information may be obtained, upon
payment of a copying fee, by writing the Public Reference Section of the SEC,
Washington, D.C. 20549-6009.
SHAREHOLDER INQUIRIES
Please call Ivy Mackenzie Services Corp., the Fund's transfer agent, at
1-800-777-6472 regarding any other inquiries about the Fund.
Investment Company Act File No. 811-1028
<PAGE>
[Front Cover Page]
PROSPECTUS April ___, 1999
IVY FUND - Ivy Global Natural Resources Fund
Ivy Fund (the "Trust") is a registered open-end investment company currently
consisting of nineteen separate portfolios. This Prospectus relates to the Class
A, Class B, Class C and Advisor Class shares of Ivy Global Natural Resources
Fund (the "Fund"). No other shares are offered in this Prospectus.
The Securities and Exchange Commission has not approved or disapproved these
securities or passed upon the adequacy of this Prospectus. Any representation to
the contrary is a criminal offense.
[Insert all logos]
<PAGE>
TABLE OF CONTENTS
SUMMARY
ADDITIONAL INFORMATION ABOUT INVESTMENT STRATEGIES AND RISKS
MANAGEMENT
SHAREHOLDER INFORMATION
ACCOUNT APPLICATION
HOW TO RECEIVE MORE INFORMATION ABOUT THE FUND
SHAREHOLDER INQUIRIES
<PAGE>
SUMMARY
Investment The Fund seeks long-term growth. Any income realized will
objective: be incidental.
Principal The Fund normally invests at least 65% of its total assets
investment in equity securities. The Fund in companies throughout the
strategies: world that own, explore or develop natural resources and
other basic commodities or that supply goods and services to
such companies. For these purposes, "natural resources"
generally include:
precious metals (such as gold, silver and platinum);
ferrous and nonferrous metals (such as iron, aluminum
and copper);
strategic metals (such as uranium and titanium);
coal, oil, natural gases, timber;
agricultural commodities; and
undeveloped real property.
Other securities and investment techniques that the Fund's
manager considers important in achieving the Fund's
investment objective (or in controlling the Fund's exposure
to risk) include:
sponsored and unsponsored depository receipts; and
investments in other investment companies.
Principal risks: The main risks to which the Fund is exposed in
carrying out its investment strategies are the following:
Management risk: The Fund's manager might not select
securities that perform as well as the securities held by
other mutual funds with investment objectives that are
similar to those of the Fund.
Market risk: Common stocks represent a proportionate
ownership interest in a company. The market value of common
stock can fluctuate significantly even where "management
risk" is not a factor, so you could lose money if you redeem
your Fund shares at a time when the Fund's stock portfolio
is not performing as well as expected. The market value of
common stock can fluctuate significantly, so you could lose
money if you redeem your Fund shares at a time when the
Fund's stock portfolio is not performing as well as
expected.
Small company risk: Securities of smaller companies may be
subject to more abrupt or erratic market movements than the
securities of larger more established companies, since they
tend to be thinly traded and because the companies are
subject to greater business risk. Transaction costs in
smaller company stocks may also be higher than those of
larger companies.
Natural resources and physical commodities risk: Investing
in natural resources and can be riskier than other types of
investment activities because of range of factors,
including:
price fluctuations caused by real and perceived inflationary
trends and political developments; and
the costs assumed by natural resource companies in
complying with environmental and safety regulations.
Investing in physical commodities, such as gold, exposes the
Fund to other risk considerations, such as:
potentially severe price fluctuations over short
periods of time;
storage costs that can exceed the custodial and/or
brokerage costs associated with the Fund's other
portfolio holdings.
Industry concentration risk: Since the Fund can invest a
significant portion of its assets in securities of companies
engaged in natural resources activities, the Fund could
experience wider fluctuations in value than funds with more
diversified portfolios.
Foreign security and emerging market risk: Investing in
foreign securities involves a number of economic, financial
and political considerations that are not associated with
the U.S. markets and that could affect the Fund's
performance favorably or unfavorably, depending upon
prevailing conditions at any given time. Among these
potential risks are:
greater price volatility;
comparatively weak supervision and regulation of
securities exchanges, brokers and
issuers;
higher brokerage costs;
fluctuations in foreign currency exchange rates and
related conversion costs;
adverse tax consequences; and
settlement delays.
The risks of investing in foreign securities are more acute
in countries with developing economies.
Who should invest:* The Fund may be appropriate for investors seeking
long-term growth potential, but who can accept potentially dramatic
fluctuations in capital value in the short-term.
* You should consult with your financial advisor before deciding whether
the Fund is an appropriate investment choice in light of your
particular financial needs and risk tolerance.
<PAGE>
Performance Bar Chart and Table:
The information in the following chart and table provides some
indication of the risks of investing in the Fund by showing changes in
the Fund's performance from year to year and how the Fund's average
annual returns since its inception on January 1, 1997 compare with
those of a broad measure of market performance. The Fund's past
performance is not an indication of how the Fund will perform in the
future.
Annual Total Returns for Class A Shares as of December 31, 1998:*
-------------------------
1997 1998
* Any applicable sales charges and account fees are not
reflected, and if they were the returns shown above would be
lower. The returns for the Fund's other four classes of shares
during these periods were different from those of Class A
because of variations in their respective expense structures.
Best quarter: ______% (Q__ 199__)
Worst quarter: ______% (Q__ 199__)
Average Annual Total Returns (for the periods ending December 31, 1998):*
Past year: Since inception:**
Class A: ______% ______%
Class B: ______% ______%
Class C: ______% ______%
Advisor Class:*** N/A N/A
[Index]: ______% ______%
* Performance figures reflect any applicable sales charges.
** The inception date for all Classes other than Advisor Class
was January 1, 1997. Advisor Class shares were first offered
on January 1, 1998.
*** The Fund has had no outstanding Advisor Class shares.
<PAGE>
Fees and Expenses:
The following tables describe the fees and expenses that you may pay if
you buy and hold shares of the Fund:
Shareholder Fees (fees paid directly from your investment):
Maximum Sales Charge (Load) Imposed on Maximum Deferred Sales
Purchases (as a percentage of Charge (Load) (as a
offering price): percentage of original
purchase price):
Class A: 5.75% none
Class B: none 5.00%
Class C: none 1.00%
Advisor none none
Class:
Annual Fund Operating Expenses (expenses that are deducted from Fund
assets):
Distribution Total Annual Expenses Net Fund
Management and/or Other Fund Waived or Operating
Fees:* Service Expenses: Operating Reimbursed* Expenses*
(12b-1) Fees: Expenses:
Class A: 1.00% .25% $_______ $_______ $_______ $_______
Class B: 1.00% 1.00% $_______ $_______ $_______ $_______
Class C: 1.00% 1.00% $_______ $_______ $_______ $_______
Advisor 1.00% none $_______ $_______ $_______ $_______
Class:
* The Fund's Manager has agreed to waive and/or reimburse the
Fund's fees and expenses to the extent necessary to ensure
that the Fund's Annual Fund Operating Expenses do not exceed
the amounts shown in the far right column above.
<PAGE>
Example:
The following example is intended to help you compare the cost of
investing in the Fund with the cost of investing in other mutual funds.
The example assumes that you invest $10,000 in the Fund for the time
periods indicated and then redeem all of your shares at the end of
those periods (with additional information shown for Class B and Class
C shares based on the assumption that you do not redeem your shares at
that time). The example also assumes that your investment has a 5%
return each year and that the Fund's operating expenses remain the
same. Although your actual costs may be higher or lower, based on these
assumptions your costs would be as follows:
1 Year: 3 Years: 5 Years: 10 Years:
------ ------- ------- --------
Class A: $______ $______ $______ $______
Class B: $______ $______ $______ $______
Class B (no redemption): $______ $______ $______ $______
Class C: $______ $______ $______ $______
Class C (no redemption): $______ $______ $______ $______
Advisor Class: $______ $______ $______ $______
<PAGE>
ADDITIONAL INFORMATION ABOUT INVESTMENT STRATEGIES AND RISKS
Principal strategies:
The Fund seeks to achieve its principal objective of long-term growth
by investing primarily in the equity securities of companies throughout
the world that own, explore or develop natural resources and other
basic commodities (or that supply goods and services to such
companies). The Fund normally invests its assets in at least three
different countries, including the United States. The natural resources
that form the basis for the Fund's investment strategy include
precious, non-precious and strategic metals, fossil fuels, undeveloped
real property and agricultural commodities.
The Fund's manager believes that certain political and economic changes
in the global environment in recent years have had and will continue to
have a profound effect on global supply and demand of natural
resources, and that rising demand from developing markets and new
sources of supply should create attractive investment opportunities. In
selecting the Fund's portfolio investments, the manager will target
companies that appear to be undervalued in light of the value of their
respective natural resource holdings or business enterprises.
Principal risks:
General market risk: As with any mutual fund, the value of the Fund's
investments and the income they generate will vary daily and generally
reflect market conditions, interest rates and other issuer-specific,
political or economic developments. The Fund's share value will
decrease at any time during which its security holdings or other
investment techniques are not performing as well as anticipated, and
you could therefore lose money by investing in the Fund depending upon
the timing of your initial purchase and any subsequent redemption.
Other risks: Since the Fund invests heavily in the securities of
companies in the natural resources and precious metals industries, it
is far more susceptible to the risks associated with these types of
investments than a fund that invests in other types of securities.
Following is a description of these risks, along with the risks
commonly associated with the other securities and investment techniques
that the Fund's portfolio manager considers important in achieving the
Fund's investment objective or in managing the Fund's exposure to risk
(and that could therefore have a significant effect on the Fund's
returns). Other investment techniques that the Fund may use, but that
do not play a key role in the Fund's overall investment strategy, are
described in the Fund's Statement of Additional Information (see back
cover page for information on how you can receive a free copy).
Common Stocks: Common stocks represent a proportionate ownership
interest in a company. As a result, the value of common stock
rises and falls with a company's success or failure. The market
value of common stock can fluctuate significantly, with smaller
companies being particularly susceptible to price swings.
Transaction costs in smaller company stocks may also be higher
than those of larger companies.
Precious Metals and Other Physical Commodities: Commodities
trading is generally considered speculative because of the
significant potential for investment loss. Among the factors that
could affect the value of the Fund's investments in commodities
are cyclical economic conditions, sudden political events and
adverse international monetary policies. Markets for precious
metals and other commodities are likely to be volatile and there
may be sharp price fluctuations even during periods when prices
overall are rising. The Fund may also pay more to store and
accurately value its commodity holdings than it does with its
other portfolio investments.
Depository Receipts: The Fund may acquire interests in foreign
issuers in the form of sponsored or unsponsored American
Depository Receipts ("ADRs"), Global Depository Receipts ("GDRs")
and similar types of depository receipts. ADRs typically are
issued by a U.S. bank or trust company and represent ownership of
the underlying securities issued by a foreign corporation. GDRs
and other types of depository receipts are usually issued by
foreign banks or trust companies. The Fund's investments in ADRs,
GDRs and other depository receipts are viewed as investments in
the underlying securities.
Depository receipts can be difficult to price and are not always
exchange-listed. Unsponsored depository programs also are
organized independently without the cooperation of the issuer of
the underlying securities. As a result, information concerning the
issuer may not be as current or as readily available as in the
case of sponsored depository instruments, and their prices may be
more volatile than if they were sponsored by the issuers of the
underlying securities.
Foreign Securities: Investing in foreign securities involves a
number of economic, financial and political considerations that
are not associated with the U.S. markets and that could affect the
Fund's performance favorably or unfavorably, depending upon
prevailing conditions at any given time. For example, the
securities markets of many foreign countries may be smaller, less
liquid and subject to greater price volatility than those in the
U.S. Foreign investing may also involve brokerage costs and tax
considerations that are not usually present in the U.S. markets.
Many of the Fund's securities also are denominated in foreign
currencies and the value of the Fund's investments as measured in
U.S. dollars may be affected favorably or unfavorably by changes
in foreign currency exchange rates and exchange control
regulations. Currency conversion can also be costly.
Other factors that can affect the value of the Fund's foreign
investments include the comparatively weak supervision and
regulation by some foreign governments of securities exchanges,
brokers and issuers, and the fact that many foreign companies may
not be subject to uniform accounting, auditing and financial
reporting standards. It may also difficult to obtain reliable
information about the securities and business operations certain
foreign issuers. Settlement of portfolio transactions may also be
delayed due to local restrictions or communication problems, which
can cause the Fund to miss attractive investment opportunities or
impair its ability to dispose of securities in a timely fashion
(resulting in a loss if the value of the securities subsequently
declines).
Special Emerging Market Concerns: The risks of investing in
foreign securities are heightened in countries with developing
economies. Among these additional risks are the following:
securities that are even less liquid and more volatile than those
in more developed foreign countries;
less stable governments that are susceptible to sudden
adverse actions (such as nationalization of businesses,
restrictions on foreign ownership or prohibitions against
repatriation of assets);
increased settlement delays;
abrupt changes in exchange rate regime or monetary policy;
restrictions on repatriation of capital;
unusually large currency fluctuations and currency conversion
costs (see "Foreign Currencies" below); and
high national debt levels (which may impede an issuer's
payment of principal and/or interest on external debt).
Foreign Currencies: Investing in foreign securities typically
involves the use of foreign currencies. The value of the Fund's
assets, as measured in U.S. dollars, may be affected favorably or
unfavorably by changes in foreign currency exchange rates and
exchange control regulations. Currency conversions can also be
costly.
Foreign Currency Exchange Transactions and Forward Foreign
Currency Contracts: The Fund may, but is not required to, use
foreign currency exchange transactions and forward foreign
currency contracts to hedge certain market risks (such as interest
rates, currency exchange rates and broad or specific market
movement). These investment techniques involve a number of risks,
including the possibility of default by the counterparty to the
transaction and, to the extent the Fund's judgment as to certain
market movements is incorrect, the risk of losses that are greater
than if the investment technique had not been used. For example,
there may be an imperfect correlation between the Fund's portfolio
holdings of securities denominated in a particular currency and
the forward contracts entered into by the Fund. An imperfect
correlation of this type may prevent the Fund from achieving the
intended hedge or expose the Fund to the risk of currency exchange
loss. In addition, although the use of these investment techniques
for hedging purposes should tend to minimize the risk of loss due
to a decline in the value of the hedged position, they also tend
to limit any potential gain that might result from an increase in
the position's value.
Illiquid Securities: The Fund may invest up to 15% of its net
assets in "illiquid securities," which are assets that may not be
disposed of in the ordinary course of business within seven days
at roughly the value at which the Fund has valued the assets. Some
of these may by "restricted securities," which cannot be sold to
the public without registration under the Securities Act of 1933
(in the absence of an exemption) or because of other legal or
contractual restrictions on resale. Thus, while illiquid
securities may offer the potential for higher returns than more
readily marketable securities, there is a risk that the Fund will
not be able to dispose of them promptly at an acceptable price.
Other Investment Companies: The Fund may invest up to 10% of its
total assets in the shares of other investment companies. As a
shareholder of an investment company, the Fund would bear its
ratable share of the fund's expenses (which often include an
asset-based management fee). The Fund could also lose money by
investing in other investment companies, since the value of their
respective investments and the income they generate will vary
daily based on prevailing market conditions.
Temporary Defensive Positions: The Fund may from time to time
take a temporary defensive position and invest without limit in
U.S. Government securities, investment-grade debt securities, and
cash and cash equivalents such as commercial paper, short-term
notes and other money market securities. When the Fund assumes
such a defensive position it may not achieve its investment
objective. Investing in debt securities also involves both
interest rate and credit risk. Generally, the value of debt
instruments rises and falls inversely with fluctuations in
interest rates. For example, as interest rates decline the value
of debt securities generally increases. Conversely, rising
interest rates tend to cause the value of debt securities to
decrease. The market value of debt securities also tends to vary
according to the relative financial condition of the issuer. Bonds
with longer maturities tend to be more volatile than bonds with
shorter maturities.
Borrowing: For temporary or emergency purposes (such as meeting
shareholder redemption requests within the time periods specified
under the Investment Company Act of 1940), the Fund may borrow up
to one third of the value of its total assets from qualified
banks. Borrowing may exaggerate the effect on the Fund's share
value of any increase or decrease in the value of the securities
it holds. Money borrowed will also be subject to interest costs.
The Fund has a policy of not purchasing securities whenever the
Fund's outstanding borrowings exceed 10% of the value of the
Fund's total assets. Where this occurs, the Fund could miss out on
attractive investment opportunities.
Other Important Information:
European Monetary Union: On January 1, 1999, a new European currency
called the "Euro" was introduced and adopted for use by eleven European
countries. The transition to daily usage of the Euro, including
circulation of Euro bills and coins, will occur during the period from
January 1, 1999 through December 31, 2001. Certain European Union (EU)
members, including the United Kingdom, did not officially implement the
Euro on January 1, 1999 and may cause market disruptions when and if
they decide to do so. Where this occurs, the Fund could experience
investment losses.
Year 2000 Risks: Many computer software and hardware systems in use
today cannot distinguish between the year 2000 and the year 1900
because of the way dates are encoded and calculated (the "Year 2000
Problem"). The inability of computer-based systems to make this
distinction could have a seriously adverse effect on the handling of
securities trades, pricing and account services worldwide. The Fund's
service providers are taking steps that each believes are reasonably
designed to address the Year 2000 Problem with respect to the computer
systems that they use. The Fund believes these steps will be sufficient
to avoid any material adverse impact on the Fund. At this time,
however, there can be no assurance that significant problems will not
occur (which either directly or indirectly may cause the Fund to lose
money).
MANAGEMENT
Investment Advisor:
Ivy Management, Inc. ("IMI"), located at Via Mizner Financial Plaza,
700 South Federal Highway, Boca Raton, Florida 33432, provides business
management services to the Fund. IMI is an SEC-registered investment
advisor with over $____ billion in assets under management, and
provides similar services to the other eighteen series of the Trust.
For the Fund's fiscal year ending December 31, 1998, the Fund paid to
IMI a fee equal to ___% of the Fund's average net assets.
Mackenzie Financial Corporation ("MFC"), 150 Bloor Street West, Suite
400, Toronto, Ontario, Canada M5S 3B5, serves as the Fund's investment
adviser and is responsible for selecting the Fund's portfolio
investments. MFC has been an investment counsel and mutual fund manager
in Toronto for more than 30 years, and has over $_____ in assets under
management. For the Fund's fiscal year ending December 31, 1998, the
Fund paid to MFC an aggregate fee equal to ___% of the Fund's average
net assets.
Portfolio Manager:
Frederick Sturm, a Senior Vice President of MFC, has managed the Fund
since its inception. Mr. Sturm joined MFC in 1983 and has 12 years of
professional investment experience. He is a Chartered Financial Analyst
and holds a graduate degree in commerce and finance from the University
of Toronto.
<PAGE>
SHAREHOLDER INFORMATION
PRICING OF FUND SHARES:
The Fund calculates its share price by dividing the value of the Fund's
net assets by the total number of its shares outstanding as of the
close of regular trading (usually 4:00 p.m. Eastern time) on the New
York Stock Exchange on each day the Exchange is open for trading
(normally any weekday that is not a national holiday).
Each portfolio security that is listed or traded on a recognized stock
exchange is valued at the security's last sale price on the exchange
on which it was purchased. If no sale is reported at that time, the
average between the last bid and asked prices is used. Securities and
other Fund assets for which market prices are not readily available
are priced at their "fair value" as determined by IMI in accordance
with procedures approved by the Fund's Board of Trustees. IMI may also
price a foreign security at its "fair value" if events materially
affecting the value of the security occur between the close of the
foreign exchange on which the security is principally traded and the
time as of which the Fund prices its shares. Fair value pricing under
these circumstances is designed to protect existing shareholders from
dilution of their share value caused by short-term investors trading
into and out of the Fund at at time when the Fund's share price,
calculated by ordinary pricing methods, is undervalued. When such fair
value pricing occurs, however, there may be some period of time during
which the Fund's share price and/or performance information is not
available.
The number of shares you receive when you place a purchase order, and
the payment you receive after submitting a redemption request, is based
on the Fund's net asset value next determined after your instructions
are received in proper form by Ivy Mackenzie Services Corp. (the Fund's
transfer agent) or by your registered securities dealer. Each purchase
and redemption order is subject to any applicable sales charge (see
"Distribution Arrangements" below). Since the Fund normally invests in
securities that are listed on foreign exchanges that may trade on
weekends or other days when the Fund does not price its shares, the
Fund's share value may change on days when shareholders will not be
able to purchase or redeem the Fund's shares.
HOW TO BUY SHARES:
Purchasing Fund shares involves "Choosing the Appropriate Class of
Shares" and "Submitting Your Purchase Order". Please read these
sections below carefully before investing.
Choosing the Appropriate Class of Shares - The essential features of
the Fund's different classes of shares are described below. If you do
not specify on your Account Application which class of shares you are
purchasing, it will be assumed that you are purchasing Class A shares.
The Fund has adopted separate distribution plans pursuant to Rule
12b-1 under the 1940 Act for its Class A, B and C shares that allow
the Fund to pay distribution and other fees for the sale and
distribution of its shares and for services provided to shareholders.
Because these fees are paid out of the Fund's assets on an on-going
basis, over time they will increase the cost of your investment and
may cost you more than paying other types of sales charges.
Class A Shares: Class A shares are sold at net asset value plus a
maximum sales charge of 5.75% (the "offering price"). The sales
charge may be reduced or eliminated if certain conditions are met
(see "Additional Purchase Information" below). Class A shares are
subject to a .25% Rule 12b-1 service fee.
Class B Shares: Class B shares are offered at net asset value,
without an initial sales charge, but subject to a contingent
deferred sales charge ("CDSC") that declines from 5% to zero on
certain redemptions within six years of purchase. Class B shares
are subject to a .75% Rule 12b-1 distribution fee and a .25% Rule
12b-1 service fee, and convert automatically into Class A shares
eight years after purchase.
Class C Shares: Class C shares are offered at net asset value,
without an initial sales charge, but subject to a CDSC of 1% for
redemptions within the first year of purchase. Class C shares are
subject to a .75% Rule 12b-1 distribution fee and a .25% Rule
12b-1 service fee.
Advisor Class Shares: Advisor Class shares are offered to certain
classes of investors at net asset value, without any sales load or
Rule 12b-1 fees.
The following table displays the various investment minimums, sales
charges and expenses that apply to each class.
<TABLE>
<S> <C> <C> <C> <C>
- -------------------- --------------------- --------------------- --------------------- -------------------
Class A Class B Class C Advisor Class
- -------------------- --------------------- --------------------- --------------------- -------------------
- -------------------- --------------------- --------------------- --------------------- -------------------
Minimum Initial $10,000
Investment* $1,000 $1,000 $1,000
- -------------------- --------------------- --------------------- --------------------- -------------------
- -------------------- --------------------- --------------------- --------------------- -------------------
Minimum Subsequent
Investment* $100 $100 $100 $ 250
- -------------------- --------------------- --------------------- --------------------- -------------------
- -------------------- --------------------- --------------------- --------------------- -------------------
Initial Sales Maximum 5.75%, with None None None
Charge options for a
reduced or waiver
of initial sales
charge
- -------------------- --------------------- --------------------- --------------------- -------------------
- -------------------- --------------------- --------------------- --------------------- -------------------
CDSC None, except on Maximum 5.00%, 1.00% for the first None
certain NAV declines over six year
purchases years
- -------------------- --------------------- --------------------- --------------------- -------------------
- -------------------- --------------------- --------------------- --------------------- -------------------
Service and 0.25% Service fee 0.75% Distribution 0.75% Distribution None
Distribution Fees Fee and 0.25% Fee and 0.25%
Service Fee Service Fee
- -------------------- --------------------- --------------------- --------------------- -------------------
</TABLE>
* Minimum initial and subsequent investments for retirement plans are
$25.
ADDITIONAL PURCHASE INFORMATION:
Class A Shares - Class A shares are sold at a public offering
price equal to their net asset value per share ("NAV") plus an
initial sales charge, as set forth below (which is reduced as the
amount invested increases):
<TABLE>
<S> <C> <C> <C>
- -------------------------------- ---------------------- ------------------ ----------------------
Sales Charge as a Sales Charge as Portion of Public
Percentage of Public a Percentage of Offering Price
Offering Price Net Amount Retained by Dealer
Amount Invested Invested
- -------------------------------- ---------------------- ------------------ ----------------------
- -------------------------------- ---------------------- ------------------ ----------------------
Less than $50,000 5.75% 6.10% 5.00%
- -------------------------------- ---------------------- ------------------ ----------------------
- -------------------------------- ---------------------- ------------------ ----------------------
$50,000 but less than $100,000 5.25% 5.54% 4.50%
- -------------------------------- ---------------------- ------------------ ----------------------
- -------------------------------- ---------------------- ------------------ ----------------------
$100,000 but less than $250,000 4.50% 4.71% 3.75%
- -------------------------------- ---------------------- ------------------ ----------------------
- -------------------------------- ---------------------- ------------------ ----------------------
$250, 000 but less than 3.00% 3.09% 2.50%
$500,000
- -------------------------------- ---------------------- ------------------ ----------------------
$500,000 or over* 0.00% 0.00% 0.00%
- -------------------------------- ---------------------- ------------------ ----------------------
</TABLE>
* A CDSC of 1.00% applies to Class A shares that are redeemed
within two years of the end of the month in which they were
purchased.
Class A shares that are acquired through reinvestment of dividends
or distributions are not subject to any sales charges.
HOW TO REDUCE YOUR INITIAL SALES CHARGE:
"Rights of Accumulation" permits you to pay the sales charge
that applies to the cost or value (whichever is higher) of all
Ivy Fund Class A shares you own.
A "Letter of Intent" permits you to pay the sales charge that
would apply to your cumulative purchase of Fund shares over a
13-month period (certain restrictions apply).
HOW TO ELIMINATE YOUR INITIAL SALES CHARGE:
You may purchase Class A shares at NAV (without an initial sales
charge or a CDSC) through any one of the following methods:
through certain investment advisors and financial planners
who charge a management, consulting or other fee for their
services;
under certain qualified retirement plans;
as an employee or director of Mackenzie Investment Management
Inc. or its affiliates;
as an employee of a selected dealer; or
through the Merrill Lynch Daily K Plan (the "Plan"), provided
the Plan has at least $3 million in assets or over 500 or more
eligible employees. Class B shares of the Fund are made
available to Plan participants at NAV without a CDSC if the
Plan has less than $3 million in assets or fewer than 500
eligible employees. For further information see "Group
Systematic Investment Program" in the SAI.
You may also purchase Class A shares at NAV if you are investing
at least $500,000 through a dealer or agent. Ivy Mackenzie
Distributors, Inc. ("IMDI"), the Fund's distributor, may pay the
dealer or agent (out of IMDI's own resources) for its distribution
assistance according to the following schedule:
------------------------------- -------------------------------
Purchase Amount Commission
------------------------------- -------------------------------
------------------------------- -------------------------------
First $3,000,000 1.00%
------------------------------- -------------------------------
------------------------------- -------------------------------
Next $2,000,000 0.50%
------------------------------- -------------------------------
------------------------------- -------------------------------
Over $5,000,000 0.25%
------------------------------- -------------------------------
Certain trust companies, bank trust departments, credit unions,
savings and loans and other similar organizations may also be
exempt from the initial sales charge on Class A shares.
Class B and Class C Shares - Class B and Class C shares are not
subject to an initial sales charge but are subject to a CDSC. If
you redeem your Class C shares within one year of purchase they
will be subject to a CDSC of 1%, and Class B shares redeemed
within six years of purchase will be subject to a CDSC at the
following rates:
--------------------- --------------------
CDSC as a
Percentage of
Year Since Purchase Dollar Amount
Subject to Charge
--------------------- --------------------
First 5%
--------------------- --------------------
--------------------- --------------------
Second 4%
--------------------- --------------------
--------------------- --------------------
Third 3%
--------------------- --------------------
--------------------- --------------------
Fourth 3%
--------------------- --------------------
--------------------- --------------------
Fifth 2%
--------------------- --------------------
--------------------- --------------------
Sixth 1%
--------------------- --------------------
--------------------- --------------------
Seventh and 0%
thereafter
--------------------- --------------------
The CDSC for both Class B and Class C shares will be assessed on
an amount equal to the lesser of the current market value or the
original purchase cost of the shares being redeemed. No charge
will be assessed on increases in account value above the original
purchase price or on reinvested dividends and distributions.
The CDSC for Class B shares is waived for:
Certain post-retirement withdrawals from an IRA or other
retirement plan if you are over 59 1/2 years old.
Redemptions by certain eligible 401(a) and 401(k) plans and
certain retirement plan rollovers.
Redemption resulting from a tax-free return of excess
contribution to an IRA.
Withdrawals resulting from shareholder death or disability
provided that the redemption is requested within one year of
death or disability.
Withdrawals through the Systematic Withdrawal Plan of up to
12% per year of your account value at the time the plan is
established.
Both Class B shares and Class C shares are subject to an ongoing
service and distribution fee at a combined annual rate of up to
1.00% of the portfolio's average net assets attributable to its
Class B or Class C shares. The ongoing distribution fees will
cause these shares to have a higher expense ratio than that of
Class A and Advisor Class shares. IMDI uses the money that it
receives from the deferred sales charge and the distribution fees
to cover various promotional and sales related expenses, as well
as expenses related to providing distributions services, such as
compensating selected dealers and agents for selling these shares.
Approximately eight years after the original date of purchase,
your Class B shares will be converted automatically to Class A
shares. Class A shares are subject to lower annual expenses than
Class B shares. The conversion from Class B shares to Class A
shares is not considered a taxable event for federal income tax
purposes. Class C shares do not have a similar conversion
privilege.
Advisor Class - Advisor Class shares are offered only to
institutions and certain individuals, and are not subject to an
initial sales charge or a CDSC, nor to ongoing service or
distribution fees.
SUBMITTING YOUR PURCHASE ORDER:
INITIAL INVESTMENTS:
Complete and sign the Account Application appearing at the end of this
Prospectus. Enclose a check payable to Ivy Fund (see page [XX] for
minimum initial investments.) Deliver your application materials to
your registered representative or selling broker, or send them to one
of the addresses below:
By Regular Mail: By Courier:
Ivy Mackenzie Services Corp. Ivy Mackenzie Services Corp.
P.O. Box 3022 700 South Federal Hwy.
Boca Raton, FL 33431-0922 Boca Raton, FL 33432
BUYING ADDITIONAL SHARES:
There are several ways to increase your investment in the Fund:
By Mail - Send your check with a completed investment slip
(attached to your account statement) or written instructions
indicating the account registration, fund number or name, and
account number.
Mail to one of the addresses above.
Through Your Broker - Deliver to your registered representative
or selling broker the investment slip attached to your statement,
or written instructions, along with your payment.
By Wire - Purchases may also be made by wiring money from your
bank account to your Ivy account. Your bank may charge a fee for
wiring funds. Before wiring any funds, please call IMSC at (800)
777-6472. Wiring instructions are as follows:
First Union National Bank of Florida
Jacksonville, FL
ABA #063000021
Account #2090002063833
For further credit to:
Your Ivy Fund Account Number
Your Fund Number and Account Number
By Automatic Investment Method - You can authorize to have funds
electronically drawn each month from your bank account and
invested as a purchase of shares into your Ivy Fund account.
Complete sections [XX] and [XX] of the Account Application.
HOW TO REDEEM SHARES:
SUBMITTING YOUR REDEMPTION ORDER:
You may redeem your Fund shares through your registered securities
dealer or directly through IMSC. If you choose to redeem through your
registered securities dealer, the dealer is responsible for properly
transmitting redemption orders in a timely manner. If you choose to
redeem directly through IMSC, you have several ways to submit your
request:
By Mail - Send your written redemption request to IMSC at one of
the addresses on page XX of this Prospectus. Be sure that all
registered owners listed on the account sign the request.
Signature guarantees and supporting legal documentation may be
required. When you redeem, IMSC will normally send redemption
proceeds to you on the next business day, but may take up to seven
days (or longer in the case of shares recently purchased by
check).
By Telephone - Call IMSC at (800) 777-6472 to redeem from your
account. In order to process your redemption order by telephone,
you must have telephone redemption privileges on your account.
IMSC employs reasonable procedures that require personal
identification prior to acting on redemption instructions
communicated by telephone to confirm that such instructions are
genuine. In the absence of such procedures, the Fund or IMSC may
be liable for any losses due to unauthorized or fraudulent
telephone instructions.
By Systematic Withdrawal Plan (SWP) - You can authorize to have
funds electronically drawn each month from your Ivy Fund account
and deposited directly into your bank account. Certain minimum
balances and minimum distributions apply. Complete sections XX of
the Account Application to add this feature to your account.
Receiving Your Redemption Proceeds - You can receive redemption
proceeds through a variety of payment methods:
By Check - Unless otherwise instructed, checks will be made
payable to the current account registration and sent to the
address of record.
By Federal Funds Wire - Proceeds will be wired on the next
business day to a pre-designated bank account. Requests by
telephone can only be accepted for amounts up to $50,000. Your
account will be charged $10 each time redemption proceeds are
wired to your bank, and your bank may also charge you a fee for
receiving a Federal Funds wire.
By Electronic Funds Transfer - For SWP redemptions only.
Important Redemption Information:
A CDSC may apply to certain Class A share redemptions, to Class B
shares redeemed within six years of purchase, and to Class C
shares that are redeemed within one year of purchase.
All redemptions are made at the NAV next determined after a
redemption request has been received in good order. Requests for
redemptions must be received by 4:00 p.m. Eastern time to be
processed at the NAV for that day. Any redemption request in good
order that is received after 4:00 p.m. Eastern time will be
processed at the price determined on the following business day.
If you own shares of more than one class of the Fund, the Fund
will redeem first the shares having the highest 12b-1 fees.
Any shares subject to a CDSC will be redeemed last unless you
specifically elect otherwise.
The Fund may (on 60 days' notice) redeem the accounts of
shareholders whose investment, including sales charges paid, has
been less than $1,000 for more than 12 months.
The Fund may take up to seven days (or longer in the case of
shares recently purchased by check) to send redemption proceeds.
The Fund may make payment for redeemed shares in the form of
securities of the Fund taken at current values.
HOW TO EXCHANGE YOUR FUND SHARES:
You may exchange your Fund shares for shares of another Ivy fund,
subject to certain restrictions (see "Important Exchange Information"
below).
Submitting Your Exchange Order - You may submit an exchange request to
IMSC as follows:
By Mail - Send your written exchange request to IMSC at one of
the addresses on page XX of this Prospectus. Be sure that all
registered owners listed on the account sign the request.
By Telephone - Call IMSC at (800) 777-6472 to authorize an
exchange transaction. In order to process your exchange order by
telephone, you must have telephone exchange privileges on your
account. IMSC employs reasonable procedures that require personal
identification prior to acting on exchange instructions
communicated by telephone to confirm that such instructions are
genuine. In the absence of such procedures, the Fund or IMSC may
be liable for any losses due to unauthorized or fraudulent
telephone instructions.
IMPORTANT EXCHANGE INFORMATION:
You must exchange into the same share class you currently own.
Exchanges are considered taxable events and may result in a
capital gain or a capital loss for tax purposes.
It is the policy of the Fund to discourage the use of the
exchange privilege for the purpose of timing short-term market
fluctuations. The Fund may therefore limit the frequency of
exchanges by a shareholder or cancel a shareholder's exchange
privilege if at any time it appears that such market timing
strategies are being used.
DIVIDENDS AND DISTRIBUTIONS:
The Fund generally declares and pays dividends and capital gain
distributions (if any) at least once a year.
Dividends and distributions are "reinvested" in additional Fund
shares unless you request to receive them in cash.
Reinvested dividends and distributions are added to your account
at NAV and are not subject to a CDSC regardless of which share
class you own.
Cash dividends and distributions can be sent to you:
BY MAIL - a check will mailed to the address of record unless
otherwise instructed.
BY ELECTRONIC FUNDS TRANSFER ("EFT") - your proceeds will be
directly deposited into your bank account.
To change your dividend and/or distribution options, call IMSC at
(800) 777-6472.
TAX CONSEQUENCES:
Distributions you receive from the Fund are reinvested in additional
shares of the same class of the Fund unless you elect to receive them
in cash. Dividends ordinarily will vary from one class to another.
The Fund intends to declare and pay dividends monthly. The Fund will
distribute net investment income and net realized capital gains, if
any, at least once a year. The Fund may make an additional distribution
of net investment income and net realized capital gains to comply with
the calendar year distribution requirement under the excise tax
provisions of Section 4982 of the Internal Revenue Code of 1986, as
amended (the "Code").
Dividends paid out of the Fund's investment company taxable income
(including dividends, interest and net short-term capital gains) will
be taxable to you as ordinary income. If a portion of the Fund's income
consists of dividends paid by U.S. corporations, a portion of the
dividends paid by the Fund may be eligible for the corporate
dividends-received deduction. Distributions of net capital gains (the
excess of net long-term capital gains over net short-term capital
losses), if any, are taxable to you as long-term capital gains,
regardless of how long you have held your shares. Dividends are taxable
to you in the same manner whether received in cash or reinvested in
additional Fund shares.
If shares of the Fund are held in a tax-deferred account, such as a
retirement plan, income and gain will not be taxable each year.
Instead, the taxable portion of amounts held in a tax-deferred account
generally will be subject to tax as ordinary income only when
distributed from that account.
A distribution will be treated as paid to you on December 31 of the
current calendar year if it is declared by the Fund in October,
November or December with a record date in such a month and paid by the
Fund during January of the following calendar year.
In certain years, you may be able to claim a credit or deduction on
your income tax return for your share of foreign taxes paid by the
Fund. Upon the sale or other disposition of your Fund shares, you may
realize a capital gain or loss which will be long-term or short-term,
generally depending upon how long you held your shares.
The Fund may be required to withhold U.S. Federal income tax at the
rate of 31% of all distributions payable to you if you fail to provide
the Fund with your correct taxpayer identification number or to make
required certifications, or if you have been notified by the Internal
Revenue Service ("IRS") that you are subject to backup withholding.
Backup withholding is not an additional tax. Any amounts withheld may
be credited against your U.S. Federal income tax liability.
Fund distributions may be subject to state, local and foreign taxes.
You should consult with your tax adviser as to the tax consequences of
an investment in the Fund, including the status of distributions from
the Fund under applicable state or local law.
<PAGE>
IVY GLOBAL NATURAL RESOURCES FUND
<TABLE>
<CAPTION>
ADVISOR
CLASS A CLASS B CLASS C CLASS
----------------- ------------------ ----------------- -------
1998 1997(A) 1998 1997(A) 1998 1997(A) 1998
SELECTED PER SHARE DATA ------- ------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of period.... $10.00 $10.00 $10.00
------ ------ ------
Income from investment operations
Net investment loss(b)............... (.11) (.15) (.17)
Net realized and unrealized gain on
investment transactions............. .70 .68 .68
------ ------ ------
Total from investment
operations........................ .59 .53 .51
------ ------ ------
Less distributions
In excess of net investment income... .22 .17 .15
From net realized gain............... 1.08 1.08 1.08
In excess of net realized gain....... .28 .28 .28
------ ------ ------
Total distributions............... 1.58 1.53 1.51
------ ------ ------
Net asset value, end of period.......... $ 9.01 $ 9.00 $ 9.00
====== ====== ======
Total return(%)......................... 6.95 6.28 6.08
RATIOS AND SUPPLEMENTAL DATA
Net assets, end of period (in
thousands)............................. $3,907 $2,706 $ 124
Ratio of expenses to average net assets
With expense reimbursement(%).......... 2.10 2.86 3.08
Without expense reimbursement(%)....... 2.88 3.64 3.86
Ratio of net investment loss to average
net assets (%)(b)...................... (1.10) (1.86) (2.08)
Portfolio turnover rate(%).............. 199 199 199
Average commission rate................. $.0190 $.0190 $.0190
</TABLE>
- -----------------
<TABLE>
<S> <C>
(a) The Fund commenced operations on January 1, 1997.
(b) Net investment loss is net of expenses reimbursed by
manager.
</TABLE>
<PAGE>
ACCOUNT APPLICATION
Please mail applications and checks to: Ivy Mackenzie Services Corp.,
P.O. Box 3022, Boca Raton, FL
33431-0922.
(This application should not be used for retirement accounts for which
Ivy Fund is custodian.)
Account Number:
(Fund Use Only)
Dealer #:
Branch #:
Rep. I.D. #:
Acct. Type:
Soc Cd:
Div Cd:
CG Cd:
Exc Cd:
Red Cd:
1. REGISTRATION
/ / Individual / / Joint Tenant / / Estate / / UGMA/UTMA / /
Corporation / / Partnership / / Sole Proprietor / / Trust / / Other
Date of Trust
Owner, Custodian or Trustee
Co-owner or Minor
Minor's State of Residence
Street
City
State
Zip Code
Phone Number -- Day
Phone Number -- Evening
2. TAX ID
Citizenship: / / U.S. / / Other ________________
Social Security Number
Tax Identification Number
Under penalties of perjury, I certify by signing in Section 8 below
that: (1) the number shown in this section is my correct taxpayer
identification number (TIN), and (2) I am not subject to backup
withholding because: (a) I have not been notified by the Internal
Revenue Service (IRS) that I am subject to backup withholding as a
result of a failure to report all interest or dividends, or (b) the IRS
has notified me that I am no longer subject to backup withholding.
(Cross out item (2) if you have been notified by the IRS that you are
currently subject to backup withholding because of underreporting
interest or dividends on your tax return.) Please see the "Tax
Consequences" section of the Prospectus for additional information on
completing this section.
3. DEALER INFORMATION
The undersigned ("Dealer") agrees to all applicable provisions in this
Application, guarantees the signature and legal capacity of the
Shareholder, and agrees to notify IMSC of any purchases made under a
Letter of Intent or Rights of Accumulation.
Dealer Name
Branch Office Address
City
State
Zip Code
Representative's Name and Number
Representative's Phone Number
Authorized Signature of Dealer
4. INVESTMENTS
A. Enclosed is my check ($1,000 minimum) for $_____________ made
payable to ________________ [Fund Name]. Please invest it in
Class A __ Class B __ Class C __ or Advisor Class __ shares.
B. I qualify for an elimination of the sales charge due to the
following privilege (applies only to Class A shares):
__ New Letter of Intent (if ROA or 90-day backdate
privilege is applicable, provide account(s)
information below.)
__ ROA with the account(s) listed below.
__ Existing Letter of Intent with account(s) listed
below.
Fund Name(s)
Account Number(s)
If establishing a Letter of Intent, you will need to purchase
Class A shares over a thirteen-month period in accordance with
the provisions in the Prospectus. The Aggregate amount of
these purchases will be at least equal to the amount indicated
below (see Prospectus for minimum amount required for reduced
sales charges).
/ / $50,000
/ / $100,000
/ / $250,000
/ / $500,000
C. FOR DEALER USE
Confirmed trade orders: [Confirm Number, Number of Shares,
Trade Date]
5. DISTRIBUTION OPTIONS
I would like to reinvest dividends and capital gains into additional
shares in this account at net asset value unless a different option is
checked below.
/ / Reinvest all dividends and capital gains into additional shares of a
different Ivy fund. Fund Name Account Number
/ / Pay all dividends in cash and reinvest capital gains into additional
shares in this Fund or a different Ivy fund. Fund Name Account Number
/ / Pay all dividends and capital gains in cash.
I REQUEST THE ABOVE CASH DISTRIBUTION, SELECTED IN C OR D
ABOVE, BE:
/ / Sent to the address listed in the registration.
/ / Sent to the special payee listed in Section 7A / / (By Mail) 7B / /
(By E.F.T.)
6. OPTIONAL SPECIAL FEATURES
A. / / Automatic Investment Method (AIM)
- I wish to invest _________________ / / once per month / /
twice / / 3 times / / 4 times
- My bank account will be debited on the _________ day of the
month
Please invest $___________________ each period starting in the
month of __________________ in
---------------------------.
Fund Name
/ / Class A
/ / Class B
/ / Class C
/ / Advisor Class
/ / I have attached a voided check to ensure my correct bank
account will be debited.
B. SYSTEMATIC WITHDRAWAL PLANS**
I wish to automatically withdraw funds from my account in
_________________[Fund name].
/ / Monthly / / Quarterly / /Semiannually / / Annually
/ / Once / / Twice / / 3 times / / 4 times per month
I request the distribution be:
/ / Sent to the address listed in the registration.
/ / Sent to the special payee listed in Section 7.
/ / Invested into additional shares of the same class of a different
Ivy fund.
Fund Name
Account Number
Amount $__________________(Minimum $50) starting on or about the
-_______ day of the month
-_______ day of the month
-_______ day of the month*
NOTE: Account minimum: $5,000 in shares at current offering price
C. FEDERAL FUNDS TRANSFER FOR REDEMPTION PROCEEDS**
I authorize the Agent to honor telephone instructions for the
redemption of Fund shares up to $50,000. Proceeds may be wire
transferred to the bank account designated ($1,000 minimum).
(Complete Section 7B)
TELEPHONE EXCHANGES** / / YES / / NO
I authorize exchanges by telephone among the Ivy funds upon
instructions from any person as more fully described in the
Prospectus. To change this option once established, written
instructions must be received from the shareholder of record
or the current registered representative.
If neither box is checked, the telephone exchange privilege
will be provided automatically.
TELEPHONIC REDEMPTIONS** / / YES / / NO
The Fund or its agents are authorized to honor telephone
instructions from any person as more fully described in the
Prospectus for the redemption of Fund shares. The amount of
the redemption shall not exceed $50,000 and the proceeds are
to be payable to the shareholder of record and mailed to the
address of record. To change this option once established,
written instructions must be received from the shareholder of
record or the current registered representative.
If neither box is checked, the telephone redemption privilege
will be provided automatically.
* There must be a period of at least seven calendar
days between each investment/withdrawal period.
** This option may not be used if shares are issued in
certificate form.
7. SPECIAL PAYEE
A. MAILING ADDRESS
Please send all disbursements to this special payee:
Name of Bank or Individual
Account Number (If Applicable)
Street
City/State/Zip
B. FED WIRE / E.F.T. INFORMATION
Financial Institution
ABA #
Account #
Street
City/State/Zip
(Please attach a voided check)
8. SIGNATURES
Investors should be aware that the failure to check the "No" under
Section 6D or 6E above means that the Telephone Exchange/Redemption
Privileges will be provided. The Fund employs reasonable procedures
that require personal identification prior to acting on
exchange/redemption instructions communicated by telephone to confirm
that such instructions are genuine. In the absence of such procedures,
the Fund may be liable for any losses due to unauthorized or fraudulent
telephone instructions. Please see "How to Exchange Your Fund Shares"
and "How to Redeem Your Fund Shares" in the Prospectus for more
information on these privileges.
I certify to my legal capacity to purchase or redeem shares of the Fund
for my own account or for the account of the organization named in
Section 1. I have received a current Prospectus and understand its
terms are incorporated in this application by reference. I am
certifying my taxpayer information as stated in Section 2.
THE INTERNAL REVENUE SERVICE DOES NOT REQUIRE YOUR CONSENT TO ANY
PROVISION OF THIS DOCUMENT OTHER THAN THE CERTIFICATIONS REQUIRED TO
AVOID BACKUP WITHHOLDING.
------------------------------
Signature of Owner, Custodian, Date
Trustee or Corporate Officer
------------------------------
Signature of Joint Owner, Date
Co-Trustee or Corporate Officer
(Remember to sign Section 8)
<PAGE>
[Back Cover Page]
HOW TO RECEIVE MORE INFORMATION ABOUT THE FUND
Additional information about the Fund and its investments is contained in the
Fund's Statement of Additional Information dated April ___, 1999 (the "SAI"),
which is incorporated by reference into this Prospectus, and the Fund's annual
and semi-annual reports to shareholders. The Fund's annual report includes a
discussion of the market conditions and investment strategies that significantly
affected the Fund's performance during its most recent fiscal year. The SAI and
the Fund's annual and semi-annual reports are available upon request and without
charge from the Distributor at the following address and phone number:
Ivy Mackenzie Distributors, Inc.
Via Mizner Financial Plaza
700 South Federal Highway
Boca Raton, Florida 33432
(800) 456-5111
Information about the Fund (including the SAI and the Fund's annual and
semi-annual reports) may also be reviewed and copied at the SEC's Public
Reference Room in Washington, D.C. (please call 1-800-SEC-0330 for further
details). Information about the Fund is also available on the SEC's Internet
Website (www.sec.gov), and copies of this information may be obtained, upon
payment of a copying fee, by writing the Public Reference Section of the SEC,
Washington, D.C. 20549-6009.
SHAREHOLDER INQUIRIES
Please call Ivy Mackenzie Services Corp., the Fund's transfer agent, at
1-800-777-6472 regarding any other inquiries about the Fund.
Investment Company Act File No. 811-1028
<PAGE>
[Front Cover Page]
PROSPECTUS April ___, 1999
IVY FUND - Ivy Global Science & Technology Fund
Ivy Fund (the "Trust") is a registered open-end investment company currently
consisting of nineteen separate portfolios. This Prospectus relates to the Class
A, Class B, Class C, Class I and Advisor Class shares of Ivy Global Science &
Technology Fund (the "Fund"). No offer is made in this Prospectus of the shares
of any other Ivy Fund portfolio.
The Securities and Exchange Commission has not approved or disapproved these
securities or passed upon the adequacy of this Prospectus. Any representation to
the contrary is a criminal offense.
[Insert all logos]
<PAGE>
TABLE OF CONTENTS
SUMMARY
ADDITIONAL INFORMATION ABOUT INVESTMENT STRATEGIES AND RISKS
MANAGEMENT
SHAREHOLDER INFORMATION
ACCOUNT APPLICATION
HOW TO RECEIVE MORE INFORMATION ABOUT THE FUND
SHAREHOLDER INQUIRIES
<PAGE>
SUMMARY
Investment The Fund's investment objective is long-term capital growth.
objective: Any income realized will be incidental.
Principal The Fund normally invests at least 65% of its total assets
investment in equity securities of companies the world that are
strategies: expected to benefit from the development, advancement and
use of and technology. Industries that are likely to be
represented in the Fund's portfolio holdings include:
computers and peripheral products;
software;
electronic components and systems;
telecommunications, media and information services;
pharmaceuticals and medical devices; and
biotechnology.
Other securities and investment techniques that the Fund's
manager considers important in achieving the Fund's
investment objective (or in controlling the Fund's exposure
to risk) include:
sponsored and unsponsored depository receipts; and
buying put and call options on stock indices and
individual securities.
Principal risks: The main risks to which the Fund is exposed in
carrying out its investment strategies are the following:
Management risk: The Fund's manager might not select
securities that perform as well as the securities held by
other mutual funds with investment objectives that are
similar to those of the Fund.
Market risk: Common stocks represent a proportionate
ownership interest in a company. The market value of common
stock can fluctuate significantly even where "management
risk" is not a factor, so you could lose money if you redeem
your Fund shares at a time when the Fund's stock portfolio
is not performing as well as expected. The market value of
common stock can fluctuate significantly, so you could lose
money if you redeem your Fund shares at a time when the
Fund's stock portfolio is not performing as well as
expected.
Small company risk: Many of the companies in which the Fund
may invest have relatively small market capitalizations.
Securities of smaller companies may be subject to more
abrupt or erratic market movements than the securities of
larger more established companies, since they tend to be
thinly traded and because the companies are subject to
greater business risk. Transaction costs in smaller company
stocks may also be higher than those of larger companies.
Industry concentration risk: Since the Fund focuses its
investments in securities of companies engaged in the
science and technology industries, the Fund could experience
wider fluctuations in value than funds with more diversified
portfolios.
Foreign security and emerging market risk: Investing in
foreign securities involves a number of economic, financial
and political considerations that are not associated with
the U.S. markets and that could affect the Fund's
performance favorably or unfavorably, depending upon
prevailing conditions at any given time. Among these
potential risks are:
greater price volatility;
comparatively weak supervision and regulation of
securities exchanges, brokers and issuers;
higher brokerage costs;
fluctuations in foreign currency exchange rates and
related conversion costs;
adverse tax consequences; and
settlement delays.
The risks of investing in foreign securities are more acute
in countries with developing economies.
Options risk: The Fund may, but is not required to, use put
and call options to hedge various market risks (such as
interest rates, currency exchange rates, and broad or
specific equity or fixed-income market movements). The use
of these derivative investment techniques involves a number
of risks, including the possibility of default by the
counterparty to the transaction and, to the extent the
judgment of the Fund's manager as to certain market
movements is incorrect, the risk of losses that are greater
than if the derivative technique(s) had not been used.
Who should invest:* The Fund may be appropriate for investors seeking
long-term growth potential, but who can accept significant
fluctuations in capital value in the short-term.
* You should consult with your financial advisor before deciding whether
the Fund is an appropriate investment choice in light of your
particular financial needs and risk tolerance.
<PAGE>
Performance Bar Chart and Table:
The information in the following chart and table provides some
indication of the risks of investing in the Fund by showing changes in
the Fund's performance from year to year and how the Fund's average
annual returns since its inception on July 22, 1996 compare with those
of a broad measure of market performance. The Fund's past performance
is not an indication of how the Fund will perform in the future.
Annual Total Returns for Class A Shares as of December 31, 1998:*
-----------------------------
1996# 1997 1998
* Any applicable sales charges and account fees are not
reflected, and if they were the returns shown above would be
lower. The returns for the Fund's other four classes of shares
during these periods were different from those of Class A
because of variations in their respective expense structures.
# For the period July 22, 1996 (commencement) to December 31, 1996.
Best quarter: ______% (Q__ 199__)
Worst quarter: ______% (Q__ 199__)
Average Annual Total Returns (for the periods ending December 31, 1998):*
Past year: Since inception:**
Class A: ______% ______%
Class B: ______% ______%
Class C: ______% ______%
Class I:*** N/A N/A
Advisor Class: ______% ______%
[Index]: ______% ______%
* Performance figures reflect any applicable sales charges.
** The inception date for all Classes other than Advisor Class
was July 22, 1996. Advisor Class shares were first offered on
January 1, 1998.
*** The Fund has had no outstanding Class I shares.
<PAGE>
Fees and Expenses:
The following tables describe the fees and expenses that you may pay if
you buy and hold shares of the Fund:
Shareholder Fees (fees paid directly from your investment):
Maximum Sales Charge (Load) Imposed on Maximum Deferred Sales
Purchases (as a percentage of Charge (Load) (as a
offering price): percentage of original
purchase price):
Class A: 5.75% none
Class B: none 5.00%
Class C: none 1.00%
Class I: none none
Advisor none none
Class:
Annual Fund Operating Expenses (expenses that are deducted from Fund
assets):
Distribution and/or Other Total Annual Fund
Management Service (12b-1) Fees: Expenses: Operating Expenses:
Fees:
Class A: 1.00% .25% $_______ $_______
Class B: 1.00% 1.00% $_______ $_______
Class C: 1.00% 1.00% $_______ $_______
Class I: 1.00% none $_______ $_______
Advisor 1.00% none $_______ $_______
Class:
Example:
The following example is intended to help you compare the cost of
investing in the Fund with the cost of investing in other mutual funds.
The example assumes that you invest $10,000 in the Fund for the time
periods indicated and then redeem all of your shares at the end of
those periods (with additional information shown for Class B and Class
C shares based on the assumption that you do not redeem your shares at
that time). The example also assumes that your investment has a 5%
return each year and that the Fund's operating expenses remain the
same. Although your actual costs may be higher or lower, based on these
assumptions your costs would be as follows:
1 Year: 3 Years: 5 Years: 10 Years:
------ ------- ------- --------
Class A: $______ $______ $______ $______
Class B: $______ $______ $______ $______
Class B (no redemption): $______ $______ $______ $______
Class C: $______ $______ $______ $______
Class C (no redemption): $______ $______ $______ $______
Class I: $______ $______ $______ $______
Advisor Class: $______ $______ $______ $______
<PAGE>
ADDITIONAL INFORMATION ABOUT INVESTMENT STRATEGIES AND RISKS
Principal strategies:
The Fund seeks to achieve its principal objective of long-term capital
growth by investing in the common stock of companies that are expected
to benefit from the development, advancement and use of science and
technology. The Fund may also invest in companies that are expected to
benefit indirectly from the commercialization of technological and
scientific advances.
Industries likely to be represented in the Fund's overall portfolio
holdings include computers and peripheral products, software,
electronic components and systems, telecommunications, media and
information services, pharmaceuticals, medical devices, and
biotechnology. Rapid advances in these industries in recent years have
stimulated unprecedented growth. While this is no guarantee of future
performance, the Fund's manager believes that these industries offer
substantial opportunities for long-term capital appreciation.
The Fund intends to invest its assets in at least three different
countries, but may at any given time have a substantial portion of its
assets invested in the United States.
Principal risks:
General market risk: As with any mutual fund, the value of the Fund's
investments and the income they generate will vary daily and generally
reflect market conditions, interest rates and other issuer-specific,
political or economic developments. The Fund's share value will
decrease at any time during which its security holdings or other
investment techniques are not performing as well as anticipated, and
you could therefore lose money by investing in the Fund depending upon
the timing of your initial purchase and any subsequent redemption.
Other risks: Since the Fund invests heavily in the common stock of
issuers in the science and technology industries, it is more
susceptible to the risks associated with these types of securities than
a fund that is more diversified. Following is a description of these
risks, along with the risks commonly associated with the other
securities and investment techniques that the Fund's portfolio manager
considers important in achieving the Fund's investment objective or in
managing the Fund's exposure to risk (and that could therefore have a
significant effect on the Fund's returns). Other investment techniques
that the Fund may use, but that do not play a key role in the Fund's
overall investment strategy, are described in the Fund's Statement of
Additional Information (see back cover page for information on how you
can receive a free copy).
Common Stocks: Common stocks represent a proportionate ownership
interest in a company. As a result, the value of common stock
rises and falls with a company's success or failure. The market
value of common stock can fluctuate significantly, with smaller
companies being particularly susceptible to price swings.
Transaction costs in smaller company stocks may also be higher
than those of larger companies.
Depository Receipts: The Fund may acquire interests in foreign
issuers in the form of sponsored or unsponsored American
Depository Receipts ("ADRs"), Global Depository Receipts ("GDRs")
and similar types of depository receipts. ADRs typically are
issued by a U.S. bank or trust company and represent ownership of
the underlying securities issued by a foreign corporation. GDRs
and other types of depository receipts are usually issued by
foreign banks or trust companies. The Fund's investments in ADRs,
GDRs and other depository receipts are viewed as investments in
the underlying securities.
Depository receipts can be difficult to price and are not always
exchange-listed. Unsponsored depository programs also are
organized independently without the cooperation of the issuer of
the underlying securities. As a result, information concerning the
issuer may not be as current or as readily available as in the
case of sponsored depository instruments, and their prices may be
more volatile than if they were sponsored by the issuers of the
underlying securities.
Foreign Securities: Investing in foreign securities involves a
number of economic, financial and political considerations that
are not associated with the U.S. markets and that could affect the
Fund's performance favorably or unfavorably depending upon
prevailing conditions at any given time. For example, the
securities markets of many foreign countries may be smaller, less
liquid and subject to greater price volatility than those in the
U.S. Foreign investing may also involve brokerage costs and tax
considerations that are not usually present in the U.S. markets.
Some of the Fund's securities may be denominated in foreign
currencies and the value of the Fund's investments as measured in
U.S. dollars may be affected favorably or unfavorably by changes
in foreign currency exchange rates and exchange control
regulations. Currency conversion can also be costly.
Other factors that can affect the value of the Fund's foreign
investments include the comparatively weak supervision and
regulation by some foreign governments of securities exchanges,
brokers and issuers, and the fact that many foreign companies may
not be subject to uniform accounting, auditing and financial
reporting standards. It may also difficult to obtain reliable
information about the securities and business operations certain
foreign issuers. Settlement of portfolio transactions may also be
delayed due to local restrictions or communication problems, which
can cause the Fund to miss attractive investment opportunities or
impair its ability to dispose of securities in a timely fashion
(resulting in a loss if the value of the securities subsequently
declines).
Special Emerging Market Concerns: The risks of investing in
foreign securities are heightened in countries with developing
economies. Among these additional risks are the following:
securities that are even less liquid and more volatile than
those in more developed foreign countries;
less stable governments that are susceptible to sudden
adverse actions (such as nationalization of businesses,
restrictions on foreign ownership or prohibitions against
repatriation of assets);
increased settlement delays;
abrupt changes in exchange rate regime or monetary policy;
restrictions on repatriation of capital;
unusually large currency fluctuations and currency conversion
costs (see "Foreign Currencies" below); and
high national debt levels (which may impede an issuer's
payment of principal and/or interest on external debt).
Foreign Currencies: Investing in foreign securities typically
involves the use of foreign currencies. The value of the Fund's
assets, as measured in U.S. dollars, may be affected favorably
or unfavorably by changes in foreign currency exchange rates and
exchange control regulations. Currency conversions can also be
costly.
Industry concentration risk: Since the Fund focuses its
investments in securities of companies engaged in the science and
technology industries, the Fund could experience wider
fluctuations in value than funds with more diversified portfolios.
For example, rapid advances in these industries tend to render
existing products obsolete. Science and technology companies may
also be subject to government regulations and approval of their
products and services, which may affect their overall
profitability and cause their stock prices to be more volatile.
Options Contracts: The Fund may, but is not required to, engage
in the purchase and sale of exchange-listed and over-the-counter
put and call options on securities, equity and fixed-income
indices and other financial instruments. Although the use of
options transactions for hedging purposes should tend to minimize
the risk of any loss to the Fund caused by a decline in the value
of the hedged position, these transactions also tend to limit any
potential gain that might result from an increase in the
position's value. Using put options could also cause the Fund to
lose money by forcing the sale or purchase of portfolio securities
at inopportune times or for prices higher (in the case of put
options) or lower than (in the case of call options) than current
market values, by limiting the amount of appreciation the Fund can
realize on its investment, or by causing the Fund to hold a
security it might otherwise sell.
Temporary Defensive Positions: The Fund may from time to time
take a temporary defensive position and invest without limit in
U.S. Government securities, investment-grade debt securities, and
cash and cash equivalents such as commercial paper, short-term
notes and other money market securities. When the Fund assumes
such a defensive position it may not achieve its investment
objective. Investing in debt securities also involves both
interest rate and credit risk. Generally, the value of debt
instruments rises and falls inversely with fluctuations in
interest rates. For example, as interest rates decline the value
of debt securities generally increases. Conversely, rising
interest rates tend to cause the value of debt securities to
decrease. The market value of debt securities also tends to vary
according to the relative financial condition of the issuer. Bonds
with longer maturities tend to be more volatile than bonds with
shorter maturities.
Borrowing: For temporary or emergency purposes (such as meeting
shareholder redemption requests within the time periods specified
under the Investment Company Act of 1940), the Fund may borrow up
to 10% of the value of its total assets from qualified banks.
Borrowing may exaggerate the effect on the Fund's share value of
any increase or decrease in the value of the securities it holds.
Money borrowed will also be subject to interest costs.
Other Important Information:
European Monetary Union: On January 1, 1999, a new European currency
called the "Euro" was introduced and adopted for use by eleven European
countries. The transition to daily usage of the Euro, including
circulation of Euro bills and coins, will occur during the period from
January 1, 1999 through December 31, 2001. Certain European Union (EU)
members, including the United Kingdom, did not officially implement the
Euro on January 1, 1999 and may cause market disruptions when and if
they decide to do so. Where this occurs, the Fund could experience
investment losses.
Year 2000 Risks: Many computer software and hardware systems in use
today cannot distinguish between the year 2000 and the year 1900
because of the way dates are encoded and calculated (the "Year 2000
Problem"). The inability of computer-based systems to make this
distinction could have a seriously adverse effect on the handling of
securities trades, pricing and account services worldwide. The Fund's
service providers are taking steps that each believes are reasonably
designed to address the Year 2000 Problem with respect to the computer
systems that they use. The Fund believes these steps will be sufficient
to avoid any material adverse impact on the Fund. At this time,
however, there can be no assurance that significant problems will not
occur (which either directly or indirectly may cause the Fund to lose
money).
MANAGEMENT
Investment Advisor:
Ivy Management, Inc. ("IMI"), located at Via Mizner Financial Plaza,
700 South Federal Highway, Boca Raton, Florida 33432, provides
investment advisory and business management services to the Fund. IMI
is an SEC-registered investment advisor with over $____ billion in
assets under management, and provides similar services to the other
eighteen series of the Trust. For the Fund's fiscal year ending
December 31, 1998, the Fund paid to IMI a fee equal to ___% of the
Fund's average net assets.
Portfolio Management:
James W. Broadfoot, President and Chief Investment Officer of IMI
and a Vice President of Ivy Fund, is the Fund's portfolio
manager. Before joining IMI in 1990, Mr. Broadfoot was the
principal in an investment counsel firm specializing in emerging
growth companies. He has 25 years of professional investment
experience and is a Chartered Financial Analyst.
Keither J. Maher, a Vice President of IMI, is the Fund's equity
analyst. Mr. Maher has an MBA from the University of Texas and
Bachelor of Science degree in computer science from Virginia
Tech. Before joining IMI in 1996, Mr. Maher spent seven years in
the high-tech industry in software development and marketing
positions.
<PAGE>
SHAREHOLDER INFORMATION
PRICING OF FUND SHARES:
The Fund calculates its share price by dividing the value of the Fund's
net assets by the total number of its shares outstanding as of the
close of regular trading (usually 4:00 p.m. Eastern time) on the New
York Stock Exchange on each day the Exchange is open for trading
(normally any weekday that is not a national holiday).
Each portfolio security that is listed or traded on a recognized stock
exchange is valued at the security's last sale price on the exchange
on which it was purchased. If no sale is reported at that time, the
average between the last bid and asked prices is used. Securities and
other Fund assets for which market prices are not readily available
are priced at their "fair value" as determined by IMI in accordance
with procedures approved by the Fund's Board of Trustees. IMI may also
price a foreign security at its "fair value" if events materially
affecting the value of the security occur between the close of the
foreign exchange on which the security is principally traded and the
time as of which the Fund prices its shares. Fair value pricing under
these circumstances is designed to protect existing shareholders from
dilution of their share value caused by short-term investors trading
into and out of the Fund at at time when the Fund's share price,
calculated by ordinary pricing methods, is undervalued. When such fair
value pricing occurs, however, there may be some period of time during
which the Fund's share price and/or performance information is not
available.
The number of shares you receive when you place a purchase order, and
the payment you receive after submitting a redemption request, is based
on the Fund's net asset value next determined after your instructions
are received in proper form by Ivy Mackenzie Services Corp. (the Fund's
transfer agent) or by your registered securities dealer. Each purchase
and redemption order is subject to any applicable sales charge (see
"Distribution Arrangements" below). Since the Fund normally invests in
securities that are listed on foreign exchanges that may trade on
weekends or other days when the Fund does not price its shares, the
Fund's share value may change on days when shareholders will not be
able to purchase or redeem the Fund's shares.
HOW TO BUY SHARES:
Purchasing Fund shares involves "Choosing the Appropriate Class of
Shares" and "Submitting Your Purchase Order". Please read these
sections below carefully before investing.
Choosing the Appropriate Class of Shares - The essential features of
the Fund's different classes of shares are described below. If you do
not specify on your Account Application which class of shares you are
purchasing, it will be assumed that you are purchasing Class A shares.
The Fund has adopted separate distribution plans pursuant to Rule
12b-1 under the 1940 Act for its Class A, B and C shares that allow
the Fund to pay distribution and other fees for the sale and
distribution of its shares and for services provided to shareholders.
Because these fees are paid out of the Fund's assets on an on-going
basis, over time they will increase the cost of your investment and
may cost you more than paying other types of sales charges.
Class A Shares: Class A shares are sold at net asset value plus a
maximum sales charge of 5.75% (the "offering price"). The sales
charge may be reduced or eliminated if certain conditions are met
(see "Additional Purchase Information" below). Class A shares are
subject to a .25% Rule 12b-1 service fee.
Class B Shares: Class B shares are offered at net asset value,
without an initial sales charge, but subject to a contingent
deferred sales charge ("CDSC") that declines from 5% to zero on
certain redemptions within six years of purchase. Class B shares
are subject to a .75% Rule 12b-1 distribution fee and a .25% Rule
12b-1 service fee, and convert automatically into Class A shares 8
years after purchase.
Class C Shares: Class C shares are offered at net asset value,
without an initial sales charge, but subject to a CDSC of 1% for
redemptions within the first year of purchase. Class C shares are
subject to a .75% Rule 12b-1 distribution fee and a .25% Rule
12b-1 service fee.
Class I and Advisor Class Shares: Class I and Advisor Class
shares are offered to certain classes of investors at net asset
value, without any sales load or Rule 12b-1 fees.
The following table displays the various investment minimums, sales
charges and expenses that apply to each class.
<TABLE>
<S> <C> <C> <C> <C> <C>
- -------------------- ------------------ ----------------- ------------------ -------------- --------------
Class A Class B Class C Class I Advisor Class
- -------------------- ------------------ ----------------- ------------------ -------------- --------------
- -------------------- ------------------ ----------------- ------------------ -------------- --------------
Minimum Initial $5,000,000 $10,000
Investment* $1,000 $1,000 $1,000
- -------------------- ------------------ ----------------- ------------------ -------------- --------------
- -------------------- ------------------ ----------------- ------------------ -------------- --------------
Minimum Subsequent
Investment* $100 $100 $100 $ 10,000 $ 250
- -------------------- ------------------ ----------------- ------------------ -------------- --------------
- -------------------- ------------------ ----------------- ------------------ -------------- --------------
Initial Sales Maximum 5.75%, None None None None
Charge with options for
a reduced or
waiver of
initial sales
charge
- -------------------- ------------------ ----------------- ------------------ -------------- --------------
- -------------------- ------------------ ----------------- ------------------ -------------- --------------
CDSC None, except on Maximum 5.00%, 1.00% for the None None
certain NAV declines over first year
purchases six years
- -------------------- ------------------ ----------------- ------------------ -------------- --------------
- -------------------- ------------------ ----------------- ------------------ -------------- --------------
Service and 0.25% Service fee 0.75% 0.75% None None
Distribution Fees Distribution Distribution Fee
Fee and 0.25% and 0.25%
Service Fee Service Fee
- -------------------- ------------------ ----------------- ------------------ -------------- --------------
</TABLE>
* Minimum initial and subsequent investments for retirement plans are $25.
ADDITIONAL PURCHASE INFORMATION:
Class A Shares - Class A shares are sold at a public offering
price equal to their net asset value per share ("NAV") plus an
initial sales charge, as set forth below (which is reduced as the
amount invested increases):
<TABLE>
<S> <C> <C> <C>
- -------------------------------- ---------------------- ------------------ ----------------------
Sales Charge as a Sales Charge as Portion of Public
Percentage of Public a Percentage of Offering Price
Offering Price Net Amount Retained by Dealer
Amount Invested Invested
- -------------------------------- ---------------------- ------------------ ----------------------
- -------------------------------- ---------------------- ------------------ ----------------------
Less than $50,000 5.75% 6.10% 5.00%
- -------------------------------- ---------------------- ------------------ ----------------------
- -------------------------------- ---------------------- ------------------ ----------------------
$50,000 but less than $100,000 5.25% 5.54% 4.50%
- -------------------------------- ---------------------- ------------------ ----------------------
- -------------------------------- ---------------------- ------------------ ----------------------
$100,000 but less than $250,000 4.50% 4.71% 3.75%
- -------------------------------- ---------------------- ------------------ ----------------------
- -------------------------------- ---------------------- ------------------ ----------------------
$250, 000 but less than 3.00% 3.09% 2.50%
$500,000
- -------------------------------- ---------------------- ------------------ ----------------------
$500,000 or over* 0.00% 0.00% 0.00%
- -------------------------------- ---------------------- ------------------ ----------------------
</TABLE>
* A CDSC of 1.00% applies to Class A shares that are redeemed
within two years of the end of the month in which they were
purchased.
Class A shares that are acquired through reinvestment of dividends
or distributions are not subject to any sales charges.
HOW TO REDUCE YOUR INITIAL SALES CHARGE:
"Rights of Accumulation" permits you to pay the sales charge
that applies to the cost or value (whichever is higher) of all
Ivy Fund Class A shares you own.
A "Letter of Intent" permits you to pay the sales charge that
would apply to your cumulative purchase of Fund shares over a
13-month period (certain restrictions apply).
HOW TO ELIMINATE YOUR INITIAL SALES CHARGE:
You may purchase Class A shares at NAV (without an initial sales
charge or a CDSC) through any one of the following methods:
through certain investment advisors and financial planners
who charge a management, consulting or other fee for their
services;
under certain qualified retirement plans;
as an employee or director of Mackenzie Investment Management
Inc. or its affiliates;
as an employee of a selected dealer; or
through the Merrill Lynch Daily K Plan (the "Plan"), provided
the Plan has at least $3 million in assets or over 500 or more
eligible employees. Class B shares of the Fund are made
available to Plan participants at NAV without a CDSC if the
Plan has less than $3 million in assets or fewer than 500
eligible employees. For further information see "Group
Systematic Investment Program" in the SAI.
You may also purchase Class A shares at NAV if you are investing
at least $500,000 through a dealer or agent. Ivy Mackenzie
Distributors, Inc. ("IMDI"), the Fund's distributor, may pay the
dealer or agent (out of IMDI's own resources) for its distribution
assistance according to the following schedule:
------------------------------- -------------------------------
Purchase Amount Commission
------------------------------- -------------------------------
------------------------------- -------------------------------
First $3,000,000 1.00%
------------------------------- -------------------------------
------------------------------- -------------------------------
Next $2,000,000 0.50%
------------------------------- -------------------------------
------------------------------- -------------------------------
Over $5,000,000 0.25%
------------------------------- -------------------------------
Certain trust companies, bank trust departments, credit unions,
savings and loans and other similar organizations may also be
exempt from the initial sales charge on Class A shares.
Class B and Class C Shares - Class B and Class C shares are not
subject to an initial sales charge but are subject to a CDSC. If
you redeem your Class C shares within one year of purchase they
will be subject to a CDSC of 1%, and Class B shares redeemed
within six years of purchase will be subject to a CDSC at the
following rates:
--------------------- --------------------
CDSC as a
Percentage of
Year Since Purchase Dollar Amount
Subject to Charge
--------------------- --------------------
First 5%
--------------------- --------------------
--------------------- --------------------
Second 4%
--------------------- --------------------
--------------------- --------------------
Third 3%
--------------------- --------------------
--------------------- --------------------
Fourth 3%
--------------------- --------------------
--------------------- --------------------
Fifth 2%
--------------------- --------------------
--------------------- --------------------
Sixth 1%
--------------------- --------------------
--------------------- --------------------
Seventh and 0%
thereafter
--------------------- --------------------
The CDSC for both Class B and Class C shares will be assessed on
an amount equal to the lesser of the current market value or the
original purchase cost of the shares being redeemed. No charge
will be assessed on increases in account value above the original
purchase price or on reinvested dividends and distributions.
The CDSC for Class B shares is waived for:
Certain post-retirement withdrawals from an IRA or other
retirement plan if you are over 59 1/2 years old.
Redemptions by certain eligible 401(a) and 401(k) plans and
certain retirement plan rollovers.
Redemption resulting from a tax-free return of excess
contribution to an IRA.
Withdrawals resulting from shareholder death or disability
provided that the redemption is requested within one year of
death or disability.
Withdrawals through the Systematic Withdrawal Plan of up to
12% per year of your account value at the time the plan is
established.
Both Class B shares and Class C shares are subject to an ongoing
service and distribution fee at a combined annual rate of up to
1.00% of the portfolio's average net assets attributable to its
Class B or Class C shares. The ongoing distribution fees will
cause these shares to have a higher expense ratio than that of
Class A, Class I and Advisor Class shares. IMDI uses the money
that it receives from the deferred sales charge and the
distribution fees to cover various promotional and sales related
expenses, as well as expenses related to providing distributions
services, such as compensating selected dealers and agents for
selling these shares.
Approximately eight years after the original date of purchase,
your Class B shares will be converted automatically to Class A
shares. Class A shares are subject to lower annual expenses than
Class B shares. The conversion from Class B shares to Class A
shares is not considered a taxable event for federal income tax
purposes. Class C shares do not have a similar conversion
privilege.
Class I and Advisor Class - Class I and Advisor Class shares are
offered only to institutions and certain individuals, and are not
subject to an initial sales charge or a CDSC, nor to ongoing
service or distribution fees. Class I shares also bear lower fees
than Class A, Class B, Class C and Advisor Class shares.
SUBMITTING YOUR PURCHASE ORDER:
INITIAL INVESTMENTS:
Complete and sign the Account Application appearing at the end of this
Prospectus. Enclose a check payable to Ivy Fund (see page [XX] for
minimum initial investments.) Deliver your application materials to
your registered representative or selling broker, or send them to one
of the addresses below:
By Regular Mail: By Courier:
Ivy Mackenzie Services Corp. Ivy Mackenzie Services Corp.
P.O. Box 3022 700 South Federal Hwy.
Boca Raton, FL 33431-0922 Boca Raton, FL 33432
BUYING ADDITIONAL SHARES:
There are several ways to increase your investment in the Fund:
By Mail - Send your check with a completed investment slip
(attached to your account statement) or written instructions
indicating the account registration, fund number or name, and
account number.
Mail to one of the addresses above.
Through Your Broker - Deliver to your registered representative
or selling broker the investment slip attached to your statement,
or written instructions, along with your payment.
By Wire - Purchases may also be made by wiring money from your
bank account to your Ivy account. Your bank may charge a fee for
wiring funds. Before wiring any funds, please call IMSC at (800)
777-6472. Wiring instructions are as follows:
First Union National Bank of Florida
Jacksonville, FL
ABA #063000021
Account #2090002063833
For further credit to:
Your Ivy Fund Account Number
Your Fund Number and Account Number
By Automatic Investment Method - You can authorize to have funds
electronically drawn each month from your bank account and
invested as a purchase of shares into your Ivy Fund account.
Complete sections [XX] and [XX] of the Account Application.
HOW TO REDEEM SHARES:
SUBMITTING YOUR REDEMPTION ORDER:
You may redeem your Fund shares through your registered securities
dealer or directly through IMSC. If you choose to redeem through your
registered securities dealer, the dealer is responsible for properly
transmitting redemption orders in a timely manner. If you choose to
redeem directly through IMSC, you have several ways to submit your
request:
By Mail - Send your written redemption request to IMSC at one of
the addresses on page XX of this Prospectus. Be sure that all
registered owners listed on the account sign the request.
Signature guarantees and supporting legal documentation may be
required. When you redeem, IMSC will normally send redemption
proceeds to you on the next business day, but may take up to seven
days (or longer in the case of shares recently purchased by
check).
By Telephone - Call IMSC at (800) 777-6472 to redeem from your
account. In order to process your redemption order by telephone,
you must have telephone redemption privileges on your account.
IMSC employs reasonable procedures that require personal
identification prior to acting on redemption instructions
communicated by telephone to confirm that such instructions are
genuine. In the absence of such procedures, the Fund or IMSC may
be liable for any losses due to unauthorized or fraudulent
telephone instructions.
By Systematic Withdrawal Plan (SWP) - You can authorize to have
funds electronically drawn each month from your Ivy Fund account
and deposited directly into your bank account. Certain minimum
balances and minimum distributions apply. Complete sections XX of
the Account Application to add this feature to your account.
Receiving Your Redemption Proceeds - You can receive redemption
proceeds through a variety of payment methods:
By Check - Unless otherwise instructed, checks will be made
payable to the current account registration and sent to the
address of record.
By Federal Funds Wire - Proceeds will be wired on the next
business day to a pre-designated bank account. Requests by
telephone can only be accepted for amounts up to $50,000. Your
account will be charged $10 each time redemption proceeds are
wired to your bank, and your bank may also charge you a fee for
receiving a Federal Funds wire.
By Electronic Funds Transfer - For SWP redemptions only.
Important Redemption Information:
A CDSC may apply to certain Class A share redemptions, to Class B
shares redeemed within six years of purchase, and to Class C
shares that are redeemed within one year of purchase.
All redemptions are made at the NAV next determined after a
redemption request has been received in good order. Requests for
redemptions must be received by 4:00 p.m. Eastern time to be
processed at the NAV for that day. Any redemption request in good
order that is received after 4:00 p.m. Eastern time will be
processed at the price determined on the following business day.
If you own shares of more than one class of the Fund, the Fund
will redeem first the shares having the highest 12b-1 fees.
Any shares subject to a CDSC will be redeemed last unless you
specifically elect otherwise.
The Fund may (on 60 days' notice) redeem the accounts of
shareholders whose investment, including sales charges paid, has
been less than $1,000 for more than 12 months.
The Fund may take up to seven days (or longer in the case of
shares recently purchased by check) to send redemption proceeds.
The Fund may make payment for redeemed shares in the form of
securities of the Fund taken at current values.
HOW TO EXCHANGE YOUR FUND SHARES:
You may exchange your Fund shares for shares of another Ivy fund,
subject to certain restrictions (see "Important Exchange Information"
below).
Submitting Your Exchange Order - You may submit an exchange request to
IMSC as follows:
By Mail - Send your written exchange request to IMSC at one of
the addresses on page XX of this Prospectus. Be sure that all
registered owners listed on the account sign the request.
By Telephone - Call IMSC at (800) 777-6472 to authorize an
exchange transaction. In order to process your exchange order by
telephone, you must have telephone exchange privileges on your
account. IMSC employs reasonable procedures that require personal
identification prior to acting on exchange instructions
communicated by telephone to confirm that such instructions are
genuine. In the absence of such procedures, the Fund or IMSC may
be liable for any losses due to unauthorized or fraudulent
telephone instructions.
IMPORTANT EXCHANGE INFORMATION:
You must exchange into the same share class you currently own.
Exchanges are considered taxable events and may result in a
capital gain or a capital loss for tax purposes.
It is the policy of the Fund to discourage the use of the
exchange privilege for the purpose of timing short-term market
fluctuations. The Fund may therefore limit the frequency of
exchanges by a shareholder or cancel a shareholder's exchange
privilege if at any time it appears that such market timing
strategies are being used.
DIVIDENDS AND DISTRIBUTIONS:
The Fund generally declares and pays dividends and capital gain
distributions (if any) at least once a year.
Dividends and distributions are "reinvested" in additional Fund
shares unless you request to receive them in cash.
Reinvested dividends and distributions are added to your account
at NAV and are not subject to a CDSC regardless of which share
class you own.
Cash dividends and distributions can be sent to you:
BY MAIL - a check will mailed to the address of record unless
otherwise instructed.
BY ELECTRONIC FUNDS TRANSFER ("EFT") - your proceeds will be
directly deposited into your bank account.
To change your dividend and/or distribution options, call IMSC at
(800) 777-6472.
TAX CONSEQUENCES:
Distributions you receive from the Fund are reinvested in additional
shares of the same class of the Fund unless you elect to receive them
in cash. Dividends ordinarily will vary from one class to another.
The Fund intends to declare and pay dividends monthly. The Fund will
distribute net investment income and net realized capital gains, if
any, at least once a year. The Fund may make an additional distribution
of net investment income and net realized capital gains to comply with
the calendar year distribution requirement under the excise tax
provisions of Section 4982 of the Internal Revenue Code of 1986, as
amended (the "Code").
Dividends paid out of the Fund's investment company taxable income
(including dividends, interest and net short-term capital gains) will
be taxable to you as ordinary income. If a portion of the Fund's income
consists of dividends paid by U.S. corporations, a portion of the
dividends paid by the Fund may be eligible for the corporate
dividends-received deduction. Distributions of net capital gains (the
excess of net long-term capital gains over net short-term capital
losses), if any, are taxable to you as long-term capital gains,
regardless of how long you have held your shares. Dividends are taxable
to you in the same manner whether received in cash or reinvested in
additional Fund shares.
If shares of the Fund are held in a tax-deferred account, such as a
retirement plan, income and gain will not be taxable each year.
Instead, the taxable portion of amounts held in a tax-deferred account
generally will be subject to tax as ordinary income only when
distributed from that account.
A distribution will be treated as paid to you on December 31 of the
current calendar year if it is declared by the Fund in October,
November or December with a record date in such a month and paid by the
Fund during January of the following calendar year.
In certain years, you may be able to claim a credit or deduction on
your income tax return for your share of foreign taxes paid by the
Fund. Upon the sale or other disposition of your Fund shares, you may
realize a capital gain or loss which will be long-term or short-term,
generally depending upon how long you held your shares.
The Fund may be required to withhold U.S. Federal income tax at the
rate of 31% of all distributions payable to you if you fail to provide
the Fund with your correct taxpayer identification number or to make
required certifications, or if you have been notified by the Internal
Revenue Service ("IRS") that you are subject to backup withholding.
Backup withholding is not an additional tax. Any amounts withheld may
be credited against your U.S. Federal income tax liability.
Fund distributions may be subject to state, local and foreign taxes.
You should consult with your tax adviser as to the tax consequences of
an investment in the Fund, including the status of distributions from
the Fund under applicable state or local law.
<PAGE>
IVY GLOBAL SCIENCE & TECHNOLOGY FUND
<TABLE>
<CAPTION>
CLASS A CLASS B
--------------------------------- ---------------------------------
1998 1997 1996(A) 1998 1997 1996(A)
SELECTED PER SHARE DATA -------- ------- ------- -------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of period.... $16.40 $10.00 $16.44 $10.00
------- ------ ------ ------
Income from investment operations
Net investment loss.................. (.31) (.06)(b) (.32) (.06)(b)
Net realized and unrealized gain on
investments......................... 1.38 6.49 1.25 6.52
------- ------ ------ ------
Total from investment
operations....................... 1.07 6.43 .93 6.46
------- ------ ------ ------
Less distributions
From net realized gain............... -- .03 -- .02
------- ------ ------ ------
Total distributions............... -- .03 -- .02
------- ------ ------ ------
Net asset value, end of period.......... $17.47 $16.40 $17.37 $16.44
======= ====== ====== ======
Total return (%)........................ 6.53 64.34 5.66 64.59
RATIOS AND SUPPLEMENTAL DATA
Net assets, end of period (in
thousands)............................. $12,159 $8,324 $8,577 $3,425
Ratio of expenses to average net assets
With expense reimbursement(%).......... -- 2.19 -- 2.99
Without expense reimbursement(%)....... 2.11 2.90 2.92 3.70
Ratio of net investment loss to average
net assets (%)......................... (1.91) (2.18)(b) (2.72) (2.98)(b)
Portfolio turnover rate(%).............. 54 23 54 23
Average commission rate................. $.0600 $.0600 $.0600 $.0600
<CAPTION>
ADVISOR
CLASS C CLASS
------------------------------- --------
1998 1997 1996(A) 1998
SELECTED PER SHARE DATA -------- ------- ------- --------
<S> <C> <C> <C> <C>
Net asset value, beginning of period.... $16.46 $10.00
------ ------
Income from investment operations
Net investment loss.................. (.42) (.05)(b)
Net realized and unrealized gain on
investments......................... 1.36 6.53
------ ------
Total from investment
operations....................... .94 6.48
------ ------
Less distributions
From net realized gain............... -- .02
------ ------
Total distributions............... -- .02
------ ------
Net asset value, end of period.......... $17.40 $16.46
====== ======
Total return (%)........................ 5.71 64.84
RATIOS AND SUPPLEMENTAL DATA
Net assets, end of period (in
thousands)............................. $6,348 $2,106
Ratio of expenses to average net assets
With expense reimbursement(%).......... -- 2.95
Without expense reimbursement(%)....... 2.85 3.66
Ratio of net investment loss to average
net assets (%)......................... (2.65) (2.94)(b)
Portfolio turnover rate(%).............. 54 23
Average commission rate.................
</TABLE>
- - ---------------
<TABLE>
<S> <C>
(a) From July 22, 1996 (commencement) to December 31, 1996.
(b) Net investment loss is net of expenses reimbursed by
manager.
</TABLE>
<PAGE>
ACCOUNT APPLICATION
Please mail applications and checks to: Ivy Mackenzie Services Corp., P.O.
Box 3022, Boca Raton, FL 33431-0922.
(This application should not be used for retirement accounts for which
Ivy Fund is custodian.)
Account Number:
(Fund Use Only)
Dealer #:
Branch #:
Rep. I.D. #:
Acct. Type:
Soc Cd:
Div Cd:
CG Cd:
Exc Cd:
Red Cd:
1. REGISTRATION
/ / Individual / / Joint Tenant / / Estate / / UGMA/UTMA / /
Corporation / / Partnership / / Sole Proprietor / / Trust / / Other
Date of Trust
Owner, Custodian or Trustee
Co-owner or Minor
Minor's State of Residence
Street
City
State
Zip Code
Phone Number -- Day
Phone Number -- Evening
2. TAX ID
Citizenship: / / U.S. / / Other ________________
Social Security Number
Tax Identification Number
Under penalties of perjury, I certify by signing in Section 8 below
that: (1) the number shown in this section is my correct taxpayer
identification number (TIN), and (2) I am not subject to backup
withholding because: (a) I have not been notified by the Internal
Revenue Service (IRS) that I am subject to backup withholding as a
result of a failure to report all interest or dividends, or (b) the IRS
has notified me that I am no longer subject to backup withholding.
(Cross out item (2) if you have been notified by the IRS that you are
currently subject to backup withholding because of underreporting
interest or dividends on your tax return.) Please see the "Tax
Consequences" section of the Prospectus for additional information on
completing this section.
3. DEALER INFORMATION
The undersigned ("Dealer") agrees to all applicable provisions in this
Application, guarantees the signature and legal capacity of the
Shareholder, and agrees to notify IMSC of any purchases made under a
Letter of Intent or Rights of Accumulation.
Dealer Name
Branch Office Address
City
State
Zip Code
Representative's Name and Number
Representative's Phone Number
Authorized Signature of Dealer
4. INVESTMENTS
A. Enclosed is my check ($1,000 minimum) for $_____________ made
payable to _________________ [Fund Name]. Please invest it in
Class A __ Class B __ Class C __ Class I __or Advisor Class __
shares.
B. I qualify for an elimination of the sales charge due to the
following privilege (applies only to Class A shares):
__ New Letter of Intent (if ROA or 90-day backdate
privilege is applicable, provide account(s)
information below.)
__ ROA with the account(s) listed below.
__ Existing Letter of Intent with account(s) listed
below.
Fund Name(s)
Account Number(s)
If establishing a Letter of Intent, you will need to purchase
Class A shares over a thirteen-month period in accordance with
the provisions in the Prospectus. The Aggregate amount of
these purchases will be at least equal to the amount indicated
below (see Prospectus for minimum amount required for reduced
sales charges).
/ / $50,000
/ / $100,000
/ / $250,000
/ / $500,000
C. FOR DEALER USE
Confirmed trade orders: [Confirm Number, Number of Shares, Trade Date]
5. DISTRIBUTION OPTIONS
I would like to reinvest dividends and capital gains into additional
shares in this account at net asset value unless a different option is
checked below.
/ / Reinvest all dividends and capital gains into additional
shares of a different Ivy fund.
Fund Name
Account Number
/ / Pay all dividends in cash and reinvest capital gains into
additional shares in this Fund or a different Ivy fund.
Fund Name
Account Number
/ / Pay all dividends and capital gains in cash.
I REQUEST THE ABOVE CASH DISTRIBUTION, SELECTED IN C OR D
ABOVE, BE:
/ / Sent to the address listed in the registration.
/ / Sent to the special payee listed in Section 7A
/ / (By Mail) 7B / / (By E.F.T.)
6. OPTIONAL SPECIAL FEATURES
A. / / Automatic Investment Method (AIM)
- I wish to invest _________________ / / once per month / /
twice / / 3 times / / 4 times
- My bank account will be debited on the _________ day of the
month
Please invest $___________________ each period starting in the
month of __________________ in
---------------------------.
Fund Name
/ / Class A
/ / Class B
/ / Class C
/ / Class I
/ / Advisor Class
/ / I have attached a voided check to ensure my correct bank
account will be debited.
B. SYSTEMATIC WITHDRAWAL PLANS**
I wish to automatically withdraw funds from my account in
____________________ Fund Name
/ / Monthly / / Quarterly / /Semiannually / / Annually
/ / Once / / Twice / / 3 times / / 4 times per month
I request the distribution be:
/ / Sent to the address listed in the registration.
/ / Sent to the special payee listed in Section 7.
/ / Invested into additional shares of the same class of a different Ivy
fund.
Fund Name
Account Number
Amount $__________________(Minimum $50) starting on or about the
-_______ day of the month
-_______ day of the month
-_______ day of the month*
NOTE: Account minimum: $5,000 in shares at current offering price
C. FEDERAL FUNDS TRANSFER FOR REDEMPTION PROCEEDS**
I authorize the Agent to honor telephone instructions for the
redemption of Fund shares up to $50,000. Proceeds may be wire
transferred to the bank account designated ($1,000 minimum).
(Complete Section 7B)
TELEPHONE EXCHANGES** / / YES / / NO
I authorize exchanges by telephone among the Ivy funds upon
instructions from any person as more fully described in the
Prospectus. To change this option once established, written
instructions must be received from the shareholder of record
or the current registered representative.
If neither box is checked, the telephone exchange privilege
will be provided automatically.
TELEPHONIC REDEMPTIONS** / / YES / / NO
The Fund or its agents are authorized to honor telephone
instructions from any person as more fully described in the
Prospectus for the redemption of Fund shares. The amount of
the redemption shall not exceed $50,000 and the proceeds are
to be payable to the shareholder of record and mailed to the
address of record. To change this option once established,
written instructions must be received from the shareholder of
record or the current registered representative.
If neither box is checked, the telephone redemption privilege
will be provided automatically.
* There must be a period of at least seven calendar days between each
investment/withdrawal period.
** This option may not be used if shares are issued in certificate form.
7. SPECIAL PAYEE
A. MAILING ADDRESS
Please send all disbursements to this special payee:
Name of Bank or Individual
Account Number (If Applicable)
Street
City/State/Zip
B. FED WIRE / E.F.T. INFORMATION
Financial Institution
ABA #
Account #
Street
City/State/Zip
(Please attach a voided check)
8. SIGNATURES
Investors should be aware that the failure to check the "No" under
Section 6D or 6E above means that the Telephone Exchange/Redemption
Privileges will be provided. The Fund employs reasonable procedures
that require personal identification prior to acting on
exchange/redemption instructions communicated by telephone to confirm
that such instructions are genuine. In the absence of such procedures,
the Fund may be liable for any losses due to unauthorized or fraudulent
telephone instructions. Please see "How to Exchange Your Fund Shares"
and "How to Redeem Your Fund Shares" in the Prospectus for more
information on these privileges.
I certify to my legal capacity to purchase or redeem shares of the Fund
for my own account or for the account of the organization named in
Section 1. I have received a current Prospectus and understand its
terms are incorporated in this application by reference. I am
certifying my taxpayer information as stated in Section 2.
THE INTERNAL REVENUE SERVICE DOES NOT REQUIRE YOUR CONSENT TO ANY
PROVISION OF THIS DOCUMENT OTHER THAN THE CERTIFICATIONS REQUIRED TO
AVOID BACKUP WITHHOLDING.
------------------------------
Signature of Owner, Custodian, Date
Trustee or Corporate Officer
------------------------------
Signature of Joint Owner, Date
Co-Trustee or Corporate Officer
(Remember to sign Section 8)
<PAGE>
[Back Cover Page]
HOW TO RECEIVE MORE INFORMATION ABOUT THE FUND
Additional information about the Fund and its investments is contained in the
Fund's Statement of Additional Information dated April ___, 1999 (the "SAI"),
which is incorporated by reference into this Prospectus, and the Fund's annual
and semi-annual reports to shareholders. The Fund's annual report includes a
discussion of the market conditions and investment strategies that significantly
affected the Fund's performance during its most recent fiscal year. The SAI and
the Fund's annual and semi-annual reports are available upon request and without
charge from the Distributor at the following address and phone number:
Ivy Mackenzie Distributors, Inc.
Via Mizner Financial Plaza
700 South Federal Highway
Boca Raton, Florida 33432
(800) 456-5111
Information about the Fund (including the SAI and the Fund's annual and
semi-annual reports) may also be reviewed and copied at the SEC's Public
Reference Room in Washington, D.C. (please call 1-800-SEC-0330 for further
details). Information about the Fund is also available on the SEC's Internet
Website (www.sec.gov), and copies of this information may be obtained, upon
payment of a copying fee, by writing the Public Reference Section of the SEC,
Washington, D.C. 20549-6009.
SHAREHOLDER INQUIRIES
Please call Ivy Mackenzie Services Corp., the Fund's transfer agent, at
1-800-777-6472 regarding any other inquiries about the Fund.
Investment Company Act File No. 811-1028
<PAGE>
[Front Cover Page]
PROSPECTUS April ___, 1999
IVY FUND - Ivy Growth Fund
Ivy Fund (the "Trust") is a registered open-end investment company currently
consisting of nineteen separate portfolios. This Prospectus relates to the Class
A, Class B, Class C and Advisor Class shares of Ivy Growth Fund (the "Fund"). No
other shares are offered in this Prospectus.
The Securities and Exchange Commission has not approved or disapproved these
securities or passed upon the adequacy of this Prospectus. Any representation to
the contrary is a criminal offense.
[Insert all logos]
<PAGE>
TABLE OF CONTENTS
SUMMARY 3
ADDITIONAL INFORMATION ABOUT INVESTMENT STRATEGIES AND RISKS
MANAGEMENT
SHAREHOLDER INFORMATION
ACCOUNT APPLICATION
HOW TO RECEIVE MORE INFORMATION ABOUT THE FUND
SHAREHOLDER INQUIRIES
<PAGE>
SUMMARY
Investment The Fund seeks long-term growth primarily through investment
objective: in equity securities, with current income being a secondary
consideration.
Principal The Fund invests primarily in mid- and large-cap U.S. stocks
investment and seeks to provide additional by investing a portion of
strategies: its assets in small-cap U.S. stocks and large-cap
international stocks. The Fund might engage in forward
foreign currency contracts, options contracts and stock
index futures contracts in order to control its exposure to
certain risks.
Principal risks: Management risk: The Fund's manager might not select
securities that perform as well as the securities held by
other mutual funds with investment objectives that are
similar to those of the Fund.
Market risk: Common stocks represent a proportionate
ownership interest in a company. As a result, the value of
common stock rises and falls with a company's success or
failure. The market value of common stock can fluctuate
significantly even where "management risk" is not a factor,
so you could lose money if you redeem your Fund shares at a
time when the Fund's stock portfolio is not performing as
well as expected.
Small company risk: Securities of smaller companies may be
subject to more abrupt or erratic market movements than the
securities of larger more established companies, since they
tend to be thinly traded and because the companies are
subject to greater business risk. Transaction costs in
smaller company stocks may also be higher than those of
larger companies.
Foreign security risk: Investing in foreign securities
involves a number of economic, financial and political
considerations that are not associated with the U.S. markets
and that could affect the Fund's performance favorably or
unfavorably, depending upon prevailing conditions at any
given time. Among these potential risks are:
greater price volatility;
comparatively weak supervision and regulation of
securities exchanges, brokers and issuers;
higher brokerage costs;
fluctuations in foreign currency exchange rates and
related conversion costs;
adverse tax consequences; and
settlement delays.
Derivatives risk: The Fund may, but is not required to, use
a range of derivative investment techniques to hedge various
market risks (such as interest rates, currency exchange
rates, and broad or specific equity market movements). The
use of these derivative investment techniques involves a
number of risks, including the possibility of default by the
counterparty to the transaction and, to the extent the
judgment of the Fund's manager as to certain market
movements is incorrect, the risk of losses that are greater
than if the derivative technique(s) had not been used.
Who should invest:* The Fund may be appropriate for investors seeking
long-term growth potential, but who can accept moderate fluctuations
in capital value in the short-term.
* You should consult with your financial advisor before deciding whether
the Fund is an appropriate investment choice in light of your
particular financial needs and risk tolerance.
<PAGE>
Performance Bar Chart and Table:
The information in the following chart and table provides some
indication of the risks of investing in the Fund by showing changes in
the Fund's performance from year to year and how the Fund's average
annual returns since its inception on ____________ compare with those
of a broad measure of market performance. The Fund's past performance
is not an indication of how the Fund will perform in the future.
Annual Total Returns for Class A Shares as of December 31, 1998: *
- -------------------------------------------------------------------
1989 1990 1991 1992 1993 1994 1995 1996 1997 1998
* Any applicable sales charges and account fees are not
reflected, and if they were the returns shown above would be
lower. The returns for the Fund's other three classes of
shares during these periods were different from those of Class
A because of variations in their respective expense
structures.
Best quarter: ______% (Q__ 199__)
Worst quarter: ______% (Q__ 199__)
Average Annual Total Returns (for the periods ending December 31, 1998):*
Past year: Past 5 years: Past 10 years: Since inception:**
--------- ------------ ------------- ---------------
Class A: ______% ______% ______% ______%
Class B: ______% ______% N/A ______%
Class C: ______% N/A N/A ______%
Advisor Class: ______% N/A N/A ______%
[Index]: ______% ______% ______% ______%
* Performance figures reflect any applicable sales charges.
** The inception dates for the Fund's four classes of shares were
as follows: Class A, _______________; Class B, October 23,
1993; Class C, April 30, 1996; and Advisor Class, January 1,
1998.
<PAGE>
Fees and Expenses:
The following tables describe the fees and expenses that you may pay if
you buy and hold shares of the Fund:
Shareholder Fees (fees paid directly from your investment):
Maximum Sales Charge (Load) Imposed on Maximum Deferred Sales
Purchases (as a percentage of Charge (Load) (as a
offering price): percentage of original
purchase price):
Class A: 5.75% none
Class B: none 5.00%
Class C: none 1.00%
Advisor none none
Class:
Annual Fund Operating Expenses (expenses that are deducted from Fund
assets):
Management Distribution and/or Total Annual Fund
Fees:* Service (12b-1) Other Operating Expenses:
Fees: Expenses:
Class A: 0.85% .25% $_______ $_______
Class B: 0.85% 1.00% $_______ $_______
Class C: 0.85% 1.00% $_______ $_______
Advisor Class: 0.85% none $_______ $_______
* Management Fees are reduced to .75% for net assets over $350 million.
<PAGE>
Example:
The following example is intended to help you compare the cost of
investing in the Fund with the cost of investing in other mutual funds.
The example assumes that you invest $10,000 in the Fund for the time
periods indicated and then redeem all of your shares at the end of
those periods (with additional information shown for Class B and Class
C shares based on the assumption that you do not redeem your shares at
that time). The example also assumes that your investment has a 5%
return each year and that the Fund's operating expenses remain the
same. Although your actual costs may be higher or lower, based on these
assumptions your costs would be as follows:
1 Year: 3 Years: 5 Years: 10 Years:
------ ------- ------- --------
Class A: $______ $______ $______ $______
Class B: $______ $______ $______ $______
Class B (no redemption): $______ $______ $______ $______
Class C: $______ $______ $______ $______
Class C (no redemption): $______ $______ $______ $______
Advisor Class: $______ $______ $______ $______
<PAGE>
ADDITIONAL INFORMATION ABOUT INVESTMENT STRATEGIES AND RISKS
Principal strategies:
The Fund seeks to achieve its principal objective of long-term capital
growth by investing primarily in mid- and large-cap U.S. stocks, and
seeks to provide additional diversification by investing a portion of
its assets in small-cap U.S. stocks and large-cap international stocks.
Principal risks:
General market risk: As with any mutual fund, the value of the Fund's
investments and the income they generate will vary daily and generally
reflect market conditions, interest rates and other issuer-specific,
political or economic developments. The Fund's share value will
decrease at any time during which its security holdings or other
investment techniques are not performing as well as anticipated, and
you could therefore lose money by investing in the Fund depending upon
the timing of your initial purchase and any subsequent redemption.
Other risks: Since the Fund invests heavily in the equity securities of
domestic and foreign corporations, it is more susceptible to the risks
associated with these types of securities than a fund that is more
diversified. Following is a description of these risks, along with the
risks commonly associated with the other securities and investment
techniques that the Fund's portfolio manager considers important in
achieving the Fund's investment objective or in managing the Fund's
exposure to risk (and that could therefore have a significant effect on
the Fund's returns). Other investment techniques that the Fund may use,
but that do not play a key role in the Fund's overall investment
strategy, are described in the Fund's Statement of Additional
Information (see back cover page for information on how you can receive
a free copy).
Common Stocks: Common stocks represent a proportionate ownership
interest in a company. As a result, the value of common stock
rises and falls with a company's success or failure. The market
value of common stock can fluctuate significantly. Securities of
smaller companies may be subject to more abrupt or erratic market
movements than the securities of larger more established
companies, since small company stocks tend to be thinly traded and
the companies are subject to greater business risk. Transaction
costs in smaller company stocks may also be higher than those of
larger companies.
Foreign Securities: Investing in foreign securities involves a
number of economic, financial and political considerations that
are not associated with the U.S. markets and that could affect the
Fund's performance favorably or unfavorably, depending upon
prevailing conditions at any given time. For example, the
securities markets of many foreign countries may be smaller, less
liquid and subject to greater price volatility than those in the
U.S. Foreign investing may also involve brokerage costs and tax
considerations that are not usually present in the U.S. markets.
Many of the Fund's securities also are denominated in foreign
currencies and the value of the Fund's investments as measured in
U.S. dollars may be affected favorably or unfavorably by changes
in foreign currency exchange rates and exchange control
regulations. Currency conversion can also be costly.
Other factors that can affect the value of the Fund's foreign
investments include the comparatively weak supervision and
regulation by some foreign governments of securities exchanges,
brokers and issuers, and the fact that many foreign companies may
not be subject to uniform accounting, auditing and financial
reporting standards. It may also difficult to obtain reliable
information about the securities and business operations certain
foreign issuers. Settlement of portfolio transactions may also be
delayed due to local restrictions or communication problems, which
can cause the Fund to miss attractive investment opportunities or
impair its ability to dispose of securities in a timely fashion
(resulting in a loss if the value of the securities subsequently
declines).
Foreign Currencies: Investing in foreign securities typically
involves the use of foreign currencies. The value of the foreign
holdings in the Fund's portfolio, as measured in U.S. dollars,
may be affected favorably or unfavorably by changes in foreign
currency exchange rates and exchange control regulations.
Currency conversions can also be costly.
Derivative Investment Techniques: The Fund may, but is not
required to, use certain derivative investment techniques to hedge
certain market risks (such as interest rates, currency exchange
rates and broad or specific market movements). Among the
derivative techniques the Fund might use are options, futures and
forward foreign currency contracts.
Using put and call options could cause the Fund to lose money by
forcing the sale or purchase of portfolio securities at
inopportune times or for prices higher (in the case of put
options) or lower (in the case of call options) than current
market values, by limiting the amount of appreciation the Fund can
realize on its investments, or by causing the Fund to hold a
security it might otherwise sell.
Futures transactions (and related options) involve other types of
risks. For example, the variable degree of correlation between
price movements of futures contracts and price movements in the
related portfolio position of the Fund could cause losses on the
hedging instrument that are greater than gains in the value of the
Fund's position. In addition, futures and options markets may not
be liquid in all circumstances and certain over-the-counter
options may have no markets. As a result, the Fund might not be
able to close out a transaction before expiration without
incurring substantial losses (and it is possible that the
transaction cannot even be closed). In addition, the daily
variation margin requirements for futures contracts would create a
greater ongoing potential financial risk than would purchases of
options, where the exposure is limited to the cost of the initial
premium.
Using forward foreign currency contracts involves the risk that
there may be an imperfect correlation between the Fund's portfolio
holdings of securities denominated in a particular currency and
the forward contracts entered into by the Fund. An imperfect
correlation of this type may prevent the Fund from achieving the
intended hedge or expose the Fund to the risk of currency exchange
loss.
Temporary Defensive Positions: The Fund may from time to time
take a temporary defensive position and invest without limit in
U.S. Government securities, investment-grade debt securities, and
cash and cash equivalents such as commercial paper, short-term
notes and other money market securities. When the Fund assumes
such a defensive position it may not achieve its investment
objective. Investing in debt securities also involves both
interest rate and credit risk. Generally, the value of debt
instruments rises and falls inversely with fluctuations in
interest rates. For example, as interest rates decline the value
of debt securities generally increases. Conversely, rising
interest rates tend to cause the value of debt securities to
decrease. The market value of debt securities also tends to vary
according to the relative financial condition of the issuer. Bonds
with longer maturities tend to be more volatile than bonds with
shorter maturities.
Borrowing: For temporary purposes, the Fund may borrow up to 10%
of the value of its total assets from qualified banks. Borrowing
may exaggerate the effect on the Fund's share value of any
increase or decrease in the value of the securities it holds.
Money borrowed will also be subject to interest costs.
Other Important Information:
Year 2000 Risks: Many computer software and hardware systems in use
today cannot distinguish between the year 2000 and the year 1900
because of the way dates are encoded and calculated (the "Year 2000
Problem"). The inability of computer-based systems to make this
distinction could have a seriously adverse effect on the handling of
securities trades, pricing and account services worldwide. The Fund's
service providers are taking steps that each believes are reasonably
designed to address the Year 2000 Problem with respect to the computer
systems that they use. The Fund believes these steps will be sufficient
to avoid any material adverse impact on the Fund. At this time,
however, there can be no assurance that significant problems will not
occur (which either directly or indirectly may cause the Fund to lose
money).
MANAGEMENT
Investment Advisor:
Ivy Management, Inc. ("IMI"), located at Via Mizner Financial Plaza,
700 South Federal Highway, Boca Raton, Florida 33432, provides
investment advisory and business management services to the Fund. IMI
is an SEC-registered investment advisor with over $____ billion in
assets under management, and provides similar services to the other
eighteen series of the Trust. For the Fund's fiscal year ending
December 31, 1998, the Fund paid to IMI a fee equal to ___% of the
Fund's average net assets.
Portfolio Management:
The Fund's portfolio is divided into three different segments, which
are managed as follows:
James W. Broadfoot, President and Chief Investment Officer of IMI and
a Vice President of Ivy Fund, manages the U.S. Emerging Growth segment
of the Fund's portfolio. Before joining IMI in 1990, Mr. Broadfoot was
the principal in an investment counsel firm specializing in emerging
growth companies. He has 25 years of professional investment
experience and is a Chartered Financial Analyst.
Barbara Trebbi, a Senior Vice President of IMI, manages the
International segment of the Fund's portfolio. She is also Managing
Director of International Equities and a member of the Ivy
international portfolio management team. Ms. Trebbi joined IMI in 1988
and has 11 years of professional investment experience. She is a
Chartered Financial Analyst and holds a graduate diploma from the
London School of Economics.
Paul P. Baran, a Senior Vice President of IMI, manages the core growth
segment of the Fund's portfolio. Before joining IMI, Mr. Baran was
Senior Vice President/Chief Investment Officer of Central Fidelity
National Bank. He has 24 years of professional investment experience
and is a Chatered Financial Analyst. He has an MBA from Wayne State
University.
<PAGE>
SHAREHOLDER INFORMATION
PRICING OF FUND SHARES:
The Fund calculates its share price by dividing the value of the Fund's
net assets by the total number of its shares outstanding as of the
close of regular trading (usually 4:00 p.m. Eastern time) on the New
York Stock Exchange on each day the Exchange is open for trading
(normally any weekday that is not a national holiday).
Each portfolio security that is listed or traded on a recognized stock
exchange is valued at the security's last sale price on the exchange
on which it was purchased. If no sale is reported at that time, the
average between the last bid and asked prices is used. Securities and
other Fund assets for which market prices are not readily available
are priced at their "fair value" as determined by IMI in accordance
with procedures approved by the Fund's Board of Trustees. IMI may also
price a foreign security at its "fair value" if events materially
affecting the value of the security occur between the close of the
foreign exchange on which the security is principally traded and the
time as of which the Fund prices its shares. Fair value pricing under
these circumstances is designed to protect existing shareholders from
dilution of their share value caused by short-term investors trading
into and out of the Fund at at time when the Fund's share price,
calculated by ordinary pricing methods, is undervalued. When such fair
value pricing occurs, however, there may be some period of time during
which the Fund's share price and/or performance information is not
available.
The number of shares you receive when you place a purchase order, and
the payment you receive after submitting a redemption request, is based
on the Fund's net asset value next determined after your instructions
are received in proper form by Ivy Mackenzie Services Corp. (the Fund's
transfer agent) or by your registered securities dealer. Each purchase
and redemption order is subject to any applicable sales charge (see
"Distribution Arrangements" below). Since the Fund normally invests in
securities that are listed on foreign exchanges that may trade on
weekends or other days when the Fund does not price its shares, the
Fund's share value may change on days when shareholders will not be
able to purchase or redeem the Fund's shares.
HOW TO BUY SHARES:
Purchasing Fund shares involves "Choosing the Appropriate Class of
Shares" and "Submitting Your Purchase Order". Please read these
sections below carefully before investing.
Choosing the Appropriate Class of Shares - The essential features of
the Fund's different classes of shares are described below. If you do
not specify on your Account Application which class of shares you are
purchasing, it will be assumed that you are purchasing Class A shares.
The Fund has adopted separate distribution plans pursuant to Rule
12b-1 under the 1940 Act for its Class A, B and C shares that allow
the Fund to pay distribution and other fees for the sale and
distribution of its shares and for services provided to shareholders.
Because these fees are paid out of the Fund's assets on an on-going
basis, over time they will increase the cost of your investment and
may cost you more than paying other types of sales charges.
Class A Shares: Class A shares are sold at net asset value plus a
maximum sales charge of 5.75% (the "offering price"). The sales
charge may be reduced or eliminated if certain conditions are met
(see "Additional Purchase Information" below). Class A shares are
subject to a .25% Rule 12b-1 service fee.
Class B Shares: Class B shares are offered at net asset value,
without an initial sales charge, but subject to a contingent
deferred sales charge ("CDSC") that declines from 5% to zero on
certain redemptions within six years of purchase. Class B shares
are subject to a .75% Rule 12b-1 distribution fee and a .25% Rule
12b-1 service fee, and convert automatically into Class A shares
eight years after purchase.
Class C Shares: Class C shares are offered at net asset value,
without an initial sales charge, but subject to a CDSC of 1% for
redemptions within the first year of purchase. Class C shares are
subject to a .75% Rule 12b-1 distribution fee and a .25% Rule
12b-1 service fee.
Advisor Class Shares: Advisor Class shares are offered to certain
classes of investors at net asset value, without any sales load or
Rule 12b-1 fees.
The following table displays the various investment minimums, sales
charges and expenses that apply to each class.
<TABLE>
<S> <C> <C> <C> <C>
- -------------------- --------------------- --------------------- --------------------- -------------------
Class A Class B Class C Advisor Class
- -------------------- --------------------- --------------------- --------------------- -------------------
- -------------------- --------------------- --------------------- --------------------- -------------------
Minimum Initial $10,000
Investment* $1,000 $1,000 $1,000
- -------------------- --------------------- --------------------- --------------------- -------------------
- -------------------- --------------------- --------------------- --------------------- -------------------
Minimum Subsequent
Investment* $100 $100 $100 $ 250
- -------------------- --------------------- --------------------- --------------------- -------------------
- -------------------- --------------------- --------------------- --------------------- -------------------
Initial Sales Maximum 5.75%, with None None None
Charge options for a
reduced or waiver
of initial sales
charge
- -------------------- --------------------- --------------------- --------------------- -------------------
- -------------------- --------------------- --------------------- --------------------- -------------------
CDSC None, except on Maximum 5.00%, 1.00% for the first None
certain NAV declines over six year
purchases years
- -------------------- --------------------- --------------------- --------------------- -------------------
- -------------------- --------------------- --------------------- --------------------- -------------------
Service and 0.25% Service fee 0.75% Distribution 0.75% Distribution None
Distribution Fees Fee and 0.25% Fee and 0.25%
Service Fee Service Fee
- -------------------- --------------------- --------------------- --------------------- -------------------
</TABLE>
* Minimum initial and subsequent investments for retirement plans are
$25.
ADDITIONAL PURCHASE INFORMATION:
Class A Shares - Class A shares are sold at a public offering
price equal to their net asset value per share ("NAV") plus an
initial sales charge, as set forth below (which is reduced as the
amount invested increases):
<TABLE>
<S> <C> <C> <C>
- -------------------------------- ---------------------- ------------------ ----------------------
Sales Charge as a Sales Charge as Portion of Public
Percentage of Public a Percentage of Offering Price
Offering Price Net Amount Retained by Dealer
Amount Invested Invested
- -------------------------------- ---------------------- ------------------ ----------------------
- -------------------------------- ---------------------- ------------------ ----------------------
Less than $50,000 5.75% 6.10% 5.00%
- -------------------------------- ---------------------- ------------------ ----------------------
- -------------------------------- ---------------------- ------------------ ----------------------
$50,000 but less than $100,000 5.25% 5.54% 4.50%
- -------------------------------- ---------------------- ------------------ ----------------------
- -------------------------------- ---------------------- ------------------ ----------------------
$100,000 but less than $250,000 4.50% 4.71% 3.75%
- -------------------------------- ---------------------- ------------------ ----------------------
- -------------------------------- ---------------------- ------------------ ----------------------
$250, 000 but less than 3.00% 3.09% 2.50%
$500,000
- -------------------------------- ---------------------- ------------------ ----------------------
$500,000 or over* 0.00% 0.00% 0.00%
- -------------------------------- ---------------------- ------------------ ----------------------
</TABLE>
* A CDSC of 1.00% applies to Class A shares that are redeemed
within two years of the end of the month in which they were
purchased.
Class A shares that are acquired through reinvestment of dividends
or distributions are not subject to any sales charges.
HOW TO REDUCE YOUR INITIAL SALES CHARGE:
"Rights of Accumulation" permits you to pay the sales charge
that applies to the cost or value (whichever is higher) of all
Ivy Fund Class A shares you own.
A "Letter of Intent" permits you to pay the sales charge that
would apply to your cumulative purchase of Fund shares over a
13-month period (certain restrictions apply).
HOW TO ELIMINATE YOUR INITIAL SALES CHARGE:
You may purchase Class A shares at NAV (without an initial sales
charge or a CDSC) through any one of the following methods:
through certain investment advisors and financial planners
who charge a management, consulting or other fee for their
services;
under certain qualified retirement plans;
as an employee or director of Mackenzie Investment Management
Inc. or its affiliates;
as an employee of a selected dealer; or
through the Merrill Lynch Daily K Plan (the "Plan"), provided
the Plan has at least $3 million in assets or over 500 or more
eligible employees. Class B shares of the Fund are made
available to Plan participants at NAV without a CDSC if the
Plan has less than $3 million in assets or fewer than 500
eligible employees. For further information see "Group
Systematic Investment Program" in the SAI.
You may also purchase Class A shares at NAV if you are investing
at least $500,000 through a dealer or agent. Ivy Mackenzie
Distributors, Inc. ("IMDI"), the Fund's distributor, may pay the
dealer or agent (out of IMDI's own resources) for its distribution
assistance according to the following schedule:
------------------------------- -------------------------------
Purchase Amount Commission
------------------------------- -------------------------------
------------------------------- -------------------------------
First $3,000,000 1.00%
------------------------------- -------------------------------
------------------------------- -------------------------------
Next $2,000,000 0.50%
------------------------------- -------------------------------
------------------------------- -------------------------------
Over $5,000,000 0.25%
------------------------------- -------------------------------
Certain trust companies, bank trust departments, credit unions,
savings and loans and other similar organizations may also be
exempt from the initial sales charge on Class A shares.
Class B and Class C Shares - Class B and Class C shares are not
subject to an initial sales charge but are subject to a CDSC. If
you redeem your Class C shares within one year of purchase they
will be subject to a CDSC of 1%, and Class B shares redeemed
within six years of purchase will be subject to a CDSC at the
following rates:
--------------------- --------------------
CDSC as a
Percentage of
Year Since Purchase Dollar Amount
Subject to Charge
--------------------- --------------------
First 5%
--------------------- --------------------
--------------------- --------------------
Second 4%
--------------------- --------------------
--------------------- --------------------
Third 3%
--------------------- --------------------
--------------------- --------------------
Fourth 3%
--------------------- --------------------
--------------------- --------------------
Fifth 2%
--------------------- --------------------
--------------------- --------------------
Sixth 1%
--------------------- --------------------
--------------------- --------------------
Seventh and 0%
thereafter
--------------------- --------------------
The CDSC for both Class B and Class C shares will be assessed on
an amount equal to the lesser of the current market value or the
original purchase cost of the shares being redeemed. No charge
will be assessed on increases in account value above the original
purchase price or on reinvested dividends and distributions.
The CDSC for Class B shares is waived for:
Certain post-retirement withdrawals from an IRA or other
retirement plan if you are over 59 1/2 years old.
Redemptions by certain eligible 401(a) and 401(k) plans and
certain retirement plan rollovers.
Redemption resulting from a tax-free return of excess
contribution to an IRA.
Withdrawals resulting from shareholder death or disability
provided that the redemption is requested within one year of
death or disability.
Withdrawals through the Systematic Withdrawal Plan of up to
12% per year of your account value at the time the plan is
established.
Both Class B shares and Class C shares are subject to an ongoing
service and distribution fee at a combined annual rate of up to
1.00% of the portfolio's average net assets attributable to its
Class B or Class C shares. The ongoing distribution fees will
cause these shares to have a higher expense ratio than that of
Class A and Advisor Class shares. IMDI uses the money that it
receives from the deferred sales charge and the distribution fees
to cover various promotional and sales related expenses, as well
as expenses related to providing distributions services, such as
compensating selected dealers and agents for selling these shares.
Approximately eight years after the original date of purchase,
your Class B shares will be converted automatically to Class A
shares. Class A shares are subject to lower annual expenses than
Class B shares. The conversion from Class B shares to Class A
shares is not considered a taxable event for federal income tax
purposes. Class C shares do not have a similar conversion
privilege.
Advisor Class - Advisor Class shares are offered only to
institutions and certain individuals, and are not subject to an
initial sales charge or a CDSC, nor to ongoing service or
distribution fees.
SUBMITTING YOUR PURCHASE ORDER:
INITIAL INVESTMENTS:
Complete and sign the Account Application appearing at the end of this
Prospectus. Enclose a check payable to Ivy Fund (see page [XX] for
minimum initial investments.) Deliver your application materials to
your registered representative or selling broker, or send them to one
of the addresses below:
By Regular Mail: By Courier:
Ivy Mackenzie Services Corp. Ivy Mackenzie Services Corp.
P.O. Box 3022 700 South Federal Hwy.
Boca Raton, FL 33431-0922 Boca Raton, FL 33432
BUYING ADDITIONAL SHARES:
There are several ways to increase your investment in the Fund:
By Mail - Send your check with a completed investment slip
(attached to your account statement) or written instructions
indicating the account registration, fund number or name, and
account number.
Mail to one of the addresses above.
Through Your Broker - Deliver to your registered representative
or selling broker the investment slip attached to your statement,
or written instructions, along with your payment.
By Wire - Purchases may also be made by wiring money from your
bank account to your Ivy account. Your bank may charge a fee for
wiring funds. Before wiring any funds, please call IMSC at (800)
777-6472. Wiring instructions are as follows:
First Union National Bank of Florida
Jacksonville, FL
ABA #063000021 Account
#2090002063833 For further credit
to:
Your Ivy Fund Account Number
Your Fund Number and Account Number
By Automatic Investment Method - You can authorize to have funds
electronically drawn each month from your bank account and
invested as a purchase of shares into your Ivy Fund account.
Complete sections [XX] and [XX] of the Account Application.
HOW TO REDEEM SHARES:
SUBMITTING YOUR REDEMPTION ORDER:
You may redeem your Fund shares through your registered securities
dealer or directly through IMSC. If you choose to redeem through your
registered securities dealer, the dealer is responsible for properly
transmitting redemption orders in a timely manner. If you choose to
redeem directly through IMSC, you have several ways to submit your
request:
By Mail - Send your written redemption request to IMSC at one of
the addresses on page XX of this Prospectus. Be sure that all
registered owners listed on the account sign the request.
Signature guarantees and supporting legal documentation may be
required. When you redeem, IMSC will normally send redemption
proceeds to you on the next business day, but may take up to seven
days (or longer in the case of shares recently purchased by
check).
By Telephone - Call IMSC at (800) 777-6472 to redeem from your
account. In order to process your redemption order by telephone,
you must have telephone redemption privileges on your account.
IMSC employs reasonable procedures that require personal
identification prior to acting on redemption instructions
communicated by telephone to confirm that such instructions are
genuine. In the absence of such procedures, the Fund or IMSC may
be liable for any losses due to unauthorized or fraudulent
telephone instructions.
By Systematic Withdrawal Plan (SWP) - You can authorize to have
funds electronically drawn each month from your Ivy Fund account
and deposited directly into your bank account. Certain minimum
balances and minimum distributions apply. Complete sections XX of
the Account Application to add this feature to your account.
Receiving Your Redemption Proceeds - You can receive redemption
proceeds through a variety of payment methods:
By Check - Unless otherwise instructed, checks will be made
payable to the current account registration and sent to the
address of record.
By Federal Funds Wire - Proceeds will be wired on the next
business day to a pre-designated bank account. Requests by
telephone can only be accepted for amounts up to $50,000. Your
account will be charged $10 each time redemption proceeds are
wired to your bank, and your bank may also charge you a fee for
receiving a Federal Funds wire.
By Electronic Funds Transfer - For SWP redemptions only.
Important Redemption Information:
A CDSC may apply to certain Class A share redemptions, to Class B
shares redeemed within six years of purchase, and to Class C
shares that are redeemed within one year of purchase.
All redemptions are made at the NAV next determined after a
redemption request has been received in good order. Requests for
redemptions must be received by 4:00 p.m. Eastern time to be
processed at the NAV for that day. Any redemption request in good
order that is received after 4:00 p.m. Eastern time will be
processed at the price determined on the following business day.
If you own shares of more than one class of the Fund, the Fund
will redeem first the shares having the highest 12b-1 fees.
Any shares subject to a CDSC will be redeemed last unless you
specifically elect otherwise.
The Fund may (on 60 days' notice) redeem the accounts of
shareholders whose investment, including sales charges paid, has
been less than $1,000 for more than 12 months.
The Fund may take up to seven days (or longer in the case of
shares recently purchased by check) to send redemption proceeds.
The Fund may make payment for redeemed shares in the form of
securities of the Fund taken at current values.
HOW TO EXCHANGE YOUR FUND SHARES:
You may exchange your Fund shares for shares of another Ivy fund,
subject to certain restrictions (see "Important Exchange Information"
below).
Submitting Your Exchange Order - You may submit an exchange request to
IMSC as follows:
By Mail - Send your written exchange request to IMSC at one of
the addresses on page XX of this Prospectus. Be sure that all
registered owners listed on the account sign the request.
By Telephone - Call IMSC at (800) 777-6472 to authorize an
exchange transaction. In order to process your exchange order by
telephone, you must have telephone exchange privileges on your
account. IMSC employs reasonable procedures that require personal
identification prior to acting on exchange instructions
communicated by telephone to confirm that such instructions are
genuine. In the absence of such procedures, the Fund or IMSC may
be liable for any losses due to unauthorized or fraudulent
telephone instructions.
IMPORTANT EXCHANGE INFORMATION:
You must exchange into the same share class you currently own.
Exchanges are considered taxable events and may result in a
capital gain or a capital loss for tax purposes.
It is the policy of the Fund to discourage the use of the
exchange privilege for the purpose of timing short-term market
fluctuations. The Fund may therefore limit the frequency of
exchanges by a shareholder or cancel a shareholder's exchange
privilege if at any time it appears that such market timing
strategies are being used.
DIVIDENDS AND DISTRIBUTIONS:
The Fund generally declares and pays dividends and capital gain
distributions (if any) at least once a year.
Dividends and distributions are "reinvested" in additional Fund
shares unless you request to receive them in cash.
Reinvested dividends and distributions are added to your account
at NAV and are not subject to a CDSC regardless of which share
class you own.
Cash dividends and distributions can be sent to you:
BY MAIL - a check will mailed to the address of record unless
otherwise instructed.
BY ELECTRONIC FUNDS TRANSFER ("EFT") - your proceeds will be
directly deposited into your bank account.
To change your dividend and/or distribution options, call IMSC at
(800) 777-6472.
TAX CONSEQUENCES:
Distributions you receive from the Fund are reinvested in additional
shares of the same class of the Fund unless you elect to receive them
in cash. Dividends ordinarily will vary from one class to another.
The Fund intends to declare and pay dividends monthly. The Fund will
distribute net investment income and net realized capital gains, if
any, at least once a year. The Fund may make an additional distribution
of net investment income and net realized capital gains to comply with
the calendar year distribution requirement under the excise tax
provisions of Section 4982 of the Internal Revenue Code of 1986, as
amended (the "Code").
Dividends paid out of the Fund's investment company taxable income
(including dividends, interest and net short-term capital gains) will
be taxable to you as ordinary income. If a portion of the Fund's income
consists of dividends paid by U.S. corporations, a portion of the
dividends paid by the Fund may be eligible for the corporate
dividends-received deduction. Distributions of net capital gains (the
excess of net long-term capital gains over net short-term capital
losses), if any, are taxable to you as long-term capital gains,
regardless of how long you have held your shares. Dividends are taxable
to you in the same manner whether received in cash or reinvested in
additional Fund shares.
If shares of the Fund are held in a tax-deferred account, such as a
retirement plan, income and gain will not be taxable each year.
Instead, the taxable portion of amounts held in a tax-deferred account
generally will be subject to tax as ordinary income only when
distributed from that account.
A distribution will be treated as paid to you on December 31 of the
current calendar year if it is declared by the Fund in October,
November or December with a record date in such a month and paid by the
Fund during January of the following calendar year.
In certain years, you may be able to claim a credit or deduction on
your income tax return for your share of foreign taxes paid by the
Fund. Upon the sale or other disposition of your Fund shares, you may
realize a capital gain or loss which will be long-term or short-term,
generally depending upon how long you held your shares.
The Fund may be required to withhold U.S. Federal income tax at the
rate of 31% of all distributions payable to you if you fail to provide
the Fund with your correct taxpayer identification number or to make
required certifications, or if you have been notified by the Internal
Revenue Service ("IRS") that you are subject to backup withholding.
Backup withholding is not an additional tax. Any amounts withheld may
be credited against your U.S. Federal income tax liability.
Fund distributions may be subject to state, local and foreign taxes.
You should consult with your tax adviser as to the tax consequences of
an investment in the Fund, including the status of distributions from
the Fund under applicable state or local law.
<PAGE>
IVY GROWTH FUND
<TABLE>
<CAPTION>
CLASS A
- ------------------------------------------------------------------------------------------
1998 1997 1996 1995 1994
SELECTED PER SHARE DATA -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of
period............................ $ 17.76 $ 16.75 $ 13.91 $ 15.14
-------- -------- -------- --------
Income (loss) from investment
operations
Net investment income........... .02 .02(a) .05(a) .05(a)
Net realized and unrealized gain
(loss) on investment
transactions................... 1.98 2.86 3.73 (.49)
-------- -------- -------- --------
Total from investment
operations................... 2.00 2.88 3.78 (.44)
-------- -------- -------- --------
Less distributions
From net investment income...... .02 .02 .02 .05
In excess of net investment
income......................... .13 .11 -- --
From net realized gain.......... 1.81 1.74 .89 .74
In excess of net realized
gain........................... -- -- .03 --
From capital paid-in............ -- -- -- --
-------- -------- -------- --------
Total distributions............ 1.96 1.87 .94 .79
-------- -------- -------- --------
Net asset value, end of period..... $ 17.80 $ 17.76 $ 16.75 $ 13.91
======== ======== ======== ========
Total return(%).................... 11.69 17.22 27.33 (2.97)
RATIOS AND SUPPLEMENTAL DATA
Net assets, end of period (in
thousands)........................ $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 1.45 1.60 1.49
Ratio of net investment income to
average net assets(%)............. .13 .13(a) .32(a) .32(a)
Portfolio turnover rate(%)......... 39 72 41 39
Average commission rate............ $ .0480 $ .0439 N/A N/A
</TABLE>
<TABLE>
<CAPTION>
CLASS B
- ------------------------------------
1998 1997 1996 1995 1994
SELECTED PER SHARE DATA --------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of period.............. $ 17.69 $16.75 $13.91 $15.14
-------- -------- -------- --------
Income (loss) from investment operations
Net investment loss............................ (.14) (.13)(a) (.08)(a) (.04)(a)
Net realized and unrealized gain (loss)
on investment transactions..................... 1.96 2.81 3.71 (.54)
-------- -------- -------- --------
Total from investment operations.............. 1.82 2.68 3.63 (.58)
-------- -------- -------- --------
Less distributions
From net investment income..................... -- -- -- --
In excess of net investment income............. .07 -- -- --
From net realized gain......................... 1.72 1.74 .73 .52
In excess of net realized gain................. -- -- .06 .13
-------- -------- -------- --------
Total distributions........................... 1.79 1.74 .79 .65
-------- -------- -------- --------
Net asset value, end of period.................... $ 17.72 $ 17.69 $ 16.75 $ 13.91
======== ======== ======== ========
Total return(%)................................... 10.69 16.02 26.13 (3.90)
RATIOS AND SUPPLEMENTAL DATA
Net assets, end of period (in thousands).......... $ 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(%)................. 2.30 2.37 2.56 2.45
Ratio of net investment loss to average net assets(%) (.79) (.79)(a) (.64)(a) (.64)(a)
Portfolio turnover rate(%)........................ 39 72 41 39
Average commission rate........................... $ .0480 $.0439 N/A N/A
</TABLE>
<TABLE>
<CAPTION>
ADVISOR
CLASS C CLASS
------------------------------------ --------
1998 1997 1996(C) 1998
SELECTED PER SHARE DATA ------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of period.................................... $17.59 $18.46
-------- --------
Income (loss) from investment operations
Net investment loss.................................................. (.07) (.06)(a)
Net realized and unrealized gain (loss) on investment transactions... 1.86 1.02
-------- --------
Total from investment operations.................................... 1.79 .96
-------- --------
Less distributions
From net investment income........................................... -- --
In excess of net investment income................................... .13 .09
From net realized gain............................................... 1.78 1.74
In excess of net realized gain....................................... -- --
-------- --------
Total distributions................................................. 1.91 1.83
-------- --------
Net asset value, end of period.......................................... $17.47 $ 17.59
======== ========
Total return(%)......................................................... 10.58 5.20
RATIOS AND SUPPLEMENTAL DATA
Net assets, end of period (in thousands)................................ $400 $ 90
Ratio of expenses to average net assets
With expense reimbursement(%).......................................... -- 2.44
Without expense reimbursement(%)....................................... 2.33 2.44
Ratio of net investment loss to average net assets(%)................... (.82) (.86)(a)
Portfolio turnover rate(%).............................................. 39 72
Average commission rate................................................. $.0480 $ .0439
</TABLE>
---------------
<TABLE>
<S> <C>
(a) Net investment income (loss) is net of expenses reimbursed
by manager.
(b) From October 23, 1993 (commencement of operations) to
December 31, 1993.
(c) From April 30, 1996 (commencement of operations) to December
31, 1996.
(d) The portfolio turnover rate excludes sales of portfolio
securities made following the February 1, 1993
reorganization between the Fund and American Investors
Growth Fund, Inc. to realign the Fund's portfolio and
reflects an adjustment to the monthly average value of the
portfolio securities owned by the Fund during the year ended
December 31, 1993.
</TABLE>
<PAGE>
ACCOUNT APPLICATION
Please mail applications and checks to: Ivy Mackenzie Services Corp.,
P.O. Box 3022, Boca Raton, FL
33431-0922.
(This application should not be used for retirement accounts for which
Ivy Fund is custodian.)
Account Number:
(Fund Use Only)
Dealer #:
Branch #:
Rep. I.D. #:
Acct. Type:
Soc Cd:
Div Cd:
CG Cd:
Exc Cd:
Red Cd:
1. REGISTRATION
/ / Individual / / Joint Tenant / / Estate / / UGMA/UTMA / /
Corporation / / Partnership / / Sole Proprietor / / Trust / / Other
Date of Trust
Owner, Custodian or Trustee
Co-owner or Minor
Minor's State of Residence
Street
City
State
Zip Code
Phone Number -- Day
Phone Number -- Evening
2. TAX ID
Citizenship: / / U.S. / / Other ________________
Social Security Number
Tax Identification Number
Under penalties of perjury, I certify by signing in Section 8 below
that: (1) the number shown in this section is my correct taxpayer
identification number (TIN), and (2) I am not subject to backup
withholding because: (a) I have not been notified by the Internal
Revenue Service (IRS) that I am subject to backup withholding as a
result of a failure to report all interest or dividends, or (b) the IRS
has notified me that I am no longer subject to backup withholding.
(Cross out item (2) if you have been notified by the IRS that you are
currently subject to backup withholding because of underreporting
interest or dividends on your tax return.) Please see the "Tax
Consequences" section of the Prospectus for additional information on
completing this section.
3. DEALER INFORMATION
The undersigned ("Dealer") agrees to all applicable provisions in this
Application, guarantees the signature and legal capacity of the
Shareholder, and agrees to notify IMSC of any purchases made under a
Letter of Intent or Rights of Accumulation.
Dealer Name
Branch Office Address
City
State
Zip Code
Representative's Name and Number
Representative's Phone Number
Authorized Signature of Dealer
4. INVESTMENTS
A. Enclosed is my check ($1,000 minimum) for $_____________ made
payable to ________________ [Fund Name]. Please invest it in
Class A __ Class B __ Class C __ or Advisor Class __ shares.
B. I qualify for an elimination of the sales charge due to the
following privilege (applies only to Class A shares):
__ New Letter of Intent (if ROA or 90-day backdate
privilege is applicable, provide account(s)
information below.)
__ ROA with the account(s) listed below.
__ Existing Letter of Intent with account(s) listed
below.
Fund Name(s)
Account Number(s)
If establishing a Letter of Intent, you will need to purchase
Class A shares over a thirteen-month period in accordance with
the provisions in the Prospectus. The Aggregate amount of
these purchases will be at least equal to the amount indicated
below (see Prospectus for minimum amount required for reduced
sales charges).
/ / $50,000
/ / $100,000
/ / $250,000
/ / $500,000
C. FOR DEALER USE
Confirmed trade orders: [Confirm Number, Number of Shares,
Trade Date]
5. DISTRIBUTION OPTIONS
I would like to reinvest dividends and capital gains into additional
shares in this account at net asset value unless a different option is
checked below.
/ / Reinvest all dividends and capital gains into additional
shares of a different Ivy fund.
Fund Name
Account Number
/ / Pay all dividends in cash and reinvest capital gains into
additional shares in this Fund or a
different Ivy fund.
Fund Name
Account Number
/ / Pay all dividends and capital gains in cash.
I REQUEST THE ABOVE CASH DISTRIBUTION, SELECTED IN C OR D
ABOVE, BE:
/ / Sent to the address listed in the registration.
/ / Sent to the special payee listed in Section 7A
/ / (By Mail) 7B
/ / (By E.F.T.)
6. OPTIONAL SPECIAL FEATURES
A. / / Automatic Investment Method (AIM)
- - I wish to invest _________________ / / once per month / /
twice / / 3 times / / 4 times
- - My bank account will be debited on the _________ day of the month
Please invest $___________________ each period starting in the month
of __________________ in
---------------------------.
Fund Name
/ / Class A
/ / Class B
/ / Class C
/ / Advisor Class
/ / I have attached a voided check to ensure my correct bank
account will be debited.
B. SYSTEMATIC WITHDRAWAL PLANS**
I wish to automatically withdraw funds from my account in
_________________[Fund name].
/ / Monthly / / Quarterly / /Semiannually / / Annually
/ / Once / / Twice / / 3 times / / 4 times per month
I request the distribution be:
/ / Sent to the address listed in the registration.
/ / Sent to the special payee listed in Section 7.
/ / Invested into additional shares of the same class of a different Ivy
fund.
Fund Name
Account Number
Amount $__________________(Minimum $50) starting on or about the
- -_______ day of the month
- -_______ day of the month
- -_______ day of the month*
NOTE: Account minimum: $5,000 in shares at current offering price
C. FEDERAL FUNDS TRANSFER FOR REDEMPTION PROCEEDS**
I authorize the Agent to honor telephone instructions for the
redemption of Fund shares up to $50,000. Proceeds may be wire
transferred to the bank account designated ($1,000 minimum).
(Complete Section 7B)
TELEPHONE EXCHANGES** / / YES / / NO
I authorize exchanges by telephone among the Ivy funds upon
instructions from any person as more fully described in the
Prospectus. To change this option once established, written
instructions must be received from the shareholder of record
or the current registered representative.
If neither box is checked, the telephone exchange privilege
will be provided automatically.
TELEPHONIC REDEMPTIONS** / / YES / / NO
The Fund or its agents are authorized to honor telephone
instructions from any person as more fully described in the
Prospectus for the redemption of Fund shares. The amount of
the redemption shall not exceed $50,000 and the proceeds are
to be payable to the shareholder of record and mailed to the
address of record. To change this option once established,
written instructions must be received from the shareholder of
record or the current registered representative.
If neither box is checked, the telephone redemption privilege
will be provided automatically.
* There must be a period of at least seven calendar
days between each
investment/withdrawal period.
** This option may not be used if shares are issued in
certificate form.
7. SPECIAL PAYEE
A. MAILING ADDRESS
Please send all disbursements to this special payee:
Name of Bank or Individual
Account Number (If Applicable)
Street
City/State/Zip
B. FED WIRE / E.F.T. INFORMATION
Financial Institution
ABA #
Account #
Street
City/State/Zip
(Please attach a voided check)
8. SIGNATURES
Investors should be aware that the failure to check the "No" under
Section 6D or 6E above means that the Telephone Exchange/Redemption
Privileges will be provided. The Fund employs reasonable procedures
that require personal identification prior to acting on
exchange/redemption instructions communicated by telephone to confirm
that such instructions are genuine. In the absence of such procedures,
the Fund may be liable for any losses due to unauthorized or fraudulent
telephone instructions. Please see "How to Exchange Your Fund Shares"
and "How to Redeem Your Fund Shares" in the Prospectus for more
information on these privileges.
I certify to my legal capacity to purchase or redeem shares of the Fund
for my own account or for the account of the organization named in
Section 1. I have received a current Prospectus and understand its
terms are incorporated in this application by reference. I am
certifying my taxpayer information as stated in Section 2.
THE INTERNAL REVENUE SERVICE DOES NOT REQUIRE YOUR CONSENT TO ANY
PROVISION OF THIS DOCUMENT OTHER THAN THE CERTIFICATIONS REQUIRED TO
AVOID BACKUP WITHHOLDING.
------------------------------
Signature of Owner, Custodian, Date
Trustee or Corporate Officer
------------------------------
Signature of Joint Owner, Date
Co-Trustee or Corporate Officer
(Remember to sign Section 8)
<PAGE>
[Back Cover Page]
HOW TO RECEIVE MORE INFORMATION ABOUT THE FUND
Additional information about the Fund and its investments is contained in the
Fund's Statement of Additional Information dated April ___, 1999 (the "SAI"),
which is incorporated by reference into this Prospectus, and the Fund's annual
and semi-annual reports to shareholders. The Fund's annual report includes a
discussion of the market conditions and investment strategies that significantly
affected the Fund's performance during its most recent fiscal year. The SAI and
the Fund's annual and semi-annual reports are available upon request and without
charge from the Distributor at the following address and phone number:
Ivy Mackenzie Distributors, Inc.
Via Mizner Financial Plaza
700 South Federal Highway
Boca Raton, Florida 33432
(800) 456-5111
Information about the Fund (including the SAI and the Fund's annual and
semi-annual reports) may also be reviewed and copied at the SEC's Public
Reference Room in Washington, D.C. (please call 1-800-SEC-0330 for further
details). Information about the Fund is also available on the SEC's Internet
Website (www.sec.gov), and copies of this information may be obtained, upon
payment of a copying fee, by writing the Public Reference Section of the SEC,
Washington, D.C. 20549-6009.
SHAREHOLDER INQUIRIES
Please call Ivy Mackenzie Services Corp., the Fund's transfer agent, at
1-800-777-6472 regarding any other inquiries about the Fund.
Investment Company Act File No. 811-1028
<PAGE>
[Front Cover Page]
PROSPECTUS April ___, 1999
IVY FUND - Ivy Growth with Income Fund
Ivy Fund (the "Trust") is a registered open-end investment company currently
consisting of nineteen separate portfolios. This Prospectus relates to the Class
A, Class B, Class C and Advisor Class shares of Ivy Growth with Income Fund (the
"Fund"). No other shares are offered in this Prospectus.
The Securities and Exchange Commission has not approved or disapproved these
securities or passed upon the adequacy of this Prospectus. Any representation to
the contrary is a criminal offense.
[Insert all logos]
<PAGE>
TABLE OF CONTENTS
SUMMARY
ADDITIONAL INFORMATION ABOUT INVESTMENT STRATEGIES AND RISKS
MANAGEMENT
THE FUND IS MANAGED BY IMI'S DOMESTIC EQUITY TEAM
SHAREHOLDER INFORMATION
ACCOUNT APPLICATION
HOW TO RECEIVE MORE INFORMATION ABOUT THE FUND
SHAREHOLDER INQUIRIES
<PAGE>
SUMMARY
Investment The Fund seeks long-term growth primarily through investment
objective: in equity securities, with current income being a secondary
consideration.
Principal The Fund normally invests almost exclusively in U.S. equity
investment securities, a number of which pay dividends. Among the
strategies: chief characteristics that the Fund's manager seeks in
selecting securities are:
stock prices that appear low relative to the company's
expected profitability;
financial security with capitalizations over $100 million;
and more than three years of operating history.
Principal The main risk to which the Fund is exposed in
risks: carrying out its investment strategy is market risk. Common
stocks represent a proportionate ownership interest in a
company. As a result, the value of common stock rises and
falls with a company's success or failure. The market value
of common stock can fluctuate significantly, so you could
lose money if you redeem your Fund shares at a time when the
Fund's stock portfolio is not performing as well as
expected.
Who should invest:* The Fund may be appropriate for investors seeking a
combination of long-term growth potential and moderate current income.
* You should consult with your financial advisor before deciding whether
the Fund is an appropriate investment choice in light of your
particular financial needs and risk tolerance.
<PAGE>
Performance Bar Chart and Table:
The information in the following chart and table provides some
indication of the risks of investing in the Fund by showing changes in
the Fund's performance from year to year and how the Fund's average
annual returns since its inception on April 1, 1984 compare with those
of a broad measure of market performance. The Fund's past performance
is not an indication of how the Fund will perform in the future.
Annual Total Returns for Class A Shares as of December 31, 1998: *
- -------------------------------------------------------------------
1989# 1990 1991 1992 1993 1994 1995 1996 1997 1998
* Any applicable sales charges and account fees are not
reflected, and if they were the returns shown above would be
lower. The returns for the Fund's other three classes of
shares during these periods were different from those of Class
A because of variations in their respective expense
structures.
# Grantham, Mayo Van Otterloo & Co. was subadviser to the Fund
from April 1, 1984 through June 30, 1989.
Best quarter: ______% (Q__ 199__)
Worst quarter: ______% (Q__ 199__)
Average Annual Total Returns (for the periods ending December 31, 1998):*
Past year: Past 5 years: Past 10 years: Since inception:**
--------- ------------ ------------- ---------------
Class A: ______% ______% ______% ______%
Class B: ______% ______% N/A ______%
Class C: ______% N/A N/A ______%
Advisor Class: ______% N/A N/A ______%
[Index]: ______% N/A N/A ______%
* Performance figures reflect any applicable sales charges.
** The inception dates for the Fund's four classes of shares were
as follows: Class A, April 1, 1984; Class B, October 23, 1993;
Class C, April 30, 1996; and Advisor Class, January 1, 1998.
<PAGE>
Fees and Expenses:
The following tables describe the fees and expenses that you may pay if
you buy and hold shares of the Fund:
Shareholder Fees (fees paid directly from your investment):
Maximum Sales Charge (Load) Imposed on Maximum Deferred Sales
Purchases (as a percentage of Charge (Load) (as a
offering price): percentage of original
purchase price):
Class A: 5.75% none
Class B: none 5.00%
Class C: none 1.00%
Advisor Class: none none
Annual Fund Operating Expenses (expenses that are deducted from Fund
assets):
Distribution and/or Total Annual Fund
Management Service (12b-1) Other Operating Expenses:
Fees: Fees: Expenses:
Class A: 0.75% .25% $_______ $_______
Class B: 0.75% 1.00% $_______ $_______
Class C: 0.75% 1.00% $_______ $_______
Advisor 0.75% none $_______ $_______
Class:
Example:
The following example is intended to help you compare the cost of
investing in the Fund with the cost of investing in other mutual funds.
The example assumes that you invest $10,000 in the Fund for the time
periods indicated and then redeem all of your shares at the end of
those periods (with additional information shown for Class B and Class
C shares based on the assumption that you do not redeem your shares at
that time). The example also assumes that your investment has a 5%
return each year and that the Fund's operating expenses remain the
same. Although your actual costs may be higher or lower, based on these
assumptions your costs would be as follows:
1 Year: 3 Years: 5 Years: 10 Years:
------ ------- ------- --------
Class A: $______ $______ $______ $______
Class B: $______ $______ $______ $______
Class B (no redemption): $______ $______ $______ $______
Class C: $______ $______ $______ $______
Class C (no redemption): $______ $______ $______ $______
Advisor Class: $______ $______ $______ $______
<PAGE>
ADDITIONAL INFORMATION ABOUT INVESTMENT STRATEGIES AND RISKS
Principal strategies:
The Fund seeks to achieve its principal objective of long-term capital
growth by investing in the common stock of domestic corporations.
Companies targeted for investment typically have stock prices that
appear low relative to the their expected profitability, rising
earnings, a minimum three year operating history and capitalizations
over $100 million.
Principal risks:
General market risk: As with any mutual fund, the value of the Fund's
investments and the income they generate will vary daily and generally
reflect market conditions, interest rates and other issuer-specific,
political or economic developments. The Fund's share value will
decrease at any time during which its security holdings or other
investment techniques are not performing as well as anticipated, and
you could therefore lose money by investing in the Fund depending upon
the timing of your initial purchase and any subsequent redemption.
Other risks: Since the Fund invests heavily in the equity securities of
U.S. corporations, it is more susceptible to the risks associated with
these types of securities than a fund that is more diversified.
Following is a description of these risks, along with the risks
commonly associated with the other securities and investment techniques
that the Fund's portfolio manager considers important in achieving the
Fund's investment objective or in managing the Fund's exposure to risk
(and that could therefore have a significant effect on the Fund's
returns). Other investment techniques that the Fund may use, but that
do not play a key role in the Fund's overall investment strategy, are
described in the Fund's Statement of Additional Information (see back
cover page for information on how you can receive a free copy).
Common Stocks: Common stocks represent a proportionate ownership
interest in a company. As a result, the value of common stock
rises and falls with a company's success or failure. The market
value of common stock can fluctuate significantly. Securities of
smaller companies may be subject to more abrupt or erratic market
movements than the securities of larger more established
companies, since small company stocks tend to be thinly traded and
the companies are subject to greater business risk. Transaction
costs in smaller company stocks may also be higher than those of
larger companies.
Temporary Defensive Positions: The Fund may from time to time
take a temporary defensive position and invest without limit in
U.S. Government securities, investment-grade debt securities, and
cash and cash equivalents such as commercial paper, short-term
notes and other money market securities. When the Fund assumes
such a defensive position it may not achieve its investment
objective. Investing in debt securities also involves both
interest rate and credit risk. Generally, the value of debt
instruments rises and falls inversely with fluctuations in
interest rates. For example, as interest rates decline the value
of debt securities generally increases. Conversely, rising
interest rates tend to cause the value of debt securities to
decrease. The market value of debt securities also tends to vary
according to the relative financial condition of the issuer. Bonds
with longer maturities tend to be more volatile than bonds with
shorter maturities.
Borrowing: For temporary purposes, the Fund may borrow up to 10%
of the value of its total assets from qualified banks. Borrowing
may exaggerate the effect on the Fund's share value of any
increase or decrease in the value of the securities it holds.
Money borrowed will also be subject to interest costs.
Other Important Information:
Year 2000 Risks: Many computer software and hardware systems in use
today cannot distinguish between the year 2000 and the year 1900
because of the way dates are encoded and calculated (the "Year 2000
Problem"). The inability of computer-based systems to make this
distinction could have a seriously adverse effect on the handling of
securities trades, pricing and account services worldwide. The Fund's
service providers are taking steps that each believes are reasonably
designed to address the Year 2000 Problem with respect to the computer
systems that they use. The Fund believes these steps will be sufficient
to avoid any material adverse impact on the Fund. At this time,
however, there can be no assurance that significant problems will not
occur (which either directly or indirectly may cause the Fund to lose
money).
MANAGEMENT
Investment Advisor:
Ivy Management, Inc. ("IMI"), located at Via Mizner Financial Plaza,
700 South Federal Highway, Boca Raton, Florida 33432, provides
investment advisory and business management services to the Fund. IMI
is an SEC-registered investment advisor with over $____ billion in
assets under management, and provides similar services to the other
eighteen series of the Trust. For the Fund's fiscal year ending
December 31, 1998, the Fund paid to IMI a fee equal to ___% of the
Fund's average net assets.
Portfolio Management:
The Fund is managed by IMI's Domestic Equity Team, which is comprised
of portfolio managers and analysts who conduct in-depth research and
analysis to support the investment decisionmaking process.
<PAGE>
SHAREHOLDER INFORMATION
PRICING OF FUND SHARES:
The Fund calculates its share price by dividing the value of the Fund's
net assets by the total number of its shares outstanding as of the
close of regular trading (usually 4:00 p.m. Eastern time) on the New
York Stock Exchange on each day the Exchange is open for trading
(normally any weekday that is not a national holiday).
Each portfolio security that is listed or traded on a recognized stock
exchange is valued at the security's last sale price on the exchange
on which it was purchased. If no sale is reported at that time, the
average between the last bid and asked prices is used. Securities and
other Fund assets for which market prices are not readily available
are priced at their "fair value" as determined by IMI in accordance
with procedures approved by the Fund's Board of Trustees. IMI may also
price a foreign security at its "fair value" if events materially
affecting the value of the security occur between the close of the
foreign exchange on which the security is principally traded and the
time as of which the Fund prices its shares. Fair value pricing under
these circumstances is designed to protect existing shareholders from
dilution of their share value caused by short-term investors trading
into and out of the Fund at at time when the Fund's share price,
calculated by ordinary pricing methods, is undervalued. When such fair
value pricing occurs, however, there may be some period of time during
which the Fund's share price and/or performance information is not
available.
The number of shares you receive when you place a purchase order, and
the payment you receive after submitting a redemption request, is based
on the Fund's net asset value next determined after your instructions
are received in proper form by Ivy Mackenzie Services Corp. (the Fund's
transfer agent) or by your registered securities dealer. Each purchase
and redemption order is subject to any applicable sales charge (see
"Distribution Arrangements" below). Since the Fund may invest in
securities that are listed on foreign exchanges that may trade on
weekends or other days when the Fund does not price its shares, the
Fund's share value may change on days when shareholders will not be
able to purchase or redeem the Fund's shares.
HOW TO BUY SHARES:
Purchasing Fund shares involves "Choosing the Appropriate Class of
Shares" and "Submitting Your Purchase Order". Please read these
sections below carefully before investing.
Choosing the Appropriate Class of Shares - The essential features of
the Fund's different classes of shares are described below. If you do
not specify on your Account Application which class of shares you are
purchasing, it will be assumed that you are purchasing Class A shares.
The Fund has adopted separate distribution plans pursuant to Rule
12b-1 under the 1940 Act for its Class A, B and C shares that allow
the Fund to pay distribution and other fees for the sale and
distribution of its shares and for services provided to shareholders.
Because these fees are paid out of the Fund's assets on an on-going
basis, over time they will increase the cost of your investment and
may cost you more than paying other types of sales charges.
Class A Shares: Class A shares are sold at net asset value plus a
maximum sales charge of 5.75% (the "offering price"). The sales
charge may be reduced or eliminated if certain conditions are met
(see "Additional Purchase Information" below). Class A shares are
subject to a .25% Rule 12b-1 service fee.
Class B Shares: Class B shares are offered at net asset value,
without an initial sales charge, but subject to a contingent
deferred sales charge ("CDSC") that declines from 5% to zero on
certain redemptions within six years of purchase. Class B shares
are subject to a .75% Rule 12b-1 distribution fee and a .25% Rule
12b-1 service fee, and convert automatically into Class A shares 8
years after purchase.
Class C Shares: Class C shares are offered at net asset value,
without an initial sales charge, but subject to a CDSC of 1% for
redemptions within the first year of purchase. Class C shares are
subject to a .75% Rule 12b-1 distribution fee and a .25% Rule
12b-1 service fee.
Advisor Class Shares: Advisor Class shares are offered to certain
classes of investors at net asset value, without any sales load or
Rule 12b-1 fees.
The following table displays the various investment minimums, sales
charges and expenses that apply to each class.
<TABLE>
<S> <C> <C> <C> <C>
-------------------- --------------------- --------------------- --------------------- -------------------
Class A Class B Class C Advisor Class
-------------------- --------------------- --------------------- --------------------- -------------------
-------------------- --------------------- --------------------- --------------------- -------------------
Minimum Initial $10,000
Investment* $1,000 $1,000 $1,000
-------------------- --------------------- --------------------- --------------------- -------------------
-------------------- --------------------- --------------------- --------------------- -------------------
Minimum Subsequent
Investment* $100 $100 $100 $ 250
-------------------- --------------------- --------------------- --------------------- -------------------
-------------------- --------------------- --------------------- --------------------- -------------------
Initial Sales Maximum 5.75%, with None None None
Charge options for a
reduced or waiver
of initial sales
charge
-------------------- --------------------- --------------------- --------------------- -------------------
-------------------- --------------------- --------------------- --------------------- -------------------
CDSC None, except on Maximum 5.00%, 1.00% for the first None
certain NAV declines over six year
purchases years
-------------------- --------------------- --------------------- --------------------- -------------------
-------------------- --------------------- --------------------- --------------------- -------------------
Service and 0.25% Service fee 0.75% Distribution 0.75% Distribution None
Distribution Fees Fee and 0.25% Fee and 0.25%
Service Fee Service Fee
-------------------- --------------------- --------------------- --------------------- -------------------
</TABLE>
* Minimum initial and subsequent investments for retirement plans are
$25.
ADDITIONAL PURCHASE INFORMATION:
Class A Shares - Class A shares are sold at a public offering
price equal to their net asset value per share ("NAV") plus an
initial sales charge, as set forth below (which is reduced as the
amount invested increases):
<TABLE>
<S> <C> <C> <C>
- -------------------------------- ---------------------- ------------------ ----------------------
Sales Charge as a Sales Charge as Portion of Public
Percentage of Public a Percentage of Offering Price
Offering Price Net Amount Retained by Dealer
Amount Invested Invested
- -------------------------------- ---------------------- ------------------ ----------------------
- -------------------------------- ---------------------- ------------------ ----------------------
Less than $50,000 5.75% 6.10% 5.00%
- -------------------------------- ---------------------- ------------------ ----------------------
- -------------------------------- ---------------------- ------------------ ----------------------
$50,000 but less than $100,000 5.25% 5.54% 4.50%
- -------------------------------- ---------------------- ------------------ ----------------------
- -------------------------------- ---------------------- ------------------ ----------------------
$100,000 but less than $250,000 4.50% 4.71% 3.75%
- -------------------------------- ---------------------- ------------------ ----------------------
- -------------------------------- ---------------------- ------------------ ----------------------
$250, 000 but less than 3.00% 3.09% 2.50%
$500,000
- -------------------------------- ---------------------- ------------------ ----------------------
$500,000 or over* 0.00% 0.00% 0.00%
- -------------------------------- ---------------------- ------------------ ----------------------
</TABLE>
* A CDSC of 1.00% applies to Class A shares that are redeemed
within two years of the end of the month in which they were
purchased.
Class A shares that are acquired through reinvestment of dividends
or distributions are not subject to any sales charges.
HOW TO REDUCE YOUR INITIAL SALES CHARGE:
"Rights of Accumulation" permits you to pay the sales charge
that applies to the cost or value (whichever is higher) of all
Ivy Fund Class A shares you own.
A "Letter of Intent" permits you to pay the sales charge that
would apply to your cumulative purchase of Fund shares over a
13-month period (certain restrictions apply).
HOW TO ELIMINATE YOUR INITIAL SALES CHARGE:
You may purchase Class A shares at NAV (without an initial sales
charge or a CDSC) through any one of the following methods:
through certain investment advisors and financial planners
who charge a management, consulting
or other fee for their services;
under certain qualified retirement plans;
as an employee or director of Mackenzie Investment Management
Inc. or its affiliates;
as an employee of a selected dealer; or
through the Merrill Lynch Daily K Plan (the "Plan"), provided
the Plan has at least $3 million in assets or over 500 or more
eligible employees. Class B shares of the Fund are made
available to Plan participants at NAV without a CDSC if the
Plan has less than $3 million in assets or fewer than 500
eligible employees. For further information see "Group
Systematic Investment Program" in the SAI.
You may also purchase Class A shares at NAV if you are investing
at least $500,000 through a dealer or agent. Ivy Mackenzie
Distributors, Inc. ("IMDI"), the Fund's distributor, may pay the
dealer or agent (out of IMDI's own resources) for its distribution
assistance according to the following schedule:
------------------------------- -------------------------------
Purchase Amount Commission
------------------------------- -------------------------------
------------------------------- -------------------------------
First $3,000,000 1.00%
------------------------------- -------------------------------
------------------------------- -------------------------------
Next $2,000,000 0.50%
------------------------------- -------------------------------
------------------------------- -------------------------------
Over $5,000,000 0.25%
------------------------------- -------------------------------
Certain trust companies, bank trust departments, credit unions,
savings and loans and other similar organizations may also be
exempt from the initial sales charge on Class A shares.
Class B and Class C Shares - Class B and Class C shares are not
subject to an initial sales charge but are subject to a CDSC. If
you redeem your Class C shares within one year of purchase they
will be subject to a CDSC of 1%, and Class B shares redeemed
within six years of purchase will be subject to a CDSC at the
following rates:
--------------------- --------------------
CDSC as a
Percentage of
Year Since Purchase Dollar Amount
Subject to Charge
--------------------- --------------------
First 5%
--------------------- --------------------
--------------------- --------------------
Second 4%
--------------------- --------------------
--------------------- --------------------
Third 3%
--------------------- --------------------
--------------------- --------------------
Fourth 3%
--------------------- --------------------
--------------------- --------------------
Fifth 2%
--------------------- --------------------
--------------------- --------------------
Sixth 1%
--------------------- --------------------
--------------------- --------------------
Seventh and 0%
thereafter
--------------------- --------------------
The CDSC for both Class B and Class C shares will be assessed on
an amount equal to the lesser of the current market value or the
original purchase cost of the shares being redeemed. No charge
will be assessed on increases in account value above the original
purchase price or on reinvested dividends and distributions.
The CDSC for Class B shares is waived for:
Certain post-retirement withdrawals from an IRA or other
retirement plan if you are over 59 1/2 years old.
Redemptions by certain eligible 401(a) and 401(k) plans and
certain retirement plan rollovers.
Redemption resulting from a tax-free return of excess
contribution to an IRA.
Withdrawals resulting from shareholder death or disability
provided that the redemption is requested within one year of
death or disability.
Withdrawals through the Systematic Withdrawal Plan of up to
12% per year of your account value at the time the plan is
established.
Both Class B shares and Class C shares are subject to an ongoing
service and distribution fee at a combined annual rate of up to
1.00% of the portfolio's average net assets attributable to its
Class B or Class C shares. The ongoing distribution fees will
cause these shares to have a higher expense ratio than that of
Class A and Advisor Class shares. IMDI uses the money that it
receives from the deferred sales charge and the distribution fees
to cover various promotional and sales related expenses, as well
as expenses related to providing distributions services, such as
compensating selected dealers and agents for selling these shares.
Approximately eight years after the original date of purchase,
your Class B shares will be converted automatically to Class A
shares. Class A shares are subject to lower annual expenses than
Class B shares. The conversion from Class B shares to Class A
shares is not considered a taxable event for federal income tax
purposes. Class C shares do not have a similar conversion
privilege.
Advisor Class - Advisor Class shares are offered only to
institutions and certain individuals, and are not subject to an
initial sales charge or a CDSC, nor to ongoing service or
distribution fees.
SUBMITTING YOUR PURCHASE ORDER:
INITIAL INVESTMENTS:
Complete and sign the Account Application appearing at the end of this
Prospectus. Enclose a check payable to Ivy Fund (see page [XX] for
minimum initial investments.) Deliver your application materials to
your registered representative or selling broker, or send them to one
of the addresses below:
By Regular Mail: By Courier:
Ivy Mackenzie Services Corp. Ivy Mackenzie Services Corp.
P.O. Box 3022 700 South Federal Hwy.
Boca Raton, FL 33431-0922 Boca Raton, FL 33432
BUYING ADDITIONAL SHARES:
There are several ways to increase your investment in the Fund:
By Mail - Send your check with a completed investment slip
(attached to your account statement) or written instructions
indicating the account registration, fund number or name, and
account number.
Mail to one of the addresses above.
Through Your Broker - Deliver to your registered representative
or selling broker the investment slip attached to your statement,
or written instructions, along with your payment.
By Wire - Purchases may also be made by wiring money from your
bank account to your Ivy account. Your bank may charge a fee for
wiring funds. Before wiring any funds, please call IMSC at (800)
777-6472. Wiring instructions are as follows:
First Union National Bank of Florida
Jacksonville, FL
ABA #063000021 Account
#2090002063833 For further credit
to:
Your Ivy Fund Account Number
Your Fund Number and Account Number
By Automatic Investment Method - You can authorize to have funds
electronically drawn each month from your bank account and
invested as a purchase of shares into your Ivy Fund account.
Complete sections [XX] and [XX] of the Account Application.
HOW TO REDEEM SHARES:
SUBMITTING YOUR REDEMPTION ORDER:
You may redeem your Fund shares through your registered securities
dealer or directly through IMSC. If you choose to redeem through your
registered securities dealer, the dealer is responsible for properly
transmitting redemption orders in a timely manner. If you choose to
redeem directly through IMSC, you have several ways to submit your
request:
By Mail - Send your written redemption request to IMSC at one of
the addresses on page XX of this Prospectus. Be sure that all
registered owners listed on the account sign the request.
Signature guarantees and supporting legal documentation may be
required. When you redeem, IMSC will normally send redemption
proceeds to you on the next business day, but may take up to seven
days (or longer in the case of shares recently purchased by
check).
By Telephone - Call IMSC at (800) 777-6472 to redeem from your
account. In order to process your redemption order by telephone,
you must have telephone redemption privileges on your account.
IMSC employs reasonable procedures that require personal
identification prior to acting on redemption instructions
communicated by telephone to confirm that such instructions are
genuine. In the absence of such procedures, the Fund or IMSC may
be liable for any losses due to unauthorized or fraudulent
telephone instructions.
By Systematic Withdrawal Plan (SWP) - You can authorize to have
funds electronically drawn each month from your Ivy Fund account
and deposited directly into your bank account. Certain minimum
balances and minimum distributions apply. Complete sections XX of
the Account Application to add this feature to your account.
Receiving Your Redemption Proceeds - You can receive redemption
proceeds through a variety of payment methods:
By Check - Unless otherwise instructed, checks will be made
payable to the current account registration and sent to the
address of record.
By Federal Funds Wire - Proceeds will be wired on the next
business day to a pre-designated bank account. Requests by
telephone can only be accepted for amounts up to $50,000. Your
account will be charged $10 each time redemption proceeds are
wired to your bank, and your bank may also charge you a fee for
receiving a Federal Funds wire.
By Electronic Funds Transfer - For SWP redemptions only.
Important Redemption Information:
A CDSC may apply to certain Class A share redemptions, to Class B
shares redeemed within six years of purchase, and to Class C
shares that are redeemed within one year of purchase.
All redemptions are made at the NAV next determined after a
redemption request has been received in good order. Requests for
redemptions must be received by 4:00 p.m. Eastern time to be
processed at the NAV for that day. Any redemption request in good
order that is received after 4:00 p.m. Eastern time will be
processed at the price determined on the following business day.
If you own shares of more than one class of the Fund, the Fund
will redeem first the shares having the highest 12b-1 fees.
Any shares subject to a CDSC will be redeemed last unless you
specifically elect otherwise.
The Fund may (on 60 days' notice) redeem the accounts of
shareholders whose investment, including sales charges paid, has
been less than $1,000 for more than 12 months.
The Fund may take up to seven days (or longer in the case of
shares recently purchased by check) to send redemption proceeds.
The Fund may make payment for redeemed shares in the form of
securities of the Fund taken at current values.
HOW TO EXCHANGE YOUR FUND SHARES:
You may exchange your Fund shares for shares of another Ivy fund,
subject to certain restrictions (see "Important Exchange Information"
below).
Submitting Your Exchange Order - You may submit an exchange request to
IMSC as follows:
By Mail - Send your written exchange request to IMSC at one of
the addresses on page XX of this Prospectus. Be sure that all
registered owners listed on the account sign the request.
By Telephone - Call IMSC at (800) 777-6472 to authorize an
exchange transaction. In order to process your exchange order by
telephone, you must have telephone exchange privileges on your
account. IMSC employs reasonable procedures that require personal
identification prior to acting on exchange instructions
communicated by telephone to confirm that such instructions are
genuine. In the absence of such procedures, the Fund or IMSC may
be liable for any losses due to unauthorized or fraudulent
telephone instructions.
IMPORTANT EXCHANGE INFORMATION:
You must exchange into the same share class you currently own.
Exchanges are considered taxable events and may result in a
capital gain or a capital loss for tax purposes.
It is the policy of the Fund to discourage the use of the
exchange privilege for the purpose of timing short-term market
fluctuations. The Fund may therefore limit the frequency of
exchanges by a shareholder or cancel a shareholder's exchange
privilege if at any time it appears that such market timing
strategies are being used.
DIVIDENDS AND DISTRIBUTIONS:
The Fund generally declares and pays dividends and capital gain
distributions (if any) at least once a year.
Dividends and distributions are "reinvested" in additional Fund
shares unless you request to receive them in cash.
Reinvested dividends and distributions are added to your account
at NAV and are not subject to a CDSC regardless of which share
class you own.
Cash dividends and distributions can be sent to you:
BY MAIL - a check will mailed to the address of record unless
otherwise instructed.
BY ELECTRONIC FUNDS TRANSFER ("EFT") - your proceeds will be
directly deposited into your bank account.
To change your dividend and/or distribution options, call IMSC at
(800) 777-6472.
TAX CONSEQUENCES:
Distributions you receive from the Fund are reinvested in additional
shares of the same class of the Fund unless you elect to receive them
in cash. Dividends ordinarily will vary from one class to another.
The Fund intends to declare and pay dividends monthly. The Fund will
distribute net investment income and net realized capital gains, if
any, at least once a year. The Fund may make an additional distribution
of net investment income and net realized capital gains to comply with
the calendar year distribution requirement under the excise tax
provisions of Section 4982 of the Internal Revenue Code of 1986, as
amended (the "Code").
Dividends paid out of the Fund's investment company taxable income
(including dividends, interest and net short-term capital gains) will
be taxable to you as ordinary income. If a portion of the Fund's income
consists of dividends paid by U.S. corporations, a portion of the
dividends paid by the Fund may be eligible for the corporate
dividends-received deduction. Distributions of net capital gains (the
excess of net long-term capital gains over net short-term capital
losses), if any, are taxable to you as long-term capital gains,
regardless of how long you have held your shares. Dividends are taxable
to you in the same manner whether received in cash or reinvested in
additional Fund shares.
If shares of the Fund are held in a tax-deferred account, such as a
retirement plan, income and gain will not be taxable each year.
Instead, the taxable portion of amounts held in a tax-deferred account
generally will be subject to tax as ordinary income only when
distributed from that account.
A distribution will be treated as paid to you on December 31 of the
current calendar year if it is declared by the Fund in October,
November or December with a record date in such a month and paid by the
Fund during January of the following calendar year.
In certain years, you may be able to claim a credit or deduction on
your income tax return for your share of foreign taxes paid by the
Fund. Upon the sale or other disposition of your Fund shares, you may
realize a capital gain or loss which will be long-term or short-term,
generally depending upon how long you held your shares.
The Fund may be required to withhold U.S. Federal income tax at the
rate of 31% of all distributions payable to you if you fail to provide
the Fund with your correct taxpayer identification number or to make
required certifications, or if you have been notified by the Internal
Revenue Service ("IRS") that you are subject to backup withholding.
Backup withholding is not an additional tax. Any amounts withheld may
be credited against your U.S. Federal income tax liability.
Fund distributions may be subject to state, local and foreign taxes.
You should consult with your tax adviser as to the tax consequences of
an investment in the Fund, including the status of distributions from
the Fund under applicable state or local law.
<PAGE>
IVY GROWTH WITH INCOME FUND(A)
<TABLE>
<CAPTION>
CLASS A
- ---------------------------------------------------------------------------------------------------
1998 1997 1996 1995 1994
SELECTED PER SHARE DATA -------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of
period............................ $ 11.38 $ 10.98 $ 9.08 $ 9.70
------- ------- ------- -------
Income (loss) from investment
operations
Net investment income............. .08 .08 .11 .17
Net realized and unrealized gain
(loss) on investment
transactions..................... 2.37 2.16 2.13 (.36)
------- ------- ------- -------
Total from investment
operations...................... 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............ 1.21 1.73 .26 .25
------- ------- ------- -------
Total distributions.............. 1.24 1.84 .34 .43
------- ------- ------- -------
Net asset value, end of period..... $ 12.59 $ 11.38 $ 10.98 $ 9.08
======= ======= ======= =======
Total return(%).................... 21.57 20.46 24.93 (2.03)
RATIOS AND SUPPLEMENTAL DATA
Net assets, end of period (in
thousands)........................ $69,742 $63,219 $59,054 $26,017
Ratio of expenses to average net
assets(%)......................... 1.59 1.81 1.96 1.84
Ratio of net investment income to
average net assets(%)............. .58 .68 1.06 1.83
Portfolio turnover rate(%)......... 36 138 81 36
Average commission rate............ $ .0800 $ .0580 N/A N/A
</TABLE>
<TABLE>
<CAPTION>
CLASS B
- -------------------------------------------------------------------------------------------------------------------
1998 1997 1996 1995 1994
SELECTED PER SHARE DATA -------- ------- ------- ------ ------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of period.......... $ 11.36 $ 10.98 $ 9.08 $ 9.70
------- ------- ------ ------
Income (loss) from investment operations
Net investment income (loss)................. (.02) (.01) .03 .09
Net realized and unrealized gain (loss) on
investment transactions..................... 2.37 2.15 2.13 (.36)
------- ------- ------ ------
Total from investment operations............ 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....................... 1.14 1.68 .25 .25
------- ------- ------ ------
Total distributions......................... 1.17 1.76 .26 .35
------- ------- ------ ------
Net asset value, end of period................ $ 12.54 $ 11.36 $10.98 $ 9.08
======= ======= ====== ======
Total return(%)............................... 20.74 19.59 23.94 (2.88)
RATIOS AND SUPPLEMENTAL DATA
Net assets, end of period (in thousands)...... $20,071 $13,473 $8,868 $5,849
Ratio of expenses to average net assets(%).... 2.31 2.55 2.75 2.70
Ratio of net investment income (loss) to
average net assets(%)........................ (.13) (.06) .27 .97
Portfolio turnover rate(%).................... 36 138 81 36
Average commission rate....................... $ .0800 $ .0580 N/A N/A
</TABLE>
<TABLE>
<CAPTION>
ADVISOR
CLASS C CLASS
---------------------------------- --------
1998 1997 1996(D) 1998
SELECTED PER SHARE DATA -------- ------ ------- --------
<S> <C> <C> <C> <C>
Net asset value, beginning of period.......... $11.37 $11.73
------ ------
Income from investment operations
Net investment loss.......................... (.01) (.08)
Net realized and unrealized gain on
investment transactions..................... 2.35 1.53
------ ------
Total from investment operations............ 2.34 1.45
------ ------
Less distributions
In excess of net investment income........... -- .08
From net realized gain....................... 1.27 1.73
------ ------
Total distributions......................... 1.27 1.81
------ ------
Net asset value, end of period................ $12.44 $11.37
====== ======
Total return(%)............................... 20.70 12.37
RATIOS AND SUPPLEMENTAL DATA
Net assets, end of period (in thousands)...... $4,356 $ 28
Ratio of expenses to average net assets(%).... 2.23 3.02
Ratio of net investment loss to average net
assets(%).................................... (.05) (.53)
Portfolio turnover rate(%).................... 36 138
Average commission rate....................... $.0800 $.0580
</TABLE>
- - ---------------
<TABLE>
<S> <C>
(a) These figures are adjusted to reflect a ten-for-one stock
split on June 30, 1989. Grantham, Mayo, Van Otterloo & Co.
was subadviser to Ivy Growth with Income Fund from 4/1/84
through 6/30/89. Ivy Growth with Income Fund was formerly
known as Ivy Institutional Investors Fund.
(b) From October 23, 1993 (commencement of operations) to
December 31, 1993.
(c) The ratio of expenses to average net assets is net of the
expenses reimbursed by IMI. Without reimbursement, the ratio
of expenses to average net assets would have been 1.61%.
(d) From April 30, 1996 (commencement of operations) to December
31, 1996.
(e) Net investment income is net of expenses reimbursed by IMI.
</TABLE>
<PAGE>
ACCOUNT APPLICATION
Please mail applications and checks to: Ivy Mackenzie Services Corp.,
P.O. Box 3022, Boca Raton, FL
33431-0922.
(This application should not be used for retirement accounts for which
Ivy Fund is custodian.)
Account Number:
(Fund Use Only)
Dealer #:
Branch #:
Rep. I.D. #:
Acct. Type:
Soc Cd:
Div Cd:
CG Cd:
Exc Cd:
Red Cd:
1. REGISTRATION
/ / Individual / / Joint Tenant / / Estate / / UGMA/UTMA / /
Corporation / / Partnership / / Sole Proprietor / / Trust / / Other
Date of Trust
Owner, Custodian or Trustee
Co-owner or Minor
Minor's State of Residence
Street
City
State
Zip Code
Phone Number -- Day
Phone Number -- Evening
2. TAX ID
Citizenship: / / U.S. / / Other ________________
Social Security Number
Tax Identification Number
Under penalties of perjury, I certify by signing in Section 8 below
that: (1) the number shown in this section is my correct taxpayer
identification number (TIN), and (2) I am not subject to backup
withholding because: (a) I have not been notified by the Internal
Revenue Service (IRS) that I am subject to backup withholding as a
result of a failure to report all interest or dividends, or (b) the IRS
has notified me that I am no longer subject to backup withholding.
(Cross out item (2) if you have been notified by the IRS that you are
currently subject to backup withholding because of underreporting
interest or dividends on your tax return.) Please see the "Tax
Consequences" section of the Prospectus for additional information on
completing this section.
3. DEALER INFORMATION
The undersigned ("Dealer") agrees to all applicable provisions in this
Application, guarantees the signature and legal capacity of the
Shareholder, and agrees to notify IMSC of any purchases made under a
Letter of Intent or Rights of Accumulation.
Dealer Name
Branch Office Address
City
State
Zip Code
Representative's Name and Number
Representative's Phone Number
Authorized Signature of Dealer
4. INVESTMENTS
A. Enclosed is my check ($1,000 minimum) for $_____________ made
payable to ________________ [Fund Name]. Please invest it in
Class A __ Class B __ Class C __ or Advisor Class __ shares.
B. I qualify for an elimination of the sales charge due to the
following privilege (applies only to Class A shares):
__ New Letter of Intent (if ROA or 90-day backdate
privilege is applicable, provide account(s)
information below.)
__ ROA with the account(s) listed below.
__ Existing Letter of Intent with account(s) listed
below.
Fund Name(s)
Account Number(s)
If establishing a Letter of Intent, you will need to purchase
Class A shares over a thirteen-month period in accordance with
the provisions in the Prospectus. The Aggregate amount of
these purchases will be at least equal to the amount indicated
below (see Prospectus for minimum amount required for reduced
sales charges).
/ / $50,000
/ / $100,000
/ / $250,000
/ / $500,000
C. FOR DEALER USE
Confirmed trade orders: [Confirm Number, Number of Shares, Trade Date]
5. DISTRIBUTION OPTIONS
I would like to reinvest dividends and capital gains into additional
shares in this account at net asset value unless a different option is
checked below.
/ / Reinvest all dividends and capital gains into additional
shares of a different Ivy fund.
Fund Name
Account Number
/ / Pay all dividends in cash and reinvest capital gains into
additional shares in this Fund or a different Ivy fund.
Fund Name
Account Number
/ / Pay all dividends and capital gains in cash.
I REQUEST THE ABOVE CASH DISTRIBUTION, SELECTED IN C OR D
ABOVE, BE:
/ / Sent to the address listed in the registration.
/ / Sent to the special payee listed in Section 7A
/ / (By Mail) 7B
/ / (By E.F.T.)
6. OPTIONAL SPECIAL FEATURES
A. / / Automatic Investment Method (AIM)
- I wish to invest _________________ / / once per month / /
twice / / 3 times / / 4 times
- My bank account will be debited on the _________ day of the month
Please invest $___________________ each period starting in the month
of __________________ in
---------------------------.
Fund Name
/ / Class A
/ / Class B
/ / Class C
/ / Advisor Class
/ / I have attached a voided check to ensure my correct bank
account will be debited.
B. SYSTEMATIC WITHDRAWAL PLANS**
I wish to automatically withdraw funds from my account in
_________________[Fund name].
/ / Monthly / / Quarterly / /Semiannually / / Annually
/ / Once / / Twice / / 3 times / / 4 times per month
I request the distribution be:
/ / Sent to the address listed in the registration.
/ / Sent to the special payee listed in Section 7.
/ / Invested into additional shares of the same class of a different Ivy
fund.
Fund Name
Account Number
Amount $__________________(Minimum $50) starting on or about the
-_______ day of the month
-_______ day of the month
-_______ day of the month*
NOTE: Account minimum: $5,000 in shares at current offering price
C. FEDERAL FUNDS TRANSFER FOR REDEMPTION PROCEEDS**
I authorize the Agent to honor telephone instructions for the
redemption of Fund shares up to $50,000. Proceeds may be wire
transferred to the bank account designated ($1,000 minimum).
(Complete Section 7B)
TELEPHONE EXCHANGES** / / YES / / NO
I authorize exchanges by telephone among the Ivy funds upon
instructions from any person as more fully described in the
Prospectus. To change this option once established, written
instructions must be received from the shareholder of record
or the current registered representative.
If neither box is checked, the telephone exchange privilege
will be provided automatically.
TELEPHONIC REDEMPTIONS** / / YES / / NO
The Fund or its agents are authorized to honor telephone
instructions from any person as more fully described in the
Prospectus for the redemption of Fund shares. The amount of
the redemption shall not exceed $50,000 and the proceeds are
to be payable to the shareholder of record and mailed to the
address of record. To change this option once established,
written instructions must be received from the shareholder of
record or the current registered representative.
If neither box is checked, the telephone redemption privilege
will be provided automatically.
* There must be a period of at least seven calendar
days between each investment/withdrawal period.
** This option may not be used if shares are issued in
certificate form.
7. SPECIAL PAYEE
A. MAILING ADDRESS
Please send all disbursements to this special payee:
Name of Bank or Individual
Account Number (If Applicable)
Street
City/State/Zip
B. FED WIRE / E.F.T. INFORMATION
Financial Institution
ABA #
Account #
Street
City/State/Zip
(Please attach a voided check)
8. SIGNATURES
Investors should be aware that the failure to check the "No" under
Section 6D or 6E above means that the Telephone Exchange/Redemption
Privileges will be provided. The Fund employs reasonable procedures
that require personal identification prior to acting on
exchange/redemption instructions communicated by telephone to confirm
that such instructions are genuine. In the absence of such procedures,
the Fund may be liable for any losses due to unauthorized or fraudulent
telephone instructions. Please see "How to Exchange Your Fund Shares"
and "How to Redeem Your Fund Shares" in the Prospectus for more
information on these privileges.
I certify to my legal capacity to purchase or redeem shares of the Fund
for my own account or for the account of the organization named in
Section 1. I have received a current Prospectus and understand its
terms are incorporated in this application by reference. I am
certifying my taxpayer information as stated in Section 2.
THE INTERNAL REVENUE SERVICE DOES NOT REQUIRE YOUR CONSENT TO ANY
PROVISION OF THIS DOCUMENT OTHER THAN THE CERTIFICATIONS REQUIRED TO
AVOID BACKUP WITHHOLDING.
------------------------------
Signature of Owner, Custodian, Date
Trustee or Corporate Officer
------------------------------
Signature of Joint Owner, Date
Co-Trustee or Corporate Officer
(Remember to sign Section 8)
<PAGE>
[Back Cover Page]
HOW TO RECEIVE MORE INFORMATION ABOUT THE FUND
Additional information about the Fund and its investments is contained in the
Fund's Statement of Additional Information dated April ___, 1999 (the "SAI"),
which is incorporated by reference into this Prospectus, and the Fund's annual
and semi-annual reports to shareholders. The Fund's annual report includes a
discussion of the market conditions and investment strategies that significantly
affected the Fund's performance during its most recent fiscal year. The SAI and
the Fund's annual and semi-annual reports are available upon request and without
charge from the Distributor at the following address and phone number:
Ivy Mackenzie Distributors, Inc.
Via Mizner Financial Plaza
700 South Federal Highway
Boca Raton, Florida 33432
(800) 456-5111
Information about the Fund (including the SAI and the Fund's annual and
semi-annual reports) may also be reviewed and copied at the SEC's Public
Reference Room in Washington, D.C. (please call 1-800-SEC-0330 for further
details). Information about the Fund is also available on the SEC's Internet
Website (www.sec.gov), and copies of this information may be obtained, upon
payment of a copying fee, by writing the Public Reference Section of the SEC,
Washington, D.C. 20549-6009.
SHAREHOLDER INQUIRIES
Please call Ivy Mackenzie Services Corp., the Fund's transfer agent, at
1-800-777-6472 regarding any other inquiries about the Fund.
Investment Company Act File No. 811-1028
<PAGE>
[Front Cover Page]
PROSPECTUS April ___, 1999
IVY FUND - Ivy International Fund
Ivy Fund (the "Trust") is a registered open-end investment company currently
consisting of nineteen separate portfolios. This Prospectus relates to the Class
A, Class B, Class C and Class I shares of Ivy International Fund (the "Fund").
No other shares are offered in this Prospectus.
On April 18, 1997, the Fund suspended the offer of its shares to new investors.
The Securities and Exchange Commission has not approved or disapproved these
securities or passed upon the adequacy of this Prospectus. Any representation to
the contrary is a criminal offense.
[Insert all logos]
<PAGE>
TABLE OF CONTENTS
SUMMARY
ADDITIONAL INFORMATION ABOUT INVESTMENT STRATEGIES AND RISKS
MANAGEMENT
SHAREHOLDER INFORMATION
ACCOUNT APPLICATION
HOW TO RECEIVE MORE INFORMATION ABOUT THE FUND
SHAREHOLDER INQUIRIES
<PAGE>
SUMMARY
Investment The Fund's principal investment objective is long-term
objective: capital growth primarily through investment in equity
securities. Consideration of current income is secondary
to this principal objective.
Principal The Fund normally invests at least 65% of its total assets
investment in equity principally traded in European,
strategies: Pacific Basin and Latin American markets. The Fund might
engage in foreigncurrency exchange and forward
foreign currency contracts to control its exposure to
certain risks.
Principal The main risks to which the Fund is exposed in
risks: carrying out its investment strategies are the following:
Market risk: Common stocks represent a proportionate
ownership interest in a company. As a result, the value of
common stock rises and falls with a company's success or
failure. The market value of common stock can fluctuate
significantly, so you could lose money if you redeem your
Fund shares at a time when the Fund's stock portfolio is not
performing as well as expected.
Foreign security and emerging market risk: Investing in
foreign securities involves a number of economic, financial
and political considerations that are not associated with
the U.S. markets and that could affect the Fund's
performance favorably or unfavorably, depending upon
prevailing conditions at any given time. Among these
potential risks are:
greater price volatility;
comparatively weak supervision and regulation of
securities exchanges, brokers and
issuers;
higher brokerage costs;
fluctuations in foreign currency exchange rates and
related conversion costs;
adverse tax consequences; and
settlement delays.
The risks of investing in foreign securities are more acute
in countries with developing economies.
Who should invest:* The Fund may be appropriate for investors seeking
long-term growth potential, but who can accept moderate fluctuations
in capital value in the short-term.
* You should consult with your financial advisor before deciding whether
the Fund is an appropriate investment choice in light of your
particular financial needs and risk tolerance.
<PAGE>
Performance Bar Chart and Table:
The information in the following chart and table provides some
indication of the risks of investing in the Fund by showing changes in
the Fund's performance from year to year and how the Fund's average
annual returns since its inception on November 15, 1985 compare with
those of a broad measure of market performance. The Fund's past
performance is not an indication of how the Fund will perform in the
future.
Annual Total Returns for Class A Shares as of December 31, 1998:* #
- -------------------------------------------------------------------
1989 1990 1991 1992 1993 1994 1995 1996 1997 1998
* Any applicable sales charges and account fees are not
reflected, and if they were the returns shown above would be
lower. The returns for the Fund's other four classes of shares
during these periods were different from those of Class A
because of variations in their respective expense structures.
# Northern Cross Investments Limited has served as the Fund's
investment advisor since April 1, 1993. Before that, the Fund
had the following advisors: Boston Overseas Investors, Inc.
(July 1, 1990 - March 31, 1993) and Marsh & Cunningham
(November 15, 1985 - June 30, 1990).
Best quarter: ______% (Q__ 199__)
Worst quarter: ______% (Q__ 199__)
Average Annual Total Returns (for the periods ending December 31, 1998):*
Past year: Past 5 years: Past 10 years: Since inception:**
--------- ------------ ------------- ---------------
Class A: ______% ______% ______% ______%
Class B: ______% ______% N/A ______%
Class C: ______% N/A N/A ______%
Class I: ______% N/A N/A ______%
[Index]: ______% N/A N/A ______%
* Performance figures reflect any applicable sales charges.
** The inception dates for the Fund's four classes of shares were
as follows: Class A, November 15, 1985; Class B, October 23,
1993; Class C, April 30, 1996; and Class I, October 6, 1994.
<PAGE>
Fees and Expenses:
The following tables describe the fees and expenses that you may pay if
you buy and hold shares of the Fund:
Shareholder Fees (fees paid directly from your investment):
Maximum Sales Charge (Load) Imposed on Maximum Deferred Sales
Purchases (as a percentage of Charge (Load) (as a
offering price): percentage of original
purchase price):
Class A: 5.75% none
Class B: none 5.00%
Class C: none 1.00%
Class I: none none
Annual Fund Operating Expenses (expenses that are deducted from Fund
assets):
Distribution Total Annual
and/or Service Other Fund
Management Fees:* (12b-1) Fees: Expenses: Operating
Expenses
Class A: 1.00% .25% $_______ $_______
Class B: 1.00% 1.00% $_______ $_______
Class C: 1.00% 1.00% $_______ $_______
Class I: 1.00% none $_______ $_______
* Management Fees are reduced to .90% for net assets over $2.5 billion.
Example:
The following example is intended to help you compare the cost of
investing in the Fund with the cost of investing in other mutual funds.
The example assumes that you invest $10,000 in the Fund for the time
periods indicated and then redeem all of your shares at the end of
those periods (with additional information shown for Class B and Class
C shares based on the assumption that you do not redeem your shares at
that time). The example also assumes that your investment has a 5%
return each year and that the Fund's operating expenses remain the
same. Although your actual costs may be higher or lower, based on these
assumptions your costs would be as follows:
1 Year: 3 Years: 5 Years: 10 Years:
------ ------- ------- --------
Class A: $______ $______ $______ $______
Class B: $______ $______ $______ $______
Class B (no redemption): $______ $______ $______ $______
Class C: $______ $______ $______ $______
Class C (no redemption): $______ $______ $______ $______
Class I: $______ $______ $______ $______
<PAGE>
ADDITIONAL INFORMATION ABOUT INVESTMENT STRATEGIES AND RISKS
Principal strategies:
The Fund seeks to achieve its principal objective of long-term capital
growth by investing primarily in equity securities principally traded
in European, Pacific Basin and Latin American markets. The Fund invests
in a variety of economic sectors and industry segments in order to
reduce the effects of price volatility in any one area, and usually is
invested in at least three different countries.
The Fund's manager focuses on rapidly expanding foreign economies and
companies that generally have at least $1 billion in capitalization at
the time of investment and a solid history of operations. Individual
securities are selected on the basis of value indicators (such as
earnings, cash flow and growth potential) and are reviewed for
fundamental financial strength.
Principal risks:
General market risk: As with any mutual fund, the value of the Fund's
investments and the income they generate will vary daily and generally
reflect market conditions, interest rates and other issuer-specific,
political or economic developments. The Fund's share value will
decrease at any time during which its security holdings or other
investment techniques are not performing as well as anticipated, and
you could therefore lose money by investing in the Fund depending upon
the timing of your initial purchase and any subsequent redemption.
Other risks: Since the Fund invests heavily in the equity securities of
foreign issuers, it is more susceptible to the risks associated with
these types of securities than a fund that invests primarily in the
securities of U.S. issuers and/or debt securities. Following is a
description of these risks, along with the risks commonly associated
with the other securities and investment techniques that the Fund's
portfolio manager considers important in achieving the Fund's
investment objective or in managing the Fund's exposure to risk (and
that could therefore have a significant effect on the Fund's returns).
Other investment techniques that the Fund may use, but that do not play
a key role in the Fund's overall investment strategy, are described in
the Fund's Statement of Additional Information (see back cover page for
information on how you can receive a free copy).
Common Stocks: Common stocks represent a proportionate ownership
interest in a company. As a result, the value of common stock
rises and falls with a company's success or failure. The market
value of common stock can fluctuate significantly, with smaller
companies being particularly susceptible to price swings.
Transaction costs in smaller company stocks may also be higher
than those of larger companies.
Depository Receipts: The Fund may acquire interests in foreign
issuers in the form of sponsored or unsponsored American
Depository Receipts ("ADRs"), Global Depository Receipts ("GDRs")
and similar types of depository receipts. ADRs typically are
issued by a U.S. bank or trust company and represent ownership of
the underlying securities issued by a foreign corporation. GDRs
and other types of depository receipts are usually issued by
foreign banks or trust companies. The Fund's investments in ADRs,
GDRs and other depository receipts are viewed as investments in
the underlying securities.
Depository receipts can be difficult to price and are not always
exchange-listed. Unsponsored depository programs also are
organized independently without the cooperation of the issuer of
the underlying securities. As a result, information concerning the
issuer may not be as current or as readily available as in the
case of sponsored depository instruments, and their prices may be
more volatile than if they were sponsored by the issuers of the
underlying securities.
Foreign Securities: Investing in foreign securities involves a
number of economic, financial and political considerations that
are not associated with the U.S. markets and that could affect the
Fund's performance favorably or unfavorably, depending upon
prevailing conditions at any given time. For example, the
securities markets of many foreign countries may be smaller, less
liquid and subject to greater price volatility than those in the
U.S. Foreign investing may also involve brokerage costs and tax
considerations that are not usually present in the U.S. markets.
Many of the Fund's securities also are denominated in foreign
currencies and the value of the Fund's investments as measured in
U.S. dollars may be affected favorably or unfavorably by changes
in foreign currency exchange rates and exchange control
regulations. Currency conversion can also be costly.
Other factors that can affect the value of the Fund's foreign
investments include the comparatively weak supervision and
regulation by some foreign governments of securities exchanges,
brokers and issuers, and the fact that many foreign companies may
not be subject to uniform accounting, auditing and financial
reporting standards. It may also difficult to obtain reliable
information about the securities and business operations certain
foreign issuers. Settlement of portfolio transactions may also be
delayed due to local restrictions or communication problems, which
can cause the Fund to miss attractive investment opportunities or
impair its ability to dispose of securities in a timely fashion
(resulting in a loss if the value of the securities subsequently
declines).
Special Emerging Market Concerns: The risks of investing in
foreign securities are heightened in countries with developing
economies. Among these additional risks are the following:
securities that are even less liquid and more volatile than
those in more developed foreign countries;
less stable governments that are susceptible to sudden
adverse actions (such as nationalization of businesses,
restrictions on foreign ownership or prohibitions against
repatriation of assets);
increased settlement delays;
abrupt changes in exchange rate regime or monetary policy;
restrictions on repatriation of capital;
unusually large currency fluctuations and currency conversion
costs (see "Foreign Currencies" below); and
high national debt levels (which may impede an issuer's
payment of principal and/or interest on external debt).
Foreign Currencies: Investing in foreign securities typically
involves the use of foreign currencies. The value of the Fund's
assets, as measured in U.S. dollars, may be affected favorably or
unfavorably by changes in foreign currency exchange rates and
exchange control regulations. Currency conversions can also be
costly.
Foreign Currency Exchange Transactions and Forward Foreign
Currency Contracts: The Fund may, but is not required to, use
foreign currency exchange transactions and forward foreign
currency contracts to hedge certain market risks (such as interest
rates, currency exchange rates and broad or specific market
movement). These investment techniques involve a number of risks,
including the possibility of default by the counterparty to the
transaction and, to the extent the Fund's judgment as to certain
market movements is incorrect, the risk of losses that are greater
than if the investment technique had not been used. For example,
there may be an imperfect correlation between the Fund's portfolio
holdings of securities denominated in a particular currency and
the forward contracts entered into by the Fund. An imperfect
correlation of this type may prevent the Fund from achieving the
intended hedge or expose the Fund to the risk of currency exchange
loss. In addition, although the use of these investment techniques
for hedging purposes should tend to minimize the risk of loss due
to a decline in the value of the hedged position, they also tend
to limit any potential gain that might result from an increase in
the position's value.
Illiquid Securities: The Fund may invest up to 15% of its net
assets in "illiquid securities," which are assets that may not be
disposed of in the ordinary course of business within seven days
at roughly the value at which the Fund has valued the assets. Some
of these may by "restricted securities," which cannot be sold to
the public without registration under the Securities Act of 1933
(in the absence of an exemption) or because of other legal or
contractual restrictions on resale. Thus, while illiquid
securities may offer the potential for higher returns than more
readily marketable securities, there is a risk that the Fund will
not be able to dispose of them promptly at an acceptable price.
Warrants: The holder of a warrant pays for the right to purchase
a given number of an issuer's shares at a specified price until
the warrant expires. If a warrant is not exercised by the date of
its expiration (such as when the underlying securities are no
longer an attractive investment), the Fund would lose what it paid
for the warrant.
Temporary Defensive Positions: The Fund may from time to time
take a temporary defensive position and invest without limit in
U.S. Government securities, investment-grade debt securities, and
cash and cash equivalents such as commercial paper, short-term
notes and other money market securities. When the Fund assumes
such a defensive position it may not achieve its investment
objective. Investing in debt securities also involves both
interest rate and credit risk. Generally, the value of debt
instruments rises and falls inversely with fluctuations in
interest rates. For example, as interest rates decline the value
of debt securities generally increases. Conversely, rising
interest rates tend to cause the value of debt securities to
decrease. The market value of debt securities also tends to vary
according to the relative financial condition of the issuer. Bonds
with longer maturities tend to be more volatile than bonds with
shorter maturities.
Borrowing: For temporary or emergency purposes (such as meeting
shareholder redemption requests within the time periods specified
under the Investment Company Act of 1940), the Fund may borrow up
to 10% of the value of its total assets from qualified banks.
Borrowing may exaggerate the effect on the Fund's share value of
any increase or decrease in the value of the securities it holds.
Money borrowed will also be subject to interest costs.
Other Important Information:
European Monetary Union: On January 1, 1999, a new European currency
called the "Euro" was introduced and adopted for use by eleven European
countries. The transition to daily usage of the Euro, including
circulation of Euro bills and coins, will occur during the period from
January 1, 1999 through December 31, 2001. Certain European Union (EU)
members, including the United Kingdom, did not officially implement the
Euro on January 1, 1999 and may cause market disruptions when and if
they decide to do so. Where this occurs, the Fund could experience
investment losses.
Year 2000 Risks: Many computer software and hardware systems in use
today cannot distinguish between the year 2000 and the year 1900
because of the way dates are encoded and calculated (the "Year 2000
Problem"). The inability of computer-based systems to make this
distinction could have a seriously adverse effect on the handling of
securities trades, pricing and account services worldwide. The Fund's
service providers are taking steps that each believes are reasonably
designed to address the Year 2000 Problem with respect to the computer
systems that they use. The Fund believes these steps will be sufficient
to avoid any material adverse impact on the Fund. At this time,
however, there can be no assurance that significant problems will not
occur (which either directly or indirectly may cause the Fund to lose
money).
MANAGEMENT
Investment Advisor:
Ivy Management, Inc. ("IMI"), located at Via Mizner Financial Plaza,
700 South Federal Highway, Boca Raton, Florida 33432, provides
investment advisory and business management services to the Fund. IMI
is an SEC-registered investment advisor with over $____ billion in
assets under management, and provides similar services to the other
eighteen series of the Trust. For the Fund's fiscal year ending
December 31, 1998, the Fund paid to IMI a fee equal to ___% of the
Fund's average net assets.
Northern Cross Investments Limited ("Northern Cross"), an
SEC-registered investment advisor located at 48 Par-La-Ville Road,
Hamilton, HM 11 Bermuda, serves as subadvisor to the Fund under an
Agreement with IMI. Northern Cross began operations in 1993, and as of
the end of 1998 had over $10 billion in assets under management. For
its services, Northern Cross receives a fee from IMI that is equal, on
an annual basis, to .60% of the first $1.5 billion in average net
assets, .55% of the next $1 billion in average net assets and .50% of
the Fund's average net assets over $2.5 billion.
Portfolio Manager:
Hakan Castegren, President of Northern Cross, has managed the
Fund since 1986. Mr. Castegren has morethan 40 years of
professional investment experience and holds an MBA from the
Stockholm School of Economics.
<PAGE>
SHAREHOLDER INFORMATION
PRICING OF FUND SHARES:
The Fund calculates its share price by dividing the value of the Fund's
net assets by the total number of its shares outstanding as of the
close of regular trading (usually 4:00 p.m. Eastern time) on the New
York Stock Exchange on each day the Exchange is open for trading
(normally any weekday that is not a national holiday).
Each portfolio security that is listed or traded on a recognized stock
exchange is valued at the security's last sale price on the exchange
on which it was purchased. If no sale is reported at that time, the
average between the last bid and asked prices is used. Securities and
other Fund assets for which market prices are not readily available
are priced at their "fair value" as determined by IMI in accordance
with procedures approved by the Fund's Board of Trustees. IMI may also
price a security at its "fair value" if events materially affecting
the value of the security occur between the close of the foreign
exchange on which the security is principally traded and the time as
of which the Fund prices its shares. Fair value pricing under these
circumstances is designed to protect existing shareholders from
dilution of their share value caused by short-term investors trading
into and out of the Fund at at time when the Fund's share price,
calculated by ordinary pricing methods, is undervalued. When such fair
value pricing occurs, however, there may be some period of time during
which the Fund's share price and/or performance information is not
available.
The number of shares you receive when you place a purchase order, and
the payment you receive after submitting a redemption request, is based
on the Fund's net asset value next determined after your instructions
are received in proper form by Ivy Mackenzie Services Corp. (the Fund's
transfer agent) or by your registered securities dealer. Each purchase
and redemption order is subject to any applicable sales charge (see
"Distribution Arrangements" below). Since the Fund normally invests in
securities that are listed on foreign exchanges that may trade on
weekends or other days when the Fund does not price its shares, the
Fund's share value may change on days when shareholders will not be
able to purchase or redeem the Fund's shares.
HOW TO BUY SHARES:
Purchasing Fund shares involves "Choosing the Appropriate Class of
Shares" and "Submitting Your Purchase Order". Please read these
sections below carefully before investing.
Choosing the Appropriate Class of Shares - The essential features of
the Fund's different classes of shares are described below. If you do
not specify on your Account Application which class of shares you are
purchasing, it will be assumed that you are purchasing Class A shares.
The Fund has adopted separate distribution plans pursuant to Rule
12b-1 under the 1940 Act for its Class A, B and C shares that allow
the Fund to pay distribution and other fees for the sale and
distribution of its shares and for services provided to shareholders.
Because these fees are paid out of the Fund's assets on an on-going
basis, over time they will increase the cost of your investment and
may cost you more than paying other types of sales charges.
Class A Shares: Class A shares are sold at net asset value plus a
maximum sales charge of 5.75% (the "offering price"). The sales
charge may be reduced or eliminated if certain conditions are met
(see "Additional Purchase Information" below). Class A shares are
subject to a .25% Rule 12b-1 service fee.
Class B Shares: Class B shares are offered at net asset value,
without an initial sales charge, but subject to a contingent
deferred sales charge ("CDSC") that declines from 5% to zero on
certain redemptions within six years of purchase. Class B shares
are subject to a .75% Rule 12b-1 distribution fee and a .25% Rule
12b-1 service fee, and convert automatically into Class A shares 8
years after purchase.
Class C Shares: Class C shares are offered at net asset value,
without an initial sales charge, but subject to a CDSC of 1% for
redemptions within the first year of purchase. Class C shares are
subject to a .75% Rule 12b-1 distribution fee and a .25% Rule
12b-1 service fee.
Class I Shares: Class I shares are offered to certain classes of
investors at net asset value, without any sales load or Rule 12b-1
fees.
The following table displays the various investment minimums, sales
charges and expenses that apply to each class.
<TABLE>
<S> <C> <C> <C> <C>
-------------------- ------------------ ----------------- ------------------ --------------
Class A Class B Class C Class I
-------------------- ------------------ ----------------- ------------------ --------------
-------------------- ------------------ ----------------- ------------------ --------------
Minimum Initial $5,000,000
Investment* $1,000 $1,000 $1,000
-------------------- ------------------ ----------------- ------------------ --------------
-------------------- ------------------ ----------------- ------------------ --------------
Minimum Subsequent $ 10,000
Investment* $100 $100 $100
-------------------- ------------------ ----------------- ------------------ --------------
-------------------- ------------------ ----------------- ------------------ --------------
Initial Sales Maximum 5.75%, None None None
Charge with options for
a reduced or
waiver of
initial sales
charge
-------------------- ------------------ ----------------- ------------------ --------------
-------------------- ------------------ ----------------- ------------------ --------------
CDSC None, except on Maximum 5.00%, 1.00% for the None
certain NAV declines over first year
purchases six years
-------------------- ------------------ ----------------- ------------------ --------------
-------------------- ------------------ ----------------- ------------------ --------------
Service and 0.25% Service fee 0.75% 0.75% None
Distribution Fees Distribution Distribution Fee
Fee and 0.25% and 0.25%
Service Fee Service Fee
-------------------- ------------------ ----------------- ------------------ --------------
</TABLE>
* Minimum initial and subsequent investments for retirement plans are $25.
ADDITIONAL PURCHASE INFORMATION:
Class A Shares - Class A shares are sold at a public offering
price equal to their net asset value per share ("NAV") plus an
initial sales charge, as set forth below (which is reduced as the
amount invested increases):
<TABLE>
<S> <C> <C> <C>
-------------------------------- ---------------------- ------------------ ----------------------
Sales Charge as a Sales Charge as Portion of Public
Percentage of Public a Percentage of Offering Price
Offering Price Net Amount Retained by Dealer
Amount Invested Invested
-------------------------------- ---------------------- ------------------ ----------------------
-------------------------------- ---------------------- ------------------ ----------------------
Less than $50,000 5.75% 6.10% 5.00%
-------------------------------- ---------------------- ------------------ ----------------------
-------------------------------- ---------------------- ------------------ ----------------------
$50,000 but less than $100,000 5.25% 5.54% 4.50%
-------------------------------- ---------------------- ------------------ ----------------------
-------------------------------- ---------------------- ------------------ ----------------------
$100,000 but less than $250,000 4.50% 4.71% 3.75%
-------------------------------- ---------------------- ------------------ ----------------------
-------------------------------- ---------------------- ------------------ ----------------------
$250, 000 but less than 3.00% 3.09% 2.50%
$500,000
-------------------------------- ---------------------- ------------------ ----------------------
$500,000 or over* 0.00% 0.00% 0.00%
-------------------------------- ---------------------- ------------------ ----------------------
</TABLE>
* A CDSC of 1.00% applies to Class A shares that are redeemed
within two years of the end of the month in which they were
purchased.
Class A shares that are acquired through reinvestment of dividends
or distributions are not subject to any sales charges.
HOW TO REDUCE YOUR INITIAL SALES CHARGE:
"Rights of Accumulation" permits you to pay the sales charge
that applies to the cost or value (whichever is higher) of all
Ivy Fund Class A shares you own.
A "Letter of Intent" permits you to pay the sales charge that
would apply to your cumulative purchase of Fund shares over a
13-month period (certain restrictions apply).
HOW TO ELIMINATE YOUR INITIAL SALES CHARGE:
You may purchase Class A shares at NAV (without an initial sales
charge or a CDSC) through any one of the following methods:
through certain investment advisors and financial planners
who charge a management, consulting or other fee for their
services;
under certain qualified retirement plans;
as an employee or director of Mackenzie Investment Management
Inc. or its affiliates;
as an employee of a selected dealer; or
through the Merrill Lynch Daily K Plan (the "Plan"), provided
the Plan has at least $3 million in assets or over 500 or more
eligible employees. Class B shares of the Fund are made
available to Plan participants at NAV without a CDSC if the
Plan has less than $3 million in assets or fewer than 500
eligible employees. For further information see "Group
Systematic Investment Program" in the SAI.
You may also purchase Class A shares at NAV if you are investing
at least $500,000 through a dealer or agent. Ivy Mackenzie
Distributors, Inc. ("IMDI"), the Fund's distributor, may pay the
dealer or agent (out of IMDI's own resources) for its distribution
assistance according to the following schedule:
------------------------------- -------------------------------
Purchase Amount Commission
------------------------------- -------------------------------
------------------------------- -------------------------------
First $3,000,000 1.00%
------------------------------- -------------------------------
------------------------------- -------------------------------
Next $2,000,000 0.50%
------------------------------- -------------------------------
------------------------------- -------------------------------
Over $5,000,000 0.25%
------------------------------- -------------------------------
Certain trust companies, bank trust departments, credit unions,
savings and loans and other similar organizations may also be
exempt from the initial sales charge on Class A shares.
Class B and Class C Shares - Class B and Class C shares are not
subject to an initial sales charge but are subject to a CDSC. If
you redeem your Class C shares within one year of purchase they
will be subject to a CDSC of 1%, and Class B shares redeemed
within six years of purchase will be subject to a CDSC at the
following rates:
--------------------- --------------------
CDSC as a
Percentage of
Year Since Purchase Dollar Amount
Subject to Charge
--------------------- --------------------
First 5%
--------------------- --------------------
--------------------- --------------------
Second 4%
--------------------- --------------------
--------------------- --------------------
Third 3%
--------------------- --------------------
--------------------- --------------------
Fourth 3%
--------------------- --------------------
--------------------- --------------------
Fifth 2%
--------------------- --------------------
--------------------- --------------------
Sixth 1%
--------------------- --------------------
--------------------- --------------------
Seventh and 0%
thereafter
--------------------- --------------------
The CDSC for both Class B and Class C shares will be assessed on
an amount equal to the lesser of the current market value or the
original purchase cost of the shares being redeemed. No charge
will be assessed on increases in account value above the original
purchase price or on reinvested dividends and distributions.
The CDSC for Class B shares is waived for:
Certain post-retirement withdrawals from an IRA or other
retirement plan if you are over 59 1/2 years old.
Redemptions by certain eligible 401(a) and 401(k) plans and
certain retirement plan rollovers.
Redemption resulting from a tax-free return of excess
contribution to an IRA.
Withdrawals resulting from shareholder death or disability
provided that the redemption is requested within one year of
death or disability.
Withdrawals through the Systematic Withdrawal Plan of up to
12% per year of your account value at the time the plan is
established.
Both Class B shares and Class C shares are subject to an ongoing
service and distribution fee at a combined annual rate of up to
1.00% of the portfolio's average net assets attributable to its
Class B or Class C shares. The ongoing distribution fees will
cause these shares to have a higher expense ratio than that of
Class A and Class I shares. IMDI uses the money that it receives
from the deferred sales charge and the distribution fees to cover
various promotional and sales related expenses, as well as
expenses related to providing distributions services, such as
compensating selected dealers and agents for selling these shares.
Approximately eight years after the original date of purchase,
your Class B shares will be converted automatically to Class A
shares. Class A shares are subject to lower annual expenses than
Class B shares. The conversion from Class B shares to Class A
shares is not considered a taxable event for federal income tax
purposes. Class C shares do not have a similar conversion
privilege.
Class I - Class I shares are offered only to institutions and
certain individuals, and are not subject to an initial sales
charge or a CDSC, nor to ongoing service or distribution fees.
Class I shares also bear lower fees than Class A, Class B and
Class C shares.
SUBMITTING YOUR PURCHASE ORDER:
INITIAL INVESTMENTS:
Complete and sign the Account Application appearing at the end of this
Prospectus. Enclose a check payable to Ivy Fund (see page [XX] for
minimum initial investments.) Deliver your application materials to
your registered representative or selling broker, or send them to one
of the addresses below:
By Regular Mail: By Courier:
Ivy Mackenzie Services Corp. Ivy Mackenzie Services Corp.
P.O. Box 3022 700 South Federal Hwy.
Boca Raton, FL 33431-0922 Boca Raton, FL 33432
BUYING ADDITIONAL SHARES:
There are several ways to increase your investment in the Fund:
By Mail - Send your check with a completed investment slip
(attached to your account statement) or written instructions
indicating the account registration, Fund number or name, and
account number.
Mail to one of the addresses above.
Through Your Broker - Deliver to your registered representative
or selling broker the investment slip attached to your statement,
or written instructions, along with your payment.
By Wire - Purchases may also be made by wiring money from your
bank account to your Ivy account. Your bank may charge a fee for
wiring funds. Before wiring any funds, please call IMSC at (800)
777-6472. Wiring instructions are as follows:
First Union National Bank of Florida
Jacksonville, FL
ABA #063000021 Account
#2090002063833 For further credit
to:
Your Ivy Fund Account Number
Your Fund Number and Account Number
By Automatic Investment Method - You can authorize to have funds
electronically drawn each month from your bank account and
invested as a purchase of shares into your Ivy Fund account.
Complete sections [XX] and [XX] of the Account Application.
HOW TO REDEEM SHARES:
SUBMITTING YOUR REDEMPTION ORDER:
You may redeem your Fund shares through your registered securities
dealer or directly through IMSC. If you choose to redeem through your
registered securities dealer, the dealer is responsible for properly
transmitting redemption orders in a timely manner. If you choose to
redeem directly through IMSC, you have several ways to submit your
request:
By Mail - Send your written redemption request to IMSC at one of
the addresses on page XX of this Prospectus. Be sure that all
registered owners listed on the account sign the request.
Signature guarantees and supporting legal documentation may be
required. When you redeem, IMSC will normally send redemption
proceeds to you on the next business day, but may take up to seven
days (or longer in the case of shares recently purchased by
check).
By Telephone - Call IMSC at (800) 777-6472 to redeem from your
account. In order to process your redemption order by telephone,
you must have telephone redemption privileges on your account.
IMSC employs reasonable procedures that require personal
identification prior to acting on redemption instructions
communicated by telephone to confirm that such instructions are
genuine. In the absence of such procedures, the Fund or IMSC may
be liable for any losses due to unauthorized or fraudulent
telephone instructions.
By Systematic Withdrawal Plan (SWP) - You can authorize to have
funds electronically drawn each month from your Ivy Fund account
and deposited directly into your bank account. Certain minimum
balances and minimum distributions apply. Complete sections XX of
the Account Application to add this feature to your account.
Receiving Your Redemption Proceeds - You can receive redemption
proceeds through a variety of payment methods:
By Check - Unless otherwise instructed, checks will be made
payable to the current account registration and sent to the
address of record.
By Federal Funds Wire - Proceeds will be wired on the next
business day to a pre-designated bank account. Requests by
telephone can only be accepted for amounts up to $50,000. Your
account will be charged $10 each time redemption proceeds are
wired to your bank, and your bank may also charge you a fee for
receiving a Federal Funds wire.
By Electronic Funds Transfer - For SWP redemptions only.
Important Redemption Information:
A CDSC may apply to certain Class A share redemptions, to Class B
shares redeemed within six years of purchase, and to Class C
shares that are redeemed within one year of purchase.
All redemptions are made at the NAV next determined after a
redemption request has been received in good order. Requests for
redemptions must be received by 4:00 p.m. Eastern time to be
processed at the NAV for that day. Any redemption request in good
order that is received after 4:00 p.m. Eastern time will be
processed at the price determined on the following business day.
If you own shares of more than one class of the Fund, the Fund
will redeem first the shares having the highest 12b-1 fees.
Any shares subject to a CDSC will be redeemed last unless you
specifically elect otherwise.
The Fund may (on 60 days' notice) redeem the accounts of
shareholders whose investment, including sales charges paid, has
been less than $1,000 for more than 12 months.
The Fund may take up to seven days (or longer in the case of
shares recently purchased by check) to send redemption proceeds.
The Fund may make payment for redeemed shares in the form of
securities of the Fund taken at current values.
HOW TO EXCHANGE YOUR FUND SHARES:
You may exchange your Fund shares for shares of another Ivy fund,
subject to certain restrictions (see "Important Exchange Information"
below).
Submitting Your Exchange Order - You may submit an exchange request to
IMSC as follows:
By Mail - Send your written exchange request to IMSC at one of
the addresses on page XX of this Prospectus. Be sure that all
registered owners listed on the account sign the request.
By Telephone - Call IMSC at (800) 777-6472 to authorize an
exchange transaction. In order to process your exchange order by
telephone, you must have telephone exchange privileges on your
account. IMSC employs reasonable procedures that require personal
identification prior to acting on exchange instructions
communicated by telephone to confirm that such instructions are
genuine. In the absence of such procedures, the Fund or IMSC may
be liable for any losses due to unauthorized or fraudulent
telephone instructions.
IMPORTANT EXCHANGE INFORMATION:
You must exchange into the same share class you currently own.
Exchanges are considered taxable events and may result in a
capital gain or a capital loss for tax purposes.
It is the policy of the Fund to discourage the use of the
exchange privilege for the purpose of timing short-term market
fluctuations. The Fund may therefore limit the frequency of
exchanges by a shareholder or cancel a shareholder's exchange
privilege if at any time it appears that such market timing
strategies are being used.
DIVIDENDS AND DISTRIBUTIONS:
The Fund generally declares and pays dividends and capital gain
distributions (if any) at least once a year.
Dividends and distributions are "reinvested" in additional Fund
shares unless you request to receive them in cash.
Reinvested dividends and distributions are added to your account
at NAV and are not subject to a CDSC regardless of which share
class you own.
Cash dividends and distributions can be sent to you:
BY MAIL - a check will mailed to the address of record unless
otherwise instructed.
BY ELECTRONIC FUNDS TRANSFER ("EFT") - your proceeds will be
directly deposited into your bank account.
To change your dividend and/or distribution options, call IMSC at
(800) 777-6472.
TAX CONSEQUENCES:
Distributions you receive from the Fund are reinvested in additional
shares of the same class of the Fund unless you elect to receive them
in cash. Dividends ordinarily will vary from one class to another.
The Fund intends to declare and pay dividends monthly. The Fund will
distribute net investment income and net realized capital gains, if
any, at least once a year. The Fund may make an additional distribution
of net investment income and net realized capital gains to comply with
the calendar year distribution requirement under the excise tax
provisions of Section 4982 of the Internal Revenue Code of 1986, as
amended (the "Code").
Dividends paid out of the Fund's investment company taxable income
(including dividends, interest and net short-term capital gains) will
be taxable to you as ordinary income. If a portion of the Fund's income
consists of dividends paid by U.S. corporations, a portion of the
dividends paid by the Fund may be eligible for the corporate
dividends-received deduction. Distributions of net capital gains (the
excess of net long-term capital gains over net short-term capital
losses), if any, are taxable to you as long-term capital gains,
regardless of how long you have held your shares. Dividends are taxable
to you in the same manner whether received in cash or reinvested in
additional Fund shares.
If shares of the Fund are held in a tax-deferred account, such as a
retirement plan, income and gain will not be taxable each year.
Instead, the taxable portion of amounts held in a tax-deferred account
generally will be subject to tax as ordinary income only when
distributed from that account.
A distribution will be treated as paid to you on December 31 of the
current calendar year if it is declared by the Fund in October,
November or December with a record date in such a month and paid by the
Fund during January of the following calendar year.
In certain years, you may be able to claim a credit or deduction on
your income tax return for your share of foreign taxes paid by the
Fund. Upon the sale or other disposition of your Fund shares, you may
realize a capital gain or loss which will be long-term or short-term,
generally depending upon how long you held your shares.
The Fund may be required to withhold U.S. Federal income tax at the
rate of 31% of all distributions payable to you if you fail to provide
the Fund with your correct taxpayer identification number or to make
required certifications, or if you have been notified by the Internal
Revenue Service ("IRS") that you are subject to backup withholding.
Backup withholding is not an additional tax. Any amounts withheld may
be credited against your U.S. Federal income tax liability.
Fund distributions may be subject to state, local and foreign taxes.
You should consult with your tax adviser as to the tax consequences of
an investment in the Fund, including the status of distributions from
the Fund under applicable state or local law.
<PAGE>
IVY INTERNATIONAL FUND(A)
<TABLE>
<CAPTION>
CLASS A
- ---------------------------------------------------------------------
1998 1997 1996 1995 1994
SELECTED PER SHARE DATA ---------- ---------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
<C> <C>
Net asset value, beginning of period................ $ 35.89 $ 30.67 $ 27.60 $ 27.71
---------- -------- -------- --------
Income from investment operations
Net investment income............................ .24 .20 .25 .07
Net realized and unrealized gain (loss) on
investment transactions......................... 3.47 5.85 3.22 1.01
---------- -------- -------- --------
Total from investment operations.............. 3.71 6.05 3.47 1.08
---------- -------- -------- --------
Less distributions
From net investment income....................... .21 .19 .25 .07
From net realized gain........................... .26 .64 .12 1.11
In excess of net realized gain................... .10 -- .03 --
From capital paid-in............................. -- -- -- .01
---------- -------- -------- --------
Total distributions.............................. .57 .83 .40 1.19
---------- -------- -------- --------
Net asset value, end of period...................... $ 39.03 $ 35.89 $ 30.67 $ 27.60
========== ======== ======== ========
Total return(%)..................................... 10.38 19.72 12.65 3.92
RATIOS AND SUPPLEMENTAL DATA
Net assets, end of period (in thousands)............ $1,705,772 $989,254 $475,989 $229,586
Ratio of expenses to average net assets(%).......... 1.59 1.65 1.52 1.58
Ratio of net investment income to average net assets
(%)................................................ .68 .76 .97 .30
Portfolio turnover rate(%).......................... 8 14 6 7
Average commission rate............................. $ .0090 $ .0092 N/A N/A
</TABLE>
<TABLE>
<CAPTION>
CLASS B
-----------------------------------------------------
1998 1997 1996 1995 1994
SELECTED PER SHARE DATA ---------- -------- -------- ------- -------
<S> <C> <C> <C> <C> <C>
<C> <C>
Net asset value, beginning of period.... $ 35.73 $ 30.67 $ 27.60 $ 27.71
-------- -------- ------- -------
Income from investment operations
Net investment income (loss)......... (.06) (.01) .01 (.10)
Net realized and unrealized gain
(loss) on investment transactions... 3.44 5.76 3.20 .91
-------- -------- ------- -------
Total from investment
operations....................... 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............... .21 .64 .10 .90
In excess of net realized gain....... .08 -- .03 --
From capital paid-in................. -- -- -- .02
-------- -------- ------- -------
Total distributions.................. .29 .69 .14 .92
-------- -------- ------- -------
Net asset value, end of period.......... $ 38.82 $ 35.73 $ 30.67 $ 27.60
======== ======== ======= =======
Total return(%)......................... 9.46 18.76 11.62 2.96
RATIOS AND SUPPLEMENTAL DATA
Net assets, end of period (in
thousands)............................. $568,521 $312,161 $74,650 $30,143
Ratio of expenses to average net
assets(%).............................. 2.42 2.45 2.44 2.50
Ratio of net investment income (loss) to
average net assets(%).................. (.15) (.04) .05 (.62)
Portfolio turnover rate(%).............. 8 14 6 7
Average commission rate................. $ .0090 $ .0092 N/A N/A
<CAPTION>
CLASS C
---------------------
1998 1997 1996(D)
SELECTED PER SHARE DATA ------- -------- --------
<S>
<C> <C>
Net asset value, beginning of period.... $35.58 $ 32.68
-------- -------
Income from investment operations
Net investment income (loss)......... (.05) --
Net realized and unrealized gain
(loss) on investment transactions... 3.42 3.74
-------- -------
Total from investment
operations....................... 3.37 3.74
-------- -------
Less distributions
From net investment income........... .01 --
In excess of net investment income... -- .20
From net realized gain............... .21 .64
In excess of net realized gain....... .09 --
From capital paid-in................. -- --
-------- -------
Total distributions.................. .31 .84
-------- -------
Net asset value, end of period.......... $38.64 $ 35.58
======== =======
Total return(%)......................... 9.50 11.45
RATIOS AND SUPPLEMENTAL DATA
Net assets, end of period (in
thousands)............................. $174,880 $44,450
Ratio of expenses to average net
assets(%).............................. 2.41 2.44
Ratio of net investment income (loss) to
average net assets(%).................. (.14) (.03)
Portfolio turnover rate(%).............. 8 14
Average commission rate................. $.0090 $ .0092
<CAPTION>
CLASS I
-----------------------------------------
1998 1997 1996 1995 1994(C)
SELECTED PER SHARE DATA ---------- -------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of period... $ 35.89 $30.67 $ 27.60 $29.06
-------- ------- ------- ------
Income from investment operations
Net investment income (loss)........ .32 .27 .30 .03
Net realized and unrealized gain
(loss) on investment transactions.. 3.56 5.88 3.22 (.49)
-------- ------- ------- ------
Total from investment
operations...................... 3.88 6.15 3.52 (.46)
-------- ------- ------- ------
Less distributions
From net investment income.......... .32 .27 .30 .03
In excess of net investment income.. -- .02 -- --
From net realized gain.............. .28 .64 .12 .92
In excess of net realized gain...... .11 -- .03 --
From capital paid-in................ -- -- -- .05
-------- ------- ------- ------
Total distributions................. .71 .93 .45 1.00
-------- ------- ------- ------
Net asset value, end of period......... $ 39.06 $35.89 $ 30.67 $27.60
======== ======= ======= ======
Total return(%)........................ 10.87 20.06 12.85 (1.64)
RATIOS AND SUPPLEMENTAL DATA
Net assets, end of period (in
thousands)............................ $115,046 $53,344 $13,020 $4,921
Ratio of expenses to average net
assets(%)............................. 1.18 1.25 1.35 1.41
Ratio of net investment income (loss) t
average net assets(%).................. 1.08 1.16 1.14 .47
Portfolio turnover rate(%).............. 8 14 6 7
Average commission rate................. $ .0090 $.0092 N/A N/A
</TABLE>
- - ---------------
<TABLE>
<S> <C>
(a) Effective April 1, 1993, the subadviser is Northern Cross
Investments Limited. In prior periods Ivy International Fund
had the following subadvisors: Boston Overseas Investors,
Inc. from July 1, 1990 through March 31, 1993; and Marsh &
Cunningham, from November 15, 1985 through June 30, 1990.
(b) From October 23, 1993 (commencement) to December 31, 1993.
(c) From October 6, 1994 (commencement) to December 31, 1994.
(d) From April 30, 1996 (commencement) to December 31, 1996.
(e) Net investment income is net of expenses reimbursed by IMI.
(f) The ratio of expenses to average net assets is net of
expenses reimbursed by IMI. Without reimbursement, the ratio
of expenses to average net assets would have been 1.80%.
</TABLE>
<PAGE>
ACCOUNT APPLICATION
Please mail applications and checks to: Ivy Mackenzie Services Corp.,
P.O. Box 3022, Boca Raton, FL
33431-0922.
(This application should not be used for retirement accounts for which
Ivy Fund is custodian.)
Account Number:
(Fund Use Only)
Dealer #:
Branch #:
Rep. I.D. #:
Acct. Type:
Soc Cd:
Div Cd:
CG Cd:
Exc Cd:
Red Cd:
1. REGISTRATION
/ / Individual / / Joint Tenant / / Estate / / UGMA/UTMA / /
Corporation / / Partnership / / Sole Proprietor / / Trust / / Other
Date of Trust
Owner, Custodian or Trustee
Co-owner or Minor
Minor's State of Residence
Street
City
State
Zip Code
Phone Number -- Day
Phone Number -- Evening
2. TAX ID
Citizenship: / / U.S. / / Other ________________
Social Security Number
Tax Identification Number
Under penalties of perjury, I certify by signing in Section 8 below
that: (1) the number shown in this section is my correct taxpayer
identification number (TIN), and (2) I am not subject to backup
withholding because: (a) I have not been notified by the Internal
Revenue Service (IRS) that I am subject to backup withholding as a
result of a failure to report all interest or dividends, or (b) the IRS
has notified me that I am no longer subject to backup withholding.
(Cross out item (2) if you have been notified by the IRS that you are
currently subject to backup withholding because of underreporting
interest or dividends on your tax return.) Please see the "Tax
Consequences" section of the Prospectus for additional information on
completing this section.
3. DEALER INFORMATION
The undersigned ("Dealer") agrees to all applicable provisions in this
Application, guarantees the signature and legal capacity of the
Shareholder, and agrees to notify IMSC of any purchases made under a
Letter of Intent or Rights of Accumulation.
Dealer Name
Branch Office Address
City
State
Zip Code
Representative's Name and Number
Representative's Phone Number
Authorized Signature of Dealer
4. INVESTMENTS
A. Enclosed is my check ($1,000 minimum) for $_____________ made
payable to _________________ [Fund Name]. Please invest it in
Class A __ Class B __ Class C __ or Class I __ shares.
B. I qualify for an elimination of the sales charge due to the
following privilege (applies only to Class A shares):
__ New Letter of Intent (if ROA or 90-day backdate
privilege is applicable, provide account(s)
information below.)
__ ROA with the account(s) listed below.
__ Existing Letter of Intent with account(s) listed
below.
Fund Name(s)
Account Number(s)
If establishing a Letter of Intent, you will need to purchase
Class A shares over a thirteen-month period in accordance with
the provisions in the Prospectus. The Aggregate amount of
these purchases will be at least equal to the amount indicated
below (see Prospectus for minimum amount required for reduced
sales charges).
/ / $50,000
/ / $100,000
/ / $250,000
/ / $500,000
C. FOR DEALER USE
Confirmed trade orders: [Confirm Number, Number of Shares,
Trade Date]
5. DISTRIBUTION OPTIONS
I would like to reinvest dividends and capital gains into additional
shares in this account at net asset value unless a different option is
checked below.
/ / Reinvest all dividends and capital gains into additional
shares of a different Ivy fund.
Fund Name
Account Number
/ / Pay all dividends in cash and reinvest capital gains into
additional shares in this Fund or a different Ivy fund.
Fund Name
Account Number
/ / Pay all dividends and capital gains in cash.
I REQUEST THE ABOVE CASH DISTRIBUTION, SELECTED IN C OR D
ABOVE, BE:
/ / Sent to the address listed in the registration.
/ / Sent to the special payee listed in Section 7A
/ / (By Mail) 7B
/ / (By E.F.T.)
6. OPTIONAL SPECIAL FEATURES
A. / / Automatic Investment Method (AIM)
- I wish to invest _________________ / / once per month / /
twice / / 3 times / / 4 times
- My bank account will be debited on the _________ day of the month
Please invest $___________________ each period starting in the month
of __________________ in
---------------------------.
Fund Name
/ / Class A
/ / Class B
/ / Class C
/ / Class I
/ / I have attached a voided check to ensure my correct bank
account will be debited.
B. SYSTEMATIC WITHDRAWAL PLANS**
I wish to automatically withdraw funds from my account in
____________________ Fund Name
/ / Monthly / / Quarterly / /Semiannually / / Annually
/ / Once / / Twice / / 3 times / / 4 times per month
I request the distribution be:
/ / Sent to the address listed in the registration.
/ / Sent to the special payee listed in Section 7.
/ / Invested into additional shares of the same class of a different
Ivy fund.
Fund Name
Account Number
Amount $__________________(Minimum $50) starting on or about the
-_______ day of the month
-_______ day of the month
-_______ day of the month*
NOTE: Account minimum: $5,000 in shares at current offering price
C. FEDERAL FUNDS TRANSFER FOR REDEMPTION PROCEEDS**
I authorize the Agent to honor telephone instructions for the
redemption of Fund shares up to $50,000. Proceeds may be wire
transferred to the bank account designated ($1,000 minimum).
(Complete Section 7B)
TELEPHONE EXCHANGES** / / YES / / NO
I authorize exchanges by telephone among the Ivy funds upon
instructions from any person as more fully described in the
Prospectus. To change this option once established, written
instructions must be received from the shareholder of record
or the current registered representative.
If neither box is checked, the telephone exchange privilege
will be provided automatically.
TELEPHONIC REDEMPTIONS** / / YES / / NO
The Fund or its agents are authorized to honor telephone
instructions from any person as more fully described in the
Prospectus for the redemption of Fund shares. The amount of
the redemption shall not exceed $50,000 and the proceeds are
to be payable to the shareholder of record and mailed to the
address of record. To change this option once established,
written instructions must be received from the shareholder of
record or the current registered representative.
If neither box is checked, the telephone redemption privilege
will be provided automatically.
* There must be a period of at least seven calendar
days between each investment/withdrawal period.
** This option may not be used if shares are issued in
certificate form.
7. SPECIAL PAYEE
A. MAILING ADDRESS
Please send all disbursements to this special payee:
Name of Bank or Individual
Account Number (If Applicable)
Street
City/State/Zip
B. FED WIRE / E.F.T. INFORMATION
Financial Institution
ABA #
Account #
Street
City/State/Zip
(Please attach a voided check)
8. SIGNATURES
Investors should be aware that the failure to check the "No" under
Section 6D or 6E above means that the Telephone Exchange/Redemption
Privileges will be provided. The Fund employs reasonable procedures
that require personal identification prior to acting on
exchange/redemption instructions communicated by telephone to confirm
that such instructions are genuine. In the absence of such procedures,
the Fund may be liable for any losses due to unauthorized or fraudulent
telephone instructions. Please see "How to Exchange Your Fund Shares"
and "How to Redeem Your Fund Shares" in the Prospectus for more
information on these privileges.
I certify to my legal capacity to purchase or redeem shares of the Fund
for my own account or for the account of the organization named in
Section 1. I have received a current Prospectus and understand its
terms are incorporated in this application by reference. I am
certifying my taxpayer information as stated in Section 2.
THE INTERNAL REVENUE SERVICE DOES NOT REQUIRE YOUR CONSENT TO ANY
PROVISION OF THIS DOCUMENT OTHER THAN THE CERTIFICATIONS REQUIRED TO
AVOID BACKUP WITHHOLDING.
------------------------------
Signature of Owner, Custodian, Date
Trustee or Corporate Officer
------------------------------
Signature of Joint Owner, Date
Co-Trustee or Corporate Officer
(Remember to sign Section 8)
<PAGE>
[Back Cover Page]
HOW TO RECEIVE MORE INFORMATION ABOUT THE FUND
Additional information about the Fund and its investments is contained in the
Fund's Statement of Additional Information dated April ___, 1999 (the "SAI"),
which is incorporated by reference into this Prospectus, and the Fund's annual
and semi-annual reports to shareholders. The Fund's annual report includes a
discussion of the market conditions and investment strategies that significantly
affected the Fund's performance during its most recent fiscal year. The SAI and
the Fund's annual and semi-annual reports are available upon request and without
charge from the Distributor at the following address and phone number:
Ivy Mackenzie Distributors, Inc.
Via Mizner Financial Plaza
700 South Federal Highway
Boca Raton, Florida 33432
(800) 456-5111
Information about the Fund (including the SAI and the Fund's annual and
semi-annual reports) may also be reviewed and copied at the SEC's Public
Reference Room in Washington, D.C. (please call 1-800-SEC-0330 for further
details). Information about the Fund is also available on the SEC's Internet
Website (www.sec.gov), and copies of this information may be obtained, upon
payment of a copying fee, by writing the Public Reference Section of the SEC,
Washington, D.C. 20549-6009.
SHAREHOLDER INQUIRIES
Please call Ivy Mackenzie Services Corp., the Fund's transfer agent, at
1-800-777-6472 regarding any other inquiries about the Fund.
Investment Company Act File No. 811-1028
<PAGE>
[Front Cover Page]
PROSPECTUS April ___, 1999
IVY FUND - Ivy International Fund II
Ivy Fund (the "Trust") is a registered open-end investment company currently
consisting of nineteen separate portfolios. This Prospectus relates to the Class
A, Class B, Class C, Class I and Advisor Class shares of Ivy International Fund
II (the "Fund"). No other shares are offered in this Prospectus.
The Securities and Exchange Commission has not approved or disapproved these
securities or passed upon the adequacy of this Prospectus. Any representation to
the contrary is a criminal offense.
[Insert all logos]
<PAGE>
TABLE OF CONTENTS
SUMMARY
ADDITIONAL INFORMATION ABOUT INVESTMENT STRATEGIES AND RISKS
MANAGEMENT
SHAREHOLDER INFORMATION
ACCOUNT APPLICATION
HOW TO RECEIVE MORE INFORMATION ABOUT THE FUND
SHAREHOLDER INQUIRIES
<PAGE>
SUMMARY
Investment The Fund's principal investment objective is long-term
objective: capital growth primarily through investment in equity
securities. Consideration of current income is secondary to
this principal objective.
Principal The Fund invests primarily in equity securities principally
investment traded in European, Pacific Basin and Latin American
strategies: markets. The Fund might engage in foreign currency exchange
transactions and forward foreign contracts to control its
exposure to certain risks.
Principal risks: The main risks to which the Fund is exposed in carrying out
its investment strategies are the following:
Management risk: The Fund's manager might not select
securities that perform as well as the securities held by
other mutual funds with investment objectives that are
similar to those of the Fund.
Market risk: Common stocks represent a proportionate
ownership interest in a company. The market value of common
stock can fluctuate significantly even where "management
risk" is not a factor, so you could lose money if you redeem
your Fund shares at a time when the Fund's stock portfolio
is not performing as well as expected. The market value of
common stock can fluctuate significantly, so you could lose
money if you redeem your Fund shares at a time when the
Fund's stock portfolio is not performing as well as
expected.
Foreign security and emerging market risk: Investing in
foreign securities involves a number of economic, financial
and political considerations that are not associated with
the U.S. markets and that could affect the Fund's
performance favorably or unfavorably, depending upon
prevailing conditions at any given time. Among these
potential risks are:
greater price volatility;
comparatively weak supervision and regulation of
securities exchanges, brokers and issuers;
higher brokerage costs;
fluctuations in foreign currency exchange rates and
related conversion costs;
adverse tax consequences; and
settlement delays.
The risks of investing in foreign securities are more acute in countries
with developing economies. Who should invest:* The Fund may be
appropriate for investors seeking long-term growth potential, but who
can accept moderate fluctuations in capital value in the short-term.
* You should consult with your financial advisor before deciding whether
the Fund is an appropriate investment choice in light of your
particular financial needs and risk tolerance.
<PAGE>
Performance Bar Chart and Table:
The information in the following chart and table provides some
indication of the risks of investing in the Fund by showing changes in
the Fund's performance from year to year and how the Fund's average
annual returns since its inception on May 13, 1997 compare with those
of a broad measure of market performance. The Fund's past performance
is not an indication of how the Fund will perform in the future.
Annual Total Returns for Class A Shares as of December 31, 1998:*
-------------------------
1997# 1998
* Any applicable sales charges and account fees are not
reflected, and if they were the returns shown above would be
lower. The returns for the Fund's other four classes of shares
during these periods were different from those of Class A
because of variations in their respective expense structures.
# For the period May 13, 1997 (commencement) to December 31,
1997.
Best quarter: ______% (Q__ 199__)
Worst quarter: ______% (Q__ 199__)
Average Annual Total Returns (for the periods ending December 31, 1998):*
Past year: Since inception:**
Class A: ______% ______%
Class B: ______% ______%
Class C: ______% ______%
Class I:*** N/A N/A
Advisor Class: ______% ______%
[Index]: ______% ______%
* Performance figures reflect any applicable sales charges.
** The inception date for all Classes other than Advisor Class
was May 13, 1997. Advisor Class shares were first offered on
January 1, 1998.
*** The Fund has had no outstanding Class I shares.
<PAGE>
Fees and Expenses:
The following tables describe the fees and expenses that you may pay if
you buy and hold shares of the Fund:
Shareholder Fees (fees paid directly from your investment):
Maximum Sales Charge (Load) Imposed on Maximum Deferred Sales
Purchases (as a percentage of Charge (Load) (as a
offering price): percentage of original
purchase price):
Class A: 5.75% none
Class B: none 5.00%
Class C: none 1.00%
Class I: none none
Advisor none none
Class:
Annual Fund Operating Expenses (expenses that are deducted from Fund
assets):
Distribution Total Annual Expenses Net Fund
Management and/or Other Fund Waived or Operating
Fees: Service Expenses: Operating Reimbursed* Expenses*
(12b-1) Expenses:
Fees:
Class A: 1.00% .25% $_______ $_______ $_______ $_______
Class B: 1.00% 1.00% $_______ $_______ $_______ $_______
Class C: 1.00% 1.00% $_______ $_______ $_______ $_______
Class I: 1.00% none $_______ $_______ $_______ $_______
Advisor 1.00% none $_______ $_______
Class:
* The Fund's Manager has agreed to waive and/or reimburse the
Fund's fees and expenses to the extent necessary to ensure
that the Fund's Annual Fund Operating Expenses do not exceed
the amounts shown in the far right column above.
Example:
The following example is intended to help you compare the cost of
investing in the Fund with the cost of investing in other mutual funds.
The example assumes that you invest $10,000 in the Fund for the time
periods indicated and then redeem all of your shares at the end of
those periods (with additional information shown for Class B and Class
C shares based on the assumption that you do not redeem your shares at
that time). The example also assumes that your investment has a 5%
return each year and that the Fund's operating expenses remain the
same. Although your actual costs may be higher or lower, based on these
assumptions your costs would be as follows:
1 Year: 3 Years: 5 Years: 10 Years:
------ ------- ------- --------
Class A: $______ $______ $______ $______
Class B: $______ $______ $______ $______
Class B (no redemption): $______ $______ $______ $______
Class C: $______ $______ $______ $______
Class C (no redemption): $______ $______ $______ $______
Class I: $______ $______ $______ $______
Advisor Class: $______ $______ $______ $______
<PAGE>
ADDITIONAL INFORMATION ABOUT INVESTMENT STRATEGIES AND RISKS
Principal strategies:
The Fund seeks to achieve its principal objective of long-term capital
growth by investing in equity securities principally traded in
European, Pacific Basin and Latin American markets. The Fund invests in
a variety of economic sectors and industry segments in order to reduce
the effects of price volatility in any one area.
The Fund's manager seeks out rapidly expanding foreign economies and
companies that generally have at least $1 billion in capitalization at
the time of investment and a solid history of operations. Other factors
that the Fund's manager considers in selecting particular countries
include long-term economic growth prospects, anticipated inflation
levels, and the effect of applicable government policies on local
business conditions.
Individual securities are finally selected on the basis of value
indicators (such as earnings, cash flow and growth potential) and are
reviewed for fundamental financial strength. Investment decisions
typically are based on earnings estimates over a five-year period, with
stocks normally purchased from within the cheapest 20% of the market
universe and sold once they are valued within the top 20%.
Principal risks:
General market risk: As with any mutual fund, the value of the Fund's
investments and the income they generate will vary daily and generally
reflect market conditions, interest rates and other issuer-specific,
political or economic developments. The Fund's share value will
decrease at any time during which its security holdings or other
investment techniques are not performing as well as anticipated, and
you could therefore lose money by investing in the Fund depending upon
the timing of your initial purchase and any subsequent redemption.
Other risks: Since the Fund invests heavily in the equity securities of
foreign issuers, it is more susceptible to the risks associated with
these types of securities than a fund that invests primarily in the
securities of U.S. issuers and/or debt securities. Following is a
description of these risks, along with the risks commonly associated
with the other securities and investment techniques that the Fund's
portfolio manager considers important in achieving the Fund's
investment objective or in managing the Fund's exposure to risk (and
that could therefore have a significant effect on the Fund's returns).
Other investment techniques that the Fund may use, but that do not play
a key role in the Fund's overall investment strategy, are described in
the Fund's Statement of Additional Information (see back cover page for
information on how you can receive a free copy).
Common Stocks: Common stocks represent a proportionate ownership
interest in a company. As a result, the value of common stock
rises and falls with a company's success or failure. The market
value of common stock can fluctuate significantly, with smaller
companies being particularly susceptible to price swings.
Transaction costs in smaller company stocks may also be higher
than those of larger companies.
Depository Receipts: The Fund may acquire interests in foreign
issuers in the form of sponsored or unsponsored American
Depository Receipts ("ADRs"), Global Depository Receipts ("GDRs")
and similar types of depository receipts. ADRs typically are
issued by a U.S. bank or trust company and represent ownership of
the underlying securities issued by a foreign corporation. GDRs
and other types of depository receipts are usually issued by
foreign banks or trust companies. The Fund's investments in ADRs,
GDRs and other depository receipts are viewed as investments in
the underlying securities.
Depository receipts can be difficult to price and are not always
exchange-listed. Unsponsored depository programs also are
organized independently without the cooperation of the issuer of
the underlying securities. As a result, information concerning the
issuer may not be as current or as readily available as in the
case of sponsored depository instruments, and their prices may be
more volatile than if they were sponsored by the issuers of the
underlying securities.
Foreign Securities: Investing in foreign securities involves a
number of economic, financial and political considerations that
are not associated with the U.S. markets and that could affect the
Fund's performance favorably or unfavorably, depending upon
prevailing conditions at any given time. For example, the
securities markets of many foreign countries may be smaller, less
liquid and subject to greater price volatility than those in the
U.S. Foreign investing may also involve brokerage costs and tax
considerations that are not usually present in the U.S. markets.
Many of the Fund's securities also are denominated in foreign
currencies and the value of the Fund's investments as measured in
U.S. dollars may be affected favorably or unfavorably by changes
in foreign currency exchange rates and exchange control
regulations. Currency conversion can also be costly.
Other factors that can affect the value of the Fund's foreign
investments include the comparatively weak supervision and
regulation by some foreign governments of securities exchanges,
brokers and issuers, and the fact that many foreign companies may
not be subject to uniform accounting, auditing and financial
reporting standards. It may also difficult to obtain reliable
information about the securities and business operations certain
foreign issuers. Settlement of portfolio transactions may also be
delayed due to local restrictions or communication problems, which
can cause the Fund to miss attractive investment opportunities or
impair its ability to dispose of securities in a timely fashion
(resulting in a loss if the value of the securities subsequently
declines).
Special Emerging Market Concerns: The risks of investing in
foreign securities are heightened in countries with developing
economies. Among these additional risks are the following:
securities that are even less liquid and more volatile than those
in more developed foreign countries;
less stable governments that are susceptible to sudden
adverse actions (such as nationalization of businesses,
restrictions on foreign ownership or prohibitions against
repatriation of assets);
increased settlement delays;
abrupt changes in exchange rate regime or monetary policy;
restrictions on repatriation of capital;
unusually large currency fluctuations and currency conversion
costs (see "Foreign Currencies" below); and
high national debt levels (which may impede an issuer's
payment of principal and/or interest on external debt).
Foreign Currencies: Investing in foreign securities typically
involves the use of foreign currencies. The value of the Fund's
assets, as measured in U.S. dollars, may be affected favorably or
unfavorably by changes in foreign currency exchange rates and
exchange control regulations. Currency conversions can also be
costly.
Foreign Currency Exchange Transactions and Forward Foreign
Currency Contracts: The Fund may, but is not required to, use
foreign currency exchange transactions and forward foreign
currency contracts to hedge certain market risks (such as interest
rates, currency exchange rates and broad or specific market
movement). These investment techniques involve a number of risks,
including the possibility of default by the counterparty to the
transaction and, to the extent the Fund's judgment as to certain
market movements is incorrect, the risk of losses that are greater
than if the investment technique had not been used. For example,
there may be an imperfect correlation between the Fund's portfolio
holdings of securities denominated in a particular currency and
the forward contracts entered into by the Fund. An imperfect
correlation of this type may prevent the Fund from achieving the
intended hedge or expose the Fund to the risk of currency exchange
loss. In addition, although the use of these investment techniques
for hedging purposes should tend to minimize the risk of loss due
to a decline in the value of the hedged position, they also tend
to limit any potential gain that might result from an increase in
the position's value.
Illiquid Securities: The Fund may invest up to 15% of its net
assets in "illiquid securities," which are assets that may not be
disposed of in the ordinary course of business within seven days
at roughly the value at which the Fund has valued the assets. Some
of these may by "restricted securities," which cannot be sold to
the public without registration under the Securities Act of 1933
(in the absence of an exemption) or because of other legal or
contractual restrictions on resale. Thus, while illiquid
securities may offer the potential for higher returns than more
readily marketable securities, there is a risk that the Fund will
not be able to dispose of them promptly at an acceptable price.
Other Investment Companies: The Fund may invest up to 10% of its
total assets in the shares of other investment companies. As a
shareholder of an investment company, the Fund would bear its
ratable share of the fund's expenses (which often include an
asset-based management fee). The Fund could also lose money by
investing in other investment companies, since the value of their
respective investments and the income they generate will vary
daily based on prevailing market conditions.
Temporary Defensive Positions: The Fund may from time to time
take a temporary defensive position and invest without limit in
U.S. Government securities, investment-grade debt securities, and
cash and cash equivalents such as commercial paper, short-term
notes and other money market securities. When the Fund assumes
such a defensive position it may not achieve its investment
objective. Investing in debt securities also involves both
interest rate and credit risk. Generally, the value of debt
instruments rises and falls inversely with fluctuations in
interest rates. For example, as interest rates decline the value
of debt securities generally increases. Conversely, rising
interest rates tend to cause the value of debt securities to
decrease. The market value of debt securities also tends to vary
according to the relative financial condition of the issuer. Bonds
with longer maturities tend to be more volatile than bonds with
shorter maturities.
Borrowing: For temporary or emergency purposes (such as meeting
shareholder redemption requests within the time periods specified
under the Investment Company Act of 1940), the Fund may borrow up
to 10% of the value of its total assets from qualified banks.
Borrowing may exaggerate the effect on the Fund's share value of
any increase or decrease in the value of the securities it holds.
Money borrowed will also be subject to interest costs.
Other Important Information:
European Monetary Union: On January 1, 1999, a new European currency
called the "Euro" was introduced and adopted for use by eleven European
countries. The transition to daily usage of the Euro, including
circulation of Euro bills and coins, will occur during the period from
January 1, 1999 through December 31, 2001. Certain European Union (EU)
members, including the United Kingdom, did not officially implement the
Euro on January 1, 1999 and may cause market disruptions when and if
they decide to do so. Where this occurs, the Fund could experience
investment losses.
Year 2000 Risks: Many computer software and hardware systems in use
today cannot distinguish between the year 2000 and the year 1900
because of the way dates are encoded and calculated (the "Year 2000
Problem"). The inability of computer-based systems to make this
distinction could have a seriously adverse effect on the handling of
securities trades, pricing and account services worldwide. The Fund's
service providers are taking steps that each believes are reasonably
designed to address the Year 2000 Problem with respect to the computer
systems that they use. The Fund believes these steps will be sufficient
to avoid any material adverse impact on the Fund. At this time,
however, there can be no assurance that significant problems will not
occur (which either directly or indirectly may cause the Fund to lose
money).
MANAGEMENT
Investment Advisor:
Ivy Management, Inc. ("IMI"), located at Via Mizner Financial Plaza,
700 South Federal Highway, Boca Raton, Florida 33432, provides
investment advisory and business management services to the Fund. IMI
is an SEC-registered investment advisor with over $____ billion in
assets under management, and provides similar services to the other
eighteen series of the Trust. For the Fund's fiscal year ending
December 31, 1998, the Fund paid to IMI a fee equal to ___% of the
Fund's average net assets.
Portfolio Manager:
Barbara Trebbi, a Senior Vice President of IMI, has managed the Fund
since its inception. She is also Managing Director of International
Equities and a member of the Ivy international portfolio management
team. Ms. Trebbi joined IMI in 1988 and has 11 years of professional
investment experience. She is a Chartered Financial Analyst and holds a
graduate diploma from the London School of Economics.
Investment Support:
The Fund's portfolio manager is supported by a team of research
analysts who are responsible for providing information on regional and
country-specific economic and political developments and monitoring
individual companies. These analysts use a variety of research sources
that include:
brokerage reports;
economic and financial news services;
company reports; and
information from third party research firms (ranging from large
investment banks with global coverage to local research houses).
In many cases, particularly in emerging market countries, IMI's
research analysts also conduct primary research by:
meeting with company management;
touring facilities; and
speaking with local research professionals.
<PAGE>
SHAREHOLDER INFORMATION
PRICING OF FUND SHARES:
The Fund calculates its share price by dividing the value of the Fund's
net assets by the total number of its shares outstanding as of the
close of regular trading (usually 4:00 p.m. Eastern time) on the New
York Stock Exchange on each day the Exchange is open for trading
(normally any weekday that is not a national holiday).
Each portfolio security that is listed or traded on a recognized stock
exchange is valued at the security's last sale price on the exchange
on which it was purchased. If no sale is reported at that time, the
average between the last bid and asked prices is used. Securities and
other Fund assets for which market prices are not readily available
are priced at their "fair value" as determined by IMI in accordance
with procedures approved by the Fund's Board of Trustees. IMI may also
price a foreign security at its "fair value" if events materially
affecting the value of the security occur between the close of the
foreign exchange on which the security is principally traded and the
time as of which the Fund prices its shares. Fair value pricing under
these circumstances is designed to protect existing shareholders from
dilution of their share value caused by short-term investors trading
into and out of the Fund at at time when the Fund's share price,
calculated by ordinary pricing methods, is undervalued. When such fair
value pricing occurs, however, there may be some period of time during
which the Fund's share price and/or performance information is not
available.
The number of shares you receive when you place a purchase order, and
the payment you receive after submitting a redemption request, is based
on the Fund's net asset value next determined after your instructions
are received in proper form by Ivy Mackenzie Services Corp. (the Fund's
transfer agent) or by your registered securities dealer. Each purchase
and redemption order is subject to any applicable sales charge (see
"Distribution Arrangements" below). Since the Fund normally invests in
securities that are listed on foreign exchanges that may trade on
weekends or other days when the Fund does not price its shares, the
Fund's share value may change on days when shareholders will not be
able to purchase or redeem the Fund's shares.
HOW TO BUY SHARES:
Purchasing Fund shares involves "Choosing the Appropriate Class of
Shares" and "Submitting Your Purchase Order". Please read these
sections below carefully before investing.
Choosing the Appropriate Class of Shares - The essential features of
the Fund's different classes of shares are described below. If you do
not specify on your Account Application which class of shares you are
purchasing, it will be assumed that you are purchasing Class A shares.
The Fund has adopted separate distribution plans pursuant to Rule
12b-1 under the 1940 Act for its Class A, B and C shares that allow
the Fund to pay distribution and other fees for the sale and
distribution of its shares and for services provided to shareholders.
Because these fees are paid out of the Fund's assets on an on-going
basis, over time they will increase the cost of your investment and
may cost you more than paying other types of sales charges.
Class A Shares: Class A shares are sold at net asset value plus a
maximum sales charge of 5.75% (the "offering price"). The sales
charge may be reduced or eliminated if certain conditions are met
(see "Additional Purchase Information" below). Class A shares are
subject to a .25% Rule 12b-1 service fee.
Class B Shares: Class B shares are offered at net asset value,
without an initial sales charge, but subject to a contingent
deferred sales charge ("CDSC") that declines from 5% to zero on
certain redemptions within six years of purchase. Class B shares
are subject to a .75% Rule 12b-1 distribution fee and a .25% Rule
12b-1 service fee, and convert automatically into Class A shares 8
years after purchase.
Class C Shares: Class C shares are offered at net asset value,
without an initial sales charge, but subject to a CDSC of 1% for
redemptions within the first year of purchase. Class C shares are
subject to a .75% Rule 12b-1 distribution fee and a .25% Rule
12b-1 service fee.
Class I and Advisor Class Shares: Class I and Advisor Class
shares are offered to certain classes of investors at net asset
value, without any sales load or Rule 12b-1 fees.
The following table displays the various investment minimums, sales
charges and expenses that apply to each class.
<TABLE>
<S> <C> <C> <C> <C> <C>
- -------------------- ------------------ ----------------- ------------------ -------------- --------------
Class A Class B Class C Class I Advisor Class
- -------------------- ------------------ ----------------- ------------------ -------------- --------------
- -------------------- ------------------ ----------------- ------------------ -------------- --------------
Minimum Initial $5,000,000 $10,000
Investment* $1,000 $1,000 $1,000
- -------------------- ------------------ ----------------- ------------------ -------------- --------------
- -------------------- ------------------ ----------------- ------------------ -------------- --------------
Minimum Subsequent
Investment* $100 $100 $100 $ 10,000 $ 250
- -------------------- ------------------ ----------------- ------------------ -------------- --------------
- -------------------- ------------------ ----------------- ------------------ -------------- --------------
Initial Sales Maximum 5.75%, None None None None
Charge with options for
a reduced or
waiver of
initial sales
charge
- -------------------- ------------------ ----------------- ------------------ -------------- --------------
- -------------------- ------------------ ----------------- ------------------ -------------- --------------
CDSC None, except on Maximum 5.00%, 1.00% for the None None
certain NAV declines over first year
purchases six years
- -------------------- ------------------ ----------------- ------------------ -------------- --------------
- -------------------- ------------------ ----------------- ------------------ -------------- --------------
Service and 0.25% Service fee 0.75% 0.75% None None
Distribution Fees Distribution Distribution Fee
Fee and 0.25% and 0.25%
Service Fee Service Fee
- -------------------- ------------------ ----------------- ------------------ -------------- --------------
</TABLE>
* Minimum initial and subsequent investments for retirement plans are $25.
ADDITIONAL PURCHASE INFORMATION:
Class A Shares - Class A shares are sold at a public offering
price equal to their net asset value per share ("NAV") plus an
initial sales charge, as set forth below (which is reduced as the
amount invested increases):
<TABLE>
<S> <C> <C> <C>
- -------------------------------- ---------------------- ------------------ ----------------------
Sales Charge as a Sales Charge as Portion of Public
Percentage of Public a Percentage of Offering Price
Offering Price Net Amount Retained by Dealer
Amount Invested Invested
- -------------------------------- ---------------------- ------------------ ----------------------
- -------------------------------- ---------------------- ------------------ ----------------------
Less than $50,000 5.75% 6.10% 5.00%
- -------------------------------- ---------------------- ------------------ ----------------------
- -------------------------------- ---------------------- ------------------ ----------------------
$50,000 but less than $100,000 5.25% 5.54% 4.50%
- -------------------------------- ---------------------- ------------------ ----------------------
- -------------------------------- ---------------------- ------------------ ----------------------
$100,000 but less than $250,000 4.50% 4.71% 3.75%
- -------------------------------- ---------------------- ------------------ ----------------------
- -------------------------------- ---------------------- ------------------ ----------------------
$250, 000 but less than 3.00% 3.09% 2.50%
$500,000
- -------------------------------- ---------------------- ------------------ ----------------------
$500,000 or over* 0.00% 0.00% 0.00%
- -------------------------------- ---------------------- ------------------ ----------------------
</TABLE>
* A CDSC of 1.00% applies to Class A shares that are redeemed
within two years of the end of the month in which they were
purchased.
Class A shares that are acquired through reinvestment of dividends
or distributions are not subject to any sales charges.
HOW TO REDUCE YOUR INITIAL SALES CHARGE:
"Rights of Accumulation" permits you to pay the sales charge
that applies to the cost or value (whichever is higher) of all
Ivy Fund Class A shares you own.
A "Letter of Intent" permits you to pay the sales charge that
would apply to your cumulative purchase of Fund shares over a
13-month period (certain restrictions apply).
HOW TO ELIMINATE YOUR INITIAL SALES CHARGE:
You may purchase Class A shares at NAV (without an initial sales
charge or a CDSC) through any one of the following methods:
through certain investment advisors and financial planners who
charge a management, consulting or other fee for their services;
under certain qualified retirement plans;
as an employee or director of Mackenzie Investment Management
Inc. or its affiliates;
as an employee of a selected dealer; or
through the Merrill Lynch Daily K Plan (the "Plan"), provided
the Plan has at least $3 million in assets or over 500 or more
eligible employees. Class B shares of the Fund are made
available to Plan participants at NAV without a CDSC if the
Plan has less than $3 million in assets or fewer than 500
eligible employees. For further information see "Group
Systematic Investment Program" in the SAI.
You may also purchase Class A shares at NAV if you are investing
at least $500,000 through a dealer or agent. Ivy Mackenzie
Distributors, Inc. ("IMDI"), the Fund's distributor, may pay the
dealer or agent (out of IMDI's own resources) for its distribution
assistance according to the following schedule:
------------------------------- -------------------------------
Purchase Amount Commission
------------------------------- -------------------------------
------------------------------- -------------------------------
First $3,000,000 1.00%
------------------------------- -------------------------------
------------------------------- -------------------------------
Next $2,000,000 0.50%
------------------------------- -------------------------------
------------------------------- -------------------------------
Over $5,000,000 0.25%
------------------------------- -------------------------------
Certain trust companies, bank trust departments, credit unions,
savings and loans and other similar organizations may also be
exempt from the initial sales charge on Class A shares.
Class B and Class C Shares - Class B and Class C shares are not
subject to an initial sales charge but are subject to a CDSC. If
you redeem your Class C shares within one year of purchase they
will be subject to a CDSC of 1%, and Class B shares redeemed
within six years of purchase will be subject to a CDSC at the
following rates:
--------------------- --------------------
CDSC as a
Percentage of
Year Since Purchase Dollar Amount
Subject to Charge
--------------------- --------------------
First 5%
--------------------- --------------------
--------------------- --------------------
Second 4%
--------------------- --------------------
--------------------- --------------------
Third 3%
--------------------- --------------------
--------------------- --------------------
Fourth 3%
--------------------- --------------------
--------------------- --------------------
Fifth 2%
--------------------- --------------------
--------------------- --------------------
Sixth 1%
--------------------- --------------------
--------------------- --------------------
Seventh and 0%
thereafter
--------------------- --------------------
The CDSC for both Class B and Class C shares will be assessed on
an amount equal to the lesser of the current market value or the
original purchase cost of the shares being redeemed. No charge
will be assessed on increases in account value above the original
purchase price or on reinvested dividends and distributions.
The CDSC for Class B shares is waived for:
Certain post-retirement withdrawals from an IRA or other
retirement plan if you are over 59 1/2 years old.
Redemptions by certain eligible 401(a) and 401(k) plans and
certain retirement plan rollovers.
Redemption resulting from a tax-free return of excess
contribution to an IRA.
Withdrawals resulting from shareholder death or disability
provided that the redemption is requested within one year of
death or disability.
Withdrawals through the Systematic Withdrawal Plan of up to
12% per year of your account value at the time the plan is
established.
Both Class B shares and Class C shares are subject to an ongoing
service and distribution fee at a combined annual rate of up to
1.00% of the portfolio's average net assets attributable to its
Class B or Class C shares. The ongoing distribution fees will
cause these shares to have a higher expense ratio than that of
Class A, Class I and Advisor Class shares. IMDI uses the money
that it receives from the deferred sales charge and the
distribution fees to cover various promotional and sales related
expenses, as well as expenses related to providing distributions
services, such as compensating selected dealers and agents for
selling these shares.
Approximately eight years after the original date of purchase,
your Class B shares will be converted automatically to Class A
shares. Class A shares are subject to lower annual expenses than
Class B shares. The conversion from Class B shares to Class A
shares is not considered a taxable event for federal income tax
purposes. Class C shares do not have a similar conversion
privilege.
Class I and Advisor Class - Class I and Advisor Class shares are
offered only to institutions and certain individuals, and are not
subject to an initial sales charge or a CDSC, nor to ongoing
service or distribution fees. Class I shares also bear lower fees
than Class A, Class B, Class C and Advisor Class shares.
SUBMITTING YOUR PURCHASE ORDER:
INITIAL INVESTMENTS:
Complete and sign the Account Application appearing at the end of this
Prospectus. Enclose a check payable to Ivy Fund (see page [XX] for
minimum initial investments.) Deliver your application materials to
your registered representative or selling broker, or send them to one
of the addresses below:
By Regular Mail: By Courier:
Ivy Mackenzie Services Corp. Ivy Mackenzie Services Corp.
P.O. Box 3022 700 South Federal Hwy.
Boca Raton, FL 33431-0922 Boca Raton, FL 33432
BUYING ADDITIONAL SHARES:
There are several ways to increase your investment in the Fund:
By Mail - Send your check with a completed investment slip
(attached to your account statement) or written instructions
indicating the account registration, fund number or name, and
account number.
Mail to one of the addresses above.
Through Your Broker - Deliver to your registered representative
or selling broker the investment slip attached to your statement,
or written instructions, along with your payment.
By Wire - Purchases may also be made by wiring money from your
bank account to your Ivy account. Your bank may charge a fee for
wiring funds. Before wiring any funds, please call IMSC at (800)
777-6472. Wiring instructions are as follows:
First Union National Bank of Florida
Jacksonville, FL
ABA #063000021
Account #2090002063833
For further credit to:
Your Ivy Fund Account Number
Your Fund Number and Account Number
By Automatic Investment Method - You can authorize to have funds
electronically drawn each month from your bank account and
invested as a purchase of shares into your Ivy Fund account.
Complete sections [XX] and [XX] of the Account Application.
HOW TO REDEEM SHARES:
SUBMITTING YOUR REDEMPTION ORDER:
You may redeem your Fund shares through your registered securities
dealer or directly through IMSC. If you choose to redeem through your
registered securities dealer, the dealer is responsible for properly
transmitting redemption orders in a timely manner. If you choose to
redeem directly through IMSC, you have several ways to submit your
request:
By Mail - Send your written redemption request to IMSC at one of
the addresses on page XX of this Prospectus. Be sure that all
registered owners listed on the account sign the request.
Signature guarantees and supporting legal documentation may be
required. When you redeem, IMSC will normally send redemption
proceeds to you on the next business day, but may take up to seven
days (or longer in the case of shares recently purchased by
check).
By Telephone - Call IMSC at (800) 777-6472 to redeem from your
account. In order to process your redemption order by telephone,
you must have telephone redemption privileges on your account.
IMSC employs reasonable procedures that require personal
identification prior to acting on redemption instructions
communicated by telephone to confirm that such instructions are
genuine. In the absence of such procedures, the Fund or IMSC may
be liable for any losses due to unauthorized or fraudulent
telephone instructions.
By Systematic Withdrawal Plan (SWP) - You can authorize to have
funds electronically drawn each month from your Ivy Fund account
and deposited directly into your bank account. Certain minimum
balances and minimum distributions apply. Complete sections XX of
the Account Application to add this feature to your account.
Receiving Your Redemption Proceeds - You can receive redemption
proceeds through a variety of payment methods:
By Check - Unless otherwise instructed, checks will be made
payable to the current account registration and sent to the
address of record.
By Federal Funds Wire - Proceeds will be wired on the next
business day to a pre-designated bank account. Requests by
telephone can only be accepted for amounts up to $50,000. Your
account will be charged $10 each time redemption proceeds are
wired to your bank, and your bank may also charge you a fee for
receiving a Federal Funds wire.
By Electronic Funds Transfer - For SWP redemptions only.
Important Redemption Information:
A CDSC may apply to certain Class A share redemptions, to Class B
shares redeemed within six years of purchase, and to Class C
shares that are redeemed within one year of purchase.
All redemptions are made at the NAV next determined after a
redemption request has been received in good order. Requests for
redemptions must be received by 4:00 p.m. Eastern time to be
processed at the NAV for that day. Any redemption request in good
order that is received after 4:00 p.m. Eastern time will be
processed at the price determined on the following business day.
If you own shares of more than one class of the Fund, the Fund
will redeem first the shares having the highest 12b-1 fees.
Any shares subject to a CDSC will be redeemed last unless you
specifically elect otherwise.
The Fund may (on 60 days' notice) redeem the accounts of
shareholders whose investment, including sales charges paid, has
been less than $1,000 for more than 12 months.
The Fund may take up to seven days (or longer in the case of
shares recently purchased by check) to send redemption proceeds.
The Fund may make payment for redeemed shares in the form of
securities of the Fund taken at current values.
HOW TO EXCHANGE YOUR FUND SHARES:
You may exchange your Fund shares for shares of another Ivy fund,
subject to certain restrictions (see "Important Exchange Information"
below).
Submitting Your Exchange Order - You may submit an exchange request to
IMSC as follows:
By Mail - Send your written exchange request to IMSC at one of
the addresses on page XX of this Prospectus. Be sure that all
registered owners listed on the account sign the request.
By Telephone - Call IMSC at (800) 777-6472 to authorize an
exchange transaction. In order to process your exchange order by
telephone, you must have telephone exchange privileges on your
account. IMSC employs reasonable procedures that require personal
identification prior to acting on exchange instructions
communicated by telephone to confirm that such instructions are
genuine. In the absence of such procedures, the Fund or IMSC may
be liable for any losses due to unauthorized or fraudulent
telephone instructions.
IMPORTANT EXCHANGE INFORMATION:
You must exchange into the same share class you currently own.
Exchanges are considered taxable events and may result in a
capital gain or a capital loss for tax purposes.
It is the policy of the Fund to discourage the use of the
exchange privilege for the purpose of timing short-term market
fluctuations. The Fund may therefore limit the frequency of
exchanges by a shareholder or cancel a shareholder's exchange
privilege if at any time it appears that such market timing
strategies are being used.
DIVIDENDS AND DISTRIBUTIONS:
The Fund generally declares and pays dividends and capital gain
distributions (if any) at least once a year.
Dividends and distributions are "reinvested" in additional Fund
shares unless you request to receive them in cash.
Reinvested dividends and distributions are added to your account
at NAV and are not subject to a CDSC regardless of which share
class you own.
Cash dividends and distributions can be sent to you:
BY MAIL - a check will mailed to the address of record unless
otherwise instructed.
BY ELECTRONIC FUNDS TRANSFER ("EFT") - your proceeds will be
directly deposited into your bank account.
To change your dividend and/or distribution options, call IMSC at
(800) 777-6472.
TAX CONSEQUENCES:
Distributions you receive from the Fund are reinvested in additional
shares of the same class of the Fund unless you elect to receive them
in cash. Dividends ordinarily will vary from one class to another.
The Fund intends to declare and pay dividends monthly. The Fund will
distribute net investment income and net realized capital gains, if
any, at least once a year. The Fund may make an additional distribution
of net investment income and net realized capital gains to comply with
the calendar year distribution requirement under the excise tax
provisions of Section 4982 of the Internal Revenue Code of 1986, as
amended (the "Code").
Dividends paid out of the Fund's investment company taxable income
(including dividends, interest and net short-term capital gains) will
be taxable to you as ordinary income. If a portion of the Fund's income
consists of dividends paid by U.S. corporations, a portion of the
dividends paid by the Fund may be eligible for the corporate
dividends-received deduction. Distributions of net capital gains (the
excess of net long-term capital gains over net short-term capital
losses), if any, are taxable to you as long-term capital gains,
regardless of how long you have held your shares. Dividends are taxable
to you in the same manner whether received in cash or reinvested in
additional Fund shares.
If shares of the Fund are held in a tax-deferred account, such as a
retirement plan, income and gain will not be taxable each year.
Instead, the taxable portion of amounts held in a tax-deferred account
generally will be subject to tax as ordinary income only when
distributed from that account.
A distribution will be treated as paid to you on December 31 of the
current calendar year if it is declared by the Fund in October,
November or December with a record date in such a month and paid by the
Fund during January of the following calendar year.
In certain years, you may be able to claim a credit or deduction on
your income tax return for your share of foreign taxes paid by the
Fund. Upon the sale or other disposition of your Fund shares, you may
realize a capital gain or loss which will be long-term or short-term,
generally depending upon how long you held your shares.
The Fund may be required to withhold U.S. Federal income tax at the
rate of 31% of all distributions payable to you if you fail to provide
the Fund with your correct taxpayer identification number or to make
required certifications, or if you have been notified by the Internal
Revenue Service ("IRS") that you are subject to backup withholding.
Backup withholding is not an additional tax. Any amounts withheld may
be credited against your U.S. Federal income tax liability.
Fund distributions may be subject to state, local and foreign taxes.
You should consult with your tax adviser as to the tax consequences of
an investment in the Fund, including the status of distributions from
the Fund under applicable state or local law.
<PAGE>
IVY INTERNATIONAL FUND II
<TABLE>
<CAPTION>
CLASS A CLASS B CLASS C
-------------------- -------------------- ----------------------
1998 1997(B) 1998 1997(B) 1998 1997(B)
SELECTED PER SHARE DATA(A) ------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of period......... $10.01 $10.01 $ 10.01
------- ------- -------
Loss from investment operations
Net investment income (loss)(c)............. -- (.02) (.02)
Net realized and unrealized loss on
investment transactions................... (1.03) (1.06) (1.06)
------- ------- -------
Total from investment operations...... (1.03) (1.08) (1.08)
------- ------- -------
Net asset value, end of period............... $ 8.98 $ 8.93 $ 8.93
======= ======= =======
Total return(%).............................. (10.29) (10.79) (10.79)
RATIOS AND SUPPLEMENTAL DATA
Net assets, end of period (in thousands)..... $16,202 $53,652 $27,074
Ratio of expenses to average net assets(%)
With expense reimbursement(%)............... 1.80 2.63 2.63
Without expense reimbursement(%)............ 2.11 2.94 2.94
Ratio of net investment income (loss) to
average net assets(%)(c).................... .12 (.71) (.71)
Portfolio turnover rate(%)................... 10 10 10
Average commission rate...................... $.0250 $.0250 $ .0250
</TABLE>
<TABLE>
<CAPTION>
ADVISOR CLASS
SHARES
1998
SELECTED PER SHARE DATA -------------
<S> <C>
Net asset value, beginning of period.........
Income (loss) from investment operations
Net investment income (loss) (b)..........
Net realized and unrealized loss on
investment transactions..................
Total from investment operations.......
Less distributions
From net investment income................
In excess of net investment income........
Total distributions....................
Net asset value, end of period...............
Total return (%).............................
RATIOS AND SUPPLEMENTAL DATA
Net assets, end of period (in thousands).....
Ratio of expenses to average net assets(c)
With expense reimbursement(%)...............
Without expense reimbursement(%)............
Ratio of net investment income (loss) to
average net assets(%)(b)....................
Portfolio turnover rate(%)...................
Average commission rate......................
</TABLE>
- - ---------------
<TABLE>
<S> <C>
(a) Based on average shares outstanding
For the period May 13, 1997 (commencement of operations) to
(b) December 31, 1997.
Net investment income (loss) is net of expenses reimbursed
(c) by manager.
</TABLE>
<PAGE>
ACCOUNT APPLICATION
Please mail applications and checks to: Ivy Mackenzie Services Corp.,
P.O. Box 3022, Boca Raton, FL
33431-0922.
(This application should not be used for retirement accounts for which
Ivy Fund is custodian.)
Account Number:
(Fund Use Only)
Dealer #:
Branch #:
Rep. I.D. #:
Acct. Type:
Soc Cd:
Div Cd:
CG Cd:
Exc Cd:
Red Cd:
1. REGISTRATION
/ / Individual / / Joint Tenant / / Estate / / UGMA/UTMA / /
Corporation / / Partnership / / Sole Proprietor / / Trust / / Other
Date of Trust
Owner, Custodian or Trustee
Co-owner or Minor
Minor's State of Residence
Street
City
State
Zip Code
Phone Number -- Day
Phone Number -- Evening
2. TAX ID
Citizenship: / / U.S. / / Other ________________
Social Security Number
Tax Identification Number
Under penalties of perjury, I certify by signing in Section 8 below
that: (1) the number shown in this section is my correct taxpayer
identification number (TIN), and (2) I am not subject to backup
withholding because: (a) I have not been notified by the Internal
Revenue Service (IRS) that I am subject to backup withholding as a
result of a failure to report all interest or dividends, or (b) the IRS
has notified me that I am no longer subject to backup withholding.
(Cross out item (2) if you have been notified by the IRS that you are
currently subject to backup withholding because of underreporting
interest or dividends on your tax return.) Please see the "Tax
Consequences" section of the Prospectus for additional information on
completing this section.
3. DEALER INFORMATION
The undersigned ("Dealer") agrees to all applicable provisions in this
Application, guarantees the signature and legal capacity of the
Shareholder, and agrees to notify IMSC of any purchases made under a
Letter of Intent or Rights of Accumulation.
Dealer Name
Branch Office Address
City
State
Zip Code
Representative's Name and Number
Representative's Phone Number
Authorized Signature of Dealer
4. INVESTMENTS
A. Enclosed is my check ($1,000 minimum) for $_____________ made
payable to _________________ [Fund Name]. Please invest it in
Class A __ Class B __ Class C __ Class I __or Advisor Class __
shares.
B. I qualify for an elimination of the sales charge due to the
following privilege (applies only to Class A shares):
__ New Letter of Intent (if ROA or 90-day backdate
privilege is applicable, provide account(s)
information below.)
__ ROA with the account(s) listed below.
__ Existing Letter of Intent with account(s) listed
below.
Fund Name(s)
Account Number(s)
If establishing a Letter of Intent, you will need to purchase
Class A shares over a thirteen-month period in accordance with
the provisions in the Prospectus. The Aggregate amount of
these purchases will be at least equal to the amount indicated
below (see Prospectus for minimum amount required for reduced
sales charges).
/ / $50,000
/ / $100,000
/ / $250,000
/ / $500,000
C. FOR DEALER USE
Confirmed trade orders: [Confirm Number, Number of Shares,
Trade Date]
5. DISTRIBUTION OPTIONS
I would like to reinvest dividends and capital gains into additional
shares in this account at net asset value unless a different option is
checked below.
/ / Reinvest all dividends and capital gains into additional
shares of a different Ivy fund.
Fund Name
Account Number
/ / Pay all dividends in cash and reinvest capital gains into
additional shares in this Fund or a different Ivy fund.
Fund Name
Account Number
/ / Pay all dividends and capital gains in cash.
I REQUEST THE ABOVE CASH DISTRIBUTION, SELECTED IN C OR D
ABOVE, BE:
/ / Sent to the address listed in the registration.
/ / Sent to the special payee listed in Section 7A
/ / (By Mail) 7B
/ / (By E.F.T.)
6. OPTIONAL SPECIAL FEATURES
A. / / Automatic Investment Method (AIM)
- I wish to invest _________________ / / once per month / /
twice / / 3 times / / 4 times
- My bank account will be debited on the _________ day of the month
Please invest $___________________ each period starting in the month
of __________________ in
---------------------------.
Fund Name
/ / Class A
/ / Class B
/ / Class C
/ / Class I
/ / Advisor Class
/ / I have attached a voided check to ensure my correct bank
account will be debited.
B. SYSTEMATIC WITHDRAWAL PLANS**
I wish to automatically withdraw funds from my account in
____________________ Fund Name
/ / Monthly / / Quarterly / /Semiannually / / Annually
/ / Once / / Twice / / 3 times / / 4 times per month
I request the distribution be:
/ / Sent to the address listed in the registration.
/ / Sent to the special payee listed in Section 7.
/ / Invested into additional shares of the same class of a different Ivy
fund.
Fund Name
Account Number
Amount $__________________(Minimum $50) starting on or about the
- -_______ day of the month
- -_______ day of the month
- -_______ day of the month*
NOTE: Account minimum: $5,000 in shares at current offering price
C. FEDERAL FUNDS TRANSFER FOR REDEMPTION PROCEEDS**
I authorize the Agent to honor telephone instructions for the
redemption of Fund shares up to $50,000. Proceeds may be wire
transferred to the bank account designated ($1,000 minimum).
(Complete Section 7B)
TELEPHONE EXCHANGES** / / YES / / NO
I authorize exchanges by telephone among the Ivy funds upon
instructions from any person as more fully described in the
Prospectus. To change this option once established, written
instructions must be received from the shareholder of record
or the current registered representative.
If neither box is checked, the telephone exchange privilege
will be provided automatically.
TELEPHONIC REDEMPTIONS** / / YES / / NO
The Fund or its agents are authorized to honor telephone
instructions from any person as more fully described in the
Prospectus for the redemption of Fund shares. The amount of
the redemption shall not exceed $50,000 and the proceeds are
to be payable to the shareholder of record and mailed to the
address of record. To change this option once established,
written instructions must be received from the shareholder of
record or the current registered representative.
If neither box is checked, the telephone redemption privilege
will be provided automatically.
* There must be a period of at least seven calendar
days between each investment/withdrawal period.
** This option may not be used if shares are issued in
certificate form.
7. SPECIAL PAYEE
A. MAILING ADDRESS
Please send all disbursements to this special payee:
Name of Bank or Individual
Account Number (If Applicable)
Street
City/State/Zip
B. FED WIRE / E.F.T. INFORMATION
Financial Institution
ABA #
Account #
Street
City/State/Zip
(Please attach a voided check)
8. SIGNATURES
Investors should be aware that the failure to check the "No" under
Section 6D or 6E above means that the Telephone Exchange/Redemption
Privileges will be provided. The Fund employs reasonable procedures
that require personal identification prior to acting on
exchange/redemption instructions communicated by telephone to confirm
that such instructions are genuine. In the absence of such procedures,
the Fund may be liable for any losses due to unauthorized or fraudulent
telephone instructions. Please see "How to Exchange Your Fund Shares"
and "How to Redeem Your Fund Shares" in the Prospectus for more
information on these privileges.
I certify to my legal capacity to purchase or redeem shares of the Fund
for my own account or for the account of the organization named in
Section 1. I have received a current Prospectus and understand its
terms are incorporated in this application by reference. I am
certifying my taxpayer information as stated in Section 2.
THE INTERNAL REVENUE SERVICE DOES NOT REQUIRE YOUR CONSENT TO ANY
PROVISION OF THIS DOCUMENT OTHER THAN THE CERTIFICATIONS REQUIRED TO
AVOID BACKUP WITHHOLDING.
------------------------------
Signature of Owner, Custodian, Date
Trustee or Corporate Officer
------------------------------
Signature of Joint Owner, Date
Co-Trustee or Corporate Officer
(Remember to sign Section 8)
<PAGE>
[Back Cover Page]
HOW TO RECEIVE MORE INFORMATION ABOUT THE FUND
Additional information about the Fund and its investments is contained in the
Fund's Statement of Additional Information dated April ___, 1999 (the "SAI"),
which is incorporated by reference into this Prospectus, and the Fund's annual
and semi-annual reports to shareholders. The Fund's annual report includes a
discussion of the market conditions and investment strategies that significantly
affected the Fund's performance during its most recent fiscal year. The SAI and
the Fund's annual and semi-annual reports are available upon request and without
charge from the Distributor at the following address and phone number:
Ivy Mackenzie Distributors, Inc.
Via Mizner Financial Plaza
700 South Federal Highway
Boca Raton, Florida 33432
(800) 456-5111
Information about the Fund (including the SAI and the Fund's annual and
semi-annual reports) may also be reviewed and copied at the SEC's Public
Reference Room in Washington, D.C. (please call 1-800-SEC-0330 for further
details). Information about the Fund is also available on the SEC's Internet
Website (www.sec.gov), and copies of this information may be obtained, upon
payment of a copying fee, by writing the Public Reference Section of the SEC,
Washington, D.C. 20549-6009.
SHAREHOLDER INQUIRIES
Please call Ivy Mackenzie Services Corp., the Fund's transfer agent, at
1-800-777-6472 regarding any other inquiries about the Fund.
Investment Company Act File No. 811-1028
<PAGE>
[Front Cover Page]
PROSPECTUS April ___, 1999
IVY FUND - Ivy International Small Companies Fund
Ivy Fund (the "Trust") is a registered open-end investment company currently
consisting of nineteen separate portfolios. This Prospectus relates to the Class
A, Class B, Class C, Class I and Advisor Class shares of Ivy International Small
Companies Fund (the "Fund"). No other shares are offered in this Prospectus.
The Securities and Exchange Commission has not approved or disapproved these
securities or passed upon the adequacy of this Prospectus. Any representation to
the contrary is a criminal offense.
[Insert all logos]
<PAGE>
TABLE OF CONTENTS
SUMMARY
ADDITIONAL INFORMATION ABOUT INVESTMENT STRATEGIES AND RISKS
MANAGEMENT
SHAREHOLDER INFORMATION
ACCOUNT APPLICATION
HOW TO RECEIVE MORE INFORMATION ABOUT THE FUND
SHAREHOLDER INQUIRIES
<PAGE>
SUMMARY
Investment The Fund seeks long-term growth primarily through investment
objective: in foreign equity securities. Consideration of current
income is secondary to this principal objective.
Principal The Fund invests primarily in the common stock of foreign
investment issuers having total market capitalization of less than $1
strategies: billion. The Fund might engage in foreign currency exchange
transactions and forward foreign currency contracts to
control its exposure to certain risks.
Principal risks: The main risks to which the Fund is exposed in carrying out
its investment strategies are the following:
Management risk: The Fund's manager might not select
securities that perform as well as the securities held by
other mutual funds with investment objectives that are
similar to those of the Fund.
Market risk: Common stocks represent a proportionate
ownership interest in a company. The market value of common
stock can fluctuate significantly even where "management
risk" is not a factor, so you could lose money if you redeem
your Fund shares at a time when the Fund's stock portfolio
is not performing as well as expected. The market value of
common stock can fluctuate significantly, so you could lose
money if you redeem your Fund shares at a time when the
Fund's stock portfolio is not performing as well as
expected.
Small company risk: Securities of smaller companies may be
subject to more abrupt or erratic market movements than the
securities of larger more established companies, since they
tend to be thinly traded and because the companies are
subject to greater business risk. Transaction costs in
smaller company stocks may also be higher than those of
larger companies.
Foreign security and emerging market risk: Investing in
foreign securities involves a number of economic, financial
and political considerations that are not associated with
the U.S. markets and that could affect the Fund's
performance favorably or unfavorably, depending upon
prevailing conditions at any given time. Among these
potential risks are:
greater price volatility;
comparatively weak supervision and regulation of
securities exchanges, brokers and
issuers;
higher brokerage costs;
fluctuations in foreign currency exchange rates and
related conversion costs;
adverse tax consequences; and
settlement delays.
The risks of investing in foreign securities are more acute
in countries with developing economies.
Who should invest:* The Fund may be appropriate for investors seeking
long-term growth potential, but who can accept significant
fluctuations in capital value in the short-term.
* You should consult with your financial advisor before deciding whether
the Fund is an appropriate investment choice in light of your
particular financial needs and risk tolerance.
<PAGE>
Performance Bar Chart and Table:
The information in the following chart and table provides some
indication of the risks of investing in the Fund by showing changes in
the Fund's performance from year to year and how the Fund's average
annual returns since its inception on January 1, 1997 compare with
those of a broad measure of market performance. The Fund's past
performance is not an indication of how the Fund will perform in the
future.
Annual Total Returns for Class A Shares as of December 31, 1998:*
-------------------------
1997 1998
* Any applicable sales charges and account fees are not
reflected, and if they were the returns shown above would be
lower. The returns for the Fund's other four classes of shares
during these periods were different from those of Class A
because of variations in their respective expense structures.
Best quarter: ______% (Q__ 199__)
Worst quarter: ______% (Q__ 199__)
Average Annual Total Returns (for the periods ending December 31, 1998):*
Past year: Since inception:**
Class A: ______% ______%
Class B: ______% ______%
Class C: ______% ______%
Class I: ______% ______%
Advisor Class: ______% ______%
[Index]: ______% ______%
* Performance figures reflect any applicable sales charges.
* The inception date for all Classes other than Advisor Class
was January 1, 1997. Advisor Class shares were first offered
on January 1, 1998.
<PAGE>
Fees and Expenses:
The following tables describe the fees and expenses that you may pay if
you buy and hold shares of the Fund:
Shareholder Fees (fees paid directly from your investment):
Maximum Sales Charge (Load) Imposed on Maximum Deferred Sales
Purchases (as a percentage of Charge (Load) (as a
offering price): percentage of original
purchase price):
Class A: 5.75% none
Class B: none 5.00%
Class C: none 1.00%
Class I: none none
Advisor none none
Class:
Annual Fund Operating Expenses (expenses that are deducted from Fund
assets):
Distribution Total Expenses Net Fund
Management and/or Other Annual Waived or Operating
Fees: Service Expenses Fund Reimbursed* Expenses*
(12b-1) Fees: Operating
Expenses:
Class A: 1.00% .25% $_______ $_______ $_______ $_______
Class B: 1.00% 1.00% $_______ $_______ $_______ $_______
Class C: 1.00% 1.00% $_______ $_______ $_______ $_______
Class I: 1.00% none $_______ $_______ $_______ $_______
Advisor 1.00% none $_______ $_______ $_______ $_______
Class:
* The Fund's Manager has agreed to waive and/or reimburse the
Fund's fees and expenses to the extent necessary to ensure
that the Fund's Annual Fund Operating Expenses do not exceed
the amounts shown in the far right column above.
Example:
The following example is intended to help you compare the cost of
investing in the Fund with the cost of investing in other mutual funds.
The example assumes that you invest $10,000 in the Fund for the time
periods indicated and then redeem all of your shares at the end of
those periods (with additional information shown for Class B and Class
C shares based on the assumption that you do not redeem your shares at
that time). The example also assumes that your investment has a 5%
return each year and that the Fund's operating expenses remain the
same. Although your actual costs may be higher or lower, based on these
assumptions your costs would be as follows:
1 Year: 3 Years: 5 Years: 10 Years:
------ ------- ------- --------
Class A: $______ $______ $______ $______
Class B: $______ $______ $______ $______
Class B (no redemption): $______ $______ $______ $______
Class C: $______ $______ $______ $______
Class C (no redemption): $______ $______ $______ $______
Class I: $______ $______ $______ $______
Advisor Class: $______ $______ $______ $______
<PAGE>
ADDITIONAL INFORMATION ABOUT INVESTMENT STRATEGIES AND RISKS
Principal strategies:
The Fund's manager pursues investment opportunities primarily in the
foreign stock markets, focusing on issuers that are valued at less than
$1 billion across a wide range of geographic, economic and industry
sectors. Countries are selected on the basis of a mix of factors that
include long-term economic growth prospects, anticipated inflation
levels, and the effect of applicable government policies on local
business conditions.
The Fund's manager buys individual securities that it believes are
attractively priced relative to their intrinsic value, based on
characteristics such as:
comparative earnings potential
comparative growth potential;
fundamental financial strength; and
dividend yield.
Investment decisions typically are based on earnings estimates over a
five-year period, with stocks normally purchased from within the
cheapest 20% of the market universe and sold once they are valued
within the top 20%.
Principal risks:
General market risk: As with any mutual fund, the value of the Fund's
investments and the income they generate will vary daily and generally
reflect market conditions, interest rates and other issuer-specific,
political or economic developments. The Fund's share value will
decrease at any time during which its security holdings or other
investment techniques are not performing as well as anticipated, and
you could therefore lose money by investing in the Fund depending upon
the timing of your initial purchase and any subsequent redemption.
Other risks: Since the Fund invests heavily in the common stocks of
foreign issuers with relatively small market capitalizations, it is
more susceptible to the risks associated with these types of securities
than a fund that invests primarily in the securities of U.S. issuers,
debt securities and/or larger companies. Following is a description of
these risks, along with the risks commonly associated with the other
securities and investment techniques that the Fund's portfolio manager
considers important in achieving the Fund's investment objective or in
managing the Fund's exposure to risk (and that could therefore have a
significant effect on the Fund's returns). Other investment techniques
that the Fund may use, but that do not play a key role in the Fund's
overall investment strategy, are described in the Fund's Statement of
Additional Information (see back cover page for information on how you
can receive a free copy).
Common Stocks: Common stocks represent a proportionate ownership
interest in a company. As a result, the value of common stock
rises and falls with a company's success or failure. The market
value of common stock can fluctuate significantly, with smaller
companies being particularly susceptible to price swings.
Transaction costs in smaller company stocks may also be higher
than those of larger companies.
Depository Receipts: The Fund may acquire interests in foreign
issuers in the form of sponsored or unsponsored American
Depository Receipts ("ADRs"), Global Depository Receipts ("GDRs")
and similar types of depository receipts. ADRs typically are
issued by a U.S. bank or trust company and represent ownership of
the underlying securities issued by a foreign corporation. GDRs
and other types of depository receipts are usually issued by
foreign banks or trust companies. The Fund's investments in ADRs,
GDRs and other depository receipts are viewed as investments in
the underlying securities.
Depository receipts can be difficult to price and are not always
exchange-listed. Unsponsored depository programs also are
organized independently without the cooperation of the issuer of
the underlying securities. As a result, information concerning the
issuer may not be as current or as readily available as in the
case of sponsored depository instruments, and their prices may be
more volatile than if they were sponsored by the issuers of the
underlying securities.
Foreign Securities: Investing in foreign securities involves a
number of economic, financial and political considerations that
are not associated with the U.S. markets and that could affect the
Fund's performance favorably or unfavorably, depending upon
prevailing conditions at any given time. For example, the
securities markets of many foreign countries may be smaller, less
liquid and subject to greater price volatility than those in the
U.S. Foreign investing may also involve brokerage costs and tax
considerations that are not usually present in the U.S. markets.
Many of the Fund's securities also are denominated in foreign
currencies and the value of the Fund's investments as measured in
U.S. dollars may be affected favorably or unfavorably by changes
in foreign currency exchange rates and exchange control
regulations. Currency conversion can also be costly.
Other factors that can affect the value of the Fund's foreign
investments include the comparatively weak supervision and
regulation by some foreign governments of securities exchanges,
brokers and issuers, and the fact that many foreign companies may
not be subject to uniform accounting, auditing and financial
reporting standards. It may also difficult to obtain reliable
information about the securities and business operations certain
foreign issuers. Settlement of portfolio transactions may also be
delayed due to local restrictions or communication problems, which
can cause the Fund to miss attractive investment opportunities or
impair its ability to dispose of securities in a timely fashion
(resulting in a loss if the value of the securities subsequently
declines).
Special Emerging Market Concerns: The risks of investing in
foreign securities are heightened in countries with developing
economies. Among these additional risks are the following:
securities that are even less liquid and more volatile than
those in more developed foreign
countries;
less stable governments that are susceptible to sudden
adverse actions (such as nationalization of businesses,
restrictions on foreign ownership or prohibitions against
repatriation of assets);
increased settlement delays;
abrupt changes in exchange rate regime or monetary policy;
restrictions on repatriation of capital;
unusually large currency fluctuations and currency conversion
costs (see "Foreign Currencies" below); and
high national debt levels (which may impede an issuer's
payment of principal and/or interest on external debt).
Foreign Currencies: Investing in foreign securities typically
involves the use of foreign currencies. The value of the Fund's
assets, as measured in U.S. dollars, may be affected favorably
or unfavorably by changes in foreign currency exchange rates and
exchange control regulations. Currency conversions can also be
costly.
Foreign Currency Exchange Transactions and Forward Foreign
Currency Contracts: The Fund may, but is not required to, use
foreign currency exchange transactions and forward foreign
currency contracts to hedge certain market risks (such as interest
rates, currency exchange rates and broad or specific market
movement). These investment techniques involve a number of risks,
including the possibility of default by the counterparty to the
transaction and, to the extent the Fund's judgment as to certain
market movements is incorrect, the risk of losses that are greater
than if the investment technique had not been used. For example,
there may be an imperfect correlation between the Fund's portfolio
holdings of securities denominated in a particular currency and
the forward contracts entered into by the Fund. An imperfect
correlation of this type may prevent the Fund from achieving the
intended hedge or expose the Fund to the risk of currency exchange
loss. In addition, although the use of these investment techniques
for hedging purposes should tend to minimize the risk of loss due
to a decline in the value of the hedged position, they also tend
to limit any potential gain that might result from an increase in
the position's value.
Illiquid Securities: The Fund may invest up to 15% of its net
assets in "illiquid securities," which are assets that may not be
disposed of in the ordinary course of business within seven days
at roughly the value at which the Fund has valued the assets. Some
of these may by "restricted securities," which cannot be sold to
the public without registration under the Securities Act of 1933
(in the absence of an exemption) or because of other legal or
contractual restrictions on resale. Thus, while illiquid
securities may offer the potential for higher returns than more
readily marketable securities, there is a risk that the Fund will
not be able to dispose of them promptly at an acceptable price.
Other Investment Companies: The Fund may invest up to 10% of its
total assets in the shares of other investment companies. As a
shareholder of an investment company, the Fund would bear its
ratable share of the fund's expenses (which often include an
asset-based management fee). The Fund could also lose money by
investing in other investment companies, since the value of their
respective investments and the income they generate will vary
daily based on prevailing market conditions.
Temporary Defensive Positions: The Fund may from time to time
take a temporary defensive position and invest without limit in
U.S. Government securities, investment-grade debt securities, and
cash and cash equivalents such as commercial paper, short-term
notes and other money market securities. When the Fund assumes
such a defensive position it may not achieve its investment
objective. Investing in debt securities also involves both
interest rate and credit risk. Generally, the value of debt
instruments rises and falls inversely with fluctuations in
interest rates. For example, as interest rates decline the value
of debt securities generally increases. Conversely, rising
interest rates tend to cause the value of debt securities to
decrease. The market value of debt securities also tends to vary
according to the relative financial condition of the issuer. Bonds
with longer maturities tend to be more volatile than bonds with
shorter maturities.
Borrowing: For temporary or emergency purposes (such as meeting
shareholder redemption requests within the time periods specified
under the Investment Company Act of 1940), the Fund may borrow up
to one third of the value of its total assets from qualified
banks. Borrowing may exaggerate the effect on the Fund's share
value of any increase or decrease in the value of the securities
it holds. Money borrowed will also be subject to interest costs.
The Fund has a policy of not purchasing securities whenever the
Fund's outstanding borrowings exceed 10% of the value of the
Fund's total assets. Where this occurs, the Fund could miss out on
attractive investment opportunities.
Other Important Information:
European Monetary Union: On January 1, 1999, a new European currency
called the "Euro" was introduced and adopted for use by eleven European
countries. The transition to daily usage of the Euro, including
circulation of Euro bills and coins, will occur during the period from
January 1, 1999 through December 31, 2001. Certain European Union (EU)
members, including the United Kingdom, did not officially implement the
Euro on January 1, 1999 and may cause market disruptions when and if
they decide to do so. Where this occurs, the Fund could experience
investment losses.
Year 2000 Risks: Many computer software and hardware systems in use
today cannot distinguish between the year 2000 and the year 1900
because of the way dates are encoded and calculated (the "Year 2000
Problem"). The inability of computer-based systems to make this
distinction could have a seriously adverse effect on the handling of
securities trades, pricing and account services worldwide. The Fund's
service providers are taking steps that each believes are reasonably
designed to address the Year 2000 Problem with respect to the computer
systems that they use. The Fund believes these steps will be sufficient
to avoid any material adverse impact on the Fund. At this time,
however, there can be no assurance that significant problems will not
occur (which either directly or indirectly may cause the Fund to lose
money).
MANAGEMENT
Investment Advisor:
From the Fund's inception on January 1, 1997 through January 31, 1999,
Ivy Management, Inc. ("IMI"), located at Via Mizner Financial Plaza,
700 South Federal Highway, Boca Raton, Florida 33432, has provided
business management and investment advisory services to the Fund. IMI
is an SEC-registered investment advisor with over $____ billion in
assets under management, and provides similar services to the other
eighteen series of the Trust. For the Fund's fiscal year ending
December 31, 1998, the Fund paid to IMI a fee equal to ___% of the
Fund's average net assets.
As of February 1, 1999, Henderson Investment Management Limited
("Henderson"), 3 Finsbury Avenue, London, England EC2M 2PA, serves as
subadvisor with respect to 50% of the Fund's net assets. Henderson is
an indirect, wholly owned subsidiary of AMP Limited, an Australian life
insurance and financial services company located in New South Wales,
Australia. For its services, Henderson receives a fee from IMI that is
equal, on an annual basis, to .50% of that portion of the Fund's assets
that Henderson manages.
Portfolio Management:
The Fund is managed using a team approach. IMI's international equity
team is comprised of investment professionals and is supported by
research analysts who acquire information on regional and
country-specific economic and political developments and monitor
individual companies. These analysts use a variety of research sources
that include:
brokerage reports;
economic and financial news services;
company reports; and
information from third party research firms (ranging from large
investment banks with global coverage to local research houses).
In many cases, particularly in emerging market countries, IMI's
research analysts also conduct primary research by meeting with company
management, touring facilities and speaking with local research
professionals.
The Henderson team's investment process combines top down regional
allocation with a bottom up stock selection approach. Regional
allocations are based on factors such as interest rates and current
economic cycles, which are used to identify economies with relatively
strong prospectus for real economic growth. Individual stock selections
are based largely on prospects for earnings growth.
<PAGE>
SHAREHOLDER INFORMATION
PRICING OF FUND SHARES:
The Fund calculates its share price by dividing the value of the Fund's
net assets by the total number of its shares outstanding as of the
close of regular trading (usually 4:00 p.m. Eastern time) on the New
York Stock Exchange on each day the Exchange is open for trading
(normally any weekday that is not a national holiday).
Each portfolio security that is listed or traded on a recognized stock
exchange is valued at the security's last sale price on the exchange
on which it was purchased. If no sale is reported at that time, the
average between the last bid and asked prices is used. Securities and
other Fund assets for which market prices are not readily available
are priced at their "fair value" as determined by IMI in accordance
with procedures approved by the Fund's Board of Trustees. IMI may also
price a foreign security at its "fair value" if events materially
affecting the value of the security occur between the close of the
foreign exchange on which the security is principally traded and the
time as of which the Fund prices its shares. Fair value pricing under
these circumstances is designed to protect existing shareholders from
dilution of their share value caused by short-term investors trading
into and out of the Fund at at time when the Fund's share price,
calculated by ordinary pricing methods, is undervalued. When such fair
value pricing occurs, however, there may be some period of time during
which the Fund's share price and/or performance information is not
available.
The number of shares you receive when you place a purchase order, and
the payment you receive after submitting a redemption request, is based
on the Fund's net asset value next determined after your instructions
are received in proper form by Ivy Mackenzie Services Corp. (the Fund's
transfer agent) or by your registered securities dealer. Each purchase
and redemption order is subject to any applicable sales charge (see
"Distribution Arrangements" below). Since the Fund normally invests in
securities that are listed on foreign exchanges that may trade on
weekends or other days when the Fund does not price its shares, the
Fund's share value may change on days when shareholders will not be
able to purchase or redeem the Fund's shares.
HOW TO BUY SHARES:
Purchasing Fund shares involves "Choosing the Appropriate Class of
Shares" and "Submitting Your Purchase Order". Please read these
sections below carefully before investing.
Choosing the Appropriate Class of Shares - The essential features of
the Fund's different classes of shares are described below. If you do
not specify on your Account Application which class of shares you are
purchasing, it will be assumed that you are purchasing Class A shares.
The Fund has adopted separate distribution plans pursuant to Rule
12b-1 under the 1940 Act for its Class A, B and C shares that allow
the Fund to pay distribution and other fees for the sale and
distribution of its shares and for services provided to shareholders.
Because these fees are paid out of the Fund's assets on an on-going
basis, over time they will increase the cost of your investment and
may cost you more than paying other types of sales charges.
Class A Shares: Class A shares are sold at net asset value plus a
maximum sales charge of 5.75% (the "offering price"). The sales
charge may be reduced or eliminated if certain conditions are met
(see "Additional Purchase Information" below). Class A shares are
subject to a .25% Rule 12b-1 service fee.
Class B Shares: Class B shares are offered at net asset value,
without an initial sales charge, but subject to a contingent
deferred sales charge ("CDSC") that declines from 5% to zero on
certain redemptions within six years of purchase. Class B shares
are subject to a .75% Rule 12b-1 distribution fee and a .25% Rule
12b-1 service fee, and convert automatically into Class A shares
eight years after purchase.
Class C Shares: Class C shares are offered at net asset value,
without an initial sales charge, but subject to a CDSC of 1% for
redemptions within the first year of purchase. Class C shares are
subject to a .75% Rule 12b-1 distribution fee and a .25% Rule
12b-1 service fee.
Class I and Advisor Class Shares: Class I and Advisor Class
shares are offered to certain classes of investors at net asset
value, without any sales load or Rule 12b-1 fees.
The following table displays the various investment minimums, sales
charges and expenses that apply to each class.
<TABLE>
<S> <C> <C> <C> <C> <C>
-------------------- ------------------ ----------------- ------------------ -------------- --------------
Class A Class B Class C Class I Advisor Class
-------------------- ------------------ ----------------- ------------------ -------------- --------------
-------------------- ------------------ ----------------- ------------------ -------------- --------------
Minimum Initial $5,000,000 $10,000
Investment* $1,000 $1,000 $1,000
-------------------- ------------------ ----------------- ------------------ -------------- --------------
-------------------- ------------------ ----------------- ------------------ -------------- --------------
Minimum Subsequent
Investment* $100 $100 $100 $ 10,000 $ 250
-------------------- ------------------ ----------------- ------------------ -------------- --------------
-------------------- ------------------ ----------------- ------------------ -------------- --------------
Initial Sales Maximum 5.75%, None None None None
Charge with options for
a reduced or
waiver of
initial sales
charge
-------------------- ------------------ ----------------- ------------------ -------------- --------------
-------------------- ------------------ ----------------- ------------------ -------------- --------------
CDSC None, except on Maximum 5.00% 1.00% for the None None
certain NAV declines over first year
purchases six years
-------------------- ------------------ ----------------- ------------------ -------------- --------------
-------------------- ------------------ ----------------- ------------------ -------------- --------------
Service and 0.25% Service fee 0.75% 0.75% None None
Distribution Fees Distribution Distribution fee
fee and 0.25% and 0.25%
Service fee Service fee
-------------------- ------------------ ----------------- ------------------ -------------- --------------
</TABLE>
* Minimum initial and subsequent investments for retirement plans are $25.
ADDITIONAL PURCHASE INFORMATION:
Class A Shares - Class A shares are sold at a public offering
price equal to their net asset value per share ("NAV") plus an
initial sales charge, as set forth below (which is reduced as the
amount invested increases):
<TABLE>
<S> <C> <C> <C>
- -------------------------------- ---------------------- ------------------ ----------------------
Sales Charge as a Sales Charge as Portion of Public
Percentage of Public a Percentage of Offering Price
Offering Price Net Amount Retained by Dealer
Amount Invested Invested
- -------------------------------- ---------------------- ------------------ ----------------------
- -------------------------------- ---------------------- ------------------ ----------------------
Less than $50,000 5.75% 6.10% 5.00%
- -------------------------------- ---------------------- ------------------ ----------------------
- -------------------------------- ---------------------- ------------------ ----------------------
$50,000 but less than $100,000 5.25% 5.54% 4.50%
- -------------------------------- ---------------------- ------------------ ----------------------
- -------------------------------- ---------------------- ------------------ ----------------------
$100,000 but less than $250,000 4.50% 4.71% 3.75%
- -------------------------------- ---------------------- ------------------ ----------------------
- -------------------------------- ---------------------- ------------------ ----------------------
$250, 000 but less than 3.00% 3.09% 2.50%
$500,000
- -------------------------------- ---------------------- ------------------ ----------------------
$500,000 or over* 0.00% 0.00% 0.00%
- -------------------------------- ---------------------- ------------------ ----------------------
</TABLE>
* A CDSC of 1.00% applies to Class A shares that are redeemed
within two years of the end of the month in which they were
purchased.
Class A shares that are acquired through reinvestment of dividends
or distributions are not subject to any sales charges.
HOW TO REDUCE YOUR INITIAL SALES CHARGE:
"Rights of Accumulation" permits you to pay the sales charge
that applies to the cost or value (whichever is higher) of all
Ivy Fund Class A shares you own.
A "Letter of Intent" permits you to pay the sales charge that
would apply to your cumulative purchase of Fund shares over a
13-month period (certain restrictions apply).
HOW TO ELIMINATE YOUR INITIAL SALES CHARGE:
You may purchase Class A shares at NAV (without an initial sales
charge or a CDSC) through any one of the following methods:
through certain investment advisors and financial planners
who charge a management, consulting or other fee for their
services;
under certain qualified retirement plans;
as an employee or director of Mackenzie Investment Management
Inc. or its affiliates;
as an employee of a selected dealer; or
through the Merrill Lynch Daily K Plan (the "Plan"), provided
the Plan has at least $3 million in assets or over 500 or more
eligible employees. Class B shares of the Fund are made
available to Plan participants at NAV without a CDSC if the
Plan has less than $3 million in assets or fewer than 500
eligible employees. For further information see "Group
Systematic Investment Program" in the SAI.
You may also purchase Class A shares at NAV if you are investing
at least $500,000 through a dealer or agent. Ivy Mackenzie
Distributors, Inc. ("IMDI"), the Fund's distributor, may pay the
dealer or agent (out of IMDI's own resources) for its distribution
assistance according to the following schedule:
------------------------------- -------------------------------
Purchase Amount Commission
------------------------------- -------------------------------
------------------------------- -------------------------------
First $3,000,000 1.00%
------------------------------- -------------------------------
------------------------------- -------------------------------
Next $2,000,000 0.50%
------------------------------- -------------------------------
------------------------------- -------------------------------
Over $5,000,000 0.25%
------------------------------- -------------------------------
Certain trust companies, bank trust departments, credit unions,
savings and loans and other similar organizations may also be
exempt from the initial sales charge on Class A shares.
Class B and Class C Shares - Class B and Class C shares are not
subject to an initial sales charge but are subject to a CDSC. If
you redeem your Class C shares within one year of purchase they
will be subject to a CDSC of 1%, and Class B shares redeemed
within six years of purchase will be subject to a CDSC at the
following rates:
--------------------- --------------------
CDSC as a
Percentage of
Year Since Purchase Dollar Amount
Subject to Charge
--------------------- --------------------
First 5%
--------------------- --------------------
--------------------- --------------------
Second 4%
--------------------- --------------------
--------------------- --------------------
Third 3%
--------------------- --------------------
--------------------- --------------------
Fourth 3%
--------------------- --------------------
--------------------- --------------------
Fifth 2%
--------------------- --------------------
--------------------- --------------------
Sixth 1%
--------------------- --------------------
--------------------- --------------------
Seventh and 0%
thereafter
--------------------- --------------------
The CDSC for both Class B and Class C shares will be assessed on
an amount equal to the lesser of the current market value or the
original purchase cost of the shares being redeemed. No charge
will be assessed on increases in account value above the original
purchase price or on reinvested dividends and distributions.
The CDSC for Class B shares is waived for:
Certain post-retirement withdrawals from an IRA or other
retirement plan if you are over 59 1/2 years old.
Redemptions by certain eligible 401(a) and 401(k) plans and
certain retirement plan rollovers.
Redemption resulting from a tax-free return of excess
contribution to an IRA.
Withdrawals resulting from shareholder death or disability
provided that the redemption is requested within one year of
death or disability.
Withdrawals through the Systematic Withdrawal Plan of up to
12% per year of your account value at the time the plan is
established.
Both Class B shares and Class C shares are subject to an ongoing
service and distribution fee at a combined annual rate of up to
1.00% of the portfolio's average net assets attributable to its
Class B or Class C shares. The ongoing distribution fees will
cause these shares to have a higher expense ratio than that of
Class A, Class I and Advisor Class shares. IMDI uses the money
that it receives from the deferred sales charge and the
distribution fees to cover various promotional and sales related
expenses, as well as expenses related to providing distributions
services, such as compensating selected dealers and agents for
selling these shares.
Approximately eight years after the original date of purchase,
your Class B shares will be converted automatically to Class A
shares. Class A shares are subject to lower annual expenses than
Class B shares. The conversion from Class B shares to Class A
shares is not considered a taxable event for federal income tax
purposes. Class C shares do not have a similar conversion
privilege.
Class I and Advisor Class - Class I and Advisor Class shares are
offered only to institutions and certain individuals, and are not
subject to an initial sales charge or a CDSC, nor to ongoing
service or distribution fees. Class I shares also bear lower fees
than Class A, Class B, Class C and Advisor Class shares.
SUBMITTING YOUR PURCHASE ORDER:
INITIAL INVESTMENTS:
Complete and sign the Account Application appearing at the end of this
Prospectus. Enclose a check payable to Ivy Fund (see page [XX] for
minimum initial investments.) Deliver your application materials to
your registered representative or selling broker, or send them to one
of the addresses below:
By Regular Mail: By Courier:
Ivy Mackenzie Services Corp. Ivy Mackenzie Services Corp.
P.O. Box 3022 700 South Federal Hwy.
Boca Raton, FL 33431-0922 Boca Raton, FL 33432
BUYING ADDITIONAL SHARES:
There are several ways to increase your investment in the Fund:
By Mail - Send your check with a completed investment slip
(attached to your account statement) or written instructions
indicating the account registration, fund number or name, and
account number.
Mail to one of the addresses above.
Through Your Broker - Deliver to your registered representative
or selling broker the investment slip attached to your statement,
or written instructions, along with your payment.
By Wire - Purchases may also be made by wiring money from your
bank account to your Ivy account. Your bank may charge a fee for
wiring funds. Before wiring any funds, please call IMSC at (800)
777-6472. Wiring instructions are as follows:
First Union National Bank of Florida
Jacksonville, FL
ABA #063000021
Account #2090002063833
For further credit to:
Your Ivy Fund Account Number
Your Fund Number and Account Number
By Automatic Investment Method - You can authorize to have funds
electronically drawn each month from your bank account and
invested as a purchase of shares into your Ivy Fund account.
Complete sections [XX] and [XX] of the Account Application.
HOW TO REDEEM SHARES:
SUBMITTING YOUR REDEMPTION ORDER:
You may redeem your Fund shares through your registered securities
dealer or directly through IMSC. If you choose to redeem through your
registered securities dealer, the dealer is responsible for properly
transmitting redemption orders in a timely manner. If you choose to
redeem directly through IMSC, you have several ways to submit your
request:
By Mail - Send your written redemption request to IMSC at one of
the addresses on page XX of this Prospectus. Be sure that all
registered owners listed on the account sign the request.
Signature guarantees and supporting legal documentation may be
required. When you redeem, IMSC will normally send redemption
proceeds to you on the next business day, but may take up to seven
days (or longer in the case of shares recently purchased by
check).
By Telephone - Call IMSC at (800) 777-6472 to redeem from your
account. In order to process your redemption order by telephone,
you must have telephone redemption privileges on your account.
IMSC employs reasonable procedures that require personal
identification prior to acting on redemption instructions
communicated by telephone to confirm that such instructions are
genuine. In the absence of such procedures, the Fund or IMSC may
be liable for any losses due to unauthorized or fraudulent
telephone instructions.
By Systematic Withdrawal Plan (SWP) - You can authorize to have
funds electronically drawn each month from your Ivy Fund account
and deposited directly into your bank account. Certain minimum
balances and minimum distributions apply. Complete sections XX of
the Account Application to add this feature to your account.
Receiving Your Redemption Proceeds - You can receive redemption
proceeds through a variety of payment methods:
By Check - Unless otherwise instructed, checks will be made
payable to the current account registration and sent to the
address of record.
By Federal Funds Wire - Proceeds will be wired on the next
business day to a pre-designated bank account. Requests by
telephone can only be accepted for amounts up to $50,000. Your
account will be charged $10 each time redemption proceeds are
wired to your bank, and your bank may also charge you a fee for
receiving a Federal Funds wire.
By Electronic Funds Transfer - For SWP redemptions only.
Important Redemption Information:
A CDSC may apply to certain Class A share redemptions, to Class B
shares redeemed within 6 years of purchase, and to Class C shares
that are redeemed within one year of purchase.
All redemptions are made at the NAV next determined after a
redemption request has been received in good order. Requests for
redemptions must be received by 4:00 p.m. Eastern time to be
processed at the NAV for that day. Any redemption request in good
order that is received after 4:00 p.m. Eastern time will be
processed at the price determined on the following business day.
If you own shares of more than one class of the Fund, the Fund
will redeem first the shares having the highest 12b-1 fees.
Any shares subject to a CDSC will be redeemed last unless you
specifically elect otherwise.
The Fund may (on 60 days' notice) redeem the accounts of
shareholders whose investment, including sales charges paid, has
been less than $1,000 for more than 12 months.
The Fund may take up to seven days (or longer in the case of
shares recently purchased by check) to send redemption proceeds.
The Fund may make payment for redeemed shares in the form of
securities of the Fund taken at current values.
HOW TO EXCHANGE YOUR FUND SHARES:
You may exchange your Fund shares for shares of another Ivy fund,
subject to certain restrictions (see "Important Exchange Information"
below).
Submitting Your Exchange Order - You may submit an exchange request to
IMSC as follows:
By Mail - Send your written exchange request to IMSC at one of
the addresses on page XX of this Prospectus. Be sure that all
registered owners listed on the account sign the request.
By Telephone - Call IMSC at (800) 777-6472 to authorize an
exchange transaction. In order to process your exchange order by
telephone, you must have telephone exchange privileges on your
account. IMSC employs reasonable procedures that require personal
identification prior to acting on exchange instructions
communicated by telephone to confirm that such instructions are
genuine. In the absence of such procedures, the Fund or IMSC may
be liable for any losses due to unauthorized or fraudulent
telephone instructions.
IMPORTANT EXCHANGE INFORMATION:
You must exchange into the same share class you currently own.
Exchanges are considered taxable events and may result in a
capital gain or a capital loss for tax purposes.
It is the policy of the Fund to discourage the use of the
exchange privilege for the purpose of timing short-term market
fluctuations. The Fund may therefore limit the frequency of
exchanges by a shareholder or cancel a shareholder's exchange
privilege if at any time it appears that such market timing
strategies are being used.
DIVIDENDS AND DISTRIBUTIONS:
The Fund generally declares and pays dividends and capital gain
distributions (if any) at least once a year.
Dividends and distributions are "reinvested" in additional Fund
shares unless you request to receive them in cash.
Reinvested dividends and distributions are added to your account
at NAV and are not subject to a CDSC regardless of which share
class you own.
Cash dividends and distributions can be sent to you:
BY MAIL - a check will mailed to the address of record unless
otherwise instructed.
BY ELECTRONIC FUNDS TRANSFER ("EFT") - your proceeds will be
directly deposited into your bank account.
To change your dividend and/or distribution options, call IMSC at
(800) 777-6472.
TAX CONSEQUENCES:
Distributions you receive from the Fund are reinvested in additional
shares of the same class of the Fund unless you elect to receive them
in cash. Dividends ordinarily will vary from one class to another.
The Fund intends to declare and pay dividends monthly. The Fund will
distribute net investment income and net realized capital gains, if
any, at least once a year. The Fund may make an additional distribution
of net investment income and net realized capital gains to comply with
the calendar year distribution requirement under the excise tax
provisions of Section 4982 of the Internal Revenue Code of 1986, as
amended (the "Code").
Dividends paid out of the Fund's investment company taxable income
(including dividends, interest and net short-term capital gains) will
be taxable to you as ordinary income. If a portion of the Fund's income
consists of dividends paid by U.S. corporations, a portion of the
dividends paid by the Fund may be eligible for the corporate
dividends-received deduction. Distributions of net capital gains (the
excess of net long-term capital gains over net short-term capital
losses), if any, are taxable to you as long-term capital gains,
regardless of how long you have held your shares. Dividends are taxable
to you in the same manner whether received in cash or reinvested in
additional Fund shares.
If shares of the Fund are held in a tax-deferred account, such as a
retirement plan, income and gain will not be taxable each year.
Instead, the taxable portion of amounts held in a tax-deferred account
generally will be subject to tax as ordinary income only when
distributed from that account.
A distribution will be treated as paid to you on December 31 of the
current calendar year if it is declared by the Fund in October,
November or December with a record date in such a month and paid by the
Fund during January of the following calendar year.
In certain years, you may be able to claim a credit or deduction on
your income tax return for your share of foreign taxes paid by the
Fund. Upon the sale or other disposition of your Fund shares, you may
realize a capital gain or loss which will be long-term or short-term,
generally depending upon how long you held your shares.
The Fund may be required to withhold U.S. Federal income tax at the
rate of 31% of all distributions payable to you if you fail to provide
the Fund with your correct taxpayer identification number or to make
required certifications, or if you have been notified by the Internal
Revenue Service ("IRS") that you are subject to backup withholding.
Backup withholding is not an additional tax. Any amounts withheld may
be credited against your U.S. Federal income tax liability.
Fund distributions may be subject to state, local and foreign taxes.
You should consult with your tax adviser as to the tax consequences of
an investment in the Fund, including the status of distributions from
the Fund under applicable state or local law.
<PAGE>
IVY INTERNATIONAL SMALL COMPANIES FUND
<TABLE>
<CAPTION>
CLASS A CLASS B CLASS C
-------------------- --------------------- ---------------------
1998 1997(A) 1998 1997(A) 1998 1997(A)
SELECTED PER SHARE DATA ------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of period.... $10.00 $10.00 $10.00
------ ------ ------
Income from investment operations
Net investment loss(b)............... (.01) (.05) (.06)
Net realized and unrealized loss on
investment transactions............ (1.24) (1.27) (1.25)
------ ------ ------
Total from investment
operations....................... (1.25) (1.32) (1.31)
------ ------ ------
Less distributions
From net realized gain............... .09 .05 .04
------ ------ ------
Total distributions.............. .09 .05 .04
------ ------ ------
Net asset value, end of period.......... $ 8.66 $ 8.63 $ 8.65
====== ====== ======
Total return(%)......................... (12.52) (13.19) (13.14)
RATIOS AND SUPPLEMENTAL DATA
Net assets, end of period (in
thousands)............................. $ 992 $1,007 $1,574
Ratio of expenses to average net
assets(c)
With expense reimbursement(%).......... 2.50 3.31 3.23
Without expense reimbursement(%)....... 4.87 5.68 5.60
Ratio of net investment loss to average
net assets(%)(b)....................... (.11) (.91) (.83)
Portfolio turnover rate(%).............. 10 10 10
Average commission rate................. $.0030 $.0030 $.0030
</TABLE>
<TABLE>
<CAPTION>
ADVISOR CLASS
SHARES
1998
SELECTED PER SHARE DATA -------------
<S> <C>
Net asset value, beginning of period.........
Income (loss) from investment operations
Net investment income (loss) (b)..........
Net realized and unrealized loss on
investment transactions..................
Total from investment operations.......
Less distributions
From net investment income................
In excess of net investment income........
Total distributions....................
Net asset value, end of period...............
Total return (%).............................
RATIOS AND SUPPLEMENTAL DATA
Net assets, end of period (in thousands).....
Ratio of expenses to average net assets(c)
With expense reimbursement(%)...............
Without expense reimbursement(%)............
Ratio of net investment income (loss) to
average net assets(%)(b)....................
Portfolio turnover rate(%)...................
Average commission rate......................
</TABLE>
- - ---------------
<TABLE>
<S> <C>
(a) The Fund commenced operations January 1, 1997.
Net investment loss is net of expenses reimbursed by
(b) manager.
Total expenses include fees paid indirectly through an
(c) expense offset arrangement.
</TABLE>
<PAGE>
ACCOUNT APPLICATION
Please mail applications and checks to: Ivy Mackenzie Services Corp.,
P.O. Box 3022, Boca Raton, FL
33431-0922.
(This application should not be used for retirement accounts for which
Ivy Fund is custodian.)
Account Number:
(Fund Use Only)
Dealer #:
Branch #:
Rep. I.D. #:
Acct. Type:
Soc Cd:
Div Cd:
CG Cd:
Exc Cd:
Red Cd:
1. REGISTRATION
/ / Individual / / Joint Tenant / / Estate / / UGMA/UTMA / /
Corporation / / Partnership / / Sole Proprietor / / Trust / / Other
Date of Trust
Owner, Custodian or Trustee
Co-owner or Minor
Minor's State of Residence
Street
City
State
Zip Code
Phone Number -- Day
Phone Number -- Evening
2. TAX ID
Citizenship: / / U.S. / / Other ________________
Social Security Number
Tax Identification Number
Under penalties of perjury, I certify by signing in Section 8 below
that: (1) the number shown in this section is my correct taxpayer
identification number (TIN), and (2) I am not subject to backup
withholding because: (a) I have not been notified by the Internal
Revenue Service (IRS) that I am subject to backup withholding as a
result of a failure to report all interest or dividends, or (b) the IRS
has notified me that I am no longer subject to backup withholding.
(Cross out item (2) if you have been notified by the IRS that you are
currently subject to backup withholding because of underreporting
interest or dividends on your tax return.) Please see the "Tax
Consequences" section of the Prospectus for additional information on
completing this section.
3. DEALER INFORMATION
The undersigned ("Dealer") agrees to all applicable provisions in this
Application, guarantees the signature and legal capacity of the
Shareholder, and agrees to notify IMSC of any purchases made under a
Letter of Intent or Rights of Accumulation.
Dealer Name
Branch Office Address
City
State
Zip Code
Representative's Name and Number
Representative's Phone Number
Authorized Signature of Dealer
4. INVESTMENTS
A. Enclosed is my check ($1,000 minimum) for $_____________ made
payable to _________________ [Fund Name]. Please invest it in
Class A __ Class B __ Class C __ Class I __or Advisor Class __
shares.
B. I qualify for an elimination of the sales charge due to the
following privilege (applies only to Class A shares):
__ New Letter of Intent (if ROA or 90-day backdate
privilege is applicable, provide account(s)
information below.)
__ ROA with the account(s) listed below.
__ Existing Letter of Intent with account(s) listed
below.
Fund Name(s)
Account Number(s)
If establishing a Letter of Intent, you will need to purchase
Class A shares over a thirteen-month period in accordance with
the provisions in the Prospectus. The Aggregate amount of
these purchases will be at least equal to the amount indicated
below (see Prospectus for minimum amount required for reduced
sales charges).
/ / $50,000
/ / $100,000
/ / $250,000
/ / $500,000
C. FOR DEALER USE
Confirmed trade orders: [Confirm Number, Number of Shares,
Trade Date]
5. DISTRIBUTION OPTIONS
I would like to reinvest dividends and capital gains into additional
shares in this account at net asset value unless a different option is
checked below.
/ / Reinvest all dividends and capital gains into additional
shares of a different Ivy fund.
Fund Name
Account Number
/ / Pay all dividends in cash and reinvest capital gains into
additional shares in this Fund or a
different Ivy fund.
Fund Name
Account Number
/ / Pay all dividends and capital gains in cash.
I REQUEST THE ABOVE CASH DISTRIBUTION, SELECTED IN C OR D
ABOVE, BE:
/ / Sent to the address listed in the registration.
// Sent to the special payee listed in Section 7A
/ / (By Mail) 7B
/ / (By E.F.T.)
6. OPTIONAL SPECIAL FEATURES
A. / / Automatic Investment Method (AIM)
- I wish to invest _________________ / / once per month / /
twice / / 3 times / / 4 times
- My bank account will be debited on the _________ day of the month
Please invest $___________________ each period starting in the month
of __________________ in
---------------------------.
Fund Name
/ / Class A
/ / Class B
/ / Class C
/ / Class I
/ / Advisor Class
/ / I have attached a voided check to ensure my correct bank
account will be debited.
B. SYSTEMATIC WITHDRAWAL PLANS**
I wish to automatically withdraw funds from my account in
____________________ Fund Name
/ / Monthly / / Quarterly / /Semiannually / / Annually
/ / Once / / Twice / / 3 times / / 4 times per month
I request the distribution be:
/ / Sent to the address listed in the registration.
/ / Sent to the special payee listed in Section 7.
/ / Invested into additional shares of the same class of a different Ivy
fund.
Fund Name
Account Number
Amount $__________________(Minimum $50) starting on or about the
-_______ day of the month
-_______ day of the month
-_______ day of the month*
NOTE: Account minimum: $5,000 in shares at current offering price
C. FEDERAL FUNDS TRANSFER FOR REDEMPTION PROCEEDS**
I authorize the Agent to honor telephone instructions for the
redemption of Fund shares up to $50,000. Proceeds may be wire
transferred to the bank account designated ($1,000 minimum).
(Complete Section 7B)
TELEPHONE EXCHANGES** / / YES / / NO
I authorize exchanges by telephone among the Ivy funds upon
instructions from any person as more fully described in the
Prospectus. To change this option once established, written
instructions must be received from the shareholder of record
or the current registered representative.
If neither box is checked, the telephone exchange privilege
will be provided automatically.
TELEPHONIC REDEMPTIONS** / / YES / / NO
The Fund or its agents are authorized to honor telephone
instructions from any person as more fully described in the
Prospectus for the redemption of Fund shares. The amount of
the redemption shall not exceed $50,000 and the proceeds are
to be payable to the shareholder of record and mailed to the
address of record. To change this option once established,
written instructions must be received from the shareholder of
record or the current registered representative.
If neither box is checked, the telephone redemption privilege
will be provided automatically.
* There must be a period of at least seven calendar
days between each investment/withdrawal period.
** This option may not be used if shares are issued in
certificate form.
7. SPECIAL PAYEE
A. MAILING ADDRESS
Please send all disbursements to this special payee:
Name of Bank or Individual
Account Number (If Applicable)
Street
City/State/Zip
B. FED WIRE / E.F.T. INFORMATION
Financial Institution
ABA #
Account #
Street
City/State/Zip
(Please attach a voided check)
8. SIGNATURES
Investors should be aware that the failure to check the "No" under
Section 6D or 6E above means that the Telephone Exchange/Redemption
Privileges will be provided. The Fund employs reasonable procedures
that require personal identification prior to acting on
exchange/redemption instructions communicated by telephone to confirm
that such instructions are genuine. In the absence of such procedures,
the Fund may be liable for any losses due to unauthorized or fraudulent
telephone instructions. Please see "How to Exchange Your Fund Shares"
and "How to Redeem Your Fund Shares" in the Prospectus for more
information on these privileges.
I certify to my legal capacity to purchase or redeem shares of the Fund
for my own account or for the account of the organization named in
Section 1. I have received a current Prospectus and understand its
terms are incorporated in this application by reference. I am
certifying my taxpayer information as stated in Section 2.
THE INTERNAL REVENUE SERVICE DOES NOT REQUIRE YOUR CONSENT TO ANY
PROVISION OF THIS DOCUMENT OTHER THAN THE CERTIFICATIONS REQUIRED TO
AVOID BACKUP WITHHOLDING.
------------------------------
Signature of Owner, Custodian, Date
Trustee or Corporate Officer
------------------------------
Signature of Joint Owner, Date
Co-Trustee or Corporate Officer
(Remember to sign Section 8)
<PAGE>
[Back Cover Page]
HOW TO RECEIVE MORE INFORMATION ABOUT THE FUND
Additional information about the Fund and its investments is contained in the
Fund's Statement of Additional Information dated April ___, 1999 (the "SAI"),
which is incorporated by reference into this Prospectus, and the Fund's annual
and semi-annual reports to shareholders. The Fund's annual report includes a
discussion of the market conditions and investment strategies that significantly
affected the Fund's performance during its most recent fiscal year. The SAI and
the Fund's annual and semi-annual reports are available upon request and without
charge from the Distributor at the following address and phone number:
Ivy Mackenzie Distributors, Inc.
Via Mizner Financial Plaza
700 South Federal Highway
Boca Raton, Florida 33432
(800) 456-5111
Information about the Fund (including the SAI and the Fund's annual and
semi-annual reports) may also be reviewed and copied at the SEC's Public
Reference Room in Washington, D.C. (please call 1-800-SEC-0330 for further
details). Information about the Fund is also available on the SEC's Internet
Website (www.sec.gov), and copies of this information may be obtained, upon
payment of a copying fee, by writing the Public Reference Section of the SEC,
Washington, D.C. 20549-6009.
SHAREHOLDER INQUIRIES
Please call Ivy Mackenzie Services Corp., the Fund's transfer agent, at
1-800-777-6472 regarding any other inquiries about the Fund.
Investment Company Act File No. 811-1028
<PAGE>
[Front Cover Page]
PROSPECTUS April ___, 1999
IVY FUND - Ivy International Strategic Bond Fund
Ivy Fund (the "Trust") is a registered open-end investment company currently
consisting of nineteen separate portfolios. This Prospectus relates to the Class
A, Class B, Class C, Class I and Advisor Class shares of Ivy International
Strategic Bond Fund (the "Fund"). No other shares are offered in this
Prospectus.
The Securities and Exchange Commission has not approved or disapproved these
securities or passed upon the adequacy of this Prospectus. Any representation to
the contrary is a criminal offense.
[Insert all logos]
<PAGE>
TABLE OF CONTENTS
SUMMARY
ADDITIONAL INFORMATION ABOUT INVESTMENT STRATEGIES AND RISKS
MANAGEMENT
<PAGE>
SUMMARY
Investment The Fund seeks total return by investing primarily in the debt
securities of foreign issuers objective: and, consistent with that objective, to
maximize current income. Principal The Fund invests primarily in a managed
portfolio of high quality bonds denominated in foreign investment currencies.
Among the other securities and investment techniques that the Fund's manager
strategies: considers important in achieving the Fund's investment objective (or
in controlling the Fund's exposure to risk) are:
investments in other U.S. or foreign government, corporate, mortgage and
asset-backed (some of which may be considered below investment-grade,
commonly referred to "high yield" or "junk" bonds); short sales of securities;
and options, futures, foreign currency exchange transactions and forward
foreign currency contracts.
Principal risks: The main risks to which the Fund is exposed in
carrying out its investment strategies are the following:
Management risk: The Fund's manager might not select securities that
perform as well as the securities held by other mutual funds
with investment objectives that are similar to those of
the Fund.
Debt security risk: The value of debt instruments generally rises and falls
inversely with fluctuations in interest rates. The Fund's
debt security investments are susceptible to decline in a
rising interest rate environment even where "management
risk" is not a factor, so you could lose money if you redeem
your Fund shares at a time when the Fund's debt portfolio is
not performing as well as expected. The market value of debt
securities also tends to vary according to the relative
financial condition of the issuer. Many of the Fund's debt
security holdings may be considered below investment grade
(commonly referred to as "high yield" or "junk" bonds).
Low-rated debt securities can provide higher yields due to
the increased risk that the issuer will be unable to meet
its obligations on interest or principal payments at the
time called for by the debt instrument. For this reason,
however, these bonds are considered speculative and could
significantly weaken the Fund's returns if the issuer
defaults on its payment obligations.
Non-diversification risk: The Fund is classified as
"non-diversified" under the Investment Company Act of 1940,
and may, with respect to 50% of its total assets, invest
more than 5% of its total assets in the securities of a
single issuer. As a result, the Fund's overall performance
is potentially more susceptible to the price movements of
individual securities held in the Fund's portfolio than if
the Fund were "diversified" (which would limit the Fund's
holdings in a single issuer to 5% of the Fund's total
assets).
Foreign security and emerging market risk: Investing in
foreign securities involves a number of economic, financial
and political considerations that are not associated with
the U.S. markets and that could affect the Fund's
performance favorably or unfavorably, depending upon
prevailing conditions at any given time. Among these
potential risks are:
greater price volatility;
comparatively weak supervision and regulation of
securities exchanges, brokers and
issuers;
higher brokerage costs;
fluctuations in foreign currency exchange rates and
related conversion costs;
adverse tax consequences; and
settlement delays.
The risks of investing in foreign securities are more acute
in countries with developing economies.
Derivatives risk: The Fund may, but is not required to, use
a range of derivative investment techniques to hedge various
market risks (such as interest rates, currency exchange
rates, and broad or specific equity or fixed-income market
movements) or to enhance potential gain. The use of these
derivative investment techniques involves a number of risks,
including the possibility of default by the counterparty to
the transaction and, to the extent the judgment of the
Fund's manager as to certain market movements is incorrect,
the risk of losses that are greater than if the derivative
technique(s) had not been used.
Short sales: The Fund may sell a portfolio security short
and borrow the same security from a broker or other
institution to complete the sale. The Fund could lose money
if the price of the borrowed security increases between the
date of the short sale and the date on which the Fund is
required to replace the security.
Who should invest:* The Fund may be appropriate for investors seeking a mix of
total return and current income, but who can accept
potentially dramatic fluctuations in capital value in the
short-term.
* You should consult with your financial advisor before deciding whether
the Fund is an appropriate investment choice in light of your
particular financial needs and risk tolerance.
<PAGE>
Fees and Expenses:
The following tables describe the fees and expenses that you may pay if
you buy and hold shares of the Fund:
Shareholder Fees (fees paid directly from your investment):
Maximum Sales Charge (Load) Imposed on Maximum Deferred Sales
Purchases (as a percentage of Charge (Load) (as a
offering price): percentage of original
purchase price):
Class A: 4.75% none
Class B: none 5.00%
Class C: none 1.00%
Advisor none none
Class:
Annual Fund Operating Expenses (expenses that are deducted from Fund
assets):
Distribution Total Annual Expenses Net Fund
Management and/or Other Fund Waived or Operating
Fees: Service Expenses: Operating Reimbursed* Expenses*
(12b-1) Expenses:
Fees:
Class A: 0.75% .25% $_______ $_______ $_______ $_______
Class B: 0.75% 1.00% $_______ $_______ $_______ $_______
Class C: 0.75% 1.00% $_______ $_______ $_______ $_______
Class I: 0.75% none $_______ $_______ $_______ $_______
Advisor 0.75% none $_______ $_______ $_______ $_______
Class:
* The Fund's Manager has agreed to waive and/or reimburse the
Fund's fees and expenses to the extent necessary to ensure
that the Fund's Annual Fund Operating Expenses do not exceed
the amounts shown in the far right column above.
<PAGE>
Example:
The following example is intended to help you compare the cost of
investing in the Fund with the cost of investing in other mutual funds.
The example assumes that you invest $10,000 in the Fund for the time
periods indicated and then redeem all of your shares at the end of
those periods (with additional information shown for Class B and Class
C shares based on the assumption that you do not redeem your shares at
that time). The example also assumes that your investment has a 5%
return each year and that the Fund's operating expenses remain the
same. Although your actual costs may be higher or lower, based on these
assumptions your costs would be as follows:
1 Year: 3 Years: 5 Years: 10 Years:
------ ------- ------- --------
Class A: $______ $______ $______ $______
Class B: $______ $______ $______ $______
Class B (no redemption):$______ $______ $______ $______
Class C: $______ $______ $______ $______
Class C (no redemption):$______ $______ $______ $______
Class I $______ $______ $______ $______
Advisor Class: $______ $______ $______ $______
<PAGE>
ADDITIONAL INFORMATION ABOUT INVESTMENT STRATEGIES AND RISKS
Principal strategies:
The Fund seeks to achieve its primary investment objective of total
return, and secondarily current income, by investing in the debt
securities of issuers in any nation. The Fund's portfolio is actively
managed to limit its exposure to individual country, sector, interest
rate and currency risks. The Fund may, however, invest more than 5% of
a portion of its assets in a single issuer (see "Non-Diversification
Risk" below). Individual securities are selected based on factors such
as yields, credit quality, and the fundamental outlook for
country-specific currency and interest rate trends.
Principal risks:
General market risk: As with any mutual fund, the value of the Fund's
investments and the income they generate will vary daily and generally
reflect market conditions, interest rates and other issuer-specific,
political or economic developments. The Fund's share value will
decrease at any time during which its security holdings or other
investment techniques are not performing as well as anticipated, and
you could therefore lose money by investing in the Fund depending upon
the timing of your initial purchase and any subsequent redemption.
Other risks: Since the Fund invests heavily in debt instruments issued
in foreign countries, many of which have economies or securities
markets that are relatively undeveloped, the Fund is more susceptible
to the risks associated with these types of securities than a fund that
invests primarily in more established markets and/or equity securities.
Following is a description of these risks, along with the risks
commonly associated with the other securities and investment techniques
that the Fund's portfolio manager considers important in achieving the
Fund's investment objective or in managing the Fund's exposure to risk
(and that could therefore have a significant effect on the Fund's
returns). Other investment techniques that the Fund may use, but that
do not play a key role in the Fund's overall investment strategy, are
described in the Fund's Statement of Additional Information (see back
cover page for information on how you can receive a free copy).
Debt Securities, In General: Investing in debt securities
involves both interest rate and credit risk. Generally, the value
of debt instruments rises and falls inversely with fluctuations in
interest rates. For example, as interest rates decline the value
of debt securities generally increases. Conversely, rising
interest rates tend to cause the value of debt securities to
decrease. The Fund's portfolio is therefore susceptible to the
decline in value of the debt instruments it holds in a rising
interest rate environment. The market value of debt securities
also tends to vary according to the relative financial condition
of the issuer. Bonds with longer maturities tend to be more
volatile than bonds with shorter maturities.
Low-Rated Debt Securities: The Fund may at any given time invest
a significant portion of its assets in low-rated debt securities
(sometimes referred to as "high yield" or "junk" bonds). In
general, low-rated debt securities offer higher yields due to the
increased risk that the issuer will be unable to meet its
obligations on interest or principal payments at the time called
for by the debt instrument. For this reason, these bonds are
considered speculative and could significantly weaken the Fund's
returns.
Mortgage-Backed Securities: Mortgage-backed securities are
securities representing part ownership of a pool of mortgage
loans. Although the mortgage loans in the pool will have
maturities of up to 30 years, the actual average life of the loans
typically will be substantially less because the mortgages will be
subject to principal amortization and may be prepaid prior to
maturity. In periods of falling interest rates, the rate of
prepayment tends to increase, thereby shortening the actual
average life of the security. Conversely, rising interest rates
tend to decrease the rate of prepayment, thereby lengthening the
security's actual average life (and increasing the security's
price volatility). Since it is not possible to predict accurately
the average life of a particular pool, and because prepayments are
reinvested at current rates, the market value of mortgage-backed
securities may decline during periods of declining interest rates.
Similar risks are associated with the Fund's use of other
asset-backed securities investment techniques.
The Fund may have significant holdings in sovereign debt. For a
variety of reasons (such as cash flow problems, limited foreign
reserves, and political constraints), the governmental entity that
controls the repayment of sovereign debt may not be able or
willing to repay the principal or interest when due. A
governmental entity's ability to honor its debt obligations to the
Fund may also be contingent on its receipt from others (such as
the International Monetary Union and more solvent foreign
governments) of specific disbursements, which may in turn be
conditioned on the perceived health of the governmental entity's
economy and/or its implementation of economic reforms. If any of
these conditions fail, the Fund could lose the entire value of its
investment for an indefinite period of time.
Depository Receipts: The Fund may acquire interests in foreign
issuers in the form of sponsored or unsponsored American
Depository Receipts ("ADRs"), Global Depository Receipts ("GDRs")
and similar types of depository receipts. ADRs typically are
issued by a U.S. bank or trust company and represent ownership of
the underlying securities issued by a foreign corporation. GDRs
and other types of depository receipts are usually issued by
foreign banks or trust companies. The Fund's investments in ADRs,
GDRs and other depository receipts are viewed as investments in
the underlying securities.
Depository receipts can be difficult to price and are not always
exchange-listed. Unsponsored depository programs also are
organized independently without the cooperation of the issuer of
the underlying securities. As a result, information concerning the
issuer may not be as current or as readily available as in the
case of sponsored depository instruments, and their prices may be
more volatile than if they were sponsored by the issuers of the
underlying securities.
Foreign Securities: Investing in foreign securities involves a
number of economic, financial and political considerations that
are not associated with the U.S. markets and that could affect the
Fund's performance favorably or unfavorably, depending upon
prevailing conditions at any given time. For example, the
securities markets of many foreign countries may be smaller, less
liquid and subject to greater price volatility than those in the
U.S. Foreign investing may also involve brokerage costs and tax
considerations that are not usually present in the U.S. markets.
Many of the Fund's securities also are denominated in foreign
currencies and the value of the Fund's investments as measured in
U.S. dollars may be affected favorably or unfavorably by changes
in foreign currency exchange rates and exchange control
regulations. Currency conversion can also be costly.
Other factors that can affect the value of the Fund's foreign
investments include the comparatively weak supervision and
regulation by some foreign governments of securities exchanges,
brokers and issuers, and the fact that many foreign companies may
not be subject to uniform accounting, auditing and financial
reporting standards. It may also difficult to obtain reliable
information about the securities and business operations certain
foreign issuers. Settlement of portfolio transactions may also be
delayed due to local restrictions or communication problems, which
can cause the Fund to miss attractive investment opportunities or
impair its ability to dispose of securities in a timely fashion
(resulting in a loss if the value of the securities subsequently
declines).
Special Emerging Market Concerns: The risks of investing in
foreign securities are heightened in countries with developing
economies. Among these additional risks are the following:
securities that are even less liquid and more volatile than
those in more developed foreign countries;
less stable governments that are susceptible to sudden
adverse actions (such as nationalization of businesses,
restrictions on foreign ownership or prohibitions against
repatriation of assets);
increased settlement delays;
abrupt change in exchange rate regime or monetary policy;
restrictions on repatriation of capital;
unusually large currency fluctuations and currency conversion
costs (see "Foreign Currencies" below); and
high national debt levels (which may impede an issuer's
payment of principal and/or interest on external debt).
Foreign Currencies: Investing in foreign securities typically
involves the use of foreign currencies. The value of the Fund's
assets, as measured in U.S. dollars, may be affected favorably or
ufavorably by changes in foreign currency exchange rates and
exchange control regulations. Currency conversions can also be
costly.
Derivative Investment Techniques: The Fund may, but is not
required to, use certain derivative investment techniques to hedge
various market risks (such as interest rates, currency exchange
rates and broad or specific market movements) or to enhance
potential gain. Among the derivative techniques the Fund might use
are options, futures, foreign currency exchange transactions and
forward foreign currency contracts.
Using put and call options could cause the Fund to lose money by
forcing the sale or purchase of portfolio securities at
inopportune times or for prices higher (in the case of put
options) or lower (in the case of call options) than current
market values, by limiting the amount of appreciation the Fund can
realize on its investments, or by causing the Fund to hold a
security it might otherwise sell.
Futures transactions (and related options) involve other types of
risks. For example, the variable degree of correlation between
price movements of futures contracts and price movements in the
related portfolio position of the Fund could cause losses on the
hedging instrument that are greater than gains in the value of the
Fund's position. In addition, futures and options markets may not
be liquid in all circumstances and certain over-the-counter
options may have no markets. As a result, the Fund might not be
able to close out a transaction before expiration without
incurring substantial losses (and it is possible that the
transaction cannot even be closed). In addition, the daily
variation margin requirements for futures contracts would create a
greater ongoing potential financial risk than would purchases of
options, where the exposure is limited to the cost of the initial
premium.
Foreign currency transactions (such as forward foreign currency
contracts) can cause investment losses in a variety of ways. For
example, changes in currency exchange rates may result in poorer
overall performance for the Fund than if it had not engaged in
such transactions. There may also be an imperfect correlation
between an the Fund's portfolio holdings of securities denominated
in a particular currency and forward contracts entered into by the
Fund. An imperfect correlation of this type may prevent the Fund
from achieving the intended hedge or expose the Fund to the risk
of currency exchange loss.
Illiquid Securities: The Fund may invest up to 15% of its net
assets in "illiquid securities," which are assets that may not be
disposed of in the ordinary course of business within seven days
at roughly the value at which the Fund has valued the assets. Some
of these may by "restricted securities," which cannot be sold to
the public without registration under the Securities Act of 1933
(in the absence of an exemption) or because of other legal or
contractual restrictions on resale. Thus, while illiquid
securities may offer the potential for higher returns than more
readily marketable securities, there is a risk that the Fund will
not be able to dispose of them promptly at an acceptable price.
Non-Diversification Risk: The Fund is classified as
"non-diversified" under the Investment Company Act of 1940, and
may, with respect to 50% of its total assets, invest more than 5%
of its total assets in the securities of a single issuer. As a
result, the Fund's overall performance is potentially more
susceptible to the price movements of individual securities held
in the Fund's portfolio than if the Fund were "diversified" (which
would limit the Fund's holdings in a single issuer to 5% of the
Fund's total assets).
Short Sales: The Fund may sell a security short and borrow the
same security from a broker or other institution to complete the
sale. The Fund would realize a gain if the security declines in
price between those dates. On the other hand, the Fund would lose
money if the price of the borrowed security increases between the
date of the short sale and the date on which the Fund replaces the
security. Moreover, although the Fund's gain is limited to the
amount at which it sold a security short, its potential loss is
limited only by the maximum attainable price of the security
(which could be quite high) less the price at which the security
was sold.
Temporary Defensive Positions: The Fund may from time to time
take a temporary defensive position and invest without limit in
U.S. Government securities, investment-grade debt securities, and
cash and cash equivalents such as commercial paper, short-term
notes and other money market securities. When the Fund assumes
such a defensive position it may not achieve its investment
objective. Investing in debt securities also involves both
interest rate and credit risk. Generally, the value of debt
instruments rises and falls inversely with fluctuations in
interest rates. For example, as interest rates decline the value
of debt securities generally increases. Conversely, rising
interest rates tend to cause the value of debt securities to
decrease. The market value of debt securities also tends to vary
according to the relative financial condition of the issuer. Bonds
with longer maturities tend to be more volatile than bonds with
shorter maturities.
Borrowing: For temporary or emergency purposes (such as meeting
shareholder redemption requests within the time periods specified
under the Investment Company Act of 1940), the Fund may borrow up
to 20% of the value of its total assets from qualified banks.
Borrowing may exaggerate the effect on the Fund's share value of
any increase or decrease in the value of the securities it holds.
Money borrowed will also be subject to interest costs.
Other Important Information:
European Monetary Union: On January 1, 1999, a new European currency
called the "Euro" was introduced and adopted for use by eleven European
countries. The transition to daily usage of the Euro, including
circulation of Euro bills and coins, will occur during the period from
January 1, 1999 through December 31, 2001. Certain European Union (EU)
members, including the United Kingdom, did not officially implement the
Euro on January 1, 1999 and may cause market disruptions when and if
they decide to do so. Where this occurs, the Fund could experience
investment losses.
Year 2000 Risks: Many computer software and hardware systems in use
today cannot distinguish between the year 2000 and the year 1900
because of the way dates are encoded and calculated (the "Year 2000
Problem"). The inability of computer-based systems to make this
distinction could have a seriously adverse effect on the handling of
securities trades, pricing and account services worldwide. The Fund's
service providers are taking steps that each believes are reasonably
designed to address the Year 2000 Problem with respect to the computer
systems that they use. The Fund believes these steps will be sufficient
to avoid any material adverse impact on the Fund. At this time,
however, there can be no assurance that significant problems will not
occur (which either directly or indirectly may cause the Fund to lose
money).
MANAGEMENT
Investment Advisor:
Ivy Management, Inc. ("IMI"), located at Via Mizner Financial Plaza,
700 South Federal Highway, Boca Raton, Florida 33432, provides
investment advisory and business management services to the Fund. IMI
is an SEC-registered investment advisor with over $____ billion in
assets under management, and provides similar services to the other
eighteen series of the Trust. For the Fund's fiscal year ending
December 31, 1998, the Fund paid to IMI an annual fee equal to ___% of
the Fund's average net assets.
Portfolio Management:
Richard A. Gluck, Vice President of IMI, is the Fund's portfolio
manager. Before joining IMI, Mr. Gluck was a vice president and
portfolio manager at Oppenheimer Capital. He has been managing global
fixed income funds since 1989. Mr. Gluck holds a Masters Degree in
management with a concentration in finance from the M.I.T. Sloan School
of Management.
Investment Support:
The Fund's portfolio manager is supported by the members of IMI's Fixed
Income Team, which is responsible for providing information on regional
and country-specific economic and political developments and monitoring
individual companies. Team members use a variety of research sources
that include:
brokerage reports;
economic and financial news services;
company reports; and
information from third party research firms (ranging from large
investment banks with global coverage to local research houses).
In many cases, particularly in emerging market countries, IMI's
research analysts also conduct primary research by:
meeting with company management;
touring facilities; and
speaking with local research professionals.
<PAGE>
SHAREHOLDER INFORMATION
PRICING OF FUND SHARES:
The Fund calculates its share price by dividing the value of the Fund's
net assets by the total number of its shares outstanding as of the
close of regular trading (usually 4:00 p.m. Eastern time) on the New
York Stock Exchange on each day the Exchange is open for trading
(normally any weekday that is not a national holiday).
Each portfolio security that is listed or traded on a recognized stock
exchange is valued at the security's last sale price on the exchange
on which it was purchased. If no sale is reported at that time, the
average between the last bid and asked prices is used. Securities and
other Fund assets for which market prices are not readily available
are priced at their "fair value" as determined by IMI in accordance
with procedures approved by the Fund's Board of Trustees. IMI may also
price a foreign security at its "fair value" if events materially
affecting the value of the security occur between the close of the
foreign exchange on which the security is principally traded and the
time as of which the Fund prices its shares. Fair value pricing under
these circumstances is designed to protect existing shareholders from
dilution of their share value caused by short-term investors trading
into and out of the Fund at at time when the Fund's share price,
calculated by ordinary pricing methods, is undervalued. When such fair
value pricing occurs, however, there may be some period of time during
which the Fund's share price and/or performance information is not
available.
The number of shares you receive when you place a purchase order, and
the payment you receive after submitting a redemption request, is based
on the Fund's net asset value next determined after your instructions
are received in proper form by Ivy Mackenzie Services Corp. (the Fund's
transfer agent) or by your registered securities dealer. Each purchase
and redemption order is subject to any applicable sales charge (see
"Distribution Arrangements" below). Since the Fund normally invests in
securities that are listed on foreign exchanges that may trade on
weekends or other days when the Fund does not price its shares, the
Fund's share value may change on days when shareholders will not be
able to purchase or redeem the Fund's shares.
HOW TO BUY SHARES:
Purchasing Fund shares involves "Choosing the Appropriate Class of
Shares" and "Submitting Your Purchase Order". Please read these
sections below carefully before investing.
Choosing the Appropriate Class of Shares - The essential features of
the Fund's different classes of shares are described below. If you do
not specify on your Account Application which class of shares you are
purchasing, it will be assumed that you are purchasing Class A shares.
The Fund has adopted separate distribution plans pursuant to Rule
12b-1 under the 1940 Act for its Class A, B and C shares that allow
the Fund to pay distribution and other fees for the sale and
distribution of its shares and for services provided to shareholders.
Because these fees are paid out of the Fund's assets on an on-going
basis, over time they will increase the cost of your investment and
may cost you more than paying other types of sales charges.
Class A Shares: Class A shares are sold at net asset value plus a
maximum sales charge of 4.75% (the "offering price"). The sales
charge may be reduced or eliminated if certain conditions are met
(see "Additional Purchase Information" below). Class A shares are
subject to a .25% Rule 12b-1 service fee.
Class B Shares: Class B shares are offered at net asset value,
without an initial sales charge, but subject to a contingent
deferred sales charge ("CDSC") that declines from 5% to zero on
certain redemptions within six years of purchase. Class B shares
are subject to a .75% Rule 12b-1 distribution fee and a .25% Rule
12b-1 service fee, and convert automatically into Class A shares
eight years after purchase.
Class C Shares: Class C shares are offered at net asset value,
without an initial sales charge, but subject to a CDSC of 1% for
redemptions within the first year of purchase. Class C shares are
subject to a .75% Rule 12b-1 distribution fee and a .25% Rule
12b-1 service fee.
Class I and Advisor Class Shares: Class I and Advisor Class
shares are offered to certain classes of investors at net asset
value, without any sales load or Rule 12b-1 fees.
The following table displays the various investment minimums, sales
charges and expenses that apply to each class.
<TABLE>
<S> <C> <C> <C> <C>
- -------------------- ------------------ ----------------- ------------------ -------------- --------------
Class A Class B Class C Class I Advisor Class
- -------------------- ------------------ ----------------- ------------------ -------------- --------------
- -------------------- ------------------ ----------------- ------------------ -------------- --------------
Minimum Initial $5,000,000 $10,000
Investment* $1,000 $1,000 $1,000
- -------------------- ------------------ ----------------- ------------------ -------------- --------------
- -------------------- ------------------ ----------------- ------------------ -------------- --------------
Minimum Subsequent
Investment* $100 $100 $100 $10,000 $250
- -------------------- ------------------ ----------------- ------------------ -------------- --------------
- -------------------- ------------------ ----------------- ------------------ -------------- --------------
Initial Sales Maximum 4.75%, None None None None
Charge with options for
a reduced or
waiver of
initial sales
charge
- -------------------- ------------------ ----------------- ------------------ -------------- --------------
- -------------------- ------------------ ----------------- ------------------ -------------- --------------
CDSC None, except on Maximum 5.00% 1.00% for the None None
certain NAV declines over first year
purchases six years
- -------------------- ------------------ ----------------- ------------------ -------------- --------------
- -------------------- ------------------ ----------------- ------------------ -------------- --------------
Service and 0.25% Service fee 0.75% 0.75% None None
Distribution Fees Distribution Distribution fee
fee and 0.25% and 0.25%
Service fee Service fee
- -------------------- ------------------ ----------------- ------------------ -------------- --------------
</TABLE>
* Minimum initial and subsequent investments for retirement plans are
$25.
ADDITIONAL PURCHASE INFORMATION:
Class A Shares - Class A shares are sold at a public offering
price equal to their net asset value per share ("NAV") plus an
initial sales charge, as set forth below (which is reduced as the
amount invested increases):
<TABLE>
<S> <C> <C> <C>
- -------------------------------- ---------------------- ------------------ ----------------------
Sales Charge as a Sales Charge as Portion of Public
Percentage of Public a Percentage of Offering Price
Offering Price Net Amount Retained by Dealer
Amount Invested Invested
- -------------------------------- ---------------------- ------------------ ----------------------
- -------------------------------- ---------------------- ------------------ ----------------------
Less than $50,000 4.75% 6.10% 5.00%
- -------------------------------- ---------------------- ------------------ ----------------------
- -------------------------------- ---------------------- ------------------ ----------------------
$50,000 but less than $100,000 % 5.54% 4.50%
- -------------------------------- ---------------------- ------------------ ----------------------
- -------------------------------- ---------------------- ------------------ ----------------------
$100,000 but less than $250,000 % 4.71% 3.75%
- -------------------------------- ---------------------- ------------------ ----------------------
- -------------------------------- ---------------------- ------------------ ----------------------
$250, 000 but less than % 3.09% 2.50%
$500,000
- -------------------------------- ---------------------- ------------------ ----------------------
$500,000 or over* % 0.00% 0.00%
- -------------------------------- ---------------------- ------------------ ----------------------
</TABLE>
* A CDSC of 1.00% applies to Class A shares that are redeemed
within two years of the end of the month in which they were
purchased.
Class A shares that are acquired through reinvestment of dividends
or distributions are not subject to any sales charges.
HOW TO REDUCE YOUR INITIAL SALES CHARGE:
"Rights of Accumulation" permits you to pay the sales charge
that applies to the cost or value (whichever is higher) of all
Ivy Fund Class A shares you own.
A "Letter of Intent" permits you to pay the sales charge that
would apply to your cumulative purchase of Fund shares over a
13-month period (certain restrictions apply).
HOW TO ELIMINATE YOUR INITIAL SALES CHARGE:
You may purchase Class A shares at NAV (without an initial sales
charge or a CDSC) through any one of the following methods:
through certain investment advisors and financial planners
who charge a management, consulting or other fee for their
services;
under certain qualified retirement plans;
as an employee or director of Mackenzie Investment Management
Inc. or its affiliates;
as an employee of a selected dealer; or
through the Merrill Lynch Daily K Plan (the "Plan"), provided
the Plan has at least $3 million in assets or over 500 or more
eligible employees. Class B shares of the Fund are made
available to Plan participants at NAV without a CDSC if the
Plan has less than $3 million in assets or fewer than 500
eligible employees. For further information see "Group
Systematic Investment Program" in the SAI.
You may also purchase Class A shares at NAV if you are investing
at least $500,000 through a dealer or agent. Ivy Mackenzie
Distributors, Inc. ("IMDI"), the Fund's distributor, may pay the
dealer or agent (out of IMDI's own resources) for its distribution
assistance according to the following schedule:
------------------------------- -------------------------------
Purchase Amount Commission
------------------------------- -------------------------------
------------------------------- -------------------------------
First $3,000,000 1.00%
------------------------------- -------------------------------
------------------------------- -------------------------------
Next $2,000,000 0.50%
------------------------------- -------------------------------
------------------------------- -------------------------------
Over $5,000,000 0.25%
------------------------------- -------------------------------
Certain trust companies, bank trust departments, credit unions,
savings and loans and other similar organizations may also be
exempt from the initial sales charge on Class A shares.
Class B and Class C Shares - Class B and Class C shares are not
subject to an initial sales charge but are subject to a CDSC. If
you redeem your Class C shares within one year of purchase they
will be subject to a CDSC of 1%, and Class B shares redeemed
within six years of purchase will be subject to a CDSC at the
following rates:
--------------------- --------------------
CDSC as a
Percentage of
Year Since Purchase Dollar Amount
Subject to Charge
--------------------- --------------------
First 5%
--------------------- --------------------
--------------------- --------------------
Second 4%
--------------------- --------------------
--------------------- --------------------
Third 3%
--------------------- --------------------
--------------------- --------------------
Fourth 3%
--------------------- --------------------
--------------------- --------------------
Fifth 2%
--------------------- --------------------
--------------------- --------------------
Sixth 1%
--------------------- --------------------
--------------------- --------------------
Seventh and 0%
thereafter
--------------------- --------------------
The CDSC for both Class B and Class C shares will be assessed on
an amount equal to the lesser of the current market value or the
original purchase cost of the shares being redeemed. No charge
will be assessed on increases in account value above the original
purchase price or on reinvested dividends and distributions.
The CDSC for Class B shares is waived for:
Certain post-retirement withdrawals from an IRA or other
retirement plan if you are over 59 1/2 years old.
Redemptions by certain eligible 401(a) and 401(k) plans and
certain retirement plan rollovers.
Redemption resulting from a tax-free return of excess
contribution to an IRA.
Withdrawals resulting from shareholder death or disability
provided that the redemption is requested within one year of
death or disability.
Withdrawals through the Systematic Withdrawal Plan of up to
12% per year of your account value at the time the plan is
established.
Both Class B shares and Class C shares are subject to an ongoing
service and distribution fee at a combined annual rate of up to
1.00% of the portfolio's average net assets attributable to its
Class B or Class C shares. The ongoing distribution fees will
cause these shares to have a higher expense ratio than that of
Class A, Class I and Advisor Class shares. IMDI uses the money
that it receives from the deferred sales charge and the
distribution fees to cover various promotional and sales related
expenses, as well as expenses related to providing distributions
services, such as compensating selected dealers and agents for
selling these shares.
Approximately eight years after the original date of purchase,
your Class B shares will be converted automatically to Class A
shares. Class A shares are subject to lower annual expenses than
Class B shares. The conversion from Class B shares to Class A
shares is not considered a taxable event for federal income tax
purposes. Class C shares do not have a similar conversion
privilege.
Class I and Advisor Class - Class I and Advisor Class shares are
offered only to institutions and certain individuals, and are not
subject to an initial sales charge or a CDSC, nor to ongoing
service or distribution fees. Class I shares also bear lower fees
than Class A, Class B, Class C and Advisor Class shares.
SUBMITTING YOUR PURCHASE ORDER:
INITIAL INVESTMENTS:
Complete and sign the Account Application appearing at the end of this
Prospectus. Enclose a check payable to Ivy Fund (see page [XX] for
minimum initial investments.) Deliver your application materials to
your registered representative or selling broker, or send them to one
of the addresses below:
By Regular Mail: By Courier:
Ivy Mackenzie Services Corp. Ivy Mackenzie Services Corp.
P.O. Box 3022 700 South Federal Hwy.
Boca Raton, FL 33431-0922 Boca Raton, FL 33432
BUYING ADDITIONAL SHARES:
There are several ways to increase your investment in the Fund:
By Mail - Send your check with a completed investment slip
(attached to your account statement) or written instructions
indicating the account registration, fund number or name, and
account number.
Mail to one of the addresses above.
Through Your Broker - Deliver to your registered representative
or selling broker the investment slip attached to your statement,
or written instructions, along with your payment.
By Wire - Purchases may also be made by wiring money from your
bank account to your Ivy account. Your bank may charge a fee for
wiring funds. Before wiring any funds, please call IMSC at (800)
777-6472. Wiring instructions are as follows:
First Union National Bank of Florida
Jacksonville, FL
ABA #063000021
Account #2090002063833
For further credit to:
Your Ivy Fund Account Number
Your Fund Number and Account Number
By Automatic Investment Method - You can authorize to have funds
electronically drawn each month from your bank account and
invested as a purchase of shares into your Ivy Fund account.
Complete sections [XX] and [XX] of the Account Application.
HOW TO REDEEM SHARES:
SUBMITTING YOUR REDEMPTION ORDER:
You may redeem your Fund shares through your registered securities
dealer or directly through IMSC. If you choose to redeem through your
registered securities dealer, the dealer is responsible for properly
transmitting redemption orders in a timely manner. If you choose to
redeem directly through IMSC, you have several ways to submit your
request:
By Mail - Send your written redemption request to IMSC at one of
the addresses on page XX of this Prospectus. Be sure that all
registered owners listed on the account sign the request.
Signature guarantees and supporting legal documentation may be
required. When you redeem, IMSC will normally send redemption
proceeds to you on the next business day, but may take up to seven
days (or longer in the case of shares recently purchased by
check).
By Telephone - Call IMSC at (800) 777-6472 to redeem from your
account. In order to process your redemption order by telephone,
you must have telephone redemption privileges on your account.
IMSC employs reasonable procedures that require personal
identification prior to acting on redemption instructions
communicated by telephone to confirm that such instructions are
genuine. In the absence of such procedures, the Fund or IMSC may
be liable for any losses due to unauthorized or fraudulent
telephone instructions.
By Systematic Withdrawal Plan (SWP) - You can authorize to have
funds electronically drawn each month from your Ivy Fund account
and deposited directly into your bank account. Certain minimum
balances and minimum distributions apply. Complete sections XX of
the Account Application to add this feature to your account.
Receiving Your Redemption Proceeds - You can receive redemption
proceeds through a variety of payment methods:
By Check - Unless otherwise instructed, checks will be made
payable to the current account registration and sent to the
address of record.
By Federal Funds Wire - Proceeds will be wired on the next
business day to a pre-designated bank account. Requests by
telephone can only be accepted for amounts up to $50,000. Your
account will be charged $10 each time redemption proceeds are
wired to your bank, and your bank may also charge you a fee for
receiving a Federal Funds wire.
By Electronic Funds Transfer - For SWP redemptions only.
Important Redemption Information:
A CDSC may apply to certain Class A share redemptions, to Class B
shares redeemed within 6 years of purchase, and to Class C shares
that are redeemed within one year of purchase.
All redemptions are made at the NAV next determined after a
redemption request has been received in good order. Requests for
redemptions must be received by 4:00 p.m. Eastern time to be
processed at the NAV for that day. Any redemption request in good
order that is received after 4:00 p.m. Eastern time will be
processed at the price determined on the following business day.
If you own shares of more than one class of the Fund, the Fund
will redeem first the shares having the highest 12b-1 fees.
Any shares subject to a CDSC will be redeemed last unless you
specifically elect otherwise.
The Fund may (on 60 days' notice) redeem the accounts of
shareholders whose investment, including sales charges paid, has
been less than $1,000 for more than 12 months.
The Fund may take up to seven days (or longer in the case of
shares recently purchased by check) to send redemption proceeds.
The Fund may make payment for redeemed shares in the form of
securities of the Fund taken at current values.
HOW TO EXCHANGE YOUR FUND SHARES:
You may exchange your Fund shares for shares of another Ivy fund,
subject to certain restrictions (see "Important Exchange Information"
below).
Submitting Your Exchange Order - You may submit an exchange request to
IMSC as follows:
By Mail - Send your written exchange request to IMSC at one of
the addresses on page XX of this Prospectus. Be sure that all
registered owners listed on the account sign the request.
By Telephone - Call IMSC at (800) 777-6472 to authorize an
exchange transaction. In order to process your exchange order by
telephone, you must have telephone exchange privileges on your
account. IMSC employs reasonable procedures that require personal
identification prior to acting on exchange instructions
communicated by telephone to confirm that such instructions are
genuine. In the absence of such procedures, the Fund or IMSC may
be liable for any losses due to unauthorized or fraudulent
telephone instructions.
IMPORTANT EXCHANGE INFORMATION:
You must exchange into the same share class you currently own.
Exchanges are considered taxable events and may result in a
capital gain or a capital loss for tax purposes.
It is the policy of the Fund to discourage the use of the
exchange privilege for the purpose of timing short-term market
fluctuations. The Fund may therefore limit the frequency of
exchanges by a shareholder or cancel a shareholder's exchange
privilege if at any time it appears that such market timing
strategies are being used.
DIVIDENDS AND DISTRIBUTIONS:
The Fund generally declares and pays dividends and capital gain
distributions (if any) at least once a year.
Dividends and distributions are "reinvested" in additional Fund
shares unless you request to receive them in cash.
Reinvested dividends and distributions are added to your account
at NAV and are not subject to a CDSC regardless of which share
class you own.
Cash dividends and distributions can be sent to you:
BY MAIL - a check will mailed to the address of record unless
otherwise instructed.
BY ELECTRONIC FUNDS TRANSFER ("EFT") - your proceeds will be
directly deposited into your bank account.
To change your dividend and/or distribution options, call IMSC at
(800) 777-6472.
TAX CONSEQUENCES:
Distributions you receive from the Fund are reinvested in additional
shares of the same class of the Fund unless you elect to receive them
in cash. Dividends ordinarily will vary from one class to another.
The Fund intends to declare and pay dividends monthly. The Fund will
distribute net investment income and net realized capital gains, if
any, at least once a year. The Fund may make an additional distribution
of net investment income and net realized capital gains to comply with
the calendar year distribution requirement under the excise tax
provisions of Section 4982 of the Internal Revenue Code of 1986, as
amended (the "Code").
Dividends paid out of the Fund's investment company taxable income
(including dividends, interest and net short-term capital gains) will
be taxable to you as ordinary income. If a portion of the Fund's income
consists of dividends paid by U.S. corporations, a portion of the
dividends paid by the Fund may be eligible for the corporate
dividends-received deduction. Distributions of net capital gains (the
excess of net long-term capital gains over net short-term capital
losses), if any, are taxable to you as long-term capital gains,
regardless of how long you have held your shares. Dividends are taxable
to you in the same manner whether received in cash or reinvested in
additional Fund shares.
If shares of the Fund are held in a tax-deferred account, such as a
retirement plan, income and gain will not be taxable each year.
Instead, the taxable portion of amounts held in a tax-deferred account
generally will be subject to tax as ordinary income only when
distributed from that account.
A distribution will be treated as paid to you on December 31 of the
current calendar year if it is declared by the Fund in October,
November or December with a record date in such a month and paid by the
Fund during January of the following calendar year.
In certain years, you may be able to claim a credit or deduction on
your income tax return for your share of foreign taxes paid by the
Fund. Upon the sale or other disposition of your Fund shares, you may
realize a capital gain or loss which will be long-term or short-term,
generally depending upon how long you held your shares.
The Fund may be required to withhold U.S. Federal income tax at the
rate of 31% of all distributions payable to you if you fail to provide
the Fund with your correct taxpayer identification number or to make
required certifications, or if you have been notified by the Internal
Revenue Service ("IRS") that you are subject to backup withholding.
Backup withholding is not an additional tax. Any amounts withheld may
be credited against your U.S. Federal income tax liability.
Fund distributions may be subject to state, local and foreign taxes.
You should consult with your tax adviser as to the tax consequences of
an investment in the Fund, including the status of distributions from
the Fund under applicable state or local law.
<PAGE>
[[Insert "\financials\iisbf2.rtf"]]
<PAGE>
ACCOUNT APPLICATION
Please mail applications and checks to: Ivy Mackenzie Services Corp.,
P.O. Box 3022, Boca Raton, FL
33431-0922.
(This application should not be used for retirement accounts for which
Ivy Fund is custodian.)
Account Number:
(Fund Use Only)
Dealer #:
Branch #:
Rep. I.D. #:
Acct. Type:
Soc Cd:
Div Cd:
CG Cd:
Exc Cd:
Red Cd:
1. REGISTRATION
/ / Individual / / Joint Tenant / / Estate / / UGMA/UTMA / /
Corporation / / Partnership / / Sole Proprietor / / Trust / / Other
Date of Trust
Owner, Custodian or Trustee
Co-owner or Minor
Minor's State of Residence
Street
City
State
Zip Code
Phone Number -- Day
Phone Number -- Evening
2. TAX ID
Citizenship: / / U.S. / / Other ________________
Social Security Number
Tax Identification Number
Under penalties of perjury, I certify by signing in Section 8 below
that: (1) the number shown in this section is my correct taxpayer
identification number (TIN), and (2) I am not subject to backup
withholding because: (a) I have not been notified by the Internal
Revenue Service (IRS) that I am subject to backup withholding as a
result of a failure to report all interest or dividends, or (b) the IRS
has notified me that I am no longer subject to backup withholding.
(Cross out item (2) if you have been notified by the IRS that you are
currently subject to backup withholding because of underreporting
interest or dividends on your tax return.) Please see the "Tax
Consequences" section of the Prospectus for additional information on
completing this section.
3. DEALER INFORMATION
The undersigned ("Dealer") agrees to all applicable provisions in this
Application, guarantees the signature and legal capacity of the
Shareholder, and agrees to notify IMSC of any purchases made under a
Letter of Intent or Rights of Accumulation.
Dealer Name
Branch Office Address
City
State
Zip Code
Representative's Name and Number
Representative's Phone Number
Authorized Signature of Dealer
4. INVESTMENTS
A. Enclosed is my check ($1,000 minimum) for $_____________ made
payable to _________________ [Fund Name]. Please invest it in
Class A __ Class B __ Class C __ Class I __or Advisor Class __
shares.
B. I qualify for an elimination of the sales charge due to the
following privilege (applies only to Class A shares):
__ New Letter of Intent (if ROA or 90-day backdate
privilege is applicable, provide account(s)
information below.)
__ ROA with the account(s) listed below.
__ Existing Letter of Intent with account(s) listed
below.
Fund Name(s)
Account Number(s)
If establishing a Letter of Intent, you will need to purchase
Class A shares over a thirteen-month period in accordance with
the provisions in the Prospectus. The Aggregate amount of
these purchases will be at least equal to the amount indicated
below (see Prospectus for minimum amount required for reduced
sales charges).
/ / $50,000
/ / $100,000
/ / $250,000
/ / $500,000
C. FOR DEALER USE
Confirmed trade orders: [Confirm Number, Number of Shares,
Trade Date]
5. DISTRIBUTION OPTIONS
I would like to reinvest dividends and capital gains into additional
shares in this account at net asset value unless a different option is
checked below.
/ / Reinvest all dividends and capital gains into additional
shares of a different Ivy fund.
Fund Name
Account Number
/ / Pay all dividends in cash and reinvest capital gains into
additional shares in this Fund or a different Ivy fund.
Fund Name
Account Number
/ / Pay all dividends and capital gains in cash.
I REQUEST THE ABOVE CASH DISTRIBUTION, SELECTED IN C OR D
ABOVE, BE:
/ / Sent to the address listed in the registration.
/ / Sent to the special payee listed in Section 7A
/ / (By Mail) 7B
/ / (By E.F.T.)
6. OPTIONAL SPECIAL FEATURES
A. / / Automatic Investment Method (AIM)
- I wish to invest _________________ / / once per month / /
twice / / 3 times / / 4 times
- My bank account will be debited on the _________ day of the month
Please invest $___________________ each period starting in the
month of __________________ in
---------------------------.
Fund Name
/ / Class A
/ / Class B
/ / Class C
/ / Class I
/ / Advisor Class
/ / I have attached a voided check to ensure my correct bank
account will be debited.
B. SYSTEMATIC WITHDRAWAL PLANS**
I wish to automatically withdraw funds from my account in
____________________ Fund Name
/ / Monthly / / Quarterly / /Semiannually / / Annually
/ / Once / / Twice / / 3 times / / 4 times per month
I request the distribution be:
/ / Sent to the address listed in the registration.
/ / Sent to the special payee listed in Section 7.
/ / Invested into additional shares of the same class of a different Ivy
fund.
Fund Name
Account Number
Amount $__________________(Minimum $50) starting on or about the
- -_______ day of the month
- -_______ day of the month
- -_______ day of the month*
NOTE: Account minimum: $5,000 in shares at current offering price
C. FEDERAL FUNDS TRANSFER FOR REDEMPTION PROCEEDS**
I authorize the Agent to honor telephone instructions for the
redemption of Fund shares up to $50,000. Proceeds may be wire
transferred to the bank account designated ($1,000 minimum).
(Complete Section 7B)
TELEPHONE EXCHANGES** / / YES / / NO
I authorize exchanges by telephone among the Ivy funds upon
instructions from any person as more fully described in the
Prospectus. To change this option once established, written
instructions must be received from the shareholder of record
or the current registered representative.
If neither box is checked, the telephone exchange privilege
will be provided automatically.
TELEPHONIC REDEMPTIONS** / / YES / / NO
The Fund or its agents are authorized to honor telephone
instructions from any person as more fully described in the
Prospectus for the redemption of Fund shares. The amount of
the redemption shall not exceed $50,000 and the proceeds are
to be payable to the shareholder of record and mailed to the
address of record. To change this option once established,
written instructions must be received from the shareholder of
record or the current registered representative.
If neither box is checked, the telephone redemption privilege
will be provided automatically.
* There must be a period of at least seven calendar
days between each investment/withdrawal period.
** This option may not be used if shares are issued in
certificate form.
7. SPECIAL PAYEE
A. MAILING ADDRESS
Please send all disbursements to this special payee:
Name of Bank or Individual
Account Number (If Applicable)
Street
City/State/Zip
B. FED WIRE / E.F.T. INFORMATION
Financial Institution
ABA #
Account #
Street
City/State/Zip
(Please attach a voided check)
8. SIGNATURES
Investors should be aware that the failure to check the "No" under
Section 6D or 6E above means that the Telephone Exchange/Redemption
Privileges will be provided. The Fund employs reasonable procedures
that require personal identification prior to acting on
exchange/redemption instructions communicated by telephone to confirm
that such instructions are genuine. In the absence of such procedures,
the Fund may be liable for any losses due to unauthorized or fraudulent
telephone instructions. Please see "How to Exchange Your Fund Shares"
and "How to Redeem Your Fund Shares" in the Prospectus for more
information on these privileges.
I certify to my legal capacity to purchase or redeem shares of the Fund
for my own account or for the account of the organization named in
Section 1. I have received a current Prospectus and understand its
terms are incorporated in this application by reference. I am
certifying my taxpayer information as stated in Section 2.
THE INTERNAL REVENUE SERVICE DOES NOT REQUIRE YOUR CONSENT TO ANY
PROVISION OF THIS DOCUMENT OTHER THAN THE CERTIFICATIONS REQUIRED TO
AVOID BACKUP WITHHOLDING.
------------------------------
Signature of Owner, Custodian, Date
Trustee or Corporate Officer
------------------------------
Signature of Joint Owner, Date
Co-Trustee or Corporate Officer
(Remember to sign Section 8)
<PAGE>
[Back Cover Page]
HOW TO RECEIVE MORE INFORMATION ABOUT THE FUND
Additional information about the Fund and its investments is contained in the
Fund's Statement of Additional Information dated April ___, 1999 (the "SAI"),
which is incorporated by reference into this Prospectus, and the Fund's annual
and semi-annual reports to shareholders. The Fund's annual report includes a
discussion of the market conditions and investment strategies that significantly
affected the Fund's performance during its most recent fiscal year. The SAI and
the Fund's annual and semi-annual reports are available upon request and without
charge from the Distributor at the following address and phone number:
Ivy Mackenzie Distributors, Inc.
Via Mizner Financial Plaza
700 South Federal Highway
Boca Raton, Florida 33432
(800) 456-5111
Information about the Fund (including the SAI and the Fund's annual and
semi-annual reports) may also be reviewed and copied at the SEC's Public
Reference Room in Washington, D.C. (please call 1-800-SEC-0330 for further
details). Information about the Fund is also available on the SEC's Internet
Website (www.sec.gov), and copies of this information may be obtained, upon
payment of a copying fee, by writing the Public Reference Section of the SEC,
Washington, D.C. 20549-6009.
SHAREHOLDER INQUIRIES
Please call Ivy Mackenzie Services Corp., the Fund's transfer agent, at
1-800-777-6472 regarding any other inquiries about the Fund.
Investment Company Act File No. 811-1028
<PAGE>
[Front Cover Page]
PROSPECTUS April ___, 1999
IVY FUND - Ivy Money Market Fund
Ivy Fund (the "Trust") is a registered open-end investment company currently
consisting of nineteen separate portfolios. This Prospectus relates to the Class
A, Class B and Class C shares of Ivy Money Market Fund (the "Fund"). No other
share are offered in this Prospectus.
The Securities and Exchange Commission has not approved or disapproved these
securities or passed upon the adequacy of this Prospectus. Any representation to
the contrary is a criminal offense.
[Insert all logos]
<PAGE>
TABLE OF CONTENTS
SUMMARY
ADDITIONAL INFORMATION ABOUT INVESTMENT STRATEGIES AND RISKS
MANAGEMENT
<PAGE>
SUMMARY
Investment The Fund seeks to obtain as high a level of current income as is
consistent with the objective: preservation of capital and liquidity by
investing in high-quality, short-term securities. Principal The Fund invests in
money market instruments maturing within thirteen months or less and investment
maintains a portfolio with a dollar-weights average maturity of 90 days or less.
The Fund's strategies: emphasis on securities with relatively short-term
maturities is designed to enable the Fund to maintain a constant net asset
value of $1.00 per share.
Among the types of money market instruments that are likely
to be included in the Fund's portfolio are:
debt securities issued or guaranteed by the U.S. Government;
obligations of domestic banks and savings and loans associations
(including certificates of deposit and bankers' acceptances);
high-quality commercial paper;
high quality short-term corporate notes, bonds and debentures; and
short-term repurchase agreements involving U.S. Government securities.
Principal risks: The main risks to which the Fund is exposed in
carrying out its investment strategies are the following:
Management risk: The Fund's manager might not select securities that
perform as well as the securities held by other money
market funds.
Market risk: An investment in the Fund is not insured or guaranteed by
the Federal Deposit Insurance Corporation or any other
government agency. Thus, although the Fund seeks to
preserve the value of your investment at $1.00 per share,
it is possible to lose money by investing in the Fund.
Interest rate risk: The value of debt securities rises and
falls inversely with fluctuations in interest rates. Many of
the Fund's portfolio holdings are therefore susceptible to
decline in a rising interest rate environment. Debt
securities with shorter maturities, such as those typically
held by the Fund, tend to be less volatile than those with
longer maturities. There can be no guarantee, however, that
the Fund's investments will not lose value in an adverse
interest rate climate.
Credit quality risk:The market value of debt securities also tends to vary
according to the relative financial condition of the
issuer. The Fund's debt investments are required to
present minimal credit risk and be included in one of the
two highest short-term rating categories that apply to
debt securities. The issuers of the Fund's portfolio
holdings could nevertheless fail to meet their
obligations on interest payments and/or principal
repayments, which could cause the Fund to lose money.
Who should The Fund may be appropriate for investors seeking a
invest:* combination of current income and stability of capital.
* You should consult with your financial advisor before deciding whether
the Fund is an appropriate investment choice in light of your
particular financial needs and risk tolerance.
<PAGE>
Performance Bar Chart and Table:
The information in the following chart and table provides some
indication of the risks of investing in the Fund by showing changes in
the Fund's performance from year to year and how the Fund's average
annual returns since its inception on ____________ compare with those
of a broad measure of market performance. The Fund's past performance
is not an indication of how the Fund will perform in the future.
Annual Total Returns for Class A Shares as of December 31, 1998:
- -------------------------------------------------------------------
1989 1990 1991 1992 1993 1994 1995 1996 1997 1998
Best quarter: ______% (Q__ 199__)
Worst quarter: ______% (Q__ 199__)
Average Annual Total Returns (for the periods ending December 31,
1998):
Past year: Past 5 years: Past 10 years: Since inception:*
--------- ------------ ------------- ---------------
Class A: ______% ______% ______% ______%
Class B: ______% ______% N/A ______%
Class C: ______% N/A N/A ______%
[Index]: ______% ______% ______% ______%
* The inception dates for the Fund's three classes of shares
were as follows: Class A, _______________; Class B, April 1,
1994; and Class C, April 30, 1996.
Fees and Expenses:
The following tables describe the fees and expenses that you may pay if
you buy and hold shares of the Fund:
Shareholder Fees (fees paid directly from your investment):
Maximum Sales Charge (Load) Imposed on Maximum Deferred Sales
Purchases (as a percentage of Charge (Load) (as a
offering price): percentage of original
purchase price):*
Class A: none none
Class B: none none
Class C: none none
* No contingent deferred sales charge ("CDSC") applies to your
purchase of Fund shares. If, however, you exchange shares of
another Ivy fund that are subject to a CDSC for shares of the
Fund, the CDSC may carry over to your investment in the Fund
and be assessed when you redeem your Fund shares (depending on
how much time has elapsed since your original purchase date).
Annual Fund Operating Expenses (expenses that are deducted from Fund
assets):
Distribution Total Expenses Net Fund
Management and/or Other Annual Waived or Operating
Fees*: Service Expenses: Fund Reimbursed:* Expenses:*
(12b-1) Operating
Fees: Expenses
Class A: NONE NONE $_______ $_______ $_______ $_______
Class B: NONE NONE $_______ $_______ $_______ $_______
Class C: NONE NONE $_______ $_______ $_______ $_______
* The Fund's Manager has agreed to waive and/or reimburse the
Fund's fees and expenses to the extent necessary to ensure
that the Fund's Annual Fund Operating Expenses do not exceed
the amounts shown in the far right column above.
<PAGE>
Example:
The following example is intended to help you compare the cost of
investing in the Fund with the cost of investing in other mutual funds.
The example assumes that you invest $10,000 in the Fund for the time
periods indicated and then redeem all of your shares at the end of
those periods (with additional information shown for Class B and Class
C shares based on the assumption that you do not redeem your shares at
that time). The example also assumes that your investment has a 5%
return each year and that the Fund's operating expenses remain the
same. Although your actual costs may be higher or lower, based on these
assumptions your costs would be as follows:
1 Year: 3 Years: 5 Years: 10 Years:
------ ------- ------- --------
Class A: $______ $______ $______ $______
Class B: $______ $______ $______ $______
Class C: $______ $______ $______ $______
<PAGE>
ADDITIONAL INFORMATION ABOUT INVESTMENT STRATEGIES AND RISKS
Principal strategies:
The Fund seeks to achieve its investment objective of as high a level
of current income as is consistent with the preservation of capital and
liquidity by investing in high-quality, short-term securities. By
purchasing these types of securities, the Fund will attempt to maintain
a constant net asset value of $1.00 per share (although there is no
guarantee that the Fund's efforts will be successful). The Fund's
portfolio is actively monitored on a daily basis in order to maintain
competitive yields.
Principal risks:
General market risk: As with any mutual fund, the value of the Fund's
investments and the income they generate will vary daily and generally
reflect market conditions, interest rates and other issuer-specific,
political or economic developments. The Fund's share value will
decrease at any time during which its security holdings or other
investment techniques are not performing as well as anticipated, and
you could therefore lose money by investing in the Fund depending upon
the timing of your initial purchase and any subsequent redemption.
Other risks: Since the Fund invests almost exclusively in high quality
debt securities with relatively short maturities, it is less
susceptible to the risks associated with equity securities and higher
risk debt securities. Investing in the Fund does involve certain risks,
however, which are described below. Other investment techniques that
the Fund may use, but that do not play a key role in the Fund's overall
investment strategy, are described in the Fund's Statement of
Additional Information (see back cover page for information on how you
can receive a free copy).
Debt Securities: Investing in debt securities involves both
interest rate and credit risk. Generally, the value of debt
instruments rises and falls inversely with fluctuations in
interest rates. For example, as interest rates decline the value
of debt securities generally increases. Conversely, rising
interest rates tend to cause the value of debt securities to
decrease. The Fund's portfolio is therefore susceptible to the
decline in value of the debt instruments it holds in a rising
interest rate environment. The market value of debt securities
also tends to vary according to the relative financial condition
of the issuer. Bonds with longer maturities tend to be more
volatile than bonds with shorter maturities.
Repurchase Agreements: Under a repurchase agreement, the Fund
buys a money market instrument and obtains a simultaneous
commitment from the seller to repurchase the instrument at a
specified time and price. The Fund could experience a delay in
obtaining direct ownership of the underlying collateral, and might
incur a loss if the value of the security should decline.
Borrowing: For temporary or emergency purposes (such as meeting
shareholder redemption requests within the time periods specified
under the Investment Company Act of 1940), the Fund may borrow up
to 10% of the value of its total assets from qualified banks.
Borrowing may exaggerate the effect on the Fund's share value of
any increase or decrease in the value of the securities it holds.
Money borrowed will also be subject to interest costs.
Other Important Information:
Year 2000 Risks: Many computer software and hardware systems in use
today cannot distinguish between the year 2000 and the year 1900
because of the way dates are encoded and calculated (the "Year 2000
Problem"). The inability of computer-based systems to make this
distinction could have a seriously adverse effect on the handling of
securities trades, pricing and account services worldwide. The Fund's
service providers are taking steps that each believes are reasonably
designed to address the Year 2000 Problem with respect to the computer
systems that they use. The Fund believes these steps will be sufficient
to avoid any material adverse impact on the Fund. At this time,
however, there can be no assurance that significant problems will not
occur (which either directly or indirectly may cause the Fund to lose
money).
MANAGEMENT
Investment Advisor:
Ivy Management, Inc. ("IMI"), located at Via Mizner Financial Plaza,
700 South Federal Highway, Boca Raton, Florida 33432, provides
investment advisory and business management services to the Fund. IMI
is an SEC-registered investment advisor with over $____ billion in
assets under management, and provides similar services to the other
eighteen series of the Trust. For the Fund's fiscal year ending
December 31, 1998, the Fund paid to IMI a fee equal to ___% of the
Fund's average net assets.
Portfolio Manager:
The Fund is managed by a team that is comprised of the following
individuals.
Michael Borowsky is a Vice President of IMI and a member of IMI's fixed
income team. Before joining IMI in 1994, Mr. Borowsky was a fixed income
specialist at Lehwald, Orosey and Pepe. He holds a Bachelor of Science
degree in finance and economics from Drexel University and an MBA from Nova
Southeastern University.
Brian Barrett joined IMI in 1997 as a member of the fixed income team. He
has broad fixed income quantitative experience, including working with
Mellon Bond Associates as Vice President and Director of Research.
Concurrent with his tenure at IMI, Dr. Barrett is an Assistant Professor of
Finance at the University of Miami. He received his Ph.D in finance from
the Georgia Institute of Technology and is a Chartered Financial Analyst.
<PAGE>
SHAREHOLDER INFORMATION
PRICING OF FUND SHARES:
The Fund calculates its share price by dividing the value of the Fund's
net assets by the total number of its shares outstanding as of the
close of regular trading (usually 4:00 p.m. Eastern time) on the New
York Stock Exchange on each day the Exchange is open for trading
(normally any weekday that is not a national holiday). The Fund values
all of its portfolio securities using the "amortized cost method",
which involves valuing each security at its initial cost to the Fund
and then assuming a constant rate of accretion of discount or
amortization of premium. Cash and receivables are valued at their
realizable amounts.
The number of shares you receive when you place a purchase order, and
the payment you receive after submitting a redemption request, is based
on the Fund's net asset value next determined after your instructions
are received in proper form by Ivy Mackenzie Services Corp. (the Fund's
transfer agent) or by your registered securities dealer.
HOW TO BUY SHARES:
The Fund's shares are sold at net asset value without the imposition of
any initial or deferred sales charge. Class B and Class C shares are
offered only to shareholders (i) investing in the Fund through a
registered broker or dealer and (ii) who intend to exchange their Fund
shares for Class B or Class C shares of another Ivy fund at a later
date, subject to any contingent deferred sales charge ("CDSC") that
applies to the Ivy fund into which the exchange is made.
SUBMITTING YOUR PURCHASE ORDER:
INITIAL INVESTMENTS:
Complete and sign the Account Application appearing at the end of this
Prospectus. Enclose a check payable to Ivy Fund (see page [XX] for
minimum initial investments.) Deliver your application materials to
your registered representative or selling broker, or send them to one
of the addresses below:
By Regular Mail: By Courier:
Ivy Mackenzie Services Corp. Ivy Mackenzie Services Corp.
P.O. Box 3022 700 South Federal Hwy.
Boca Raton, FL 33431-0922 Boca Raton, FL 33432
BUYING ADDITIONAL SHARES:
There are several ways to increase your investment in the Fund:
By Mail - Send your check with a completed investment slip
(attached to your account statement) or written instructions
indicating the account registration, fund number or name, and
account number.
Mail to one of the addresses above.
Through Your Broker - Deliver to your registered representative
or selling broker the investment slip attached to your statement,
or written instructions, along with your payment.
By Wire - Purchases may also be made by wiring money from your
bank account to your Ivy account. Your bank may charge a fee for
wiring funds. Before wiring any funds, please call IMSC at (800)
777-6472. Wiring instructions are as follows:
First Union National Bank of Florida
Jacksonville, FL
ABA #063000021 Account
#2090002063833 For further credit
to:
Your Ivy Fund Account Number
Your Fund Number and Account Number
By Automatic Investment Method - You can authorize to have funds
electronically drawn each month from your bank account and
invested as a purchase of shares into your Ivy Fund account.
Complete sections [XX] and [XX] of the Account Application.
HOW TO REDEEM SHARES:
SUBMITTING YOUR REDEMPTION ORDER:
You may redeem your Fund shares through your registered securities
dealer or directly through IMSC. If you choose to redeem through your
registered securities dealer, the dealer is responsible for properly
transmitting redemption orders in a timely manner. If you choose to
redeem directly through IMSC, you have several ways to submit your
request:
By Mail - Send your written redemption request to IMSC at one of
the addresses on page XX of this Prospectus. Be sure that all
registered owners listed on the account sign the request.
Signature guarantees and supporting legal documentation may be
required. When you redeem, IMSC will normally send redemption
proceeds to you on the next business day, but may take up to seven
days (or longer in the case of shares recently purchased by
check).
By Telephone - Call IMSC at (800) 777-6472 to redeem from your
account. In order to process your redemption order by telephone,
you must have telephone redemption privileges on your account.
IMSC employs reasonable procedures that require personal
identification prior to acting on redemption instructions
communicated by telephone to confirm that such instructions are
genuine. In the absence of such procedures, the Fund or IMSC may
be liable for any losses due to unauthorized or fraudulent
telephone instructions.
By Systematic Withdrawal Plan (SWP) - You can authorize to have
funds electronically drawn each month from your Ivy Fund account
and deposited directly into your bank account. Certain minimum
balances and minimum distributions apply. Complete sections XX of
the Account Application to add this feature to your account.
Receiving Your Redemption Proceeds - You can receive redemption
proceeds through a variety of payment methods:
By Check - Unless otherwise instructed, checks will be made
payable to the current account registration and sent to the
address of record.
By Federal Funds Wire - Proceeds will be wired on the next
business day to a pre-designated bank account. Requests by
telephone can only be accepted for amounts up to $50,000. Your
account will be charged $10 each time redemption proceeds are
wired to your bank, and your bank may also charge you a fee for
receiving a Federal Funds wire.
By Electronic Funds Transfer - For SWP redemptions only.
Important Redemption Information:
All redemptions are made at the NAV next determined after a
redemption request has been received in good order. Requests for
redemptions must be received by 4:00 p.m. Eastern time to be
processed at the NAV for that day. Any redemption request in good
order that is received after 4:00 p.m. Eastern time will be
processed at the price determined on the following business day.
The Fund may (on 60 days' notice) redeem the accounts of
shareholders whose investment, including sales charges paid, has
been less than $1,000 for more than 12 months.
The Fund may take up to seven days (or longer in the case of
shares recently purchased by check) to send redemption proceeds.
The Fund may make payment for redeemed shares in the form of
securities of the Fund taken at current values.
HOW TO EXCHANGE YOUR FUND SHARES:
You may exchange your Fund shares for shares of another Ivy fund,
subject to certain restrictions (see "Important Exchange Information"
below).
Submitting Your Exchange Order - You may submit an exchange request to
IMSC as follows:
By Mail - Send your written exchange request to IMSC at one of
the addresses on page XX of this Prospectus. Be sure that all
registered owners listed on the account sign the request.
By Telephone - Call IMSC at (800) 777-6472 to authorize an
exchange transaction. In order to process your exchange order by
telephone, you must have telephone exchange privileges on your
account. IMSC employs reasonable procedures that require personal
identification prior to acting on exchange instructions
communicated by telephone to confirm that such instructions are
genuine. In the absence of such procedures, the Fund or IMSC may
be liable for any losses due to unauthorized or fraudulent
telephone instructions.
IMPORTANT EXCHANGE INFORMATION:
You must exchange into the same share class you currently own.
Exchanges are considered taxable events and may result in a
capital gain or a capital loss for tax purposes.
It is the policy of the Fund to discourage the use of the
exchange privilege for the purpose of timing short-term market
fluctuations. The Fund may therefore limit the frequency of
exchanges by a shareholder or cancel a shareholder's exchange
privilege if at any time it appears that such market timing
strategies are being used.
DIVIDENDS AND DISTRIBUTIONS:
The Fund generally declares and pays dividends and capital gain
distributions (if any) at least once a year.
Dividends and distributions are "reinvested" in additional Fund
shares unless you request to receive them in cash.
Reinvested dividends and distributions are added to your account
at NAV.
Cash dividends and distributions can be sent to you:
BY MAIL - a check will mailed to the address of record unless
otherwise instructed.
BY ELECTRONIC FUNDS TRANSFER ("EFT") - your proceeds will be
directly deposited into your bank account.
To change your dividend and/or distribution options, call IMSC at
(800) 777-6472.
TAX CONSEQUENCES:
Distributions you receive from the Fund are reinvested in additional
shares of the same class of the Fund unless you elect to receive them
in cash. Dividends ordinarily will vary from one class to another.
The Fund intends to declare and pay dividends monthly. The Fund will
distribute net investment income and net realized capital gains, if
any, at least once a year. The Fund may make an additional distribution
of net investment income and net realized capital gains to comply with
the calendar year distribution requirement under the excise tax
provisions of Section 4982 of the Internal Revenue Code of 1986, as
amended (the "Code").
Dividends paid out of the Fund's investment company taxable income
(including dividends, interest and net short-term capital gains) will
be taxable to you as ordinary income. If a portion of the Fund's income
consists of dividends paid by U.S. corporations, a portion of the
dividends paid by the Fund may be eligible for the corporate
dividends-received deduction. Distributions of net capital gains (the
excess of net long-term capital gains over net short-term capital
losses), if any, are taxable to you as long-term capital gains,
regardless of how long you have held your shares. Dividends are taxable
to you in the same manner whether received in cash or reinvested in
additional Fund shares.
If shares of the Fund are held in a tax-deferred account, such as a
retirement plan, income and gain will not be taxable each year.
Instead, the taxable portion of amounts held in a tax-deferred account
generally will be subject to tax as ordinary income only when
distributed from that account.
A distribution will be treated as paid to you on December 31 of the
current calendar year if it is declared by the Fund in October,
November or December with a record date in such a month and paid by the
Fund during January of the following calendar year.
Upon the sale or other disposition of your Fund shares, you may
realize a capital gain or loss which will be long-term or short-term,
generally depending upon how long you held your shares.
The Fund may be required to withhold U.S. Federal income tax at the
rate of 31% of all distributions payable to you if you fail to provide
the Fund with your correct taxpayer identification number or to make
required certifications, or if you have been notified by the Internal
Revenue Service ("IRS") that you are subject to backup withholding.
Backup withholding is not an additional tax. Any amounts withheld may
be credited against your U.S. Federal income tax liability.
Fund distributions may be subject to state and local taxes.
You should consult with your tax adviser as to the tax consequences of
an investment in the Fund, including the status of distributions from
the Fund under applicable state or local law.
<PAGE>
<TABLE>
<CAPTION>
CLASS A
- ---------------------------------------------------------------------------------------------
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
------- ------- ------- -------
Income from investment operations
Net investment income(a).......... .05 .04 .05 .04
Less distributions
From net investment income........ (.05) (.04) (.05) (.04)
------- ------- ------- -------
Net asset value, end of period..... $ 1.00 $ 1.00 $ 1.00 $ 1.00
======= ======= ======= =======
Total return(%).................... 4.60 4.47 4.80 4.21
RATIOS AND SUPPLEMENTAL DATA
Net assets, end of period (in
thousands)........................ $15,385 $21,359 $24,609 $26,827
Ratio of expenses to average net
assets
With expense reimbursement(%)..... .88 .86 .85 .85
Without expense
reimbursement(%)................ 1.57 1.86 1.39 1.24
Ratio of net investment income to
average net assets(%)(a).......... 4.60 4.47 4.91 3.29
</TABLE>
<TABLE>
<CAPTION>
CLASS B CLASS C
------------------------- --------------------------
1998 1997 1996 1998 1997 1996(B)
SELECTED PER SHARE DATA ------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of period........................ $ 1.00 $ 1.00 $1.00 $ 1.00
------- ------- ----- -------
Income from investment operations
Net investment income(a)................................. .05 .05 .05 .03
Less distributions
From net investment income............................... (.05) (.05) (.05) (.03)
------- ------- ----- -------
Net asset value, end of period.............................. $ 1.00 $ 1.00 $1.00 $ 1.00
======= ======= ===== =======
Total return (%)............................................ 4.77 4.57 4.78 4.78
RATIOS AND SUPPLEMENTAL DATA
Net assets, end of period (in thousands).................... $3,812 $3,474 $ 405 $ 74
Ratio of expenses to average net assets
With expense reimbursement(%)............................ .70 .77 .70 .56
Without expense reimbursement(%)......................... 1.39 1.77 1.39 1.56
Ratio of net investment income to average net
assets(%)(a)............................................... 4.77 4.57 4.78 4.78
</TABLE>
- - ---------------
(a) Net investment income is net of expenses reimbursed by IMI.
(b) From April 30, 1996 (commencement of operations) to December 31, 1996.
<PAGE>
ACCOUNT APPLICATION
Please mail applications and checks to: Ivy Mackenzie Services Corp.,
P.O. Box 3022, Boca Raton, FL 33431-0922.
(This application should not be used for retirement accounts for which
Ivy Fund is custodian.)
Account Number:
(Fund Use Only)
Dealer #:
Branch #:
Rep. I.D. #:
Acct. Type:
Soc Cd:
Div Cd:
CG Cd:
Exc Cd:
Red Cd:
1. REGISTRATION
/ / Individual / / Joint Tenant / / Estate / / UGMA/UTMA / /
Corporation / / Partnership / / Sole Proprietor / / Trust / / Other
Date of Trust
Owner, Custodian or Trustee
Co-owner or Minor
Minor's State of Residence
Street
City
State
Zip Code
Phone Number -- Day
Phone Number -- Evening
2. TAX ID
Citizenship: / / U.S. / / Other ________________
Social Security Number
Tax Identification Number
Under penalties of perjury, I certify by signing in Section 8 below
that: (1) the number shown in this section is my correct taxpayer
identification number (TIN), and (2) I am not subject to backup
withholding because: (a) I have not been notified by the Internal
Revenue Service (IRS) that I am subject to backup withholding as a
result of a failure to report all interest or dividends, or (b) the IRS
has notified me that I am no longer subject to backup withholding.
(Cross out item (2) if you have been notified by the IRS that you are
currently subject to backup withholding because of underreporting
interest or dividends on your tax return.) Please see the "Tax
Consequences" section of the Prospectus for additional information on
completing this section.
3. DEALER INFORMATION
The undersigned ("Dealer") agrees to all applicable provisions in this
Application, guarantees the signature and legal capacity of the
Shareholder, and agrees to notify IMSC of any purchases made under a
Letter of Intent or Rights of Accumulation.
Dealer Name
Branch Office Address
City
State
Zip Code
Representative's Name and Number
Representative's Phone Number
Authorized Signature of Dealer
4. INVESTMENTS
A. Enclosed is my check ($1,000 minimum) for $_____________ made
payable to ________________ [Fund Name]. Please invest it in
Class A __ Class B __ Class C __ or Advisor Class __ shares.
B. I qualify for an elimination of the sales charge due to the
following privilege (applies only to Class A shares):
__ New Letter of Intent (if ROA or 90-day backdate
privilege is applicable, provide account(s)
information below.)
__ ROA with the account(s) listed below.
__ Existing Letter of Intent with account(s) listed below.
Fund Name(s)
Account Number(s)
If establishing a Letter of Intent, you will need to purchase
Class A shares over a thirteen-month period in accordance with
the provisions in the Prospectus. The Aggregate amount of
these purchases will be at least equal to the amount indicated
below (see Prospectus for minimum amount required for reduced
sales charges).
/ / $50,000
/ / $100,000
/ / $250,000
/ / $500,000
C. FOR DEALER USE
Confirmed trade orders: [Confirm Number, Number of Shares,
Trade Date]
5. DISTRIBUTION OPTIONS
I would like to reinvest dividends and capital gains into additional
shares in this account at net asset value unless a different option is
checked below.
/ / Reinvest all dividends and capital gains into additional
shares of a different Ivy fund.
Fund Name
Account Number
/ / Pay all dividends in cash and reinvest capital gains into
additional shares in this Fund or a different Ivy fund.
Fund Name
Account Number
/ / Pay all dividends and capital gains in cash.
I REQUEST THE ABOVE CASH DISTRIBUTION, SELECTED IN C OR D
ABOVE, BE:
/ / Sent to the address listed in the registration.
combination of current income and stability
6. OPTIONAL SPECIAL FEATURES
A. / / Automatic Investment Method (AIM)
- I wish to invest _________________ / / once per month / /
twice / / 3 times / / 4 times
- My bank account will be debited on the _________ day of the
month
Please invest $___________________ each period starting in
the month of __________________ in
---------------------------.
Fund Name
/ / Class A
/ / Class B
/ / Class C
/ / Advisor Class
/ / I have attached a voided check to ensure my correct bank
account will be debited.
B. SYSTEMATIC WITHDRAWAL PLANS**
I wish to automatically withdraw funds from my account in
_________________[Fund name].
/ / Monthly / / Quarterly / /Semiannually / / Annually
/ / Once / / Twice / / 3 times / / 4 times per month
I request the distribution be:
/ / Sent to the address listed in the registration.
/ / Sent to the special payee listed in Section 7.
/ / Invested into additional shares of the same class of a different Ivy
fund.
Fund Name
Account Number
Amount $__________________(Minimum $50) starting on or about the
- -_______ day of the month
- -_______ day of the month
- -_______ day of the month*
NOTE: Account minimum: $5,000 in shares at current offering price
C. FEDERAL FUNDS TRANSFER FOR REDEMPTION PROCEEDS**
I authorize the Agent to honor telephone instructions for the
redemption of Fund shares up to $50,000. Proceeds may be wire
transferred to the bank account designated ($1,000 minimum).
(Complete Section 7B)
TELEPHONE EXCHANGES** / / YES / / NO
I authorize exchanges by telephone among the Ivy funds upon
instructions from any person as more fully described in the
Prospectus. To change this option once established, written
instructions must be received from the shareholder of record
or the current registered representative.
If neither box is checked, the telephone exchange privilege
will be provided automatically.
TELEPHONIC REDEMPTIONS** / / YES / / NO
The Fund or its agents are authorized to honor telephone
instructions from any person as more fully described in the
Prospectus for the redemption of Fund shares. The amount of
the redemption shall not exceed $50,000 and the proceeds are
to be payable to the shareholder of record and mailed to the
address of record. To change this option once established,
written instructions must be received from the shareholder of
record or the current registered representative.
If neither box is checked, the telephone redemption privilege
will be provided automatically.
* There must be a period of at least seven calendar
days between each investment/withdrawal period.
** This option may not be used if shares are issued in
certificate form.
7. SPECIAL PAYEE
A. MAILING ADDRESS
Please send all disbursements to this special payee:
Name of Bank or Individual
Account Number (If Applicable)
Street
City/State/Zip
B. FED WIRE / E.F.T. INFORMATION
Financial Institution
ABA #
Account #
Street
City/State/Zip
(Please attach a voided check)
8. SIGNATURES
Investors should be aware that the failure to check the "No" under
Section 6D or 6E above means that the Telephone Exchange/Redemption
Privileges will be provided. The Fund employs reasonable procedures
that require personal identification prior to acting on
exchange/redemption instructions communicated by telephone to confirm
that such instructions are genuine. In the absence of such procedures,
the Fund may be liable for any losses due to unauthorized or fraudulent
telephone instructions. Please see "How to Exchange Your Fund Shares"
and "How to Redeem Your Fund Shares" in the Prospectus for more
information on these privileges.
I certify to my legal capacity to purchase or redeem shares of the Fund
for my own account or for the account of the organization named in
Section 1. I have received a current Prospectus and understand its
terms are incorporated in this application by reference. I am
certifying my taxpayer information as stated in Section 2.
THE INTERNAL REVENUE SERVICE DOES NOT REQUIRE YOUR CONSENT TO ANY
PROVISION OF THIS DOCUMENT OTHER THAN THE CERTIFICATIONS REQUIRED TO
AVOID BACKUP WITHHOLDING.
------------------------------
Signature of Owner, Custodian, Date
Trustee or Corporate Officer
------------------------------
Signature of Joint Owner, Date
Co-Trustee or Corporate Officer
(Remember to sign Section 8)
<PAGE>
[Back Cover Page]
HOW TO RECEIVE MORE INFORMATION ABOUT THE FUND
Additional information about the Fund and its investments is contained in the
Fund's Statement of Additional Information dated April ___, 1999 (the "SAI"),
which is incorporated by reference into this Prospectus, and the Fund's annual
and semi-annual reports to shareholders. The Fund's annual report includes a
discussion of the market conditions and investment strategies that significantly
affected the Fund's performance during its most recent fiscal year. The SAI and
the Fund's annual and semi-annual reports are available upon request and without
charge from the Distributor at the following address and phone number:
Ivy Mackenzie Distributors, Inc.
Via Mizner Financial Plaza
700 South Federal Highway
Boca Raton, Florida 33432
(800) 456-5111
Information about the Fund (including the SAI and the Fund's annual and
semi-annual reports) may also be reviewed and copied at the SEC's Public
Reference Room in Washington, D.C. (please call 1-800-SEC-0330 for further
details). Information about the Fund is also available on the SEC's Internet
Website (www.sec.gov), and copies of this information may be obtained, upon
payment of a copying fee, by writing the Public Reference Section of the SEC,
Washington, D.C. 20549-6009.
SHAREHOLDER INQUIRIES
Please call Ivy Mackenzie Services Corp., the Fund's transfer agent, at
1-800-777-6472 regarding any other inquiries about the Fund.
Investment Company Act File No. 811-1028
<PAGE>
[Front Cover Page]
PROSPECTUS April ___, 1999
IVY FUND - Ivy Pan-Europe Fund
Ivy Fund (the "Trust") is a registered open-end investment company currently
consisting of nineteen separate portfolios. This Prospectus relates to the Class
A, Class B, Class C and Advisor Class shares of Ivy Pan-Europe Fund (the
"Fund"). No other shares are offered in this Prospectus.
The Securities and Exchange Commission has not approved or disapproved these
securities or passed upon the adequacy of this Prospectus. Any representation to
the contrary is a criminal offense.
[Insert all logos]
<PAGE>
TABLE OF CONTENTS
SUMMARY
ADDITIONAL INFORMATION ABOUT INVESTMENT STRATEGIES AND RISKS
MANAGEMENT
<PAGE>
SUMMARY
Investment The Fund's principal investment objective of long-term
objective: capital growth. Consideration of current income is secondary
to this principal objective.
Principal The Fund invests primarily in the equity securities of
investment European companies. The Fund might in foreign currency
strategies: exchange transactions and forward foreign currency contracts
to its exposure to certain risks.
Principal risks: The main risks to which the Fund is exposed in carrying out
its investment strategies are the following:
Management risk: The Fund's manager might not select
securities that perform as well as the securities held by
other mutual funds with investment objectives that are
similar to those of the Fund.
Market risk: Common stocks represent a proportionate
ownership interest in a company. The market value of common
stock can fluctuate significantly even where "management
risk" is not a factor, so you could lose money if you redeem
your Fund shares at a time when the Fund's stock portfolio
is not performing as well as expected. The market value of
common stock can fluctuate significantly, so you could lose
money if you redeem your Fund shares at a time when the
Fund's stock portfolio is not performing as well as
expected.
Foreign security and emerging market risk: Investing in
foreign securities involves a number of economic, financial
and political considerations that are not associated with
the U.S. markets and that could affect the Fund's
performance favorably or unfavorably, depending upon
prevailing conditions at any given time. Among these
potential risks are:
greater price volatility;
comparatively weak supervision and regulation of
securities exchanges, brokers and issuers;
higher brokerage costs;
fluctuations in foreign currency exchange rates and
related conversion costs;
adverse tax consequences; and
settlement delays.
The risks of investing in foreign securities are more acute
in countries with developing economies.
EURO Conversion Risks: On January 1, 1999, a new European
currency called the "Euro" was introduced and adopted for
use by eleven European countries. The transition to daily
usage of the Euro, including circulation of Euro bills and
coins, will occur during the period from January 1, 1999
through December 31, 2001. Certain European Union (EU)
members, including the United Kingdom, did not officially
implement the Euro on January 1, 1999 and may cause market
disruptions when and if they decide to do so. Where this
occurs, the Fund could experience investment losses.
Who should invest:* The Fund may be appropriate for investors seeking
long-term growth potential, but who can accept moderate fluctuations
in capital value in the short-term.
* You should consult with your financial advisor before deciding whether
the Fund is an appropriate investment choice in light of your
particular financial needs and risk tolerance.
<PAGE>
Performance Bar Chart and Table:
The information in the following chart and table provides some
indication of the risks of investing in the Fund by showing changes in
the Fund's performance from year to year and how the Fund's average
annual returns since its inception on May 13, 1997 compare with those
of a broad measure of market performance. The Fund's past performance
is not an indication of how the Fund will perform in the future.
Annual Total Returns for Class A Shares as of December 31, 1998:*
----------------------
1997# 1998
* Any applicable sales charges and account fees are not
reflected, and if they were the returns shown above would be
lower. The returns for the Fund's other four classes of shares
during these periods were different from those of Class A
because of variations in their respective expense structures.
# For the period May 13, 1997 (commencement) to December 31, 1997.
Best quarter: ______% (Q__ 199__)
Worst quarter: ______% (Q__ 199__)
Average Annual Total Returns (for the periods ending December 31, 1998):*
Past year: Past Five years: Since inception:**
Class A: ______% ______% ______%
Class B: ______% N/A ______%
Class C: ______% N/A ______%
Advisor Class: ______% N/A ______%
[Index]: ______% N/A ______%
* Performance figures reflect any applicable sales charges.
** The inception date for all Classes other than Advisor Class
was May 13, 1997. Advisor Class shares were first offered on
January 1, 1998.
<PAGE>
Fees and Expenses:
The following tables describe the fees and expenses that you may pay if
you buy and hold shares of the Fund:
Shareholder Fees (fees paid directly from your investment):
Maximum Sales Charge (Load) Imposed on Maximum Deferred Sales
Purchases (as a percentage of Charge (Load) (as a
offering price): percentage of original
purchase price):
Class A: 5.75% none
Class B: none 5.00%
Class C: none 1.00%
Advisor none none
Class:
Annual Fund Operating Expenses (expenses that are deducted from Fund
assets):
Distribution Total Annual Expenses Net Fund
Management and/or Other Fund Waived or Operating
Fees: Service Expenses: Operating Reimbursed:* Expenses:*
(12b-1) Expenses:
Fees:
Class A: 1.00% .25% $_______ $_______ $_______ $_______
Class B: 1.00% 1.00% $_______ $_______ $_______ $_______
Class C: 1.00% 1.00% $_______ $_______ $_______ $_______
Advisor 1.00% none $_______ $_______ $_______ $_______
Class:
* The Fund's Manager has agreed to waive and/or reimburse the
Fund's fees and expenses to the extent necessary to ensure
that the Fund's Annual Fund Operating Expenses do not exceed
the amounts shown in the far right column above.
<PAGE>
Example:
The following example is intended to help you compare the cost of
investing in the Fund with the cost of investing in other mutual funds.
The example assumes that you invest $10,000 in the Fund for the time
periods indicated and then redeem all of your shares at the end of
those periods (with additional information shown for Class B and Class
C shares based on the assumption that you do not redeem your shares at
that time). The example also assumes that your investment has a 5%
return each year and that the Fund's operating expenses remain the
same. Although your actual costs may be higher or lower, based on these
assumptions your costs would be as follows:
1 Year: 3 Years: 5 Years: 10 Years:
------ ------- ------- --------
Class A: $______ $______ $______ $______
Class B: $______ $______ $______ $______
Class B (no redemption): $______ $______ $______ $______
Class C: $______ $______ $______ $______
Class C (no redemption): $______ $______ $______ $______
Advisor Class: $______ $______ $______ $______
<PAGE>
ADDITIONAL INFORMATION ABOUT INVESTMENT STRATEGIES AND RISKS
Principal strategies:
The Fund seeks to achieve its principal objective of long-term capital
growth by investing primarily in the equity securities of companies
located or otherwise doing business in European countries and that
cover a broad range of economic and industry sectors. The Fund may also
invest a significant portion of its assets outside of Europe.
Countries are selected on the basis of a mix of factors that include
long-term economic growth prospects, anticipated inflation levels, and
the effect of applicable government policies on local business
conditions.
Individual securities are selected on the basis of value indicators
(such as earnings, cash flow and growth potential) and are reviewed for
fundamental financial strength. Investment decisions typically are
based on earnings estimates over a five-year period, with stocks
normally purchased from within the cheapest 20% of the market universe
and sold once they are valued within the top 20%.
Principal risks:
General market risk: As with any mutual fund, the value of the Fund's
investments and the income they generate will vary daily and generally
reflect market conditions, interest rates and other issuer-specific,
political or economic developments. The Fund's share value will
decrease at any time during which its security holdings or other
investment techniques are not performing as well as anticipated, and
you could therefore lose money by investing in the Fund depending upon
the timing of your initial purchase and any subsequent redemption.
Other risks: Since the Fund invests heavily in the equity securities of
foreign issuers, it is more susceptible to the risks associated with
these types of securities than a fund that invests primarily in the
securities of U.S. issuers and/or debt securities. Following is a
description of these risks, along with the risks commonly associated
with the other securities and investment techniques that the Fund's
portfolio manager considers important in achieving the Fund's
investment objective or in managing the Fund's exposure to risk (and
that could therefore have a significant effect on the Fund's returns).
Other investment techniques that the Fund may use, but that do not play
a key role in the Fund's overall investment strategy, are described in
the Fund's Statement of Additional Information (see back cover page for
information on how you can receive a free copy).
Common Stocks: Common stocks represent a proportionate ownership
interest in a company. As a result, the value of common stock
rises and falls with a company's success or failure. The market
value of common stock can fluctuate significantly, with smaller
companies being particularly susceptible to price swings.
Transaction costs in smaller company stocks may also be higher
than those of larger companies.
Depository Receipts: The Fund may acquire interests in foreign
issuers in the form of sponsored or unsponsored American
Depository Receipts ("ADRs"), Global Depository Receipts ("GDRs")
and similar types of depository receipts. ADRs typically are
issued by a U.S. bank or trust company and represent ownership of
the underlying securities issued by a foreign corporation. GDRs
and other types of depository receipts are usually issued by
foreign banks or trust companies. The Fund's investments in ADRs,
GDRs and other depository receipts are viewed as investments in
the underlying securities.
Depository receipts can be difficult to price and are not always
exchange-listed. Unsponsored depository programs also are
organized independently without the cooperation of the issuer of
the underlying securities. As a result, information concerning the
issuer may not be as current or as readily available as in the
case of sponsored depository instruments, and their prices may be
more volatile than if they were sponsored by the issuers of the
underlying securities.
Foreign Securities: Investing in foreign securities involves a
number of economic, financial and political considerations that
are not associated with the U.S. markets and that could affect the
Fund's performance favorably or unfavorably depending upon
prevailing conditions at any given time. For example, the
securities markets of many foreign countries may be smaller, less
liquid and subject to greater price volatility than those in the
U.S. Foreign investing may also involve brokerage costs and tax
considerations that are not usually present in the U.S. markets.
Many of the Fund's securities also are denominated in foreign
currencies and the value of the Fund's investments as measured in
U.S. dollars may be affected favorably or unfavorably by changes
in foreign currency exchange rates and exchange control
regulations. Currency conversion can also be costly.
Other factors that can affect the value of the Fund's foreign
investments include the comparatively weak supervision and
regulation by some foreign governments of securities exchanges,
brokers and issuers, and the fact that many foreign companies may
not be subject to uniform accounting, auditing and financial
reporting standards. It may also difficult to obtain reliable
information about the securities and business operations certain
foreign issuers. Settlement of portfolio transactions may also be
delayed due to local restrictions or communication problems, which
can cause the Fund to miss attractive investment opportunities or
impair its ability to dispose of securities in a timely fashion
(resulting in a loss if the value of the securities subsequently
declines).
Special Emerging Market Concerns: The risks of investing in
foreign securities are heightened in countries with developing
economies. Among these additional risks are the following:
securities that are even less liquid and more volatile than
those in more developed foreign countries;
less stable governments that are susceptible to sudden
adverse actions (such as nationalization of businesses,
restrictions on foreign ownership or prohibitions against
repatriation of assets);
increased settlement delays;
abrupt changes in exchange rate regime or monetary policy;
restrictions on repatriation of capital;
abrupt changes in exchange rate regime or monetary policy;
and
high national debt levels (which may impede an issuer's
payment of principal and/or interest on external debt).
Foreign Currencies: Investing in foreign securities typically
involves the use of foreign currencies. The value of the Fund's
assets, as measured in U.S. dollars, may be affected favorably or
unfavorably by changes in foreign currency exchange rates and
exchange control regulations. Currency conversions can also be
costly.
Foreign Currency Exchange Transactions and Forward Foreign
Currency Contracts: The Fund may, but is not required to, use
foreign currency exchange transactions and forward foreign
currency contracts to hedge certain market risks (such as interest
rates, currency exchange rates and broad or specific market
movement). These investment techniques involve a number of risks,
including the possibility of default by the counterparty to the
transaction and, to the extent the Fund's judgment as to certain
market movements is incorrect, the risk of losses that are greater
than if the investment technique had not been used. For example,
there may be an imperfect correlation between the Fund's portfolio
holdings of securities denominated in a particular currency and
the forward contracts entered into by the Fund. An imperfect
correlation of this type may prevent the Fund from achieving the
intended hedge or expose the Fund to the risk of currency exchange
loss. In addition, although the use of these investment techniques
for hedging purposes should tend to minimize the risk of loss due
to a decline in the value of the hedged position, they also tend
to limit any potential gain that might result from an increase in
the position's value.
Illiquid Securities: The Fund may invest up to 15% of its net
assets in "illiquid securities," which are assets that may not be
disposed of in the ordinary course of business within seven days
at roughly the value at which the Fund has valued the assets. Some
of these may by "restricted securities," which cannot be sold to
the public without registration under the Securities Act of 1933
(in the absence of an exemption) or because of other legal or
contractual restrictions on resale. Thus, while illiquid
securities may offer the potential for higher returns than more
readily marketable securities, there is a risk that the Fund will
not be able to dispose of them promptly at an acceptable price.
Other Investment Companies: The Fund may invest up to 10% of its
total assets in the shares of other investment companies. As a
shareholder of an investment company, the Fund would bear its
ratable shares of the fund's expenses (which often include an
asset-based management fee). The Fund could also lose money by
investing in other investment companies, since the value of their
respective investments and the income they generate will vary
daily based on prevailing market conditions.
Temporary Defensive Positions: The Fund may from time to time
take a temporary defensive position and invest without limit in
U.S. Government securities, investment-grade debt securities, and
cash and cash equivalents such as commercial paper, short-term
notes and other money market securities. When the Fund assumes
such a defensive position it may not achieve its investment
objective. Investing in debt securities also involves both
interest rate and credit risk. Generally, the value of debt
instruments rises and falls inversely with fluctuations in
interest rates. For example, as interest rates decline the value
of debt securities generally increases. Conversely, rising
interest rates tend to cause the value of debt securities to
decrease. The market value of debt securities also tends to vary
according to the relative financial condition of the issuer. Bonds
with longer maturities tend to be more volatile than bonds with
shorter maturities.
Borrowing: For temporary or emergency purposes (such as meeting
shareholder redemption requests within the time periods specified
under the Investment Company Act of 1940), the Fund may borrow up
to one third of the value of its total assets from qualified
banks. Borrowing may exaggerate the effect on the Fund's share
value of any increase or decrease in the value of the securities
it holds. Money borrowed will also be subject to interest costs.
The Fund has a policy of not purchasing securities whenever the
Fund's outstanding borrowings exceed 10% of the value of the
Fund's total assets. Where this occurs, the Fund could miss out on
attractive investment opportunities.
Other Important Information:
European Monetary Union: On January 1, 1999, a new European currency
called the "Euro" was introduced and adopted for use by eleven European
countries. The transition to daily usage of the Euro, including
circulation of Euro bills and coins, will occur during the period from
January 1, 1999 through December 31, 2001. Certain European Union (EU)
members, including the United Kingdom, did not officially implement the
Euro on January 1, 1999 and may cause market disruptions when and if
they decide to do so. Where this occurs, the Fund could experience
investment losses.
Year 2000 Risks: Many computer software and hardware systems in use
today cannot distinguish between the year 2000 and the year 1900
because of the way dates are encoded and calculated (the "Year 2000
Problem"). The inability of computer-based systems to make this
distinction could have a seriously adverse effect on the handling of
securities trades, pricing and account services worldwide. The Fund's
service providers are taking steps that each believes are reasonably
designed to address the Year 2000 Problem with respect to the computer
systems that they use. The Fund believes these steps will be sufficient
to avoid any material adverse impact on the Fund. At this time,
however, there can be no assurance that significant problems will not
occur (which either directly or indirectly may cause the Fund to lose
money).
MANAGEMENT
Investment Advisor:
Ivy Management, Inc. ("IMI"), located at Via Mizner Financial Plaza,
700 South Federal Highway, Boca Raton, Florida 33432, provides
investment advisory and business management services to the Fund. IMI
is an SEC-registered investment advisor with over $____ billion in
assets under management, and provides similar services to the other
eighteen series of the Trust. For the Fund's fiscal year ending
December 31, 1998, the Fund paid to IMI a fee equal to ___% of the
Fund's average net assets.
Portfolio Management:
The Fund is managed by a team of investment professionals that is
supported by research analysts who acquire information on regional and
country-specific economic and political developments and monitor
individual companies. These analysts use a variety of research sources
that include:
brokerage reports;
economic and financial news services;
company reports; and
information from third party research firms (ranging from large
investment banks with global coverage to local research houses).
In many cases, particularly in emerging market countries, IMI's
research analysts also conduct primary research by:
meeting with company management;
touring facilities; and
speaking with local research professionals.
<PAGE>
SHAREHOLDER INFORMATION
PRICING OF FUND SHARES:
The Fund calculates its share price by dividing the value of the Fund's
net assets by the total number of its shares outstanding as of the
close of regular trading (usually 4:00 p.m. Eastern time) on the New
York Stock Exchange on each day the Exchange is open for trading
(normally any weekday that is not a national holiday).
Each portfolio security that is listed or traded on a recognized stock
exchange is valued at the security's last sale price on the exchange
on which it was purchased. If no sale is reported at that time, the
average between the last bid and asked prices is used. Securities and
other Fund assets for which market prices are not readily available
are priced at their "fair value" as determined by IMI in accordance
with procedures approved by the Fund's Board of Trustees. IMI may also
price a foreign security at its "fair value" if events materially
affecting the value of the security occur between the close of the
foreign exchange on which the security is principally traded and the
time as of which the Fund prices its shares. Fair value pricing under
these circumstances is designed to protect existing shareholders from
dilution of their share value caused by short-term investors trading
into and out of the Fund at at time when the Fund's share price,
calculated by ordinary pricing methods, is undervalued. When such fair
value pricing occurs, however, there may be some period of time during
which the Fund's share price and/or performance information is not
available.
The number of shares you receive when you place a purchase order, and
the payment you receive after submitting a redemption request, is based
on the Fund's net asset value next determined after your instructions
are received in proper form by Ivy Mackenzie Services Corp. (the Fund's
transfer agent) or by your registered securities dealer. Each purchase
and redemption order is subject to any applicable sales charge (see
"Distribution Arrangements" below). Since the Fund normally invests in
securities that are listed on foreign exchanges that may trade on
weekends or other days when the Fund does not price its shares, the
Fund's share value may change on days when shareholders will not be
able to purchase or redeem the Fund's shares.
HOW TO BUY SHARES:
Purchasing Fund shares involves "Choosing the Appropriate Class of
Shares" and "Submitting Your Purchase Order". Please read these
sections below carefully before investing.
Choosing the Appropriate Class of Shares - The essential features of
the Fund's different classes of shares are described below. If you do
not specify on your Account Application which class of shares you are
purchasing, it will be assumed that you are purchasing Class A shares.
The Fund has adopted separate distribution plans pursuant to Rule
12b-1 under the 1940 Act for its Class A, B and C shares that allow
the Fund to pay distribution and other fees for the sale and
distribution of its shares and for services provided to shareholders.
Because these fees are paid out of the Fund's assets on an on-going
basis, over time they will increase the cost of your investment and
may cost you more than paying other types of sales charges.
Class A Shares: Class A shares are sold at net asset value plus a
maximum sales charge of 5.75% (the "offering price"). The sales
charge may be reduced or eliminated if certain conditions are met
(see "Additional Purchase Information" below). Class A shares are
subject to a .25% Rule 12b-1 service fee.
Class B Shares: Class B shares are offered at net asset value,
without an initial sales charge, but subject to a contingent
deferred sales charge ("CDSC") that declines from 5% to zero on
certain redemptions within six years of purchase. Class B shares
are subject to a .75% Rule 12b-1 distribution fee and a .25% Rule
12b-1 service fee, and convert automatically into Class A shares
eight years after purchase.
Class C Shares: Class C shares are offered at net asset value,
without an initial sales charge, but subject to a CDSC of 1% for
redemptions within the first year of purchase. Class C shares are
subject to a .75% Rule 12b-1 distribution fee and a .25% Rule
12b-1 service fee.
Advisor Class Shares: Advisor Class shares are offered to certain
classes of investors at net asset value, without any sales load or
Rule 12b-1 fees.
The following table displays the various investment minimums, sales
charges and expenses that apply to each class.
<TABLE>
<S> <C> <C> <C> <C>
- -------------------- --------------------- --------------------- --------------------- -------------------
Class A Class B Class C Advisor Class
- -------------------- --------------------- --------------------- --------------------- -------------------
- -------------------- --------------------- --------------------- --------------------- -------------------
Minimum Initial $10,000
Investment* $1,000 $1,000 $1,000
- -------------------- --------------------- --------------------- --------------------- -------------------
- -------------------- --------------------- --------------------- --------------------- -------------------
Minimum Subsequent
Investment* $100 $100 $100 $ 250
- -------------------- --------------------- --------------------- --------------------- -------------------
- -------------------- --------------------- --------------------- --------------------- -------------------
Initial Sales Maximum 5.75%, with None None None
Charge options for a
reduced or waiver
of initial sales
charge
- -------------------- --------------------- --------------------- --------------------- -------------------
- -------------------- --------------------- --------------------- --------------------- -------------------
CDSC None, except on Maximum 5.00% 1.00% for the first None
certain NAV declines over six year
purchases years
- -------------------- --------------------- --------------------- --------------------- -------------------
- -------------------- --------------------- --------------------- --------------------- -------------------
Service and 0.25% Service fee 0.75% Distribution 0.75% Distribution None
Distribution Fees fee and 0.25% fee and 0.25%
Service fee Service fee
- -------------------- --------------------- --------------------- --------------------- -------------------
</TABLE>
* Minimum initial and subsequent investments for retirement plans are
$25.
ADDITIONAL PURCHASE INFORMATION:
Class A Shares - Class A shares are sold at a public offering
price equal to their net asset value per share ("NAV") plus an
initial sales charge, as set forth below (which is reduced as the
amount invested increases):
<TABLE>
<S> <C> <C> <C>
- -------------------------------- ---------------------- ------------------ ----------------------
Sales Charge as a Sales Charge as Portion of Public
Percentage of Public a Percentage of Offering Price
Offering Price Net Amount Retained by Dealer
Amount Invested Invested
- -------------------------------- ---------------------- ------------------ ----------------------
- -------------------------------- ---------------------- ------------------ ----------------------
Less than $50,000 5.75% 6.10% 5.00%
- -------------------------------- ---------------------- ------------------ ----------------------
- -------------------------------- ---------------------- ------------------ ----------------------
$50,000 but less than $100,000 5.25% 5.54% 4.50%
- -------------------------------- ---------------------- ------------------ ----------------------
- -------------------------------- ---------------------- ------------------ ----------------------
$100,000 but less than $250,000 4.50% 4.71% 3.75%
- -------------------------------- ---------------------- ------------------ ----------------------
- -------------------------------- ---------------------- ------------------ ----------------------
$250, 000 but less than 3.00% 3.09% 2.50%
$500,000
- -------------------------------- ---------------------- ------------------ ----------------------
$500,000 or over* 0.00% 0.00% 0.00%
- -------------------------------- ---------------------- ------------------ ----------------------
</TABLE>
* A CDSC of 1.00% applies to Class A shares that are redeemed
within two years of the end of the month in which they were
purchased.
Class A shares that are acquired through reinvestment of dividends
or distributions are not subject to any sales charges.
HOW TO REDUCE YOUR INITIAL SALES CHARGE:
"Rights of Accumulation" permits you to pay the sales charge
that applies to the cost or value (whichever is higher) of all
Ivy Fund Class A shares you own.
A "Letter of Intent" permits you to pay the sales charge that
would apply to your cumulative purchase of Fund shares over a
13-month period (certain restrictions apply).
HOW TO ELIMINATE YOUR INITIAL SALES CHARGE:
You may purchase Class A shares at NAV (without an initial sales
charge or a CDSC) through any one of the following methods:
through certain investment advisors and financial planners
who charge a management, consulting or other fee for their
services;
under certain qualified retirement plans;
as an employee or director of Mackenzie Investment Management
Inc. or its affiliates;
as an employee of a selected dealer; or
through the Merrill Lynch Daily K Plan (the "Plan"), provided
the Plan has at least $3 million in assets or over 500 or more
eligible employees. Class B shares of the Fund are made
available to Plan participants at NAV without a CDSC if the
Plan has less than $3 million in assets or fewer than 500
eligible employees. For further information see "Group
Systematic Investment Program" in the SAI.
You may also purchase Class A shares at NAV if you are investing
at least $500,000 through a dealer or agent. Ivy Mackenzie
Distributors, Inc. ("IMDI"), the Fund's distributor, may pay the
dealer or agent (out of IMDI's own resources) for its distribution
assistance according to the following schedule:
------------------------------- -------------------------------
Purchase Amount Commission
------------------------------- -------------------------------
------------------------------- -------------------------------
First $3,000,000 1.00%
------------------------------- -------------------------------
------------------------------- -------------------------------
Next $2,000,000 0.50%
------------------------------- -------------------------------
------------------------------- -------------------------------
Over $5,000,000 0.25%
------------------------------- -------------------------------
Certain trust companies, bank trust departments, credit unions,
savings and loans and other similar organizations may also be
exempt from the initial sales charge on Class A shares.
Class B and Class C Shares - Class B and Class C shares are not
subject to an initial sales charge but are subject to a CDSC. If
you redeem your Class C shares within one year of purchase they
will be subject to a CDSC of 1%, and Class B shares redeemed
within six years of purchase will be subject to a CDSC at the
following rates:
--------------------- --------------------
CDSC as a
Percentage of
Year Since Purchase Dollar Amount
Subject to Charge
--------------------- --------------------
First 5%
--------------------- --------------------
--------------------- --------------------
Second 4%
--------------------- --------------------
--------------------- --------------------
Third 3%
--------------------- --------------------
--------------------- --------------------
Fourth 3%
--------------------- --------------------
--------------------- --------------------
Fifth 2%
--------------------- --------------------
--------------------- --------------------
Sixth 1%
--------------------- --------------------
--------------------- --------------------
Seventh and 0%
thereafter
--------------------- --------------------
The CDSC for both Class B and Class C shares will be assessed on
an amount equal to the lesser of the current market value or the
original purchase cost of the shares being redeemed. No charge
will be assessed on increases in account value above the original
purchase price or on reinvested dividends and distributions.
The CDSC for Class B shares is waived for:
Certain post-retirement withdrawals from an IRA or other
retirement plan if you are over 59 1/2 years old.
Redemptions by certain eligible 401(a) and 401(k) plans and
certain retirement plan rollovers.
Redemption resulting from a tax-free return of excess
contribution to an IRA.
Withdrawals resulting from shareholder death or disability
provided that the redemption is requested within one year of
death or disability.
Withdrawals through the Systematic Withdrawal Plan of up to
12% per year of your account value at the time the plan is
established.
Both Class B shares and Class C shares are subject to an ongoing
service and distribution fee at a combined annual rate of up to
1.00% of the portfolio's average net assets attributable to its
Class B or Class C shares. The ongoing distribution fees will
cause these shares to have a higher expense ratio than that of
Class A and Advisor Class shares. IMDI uses the money that it
receives from the deferred sales charge and the distribution fees
to cover various promotional and sales related expenses, as well
as expenses related to providing distributions services, such as
compensating selected dealers and agents for selling these shares.
Approximately eight years after the original date of purchase,
your Class B shares will be converted automatically to Class A
shares. Class A shares are subject to lower annual expenses than
Class B shares. The conversion from Class B shares to Class A
shares is not considered a taxable event for federal income tax
purposes. Class C shares do not have a similar conversion
privilege.
Advisor Class - Advisor Class shares are offered only to
institutions and certain individuals, and are not subject to an
initial sales charge or a CDSC, nor to ongoing service or
distribution fees.
SUBMITTING YOUR PURCHASE ORDER:
INITIAL INVESTMENTS:
Complete and sign the Account Application appearing at the end of this
Prospectus. Enclose a check payable to Ivy Fund (see page [XX] for
minimum initial investments.) Deliver your application materials to
your registered representative or selling broker, or send them to one
of the addresses below:
By Regular Mail: By Courier:
Ivy Mackenzie Services Corp. Ivy Mackenzie Services Corp.
P.O. Box 3022 700 South Federal Hwy.
Boca Raton, FL 33431-0922 Boca Raton, FL 33432
BUYING ADDITIONAL SHARES:
There are several ways to increase your investment in the Fund:
By Mail - Send your check with a completed investment slip
(attached to your account statement) or written instructions
indicating the account registration, fund number or name, and
account number.
Mail to one of the addresses above.
Through Your Broker - Deliver to your registered representative
or selling broker the investment slip attached to your statement,
or written instructions, along with your payment.
By Wire - Purchases may also be made by wiring money from your
bank account to your Ivy account. Your bank may charge a fee for
wiring funds. Before wiring any funds, please call IMSC at (800)
777-6472. Wiring instructions are as follows:
First Union National Bank of Florida
Jacksonville, FL
ABA #063000021
Account #2090002063833
For further credit to:
Your Ivy Fund Account Number
Your Fund Number and Account Number
By Automatic Investment Method - You can authorize to have funds
electronically drawn each month from your bank account and
invested as a purchase of shares into your Ivy Fund account.
Complete sections [XX] and [XX] of the Account Application.
HOW TO REDEEM SHARES:
SUBMITTING YOUR REDEMPTION ORDER:
You may redeem your Fund shares through your registered securities
dealer or directly through IMSC. If you choose to redeem through your
registered securities dealer, the dealer is responsible for properly
transmitting redemption orders in a timely manner. If you choose to
redeem directly through IMSC, you have several ways to submit your
request:
By Mail - Send your written redemption request to IMSC at one of
the addresses on page XX of this Prospectus. Be sure that all
registered owners listed on the account sign the request.
Signature guarantees and supporting legal documentation may be
required. When you redeem, IMSC will normally send redemption
proceeds to you on the next business day, but may take up to seven
days (or longer in the case of shares recently purchased by
check).
By Telephone - Call IMSC at (800) 777-6472 to redeem from your
account. In order to process your redemption order by telephone,
you must have telephone redemption privileges on your account.
IMSC employs reasonable procedures that require personal
identification prior to acting on redemption instructions
communicated by telephone to confirm that such instructions are
genuine. In the absence of such procedures, the Fund or IMSC may
be liable for any losses due to unauthorized or fraudulent
telephone instructions.
By Systematic Withdrawal Plan (SWP) - You can authorize to have
funds electronically drawn each month from your Ivy Fund account
and deposited directly into your bank account. Certain minimum
balances and minimum distributions apply. Complete sections XX of
the Account Application to add this feature to your account.
Receiving Your Redemption Proceeds - You can receive redemption
proceeds through a variety of payment methods:
By Check - Unless otherwise instructed, checks will be made
payable to the current account registration and sent to the
address of record.
By Federal Funds Wire - Proceeds will be wired on the next
business day to a pre-designated bank account. Requests by
telephone can only be accepted for amounts up to $50,000. Your
account will be charged $10 each time redemption proceeds are
wired to your bank, and your bank may also charge you a fee for
receiving a Federal Funds wire.
By Electronic Funds Transfer - For SWP redemptions only.
Important Redemption Information:
A CDSC may apply to certain Class A share redemptions, to Class B
shares redeemed within 6 years of purchase, and to Class C shares
that are redeemed within one year of purchase.
All redemptions are made at the NAV next determined after a
redemption request has been received in good order. Requests for
redemptions must be received by 4:00 p.m. Eastern time to be
processed at the NAV for that day. Any redemption request in good
order that is received after 4:00 p.m. Eastern time will be
processed at the price determined on the following business day.
If you own shares of more than one class of the Fund, the Fund
will redeem first the shares having the highest 12b-1 fees.
Any shares subject to a CDSC will be redeemed last unless you
specifically elect otherwise.
The Fund may (on 60 days' notice) redeem the accounts of
shareholders whose investment, including sales charges paid, has
been less than $1,000 for more than 12 months.
The Fund may take up to seven days (or longer in the case of
shares recently purchased by check) to send redemption proceeds.
The Fund may make payment for redeemed shares in the form of
securities of the Fund taken at current values.
HOW TO EXCHANGE YOUR FUND SHARES:
You may exchange your Fund shares for shares of another Ivy fund,
subject to certain restrictions (see "Important Exchange Information"
below).
Submitting Your Exchange Order - You may submit an exchange request to
IMSC as follows:
By Mail - Send your written exchange request to IMSC at one of
the addresses on page XX of this Prospectus. Be sure that all
registered owners listed on the account sign the request.
By Telephone - Call IMSC at (800) 777-6472 to authorize an
exchange transaction. In order to process your exchange order by
telephone, you must have telephone exchange privileges on your
account. IMSC employs reasonable procedures that require personal
identification prior to acting on exchange instructions
communicated by telephone to confirm that such instructions are
genuine. In the absence of such procedures, the Fund or IMSC may
be liable for any losses due to unauthorized or fraudulent
telephone instructions.
IMPORTANT EXCHANGE INFORMATION:
You must exchange into the same share class you currently own.
Exchanges are considered taxable events and may result in a
capital gain or a capital loss for tax purposes.
It is the policy of the Fund to discourage the use of the
exchange privilege for the purpose of timing short-term market
fluctuations. The Fund may therefore limit the frequency of
exchanges by a shareholder or cancel a shareholder's exchange
privilege if at any time it appears that such market timing
strategies are being used.
DIVIDENDS AND DISTRIBUTIONS:
The Fund generally declares and pays dividends and capital gain
distributions (if any) at least once a year.
Dividends and distributions are "reinvested" in additional Fund
shares unless you request to receive them in cash.
Reinvested dividends and distributions are added to your account
at NAV and are not subject to a CDSC regardless of which share
class you own.
Cash dividends and distributions can be sent to you:
BY MAIL - a check will mailed to the address of record unless
otherwise instructed.
BY ELECTRONIC FUNDS TRANSFER ("EFT") - your proceeds will be
directly deposited into your bank account.
To change your dividend and/or distribution options, call IMSC at
(800) 777-6472.
TAX CONSEQUENCES:
Distributions you receive from the Fund are reinvested in additional
shares of the same class of the Fund unless you elect to receive them
in cash. Dividends ordinarily will vary from one class to another.
The Fund intends to declare and pay dividends monthly. The Fund will
distribute net investment income and net realized capital gains, if
any, at least once a year. The Fund may make an additional distribution
of net investment income and net realized capital gains to comply with
the calendar year distribution requirement under the excise tax
provisions of Section 4982 of the Internal Revenue Code of 1986, as
amended (the "Code").
Dividends paid out of the Fund's investment company taxable income
(including dividends, interest and net short-term capital gains) will
be taxable to you as ordinary income. If a portion of the Fund's income
consists of dividends paid by U.S. corporations, a portion of the
dividends paid by the Fund may be eligible for the corporate
dividends-received deduction. Distributions of net capital gains (the
excess of net long-term capital gains over net short-term capital
losses), if any, are taxable to you as long-term capital gains,
regardless of how long you have held your shares. Dividends are taxable
to you in the same manner whether received in cash or reinvested in
additional Fund shares.
If shares of the Fund are held in a tax-deferred account, such as a
retirement plan, income and gain will not be taxable each year.
Instead, the taxable portion of amounts held in a tax-deferred account
generally will be subject to tax as ordinary income only when
distributed from that account.
A distribution will be treated as paid to you on December 31 of the
current calendar year if it is declared by the Fund in October,
November or December with a record date in such a month and paid by the
Fund during January of the following calendar year.
In certain years, you may be able to claim a credit or deduction on
your income tax return for your share of foreign taxes paid by the
Fund. Upon the sale or other disposition of your Fund shares, you may
realize a capital gain or loss which will be long-term or short-term,
generally depending upon how long you held your shares.
The Fund may be required to withhold U.S. Federal income tax at the
rate of 31% of all distributions payable to you if you fail to provide
the Fund with your correct taxpayer identification number or to make
required certifications, or if you have been notified by the Internal
Revenue Service ("IRS") that you are subject to backup withholding.
Backup withholding is not an additional tax. Any amounts withheld may
be credited against your U.S. Federal income tax liability.
Fund distributions may be subject to state, local and foreign taxes.
You should consult with your tax adviser as to the tax consequences of
an investment in the Fund, including the status of distributions from
the Fund under applicable state or local law.
<PAGE>
IVY PAN-EUROPE FUND
<TABLE>
<CAPTION>
ADVISOR
CLASS A CLASS B CLASS
------------------- ------------------ --------
1998 1997(A) 1998 1997(A) 1998
SELECTED PER SHARE DATA ------- ------- ------- ------- --------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of period......... $10.02 $10.02
------ ------
Income from investment operations
Net investment loss(b).................... (.02) (.03)
Net realized and unrealized gain on
investment transactions.................. .58 .56
------ ------
Total from investment operations....... .56 .53
------ ------
Less distributions
From net realized gain.................... .02 .01
------ ------
Total distributions.................... .02 .01
------ ------
Net asset value, end of period............... $10.56 $10.54
====== ======
Total return(%).............................. 5.54 5.26
RATIOS AND SUPPLEMENTAL DATA
Net assets, end of period (in thousands)..... $ 575 $ 70
Ratio of expenses to average net assets
With expense reimbursement(%)............... 2.20 3.29
Without expense reimbursement(%)............ 28.41 29.50
Ratio of net investment loss to average net
assets(%)(b)................................ (.48) (1.58)
Portfolio turnover rate(%)................... 5 5
Average commission rate...................... $.0300 $.0300
</TABLE>
- - ---------------
(a) For the period May 13, 1997 (commencement of operations) to December 31,
1997.
(b) Net investment loss is net of expenses reimbursed by manager.
<PAGE>
ACCOUNT APPLICATION
Please mail applications and checks to: Ivy Mackenzie Services Corp.,
P.O. Box 3022, Boca Raton, FL 33431-0922.
(This application should not be used for retirement accounts for which
Ivy Fund is custodian.)
Account Number:
(Fund Use Only)
Dealer #:
Branch #:
Rep. I.D. #:
Acct. Type:
Soc Cd:
Div Cd:
CG Cd:
Exc Cd:
Red Cd:
1. REGISTRATION
/ / Individual / / Joint Tenant / / Estate / / UGMA/UTMA / /
Corporation / / Partnership / / Sole Proprietor / / Trust / / Other
Date of Trust
Owner, Custodian or Trustee
Co-owner or Minor
Minor's State of Residence
Street
City
State
Zip Code
Phone Number -- Day
Phone Number -- Evening
2. TAX ID
Citizenship: / / U.S. / / Other ________________
Social Security Number
Tax Identification Number
Under penalties of perjury, I certify by signing in Section 8 below
that: (1) the number shown in this section is my correct taxpayer
identification number (TIN), and (2) I am not subject to backup
withholding because: (a) I have not been notified by the Internal
Revenue Service (IRS) that I am subject to backup withholding as a
result of a failure to report all interest or dividends, or (b) the IRS
has notified me that I am no longer subject to backup withholding.
(Cross out item (2) if you have been notified by the IRS that you are
currently subject to backup withholding because of underreporting
interest or dividends on your tax return.) Please see the "Tax
Consequences" section of the Prospectus for additional information on
completing this section.
3. DEALER INFORMATION
The undersigned ("Dealer") agrees to all applicable provisions in this
Application, guarantees the signature and legal capacity of the
Shareholder, and agrees to notify IMSC of any purchases made under a
Letter of Intent or Rights of Accumulation.
Dealer Name
Branch Office Address
City
State
Zip Code
Representative's Name and Number
Representative's Phone Number
Authorized Signature of Dealer
4. INVESTMENTS
A. Enclosed is my check ($1,000 minimum) for $_____________ made
payable to ________________ [Fund Name]. Please invest it in
Class A __ Class B __ Class C __ or Advisor Class __ shares.
B. I qualify for an elimination of the sales charge due to the
following privilege (applies only to Class A shares):
__ New Letter of Intent (if ROA or 90-day backdate
privilege is applicable, provide account(s)
information below.)
__ ROA with the account(s) listed below.
__ Existing Letter of Intent with account(s) listed
below.
Fund Name(s)
Account Number(s)
If establishing a Letter of Intent, you will need to purchase
Class A shares over a thirteen-month period in accordance with
the provisions in the Prospectus. The Aggregate amount of
these purchases will be at least equal to the amount indicated
below (see Prospectus for minimum amount required for reduced
sales charges).
/ / $50,000
/ / $100,000
/ / $250,000
/ / $500,000
C. FOR DEALER USE
Confirmed trade orders: [Confirm Number, Number of Shares,
Trade Date]
5. DISTRIBUTION OPTIONS
I would like to reinvest dividends and capital gains into additional
shares in this account at net asset value unless a different option is
checked below.
/ / Reinvest all dividends and capital gains into additional
shares of a different Ivy fund.
Fund Name
Account Number
/ / Pay all dividends in cash and reinvest capital gains into
additional shares in this Fund or a different Ivy fund.
Fund Name
Account Number
/ / Pay all dividends and capital gains in cash.
I REQUEST THE ABOVE CASH DISTRIBUTION, SELECTED IN C OR D
ABOVE, BE:
/ / Sent to the address listed in the registration.
/ / Sent to the special payee listed in Section 7A
/ / (By Mail) 7B
/ / (By E.F.T.)
6. OPTIONAL SPECIAL FEATURES
A. / / Automatic Investment Method (AIM)
- I wish to invest _________________ / / once per month / /
twice / / 3 times / / 4 times
- My bank account will be debited on the _________ day of the month
Please invest $___________________ each period starting in the
month of __________________ in
---------------------------.
Fund Name
/ / Class A
/ / Class B
/ / Class C
/ / Advisor Class
/ / I have attached a voided check to ensure my correct bank
account will be debited.
B. SYSTEMATIC WITHDRAWAL PLANS**
I wish to automatically withdraw funds from my account in
_________________[Fund name].
/ / Monthly / / Quarterly / /Semiannually / / Annually
/ / Once / / Twice / / 3 times / / 4 times per month
I request the distribution be:
/ / Sent to the address listed in the registration.
/ / Sent to the special payee listed in Section 7.
/ / Invested into additional shares of the same class of a different Ivy
fund.
Fund Name
Account Number
Amount $__________________(Minimum $50) starting on or about the
- -_______ day of the month
- -_______ day of the month
- -_______ day of the month*
NOTE: Account minimum: $5,000 in shares at current offering price
C. FEDERAL FUNDS TRANSFER FOR REDEMPTION PROCEEDS**
I authorize the Agent to honor telephone instructions for the
redemption of Fund shares up to $50,000. Proceeds may be wire
transferred to the bank account designated ($1,000 minimum).
(Complete Section 7B)
TELEPHONE EXCHANGES** / / YES / / NO
I authorize exchanges by telephone among the Ivy funds upon
instructions from any person as more fully described in the
Prospectus. To change this option once established, written
instructions must be received from the shareholder of record
or the current registered representative.
If neither box is checked, the telephone exchange privilege
will be provided automatically.
TELEPHONIC REDEMPTIONS** / / YES / / NO
The Fund or its agents are authorized to honor telephone
instructions from any person as more fully described in the
Prospectus for the redemption of Fund shares. The amount of
the redemption shall not exceed $50,000 and the proceeds are
to be payable to the shareholder of record and mailed to the
address of record. To change this option once established,
written instructions must be received from the shareholder of
record or the current registered representative.
If neither box is checked, the telephone redemption privilege
will be provided automatically.
* There must be a period of at least seven calendar
days between each investment/withdrawal period.
** This option may not be used if shares are issued in
certificate form.
7. SPECIAL PAYEE
A. MAILING ADDRESS
Please send all disbursements to this special payee:
Name of Bank or Individual
Account Number (If Applicable)
Street
City/State/Zip
B. FED WIRE / E.F.T. INFORMATION
Financial Institution
ABA #
Account #
Street
City/State/Zip
(Please attach a voided check)
8. SIGNATURES
Investors should be aware that the failure to check the "No" under
Section 6D or 6E above means that the Telephone Exchange/Redemption
Privileges will be provided. The Fund employs reasonable procedures
that require personal identification prior to acting on
exchange/redemption instructions communicated by telephone to confirm
that such instructions are genuine. In the absence of such procedures,
the Fund may be liable for any losses due to unauthorized or fraudulent
telephone instructions. Please see "How to Exchange Your Fund Shares"
and "How to Redeem Your Fund Shares" in the Prospectus for more
information on these privileges.
I certify to my legal capacity to purchase or redeem shares of the Fund
for my own account or for the account of the organization named in
Section 1. I have received a current Prospectus and understand its
terms are incorporated in this application by reference. I am
certifying my taxpayer information as stated in Section 2.
THE INTERNAL REVENUE SERVICE DOES NOT REQUIRE YOUR CONSENT TO ANY
PROVISION OF THIS DOCUMENT OTHER THAN THE CERTIFICATIONS REQUIRED TO
AVOID BACKUP WITHHOLDING.
------------------------------
Signature of Owner, Custodian, Date
Trustee or Corporate Officer
------------------------------
Signature of Joint Owner, Date
Co-Trustee or Corporate Officer
(Remember to sign Section 8)
<PAGE>
[Back Cover Page]
HOW TO RECEIVE MORE INFORMATION ABOUT THE FUND
Additional information about the Fund and its investments is contained in the
Fund's Statement of Additional Information dated April ___, 1999 (the "SAI"),
which is incorporated by reference into this Prospectus, and the Fund's annual
and semi-annual reports to shareholders. The Fund's annual report includes a
discussion of the market conditions and investment strategies that significantly
affected the Fund's performance during its most recent fiscal year. The SAI and
the Fund's annual and semi-annual reports are available upon request and without
charge from the Distributor at the following address and phone number:
Ivy Mackenzie Distributors, Inc.
Via Mizner Financial Plaza
700 South Federal Highway
Boca Raton, Florida 33432
(800) 456-5111
Information about the Fund (including the SAI and the Fund's annual and
semi-annual reports) may also be reviewed and copied at the SEC's Public
Reference Room in Washington, D.C. (please call 1-800-SEC-0330 for further
details). Information about the Fund is also available on the SEC's Internet
Website (www.sec.gov), and copies of this information may be obtained, upon
payment of a copying fee, by writing the Public Reference Section of the SEC,
Washington, D.C. 20549-6009.
SHAREHOLDER INQUIRIES
Please call Ivy Mackenzie Services Corp., the Fund's transfer agent, at
1-800-777-6472 regarding any other inquiries about the Fund.
Investment Company Act File No. 811-1028
<PAGE>
[Front Cover Page]
PROSPECTUS April ___, 1999
IVY FUND - Ivy South America Fund
Ivy Fund (the "Trust") is a registered open-end investment company currently
consisting of nineteen separate portfolios. This Prospectus relates to the Class
A, Class B, Class C and Advisor Class shares of Ivy South America Fund (the
"Fund"). No other shares are offered in this Prospectus.
The Securities and Exchange Commission has not approved or disapproved these
securities or passed upon the adequacy of this Prospectus. Any representation to
the contrary is a criminal offense.
[Insert all logos]
<PAGE>
TABLE OF CONTENTS
SUMMARY
ADDITIONAL INFORMATION ABOUT INVESTMENT STRATEGIES AND RISKS
MANAGEMENT
<PAGE>
SUMMARY
Investment The Fund's principal objective is long-term growth.
objective: Consideration of current income is secondary to this
principal objective.
Principal The Fund invests primarily in equity securities and
investment government and corporate debt securities issued throughout
strategies South America (particularly in Argentina, Brazil, Chile,
Colombia, Peru and Venezuela), Central America, Mexico and
the Spanish-speaking islands of the Caribbean. The Fund
might engage in foreign currency exchange transactions and
forward foreign currency contracts to control its exposure
to certain risks.
Principal The main risks to which the Fund is exposed in
Risks: carrying out its investment strategies are the following:
Management risk: The Fund's manager might not select
securities that perform as well as the securities held by
other mutual funds with investment objectives that are
similar to those of the Fund.
Market risk: Common stocks represent a proportionate
ownership interest in a company. The market value of common
stock can fluctuate significantly even where "management
risk" is not a factor, so you could lose money if you redeem
your Fund shares at a time when the Fund's stock portfolio
is not performing as well as expected. The market value of
common stock can fluctuate significantly, so you could lose
money if you redeem your Fund shares at a time when the
Fund's stock portfolio is not performing as well as
expected.
Debt security risk: The value of debt instruments generally
rises and falls inversely with fluctuations in interest
rates. The Fund's debt security investments are therefore
susceptible to decline in a rising interest rate
environment. The market value of debt securities also tends
to vary according to the relative financial condition of the
issuer. Many of the Fund's debt security holdings may be
considered below investment grade (commonly referred to as
"high yield" or "junk" bonds). Low-rated debt securities can
provide higher yields due to the increased risk that the
issuer will be unable to meet its obligations on interest or
principal payments at the time called for by the debt
instrument. For this reason, however, these bonds are
considered speculative and could significantly weaken the
Fund's returns if the issuer defaults on its payment
obligations.
Non-diversification risk: The Fund is classified as
"non-diversified" under the Investment Company Act of 1940,
and may, with respect to 50% of its total assets, invest
more than 5% of its total assets in the securities of a
single issuer. As a result, the Fund's overall performance
is potentially more susceptible to the price movements of
individual securities held in the Fund's portfolio than if
the Fund were "diversified" (which would limit the Fund's
holdings in a single issuer to 5% of the Fund's total
assets).
Foreign security and emerging market risk: Investing in
foreign securities involves a number of economic, financial
and political considerations that are not associated with
the U.S. markets and that could affect the Fund's
performance favorably or unfavorably depending upon
prevailing conditions at any given time. Among these
potential risks are:
greater price volatility;
comparatively weak supervision and regulation of
securities exchanges, brokers and issuers;
higher brokerage costs;
fluctuations in foreign currency exchange rates and
related conversion costs;
adverse tax consequences; and
settlement delays.
The risks of investing in foreign securities are more acute
in countries with developing economies, which characterizes
many of the countries in which the Fund may invest. As a
result, the Fund is exposed to the following additional
risks:
securities that are even less liquid and more volatile
than those in more developed foreign countries;
unusually long settlement delays;
less stable governments that are susceptible to sudden
adverse actions (such as nationalization of businesses,
restrictions on foreign ownership or prohibitions
against repatriation of assets);
abrupt changes in exchange rate regime or monetary
policy;
restrictions on repatriation of capital;
unusually large currency fluctuations and currency
conversion costs; and
high national debt levels (which may impede an
issuer's payment of principal and/or interest on
external debt).
Who should invest:* The Fund may be appropriate for investors seeking
long-term growth potential, but who can accept potentially dramatic
fluctuations in capital value in the short-term.
* You should consult with your financial advisor before deciding whether
the Fund is an appropriate investment choice in light of your
particular financial needs and risk tolerance.
<PAGE>
Performance Bar Chart and Table:
The information in the following chart and table provides some
indication of the risks of investing in the Fund by showing changes in
the Fund's performance from year to year and how the Fund's average
annual returns since its inception on November 1, 1994 compare with
those of a broad measure of market performance. The Fund's past
performance is not an indication of how the Fund will perform in the
future.
Annual Total Returns for Class A Shares as of December 31, 1998:*
---------------------------------
1994# 1995 1996 1997 1998
* Any applicable sales charges and account fees are not
reflected, and if they were the returns shown above would be
lower. The returns for the Fund's other four classes of shares
during these periods were different from those of Class A
because of variations in their respective expense structures.
# For the period November 1, 1994 (commencement) to December 21,
1994.
Best quarter: ______% (Q__ 199__)
Worst quarter: ______% (Q__ 199__)
Average Annual Total Returns (for the periods ending December 31, 1998):*
Past year: Past Five years: Since inception:**
Class A: ______% ______% ______%
Class B: ______% N/A ______%
Class C: ______% N/A ______%
Advisor Class:*** N/A N/A N/A
[Index]: ______% N/A ______%
* Performance figures reflect any applicable sales charges.
** The inception date for the Fund's Class A and Class B shares
was November 1, 1994. The inception dates for the Fund's Class
C and Advisor Class shares were April 30, 1996 and January 1,
1998, respectively.
***......The Fund has had no outstanding Advisor Class shares.
<PAGE>
Fees and Expenses:
The following tables describe the fees and expenses that you may pay if
you buy and hold shares of the Fund:
Shareholder Fees (fees paid directly from your investment):
Maximum Sales Charge (Load) Imposed on Maximum Deferred Sales
Purchases (as a percentage of Charge (Load) (as a
offering price): percentage of original
purchase price):
Class A: 5.75% none
Class B: none 5.00%
Class C: none 1.00%
Advisor none none
Class:
Annual Fund Operating Expenses (expenses that are deducted from Fund
assets):
Distribution Total Annual Expenses Net Fund
Management and/or Other Fund Waived or Operating
Fees: Service Expenses: Operating Reimbursed* Expenses*
(12b-1) Fees: Expenses:
Class A: 1.00% .25% $_______ $_______ $_______ $_______
Class B: 1.00% 1.00% $_______ $_______ $_______ $_______
Class C: 1.00% 1.00% $_______ $_______ $_______ $_______
Advisor 1.00% none $_______ $_______ $_______ $_______
Class:
* The Fund's Manager has agreed to waive and/or reimburse the Fund's fees and
expenses to the extent necessary to ensure that the Fund's Annual Fund
Operating Expenses do not exceed the amounts shown in the far right
column above.
Example:
The following example is intended to help you compare the cost of
investing in the Fund with the cost of investing in other mutual funds.
The example assumes that you invest $10,000 in the Fund for the time
periods indicated and then redeem all of your shares at the end of
those periods (with additional information shown for Class B and Class
C shares based on the assumption that you do not redeem your shares at
that time). The example also assumes that your investment has a 5%
return each year and that the Fund's operating expenses remain the
same. Although your actual costs may be higher or lower, based on these
assumptions your costs would be as follows:
1 Year: 3 Years: 5 Years: 10 Years:
------ ------- ------- --------
Class A: $______ $______ $______ $______
Class B: $______ $______ $______ $______
Class B (no redemption): $______ $______ $______ $______
Class C: $______ $______ $______ $______
Class C (no redemption): $______ $______ $______ $______
Advisor Class: $______ $______ $______ $______
<PAGE>
ADDITIONAL INFORMATION ABOUT INVESTMENT STRATEGIES AND RISKS
Principal strategies:
The Fund invests seeks to achieve its principal objective of long-term
capital growth by investing primarily in the securities markets of
South America, Mexico and Central America. The Fund normally invests
its assets in at least three different countries, and expects to focus
its investments in Argentina, Brazil, Chile, Colombia, Peru and
Venezuela. The Fund does not expect to concentrate its investments in
any particular industry. The Fund may, however, invest more than 5% of
a portion of its assets in a single issuer (see "Non-Diversification
Risk" below).
Countries are selected on the basis of a mix of factors that include
long-term economic growth prospects, anticipated inflation levels, and
the effect of applicable government policies on local business
conditions.
Individual securities are selected on the basis of value indicators
(such as earnings, cash flow and growth potential) and are reviewed for
fundamental financial strength. Investment decisions typically are
based on earnings estimates over a five-year period, with stocks
normally purchased from within the cheapest 20% of the market universe
and sold once they are valued within the top 20%.
Principal risks:
General market risk: As with any mutual fund, the value of the Fund's
investments and the income they generate will vary daily and generally
reflect market conditions, interest rates and other issuer-specific,
political or economic developments. The Fund's share value will
decrease at any time during which its security holdings or other
investment techniques are not performing as well as anticipated, and
you could therefore lose money by investing in the Fund depending upon
the timing of your initial purchase and any subsequent redemption.
Other risks: Since the Fund invests heavily in the securities of
issuers located throughout South and Central America, many of which
have economies or securities markets that are relatively undeveloped,
the Fund is more susceptible to the risks associated with these types
of securities than a fund that invests primarily in more established
markets. Following is a description of these risks, along with the
risks commonly associated with the other securities and investment
techniques that the Fund's portfolio manager considers important in
achieving the Fund's investment objective or in managing the Fund's
exposure to risk (and that could therefore have a significant effect on
the Fund's returns). Other investment techniques that the Fund may use,
but that do not play a key role in the Fund's overall investment
strategy, are described in the Fund's Statement of Additional
Information (see back cover page for information as to how you can
receive a free copy).
Common Stocks: Common stocks represent a proportionate ownership
interest in a company. As a result, the value of common stock
rises and falls with a company's success or failure. The market
value of common stock can fluctuate significantly, with smaller
companies being particularly susceptible to price swings.
Transaction costs in smaller company stocks may also be higher
than those of larger companies.
Debt Securities: Investing in debt securities involves both
interest rate and credit risk. Generally, the value of debt
instruments rises and falls inversely with fluctuations in
interest rates. For example, as interest rates decline the value
of debt securities generally increases. Conversely, rising
interest rates tend to cause the value of debt securities to
decrease. The Fund's portfolio is therefore susceptible to the
decline in value of the debt instruments it holds in a rising
interest rate environment. The market value of debt securities
also tends to vary according to the relative financial condition
of the issuer. Bonds with longer maturities tend to be more
volatile than bonds with shorter maturities.
The Fund may at any given time invest a significant portion of
its assets in low-rated debt securities (sometimes referred to as
"high yield" or "junk" bonds). In general, low-rated debt
securities offer higher yields due to the increased risk that the
issuer will be unable to meet its obligations on interest or
principal payments at the time called for by the debt instrument.
For this reason, these bonds are considered speculative and could
significantly weaken the Fund's returns.
The Fund may also have significant holdings in sovereign debt.
For a variety of reasons (such as cash flow problems, limited
foreign reserves, and political constraints), the governmental
entity that controls the repayment of sovereign debt may not be
able or willing to repay the principal or interest when due. A
governmental entity's ability to honor its debt obligations to the
Fund may also be contingent on its receipt from others (such as
the International Monetary Union and more solvent foreign
governments) of specific disbursements, which may in turn be
conditioned on the perceived health of the governmental entity's
economy and/or its implementation of economic reforms. If any of
these conditions fail, the Fund could lose the entire value of its
investment for an indefinite period of time.
Depository Receipts: The Fund may acquire interests in foreign
issuers in the form of sponsored or unsponsored American
Depository Receipts ("ADRs"), Global Depository Receipts ("GDRs")
and similar types of depository receipts. ADRs typically are
issued by a U.S. bank or trust company and represent ownership of
the underlying securities issued by a foreign corporation. GDRs
and other types of depository receipts are usually issued by
foreign banks or trust companies. The Fund's investments in ADRs,
GDRs and other depository receipts are viewed as investments in
the underlying securities.
Depository receipts can be difficult to price and are not always
exchange-listed (and so may be considered illiquid). Unsponsored
depository programs also are organized independently without the
cooperation of the issuer of the underlying securities. As a
result, information concerning the issuer may not be as current or
as readily available as in the case of sponsored depository
instruments, and their prices may be more volatile than if they
were sponsored by the issuers of the underlying securities.
Foreign Securities: Investing in foreign securities involves a
number of economic, financial and political considerations that
are not associated with the U.S. markets and that could affect the
Fund's performance favorably or unfavorably depending upon
prevailing conditions at any given time. For example, the
securities markets of many foreign countries may be smaller, less
liquid and subject to greater price volatility than those in the
U.S. Foreign investing may also involve brokerage costs and tax
considerations that are not usually present in the U.S. markets.
Many of the Fund's securities also are denominated in foreign
currencies and the value of the Fund's investments as measured in
U.S. dollars may be affected favorably or unfavorably by changes
in foreign currency exchange rates and exchange control
regulations. Currency conversion can also be costly.
Other factors that can affect the value of the Fund's foreign
investments include the comparatively weak supervision and
regulation by some foreign governments of securities exchanges,
brokers and issuers, and the fact that many foreign companies may
not be subject to uniform accounting, auditing and financial
reporting standards. It may also difficult to obtain reliable
information about the securities and business operations certain
foreign issuers. Settlement of portfolio transactions may also be
delayed due to local restrictions or communication problems, which
can cause the Fund to miss attractive investment opportunities or
impair its ability to dispose of securities in a timely fashion
(resulting in a loss if the value of the securities subsequently
declines).
Special Emerging Market Concerns: The risks of investing in
foreign securities are heightened in countries with new or
developing economies. Among these additional risks are the
following:
securities that are even less liquid and more volatile than those
in more developed foreign countries;
less stable governments that are susceptible to sudden
adverse actions (such as nationalization of businesses,
restrictions on foreign ownership or prohibitions against
repatriation of assets);
increased settlement delays;
unusually high inflation rates (which in extreme cases can
cause the value of a country's assets to erode sharply);
restrictions on repatriation of capital;
unusually large currency fluctuations and currency conversion
costs (see "Foreign Currencies" below); and
high national debt levels (which may impede an issuer's
payment of principal and/or interest on external debt).
Foreign Currencies: Investing in foreign securities typically
involves the use of foreign currencies. The value of the Fund's
assets, as measured in U.S. dollars, may be affected favorably or
unfavorably by changes in foreign currency exchange rates and
exchange control regulations. Currency conversions can also be
costly.
Foreign Currency Exchange Transactions and Forward Foreign
Currency Contracts: The Fund may, but is not required to, use
foreign currency exchange transactions and forward foreign
currency contracts to hedge certain market risks (such as interest
rates, currency exchange rates and broad or specific market
movement). These investment techniques involve a number of risks,
including the possibility of default by the other party to the
transaction and, to the extent the Fund's judgment as to certain
market movements is incorrect, the risk of losses that are greater
than if the investment technique had not been used. For example,
there may be an imperfect correlation between the Fund's portfolio
holdings of securities denominated in a particular currency and
the forward contracts entered into by the Fund. An imperfect
correlation of this type may prevent the Fund from achieving the
intended hedge or expose the Fund to the risk of currency exchange
loss. In addition, although the use of these investment techniques
for hedging purposes should tend to minimize the risk of loss due
to a decline in the value of the hedged position, they also tend
to limit any potential gain that might result from an increase in
the position's value.
Illiquid Securities: The Fund may invest up to 15% of its net
assets in "illiquid securities," which are assets that may not be
disposed of in the ordinary course of business with seven days at
roughly the value at which the Fund has valued the assets on its
books. Some of these may by "restricted securities," which cannot
be sold to the public without registration under the Securities
Act of 1933 (in the absence of an exemption) or because of other
legal or contractual restrictions on resale. Thus, while illiquid
securities offer the potential for higher returns than more
readily marketable securities, there is a risk that the Fund will
not be able to dispose of them promptly at an acceptable price.
Non-Diversification Risk: The Fund is classified as
"non-diversified" under the Investment Company Act of 1940, and
may, with respect to 50% of its total assets, invest more than 5%
of its total assets in the securities of a single issuer. As a
result, the Fund's overall performance is potentially more
susceptible to the price movements of individual securities held
in the Fund's portfolio than if the Fund were "diversified" (which
would limit the Fund's holdings in a single issuer to 5% of the
Fund's total assets).
Other Investment Companies: The Fund may invest up to 10% of its
total assets in the shares of other investment companies. As a
shareholder of an investment company, the Fund would bear its
ratable share of the fund's expenses (which often include an
asset-based management fee). The Fund could also lose money by
investing in other investment companies, since the value of their
respective investments and the income they generate will vary
daily based on prevailing market conditions.
Temporary Defensive Positions: The Fund may from time to time
take a temporary defensive position and invest without limit in
U.S. Government securities, investment-grade debt securities, and
cash and cash equivalents such as commercial paper, short-term
notes and other money market securities. When the Fund assumes
such a defensive position it may not achieve its investment
objective. Investing in debt securities also involves both
interest rate and credit risk. Generally, the value of debt
instruments rises and falls inversely with fluctuations in
interest rates. For example, as interest rates decline the value
of debt securities generally increases. Conversely, rising
interest rates tend to cause the value of debt securities to
decrease. The market value of debt securities also tends to vary
according to the relative financial condition of the issuer. Bonds
with longer maturities tend to be more volatile than bonds with
shorter maturities.
Borrowing: For temporary or emergency purposes (such as meeting
shareholder redemption requests within the time periods specified
under the Investment Company Act of 1940), the Fund may borrow up
to one third of the value of its total assets from qualified
banks. Borrowing may exaggerate the effect on the Fund's share
value of any increase or decrease in the value of the securities
it holds. Money borrowed will also be subject to interest costs.
The Fund also has a policy of not purchasing securities whenever
the Fund's outstanding borrowings exceed 10% of the value of the
Fund's assets. Where this occurs, the Fund could miss out on
attractive investment opportunities.
Other Important Information:
Year 2000 Risks: Many computer software and hardware systems in use
today cannot distinguish between the year 2000 and the year 1900
because of the way dates are encoded and calculated (the "Year 2000
Problem"). The inability of computer-based systems to make this
distinction could have a seriously adverse effect on the handling of
securities trades, pricing and account services worldwide. The Fund's
service providers are taking steps that each believes are reasonably
designed to address the Year 2000 Problem with respect to the computer
systems that they use. The Fund believes these steps will be sufficient
to avoid any material adverse impact on the Fund. At this time,
however, there can be no assurance that significant problems will not
occur (which either directly or indirectly may cause the Fund to lose
money).
MANAGEMENT
Investment Advisor:
Ivy Management, Inc. ("IMI"), located at Via Mizner Financial Plaza,
700 South Federal Highway, Boca Raton, Florida 33432, provides
investment advisory and business management services to the Fund. IMI
is an SEC-registered investment advisor with over $____ billion in
assets under management, and provides similar services to the other
eighteen series of the Trust. For the Fund's fiscal year ending
December 31, 1998, the Fund paid to IMI an aggregate fee equal to ___%
of the Fund's average net assets.
Portfolio Management:
The Fund is managed by a team of investment professionals that is
supported by research analysts who acquire information on regional and
country-specific economic and political developments and monitor
individual companies. These analysts use a variety of research sources
that include:
brokerage reports;
economic and financial news services;
company reports; and
information from over 30 independent research firms (ranging from
large investment banks with global coverage to local research
houses).
In many cases, particularly in emerging market countries, IMI's
research analysts also conduct primary research by:
meeting with company management;
touring facilities; and
speaking with local research professionals.
<PAGE>
SHAREHOLDER INFORMATION
PRICING OF FUND SHARES:
The Fund calculates its share price by dividing the value of the Fund's
net assets by the total number of its shares outstanding as of the
close of regular trading (usually 4:00 p.m. Eastern time) on the New
York Stock Exchange on each day the Exchange is open for trading
(normally any weekday that is not a national holiday).
Each portfolio security that is listed or traded on a recognized stock
exchange is valued at the security's last sale price on the exchange
on which it was purchased. If no sale is reported at that time, the
average between the last bid and asked prices is used. Securities and
other Fund assets for which market prices are not readily available
are priced at their "fair value" as determined by IMI in accordance
with procedures approved by the Fund's Board of Trustees. IMI may also
price a foreign security at its "fair value" if events materially
affecting the value of the security occur between the close of the
foreign exchange on which the security is principally traded and the
time as of which the Fund prices its shares. Fair value pricing under
these circumstances is designed to protect existing shareholders from
dilution of their share value caused by short-term investors trading
into and out of the Fund at at time when the Fund's share price,
calculated by ordinary pricing methods, is undervalued. When such fair
value pricing occurs, however, there may be some period of time during
which the Fund's share price and/or performance information is not
available.
The number of shares you receive when you place a purchase order, and
the payment you receive after submitting a redemption request, is based
on the Fund's net asset value next determined after your instructions
are received in proper form by Ivy Mackenzie Services Corp. (the Fund's
transfer agent) or by your registered securities dealer. Each purchase
and redemption order is subject to any applicable sales charge (see
"Distribution Arrangements" below). Since the Fund normally invests in
securities that are listed on foreign exchanges that may trade on
weekends or other days when the Fund does not price its shares, the
Fund's share value may change on days when shareholders will not be
able to purchase or redeem the Fund's shares.
HOW TO BUY SHARES:
Purchasing Fund shares involves "Choosing the Appropriate Class of
Shares" and "Submitting Your Purchase Order". Please read these
sections below carefully before investing.
Choosing the Appropriate Class of Shares - The essential features of
the Fund's different classes of shares are described below. If you do
not specify on your Account Application which class of shares you are
purchasing, it will be assumed that you are purchasing Class A shares.
The Fund has adopted separate distribution plans pursuant to Rule
12b-1 under the 1940 Act for its Class A, B and C shares that allow
the Fund to pay distribution and other fees for the sale and
distribution of its shares and for services provided to shareholders.
Because these fees are paid out of the Fund's assets on an on-going
basis, over time they will increase the cost of your investment and
may cost you more than paying other types of sales charges.
Class A Shares: Class A shares are sold at net asset value plus a
maximum sales charge of 5.75% (the "offering price"). The sales
charge may be reduced or eliminated if certain conditions are met
(see "Additional Purchase Information" below). Class A shares are
subject to a .25% Rule 12b-1 service fee.
Class B Shares: Class B shares are offered at net asset value,
without an initial sales charge, but subject to a contingent
deferred sales charge ("CDSC") that declines from 5% to zero on
certain redemptions within six years of purchase. Class B shares
are subject to a .75% Rule 12b-1 distribution fee and a .25% Rule
12b-1 service fee, and convert automatically into Class A shares
eight years after purchase.
Class C Shares: Class C shares are offered at net asset value,
without an initial sales charge, but subject to a CDSC of 1% for
redemptions within the first year of purchase. Class C shares are
subject to a .75% Rule 12b-1 distribution fee and a .25% Rule
12b-1 service fee.
Advisor Class Shares: Advisor Class shares are offered to certain
classes of investors at net asset value, without any sales load or
Rule 12b-1 fees.
The following table displays the various investment minimums, sales
charges and expenses that apply to each class.
<TABLE>
<S> <C> <C> <C> <C>
- -------------------- --------------------- --------------------- --------------------- -------------------
Class A Class B Class C Advisor Class
- -------------------- --------------------- --------------------- --------------------- -------------------
- -------------------- --------------------- --------------------- --------------------- -------------------
Minimum Initial $10,000
Investment* $1,000 $1,000 $1,000
- -------------------- --------------------- --------------------- --------------------- -------------------
- -------------------- --------------------- --------------------- --------------------- -------------------
Minimum Subsequent
Investment* $100 $100 $100 $ 250
- -------------------- --------------------- --------------------- --------------------- -------------------
- -------------------- --------------------- --------------------- --------------------- -------------------
Initial Sales Maximum 5.75%, with None None None
Charge options for a
reduced or waiver
of initial sales
charge
- -------------------- --------------------- --------------------- --------------------- -------------------
- -------------------- --------------------- --------------------- --------------------- -------------------
CDSC None, except on Maximum 5.00%, 1.00% for the first None
certain NAV declines over six year
purchases years
- -------------------- --------------------- --------------------- --------------------- -------------------
- -------------------- --------------------- --------------------- --------------------- -------------------
Service and 0.25% Service fee 0.75% Distribution 0.75% Distribution None
Distribution Fees fee and 0.25% fee and 0.25%
Service fee Service fee
- -------------------- --------------------- --------------------- --------------------- -------------------
</TABLE>
* Minimum initial and subsequent investments for retirement plans are
$25.
ADDITIONAL PURCHASE INFORMATION:
Class A Shares - Class A shares are sold at a public offering
price equal to their net asset value per share ("NAV") plus an
initial sales charge, as set forth below (which is reduced as the
amount invested increases):
<TABLE>
<S> <C> <C> <C>
- -------------------------------- ---------------------- ------------------ ----------------------
Sales Charge as a Sales Charge as Portion of Public
Percentage of Public a Percentage of Offering Price
Offering Price Net Amount Retained by Dealer
Amount Invested Invested
- -------------------------------- ---------------------- ------------------ ----------------------
- -------------------------------- ---------------------- ------------------ ----------------------
Less than $50,000 5.75% 6.10% 5.00%
- -------------------------------- ---------------------- ------------------ ----------------------
- -------------------------------- ---------------------- ------------------ ----------------------
$50,000 but less than $100,000 5.25% 5.54% 4.50%
- -------------------------------- ---------------------- ------------------ ----------------------
- -------------------------------- ---------------------- ------------------ ----------------------
$100,000 but less than $250,000 4.50% 4.71% 3.75%
- -------------------------------- ---------------------- ------------------ ----------------------
- -------------------------------- ---------------------- ------------------ ----------------------
$250, 000 but less than 3.00% 3.09% 2.50%
$500,000
- -------------------------------- ---------------------- ------------------ ----------------------
$500,000 or over* 0.00% 0.00% 0.00%
- -------------------------------- ---------------------- ------------------ ----------------------
</TABLE>
* A CDSC of 1.00% applies to Class A shares that are redeemed
within two years of the end of the month in which they were
purchased.
Class A shares that are acquired through reinvestment of dividends
or distributions are not subject to any sales charges.
HOW TO REDUCE YOUR INITIAL SALES CHARGE:
"Rights of Accumulation" permits you to pay the sales charge
that applies to the cost or value (whichever is higher) of all
Ivy Fund Class A shares you own.
A "Letter of Intent" permits you to pay the sales charge that
would apply to your cumulative purchase of Fund shares over a
13-month period (certain restrictions apply).
HOW TO ELIMINATE YOUR INITIAL SALES CHARGE:
You may purchase Class A shares at NAV (without an initial sales
charge or a CDSC) through any one of the following methods:
through certain investment advisors and financial planners
who charge a management, consulting or other fee for their
services;
under certain qualified retirement plans;
as an employee or director of Mackenzie Investment Management
Inc. or its affiliates;
as an employee of a selected dealer; pr
through the Merrill Lynch Daily K Plan (the "Plan"), provided
the Plan has at least $3 million in assets or over 500 or more
eligible employees. Class B shares of the Fund are made
available to Plan participants at NAV without a CDSC if the
Plan has less than $3 million in assets or fewer than 500
eligible employees. For further information see "Group
Systematic Investment Program" in the SAI.
You may also purchase Class A shares at NAV if you are investing
at least $500,000 through a dealer or agent. Ivy Mackenzie
Distributors, Inc. ("IMDI"), the Fund's distributor, may pay the
dealer or agent (out of IMDI's own resources) for its distribution
assistance according to the following schedule:
------------------------------- -------------------------------
Purchase Amount Commission
------------------------------- -------------------------------
------------------------------- -------------------------------
First $3,000,000 1.00%
------------------------------- -------------------------------
------------------------------- -------------------------------
Next $2,000,000 0.50%
------------------------------- -------------------------------
------------------------------- -------------------------------
Over $5,000,000 0.25%
------------------------------- -------------------------------
Certain trust companies, bank trust departments, credit unions,
savings and loans and other similar organizations may also be
exempt from the initial sales charge on Class A shares.
Class B and Class C Shares - Class B and Class C shares are not
subject to an initial sales charge but are subject to a CDSC. If
you redeem your Class C shares within one year of purchase they
will be subject to a CDSC of 1%, and Class B shares redeemed
within six years of purchase will be subject to a CDSC at the
following rates:
--------------------- --------------------
CDSC as a
Percentage of
Year Since Purchase Dollar Amount
Subject to Charge
--------------------- --------------------
First 5%
--------------------- --------------------
--------------------- --------------------
Second 4%
--------------------- --------------------
--------------------- --------------------
Third 3%
--------------------- --------------------
--------------------- --------------------
Fourth 3%
--------------------- --------------------
--------------------- --------------------
Fifth 2%
--------------------- --------------------
--------------------- --------------------
Sixth 1%
--------------------- --------------------
--------------------- --------------------
Seventh and 0%
thereafter
--------------------- --------------------
The CDSC for both Class B and Class C shares will be assessed on
an amount equal to the lesser of the current market value or the
original purchase cost of the shares being redeemed. No charge
will be assessed on increases in account value above the original
purchase price or on reinvested dividends and distributions.
The CDSC for Class B shares is waived for:
Certain post-retirement withdrawals from an IRA or other
retirement plan if you are over 59 1/2 years old.
Redemptions by certain eligible 401(a) and 401(k) plans and
certain retirement plan rollovers.
Redemption resulting from a tax-free return of excess
contribution to an IRA.
Withdrawals resulting from shareholder death or disability
provided that the redemption is requested within one year of
death or disability.
Withdrawals through the Systematic Withdrawal Plan of up to
12% per year of your account value at the time the plan is
established.
Both Class B shares and Class C shares are subject to an ongoing
service and distribution fee at a combined annual rate of up to
1.00% of the portfolio's average net assets attributable to its
Class B or Class C shares. The ongoing distribution fees will
cause these shares to have a higher expense ratio than that of
Class A and Advisor Class shares. IMDI uses the money that it
receives from the deferred sales charge and the distribution fees
to cover various promotional and sales related expenses, as well
as expenses related to providing distributions services, such as
compensating selected dealers and agents for selling these shares.
Approximately eight years after the original date of purchase,
your Class B shares will be converted automatically to Class A
shares. Class A shares are subject to lower annual expenses than
Class B shares. The conversion from Class B shares to Class A
shares is not considered a taxable event for federal income tax
purposes. Class C shares do not have a similar conversion
privilege.
Advisor Class - Advisor Class shares are offered only to
institutions and certain individuals, and are not subject to an
initial sales charge or a CDSC, nor to ongoing service or
distribution fees.
SUBMITTING YOUR PURCHASE ORDER:
INITIAL INVESTMENTS:
Complete and sign the Account Application appearing at the end of this
Prospectus. Enclose a check payable to Ivy Fund (see page [XX] for
minimum initial investments.) Deliver your application materials to
your registered representative or selling broker, or send them to one
of the addresses below:
By Regular Mail: By Courier:
Ivy Mackenzie Services Corp. Ivy Mackenzie Services Corp.
P.O. Box 3022 700 South Federal Hwy.
Boca Raton, FL 33431-0922 Boca Raton, FL 33432
BUYING ADDITIONAL SHARES:
There are several ways to increase your investment in the Fund:
By Mail - Send your check with a completed investment slip
(attached to your account statement) or written instructions
indicating the account registration, fund number or name, and
account number.
Mail to one of the addresses above.
Through Your Broker - Deliver to your registered representative
or selling broker the investment slip attached to your statement,
or written instructions, along with your payment.
By Wire - Purchases may also be made by wiring money from your
bank account to your Ivy account. Your bank may charge a fee for
wiring funds. Before wiring any funds, please call IMSC at (800)
777-6472. Wiring instructions are as follows:
First Union National Bank of Florida
Jacksonville, FL
ABA #063000021
Account #2090002063833
For further credit to:
Your Ivy Fund Account Number
Your Fund Number and Account Number
By Automatic Investment Method - You can authorize to have funds
electronically drawn each month from your bank account and
invested as a purchase of shares into your Ivy Fund account.
Complete sections [XX] and [XX] of the Account Application.
HOW TO REDEEM SHARES:
SUBMITTING YOUR REDEMPTION ORDER:
You may redeem your Fund shares through your registered securities
dealer or directly through IMSC. If you choose to redeem through your
registered securities dealer, the dealer is responsible for properly
transmitting redemption orders in a timely manner. If you choose to
redeem directly through IMSC, you have several ways to submit your
request:
By Mail - Send your written redemption request to IMSC at one of
the addresses on page XX of this Prospectus. Be sure that all
registered owners listed on the account sign the request.
Signature guarantees and supporting legal documentation may be
required. When you redeem, IMSC will normally send redemption
proceeds to you on the next business day, but may take up to seven
days (or longer in the case of shares recently purchased by
check).
By Telephone - Call IMSC at (800) 777-6472 to redeem from your
account. In order to process your redemption order by telephone,
you must have telephone redemption privileges on your account.
IMSC employs reasonable procedures that require personal
identification prior to acting on redemption instructions
communicated by telephone to confirm that such instructions are
genuine. In the absence of such procedures, the Fund or IMSC may
be liable for any losses due to unauthorized or fraudulent
telephone instructions.
By Systematic Withdrawal Plan (SWP) - You can authorize to have
funds electronically drawn each month from your Ivy Fund account
and deposited directly into your bank account. Certain minimum
balances and minimum distributions apply. Complete sections XX of
the Account Application to add this feature to your account.
Receiving Your Redemption Proceeds - You can receive redemption
proceeds through a variety of payment methods:
By Check - Unless otherwise instructed, checks will be made
payable to the current account registration and sent to the
address of record.
By Federal Funds Wire - Proceeds will be wired on the next
business day to a pre-designated bank account. Requests by
telephone can only be accepted for amounts up to $50,000. Your
account will be charged $10 each time redemption proceeds are
wired to your bank, and your bank may also charge you a fee for
receiving a Federal Funds wire.
By Electronic Funds Transfer - For SWP redemptions only.
Important Redemption Information:
A CDSC may apply to certain Class A share redemptions, to Class B
shares redeemed within 6 years of purchase, and to Class C shares
that are redeemed within one year of purchase.
All redemptions are made at the NAV next determined after a
redemption request has been received in good order. Requests for
redemptions must be received by 4:00 p.m. Eastern time to be
processed at the NAV for that day. Any redemption request in good
order that is received after 4:00 p.m. Eastern time will be
processed at the price determined on the following business day.
If you own shares of more than one class of the Fund, the Fund
will redeem first the shares having the highest 12b-1 fees.
Any shares subject to a CDSC will be redeemed last unless you
specifically elect otherwise.
The Fund may (on 60 days' notice) redeem the accounts of
shareholders whose investment, including sales charges paid, has
been less than $1,000 for more than 12 months.
The Fund may take up to seven days (or longer in the case of
shares recently purchased by check) to send redemption proceeds.
The Fund may make payment for redeemed shares in the form of
securities of the Fund taken at current values.
HOW TO EXCHANGE YOUR FUND SHARES:
You may exchange your Fund shares for shares of another Ivy fund,
subject to certain restrictions (see "Important Exchange Information"
below).
Submitting Your Exchange Order - You may submit an exchange request to
IMSC as follows:
By Mail - Send your written exchange request to IMSC at one of
the addresses on page XX of this Prospectus. Be sure that all
registered owners listed on the account sign the request.
By Telephone - Call IMSC at (800) 777-6472 to authorize an
exchange transaction. In order to process your exchange order by
telephone, you must have telephone exchange privileges on your
account. IMSC employs reasonable procedures that require personal
identification prior to acting on exchange instructions
communicated by telephone to confirm that such instructions are
genuine. In the absence of such procedures, the Fund or IMSC may
be liable for any losses due to unauthorized or fraudulent
telephone instructions.
IMPORTANT EXCHANGE INFORMATION:
You must exchange into the same share class you currently own.
Exchanges are considered taxable events and may result in a
capital gain or a capital loss for tax purposes.
It is the policy of the Fund to discourage the use of the
exchange privilege for the purpose of timing short-term market
fluctuations. The Fund may therefore limit the frequency of
exchanges by a shareholder or cancel a shareholder's exchange
privilege if at any time it appears that such market timing
strategies are being used.
DIVIDENDS AND DISTRIBUTIONS:
The Fund generally declares and pays dividends and capital gain
distributions (if any) at least once a year.
Dividends and distributions are "reinvested" in additional Fund
shares unless you request to receive them in cash.
Reinvested dividends and distributions are added to your account
at NAV and are not subject to a CDSC regardless of which share
class you own.
Cash dividends and distributions can be sent to you:
BY MAIL - a check will mailed to the address of record unless
otherwise instructed.
BY ELECTRONIC FUNDS TRANSFER ("EFT") - your proceeds will be
directly deposited into your bank account.
To change your dividend and/or distribution options, call IMSC at
(800) 777-6472.
TAX CONSEQUENCES:
Distributions you receive from the Fund are reinvested in additional
shares of the same class of the Fund unless you elect to receive them
in cash. Dividends ordinarily will vary from one class to another.
The Fund intends to declare and pay dividends monthly. The Fund will
distribute net investment income and net realized capital gains, if
any, at least once a year. The Fund may make an additional distribution
of net investment income and net realized capital gains to comply with
the calendar year distribution requirement under the excise tax
provisions of Section 4982 of the Internal Revenue Code of 1986, as
amended (the "Code").
Dividends paid out of the Fund's investment company taxable income
(including dividends, interest and net short-term capital gains) will
be taxable to you as ordinary income. If a portion of the Fund's income
consists of dividends paid by U.S. corporations, a portion of the
dividends paid by the Fund may be eligible for the corporate
dividends-received deduction. Distributions of net capital gains (the
excess of net long-term capital gains over net short-term capital
losses), if any, are taxable to you as long-term capital gains,
regardless of how long you have held your shares. Dividends are taxable
to you in the same manner whether received in cash or reinvested in
additional Fund shares.
If shares of the Fund are held in a tax-deferred account, such as a
retirement plan, income and gain will not be taxable each year.
Instead, the taxable portion of amounts held in a tax-deferred account
generally will be subject to tax as ordinary income only when
distributed from that account.
A distribution will be treated as paid to you on December 31 of the
current calendar year if it is declared by the Fund in October,
November or December with a record date in such a month and paid by the
Fund during January of the following calendar year.
In certain years, you may be able to claim a credit or deduction on
your income tax return for your share of foreign taxes paid by the
Fund. Upon the sale or other disposition of your Fund shares, you may
realize a capital gain or loss which will be long-term or short-term,
generally depending upon how long you held your shares.
The Fund may be required to withhold U.S. Federal income tax at the
rate of 31% of all distributions payable to you if you fail to provide
the Fund with your correct taxpayer identification number or to make
required certifications, or if you have been notified by the Internal
Revenue Service ("IRS") that you are subject to backup withholding.
Backup withholding is not an additional tax. Any amounts withheld may
be credited against your U.S. Federal income tax liability.
Fund distributions may be subject to state, local and foreign taxes.
You should consult with your tax adviser as to the tax consequences of
an investment in the Fund, including the status of distributions from
the Fund under applicable state or local law.
<PAGE>
IVY SOUTH AMERICA FUND
<TABLE>
<CAPTION>
CLASS A
----------------------------------------------------
1998 1997 1996 1995 1994(A)
SELECTED PER SHARE DATA ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of period......... $ 8.51 $ 6.88 $ 8.37 $10.00
------- ------- ------- -------
Income (loss) from investment operations
Net investment income (loss)(c)........... .06 .01 .01 --
Net realized and unrealized gain (loss) on
investment transactions.................. .53 1.66 (1.45) (1.63)
------- ------- ------- -------
Total from investment operations....... .59 1.67 (1.44) (1.63)
------- ------- ------- -------
Less distributions
From net investment income................ .04 -- -- --
From net realized gain.................... .10 .04 -- --
From capital paid-in...................... -- -- .05 --
------- ------- ------- -------
Total distributions.................... .14 .04 .05 --
------- ------- ------- -------
Net asset value, end of period............... $ 8.96 $ 8.51 $ 6.88 $ 8.37
======= ======= ======= =======
Total return(%).............................. 7.03 24.22 (17.28) (16.10)
RATIOS AND SUPPLEMENTAL DATA
Net assets, end of period (in thousands)..... $5,671 $4,016 $2,015 $ 571
Ratio of expenses to average net assets(d)
With expense reimbursement(%)............... 2.45 2.55 2.61 2.20
Without expense reimbursement(%)............ 3.18 4.89 9.26 16.22
Ratio of net investment income (loss) to
average net assets(%)(c).................... .65 .24 .22 .21
Portfolio turnover rate(%)................... 10 20 45 82
Average commission rate...................... $.0002 $.0002 N/A N/A
<CAPTION>
CLASS B
--------------------------------------------------
1998 1997 1996 1995 1994(A)
SELECTED PER SHARE DATA ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of period......... $ 8.48 $ 6.88 $ 8.37 $10.00
------- ------- ------- -------
Income (loss) from investment operations
Net investment income (loss)(c)........... (.01) (.03) (.02) (.01)
Net realized and unrealized gain (loss) on
investment transactions.................. .53 1.63 (1.47) (1.62)
------- ------- ------- -------
Total from investment operations....... .52 1.60 (1.49) (1.63)
------- ------- ------- -------
Less distributions
From net investment income................ -- -- -- --
From net realized gain.................... .06 -- -- --
From capital paid-in...................... -- -- -- --
------- ------- ------- -------
Total distributions.................... .06 -- -- --
------- ------- ------- -------
Net asset value, end of period............... $ 8.94 $ 8.48 $ 6.88 $ 8.37
======= ======= ======= =======
Total return(%).............................. 6.18 23.26 (17.90) (16.20)
RATIOS AND SUPPLEMENTAL DATA
Net assets, end of period (in thousands)..... $3,028 $2,025 $ 684 $ 122
Ratio of expenses to average net assets(d)
With expense reimbursement(%)............... 3.23 3.33 3.36 2.95
Without expense reimbursement(%)............ 3.96 5.67 10.01 16.97
Ratio of net investment income (loss) to
average net assets(%)(c).................... (.13) (.54) (.53) (.54)
Portfolio turnover rate(%)................... 10 20 45 82
Average commission rate...................... $.0002 $.0002 N/A N/A
<CAPTION>
ADVISOR
CLASS C CLASS
------------------------------ --------
1998 1997 1996(B) 1998
SELECTED PER SHARE DATA ------- ------- ------- --------
<S> <C> <C> <C> <C>
Net asset value, beginning of period......... $ 8.46 $ 7.96
------- ------
Income (loss) from investment operations
Net investment income (loss)(c)........... (.02) (.02)
Net realized and unrealized gain (loss) on
investment transactions.................. .53 .55
------- ------
Total from investment operations....... .51 .53
------- ------
Less distributions
From net investment income................ -- --
From net realized gain.................... .08 .03
From capital paid-in...................... -- --
------- ------
Total distributions.................... .08 .03
------- ------
Net asset value, end of period............... $ 8.89 $ 8.46
======= ======
Total return(%).............................. 6.06 6.66
RATIOS AND SUPPLEMENTAL DATA
Net assets, end of period (in thousands)..... $ 453 $ 111
Ratio of expenses to average net assets(d)
With expense reimbursement(%)............... 3.30 3.46
Without expense reimbursement(%)............ 4.03 5.80
Ratio of net investment income (loss) to
average net assets(%)(c).................... (.20) (.68)
Portfolio turnover rate(%)................... 10 20
Average commission rate...................... $.0002 $.0002
</TABLE>
- - ---------------
<TABLE>
<S> <C>
(a) From November 1, 1994 (commencement of operations) to
December 31, 1994.
(b) From April 30, 1996 (commencement) to December 31, 1996.
(c) Net investment income (loss) is net of expenses reimbursed
by manager.
(d) Beginning in 1995, total expenses include any fees paid
indirectly through an expense offset arrangement.
</TABLE>
<PAGE>
ACCOUNT APPLICATION
Please mail applications and checks to: Ivy Mackenzie Services Corp.,
P.O. Box 3022, Boca Raton, FL 33431-0922.
(This application should not be used for retirement accounts for which
Ivy Fund is custodian.)
Account Number:
(Fund Use Only)
Dealer #:
Branch #:
Rep. I.D. #:
Acct. Type:
Soc Cd:
Div Cd:
CG Cd:
Exc Cd:
Red Cd:
1. REGISTRATION
/ / Individual / / Joint Tenant / / Estate / / UGMA/UTMA / /
Corporation / / Partnership / / Sole Proprietor / / Trust / / Other
Date of Trust
Owner, Custodian or Trustee
Co-owner or Minor
Minor's State of Residence
Street
City
State
Zip Code
Phone Number -- Day
Phone Number -- Evening
2. TAX ID
Citizenship: / / U.S. / / Other ________________
Social Security Number
Tax Identification Number
Under penalties of perjury, I certify by signing in Section 8 below
that: (1) the number shown in this section is my correct taxpayer
identification number (TIN), and (2) I am not subject to backup
withholding because: (a) I have not been notified by the Internal
Revenue Service (IRS) that I am subject to backup withholding as a
result of a failure to report all interest or dividends, or (b) the IRS
has notified me that I am no longer subject to backup withholding.
(Cross out item (2) if you have been notified by the IRS that you are
currently subject to backup withholding because of underreporting
interest or dividends on your tax return.) Please see the "Tax
Consequences" section of the Prospectus for additional information on
completing this section.
3. DEALER INFORMATION
The undersigned ("Dealer") agrees to all applicable provisions in this
Application, guarantees the signature and legal capacity of the
Shareholder, and agrees to notify IMSC of any purchases made under a
Letter of Intent or Rights of Accumulation.
Dealer Name
Branch Office Address
City
State
Zip Code
Representative's Name and Number
Representative's Phone Number
Authorized Signature of Dealer
4. INVESTMENTS
A. Enclosed is my check ($1,000 minimum) for $_____________ made
payable to ________________ [Fund Name]. Please invest it in
Class A __ Class B __ Class C __ or Advisor Class __ shares.
B. I qualify for an elimination of the sales charge due to the
following privilege (applies only to Class A shares):
__ New Letter of Intent (if ROA or 90-day backdate
privilege is applicable, provide account(s)
information below.)
__ ROA with the account(s) listed below.
__ Existing Letter of Intent with account(s) listed
below.
Fund Name(s)
Account Number(s)
If establishing a Letter of Intent, you will need to purchase
Class A shares over a thirteen-month period in accordance with
the provisions in the Prospectus. The Aggregate amount of
these purchases will be at least equal to the amount indicated
below (see Prospectus for minimum amount required for reduced
sales charges).
/ / $50,000
/ / $100,000
/ / $250,000
/ / $500,000
C. FOR DEALER USE
Confirmed trade orders: [Confirm Number, Number of Shares,
Trade Date]
5. DISTRIBUTION OPTIONS
I would like to reinvest dividends and capital gains into additional
shares in this account at net asset value unless a different option is
checked below.
/ / Reinvest all dividends and capital gains into additional
shares of a different Ivy fund.
Fund Name
Account Number
/ / Pay all dividends in cash and reinvest capital gains into
additional shares in this Fund or a different Ivy fund.
Fund Name
Account Number
/ / Pay all dividends and capital gains in cash.
I REQUEST THE ABOVE CASH DISTRIBUTION, SELECTED IN C OR D
ABOVE, BE:
/ / Sent to the address listed in the registration.
/ / Sent to the special payee listed in Section 7A
/ / (By Mail) 7B
/ / (By E.F.T.)
6. OPTIONAL SPECIAL FEATURES
A. / / Automatic Investment Method (AIM)
- I wish to invest _________________ / / once per month / /
twice / / 3 times / / 4 times
- My bank account will be debited on the _________ day of the month
Please invest $___________________ each period starting in the month
of __________________ in
---------------------------.
Fund Name
/ / Class A
/ / Class B
/ / Class C
/ / Advisor Class
/ / I have attached a voided check to ensure my correct bank
account will be debited.
B. SYSTEMATIC WITHDRAWAL PLANS**
I wish to automatically withdraw funds from my account in
_________________[Fund name].
/ / Monthly / / Quarterly / /Semiannually / / Annually
/ / Once / / Twice / / 3 times / / 4 times per month
I request the distribution be:
/ / Sent to the address listed in the registration.
/ / Sent to the special payee listed in Section 7.
/ / Invested into additional shares of the same class of a different
Ivy fund.
Fund Name
Account Number
Amount $__________________(Minimum $50) starting on or about the
-_______ day of the month
-_______ day of the month
-_______ day of the month*
NOTE: Account minimum: $5,000 in shares at current offering price
C. FEDERAL FUNDS TRANSFER FOR REDEMPTION PROCEEDS**
I authorize the Agent to honor telephone instructions for the
redemption of Fund shares up to $50,000. Proceeds may be wire
transferred to the bank account designated ($1,000 minimum).
(Complete Section 7B)
TELEPHONE EXCHANGES** / / YES / / NO
I authorize exchanges by telephone among the Ivy funds upon
instructions from any person as more fully described in the
Prospectus. To change this option once established, written
instructions must be received from the shareholder of record
or the current registered representative.
If neither box is checked, the telephone exchange privilege
will be provided automatically.
TELEPHONIC REDEMPTIONS** / / YES / / NO
The Fund or its agents are authorized to honor telephone
instructions from any person as more fully described in the
Prospectus for the redemption of Fund shares. The amount of
the redemption shall not exceed $50,000 and the proceeds are
to be payable to the shareholder of record and mailed to the
address of record. To change this option once established,
written instructions must be received from the shareholder of
record or the current registered representative.
If neither box is checked, the telephone redemption privilege
will be provided automatically.
* There must be a period of at least seven calendar
days between each investment/withdrawal period.
** This option may not be used if shares are issued in
certificate form.
7. SPECIAL PAYEE
A. MAILING ADDRESS
Please send all disbursements to this special payee:
Name of Bank or Individual
Account Number (If Applicable)
Street
City/State/Zip
B. FED WIRE / E.F.T. INFORMATION
Financial Institution
ABA #
Account #
Street
City/State/Zip
(Please attach a voided check)
8. SIGNATURES
Investors should be aware that the failure to check the "No" under
Section 6D or 6E above means that the Telephone Exchange/Redemption
Privileges will be provided. The Fund employs reasonable procedures
that require personal identification prior to acting on
exchange/redemption instructions communicated by telephone to confirm
that such instructions are genuine. In the absence of such procedures,
the Fund may be liable for any losses due to unauthorized or fraudulent
telephone instructions. Please see "How to Exchange Your Fund Shares"
and "How to Redeem Your Fund Shares" in the Prospectus for more
information on these privileges.
I certify to my legal capacity to purchase or redeem shares of the Fund
for my own account or for the account of the organization named in
Section 1. I have received a current Prospectus and understand its
terms are incorporated in this application by reference. I am
certifying my taxpayer information as stated in Section 2.
THE INTERNAL REVENUE SERVICE DOES NOT REQUIRE YOUR CONSENT TO ANY
PROVISION OF THIS DOCUMENT OTHER THAN THE CERTIFICATIONS REQUIRED TO
AVOID BACKUP WITHHOLDING.
------------------------------
Signature of Owner, Custodian, Date
Trustee or Corporate Officer
------------------------------
Signature of Joint Owner, Date
Co-Trustee or Corporate Officer
(Remember to sign Section 8)
<PAGE>
[Back Cover Page]
HOW TO RECEIVE MORE INFORMATION ABOUT THE FUND
Additional information about the Fund and its investments is contained in the
Fund's Statement of Additional Information dated April ___, 1999 (the "SAI"),
which is incorporated by reference into this Prospectus, and the Fund's annual
and semi-annual reports to shareholders. The Fund's annual report includes a
discussion of the market conditions and investment strategies that significantly
affected the Fund's performance during its most recent fiscal year. The SAI and
the Fund's annual and semi-annual reports are available upon request and without
charge from the Distributor at the following address and phone number:
Ivy Mackenzie Distributors, Inc.
Via Mizner Financial Plaza
700 South Federal Highway
Boca Raton, Florida 33432
(800) 456-5111
Information about the Fund (including the SAI and the Fund's annual and
semi-annual reports) may also be reviewed and copied at the SEC's Public
Reference Room in Washington, D.C. (please call 1-800-SEC-0330 for further
details). Information about the Fund is also available on the SEC's Internet
Website (www.sec.gov), and copies of this information may be obtained, upon
payment of a copying fee, by writing the Public Reference Section of the SEC,
Washington, D.C. 20549-6009.
SHAREHOLDER INQUIRIES
Please call Ivy Mackenzie Services Corp., the Fund's transfer agent, at
1-800-777-6472 regarding any other inquiries about the Fund.
Investment Company Act File No. 811-1028
<PAGE>
[Front Cover Page]
PROSPECTUS April ___, 1999
IVY FUND - Ivy US Blue Chip Fund
Ivy Fund (the "Trust") is a registered open-end investment company currently
consisting of nineteen separate portfolios. This Prospectus relates to the Class
A, Class B, Class C, Class I and Advisor Class shares of Ivy US Blue Chip Fund
(the "Fund"). No other shares are offered in this Prospectus.
The Securities and Exchange Commission has not approved or disapproved these
securities or passed upon the adequacy of this Prospectus. Any representation to
the contrary is a criminal offense.
[Insert all logos]
<PAGE>
TABLE OF CONTENTS
SUMMARY
ADDITIONAL INFORMATION ABOUT INVESTMENT STRATEGIES AND RISKS
MANAGEMENT
<PAGE>
SUMMARY
Investment The Fund seeks long-term growth primarily through investment
objective: in equity securities, with current income being a secondary
consideration.
Principal The Fund invests primarily in the common stocks of U.S.
investment companies occupying leading market positions that are
strategies: expected to be maintained or enhanced over time (commonly
known as "Blue Chip" companies). The median market
capitalization of companies targeted for investment is
expected to be at least $5 billion. The Fund does not expect
to buy the securities of any company whose market
capitalization at the time of investment is less than $1
billion.
Principal Management risk: The Fund's manager might not select
risks: securities that perform as well as the securities held by
other mutual funds with investment objectives that are
similar to those of the Fund.
Market risk: Common stocks represent a proportionate
ownership interest in a company. The market value of common
stock can fluctuate significantly even where "management
risk" is not a factor, so you could lose money if you redeem
your Fund shares at a time when the Fund's stock portfolio
is not performing as well as expected. The market value of
common stock can fluctuate significantly, so you could lose
money if you redeem your Fund shares at a time when the
Fund's stock portfolio is not performing as well as
expected.
Who should invest:* The Fund may be appropriate for investors seeking long-term
growth potential, but who can accept moderate fluctuations in capital value
in the short-term.
* You should consult with your financial advisor before deciding whether
the Fund is an appropriate investment choice in light of your
particular financial needs and risk tolerance.
<PAGE>
Fees and Expenses:
The following tables describe the fees and expenses that you may pay if
you buy and hold shares of the Fund:
Shareholder Fees (fees paid directly from your investment):
Maximum Sales Charge (Load) Imposed on Maximum Deferred Sales
Purchases (as a percentage of Charge (Load) (as a
offering price): percentage of original
purchase price):
Class A: 5.75% none
Class B: none 5.00%
Class C: none 1.00%
Class I: none none
Advisor none none
Class:
Annual Fund Operating Expenses (expenses that are deducted from Fund
assets):
Distribution Total Annual Expenses Net Fund
Management and/or Other Fund Waived or Operating
Fees: Service Expenses: Operating Reimbursed:* Expenses:*
(12b-1) Fees: Expenses:
Class A: 0.75% .25% $_______ $_______ $_______ $_______
Class B: 0.75% 1.00% $_______ $_______ $_______ $_______
Class C: 0.75% 1.00% $_______ $_______ $_______ $_______
Class I: 0.75% none $_______ $_______ $_______ $_______
Advisor 0.75% none $_______ $_______ $_______ $_______
Class:
* The Fund's Manager has agreed to waive and/or reimburse the
Fund's fees and expenses to the extent necessary to ensure
that the Fund's Annual Fund Operating Expenses do not exceed
the amounts shown in the far right column above.
Example:
The following example is intended to help you compare the cost of
investing in the Fund with the cost of investing in other mutual funds.
The example assumes that you invest $10,000 in the Fund for the time
periods indicated and then redeem all of your shares at the end of
those periods (with additional information shown for Class B and Class
C shares based on the assumption that you do not redeem your shares at
that time). The example also assumes that your investment has a 5%
return each year and that the Fund's operating expenses remain the
same. Although your actual costs may be higher or lower, based on these
assumptions your costs would be as follows:
1 Year: 3 Years:
------ -------
Class A: $______ $______
Class B: $______ $______
Class B (no redemption): $______ $______
Class C: $______ $______
Class C (no redemption): $______ $______
Class I: $______ $______
Advisor Class: $______ $______
<PAGE>
ADDITIONAL INFORMATION ABOUT INVESTMENT STRATEGIES AND RISKS
Principal strategies:
The Fund seeks to achieve its principal objective of long-term capital
growth by investing primarily in the common stocks of U.S. companies
occupying leading market positions that are expected to be maintained
or enhanced over time (commonly known as "Blue Chip" companies). Blue
Chip companies tend to have a lengthy history of profit growth and
dividend payment, and a reputation for quality management structure,
products and services. Securities of Blue Chip companies are generally
considered to be highly liquid, since they are well supplied in the
marketplace relative to their smaller-capitalized counterparts and
because their trading volume tends to be higher.
The median market capitalization of companies targeted for investment
is expected to be at least $5 billion. The Fund does not expect to buy
the securities of any company whose market capitalization at the time
of investment is less than $1 billion.
Principal risks:
General market risk: As with any mutual fund, the value of the Fund's
investments and the income they generate will vary daily and generally
reflect market conditions, interest rates and other issuer-specific,
political or economic developments. The Fund's share value will
decrease at any time during which its security holdings or other
investment techniques are not performing as well as anticipated, and
you could therefore lose money by investing in the Fund depending upon
the timing of your initial purchase and any subsequent redemption.
Other risks: Since the Fund invests heavily in the equity securities of
U.S. corporations, it is more susceptible to the risks associated with
these types of securities than a fund that is more diversified.
Following is a description of these risks, along with the risks
commonly associated with the other securities and investment techniques
that the Fund's portfolio manager considers important in achieving the
Fund's investment objective or in managing the Fund's exposure to risk
(and that could therefore have a significant effect on the Fund's
returns). Other investment techniques that the Fund may use, but that
do not play a key role in the Fund's overall investment strategy, are
described in the Fund's Statement of Additional Information (see back
cover page for information on how you can receive a free copy).
Common Stocks: Common stocks represent a proportionate ownership
interest in a company. As a result, the value of common stock
rises and falls with a company's success or failure. The market
value of common stock can fluctuate significantly, and the Fund's
returns could therefore suffer at any time during which the equity
markets are in a downward performance cycle. Significant growth
opportunities in the Blue Chip company sector are also limited
relative to the more rapidly growing smaller company market. As a
result, investors in the Fund will not have access to the higher
potential returns that these smaller companies offer (although
investing in companies with less than $1 billion in capitalization
can involve other risks to which investors in the Fund are not
significantly exposed by virtue of the Fund's expected investment
threshold of $1 billion).
Temporary Defensive Positions: The Fund may from time to time
take a temporary defensive position and invest without limit in
U.S. Government securities, investment-grade debt securities, and
cash and cash equivalents such as commercial paper, short-term
notes and other money market securities. When the Fund assumes
such a defensive position it may not achieve its investment
objective. Investing in debt securities also involves both
interest rate and credit risk. Generally, the value of debt
instruments rises and falls inversely with fluctuations in
interest rates. For example, as interest rates decline the value
of debt securities generally increases. Conversely, rising
interest rates tend to cause the value of debt securities to
decrease. The market value of debt securities also tends to vary
according to the relative financial condition of the issuer. Bonds
with longer maturities tend to be more volatile than bonds with
shorter maturities.
Borrowing: For temporary purposes, the Fund may borrow up to 10%
of the value of its total assets from qualified banks. Borrowing
may exaggerate the effect on the Fund's share value of any
increase or decrease in the value of the securities it holds.
Money borrowed will also be subject to interest costs.
Other Important Information:
Year 2000 Risks: Many computer software and hardware systems in use
today cannot distinguish between the year 2000 and the year 1900
because of the way dates are encoded and calculated (the "Year 2000
Problem"). The inability of computer-based systems to make this
distinction could have a seriously adverse effect on the handling of
securities trades, pricing and account services worldwide. The Fund's
service providers are taking steps that each believes are reasonably
designed to address the Year 2000 Problem with respect to the computer
systems that they use. The Fund believes these steps will be sufficient
to avoid any material adverse impact on the Fund. At this time,
however, there can be no assurance that significant problems will not
occur (which either directly or indirectly may cause the Fund to lose
money).
MANAGEMENT
Investment Advisor:
Ivy Management, Inc. ("IMI"), located at Via Mizner Financial Plaza,
700 South Federal Highway, Boca Raton, Florida 33432, provides
investment advisory and business management services to the Fund. IMI
is an SEC-registered investment advisor with over $____ billion in
assets under management, and provides similar services to the other
eighteen series of the Trust. For its services, IMI receives from the
Fund an annual fee equal to .75% of the Fund's average net assets.
Portfolio Management:
Paul P. Baran, a Senior Vice President of IMI, has managed the Fund's
portfolio since its inception in 1998. Before joining IMI, Mr. Baran
was Senior Vice President/Chief Investment Officer of Central Fidelity
National Bank. He has 24 years of professional investment experience
and is a Chartered Financial Analyst. He has an MBA from Wayne State
University.
<PAGE>
SHAREHOLDER INFORMATION
PRICING OF FUND SHARES:
The Fund calculates its share price by dividing the value of the Fund's
net assets by the total number of its shares outstanding as of the
close of regular trading (usually 4:00 p.m. Eastern time) on the New
York Stock Exchange on each day the Exchange is open for trading
(normally any weekday that is not a national holiday).
Each portfolio security that is listed or traded on a recognized stock
exchange is valued at the security's last sale price on the exchange
on which it was purchased. If no sale is reported at that time, the
average between the last bid and asked prices is used. Securities and
other Fund assets for which market prices are not readily available
are priced at their "fair value" as determined by IMI in accordance
with procedures approved by the Fund's Board of Trustees. Fair value
pricing under these circumstances is designed to protect existing
shareholders from dilution of their share value caused by short-term
investors trading into and out of the Fund at at time when the Fund's
share price, calculated by ordinary pricing methods, is undervalued.
When such fair value pricing occurs, however, there may be some period
of time during which the Fund's share price and/or performance
information is not available.
The number of shares you receive when you place a purchase order, and
the payment you receive after submitting a redemption request, is based
on the Fund's net asset value next determined after your instructions
are received in proper form by Ivy Mackenzie Services Corp. (the Fund's
transfer agent) or by your registered securities dealer. Each purchase
and redemption order is subject to any applicable sales charge (see
"Distribution Arrangements" below).
HOW TO BUY SHARES:
Purchasing Fund shares involves "Choosing the Appropriate Class of
Shares" and "Submitting Your Purchase Order". Please read these
sections below carefully before investing.
Choosing the Appropriate Class of Shares - The essential features of
the Fund's different classes of shares are described below. If you do
not specify on your Account Application which class of shares you are
purchasing, it will be assumed that you are purchasing Class A shares.
The Fund has adopted separate distribution plans pursuant to Rule
12b-1 under the 1940 Act for its Class A, B and C shares that allow
the Fund to pay distribution and other fees for the sale and
distribution of its shares and for services provided to shareholders.
Because these fees are paid out of the Fund's assets on an on-going
basis, over time they will increase the cost of your investment and
may cost you more than paying other types of sales charges.
Class A Shares: Class A shares are sold at net asset value plus a
maximum sales charge of 5.75% (the "offering price"). The sales
charge may be reduced or eliminated if certain conditions are met
(see "Additional Purchase Information" below). Class A shares are
subject to a .25% Rule 12b-1 service fee.
Class B Shares: Class B shares are offered at net asset value,
without an initial sales charge, but subject to a contingent
deferred sales charge ("CDSC") that declines from 5% to zero on
certain redemptions within six years of purchase. Class B shares
are subject to a .75% Rule 12b-1 distribution fee and a .25% Rule
12b-1 service fee, and convert automatically into Class A shares
eight years after purchase.
Class C Shares: Class C shares are offered at net asset value,
without an initial sales charge, but subject to a CDSC of 1% for
redemptions within the first year of purchase. Class C shares are
subject to a .75% Rule 12b-1 distribution fee and a .25% Rule
12b-1 service fee.
Class I and Advisor Class Shares: Class I and Advisor Class
shares are offered to certain classes of investors at net asset
value, without any sales load or Rule 12b-1 fees.
The following table displays the various investment minimums, sales
charges and expenses that apply to each class.
<TABLE>
<S> <C> <C> <C> <C>
- -------------------- ------------------ ----------------- ------------------ -------------- --------------
Class A Class B Class C Class I Advisor Class
- -------------------- ------------------ ----------------- ------------------ -------------- --------------
- -------------------- ------------------ ----------------- ------------------ -------------- --------------
Minimum Initial
Investment* $1,000 $1,000 $1,000 $5,000,000 $10,000
- -------------------- ------------------ ----------------- ------------------ -------------- --------------
- -------------------- ------------------ ----------------- ------------------ -------------- --------------
Minimum Subsequent
Investment* $100 $100 $100 $ 10,000 $ 250
- -------------------- ------------------ ----------------- ------------------ -------------- --------------
- -------------------- ------------------ ----------------- ------------------ -------------- --------------
Initial Sales Maximum 5.75%, None None None None
Charge with options for
a reduced or
waiver of
initial sales
charge
- -------------------- ------------------ ----------------- ------------------ -------------- --------------
- -------------------- ------------------ ----------------- ------------------ -------------- --------------
CDSC None, except on Maximum 5.00% 1.00% for the None None
certain NAV declines over first year
purchases six years
- -------------------- ------------------ ----------------- ------------------ -------------- --------------
- -------------------- ------------------ ----------------- ------------------ -------------- --------------
Service and 0.25% Service fee 0.75% 0.75% None None
Distribution Fees Distribution Distribution fee
fee and 0.25% and 0.25%
Service fee Service fee
- -------------------- ------------------ ----------------- ------------------ -------------- --------------
</TABLE>
* Minimum initial and subsequent investments for retirement plans are
$25.
ADDITIONAL PURCHASE INFORMATION:
Class A Shares - Class A shares are sold at a public offering
price equal to their net asset value per share ("NAV") plus an
initial sales charge, as set forth below (which is reduced as the
amount invested increases):
<TABLE>
<S> <C> <C> <C>
- -------------------------------- ---------------------- ------------------ ----------------------
Sales Charge as a Sales Charge as Portion of Public
Percentage of Public a Percentage of Offering Price
Offering Price Net Amount Retained by Dealer
Amount Invested Invested
- -------------------------------- ---------------------- ------------------ ----------------------
- -------------------------------- ---------------------- ------------------ ----------------------
Less than $50,000 5.75% 6.10% 5.00%
- -------------------------------- ---------------------- ------------------ ----------------------
- -------------------------------- ---------------------- ------------------ ----------------------
$50,000 but less than $100,000 5.25% 5.54% 4.50%
- -------------------------------- ---------------------- ------------------ ----------------------
- -------------------------------- ---------------------- ------------------ ----------------------
$100,000 but less than $250,000 4.50% 4.71% 3.75%
- -------------------------------- ---------------------- ------------------ ----------------------
- -------------------------------- ---------------------- ------------------ ----------------------
$250, 000 but less than 3.00% 3.09% 2.50%
$500,000
- -------------------------------- ---------------------- ------------------ ----------------------
$500,000 or over* 0.00% 0.00% 0.00%
- -------------------------------- ---------------------- ------------------ ----------------------
</TABLE>
* A CDSC of 1.00% applies to Class A shares that are redeemed
within two years of the end of the month in which they were
purchased.
Class A shares that are acquired through reinvestment of dividends
or distributions are not subject to any sales charges.
HOW TO REDUCE YOUR INITIAL SALES CHARGE:
"Rights of Accumulation" permits you to pay the sales charge
that applies to the cost or value (whichever is higher) of all
Ivy Fund Class A shares you own.
A "Letter of Intent" permits you to pay the sales charge that
would apply to your cumulative purchase of Fund shares over a
13-month period (certain restrictions apply).
HOW TO ELIMINATE YOUR INITIAL SALES CHARGE:
You may purchase Class A shares at NAV (without an initial sales
charge or a CDSC) through any one of the following methods:
through certain investment advisors and financial planners
who charge a management, consulting or other fee for their
services;
under certain qualified retirement plans;
as an employee or director of Mackenzie Investment Management
Inc. or its affiliates;
as an employee of a selected dealer; or
through the Merrill Lynch Daily K Plan (the "Plan"), provided
the Plan has at least $3 million in assets or over 500 or more
eligible employees. Class B shares of the Fund are made
available to Plan participants at NAV without a CDSC if the
Plan has less than $3 million in assets or fewer than 500
eligible employees. For further information see "Group
Systematic Investment Program" in the SAI.
You may also purchase Class A shares at NAV if you are investing
at least $500,000 through a dealer or agent. Ivy Mackenzie
Distributors, Inc. ("IMDI"), the Fund's distributor, may pay the
dealer or agent (out of IMDI's own resources) for its distribution
assistance according to the following schedule:
------------------------------- -------------------------------
Purchase Amount Commission
------------------------------- -------------------------------
------------------------------- -------------------------------
First $3,000,000 1.00%
------------------------------- -------------------------------
------------------------------- -------------------------------
Next $2,000,000 0.50%
------------------------------- -------------------------------
------------------------------- -------------------------------
Over $5,000,000 0.25%
------------------------------- -------------------------------
Certain trust companies, bank trust departments, credit unions,
savings and loans and other similar organizations may also be
exempt from the initial sales charge on Class A shares.
Class B and Class C Shares - Class B and Class C shares are not
subject to an initial sales charge but are subject to a CDSC. If
you redeem your Class C shares within one year of purchase they
will be subject to a CDSC of 1%, and Class B shares redeemed
within six years of purchase will be subject to a CDSC at the
following rates:
--------------------- --------------------
CDSC as a
Percentage of
Year Since Purchase Dollar Amount
Subject to Charge
--------------------- --------------------
First 5%
--------------------- --------------------
--------------------- --------------------
Second 4%
--------------------- --------------------
--------------------- --------------------
Third 3%
--------------------- --------------------
--------------------- --------------------
Fourth 3%
--------------------- --------------------
--------------------- --------------------
Fifth 2%
--------------------- --------------------
--------------------- --------------------
Sixth 1%
--------------------- --------------------
--------------------- --------------------
Seventh and 0%
thereafter
--------------------- --------------------
The CDSC for both Class B and Class C shares will be assessed on
an amount equal to the lesser of the current market value or the
original purchase cost of the shares being redeemed. No charge
will be assessed on increases in account value above the original
purchase price or on reinvested dividends and distributions.
The CDSC for Class B shares is waived for:
Certain post-retirement withdrawals from an IRA or other
retirement plan if you are over 59 1/2 years old.
Redemptions by certain eligible 401(a) and 401(k) plans and
certain retirement plan rollovers.
Redemption resulting from a tax-free return of excess
contribution to an IRA.
Withdrawals resulting from shareholder death or disability
provided that the redemption is requested within one year of
death or disability.
Withdrawals through the Systematic Withdrawal Plan of up to
12% per year of your account value at the time the plan is
established.
Both Class B shares and Class C shares are subject to an ongoing
service and distribution fee at a combined annual rate of up to
1.00% of the portfolio's average net assets attributable to its
Class B or Class C shares. The ongoing distribution fees will
cause these shares to have a higher expense ratio than that of
Class A, Class I and Advisor Class shares. IMDI uses the money
that it receives from the deferred sales charge and the
distribution fees to cover various promotional and sales related
expenses, as well as expenses related to providing distributions
services, such as compensating selected dealers and agents for
selling these shares.
Approximately eight years after the original date of purchase,
your Class B shares will be converted automatically to Class A
shares. Class A shares are subject to lower annual expenses than
Class B shares. The conversion from Class B shares to Class A
shares is not considered a taxable event for federal income tax
purposes. Class C shares do not have a similar conversion
privilege.
Class I and Advisor Class - Class I and Advisor Class shares are
offered only to institutions and certain individuals, and are not
subject to an initial sales charge or a CDSC, nor to ongoing
service or distribution fees. Class I shares also bear lower fees
than Class A, Class B, Class C and Advisor Class shares.
SUBMITTING YOUR PURCHASE ORDER:
INITIAL INVESTMENTS:
Complete and sign the Account Application appearing at the end of this
Prospectus. Enclose a check payable to Ivy Fund (see page [XX] for
minimum initial investments.) Deliver your application materials to
your registered representative or selling broker, or send them to one
of the addresses below:
By Regular Mail: By Courier:
Ivy Mackenzie Services Corp. Ivy Mackenzie Services Corp.
P.O. Box 3022 700 South Federal Hwy.
Boca Raton, FL 33431-0922 Boca Raton, FL 33432
BUYING ADDITIONAL SHARES:
There are several ways to increase your investment in the Fund:
By Mail - Send your check with a completed investment slip
(attached to your account statement) or written instructions
indicating the account registration, fund number or name, and
account number.
Mail to one of the addresses above.
Through Your Broker - Deliver to your registered representative
or selling broker the investment slip attached to your statement,
or written instructions, along with your payment.
By Wire - Purchases may also be made by wiring money from your
bank account to your Ivy account. Your bank may charge a fee for
wiring funds. Before wiring any funds, please call IMSC at (800)
777-6472. Wiring instructions are as follows:
First Union National Bank of Florida
Jacksonville, FL
ABA #063000021
Account #2090002063833
For further credit to:
Your Ivy Fund Account Number
Your Fund Number and Account Number
By Automatic Investment Method - You can authorize to have funds
electronically drawn each month from your bank account and
invested as a purchase of shares into your Ivy Fund account.
Complete sections [XX] and [XX] of the Account Application.
HOW TO REDEEM SHARES:
SUBMITTING YOUR REDEMPTION ORDER:
You may redeem your Fund shares through your registered securities
dealer or directly through IMSC. If you choose to redeem through your
registered securities dealer, the dealer is responsible for properly
transmitting redemption orders in a timely manner. If you choose to
redeem directly through IMSC, you have several ways to submit your
request:
By Mail - Send your written redemption request to IMSC at one of
the addresses on page XX of this Prospectus. Be sure that all
registered owners listed on the account sign the request.
Signature guarantees and supporting legal documentation may be
required. When you redeem, IMSC will normally send redemption
proceeds to you on the next business day, but may take up to seven
days (or longer in the case of shares recently purchased by
check).
By Telephone - Call IMSC at (800) 777-6472 to redeem from your
account. In order to process your redemption order by telephone,
you must have telephone redemption privileges on your account.
IMSC employs reasonable procedures that require personal
identification prior to acting on redemption instructions
communicated by telephone to confirm that such instructions are
genuine. In the absence of such procedures, the Fund or IMSC may
be liable for any losses due to unauthorized or fraudulent
telephone instructions.
By Systematic Withdrawal Plan (SWP) - You can authorize to have
funds electronically drawn each month from your Ivy Fund account
and deposited directly into your bank account. Certain minimum
balances and minimum distributions apply. Complete sections XX of
the Account Application to add this feature to your account.
Receiving Your Redemption Proceeds - You can receive redemption
proceeds through a variety of payment methods:
By Check - Unless otherwise instructed, checks will be made
payable to the current account registration and sent to the
address of record.
By Federal Funds Wire - Proceeds will be wired on the next
business day to a pre-designated bank account. Requests by
telephone can only be accepted for amounts up to $50,000. Your
account will be charged $10 each time redemption proceeds are
wired to your bank, and your bank may also charge you a fee for
receiving a Federal Funds wire.
By Electronic Funds Transfer - For SWP redemptions only.
Important Redemption Information:
A CDSC may apply to certain Class A share redemptions, to Class B
shares redeemed within 6 years of purchase, and to Class C shares
that are redeemed within one year of purchase.
All redemptions are made at the NAV next determined after a
redemption request has been received in good order. Requests for
redemptions must be received by 4:00 p.m. Eastern time to be
processed at the NAV for that day. Any redemption request in good
order that is received after 4:00 p.m. Eastern time will be
processed at the price determined on the following business day.
If you own shares of more than one class of the Fund, the Fund
will redeem first the shares having the highest 12b-1 fees.
Any shares subject to a CDSC will be redeemed last unless you
specifically elect otherwise.
The Fund may (on 60 days' notice) redeem the accounts of
shareholders whose investment, including sales charges paid, has
been less than $1,000 for more than 12 months.
The Fund may take up to seven days (or longer in the case of
shares recently purchased by check) to send redemption proceeds.
The Fund may make payment for redeemed shares in the form of
securities of the Fund taken at current values.
HOW TO EXCHANGE YOUR FUND SHARES:
You may exchange your Fund shares for shares of another Ivy fund,
subject to certain restrictions (see "Important Exchange Information"
below).
Submitting Your Exchange Order - You may submit an exchange request to
IMSC as follows:
By Mail - Send your written exchange request to IMSC at one of
the addresses on page XX of this Prospectus. Be sure that all
registered owners listed on the account sign the request.
By Telephone - Call IMSC at (800) 777-6472 to authorize an
exchange transaction. In order to process your exchange order by
telephone, you must have telephone exchange privileges on your
account. IMSC employs reasonable procedures that require personal
identification prior to acting on exchange instructions
communicated by telephone to confirm that such instructions are
genuine. In the absence of such procedures, the Fund or IMSC may
be liable for any losses due to unauthorized or fraudulent
telephone instructions.
IMPORTANT EXCHANGE INFORMATION:
You must exchange into the same share class you currently own.
Exchanges are considered taxable events and may result in a
capital gain or a capital loss for tax purposes.
It is the policy of the Fund to discourage the use of the
exchange privilege for the purpose of timing short-term market
fluctuations. The Fund may therefore limit the frequency of
exchanges by a shareholder or cancel a shareholder's exchange
privilege if at any time it appears that such market timing
strategies are being used.
DIVIDENDS AND DISTRIBUTIONS:
The Fund generally declares and pays dividends and capital gain
distributions (if any) at least once a year.
Dividends and distributions are "reinvested" in additional Fund
shares unless you request to receive them in cash.
Reinvested dividends and distributions are added to your account
at NAV and are not subject to a CDSC regardless of which share
class you own.
Cash dividends and distributions can be sent to you:
BY MAIL - a check will mailed to the address of record unless
otherwise instructed.
BY ELECTRONIC FUNDS TRANSFER ("EFT") - your proceeds will be
directly deposited into your bank account.
To change your dividend and/or distribution options, call IMSC at
(800) 777-6472.
TAX CONSEQUENCES:
Distributions you receive from the Fund are reinvested in additional
shares of the same class of the Fund unless you elect to receive them
in cash. Dividends ordinarily will vary from one class to another.
The Fund intends to declare and pay dividends monthly. The Fund will
distribute net investment income and net realized capital gains, if
any, at least once a year. The Fund may make an additional distribution
of net investment income and net realized capital gains to comply with
the calendar year distribution requirement under the excise tax
provisions of Section 4982 of the Internal Revenue Code of 1986, as
amended (the "Code").
Dividends paid out of the Fund's investment company taxable income
(including dividends, interest and net short-term capital gains) will
be taxable to you as ordinary income. If a portion of the Fund's income
consists of dividends paid by U.S. corporations, a portion of the
dividends paid by the Fund may be eligible for the corporate
dividends-received deduction. Distributions of net capital gains (the
excess of net long-term capital gains over net short-term capital
losses), if any, are taxable to you as long-term capital gains,
regardless of how long you have held your shares. Dividends are taxable
to you in the same manner whether received in cash or reinvested in
additional Fund shares.
If shares of the Fund are held in a tax-deferred account, such as a
retirement plan, income and gain will not be taxable each year.
Instead, the taxable portion of amounts held in a tax-deferred account
generally will be subject to tax as ordinary income only when
distributed from that account.
A distribution will be treated as paid to you on December 31 of the
current calendar year if it is declared by the Fund in October,
November or December with a record date in such a month and paid by the
Fund during January of the following calendar year.
Upon the sale or other disposition of your Fund shares, you may realize
a capital gain or loss which will be long-term or short-term, generally
depending upon how long you held your shares.
The Fund may be required to withhold U.S. Federal income tax at the
rate of 31% of all distributions payable to you if you fail to provide
the Fund with your correct taxpayer identification number or to make
required certifications, or if you have been notified by the Internal
Revenue Service ("IRS") that you are subject to backup withholding.
Backup withholding is not an additional tax. Any amounts withheld may
be credited against your U.S. Federal income tax liability.
Fund distributions may be subject to state and local taxes.
You should consult with your tax adviser as to the tax consequences of
an investment in the Fund, including the status of distributions from
the Fund under applicable state or local law.
<PAGE>
IVY US BLUE CHIP FUND
CLASS A CLASS B CLASS C
1998 1998 1998
SELECTED PER SHARE DATA(A) ------- ------- -------
Net asset value, beginning of period.........
Loss from investment operations
Net investment income (loss)(c).............
Net realized and unrealized loss on
investment transactions...................
Total from investment operations......
Net asset value, end of period...............
Total return(%)..............................
RATIOS AND SUPPLEMENTAL DATA
Net assets, end of period (in thousands).....
Ratio of expenses to average net assets(%)
With expense reimbursement(%)...............
Without expense reimbursement(%)............
Ratio of net investment income (loss) to
average net assets(%)(c)....................
Portfolio turnover rate(%)...................
Average commission rate......................
ADVISOR
CLASS I CLASS
------- -------
1998 1998
SELECTED PER SHARE DATA(A) ------- -------
Net asset value, beginning of period.........
Loss from investment operations
Net investment income (loss)(c).............
Net realized and unrealized loss on
investment transactions...................
Total from investment operations......
Net asset value, end of period...............
Total return(%)..............................
RATIOS AND SUPPLEMENTAL DATA
Net assets, end of period (in thousands).....
Ratio of expenses to average net assets(%)
With expense reimbursement(%)...............
Without expense reimbursement(%)............
Ratio of net investment income (loss) to
average net assets(%)(c)....................
Portfolio turnover rate(%)...................
Average commission rate......................
(a) Based on average shares outstanding
For the period _________________ (commencement of operations) to
(b) December 31, 1998.
Net investment income (loss) is net of expenses reimbursed
(c) by manager.
ACCOUNT APPLICATION
Please mail applications and checks to: Ivy Mackenzie Services Corp.,
P.O. Box 3022, Boca Raton, FL -0922.
(This application should not be used for retirement accounts for which
Ivy Fund is custodian.)
Account Number:
(Fund Use Only)
Dealer #:
Branch #:
Rep. I.D. #:
Acct. Type:
Soc Cd:
Div Cd:
CG Cd:
Exc Cd:
Red Cd:
1. REGISTRATION
/ / Individual / / Joint Tenant / / Estate / / UGMA/UTMA / /
Corporation / / Partnership / / Sole Proprietor / / Trust / / Other
Date of Trust
Owner, Custodian or Trustee
Co-owner or Minor
Minor's State of Residence
Street
City
State
Zip Code
Phone Number -- Day
Phone Number -- Evening
2. TAX ID
Citizenship: / / U.S. / / Other ________________
Social Security Number
Tax Identification Number
Under penalties of perjury, I certify by signing in Section 8 below
that: (1) the number shown in this section is my correct taxpayer
identification number (TIN), and (2) I am not subject to backup
withholding because: (a) I have not been notified by the Internal
Revenue Service (IRS) that I am subject to backup withholding as a
result of a failure to report all interest or dividends, or (b) the IRS
has notified me that I am no longer subject to backup withholding.
(Cross out item (2) if you have been notified by the IRS that you are
currently subject to backup withholding because of underreporting
interest or dividends on your tax return.) Please see the "Tax
Consequences" section of the Prospectus for additional information on
completing this section.
3. DEALER INFORMATION
The undersigned ("Dealer") agrees to all applicable provisions in this
Application, guarantees the signature and legal capacity of the
Shareholder, and agrees to notify IMSC of any purchases made under a
Letter of Intent or Rights of Accumulation.
Dealer Name
Branch Office Address
City
State
Zip Code
Representative's Name and Number
Representative's Phone Number
Authorized Signature of Dealer
4. INVESTMENTS
A. Enclosed is my check ($1,000 minimum) for $_____________ made
payable to _________________ [Fund Name]. Please invest it in
Class A __ Class B __ Class C __ Class I __or Advisor Class __
shares.
B. I qualify for an elimination of the sales charge due to the
following privilege (applies only to Class A shares):
__ New Letter of Intent (if ROA or 90-day backdate
privilege is applicable, provide account(s)
information below.)
__ ROA with the account(s) listed below.
__ Existing Letter of Intent with account(s) listed
below.
Fund Name(s)
Account Number(s)
If establishing a Letter of Intent, you will need to purchase
Class A shares over a thirteen-month period in accordance with
the provisions in the Prospectus. The Aggregate amount of
these purchases will be at least equal to the amount indicated
below (see Prospectus for minimum amount required for reduced
sales charges).
/ / $50,000
/ / $100,000
/ / $250,000
/ / $500,000
C. FOR DEALER USE
Confirmed trade orders: [Confirm Number, Number of Shares,
Trade Date]
5. DISTRIBUTION OPTIONS
I would like to reinvest dividends and capital gains into additional
shares in this account at net asset value unless a different option is
checked below.
/ / Reinvest all dividends and capital gains into additional
shares of a different Ivy fund.
Fund Name
Account Number
/ / Pay all dividends in cash and reinvest capital gains into
additional shares in this Fund or a different Ivy fund.
Fund Name
Account Number
/ / Pay all dividends and capital gains in cash.
I REQUEST THE ABOVE CASH DISTRIBUTION, SELECTED IN C OR D
ABOVE, BE:
/ / Sent to the address listed in the registration.
/ / Sent to the special payee listed in Section 7A
/ / (By Mail) 7B
/ / (By E.F.T.)
6. OPTIONAL SPECIAL FEATURES
A. / / Automatic Investment Method (AIM)
- - I wish to invest _________________ / / once per month / /
twice / / 3 times / / 4 times
- - My bank account will be debited on the _________ day of the month
Please invest $___________________ each period starting in the month
of __________________ in
---------------------------.
Fund Name
/ / Class A
/ / Class B
/ / Class C
/ / Class I
/ / Advisor Class
/ / I have attached a voided check to ensure my correct bank
account will be debited.
B. SYSTEMATIC WITHDRAWAL PLANS**
I wish to automatically withdraw funds from my account in
____________________ Fund Name
/ / Monthly / / Quarterly / /Semiannually / / Annually
/ / Once / / Twice / / 3 times / / 4 times per month
I request the distribution be:
/ / Sent to the address listed in the registration.
/ / Sent to the special payee listed in Section 7.
/ / Invested into additional shares of the same class of a different Ivy
fund.
Fund Name
Account Number
Amount $__________________(Minimum $50) starting on or about the
- -_______ day of the month
- -_______ day of the month
- -_______ day of the month*
NOTE: Account minimum: $5,000 in shares at current offering price
C. FEDERAL FUNDS TRANSFER FOR REDEMPTION PROCEEDS**
I authorize the Agent to honor telephone instructions for the
redemption of Fund shares up to $50,000. Proceeds may be wire
transferred to the bank account designated ($1,000 minimum).
(Complete Section 7B)
TELEPHONE EXCHANGES** / / YES / / NO
I authorize exchanges by telephone among the Ivy funds upon
instructions from any person as more fully described in the
Prospectus. To change this option once established, written
instructions must be received from the shareholder of record
or the current registered representative.
If neither box is checked, the telephone exchange privilege
will be provided automatically.
TELEPHONIC REDEMPTIONS** / / YES / / NO
The Fund or its agents are authorized to honor telephone
instructions from any person as more fully described in the
Prospectus for the redemption of Fund shares. The amount of
the redemption shall not exceed $50,000 and the proceeds are
to be payable to the shareholder of record and mailed to the
address of record. To change this option once established,
written instructions must be received from the shareholder of
record or the current registered representative.
If neither box is checked, the telephone redemption privilege
will be provided automatically.
* There must be a period of at least seven calendar
days between each investment/withdrawal period.
** This option may not be used if shares are issued in
certificate form.
7. SPECIAL PAYEE
A. MAILING ADDRESS
Please send all disbursements to this special payee:
Name of Bank or Individual
Account Number (If Applicable)
Street
City/State/Zip
B. FED WIRE / E.F.T. INFORMATION
Financial Institution
ABA #
Account #
Street
City/State/Zip
(Please attach a voided check)
8. SIGNATURES
Investors should be aware that the failure to check the "No" under
Section 6D or 6E above means that the Telephone Exchange/Redemption
Privileges will be provided. The Fund employs reasonable procedures
that require personal identification prior to acting on
exchange/redemption instructions communicated by telephone to confirm
that such instructions are genuine. In the absence of such procedures,
the Fund may be liable for any losses due to unauthorized or fraudulent
telephone instructions. Please see "How to Exchange Your Fund Shares"
and "How to Redeem Your Fund Shares" in the Prospectus for more
information on these privileges.
I certify to my legal capacity to purchase or redeem shares of the Fund
for my own account or for the account of the organization named in
Section 1. I have received a current Prospectus and understand its
terms are incorporated in this application by reference. I am
certifying my taxpayer information as stated in Section 2.
THE INTERNAL REVENUE SERVICE DOES NOT REQUIRE YOUR CONSENT TO ANY
PROVISION OF THIS DOCUMENT OTHER THAN THE CERTIFICATIONS REQUIRED TO
AVOID BACKUP WITHHOLDING.
------------------------------
Signature of Owner, Custodian, Date
Trustee or Corporate Officer
------------------------------
Signature of Joint Owner, Date
Co-Trustee or Corporate Officer
(Remember to sign Section 8)
<PAGE>
[Back Cover Page]
HOW TO RECEIVE MORE INFORMATION ABOUT THE FUND
Additional information about the Fund and its investments is contained in the
Fund's Statement of Additional Information dated April ___, 1999 (the "SAI"),
which is incorporated by reference into this Prospectus, and the Fund's annual
and semi-annual reports to shareholders. The Fund's annual report includes a
discussion of the market conditions and investment strategies that significantly
affected the Fund's performance during its most recent fiscal year. The SAI and
the Fund's annual and semi-annual reports are available upon request and without
charge from the Distributor at the following address and phone number:
Ivy Mackenzie Distributors, Inc.
Via Mizner Financial Plaza
700 South Federal Highway
Boca Raton, Florida 33432
(800) 456-5111
Information about the Fund (including the SAI and the Fund's annual and
semi-annual reports) may also be reviewed and copied at the SEC's Public
Reference Room in Washington, D.C. (please call 1-800-SEC-0330 for further
details). Information about the Fund is also available on the SEC's Internet
Website (www.sec.gov), and copies of this information may be obtained, upon
payment of a copying fee, by writing the Public Reference Section of the SEC,
Washington, D.C. 20549-6009.
SHAREHOLDER INQUIRIES
Please call Ivy Mackenzie Services Corp., the Fund's transfer agent, at
1-800-777-6472 regarding any other inquiries about the Fund.
Investment Company Act File No. 811-1028
<PAGE>
[Front Cover Page]
PROSPECTUS April ___, 1999
IVY FUND - Ivy US Emerging Growth Fund
Ivy Fund (the "Trust") is a registered open-end investment company currently
consisting of nineteen separate portfolios. This Prospectus relates to the Class
A, Class B, Class C and Advisor Class shares of Ivy US Emerging Growth Fund (the
"Fund"). No other shares are offered in this Prospectus.
The Securities and Exchange Commission has not approved or disapproved these
securities or passed upon the adequacy of this Prospectus. Any representation to
the contrary is a criminal offense.
[Insert all logos]
<PAGE>
TABLE OF CONTENTS
SUMMARY
ADDITIONAL INFORMATION ABOUT INVESTMENT STRATEGIES AND RISKS
MANAGEMENT
<PAGE>
SUMMARY
Investment The Fund seeks long-term growth primarily through investment
objective: in equity securities, with current income being a secondary
consideration.
Principal The Fund invests primarily in the equity securities of small
investment and medium sized U.S. companies that are in the early stages
strategies: of their life cycles and that the Fund's manager believes
have the potential to become major enterprises. The Fund
might also purchase put and call options on securities and
stock indices as a means of controlling its exposure to
potential losses associated with certain of its equity
investments.
Principal Management risk: The Fund's manager might not select
Risks: securities that perform as well as the securities held by
other mutual funds with investment objectives that are
similar to those of the Fund.
Market risk: Common stocks represent a proportionate
ownership interest in a company. The market value of common
stock can fluctuate significantly even where "management
risk" is not a factor, so you could lose money if you redeem
your Fund shares at a time when the Fund's stock portfolio
is not performing as well as expected. The market value of
common stock can fluctuate significantly, so you could lose
money if you redeem your Fund shares at a time when the
Fund's stock portfolio is not performing as well as
expected.
Small company risk: Securities of smaller companies may be
subject to more abrupt or erratic market movements than the
securities of larger more established companies, since they
tend to be thinly traded and because the companies are
subject to greater business risk. Transaction costs in
smaller company stocks may also be higher than those of
larger companies.
Options risk: The Fund may, but is not required to, use put
and call options to hedge various market risks (such as
equity market movements). The use of these derivative
investment techniques involves a number of risks, including
the possibility of default by the counterparty to the
transaction and, to the extent the judgment of the Fund's
manager as to certain market movements is incorrect, the
risk of losses that are greater than if the derivative
technique(s) had not been used.
Who should risks:* The Fund may be appropriate for investors seeking long-term
growth potential, but who can accept fluctuations in capital value in the
short-term.
* You should consult with your financial advisor before deciding whether
the Fund is an appropriate investment choice in light of your
particular financial needs and risk tolerance.
<PAGE>
Performance Bar Chart and Table:
The information in the following chart and table provides some
indication of the risks of investing in the Fund by showing changes in
the Fund's performance from year to year and how the Fund's average
annual returns since its inception on March 3, 1993 compare with those
of a broad measure of market performance. The Fund's past performance
is not an indication of how the Fund will perform in the future.
Annual Total Returns for Class A Shares as of December 31, 1998: *
--------------------------------------
1993# 1994 1995 1996 1997 1998
* Any applicable sales charges and account fees are not
reflected, and if they were the returns shown above would be
lower. The returns for the Fund's other three classes of
shares during these periods were different from those of Class
A because of variations in their respective expense
structures.
# From March 3, 1993 (commencement) to December 31, 1993.
Best quarter: ______% (Q__ 199__)
Worst quarter: ______% (Q__ 199__)
Average Annual Total Returns (for the periods ending December 31, 1998):*
Past year: Past 5 years: Since inception:**
Class A: ______% ______% ______%
Class B: ______% ______% ______%
Class C: ______% N/A ______%
Advisor Class: ______% N/A ______%
[Index]: ______% N/A ______%
* Performance figures reflect any applicable sales charges.
** The inception dates for the Fund's four classes of shares were
as follows: Class A, March 3, 1993; Class B, October 23, 1993;
Class C, April 30, 1996; and Advisor Class, January 1, 1998.
<PAGE>
Fees and Expenses:
The following tables describe the fees and expenses that you may pay if
you buy and hold shares of the Fund:
Shareholder Fees (fees paid directly from your investment):
Maximum Sales Charge (Load) Imposed on Maximum Deferred Sales
Purchases (as a percentage of Charge (Load) (as a
offering price): percentage of original
purchase price):
Class A: 5.75% none
Class B: none 5.00%
Class C: none 1.00%
Advisor none none
Class:
Annual Fund Operating Expenses (expenses that are deducted from Fund
assets):
Total Annual
Management Distribution and/or Other Fund Operating
Fees: Service (12b-1) Fees: Expenses: Expenses:
Class A: 0.85% .25% $_______ $_______
Class B: 0.85% 1.00% $_______ $_______
Class C: 0.85% 1.00% $_______ $_______
Advisor 0.85% none $_______ $_______
Class:
Example:
The following example is intended to help you compare the cost of
investing in the Fund with the cost of investing in other mutual funds.
The example assumes that you invest $10,000 in the Fund for the time
periods indicated and then redeem all of your shares at the end of
those periods (with additional information shown for Class B and Class
C shares based on the assumption that you do not redeem your shares at
that time). The example also assumes that your investment has a 5%
return each year and that the Fund's operating expenses remain the
same. Although your actual costs may be higher or lower, based on these
assumptions your costs would be as follows:
1 Year: 3 Years: 5 Years: 10 Years:
------ ------- ------- --------
Class A: $______ $______ $______ $______
Class B: $______ $______ $______ $______
Class B (no redemption): $______ $______ $______ $______
Class C: $______ $______ $______ $______
Class C (no redemption): $______ $______ $______ $______
Advisor Class: $______ $______ $______ $______
<PAGE>
ADDITIONAL INFORMATION ABOUT INVESTMENT STRATEGIES AND RISKS
Principal strategies:
The Fund seeks to achieve its principal objective of long-term capital
growth by investing primarily in the equity securities of domestic
corporations that are small and medium sized. Companies targeted for
investment typically are in the early stages of their life cycles and
are believed by the Fund's manager to have the potential to become
major enterprises.
Principal risks:
General market risk: As with any mutual fund, the value of the Fund's
investments and the income they generate will vary daily and generally
reflect market conditions, interest rates and other issuer-specific,
political or economic developments. The Fund's share value will
decrease at any time during which its security holdings or other
investment techniques are not performing as well as anticipated, and
you could therefore lose money by investing in the Fund depending upon
the timing of your initial purchase and any subsequent redemption.
Other risks: Since the Fund invests heavily in equity securities, it is
more susceptible to the risks associated with these types of securities
than a fund that is more diversified. Following is a description of
these risks, along with the risks commonly associated with the other
securities and investment techniques that the Fund's portfolio manager
considers important in achieving the Fund's investment objective or in
managing the Fund's exposure to risk (and that could therefore have a
significant effect on the Fund's returns). Other investment techniques
that the Fund may use, but that do not play a key role in the Fund's
overall investment strategy, are described in the Fund's Statement of
Additional Information (see back cover page for information on how you
can receive a free copy).
Common Stocks: Common stocks represent a proportionate ownership
interest in a company. As a result, the value of common stock
rises and falls with a company's success or failure. The market
value of common stock can fluctuate significantly. Securities of
smaller companies may be subject to more abrupt or erratic market
movements than the securities of larger more established
companies, since small company stocks tend to be thinly traded and
the companies are subject to greater business risk. Transaction
costs in smaller company stocks may also be higher than those of
larger companies.
Options contracts: The Fund may, but is not required to, engage
in the purchase and sale of exchange-listed and over-the-counter
put and call options on securities, stock indices and other
financial instruments. Although the use of options transactions
for hedging purposes should tend to minimize the risk of any loss
to the Fund caused by a decline in the value of the hedged
position, these transactions also tend to limit any potential gain
that might result from an increase in the position's value. Using
put options could also cause the Fund to lose money by forcing the
sale or purchase of portfolio securities at inopportune times or
for prices higher (in the case of put options) or lower than (in
the case of call options) than current market values, by limiting
the amount of appreciation the Fund can realize on its investment,
or by causing the Fund to hold a security it might otherwise sell.
Temporary Defensive Positions: The Fund may from time to time
take a temporary defensive position and invest without limit in
U.S. Government securities, investment-grade debt securities, and
cash and cash equivalents such as commercial paper, short-term
notes and other money market securities. When the Fund assumes
such a defensive position it may not achieve its investment
objective. Investing in debt securities also involves both
interest rate and credit risk. Generally, the value of debt
instruments rises and falls inversely with fluctuations in
interest rates. For example, as interest rates decline the value
of debt securities generally increases. Conversely, rising
interest rates tend to cause the value of debt securities to
decrease. The market value of debt securities also tends to vary
according to the relative financial condition of the issuer. Bonds
with longer maturities tend to be more volatile than bonds with
shorter maturities.
Borrowing: For temporary purposes, the Fund may borrow up to 10%
of the value of its total assets from qualified banks. Borrowing
may exaggerate the effect on the Fund's share value of any
increase or decrease in the value of the securities it holds.
Money borrowed will also be subject to interest costs.
Other Important Information:
Year 2000 Risks: Many computer software and hardware systems in use
today cannot distinguish between the year 2000 and the year 1900
because of the way dates are encoded and calculated (the "Year 2000
Problem"). The inability of computer-based systems to make this
distinction could have a seriously adverse effect on the handling of
securities trades, pricing and account services worldwide. The Fund's
service providers are taking steps that each believes are reasonably
designed to address the Year 2000 Problem with respect to the computer
systems that they use. The Fund believes these steps will be sufficient
to avoid any material adverse impact on the Fund. At this time,
however, there can be no assurance that significant problems will not
occur (which either directly or indirectly may cause the Fund to lose
money).
MANAGEMENT
Investment Advisor:
Ivy Management, Inc. ("IMI"), located at Via Mizner Financial Plaza,
700 South Federal Highway, Boca Raton, Florida 33432, provides
investment advisory and business management services to the Fund. IMI
is an SEC-registered investment advisor with over $____ billion in
assets under management, and provides similar services to the other
eighteen series of the Trust. For the Fund's fiscal year ending
December 31, 1998, the Fund paid to IMI a fee equal to ___% of the
Fund's average net assets.
Portfolio Management:
James W. Broadfoot, President and Chief Investment Officer of IMI and
a Vice President of Ivy Fund, has managed the Fund since its inception
in 1993. Before joining IMI in 1990, Mr. Broadfoot was the principal
in an investment counsel firm specializing in emerging growth
companies. He has 25 years of professional investment experience and
is a Chartered Financial Analyst.
<PAGE>
SHAREHOLDER INFORMATION
PRICING OF FUND SHARES:
The Fund calculates its share price by dividing the value of the Fund's
net assets by the total number of its shares outstanding as of the
close of regular trading (usually 4:00 p.m. Eastern time) on the New
York Stock Exchange on each day the Exchange is open for trading
(normally any weekday that is not a national holiday).
Each portfolio security that is listed or traded on a recognized stock
exchange is valued at the security's last sale price on the exchange
on which it was purchased. If no sale is reported at that time, the
average between the last bid and asked prices is used. Securities and
other Fund assets for which market prices are not readily available
are priced at their "fair value" as determined by IMI in accordance
with procedures approved by the Fund's Board of Trustees. IMI may also
price a foreign security at its "fair value" if events materially
affecting the value of the security occur between the close of the
foreign exchange on which the security is principally traded and the
time as of which the Fund prices its shares. Fair value pricing under
these circumstances is designed to protect existing shareholders from
dilution of their share value caused by short-term investors trading
into and out of the Fund at at time when the Fund's share price,
calculated by ordinary pricing methods, is undervalued. When such fair
value pricing occurs, however, there may be some period of time during
which the Fund's share price and/or performance information is not
available.
The number of shares you receive when you place a purchase order, and
the payment you receive after submitting a redemption request, is based
on the Fund's net asset value next determined after your instructions
are received in proper form by Ivy Mackenzie Services Corp. (the Fund's
transfer agent) or by your registered securities dealer. Each purchase
and redemption order is subject to any applicable sales charge (see
"Distribution Arrangements" below). Since the Fund may invest in
securities that are listed on foreign exchanges that may trade on
weekends or other days when the Fund does not price its shares, the
Fund's share value may change on days when shareholders will not be
able to purchase or redeem the Fund's shares.
HOW TO BUY SHARES:
Purchasing Fund shares involves "Choosing the Appropriate Class of
Shares" and "Submitting Your Purchase Order". Please read these
sections below carefully before investing.
Choosing the Appropriate Class of Shares - The essential features of
the Fund's different classes of shares are described below. If you do
not specify on your Account Application which class of shares you are
purchasing, it will be assumed that you are purchasing Class A shares.
The Fund has adopted separate distribution plans pursuant to Rule
12b-1 under the 1940 Act for its Class A, B and C shares that allow
the Fund to pay distribution and other fees for the sale and
distribution of its shares and for services provided to shareholders.
Because these fees are paid out of the Fund's assets on an on-going
basis, over time they will increase the cost of your investment and
may cost you more than paying other types of sales charges.
Class A Shares: Class A shares are sold at net asset value plus a
maximum sales charge of 5.75% (the "offering price"). The sales
charge may be reduced or eliminated if certain conditions are met
(see "Additional Purchase Information" below). Class A shares are
subject to a .25% Rule 12b-1 service fee.
Class B Shares: Class B shares are offered at net asset value,
without an initial sales charge, but subject to a contingent
deferred sales charge ("CDSC") that declines from 5% to zero on
certain redemptions within six years of purchase. Class B shares
are subject to a .75% Rule 12b-1 distribution fee and a .25% Rule
12b-1 service fee, and convert automatically into Class A shares
eight years after purchase.
Class C Shares: Class C shares are offered at net asset value,
without an initial sales charge, but subject to a CDSC of 1% for
redemptions within the first year of purchase. Class C shares are
subject to a .75% Rule 12b-1 distribution fee and a .25% Rule
12b-1 service fee.
Advisor Class Shares: Advisor Class shares are offered to certain
classes of investors at net asset value, without any sales load or
Rule 12b-1 fees.
The following table displays the various investment minimums, sales
charges and expenses that apply to each class.
<TABLE>
<S> <C> <C> <C> <C>
- -------------------- --------------------- --------------------- --------------------- -------------------
Class A Class B Class C Advisor Class
- -------------------- --------------------- --------------------- --------------------- -------------------
- -------------------- --------------------- --------------------- --------------------- -------------------
Minimum Initial
Investment* $1,000 $1,000 $1,000 $10,000
- -------------------- --------------------- --------------------- --------------------- -------------------
- -------------------- --------------------- --------------------- --------------------- -------------------
Minimum Subsequent
Investment* $100 $100 $100 $ 250
- -------------------- --------------------- --------------------- --------------------- -------------------
- -------------------- --------------------- --------------------- --------------------- -------------------
Initial Sales Maximum 5.75%, with None None None
Charge options for a
reduced or waiver
of initial sales
charge
- -------------------- --------------------- --------------------- --------------------- -------------------
- -------------------- --------------------- --------------------- --------------------- -------------------
CDSC None, except on Maximum 5.00%, but 1.00% for the first None
certain NAV declining over six year
purchases years
- -------------------- --------------------- --------------------- --------------------- -------------------
- -------------------- --------------------- --------------------- --------------------- -------------------
Service and 0.25% Service fee 0.75% Distribution 0.75% Distribution None
Distribution Fees fee and 0.25% fee and 0.25%
Service fee Service fee
- -------------------- --------------------- --------------------- --------------------- -------------------
</TABLE>
* Minimum initial and subsequent investments for retirement plans are
$25.
ADDITIONAL PURCHASE INFORMATION:
Class A Shares - Class A shares are sold at a public offering
price equal to their net asset value per share ("NAV") plus an
initial sales charge, as set forth below (which is reduced as the
amount invested increases):
- --------------------- ----------------- ------------------ --------------------
Sales Charge Sales Charge as Portion of Public
as a Percentage a Percentage of Offering Price
of Public Net Amount Retained by Dealer
Amount Invested Offering Price Invested
- --------------------- ------------------ ------------------ -------------------
- --------------------- ------------------ ------------------ -------------------
Less than $50,000 5.75% 6.10% 5.00%
- --------------------- ------------------ ------------------ -------------------
- --------------------- ------------------ ------------------ -------------------
$50,000 but less
than $100,000 5.25% 5.54% 4.50%
- --------------------- ------------------ ------------------ -------------------
- --------------------- ------------------ ------------------ -------------------
$100,000 but less
than $250,000 4.50% 4.71% 3.75%
- --------------------- ------------------ ------------------ -------------------
- --------------------- ------------------ ------------------ -------------------
$250, 000 but less 3.00% 3.09% 2.50%
than $500,000
- --------------------- ------------------ ------------------ -------------------
$500,000 or over* 0.00% 0.00% 0.00%
- --------------------- ------------------ ------------------ -------------------
* A CDSC of 1.00% applies to Class A shares that are redeemed
within two years of the end of the month in which they were
purchased.
Class A shares that are acquired through reinvestment of dividends
or distributions are not subject to any sales charges.
HOW TO REDUCE YOUR INITIAL SALES CHARGE:
"Rights of Accumulation" permits you to pay the sales charge
that applies to the cost or value (whichever is higher) of all
Ivy Fund Class A shares you own.
A "Letter of Intent" permits you to pay the sales charge that
would apply to your cumulative purchase of Fund shares over a
13-month period (certain restrictions apply).
HOW TO ELIMINATE YOUR INITIAL SALES CHARGE:
You may purchase Class A shares at NAV (without an initial sales
charge or a CDSC) through any one of the following methods:
through certain investment advisors and financial planners
who charge a management, consulting or other fee for their
services;
under certain qualified retirement plans;
as an employee or director of Mackenzie Investment Management
Inc. or its affiliates;
as an employee of a selected dealer; or
through the Merrill Lynch Daily K Plan (the "Plan"), provided
the Plan has at least $3 million in assets or over 500 or more
eligible employees. Class B shares of the Fund are made
available to Plan participants at NAV without a CDSC if the
Plan has less than $3 million in assets or fewer than 500
eligible employees. For further information see "Group
Systematic Investment Program" in the SAI.
You may also purchase Class A shares at NAV if you are investing
at least $500,000 through a dealer or agent. Ivy Mackenzie
Distributors, Inc. ("IMDI"), the Fund's distributor, may pay the
dealer or agent (out of IMDI's own resources) for its distribution
assistance according to the following schedule:
------------------------------- -------------------------------
Purchase Amount Commission
------------------------------- -------------------------------
------------------------------- -------------------------------
First $3,000,000 1.00%
------------------------------- -------------------------------
------------------------------- -------------------------------
Next $2,000,000 0.50%
------------------------------- -------------------------------
------------------------------- -------------------------------
Over $5,000,000 0.25%
------------------------------- -------------------------------
Certain trust companies, bank trust departments, credit unions,
savings and loans and other similar organizations may also be
exempt from the initial sales charge on Class A shares.
Class B and Class C Shares - Class B and Class C shares are not
subject to an initial sales charge but are subject to a CDSC. If
you redeem your Class C shares within one year of purchase they
will be subject to a CDSC of 1%, and Class B shares redeemed
within six years of purchase will be subject to a CDSC at the
following rates:
--------------------- --------------------
CDSC as a
Percentage of
Year Since Purchase Dollar Amount
Subject to Charge
--------------------- --------------------
First 5%
--------------------- --------------------
--------------------- --------------------
Second 4%
--------------------- --------------------
--------------------- --------------------
Third 3%
--------------------- --------------------
--------------------- --------------------
Fourth 3%
--------------------- --------------------
--------------------- --------------------
Fifth 2%
--------------------- --------------------
--------------------- --------------------
Sixth 1%
--------------------- --------------------
--------------------- --------------------
Seventh and 0%
thereafter
--------------------- --------------------
The CDSC for both Class B and Class C shares will be assessed on
an amount equal to the lesser of the current market value or the
original purchase cost of the shares being redeemed. No charge
will be assessed on increases in account value above the original
purchase price or on reinvested dividends and distributions.
The CDSC for Class B shares is waived for:
Certain post-retirement withdrawals from an IRA or other
retirement plan if you are over 59 1/2 years old.
Redemptions by certain eligible 401(a) and 401(k) plans and
certain retirement plan rollovers.
Redemption resulting from a tax-free return of excess
contribution to an IRA.
Withdrawals resulting from shareholder death or disability
provided that the redemption is requested within one year of
death or disability.
Withdrawals through the Systematic Withdrawal Plan of up to
12% per year of your account value at the time the plan is
established.
Both Class B shares and Class C shares are subject to an ongoing
service and distribution fee at a combined annual rate of up to
1.00% of the portfolio's average net assets attributable to its
Class B or Class C shares. The ongoing distribution fees will
cause these shares to have a higher expense ratio than that of
Class A and Advisor Class shares. IMDI uses the money that it
receives from the deferred sales charge and the distribution fees
to cover various promotional and sales related expenses, as well
as expenses related to providing distributions services, such as
compensating selected dealers and agents for selling these shares.
Approximately eight years after the original date of purchase,
your Class B shares will be converted automatically to Class A
shares. Class A shares are subject to lower annual expenses than
Class B shares. The conversion from Class B shares to Class A
shares is not considered a taxable event for federal income tax
purposes. Class C shares do not have a similar conversion
privilege.
Advisor Class - Advisor Class shares are offered only to
institutions and certain individuals, and are not subject to an
initial sales charge or a CDSC, nor to ongoing service or
distribution fees.
SUBMITTING YOUR PURCHASE ORDER:
INITIAL INVESTMENTS:
Complete and sign the Account Application appearing at the end of this
Prospectus. Enclose a check payable to Ivy Fund (see page [XX] for
minimum initial investments.) Deliver your application materials to
your registered representative or selling broker, or send them to one
of the addresses below:
By Regular Mail: By Courier:
Ivy Mackenzie Services Corp. Ivy Mackenzie Services Corp.
P.O. Box 3022 700 South Federal Hwy.
Boca Raton, FL 33431-0922 Boca Raton, FL 33432
BUYING ADDITIONAL SHARES:
There are several ways to increase your investment in the Fund:
By Mail - Send your check with a completed investment slip
(attached to your account statement) or written instructions
indicating the account registration, fund number or name, and
account number.
Mail to one of the addresses above.
Through Your Broker - Deliver to your registered representative
or selling broker the investment slip attached to your statement,
or written instructions, along with your payment.
By Wire - Purchases may also be made by wiring money from your
bank account to your Ivy account. Your bank may charge a fee for
wiring funds. Before wiring any funds, please call IMSC at (800)
777-6472. Wiring instructions are as follows:
First Union National Bank of Florida
Jacksonville, FL
ABA #063000021
Account #2090002063833
For further credit to:
Your Ivy Fund Account Number
Your Fund Number and Account Number
By Automatic Investment Method - You can authorize to have funds
electronically drawn each month from your bank account and
invested as a purchase of shares into your Ivy Fund account.
Complete sections [XX] and [XX] of the Account Application.
HOW TO REDEEM SHARES:
SUBMITTING YOUR REDEMPTION ORDER:
You may redeem your Fund shares through your registered securities
dealer or directly through IMSC. If you choose to redeem through your
registered securities dealer, the dealer is responsible for properly
transmitting redemption orders in a timely manner. If you choose to
redeem directly through IMSC, you have several ways to submit your
request:
By Mail - Send your written redemption request to IMSC at one of
the addresses on page XX of this Prospectus. Be sure that all
registered owners listed on the account sign the request.
Signature guarantees and supporting legal documentation may be
required. When you redeem, IMSC will normally send redemption
proceeds to you on the next business day, but may take up to seven
days (or longer in the case of shares recently purchased by
check).
By Telephone - Call IMSC at (800) 777-6472 to redeem from your
account. In order to process your redemption order by telephone,
you must have telephone redemption privileges on your account.
IMSC employs reasonable procedures that require personal
identification prior to acting on redemption instructions
communicated by telephone to confirm that such instructions are
genuine. In the absence of such procedures, the Fund or IMSC may
be liable for any losses due to unauthorized or fraudulent
telephone instructions.
By Systematic Withdrawal Plan (SWP) - You can authorize to have
funds electronically drawn each month from your Ivy Fund account
and deposited directly into your bank account. Certain minimum
balances and minimum distributions apply. Complete sections XX of
the Account Application to add this feature to your account.
Receiving Your Redemption Proceeds - You can receive redemption
proceeds through a variety of payment methods:
By Check - Unless otherwise instructed, checks will be made
payable to the current account registration and sent to the
address of record.
By Federal Funds Wire - Proceeds will be wired on the next
business day to a pre-designated bank account. Requests by
telephone can only be accepted for amounts up to $50,000. Your
account will be charged $10 each time redemption proceeds are
wired to your bank, and your bank may also charge you a fee for
receiving a Federal Funds wire.
By Electronic Funds Transfer - For SWP redemptions only.
Important Redemption Information:
A CDSC may apply to certain Class A share redemptions, to Class B
shares redeemed within 6 years of purchase, and to Class C shares
that are redeemed within one year of purchase.
All redemptions are made at the NAV next determined after a
redemption request has been received in good order. Requests for
redemptions must be received by 4:00 p.m. Eastern time to be
processed at the NAV for that day. Any redemption request in good
order that is received after 4:00 p.m. Eastern time will be
processed at the price determined on the following business day.
If you own shares of more than one class of the Fund, the Fund
will redeem first the shares having the highest 12b-1 fees.
Any shares subject to a CDSC will be redeemed last unless you
specifically elect otherwise.
The Fund may (on 60 days' notice) redeem the accounts of
shareholders whose investment, including sales charges paid, has
been less than $1,000 for more than 12 months.
The Fund may take up to seven days (or longer in the case of
shares recently purchased by check) to send redemption proceeds.
The Fund may make payment for redeemed shares in the form of
securities of the Fund taken at current values.
HOW TO EXCHANGE YOUR FUND SHARES:
You may exchange your Fund shares for shares of another Ivy fund,
subject to certain restrictions (see "Important Exchange Information"
below).
Submitting Your Exchange Order - You may submit an exchange request to
IMSC as follows:
By Mail - Send your written exchange request to IMSC at one of
the addresses on page XX of this Prospectus. Be sure that all
registered owners listed on the account sign the request.
By Telephone - Call IMSC at (800) 777-6472 to authorize an
exchange transaction. In order to process your exchange order by
telephone, you must have telephone exchange privileges on your
account. IMSC employs reasonable procedures that require personal
identification prior to acting on exchange instructions
communicated by telephone to confirm that such instructions are
genuine. In the absence of such procedures, the Fund or IMSC may
be liable for any losses due to unauthorized or fraudulent
telephone instructions.
IMPORTANT EXCHANGE INFORMATION:
You must exchange into the same share class you currently own.
Exchanges are considered taxable events and may result in a
capital gain or a capital loss for tax purposes.
It is the policy of the Fund to discourage the use of the
exchange privilege for the purpose of timing short-term market
fluctuations. The Fund may therefore limit the frequency of
exchanges by a shareholder or cancel a shareholder's exchange
privilege if at any time it appears that such market timing
strategies are being used.
DIVIDENDS AND DISTRIBUTIONS:
The Fund generally declares and pays dividends and capital gain
distributions (if any) at least once a year.
Dividends and distributions are "reinvested" in additional Fund
shares unless you request to receive them in cash.
Reinvested dividends and distributions are added to your account
at NAV and are not subject to a CDSC regardless of which share
class you own.
Cash dividends and distributions can be sent to you:
BY MAIL - a check will mailed to the address of record unless
otherwise instructed.
BY ELECTRONIC FUNDS TRANSFER ("EFT") - your proceeds will be
directly deposited into your bank account.
To change your dividend and/or distribution options, call IMSC at
(800) 777-6472.
TAX CONSEQUENCES:
Distributions you receive from the Fund are reinvested in additional
shares of the same class of the Fund unless you elect to receive them
in cash. Dividends ordinarily will vary from one class to another.
The Fund intends to declare and pay dividends monthly. The Fund will
distribute net investment income and net realized capital gains, if
any, at least once a year. The Fund may make an additional distribution
of net investment income and net realized capital gains to comply with
the calendar year distribution requirement under the excise tax
provisions of Section 4982 of the Internal Revenue Code of 1986, as
amended (the "Code").
Dividends paid out of the Fund's investment company taxable income
(including dividends, interest and net short-term capital gains) will
be taxable to you as ordinary income. If a portion of the Fund's income
consists of dividends paid by U.S. corporations, a portion of the
dividends paid by the Fund may be eligible for the corporate
dividends-received deduction. Distributions of net capital gains (the
excess of net long-term capital gains over net short-term capital
losses), if any, are taxable to you as long-term capital gains,
regardless of how long you have held your shares. Dividends are taxable
to you in the same manner whether received in cash or reinvested in
additional Fund shares.
If shares of the Fund are held in a tax-deferred account, such as a
retirement plan, income and gain will not be taxable each year.
Instead, the taxable portion of amounts held in a tax-deferred account
generally will be subject to tax as ordinary income only when
distributed from that account.
A distribution will be treated as paid to you on December 31 of the
current calendar year if it is declared by the Fund in October,
November or December with a record date in such a month and paid by the
Fund during January of the following calendar year.
In certain years, you may be able to claim a credit or deduction on
your income tax return for your share of foreign taxes paid by the
Fund. Upon the sale or other disposition of your Fund shares, you may
realize a capital gain or loss which will be long-term or short-term,
generally depending upon how long you held your shares.
The Fund may be required to withhold U.S. Federal income tax at the
rate of 31% of all distributions payable to you if you fail to provide
the Fund with your correct taxpayer identification number or to make
required certifications, or if you have been notified by the Internal
Revenue Service ("IRS") that you are subject to backup withholding.
Backup withholding is not an additional tax. Any amounts withheld may
be credited against your U.S. Federal income tax liability.
Fund distributions may be subject to state, local and foreign taxes.
You should consult with your tax adviser as to the tax consequences of
an investment in the Fund, including the status of distributions from
the Fund under applicable state or local law.
<PAGE>
IVY US EMERGING GROWTH FUND
<TABLE>
<CAPTION>
CLASS A
- -----------------------------------------------------------------------------------------------------------------
1998 1997 1996 1995
1994
SELECTED PER SHARE DATA ------- ------- ------- -------
- -------
<S> <C> <C> <C> <C>
<C>
Net asset value, beginning of period........... $ 26.54 $ 24.12 $ 18.38 $17.93
------- ------- -------
- -------
Income from investment operations
Net investment loss......................... (.41)(f) (.35) (.24) (.24)(d)
Net realized and unrealized gain on
investment transactions.................... 1.54(f) 4.84 7.90 .82
------- ------- ------- -------
Total from investment operations........... 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................. $ 27.67 $ 26.54 $ 24.12 $18.38
======= ======= ======= =======
Total return(%)................................ 4.26 18.52 42.07 3.29
RATIOS AND SUPPLEMENTAL DATA
Net assets, end of period (in thousands)....... $64,910 $55,944 $39,456 $21,493
Ratio of expenses to average net assets
With expense reimbursement(%)................. -- -- -- 2.20
Without expense reimbursement(%).............. 1.67 1.76 1.95 2.22
Ratio of net investment loss to average net
assets(%)..................................... (1.37) (1.31) (1.39) (1.72)(d)
Portfolio turnover rate(%)..................... 65 68 86 67
Average commission rate........................ $ .0710 $ .0601 N/A N/A
</TABLE>
<TABLE>
<CAPTION>
CLASS B
- -----------------------------------------------------------------------------------------------------------------------
1998 1997 1996 1995 1994
SELECTED PER SHARE DATA ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of period........... $ 26.33 $ 24.12 $ 18.38 $17.93
------- ------- ------- -----
Income (loss) from investment operations
Net investment loss......................... (.33)(f) (.40) (.35) (.29)(d)
Net realized and unrealized gain on
investment transactions.................... 1.26(f) 4.68 7.85 .74
------- ------- ------- ------
Total from investment operations........... .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................. $ 27.26 $ 26.33 $ 24.12 $18.38
======= ======= ======= ======
Total return(%)................................ 3.53 17.65 41.03 2.51
RATIOS AND SUPPLEMENTAL DATA
Net assets, end of period (in thousands)....... $47,789 $35,321 $13,985 $5,015
Ratio of expenses to average net assets
With expense reimbursement(%)................. -- -- -- 2.95
Without expense reimbursement(%).............. 2.43 2.52 2.70 2.97
Ratio of net investment loss to average net
assets(%)..................................... (2.13) (2.07) (2.14) (2.47)(d)
Portfolio turnover rate(%)..................... 65 68 86 67
Average commission rate........................ $ .0710 $ .0601 N/A N/A
<CAPTION>
ADVISOR
CLASS C CLASS
----------------------------------- --------
1998 1997 1996(C) 1998
SELECTED PER SHARE DATA ------- ------- ------- --------
<S> <C> <C> <C> <C>
Net asset value, beginning of period........... $26.29 $29.69
------ ------
Income (loss) from investment operations
Net investment loss......................... (.34)(f) (.14)
Net realized and unrealized gain on
investment transactions.................... 1.28(f) (1.19)
------ ------
Total from investment operations........... .94 (1.33)
------ ------
Less distributions
From net realized gain...................... -- 2.07
------ ------
Total distributions........................ -- 2.07
------ ------
Net asset value, end of period................. $27.23 $26.29
====== ======
Total return(%)................................ 3.58 (4.48)
RATIOS AND SUPPLEMENTAL DATA
Net assets, end of period (in thousands)....... $9,484 $4,018
Ratio of expenses to average net assets
With expense reimbursement(%)................. -- --
Without expense reimbursement(%).............. 2.39 2.52
Ratio of net investment loss to average net
assets(%)..................................... (2.09) (2.07)
Portfolio turnover rate(%)..................... 65 68
Average commission rate........................ $.0710 $.0601
</TABLE>
- - ---------------
<TABLE>
<S> <C>
(a) From March 3, 1993 (commencement of operations) to December 31, 1993.
(b) From October 23, 1993 (commencement of operations) to December 31, 1993.
(c) From April 30, 1996 (commencement of operations) to December 31, 1996.
(d) Net investment loss is net of expenses reimbursed by manager.
(e) Total return represents aggregate total return since April 30, 1993 (when
the Fund became available for sale to the public) and does not reflect a
sales charge.
(f) Based on average shares outstanding.
</TABLE>
<PAGE>
ACCOUNT APPLICATION
Please mail applications and checks to: Ivy Mackenzie Services Corp.,
P.O. Box 3022, Boca Raton, FL 33431-0922.
(This application should not be used for retirement accounts for which
Ivy Fund is custodian.)
Account Number:
(Fund Use Only)
Dealer #:
Branch #:
Rep. I.D. #:
Acct. Type:
Soc Cd:
Div Cd:
CG Cd:
Exc Cd:
Red Cd:
1. REGISTRATION
/ / Individual / / Joint Tenant / / Estate / / UGMA/UTMA / /
Corporation / / Partnership / / Sole Proprietor / / Trust / / Other
Date of Trust
Owner, Custodian or Trustee
Co-owner or Minor
Minor's State of Residence
Street
City
State
Zip Code
Phone Number -- Day
Phone Number -- Evening
2. TAX ID
Citizenship: / / U.S. / / Other ________________
Social Security Number
Tax Identification Number
Under penalties of perjury, I certify by signing in Section 8 below
that: (1) the number shown in this section is my correct taxpayer
identification number (TIN), and (2) I am not subject to backup
withholding because: (a) I have not been notified by the Internal
Revenue Service (IRS) that I am subject to backup withholding as a
result of a failure to report all interest or dividends, or (b) the IRS
has notified me that I am no longer subject to backup withholding.
(Cross out item (2) if you have been notified by the IRS that you are
currently subject to backup withholding because of underreporting
interest or dividends on your tax return.) Please see the "Tax
Consequences" section of the Prospectus for additional information on
completing this section.
3. DEALER INFORMATION
The undersigned ("Dealer") agrees to all applicable provisions in this
Application, guarantees the signature and legal capacity of the
Shareholder, and agrees to notify IMSC of any purchases made under a
Letter of Intent or Rights of Accumulation.
Dealer Name
Branch Office Address
City
State
Zip Code
Representative's Name and Number
Representative's Phone Number
Authorized Signature of Dealer
4. INVESTMENTS
A. Enclosed is my check ($1,000 minimum) for $_____________ made
payable to ________________ [Fund Name]. Please invest it in
Class A __ Class B __ Class C __ or Advisor Class __ shares.
B. I qualify for an elimination of the sales charge due to the
following privilege (applies only to Class A shares):
__ New Letter of Intent (if ROA or 90-day backdate
privilege is applicable, provide account(s)
information below.)
__ ROA with the account(s) listed below.
__ Existing Letter of Intent with account(s) listed below.
Fund Name(s)
Account Number(s)
If establishing a Letter of Intent, you will need to purchase
Class A shares over a thirteen-month period in accordance with
the provisions in the Prospectus. The Aggregate amount of
these purchases will be at least equal to the amount indicated
below (see Prospectus for minimum amount required for reduced
sales charges).
/ / $50,000
/ / $100,000
/ / $250,000
/ / $500,000
C. FOR DEALER USE
Confirmed trade orders: [Confirm Number, Number of Shares,
Trade Date]
5. DISTRIBUTION OPTIONS
I would like to reinvest dividends and capital gains into additional
shares in this account at net asset value unless a different option is
checked below.
/ / Reinvest all dividends and capital gains into additional
shares of a different Ivy fund.
Fund Name
Account Number
/ / Pay all dividends in cash and reinvest capital gains into
additional shares in this Fund or a different Ivy fund.
Fund Name
Account Number
/ / Pay all dividends and capital gains in cash.
I REQUEST THE ABOVE CASH DISTRIBUTION, SELECTED IN C OR D
ABOVE, BE:
/ / Sent to the address listed in the registration.
/ / Sent to the special payee listed in Section 7A
/ / (By Mail) 7B
/ / (By E.F.T.)
6. OPTIONAL SPECIAL FEATURES
A. / / Automatic Investment Method (AIM)
- I wish to invest _________________ / / once per month / /
twice / / 3 times / / 4 times
- My bank account will be debited on the _________ day of the
month
Please invest $___________________ each period starting in
the month of __________________ in
---------------------------.
Fund Name
/ / Class A
/ / Class B
/ / Class C
/ / Advisor Class
/ / I have attached a voided check to ensure my correct bank
account will be debited.
B. SYSTEMATIC WITHDRAWAL PLANS**
I wish to automatically withdraw funds from my account in
_________________[Fund name].
/ / Monthly / / Quarterly / /Semiannually / / Annually
/ / Once / / Twice / / 3 times / / 4 times per month
I request the distribution be:
/ / Sent to the address listed in the registration.
/ / Sent to the special payee listed in Section 7.
/ / Invested into additional shares of the same class of a different
Ivy fund.
Fund Name
Account Number
Amount $__________________(Minimum $50) starting on or about the
-_______ day of the month
-_______ day of the month
-_______ day of the month*
NOTE: Account minimum: $5,000 in shares at current offering price
C. FEDERAL FUNDS TRANSFER FOR REDEMPTION PROCEEDS**
I authorize the Agent to honor telephone instructions for the
redemption of Fund shares up to $50,000. Proceeds may be wire
transferred to the bank account designated ($1,000 minimum).
(Complete Section 7B)
TELEPHONE EXCHANGES** / / YES / / NO
I authorize exchanges by telephone among the Ivy funds upon
instructions from any person as more fully described in the
Prospectus. To change this option once established, written
instructions must be received from the shareholder of record
or the current registered representative.
If neither box is checked, the telephone exchange privilege
will be provided automatically.
TELEPHONIC REDEMPTIONS** / / YES / / NO
The Fund or its agents are authorized to honor telephone
instructions from any person as more fully described in the
Prospectus for the redemption of Fund shares. The amount of
the redemption shall not exceed $50,000 and the proceeds are
to be payable to the shareholder of record and mailed to the
address of record. To change this option once established,
written instructions must be received from the shareholder of
record or the current registered representative.
If neither box is checked, the telephone redemption privilege
will be provided automatically.
* There must be a period of at least seven calendar
days between each investment/withdrawal period.
** This option may not be used if shares are issued in
certificate form.
7. SPECIAL PAYEE
A. MAILING ADDRESS
Please send all disbursements to this special payee:
Name of Bank or Individual
Account Number (If Applicable)
Street
City/State/Zip
B. FED WIRE / E.F.T. INFORMATION
Financial Institution
ABA #
Account #
Street
City/State/Zip
(Please attach a voided check)
8. SIGNATURES
Investors should be aware that the failure to check the "No" under
Section 6D or 6E above means that the Telephone Exchange/Redemption
Privileges will be provided. The Fund employs reasonable procedures
that require personal identification prior to acting on
exchange/redemption instructions communicated by telephone to confirm
that such instructions are genuine. In the absence of such procedures,
the Fund may be liable for any losses due to unauthorized or fraudulent
telephone instructions. Please see "How to Exchange Your Fund Shares"
and "How to Redeem Your Fund Shares" in the Prospectus for more
information on these privileges.
I certify to my legal capacity to purchase or redeem shares of the Fund
for my own account or for the account of the organization named in
Section 1. I have received a current Prospectus and understand its
terms are incorporated in this application by reference. I am
certifying my taxpayer information as stated in Section 2.
THE INTERNAL REVENUE SERVICE DOES NOT REQUIRE YOUR CONSENT TO ANY
PROVISION OF THIS DOCUMENT OTHER THAN THE CERTIFICATIONS REQUIRED TO
AVOID BACKUP WITHHOLDING.
------------------------------
Signature of Owner, Custodian, Date
Trustee or Corporate Officer
------------------------------
Signature of Joint Owner, Date
Co-Trustee or Corporate Officer
(Remember to sign Section 8)
<PAGE>
[Back Cover Page]
HOW TO RECEIVE MORE INFORMATION ABOUT THE FUND
Additional information about the Fund and its investments is contained in the
Fund's Statement of Additional Information dated April ___, 1999 (the "SAI"),
which is incorporated by reference into this Prospectus, and the Fund's annual
and semi-annual reports to shareholders. The Fund's annual report includes a
discussion of the market conditions and investment strategies that significantly
affected the Fund's performance during its most recent fiscal year. The SAI and
the Fund's annual and semi-annual reports are available upon request and without
charge from the Distributor at the following address and phone number:
Ivy Mackenzie Distributors, Inc.
Via Mizner Financial Plaza
700 South Federal Highway
Boca Raton, Florida 33432
(800) 456-5111
Information about the Fund (including the SAI and the Fund's annual and
semi-annual reports) may also be reviewed and copied at the SEC's Public
Reference Room in Washington, D.C. (please call 1-800-SEC-0330 for further
details). Information about the Fund is also available on the SEC's Internet
Website (www.sec.gov), and copies of this information may be obtained, upon
payment of a copying fee, by writing the Public Reference Section of the SEC,
Washington, D.C. 20549-6009.
SHAREHOLDER INQUIRIES
Please call Ivy Mackenzie Services Corp., the Fund's transfer agent, at
1-800-777-6472 regarding any other inquiries about the Fund.
Investment Company Act File No. 811-1028
<PAGE>
IVY ASIA PACIFIC FUND
a series of
IVY FUND
Via Mizner Financial Plaza, Suite 300
700 South Federal Highway
Boca Raton, Florida 33432
STATEMENT OF ADDITIONAL INFORMATION
April , 1999
Ivy Fund (the "Trust") is an open-end management investment company
that currently consists of nineteen fully managed portfolios, each of which
(except for Ivy South America Fund and Ivy International Strategic Bond Fund) is
diversified. This Statement of Additional Information ("SAI") relates to the
Class A, B, C and Advisor Class shares of Ivy Asia Pacific Fund (the "Fund").
The other eighteen portfolios of the Trust are described in separate
prospectuses and SAIs.
This SAI is not a prospectus and should be read in conjunction with the
prospectus for the Fund dated April , 1999 (the "Prospectus"), which may be
obtained upon request and without charge from the Trust at the Distributor's
address and telephone number printed below.
INVESTMENT MANAGER
Ivy Management, Inc. ("IMI")
Via Mizner Financial Plaza, Suite 300
700 South Federal Highway
Boca Raton, Florida 33432
Telephone: (800) 777-6472
DISTRIBUTOR
Ivy Mackenzie Distributors, Inc. ("IMDI")
Via Mizner Financial Plaza, Suite 300
700 South Federal Highway
Boca Raton, Florida 33432
Telephone: (800) 456-5111
<PAGE>
iii
TABLE OF CONTENTS
GENERAL INFORMATION......................................................
INVESTMENT OBJECTIVES, STRATEGIES AND RISKS..............................
COMMON STOCKS...................................................
SECURITIES ISSUED IN ASIA-PACIFIC COUNTRIES.....................
DEBT SECURITIES.................................................
IN GENERAL.............................................
INVESTMENT-GRADE DEBT SECURITIES.......................
LOW-RATED DEBT SECURITIES..............................
ZERO COUPON BONDS......................................
ILLIQUID SECURITIES.............................................
FOREIGN SECURITIES..............................................
EMERGING MARKETS................................................
FOREIGN CURRENCIES..............................................
FOREIGN CURRENCY EXCHANGE TRANSACTIONS..........................
OTHER INVESTMENT COMPANIES......................................
REPURCHASE AGREEMENTS...........................................
BANKING INDUSTRY AND SAVINGS AND LOAN OBLIGATIONS...............
COMMERCIAL PAPER................................................
BORROWING.......................................................
WARRANTS........................................................
OPTIONS TRANSACTIONS............................................
IN GENERAL.............................................
WRITING OPTIONS ON INDIVIDUAL SECURITIES...............
PURCHASING OPTIONS ON INDIVIDUAL SECURITIES............
PURCHASING AND WRITING OPTIONS ON SECURITIES INDICES...
RISKS OF OPTIONS TRANSACTIONS..........................
FUTURES CONTRACTS AND OPTIONS ON FUTURES CONTRACTS..............
IN GENERAL.............................................
FOREIGN CURRENCY FUTURES CONTRACTS AND RELATED OPTIONS.
RISKS ASSOCIATED WITH FUTURES AND RELATED OPTIONS......
SECURITIES INDEX FUTURES CONTRACTS..............................
RISKS OF SECURITIES INDEX FUTURES......................
COMBINED TRANSACTIONS..................................
INVESTMENT RESTRICTIONS..................................................
PORTFOLIO TURNOVER.......................................................
TRUSTEES AND OFFICERS....................................................
PERSONAL INVESTMENTS BY EMPLOYEES OF IMI...............
INVESTMENT ADVISORY AND OTHER SERVICES...................................
BUSINESS MANAGEMENT AND INVESTMENT ADVISORY SERVICES............
DISTRIBUTION SERVICES...........................................
RULE 18F-3 PLAN........................................
RULE 12B-1 DISTRIBUTION PLANS..........................
CUSTODIAN.......................................................
FUND ACCOUNTING SERVICES........................................
TRANSFER AGENT AND DIVIDEND PAYING AGENT........................
ADMINISTRATOR...................................................
AUDITORS........................................................
BROKERAGE ALLOCATION.....................................................
CAPITALIZATION AND VOTING RIGHTS.........................................
SPECIAL RIGHTS AND PRIVILEGES............................................
AUTOMATIC INVESTMENT METHOD.....................................
EXCHANGE OF SHARES..............................................
INITIAL SALES CHARGE SHARES............................
CONTINGENT DEFERRED SALES CHARGE SHARES CLASS A........
CLASS B................................................
CLASS C................................................
ADVISOR CLASS..........................................
ALL CLASSES............................................
LETTER OF INTENT................................................
RETIREMENT PLANS................................................
INDIVIDUAL RETIREMENT ACCOUNTS.........................
ROTH IRAS..............................................
QUALIFIED PLANS........................................
DEFERRED COMPENSATION FOR PUBLIC SCHOOLS AND CHARITABLE
ORGANIZATIONS ("403(B)(7) ACCOUNT")
SIMPLIFIED EMPLOYEE PENSION ("SEP") IRAS...............
SIMPLE PLANS...........................................
REINVESTMENT PRIVILEGE..........................................
RIGHTS OF ACCUMULATION..........................................
SYSTEMATIC WITHDRAWAL PLAN......................................
GROUP SYSTEMATIC INVESTMENT PROGRAM.............................
REDEMPTIONS..............................................................
CONVERSION OF CLASS B SHARES.............................................
NET ASSET VALUE..........................................................
TAXATION 41
OPTIONS, FUTURES AND FOREIGN CURRENCY FORWARD CONTRACTS.........
CURRENCY FLUCTUATIONS -- "SECTION 988" GAINS OR LOSSES..........
INVESTMENT IN PASSIVE FOREIGN INVESTMENT COMPANIES..............
DEBT SECURITIES ACQUIRED AT A DISCOUNT..........................
DISTRIBUTIONS...................................................
DISPOSITION OF SHARES...........................................
FOREIGN WITHHOLDING TAXES.......................................
BACKUP WITHHOLDING..............................................
PERFORMANCE INFORMATION..................................................
YIELD..................................................
AVERAGE ANNUAL TOTAL RETURN............................
CUMULATIVE TOTAL RETURN................................
OTHER QUOTATIONS, COMPARISONS AND GENERAL INFORMATION..
FINANCIAL STATEMENTS.....................................................
APPENDIX A...............................................................
<PAGE>
GENERAL INFORMATION
The Fund is organized as a separate, diversified portfolio of the
Trust, an open-end management investment company organized as a Massachusetts
business trust on December 21, 1983. The Fund commenced operations on January 1,
1997. Advisor Class shares were first offered on January 1, 1998.
Descriptions in this Statement of a particular investment practice or
technique in which the Fund may engage or a financial instrument which the Fund
may purchase are meant to describe the spectrum of investments that IMI, in its
discretion, might, but is not required to, use in managing the Fund's portfolio
assets. IMI may, in its discretion, at any time employ such practice, technique
or instrument for one or more funds but not for all funds advised by it.
Furthermore, it is possible that certain types of financial instruments or
investment techniques described herein may not be available, permissible,
economically feasible or effective for their intended purposes in all markets.
Certain practices, techniques, or instruments may not be principal activities of
the Fund but, to the extent employed, could from time to time have a material
impact on the Fund's performance.
INVESTMENT OBJECTIVES, STRATEGIES AND RISKS
The Fund has its own investment objectives and policies, which are
described in the Prospectus under the captions "Summary" and "Additional
Information About Strategies and Risks." Additional information regarding the
characteristics and risks associated with the Fund's investment techniques is
set forth below.
The Fund's principal investment objective is long-term growth.
Consideration of current income is secondary to this principal objective. Under
normal circumstances the Fund invests at least 65% of its total assets in
securities issued in Asia-Pacific countries, which for purposes of this
Prospectus are defined to include China, Hong Kong, India, Indonesia, Malaysia,
Pakistan, the Philippines, Singapore, Sri Lanka, South Korea, Taiwan, Thailand
and Vietnam. Securities of Asia-Pacific issuers include: (a) securities of
companies organized under the laws of an Asia-Pacific country or for which the
principal securities trading market is in the Asia-Pacific region; (b)
securities that are issued or guaranteed by the government of an Asia-Pacific
country, its agencies or instrumentalities, political subdivisions or the
country's central bank; (c) securities of a company, wherever organized, where
at least 50% of the company's non-current assets, capitalization, gross revenue
or profit in any one of the two most recent fiscal years represents (directly or
indirectly through subsidiaries) assets or activities located in the
Asia-Pacific region; and (d) any of the preceding types of securities in the
form of depository shares.
The Fund may participate in markets throughout the Asia-Pacific region,
and it is expected that the Fund will be invested at all times in at least three
Asia-Pacific countries. The Fund does not expect to concentrate its investments
in any particular industry.
The Fund may invest up to 35% of its assets in investment-grade debt
securities of government or corporate issuers in emerging market countries,
equity securities and investment grade debt securities of issuers in developed
countries (including the United States), warrants, and cash or cash equivalents,
such as bank obligations (including certificates of deposit and bankers'
acceptances), commercial paper, short-term notes and repurchase agreements. For
temporary defensive purposes, the Fund may invest without limit in such
instruments. The Fund may also invest up to 5% of its net assets in zero coupon
bonds, and in debt securities rated Ba or below by Moody's Investor Service,
Inc. ("Moody's") or BB or below by Standard and Poor's Corporation ("S&P"), or
if unrated, are considered by IMI to be of comparable quality (commonly referred
to as "high yield" or "junk" bonds). The Fund will not invest in debt securities
rated less than C by either Moody's or S&P. [As of December 31, 1998, the Fund
held no low-rated debt securities.]
For temporary or emergency purposes, the Fund may borrow up to
one-third of the value of its total assets from banks, but may not purchase
securities at any time during which the value of the Fund's outstanding loans
exceeds 10% of the value of the Fund's assets. The Fund may engage in foreign
currency exchange transactions and enter into forward foreign currency
contracts. The Fund may also invest up to 10% of its total assets in other
investment companies that invest in securities issued in Asia-Pacific countries,
and up to 15% of its net assets in illiquid securities.
The Fund may purchase put and call options on securities and stock
indices, provided the premium paid for such options does not exceed 5% of the
Fund's net assets. The Fund may also sell covered put options with respect to up
to 10% of the value of its net assets, and may write covered call options so
long as not more than 25% of the Fund's net assets are subject to being
purchased upon the exercise of the calls. For hedging purposes only, the Fund
may engage in transactions in stock index and foreign currency futures
contracts, provided that the Fund's equivalent exposure in such contracts does
not exceed 15% of its total assets.
COMMON STOCKS
Common stock can be issued by companies to raise cash; all common stock
shares represent a proportionate ownership interest in a company. As a result,
the value of common stock rises and falls with a company's success or failure.
The market value of common stock can fluctuate significantly, with smaller
companies being particularly susceptible to price swings. Transaction costs in
smaller company stocks may also be higher than those of larger companies.
SECURITIES ISSUED IN ASIA-PACIFIC COUNTRIES
Certain Asia-Pacific countries in which the Fund is likely to invest
are developing countries, and may be in the initial stages of their
industrialization cycle. The economic structures of developing countries
generally are less diverse and mature than in the United States, and their
political systems may be relatively unstable. Historically, markets of
developing countries have been more volatile than the markets of developed
countries, yet such markets often have provided higher rates of return to
investors.
Investing in securities of issuers in Asia-Pacific countries involves
certain considerations not typically associated with investing in securities
issued in the United States or in other developed countries, including (i)
restrictions on foreign investment and on repatriation of capital invested in
Asian countries, (ii) currency fluctuations, (iii) the cost of converting
foreign currency into United States dollars, (iv) potential price volatility and
lesser liquidity of shares traded on Asia-Pacific securities markets and (v)
political and economic risks, including the risk of nationalization or
expropriation of assets and the risk of war.
Certain Asia-Pacific countries may be more vulnerable to the ebb and
flow of international trade and to trade barriers and other protectionist or
retaliatory measures. Investments in countries that have recently opened their
capital markets and that appear to have relaxed their central planning
requirement, as well as in countries that have privatized some of their
state-owned industries, should be regarded as speculative.
The settlement period of securities transactions in foreign markets in
general may be longer than in domestic markets, and such delays may be of
particular concern in developing countries. For example, the possibility of
political upheaval and the dependence on foreign economic assistance may be
greater in developing countries than in developed countries, either one of which
may increase settlement delays.
Securities exchanges, issuers and broker-dealers in some Asia-Pacific
countries are subject to less regulatory scrutiny than in the United States. In
addition, due to the limited size of the markets for Asia-Pacific securities,
the prices for such securities may be more vulnerable to adverse publicity,
investors' perceptions or traders' positions or strategies, which could cause a
decrease not only in the value but also in the liquidity of the Fund's
investments.
DEBT SECURITIES
IN GENERAL. Investment in debt securities involves both interest rate
and credit risk. Generally, the value of debt instruments rises and falls
inversely with fluctuations in interest rates. As interest rates decline, the
value of debt securities generally increases. Conversely, rising interest rates
tend to cause the value of debt securities to decrease. Bonds with longer
maturities generally are more volatile than bonds with shorter maturities. The
market value of debt securities also varies according to the relative financial
condition of the issuer. In general, lower-quality bonds offer higher yields due
to the increased risk that the issuer will be unable to meet its obligations on
interest or principal payments at the time called for by the debt instrument.
INVESTMENT-GRADE DEBT SECURITIES. Bonds rated Aaa by Moody's Investors
Service, Inc. ("Moody's") and AAA by Standard & Poor's Ratings Group ("S&P") are
judged to be of the best quality (i.e., capacity to pay interest and repay
principal is extremely strong). Bonds rated Aa/AA are considered to be of high
quality (i.e., capacity to pay interest and repay principal is very strong and
differs from the highest rated issues only to a small degree). Bonds rated A are
viewed as having many favorable investment attributes, but elements may be
present that suggest a susceptibility to the adverse effects of changes in
circumstances and economic conditions than debt in higher rated categories.
Bonds rated Baa/BBB (considered by Moody's to be "medium grade" obligations) are
considered to have an adequate capacity to pay interest and repay principal, but
certain protective elements may be lacking (i.e., such bonds lack outstanding
investment characteristics and have some speculative characteristics). The Fund
may invest in debt securities that are given an investment-grade rating by
Moody's or S&P, and may also invest in unrated debt securities that are
considered by IMI to be of comparable quality.
LOW-RATED DEBT SECURITIES. Securities rated lower than Baa by Moody's
or BBB by S&P, and comparable unrated securities (commonly referred to as "high
yield" or "junk" bonds), including many emerging markets bonds, are considered
to be predominantly speculative with respect to the issuer's continuing ability
to meet principal and interest payments. The lower the ratings of corporate debt
securities, the more their risks render them like equity securities. Such
securities carry a high degree of risk (including the possibility of default or
bankruptcy of the issuers of such securities), and generally involve greater
volatility of price and risk of principal and income (and may be less liquid)
than securities in the higher rating categories. (See Appendix A for a more
complete description of the ratings assigned by Moody's and S&P and their
respective characteristics.)
Lower rated and unrated securities are especially subject to adverse
changes in general economic conditions and to changes in the financial condition
of their issuers. Economic downturns may disrupt the high yield market and
impair the ability of issuers to repay principal and interest. Also, an increase
in interest rates would likely have an adverse impact on the value of such
obligations. During an economic downturn or period of rising interest rates,
highly leveraged issuers may experience financial stress which could adversely
affect their ability to service their principal and interest payment
obligations. Prices and yields of high yield securities will fluctuate over time
and, during periods of economic uncertainty, volatility of high yield securities
may adversely affect the Fund's net asset value. In addition, investments in
high yield zero coupon or pay-in-kind bonds, rather than income-bearing high
yield securities, may be more speculative and may be subject to greater
fluctuations in value due to changes in interest rates.
Changes in interest rates may have a less direct or dominant impact on
high yield bonds than on higher quality issues of similar maturities. However,
the price of high yield bonds can change significantly or suddenly due to a host
of factors including changes in interest rates, fundamental credit quality,
market psychology, government regulations, U.S. economic growth and, at times,
stock market activity. High yield bonds may contain redemption or call
provisions. If an issuer exercises these provisions in a declining interest rate
market, the Fund may have to replace the security with a lower yielding
security.
The trading market for high yield securities may be thin to the extent
that there is no established retail secondary market or because of a decline in
the value of such securities. A thin trading market may limit the ability of the
Fund to accurately value high yield securities in the Fund's portfolio, could
adversely affect the price at which the Fund could sell such securities, and
cause large fluctuations in the daily net asset value of the Fund's shares.
Adverse publicity and investor perceptions, whether or not based on fundamental
analysis, may decrease the value and liquidity of low-rated debt securities,
especially in a thinly traded market. When secondary markets for high yield
securities become relatively less liquid, it may be more difficult to value the
securities, requiring additional research and elements of judgment. These
securities may also involve special registration responsibilities, liabilities
and costs, and liquidity and valuation difficulties.
Credit quality in the high yield securities market can change suddenly
and unexpectedly, and even recently issued credit ratings may not fully reflect
the actual risks posed by a particular high yield security. For these reasons,
it is the policy of IMI not to rely exclusively on ratings issued by established
credit rating agencies, but to supplement such ratings with its own independent
and on-going review of credit quality. The achievement of the Fund's investment
objectives by investment in such securities may be more dependent on IMI's
credit analysis than is the case for higher quality bonds. Should the rating of
a portfolio security be downgraded, IMI will determine whether it is in the best
interest of the Fund to retain or dispose of such security. However, should any
individual bond held by the Fund be downgraded below a rating of C, IMI
currently intends to dispose of such bond based on then existing market
conditions.
Prices for high yield securities may be affected by legislative and
regulatory developments. For example, Federal rules require savings and loan
institutions to gradually reduce their holdings of this type of security. Also,
Congress has from time to time considered legislation that would restrict or
eliminate the corporate tax deduction for interest payments in these securities
and regulate corporate restructurings. Such legislation may significantly
depress the prices of outstanding securities of this type.
ZERO COUPON BONDS: Zero coupon bonds are debt obligations issued
without any requirement for the periodic payment of interest. Zero coupon bonds
are issued at a significant discount from face value. The discount approximates
the total amount of interest the bonds would accrue and compound over the period
until maturity at a rate of interest reflecting the market rate at the time of
issuance. If the Fund holds zero coupon bonds in its portfolio, it would
recognize income currently for Federal income tax purposes in the amount of the
unpaid, accrued interest and generally would be required to distribute dividends
representing such income to shareholders currently, even though funds
representing such income would not have been received by the Fund. Cash to pay
dividends representing unpaid, accrued interest may be obtained from, for
example, sales proceeds of portfolio securities and Fund shares and from loan
proceeds. The potential sale of portfolio securities to pay cash distributions
from income earned on zero coupon bonds may result in the Fund being forced to
sell portfolio securities at a time when it might otherwise choose not to sell
these securities and when the Fund might incur a capital loss on such sales.
Because interest on zero coupon obligations is not distributed to the Fund on a
current basis, but is in effect compounded, the value of the securities of this
type is subject to greater fluctuations in response to changing interest rates
than the value of debt obligations which distribute income regularly.
ILLIQUID SECURITIES
The Fund may purchase securities other than in the open market. While
such purchases may often offer attractive opportunities for investment not
otherwise available on the open market, the securities so purchased are often
"restricted securities" or "not readily marketable" (i.e., they cannot be sold
to the public without registration under the Securities Act of 1933, as amended
(the "1933 Act"), or the availability of an exemption from registration (such as
Rule 144A) or because they are subject to other legal or contractual delays in
or restrictions on resale). This investment practice, therefore, could have the
effect of increasing the level of illiquidity of the Fund. It is the Fund's
policy that illiquid securities (including repurchase agreements of more than
seven days duration, certain restricted securities, and other securities which
are not readily marketable) may not constitute, at the time of purchase, more
than 15% of the value of the Fund's net assets. The Trust's Board of Trustees
has approved guidelines for use by IMI in determining whether a security is
illiquid.
Generally speaking, restricted securities may be sold (i) only to
qualified institutional buyers; (ii) in a privately negotiated transaction to a
limited number of purchasers; (iii) in limited quantities after they have been
held for a specified period of time and other conditions are met pursuant to an
exemption from registration; or (iv) in a public offering for which a
registration statement is in effect under the 1933 Act. Issuers of restricted
securities may not be subject to the disclosure and other investor protection
requirements that would be applicable if their securities were publicly traded.
If adverse market conditions were to develop during the period between the
Fund's decision to sell a restricted or illiquid security and the point at which
the Fund is permitted or able to sell such security, the Fund might obtain a
price less favorable than the price that prevailed when it decided to sell.
Where a registration statement is required for the resale of restricted
securities, the Fund may be required to bear all or part of the registration
expenses. The Fund may be deemed to be an "underwriter" for purposes of the 1933
Act when selling restricted securities to the public and, in such event, the
Fund may be liable to purchasers of such securities if the registration
statement prepared by the issuer is materially inaccurate or misleading.
Since it is not possible to predict with assurance that the market for
securities eligible for resale under Rule 144A will continue to be liquid, IMI
will monitor such restricted securities subject to the supervision of the Board
of Trustees. Among the factors IMI may consider in reaching liquidity decisions
relating to Rule 144A securities are: (1) the frequency of trades and quotes for
the security; (2) the number of dealers wishing to purchase or sell the security
and the number of other potential purchasers; (3) dealer undertakings to make a
market in the security; and (4) the nature of the security and the nature of the
market for the security (i.e., the time needed to dispose of the security, the
method of soliciting offers, and the mechanics of the transfer).
FOREIGN SECURITIES
The securities of foreign issuers in which the Fund may invest include
non-U.S. dollar-denominated debt securities, Euro dollar securities, sponsored
and unsponsored American Depository Receipts ("ADRs"), Global Depository
Receipts ("GDRs"), American Depository Shares ("ADSs"), Global Depository Shares
("GDSs"), and debt securities issued, assumed or guaranteed by foreign
governments or political subdivisions or instrumentalities thereof. Shareholders
should consider carefully the substantial risks involved in investing in
securities issued by companies and governments of foreign nations, which are in
addition to the usual risks inherent in the Fund's domestic investments.
Although IMI intends to invest the Fund's assets only in nations that
are generally considered to have relatively stable and friendly governments,
there is the possibility of expropriation, nationalization, repatriation or
confiscatory taxation, taxation on income earned in a foreign country and other
foreign taxes, foreign exchange controls (which may include suspension of the
ability to transfer currency from a given country), default on foreign
government securities, political or social instability or diplomatic
developments which could affect investments in securities of issuers in those
nations. In addition, in many countries there is less publicly available
information about issuers than is available for U.S. companies. Moreover,
foreign companies are not generally subject to uniform accounting, auditing and
financial reporting standards, and auditing practices and requirements may not
be comparable to those applicable to U.S. companies. In many foreign countries,
there is less governmental supervision and regulation of business and industry
practices, stock exchanges, brokers, and listed companies than in the United
States. Foreign securities transactions may also be subject to higher brokerage
costs than domestic securities transactions. The foreign securities markets of
many of the countries in which the Fund may invest may also be smaller, less
liquid and subject to greater price volatility than those in the United States.
In addition, the Fund may encounter difficulties or be unable to pursue legal
remedies and obtain judgment in foreign courts.
Foreign bond markets have different clearance and settlement procedures
and in certain markets there have been times when settlements have been unable
to keep pace with the volume of securities transactions, making it difficult to
conduct such transactions. Delays in settlement could result in temporary
periods when assets of the Fund are uninvested and no return is earned thereon.
The inability of the Fund to make intended security purchases due to settlement
problems could cause the Fund to miss attractive investment opportunities.
Further, the inability to dispose of portfolio securities due to settlement
problems could result either in losses to the Fund because of subsequent
declines in the value of the portfolio security or, if the Fund has entered into
a contract to sell the security, in possible liability to the purchaser. It may
be more difficult for the Fund's agents to keep currently informed about
corporate actions such as stock dividends or other matters that may affect the
prices of portfolio securities. Communications between the United States and
foreign countries may be less reliable than within the United States, thus
increasing the risk of delayed settlements of portfolio transactions or loss of
certificates for portfolio securities. Moreover, individual foreign economies
may differ favorably or unfavorably from the United States economy in such
respects as growth of gross national product, rate of inflation, capital
reinvestment, resource self-sufficiency and balance of payments position. IMI
seeks to mitigate the risks to the Fund associated with the foregoing
considerations through investment variation and continuous professional
management.
EMERGING MARKETS
The Fund could have significant investments in securities traded in
emerging markets. Investors should recognize that investing in such countries
involves special considerations, in addition to those set forth above, that are
not typically associated with investing in United States securities and that may
affect the Fund's performance favorably or unfavorably.
In recent years, many emerging market countries around the world have
undergone political changes that have reduced government's role in economic and
personal affairs and have stimulated investment and growth. Historically, there
is a strong direct correlation between economic growth and stock market returns.
While this is no guarantee of future performance, IMI believes that investment
opportunities (particularly in the energy, environmental services, natural
resources, basic materials, power, telecommunications and transportation
industries) may result within the evolving economies of emerging market
countries from which the Fund and its shareholders will benefit.
Investments in companies domiciled in developing countries may be
subject to potentially higher risks than investments in developed countries.
Such risks include (i) less social, political and economic stability; (ii) a
small market for securities and/or a low or nonexistent volume of trading, which
result in a lack of liquidity and in greater price volatility; (iii) certain
national policies that may restrict the Fund's investment opportunities,
including restrictions on investment in issuers or industries deemed sensitive
to national interests; (iv) foreign taxation; (v) the absence of developed
structures governing private or foreign investment or allowing for judicial
redress for injury to private property; (vi) the absence, until relatively
recently in certain Eastern European countries, of a capital market structure or
market-oriented economy; (vii) the possibility that recent favorable economic
developments in Eastern Europe may be slowed or reversed by unanticipated
political or social events in such countries; and (viii) the possibility that
currency devaluations could adversely affect the value of the Fund's
investments. Further, many emerging markets have experienced and continue to
experience high rates of inflation.
Despite the dissolution of the Soviet Union, the Communist Party may
continue to exercise a significant role in certain Eastern European countries.
To the extent of the Communist Party's influence, investments in such countries
will involve risks of nationalization, expropriation and confiscatory taxation.
The communist governments of a number of Eastern European countries expropriated
large amounts of private property in the past, in many cases without adequate
compensation, and there can be no assurance that such expropriation will not
occur in the future. In the event of such expropriation, the Fund could lose a
substantial portion of any investments it has made in the affected countries.
Further, few (if any) accounting standards exist in Eastern European countries.
Finally, even though certain Eastern European currencies may be convertible into
U.S. dollars, the conversion rates may be artificial in relation to the actual
market values and may be adverse to the Fund's net asset value.
Certain Eastern European countries that do not have well-established
trading markets are characterized by an absence of developed legal structures
governing private and foreign investments and private property. In addition,
certain countries require governmental approval prior to investments by foreign
persons, or limit the amount of investment by foreign persons in a particular
company, or limit the investment of foreign persons to only a specific class of
securities of a company that may have less advantageous terms than securities of
the company available for purchase by nationals.
Authoritarian governments in certain Eastern European countries may
require that a governmental or quasi-governmental authority act as custodian of
the Fund's assets invested in such country. To the extent such governmental or
quasi-governmental authorities do not satisfy the requirements of the Investment
Company Act of 1940, as amended (the "1940 Act"), with respect to the custody of
the Fund's cash and securities, the Fund's investment in such countries may be
limited or may be required to be effected through intermediaries. The risk of
loss through governmental confiscation may be increased in such countries.
FOREIGN CURRENCIES
Investment in foreign securities usually will involve currencies of
foreign countries. Moreover, the Fund may temporarily hold funds in bank
deposits in foreign currencies during the completion of investment programs and
may purchase forward foreign currency contracts. Because of these factors, the
value of the assets of the Fund as measured in U.S. dollars may be affected
favorably or unfavorably by changes in foreign currency exchange rates and
exchange control regulations, and the Fund may incur costs in connection with
conversions between various currencies. Although the Fund's custodian values the
Fund's assets daily in terms of U.S. dollars, the Fund does not intend to
convert its holdings of foreign currencies into U.S. dollars on a daily basis.
The Fund will do so from time to time, however, and investors should be aware of
the costs of currency conversion. Although foreign exchange dealers do not
charge a fee for conversion, they do realize a profit based on the difference
(the "spread") between the prices at which they are buying and selling various
currencies. Thus, a dealer may offer to sell a foreign currency to the Fund at
one rate, while offering a lesser rate of exchange should the Fund desire to
resell that currency to the dealer. The Fund will conduct its foreign currency
exchange transactions either on a spot (i.e., cash) basis at the spot rate
prevailing in the foreign currency exchange market, or through entering into
forward contracts to purchase or sell foreign currencies.
Because the Fund normally will be invested in both U.S. and foreign
securities markets, changes in the Fund's share price may have a low correlation
with movements in U.S. markets. The Fund's share price will reflect the
movements of the different stock and bond markets in which it is invested (both
U.S. and foreign), and of the currencies in which the investments are
denominated. Thus, the strength or weakness of the U.S. dollar against foreign
currencies may account for part of the Fund's investment performance. U.S. and
foreign securities markets do not always move in step with each other, and the
total returns from different markets may vary significantly. In addition,
significant uncertainty surrounds the proposed introduction of the euro (a
common currency for the European Union) in January 1999 and its effect on the
value of securities denominated in local European currencies. These and other
currencies in which the Fund's assets are denominated may be devalued against
the U.S. dollar, resulting in a loss to the Fund.
FOREIGN CURRENCY EXCHANGE TRANSACTIONS
The Fund may enter into forward foreign currency contracts in order to
protect against uncertainty in the level of future foreign exchange rates in the
purchase and sale of securities. A forward contract is an obligation to purchase
or sell a specific currency for an agreed price at a future date (usually less
than a year), and typically is individually negotiated and privately traded by
currency traders and their customers. A forward contract generally has no
deposit requirement, and no commissions are charged at any stage for trades.
Although foreign exchange dealers do not charge a fee for commissions, they do
realize a profit based on the difference between the price at which they are
buying and selling various currencies. Although these contracts are intended to
minimize the risk of loss due to a decline in the value of the hedged
currencies, at the same time, they tend to limit any potential gain which might
result should the value of such currencies increase.
While the Fund may enter into forward contracts to reduce currency
exchange risks, changes in currency exchange rates may result in poorer overall
performance for the Fund than if it had not engaged in such transactions.
Moreover, there may be an imperfect correlation between the Fund's portfolio
holdings of securities denominated in a particular currency and forward
contracts entered into by the Fund. An imperfect correlation of this type may
prevent the Fund from achieving the intended hedge or expose the Fund to the
risk of currency exchange loss.
The Fund may purchase currency forwards and combine such purchases with
sufficient cash or short-term securities to create unleveraged substitutes for
investments in foreign markets when deemed advantageous. The Fund may also
combine the foregoing with bond futures or interest rate futures contracts to
create the economic equivalent of an unhedged foreign bond position.
The Fund may also cross-hedge currencies by entering into transactions
to purchase or sell one or more currencies that are expected to decline in value
relative to other currencies to which the Fund has or in which the Fund expects
to have portfolio exposure.
Currency transactions are subject to risks different from those of
other portfolio transactions. Because currency control is of great importance to
the issuing governments and influences economic planning and policy, purchases
and sales of currency and related instruments can be negatively affected by
government exchange controls, blockages, and manipulations or exchange
restrictions imposed by governments. These can result in losses to the Fund if
it is unable to deliver or receive currency or funds in settlement of
obligations and could also cause hedges it has entered into to be rendered
useless, resulting in full currency exposure as well as incurring transactions
costs. Buyers and sellers of currency futures are subject to the same risks that
apply to the use of futures generally. Further, settlement of a currency futures
contract for the purchase of most currencies must occur at a bank based in the
issuing nation. Trading options on currency futures is relatively new, and the
ability to establish and close out positions on such options is subject to the
maintenance of a liquid market which may not always be available. Currency
exchange rates may fluctuate based on factors extrinsic to that country's
economy.
OTHER INVESTMENT COMPANIES
The Fund may invest up to 10% of its total assets in the shares of
other investment companies. As a shareholder of an investment company, the Fund
would bear its ratable shares of the fund's expenses (which often include an
asset-based management fee). The Fund could also lose money by investing in
other investment companies, since the value of their respective investments and
the income they generate will vary daily based on prevailing market conditions.
REPURCHASE AGREEMENTS
Repurchase agreements are contracts under which the Fund buys a money
market instrument and obtains a simultaneous commitment from the seller to
repurchase the instrument at a specified time and at an agreed-upon yield. Under
guidelines approved by the Board, the Fund is permitted to enter into repurchase
agreements only if the repurchase agreements are at least fully collateralized
with U.S. Government securities or other securities that IMI has approved for
use as collateral for repurchase agreements and the collateral must be
marked-to-market daily. The Fund will enter into repurchase agreements only with
banks and broker-dealers deemed to be creditworthy by IMI under the
above-referenced guidelines. In the unlikely event of failure of the executing
bank or broker-dealer, the Fund could experience some delay in obtaining direct
ownership of the underlying collateral and might incur a loss if the value of
the security should decline, as well as costs in disposing of the security.
BANKING INDUSTRY AND SAVINGS AND LOAN OBLIGATIONS
Certificates of deposit are negotiable certificates issued against
funds deposited in a commercial bank for a definite period of time and earning a
specified return. Bankers' acceptances are negotiable drafts or bills of
exchange, normally drawn by an importer or exporter to pay for specific
merchandise, which are "accepted" by a bank (meaning, in effect, that the bank
unconditionally agrees to pay the face value of the instrument at maturity). In
addition to investing in certificates of deposit and bankers' acceptances, the
Fund may invest in time deposits in banks or savings and loan associations. Time
deposits are generally similar to certificates of deposit, but are
uncertificated. The Fund's investments in certificates of deposit, time
deposits, and bankers' acceptance are limited to obligations of (i) banks having
total assets in excess of $1 billion, (ii) U.S. banks which do not meet the $1
billion asset requirement, if the principal amount of such obligation is fully
insured by the Federal Deposit Insurance Corporation (the "FDIC"), (iii) savings
and loan association which have total assets in excess of $1 billion and which
are members of the FDIC, and (iv) foreign banks if the obligation is, in IMI's
opinion, of an investment quality comparable to other debt securities which may
be purchased by the Fund. The Fund's investments in certificates of deposit of
savings associations are limited to obligations of Federal and state-chartered
institutions whose total assets exceed $1 billion and whose deposits are insured
by the FDIC.
COMMERCIAL PAPER
Commercial paper represents short-term unsecured promissory notes
issued in bearer form by bank holding companies, corporations and finance
companies. The Fund may invest in commercial paper that is rated Prime-1 by
Moody's Investors Service, Inc. ("Moody's") or A-1 by Standard & Poor's
Corporation ("S&P") or, if not rated by Moody's or S&P, is issued by companies
having an outstanding debt issue rated Aaa or Aa by Moody's or AAA or AA by S&P.
BORROWING
Borrowing may exaggerate the effect on the Fund's net asset value of
any increase or decrease in the value of the Fund's portfolio securities. Money
borrowed will be subject to interest costs (which may include commitment fees
and/or the cost of maintaining minimum average balances). Although the principal
of the Fund's borrowings will be fixed, the Fund's assets may change in value
during the time a borrowing is outstanding, thus increasing exposure to capital
risk.
WARRANTS
The holder of a warrant has the right, until the warrant expires, to
purchase a given number of shares of a particular issuer at a specified price.
Such investments can provide a greater potential for profit or loss than an
equivalent investment in the underlying security. However, prices of warrants do
not necessarily move in a tandem with the prices of the underlying securities,
and are, therefore, considered speculative investments. Warrants pay no
dividends and confer no rights other than a purchase option. Thus, if a warrant
held by the Fund were not exercised by the date of its expiration, the Fund
would lose the entire purchase price of the warrant.
OPTIONS TRANSACTIONS
IN GENERAL. A call option is a short-term contract (having a duration
of less than one year) pursuant to which the purchaser, in return for the
premium paid, has the right to buy the security underlying the option at the
specified exercise price at any time during the term of the option. The writer
of the call option, who receives the premium, has the obligation, upon exercise
of the option, to deliver the underlying security against payment of the
exercise price. A put option is a similar contract pursuant to which the
purchaser, in return for the premium paid, has the right to sell the security
underlying the option at the specified exercise price at any time during the
term of the option. The writer of the put option, who receives the premium, has
the obligation, upon exercise of the option, to buy the underlying security at
the exercise price. The premium paid by the purchaser of an option will reflect,
among other things, the relationship of the exercise price to the market price
and volatility of the underlying security, the time remaining to expiration of
the option, supply and demand, and interest rates.
If the writer of an option wishes to terminate the obligation, the
writer may effect a "closing purchase transaction." This is accomplished by
buying an option of the same series as the option previously written. The effect
of the purchase is that the writer's position will be canceled by the Options
Clearing Corporation. However, a writer may not effect a closing purchase
transaction after it has been notified of the exercise of an option. Likewise,
an investor who is the holder of an option may liquidate his or her position by
effecting a "closing sale transaction." This is accomplished by selling an
option of the same series as the option previously purchased. There is no
guarantee that either a closing purchase or a closing sale transaction can be
effected at any particular time or at any acceptable price. If any call or put
option is not exercised or sold, it will become worthless on its expiration
date.
The Fund will realize a gain (or a loss) on a closing purchase
transaction with respect to a call or a put previously written by the Fund if
the premium, plus commission costs, paid by the Fund to purchase the call or the
put is less (or greater) than the premium, less commission costs, received by
the Fund on the sale of the call or the put. A gain also will be realized if a
call or a put that the Fund has written lapses unexercised, because the Fund
would retain the premium. Any such gains (or losses) are considered short-term
capital gains (or losses) for Federal income tax purposes. Net short-term
capital gains, when distributed by the Fund, are taxable as ordinary income. See
"Taxation."
The Fund will realize a gain (or a loss) on a closing sale transaction
with respect to a call or a put previously purchased by the Fund if the premium,
less commission costs, received by the Fund on the sale of the call or the put
is greater (or less) than the premium, plus commission costs, paid by the Fund
to purchase the call or the put. If a put or a call expires unexercised, it will
become worthless on the expiration date, and the Fund will realize a loss in the
amount of the premium paid, plus commission costs. Any such gain or loss will be
long-term or short-term gain or loss, depending upon the Fund's holding period
for the option.
Exchange-traded options generally have standardized terms and are
issued by a regulated clearing organization (such as the Options Clearing
Corporation), which, in effect, guarantees the completion of every
exchange-traded option transaction. In contrast, the terms of OTC options are
negotiated by the Fund and its counterparty (usually a securities dealer or a
financial institution) with no clearing organization guarantee. When the Fund
purchases an OTC option, it relies on the party from whom it has purchased the
option (the "counterparty") to make delivery of the instrument underlying the
option. If the counterparty fails to do so, the Fund will lose any premium paid
for the option, as well as any expected benefit of the transaction. Accordingly,
IMI will assess the creditworthiness of each counterparty to determine the
likelihood that the terms of the OTC option will be satisfied.
WRITING OPTIONS ON INDIVIDUAL SECURITIES. The Fund may write (sell)
covered call options on the Fund's securities in an attempt to realize a greater
current return than would be realized on the securities alone. The Fund may also
write covered call options to hedge a possible stock or bond market decline
(only to the extent of the premium paid to the Fund for the options). In view of
the investment objectives of the Fund, the Fund generally would write call
options only in circumstances where the investment adviser to the Fund does not
anticipate significant appreciation of the underlying security in the near
future or has otherwise determined to dispose of the security.
A "covered" call option means generally that so long as the Fund is
obligated as the writer of a call option, the Fund will (i) own the underlying
securities subject to the option, or (ii) have the right to acquire the
underlying securities through immediate conversion or exchange of convertible
preferred stocks or convertible debt securities owned by the Fund. Although the
Fund receives premium income from these activities, any appreciation realized on
an underlying security will be limited by the terms of the call option. The Fund
may purchase call options on individual securities only to effect a "closing
purchase transaction."
As the writer of a call option, the Fund receives a premium for
undertaking the obligation to sell the underlying security at a fixed price
during the option period, if the option is exercised. So long as the Fund
remains obligated as a writer of a call option, it forgoes the opportunity to
profit from increases in the market price of the underlying security above the
exercise price of the option, except insofar as the premium represents such a
profit (and retains the risk of loss should the value of the underlying security
decline).
PURCHASING OPTIONS ON INDIVIDUAL SECURITIES. The Fund may purchase a
put option on an underlying security owned by the Fund as a defensive technique
in order to protect against an anticipated decline in the value of the security.
The Fund, as the holder of the put option, may sell the underlying security at
the exercise price regardless of any decline in its market price. In order for a
put option to be profitable, the market price of the underlying security must
decline sufficiently below the exercise price to cover the premium and
transaction costs that the Fund must pay. These costs will reduce any profit the
Fund might have realized had it sold the underlying security instead of buying
the put option. The premium paid for the put option would reduce any capital
gain otherwise available for distribution when the security is eventually sold.
The purchase of put options will not be used by the Fund for leverage purposes.
The Fund may also purchase a put option on an underlying security that
it owns and at the same time write a call option on the same security with the
same exercise price and expiration date. Depending on whether the underlying
security appreciates or depreciates in value, the Fund would sell the underlying
security for the exercise price either upon exercise of the call option written
by it or by exercising the put option held by it. The Fund would enter into such
transactions in order to profit from the difference between the premium received
by the Fund for the writing of the call option and the premium paid by the Fund
for the purchase of the put option, thereby increasing the Fund's current
return. The Fund may write (sell) put options on individual securities only to
effect a "closing sale transaction."
PURCHASING AND WRITING OPTIONS ON SECURITIES INDICES. The Fund may
purchase and sell (write) put and call options on securities indices. An index
assigns relative values to the securities included in the index and the index
fluctuates with changes in the market values of the securities so included.
Options on indices are similar to options on individual securities, except that,
rather than giving the purchaser the right to take delivery of an individual
security at a specified price, they give the purchaser the right to receive
cash. The amount of cash is equal to the difference between the closing price of
the index and the exercise price of the option, expressed in dollars, times a
specified multiple (the "multiplier"). The writer of the option is obligated, in
return for the premium received, to make delivery of this amount.
The multiplier for an index option performs a function similar to the
unit of trading for a stock option. It determines the total dollar value per
contract of each point in the difference between the exercise price of an option
and the current level of the underlying index. A multiplier of 100 means that a
one-point difference will yield $100. Options on different indices have
different multipliers.
When the Fund writes a call or put option on a stock index, the option
is "covered", in the case of a call, or "secured", in the case of a put, if the
Fund maintains in a segregated account with the Custodian cash or liquid
securities equal to the contract value. A call option is also covered if the
Fund holds a call on the same index as the call written where the exercise price
of the call held is (i) equal to or less than the exercise price of the call
written or (ii) greater than the exercise price of the call written, provided
that the Fund maintains in a segregated account with the Custodian the
difference in cash or liquid securities. A put option is also "secured" if the
Fund holds a put on the same index as the put written where the exercise price
of the put held is (i) equal to or greater than the exercise price of the put
written or (ii) less than the exercise price of the put written, provided that
the Fund maintains in a segregated account with the Custodian the difference in
cash or liquid securities.
RISKS OF OPTIONS TRANSACTIONS. The purchase and writing of options
involves certain risks. During the option period, the covered call writer has,
in return for the premium on the option, given up the opportunity to profit from
a price increase in the underlying securities above the exercise price, but, as
long as its obligation as a writer continues, has retained the risk of loss
should the price of the underlying security decline. The writer of a U.S. option
has no control over the time when it may be required to fulfill its obligation
as a writer of the option. Once an option writer has received an exercise
notice, it cannot effect a closing purchase transaction in order to terminate
its obligation under the option and must deliver the underlying securities (or
cash in the case of an index option) at the exercise price. If a put or call
option purchased by the Fund is not sold when it has remaining value, and if the
market price of the underlying security (or index), in the case of a put,
remains equal to or greater than the exercise price or, in the case of a call,
remains less than or equal to the exercise price, the Fund will lose its entire
investment in the option. Also, where a put or call option on a particular
security (or index) is purchased to hedge against price movements in a related
security (or securities), the price of the put or call option may move more or
less than the price of the related security (or securities). In this regard,
there are differences between the securities and options markets that could
result in an imperfect correlation between these markets, causing a given
transaction not to achieve its objective.
There can be no assurance that a liquid market will exist when the Fund
seeks to close out an option position. Furthermore, if trading restrictions or
suspensions are imposed on the options markets, the Fund may be unable to close
out a position. Finally, trading could be interrupted, for example, because of
supply and demand imbalances arising from a lack of either buyers or sellers, or
the options exchange could suspend trading after the price has risen or fallen
more than the maximum amount specified by the exchange. Closing transactions can
be made for OTC options only by negotiating directly with the counterparty or by
a transaction in the secondary market, if any such market exists. There is no
assurance that the Fund will be able to close out an OTC option position at a
favorable price prior to its expiration. In the event of insolvency of the
counterparty, the Fund might be unable to close out an OTC option position at
any time prior to its expiration. Although the Fund may be able to offset to
some extent any adverse effects of being unable to liquidate an option position,
the Fund may experience losses in some cases as a result of such inability.
When conducted outside the U.S., options transactions may not be
regulated as rigorously as in the U.S., may not involve a clearing mechanism and
related guarantees, and are subject to the risk of governmental actions
affecting trading in, or the prices of, foreign securities, currencies and other
instruments. The value of such positions also could be adversely affected by:
(i) other complex foreign political, legal and economic factors, (ii) lesser
availability than in the U.S. of data on which to make trading decisions, (iii)
delays in the Fund's ability to act upon economic events occurring in foreign
markets during non-business hours in the U.S., (iv) the imposition of different
exercise and settlement terms and procedures and margin requirements than in the
U.S., and (v) lower trading volume and liquidity.
The Fund's options activities also may have an impact upon the level
of its portfolio turnover and brokerage commissions. See "Portfolio Turnover."
The Fund's success in using options techniques depends, among other
things, on IMI's ability to predict accurately the direction and volatility of
price movements in the options and securities markets, and to select the proper
type, time and duration of options.
FUTURES CONTRACTS AND OPTIONS ON FUTURES CONTRACTS
IN GENERAL. The Fund may enter into futures contracts and options on
futures contracts for hedging purposes. A futures contract provides for the
future sale by one party and purchase by another party of a specified quantity
of a commodity at a specified price and time. When a purchase or sale of a
futures contract is made by the Fund, the Fund is required to deposit with its
custodian (or broker, if legally permitted) a specified amount of cash or liquid
securities ("initial margin"). The margin required for a futures contract is set
by the exchange on which the contract is traded and may be modified during the
term of the contract. The initial margin is in the nature of a performance bond
or good faith deposit on the futures contract which is returned to the Fund upon
termination of the contract, assuming all contractual obligations have been
satisfied. A futures contract held by the Fund is valued daily at the official
settlement price of the exchange on which it is traded. Each day the Fund pays
or receives cash, called "variation margin," equal to the daily change in value
of the futures contract. This process is known as "marking to market." Variation
margin does not represent a borrowing or loan by the Fund but is instead a
settlement between the Fund and the broker of the amount one would owe the other
if the futures contract expired. In computing daily net asset value, the Fund
will mark-to-market its open futures position.
The Fund is also required to deposit and maintain margin with respect
to put and call options on futures contracts written by it. Such margin deposits
will vary depending on the nature of the underlying futures contract (and the
related initial margin requirements), the current market value of the option,
and other futures positions held by the Fund.
Although some futures contracts call for making or taking delivery of
the underlying securities, generally these obligations are closed out prior to
delivery of offsetting purchases or sales of matching futures contracts (same
exchange, underlying security or index, and delivery month). If an offsetting
purchase price is less than the original sale price, the Fund generally realizes
a capital gain, or if it is more, the Fund generally realizes a capital loss.
Conversely, if an offsetting sale price is more than the original purchase
price, the Fund generally realizes a capital gain, or if it is less, the Fund
generally realizes a capital loss.
The transaction costs must also be included in these calculations.
When purchasing a futures contract, the Fund will maintain with its
Custodian (and mark-to-market on a daily basis) cash or liquid securities that,
when added to the amounts deposited with a futures commission merchant ("FCM")
as margin, are equal to the market value of the futures contract. Alternatively,
the Fund may "cover" its position by purchasing a put option on the same futures
contract with a strike price as high as or higher than the price of the contract
held by the Fund, or, if lower, may cover the difference with cash or short-term
securities.
When selling a futures contract, the Fund will maintain with its
Custodian in a segregated account (and mark-to-market on a daily basis) cash or
liquid securities that, when added to the amounts deposited with an FCM as
margin, are equal to the market value of the instruments underlying the
contract. Alternatively, the Fund may "cover" its position by owning the
instruments underlying the contract (or, in the case of an index futures
contract, a portfolio with a volatility substantially similar to that of the
index on which the futures contract is based), or by holding a call option
permitting the Fund to purchase the same futures contract at a price no higher
than the price of the contract written by the Fund (or at a higher price if the
difference is maintained in liquid assets with the Fund's custodian).
When selling a call option on a futures contract, the Fund will
maintain with its Custodian in a segregated account (and mark-to-market on a
daily basis) cash or liquid securities that, when added to the amounts deposited
with an FCM as margin, equal the total market value of the futures contract
underlying the call option. Alternatively, the Fund may cover its position by
entering into a long position in the same futures contract at a price no higher
than the strike price of the call option, by owning the instruments underlying
the futures contract, or by holding a separate call option permitting the Fund
to purchase the same futures contract at a price not higher than the strike
price of the call option sold by the Fund, or covering the difference if the
price is higher.
When selling a put option on a futures contract, the Fund will maintain
with its Custodian (and mark-to-market on a daily basis) cash or liquid
securities that equal the purchase price of the futures contract less any margin
on deposit. Alternatively, the Fund may cover the position either by entering
into a short position in the same futures contract, or by owning a separate put
option permitting it to sell the same futures contract so long as the strike
price of the purchased put option is the same or higher than the strike price of
the put option sold by the Fund, or, if lower, the Fund may hold securities to
cover the difference.
FOREIGN CURRENCY FUTURES CONTRACTS AND RELATED OPTIONS. The Fund may
engage in foreign currency futures contracts and related options transactions
for hedging purposes. A foreign currency futures contract provides for the
future sale by one party and purchase by another party of a specified quantity
of a foreign currency at a specified price and time.
An option on a foreign currency futures contract gives the holder the
right, in return for the premium paid, to assume a long position (call) or short
position (put) in a futures contract at a specified exercise price at any time
during the period of the option. Upon the exercise of a call option, the holder
acquires a long position in the futures contract and the writer is assigned the
opposite short position. In the case of a put option, the opposite is true.
The Fund may purchase call and put options on foreign currencies as a
hedge against changes in the value of the U.S. dollar (or another currency) in
relation to a foreign currency in which portfolio securities of the Fund may be
denominated. A call option on a foreign currency gives the buyer the right to
buy, and a put option the right to sell, a certain amount of foreign currency at
a specified price during a fixed period of time. The Fund may invest in options
on foreign currency which are either listed on a domestic securities exchange or
traded on a recognized foreign exchange.
In those situations where foreign currency options may not be readily
purchased (or where such options may be deemed illiquid) in the currency in
which the hedge is desired, the hedge may be obtained by purchasing an option on
a "surrogate" currency, i.e., a currency where there is tangible evidence of a
direct correlation in the trading value of the two currencies. A surrogate
currency's exchange rate movements parallel that of the primary currency.
Surrogate currencies are used to hedge an illiquid currency risk, when no liquid
hedge instruments exist in world currency markets for the primary currency.
The Fund will only enter into futures contracts and futures options
which are standardized and traded on a U.S. or foreign exchange, board of trade,
or similar entity or quoted on an automated quotation system. The Fund will not
enter into a futures contract or purchase an option thereon if, immediately
thereafter, the aggregate initial margin deposits for futures contracts held by
the Fund plus premiums paid by it for open futures option positions, less the
amount by which any such positions are "in-the-money," would exceed 5% of the
liquidation value of the Fund's portfolio (or the Fund's net asset value), after
taking into account unrealized profits and unrealized losses on any such
contracts the Fund has entered into. A call option is "in-the-money" if the
value of the futures contract that is the subject of the option exceeds the
exercise price. A put option is "in-the-money" if the exercise price exceeds the
value of the futures contract that is the subject of the option. For additional
information about margin deposits required with respect to futures contracts and
options thereon, see "Futures Contracts and Options on Futures Contracts."
RISKS ASSOCIATED WITH FUTURES AND RELATED OPTIONS. There can be no
guarantee that there will be a correlation between price movements in the
hedging vehicle and in the Fund's portfolio securities being hedged. In
addition, there are significant differences between the securities and futures
markets that could result in an imperfect correlation between the markets,
causing a given hedge not to achieve its objectives. The degree of imperfection
of correlation depends on circumstances such as variations in speculative market
demand for futures and futures options on securities, including technical
influences in futures trading and futures options, and differences between the
financial instruments being hedged and the instruments underlying the standard
contracts available for trading in such respects as interest rate levels,
maturities, and creditworthiness of issuers. A decision as to whether, when and
how to hedge involves the exercise of skill and judgment, and even a
well-conceived hedge may be unsuccessful to some degree because of market
behavior or unexpected interest rate trends.
Futures exchanges may limit the amount of fluctuation permitted in
certain futures contract prices during a single trading day. The daily limit
establishes the maximum amount that the price of a futures contract may vary
either up or down from the previous day's settlement price at the end of the
current trading session. Once the daily limit has been reached in a futures
contract subject to the limit, no more trades may be made on that day at a price
beyond that limit. The daily limit governs only price movements during a
particular trading day and therefore does not limit potential losses because the
limit may work to prevent the liquidation of unfavorable positions. For example,
futures prices have occasionally moved to the daily limit for several
consecutive trading days with little or no trading, thereby preventing prompt
liquidation of positions and subjecting some holders of futures contracts to
substantial losses.
There can be no assurance that a liquid market will exist at a time
when the Fund seeks to close out a futures or a futures option position, and the
Fund would remain obligated to meet margin requirements until the position is
closed. In addition, there can be no assurance that an active secondary market
will continue to exist.
Currency futures contracts and options thereon may be traded on foreign
exchanges. Such transactions may not be regulated as effectively as similar
transactions in the United States; may not involve a clearing mechanism and
related guarantees; and are subject to the risk of governmental actions
affecting trading in, or the prices of, foreign securities. The value of such
position also could be adversely affected by (i) other complex foreign
political, legal and economic factors, (ii) lesser availability than in the
United States of data on which to make trading decisions, (iii) delays in the
Fund's ability to act upon economic events occurring in foreign markets during
non business hours in the United States, (iv) the imposition of different
exercise and settlement terms and procedures and margin requirements than in the
United States, and (v) lesser trading volume.
SECURITIES INDEX FUTURES CONTRACTS
The Fund may enter into securities index futures contracts as an
efficient means of regulating the Fund's exposure to the equity markets. The
Fund will not engage in transactions in futures contracts for speculation, but
only as a hedge against changes resulting from market conditions in the values
of securities held in the Fund's portfolio or which it intends to purchase. An
index futures contract is a contract to buy or sell units of an index at a
specified future date at a price agreed upon when the contract is made. Entering
into a contract to buy units of an index is commonly referred to as purchasing a
contract or holding a long position in the index. Entering into a contract to
sell units of an index is commonly referred to as selling a contract or holding
a short position. The value of a unit is the current value of the stock index.
For example, the S&P 500 Index is composed of 500 selected common stocks, most
of which are listed on the New York Stock Exchange (the "Exchange"). The S&P 500
Index assigns relative weightings to the 500 common stocks included in the
Index, and the Index fluctuates with changes in the market values of the shares
of those common stocks. In the case of the S&P 500 Index, contracts are to buy
or sell 500 units. Thus, if the value of the S&P 500 Index were $150, one
contract would be worth $75,000 (500 units x $150). The index futures contract
specifies that no delivery of the actual securities making up the index will
take place. Instead, settlement in cash must occur upon the termination of the
contract, with the settlement being the difference between the contract price
and the actual level of the stock index at the expiration of the contract. For
example, if the Fund enters into a futures contract to buy 500 units of the S&P
500 Index at a specified future date at a contract price of $150 and the S&P 500
Index is at $154 on that future date, the Fund will gain $2,000 (500 units x
gain of $4). If the Fund enters into a futures contract to sell 500 units of the
stock index at a specified future date at a contract price of $150 and the S&P
500 Index is at $154 on that future date, the Fund will lose $2,000 (500 units x
loss of $4).
RISKS OF SECURITIES INDEX FUTURES. The Fund's success in using hedging
techniques depends, among other things, on IMI's ability to predict correctly
the direction and volatility of price movements in the futures and options
markets as well as in the securities markets and to select the proper type, time
and duration of hedges. The skills necessary for successful use of hedges are
different from those used in the selection of individual stocks.
The Fund's ability to hedge effectively all or a portion of its
securities through transactions in index futures (and therefore the extent of
its gain or loss on such transactions) depends on the degree to which price
movements in the underlying index correlate with price movements in the Fund's
securities. Inasmuch as such securities will not duplicate the components of an
index, the correlation probably will not be perfect. Consequently, the Fund will
bear the risk that the prices of the securities being hedged will not move in
the same amount as the hedging instrument. This risk will increase as the
composition of the Fund's portfolio diverges from the composition of the hedging
instrument.
Although the Fund intends to establish positions in these instruments
only when there appears to be an active market, there is no assurance that a
liquid market will exist at a time when the Fund seeks to close a particular
option or futures position. Trading could be interrupted, for example, because
of supply and demand imbalances arising from a lack of either buyers or sellers.
In addition, the futures exchanges may suspend trading after the price has risen
or fallen more than the maximum amount specified by the exchange. In some cases,
the Fund may experience losses as a result of its inability to close out a
position, and it may have to liquidate other investments to meet its cash needs.
Although some index futures contracts call for making or taking
delivery of the underlying securities, generally these obligations are closed
out prior to delivery by offsetting purchases or sales of matching futures
contracts (same exchange, underlying security or index, and delivery month). If
an offsetting purchase price is less than the original sale price, the Fund
generally realizes a capital gain, or if it is more, the Fund generally realizes
a capital loss. Conversely, if an offsetting sale price is more than the
original purchase price, the Fund generally realizes a capital gain, or if it is
less, the Fund generally realizes a capital loss. The transaction costs must
also be included in these calculations.
The Fund will only enter into index futures contracts or futures
options that are standardized and traded on a U.S. or foreign exchange or board
of trade, or similar entity, or quoted on an automated quotation system. The
Fund will use futures contracts and related options only for "bona fide hedging"
purposes, as such term is defined in applicable regulations of the CFTC.
When purchasing an index futures contract, the Fund will maintain with
its Custodian (and mark-to-market on a daily basis) cash or liquid securities
that, when added to the amounts deposited with a futures commission merchant
("FCM") as margin, are equal to the market value of the futures contract.
Alternatively, the Fund may "cover" its position by purchasing a put option on
the same futures contract with a strike price as high as or higher than the
price of the contract held by the Fund.
When selling an index futures contract, the Fund will maintain with its
Custodian (and mark-to-market on a daily basis) cash or liquid securities that,
when added to the amounts deposited with an FCM as margin, are equal to the
market value of the instruments underlying the contract. Alternatively, the Fund
may "cover" its position by owning the instruments underlying the contract (or,
in the case of an index futures contract, a portfolio with a volatility
substantially similar to that of the index on which the futures contract is
based), or by holding a call option permitting the Fund to purchase the same
futures contract at a price no higher than the price of the contract written by
the Fund (or at a higher price if the difference is maintained in cash or liquid
assets in a segregated account with the Fund's custodian).
COMBINED TRANSACTIONS. The Fund may enter into multiple transactions,
including multiple options transactions, multiple futures transactions and
multiple currency transactions (including forward currency contracts) and some
combination of futures, options and currency transactions ("component"
transactions), instead of a single transaction, as part of a single or combined
strategy when, in the opinion of IMI, it is in the best interests of the Fund to
do so. A combined transaction will usually contain elements of risk that are
present in each of its component transactions. Although combined transactions
are normally entered into based on IMI's judgment that the combined strategies
will reduce risk or otherwise more effectively achieve the desired portfolio
management goal, it is possible that the combination will instead increase such
risks or hinder achievement of the management objective.
INVESTMENT RESTRICTIONS
The Fund's investment objectives as set forth in the "Summary" section
of the Prospectus, together with the investment restrictions set forth below,
are fundamental policies of the Fund and may not be changed without the approval
of a majority of the outstanding voting shares of the Fund. Under these
restrictions, the Fund may not:
(i) Invest in real estate, real estate mortgage loans, commodities
or interests in oil, gas and/or mineral exploration or
development programs, although (a) the Fund may purchase and
sell marketable securities of issuers which are secured by
real estate, (b) the Fund may purchase and sell securities of
issuers which invest or deal in real estate, (c) the Fund may
enter into forward foreign currency contracts as described in
the Fund's prospectus, and (d) the Fund may write or buy puts,
calls, straddles or spreads and may invest in commodity
futures contracts and options on futures contracts.
(ii) Purchase securities on margin, except such short-term credits
as are necessary for the clearance of transactions, but the
Fund may make margin deposits in connection with transactions
in options, futures and options on futures;
(iii) Make loans, except that this restriction shall not prohibit
(a) the purchase and holding of a portion of an issue of
publicly distributed debt securities, (b) the entry into
repurchase agreements with banks or broker-dealers, or (c) the
lending of the Fund's portfolio securities in accordance with
applicable guidelines established by the Securities and
Exchange Commission ("SEC") and any guidelines established by
the Trust's Trustees;
(iv) Borrow money, except as a temporary measure for extraordinary
or emergency purposes, and provided that the Fund maintains
asset coverage of 300% for all borrowings;
(v) Lend any funds or other assets, except that this restriction
shall not prohibit (a) the entry into repurchase agreements,
(b) the purchase of publicly distributed bonds, debentures and
other securities of a similar type, or privately placed
municipal or corporate bonds, debentures and other securities
of a type customarily purchased by institutional investors or
publicly traded in the securities markets, or (c) the lending
of portfolio securities (provided that the loan is secured
continuously by collateral consisting of U.S. Government
securities or cash or cash equivalents maintained on a daily
marked-to-market basis in an amount at least equal to the
market value of the securities loaned);
(vi) Purchase securities of any one issuer (except U.S. Government
securities) if as a result more than 5% of the Fund's total
assets would be invested in such issuer or the Fund would own
or hold more than 10% of the outstanding voting securities of
that issuer; provided, however, that up to 25% of the value of
the Fund's total assets may be invested without regard to
these limitations;
(vii) Make an investment in securities of companies in any one
industry (except obligations of domestic banks or the U.S.
Government, its agencies, authorities, or instrumentalities),
if such investment would cause investments in such industry to
exceed 25% of the market value of the Fund's total assets at
the time of such investment;
(viii) Participate in an underwriting or selling group in connection
with the public distribution of securities except for its own
capital stock; or
(ix) Issue senior securities, except as appropriate to evidence
indebtedness which it is permitted to incur, and except to the
extent that shares of the separate classes or series of the
Trust may be deemed to be senior securities; provided that
collateral arrangements with respect to currency-related
contracts, futures contracts, options or other permitted
investments, including deposits of initial and variation
margin, are not considered to be the issuance of senior
securities for purposes of this restriction.
ADDITIONAL RESTRICTIONS
The Fund has adopted the following additional restrictions, which are
not fundamental and which may be changed without shareholder approval, to the
extent permitted by applicable law, regulation or regulatory policy.
Under these restrictions, the Fund may not:
(i) invest in oil, gas or other mineral leases or exploration or development
programs;
(ii) invest more than 15% of its net assets taken at market value at the time of
the investment in "illiquid securities." Illiquid securities may include
securities subject to legal or contractual restrictions on resale
(including private placements), repurchase agreements maturing in more than
seven days, certain options traded over the counter that the Fund has
purchased, securities being used to cover certain options that the Fund has
written, securities for which market quotations are not readily available,
or other securities which legally or in IMI's opinion, subject to the
Board's supervision, may be deemed illiquid, but shall not include any
instrument that, due to the existence of a trading market, to the Fund's
compliance with certain conditions intended to provide liquidity, or to
other factors, is liquid;
(iii)purchase securities of other investment companies, except in connection
with a merger, consolidation or sale of assets, and except that the Fund
may purchase shares of other investment companies subject to such
restrictions as may be imposed by the Investment Company Act of 1940 and
rules thereunder;
(iv) sell securities short, except for short sales "against the box;" or
(v) participate on a joint or a joint and several basis in any trading account
in securities. The "bunching" of orders of the Fund and of other accounts
under the investment management of the Fund's investment adviser, for the
sale or purchase of portfolio securities shall not be considered
participation in a joint securities trading account.
Whenever an investment objective, policy or restriction set forth in
the Prospectus or this SAI states a maximum percentage of assets that may be
invested in any security or other asset or describes a policy regarding quality
standards, such percentage limitation or standard shall, unless otherwise
indicated, apply to the Fund only at the time a transaction is entered into.
Accordingly, if a percentage limitation is adhered to at the time of investment,
a later increase or decrease in the percentage which results from circumstances
not involving any affirmative action by the Fund, such as a change in market
conditions or a change in the Fund's asset level or other circumstances beyond
the Fund's control, will not be considered a violation.
PORTFOLIO TURNOVER
The Fund purchases securities that are believed by IMI to have above
average potential for capital appreciation. Common stocks are disposed of in
situations where it is believed that potential for such appreciation has
lessened or that other common stocks have a greater potential. Therefore, the
Fund may purchase and sell securities without regard to the length of time the
security is to be, or has been, held. A change in securities held by the Fund is
known as "portfolio turnover" and may involve the payment by the Fund of dealer
markup or underwriting commission and other transaction costs on the sale of
securities, as well as on the reinvestment of the proceeds in other securities.
The Fund's portfolio turnover rate is calculated by dividing the lesser of
purchases or sales of portfolio securities for the most recently completed
fiscal year by the monthly average of the value of the portfolio securities
owned by the Fund during that year. For purposes of determining the Fund's
portfolio turnover rate, all securities whose maturities at the time of
acquisition were one year or less are excluded.
TRUSTEES AND OFFICERS
The Fund's Board of Trustees (the "Board") is responsible for the
overall management of the Fund, including general supervision and review of the
Fund's investment activities. The Board, in turn, elects the officers who are
responsible for administering the Fund's day-to-day operations.
The Trustees and Executive Officers of the Trust, their business
addresses and principal occupations during the past five years are:
POSITION WITH BUSINESS AFFILIATIONS
NAME, ADDRESS, AGE THE TRUST AND PRINCIPAL OCCUPATIONS
John S. Anderegg, Jr. Trustee Chairman, Dynamics Research
60 Concord Street Corp. (instruments and controls);
Wilmington, MA 01887 Director, Burr-Brown Corp.
Age: 74 (operational amplifiers); Director,
Metritage Incorporated (level
measuring instruments); Trustee of
Mackenzie Series Trust (1992-1998).
Paul H. Broyhill Trustee Chairman, BMC Fund, Inc.
800 Hickory Blvd. (1983-present); Chairman,
Golfview Park-Box 500 Broyhill Family Foundation,
Lenoir, NC 28645 Inc. (1983-Present); Chairman and
Age: 74 President, Broyhill Investments,
Inc. (1983-present); Chairman,
Broyhill Timber Resources (1983-
present); Management of a personal
portfolio of fixed-income and equity
investments (1983-present); Trustee
of Mackenzie Series Trust (1988-
1998); Director of The Mackenzie
Funds Inc. (1988-1995).
Stanley Channick Trustee President and Chief
11 Bala Avenue Executive Officer, The
Bala Cynwyd, PA 19004 Whitestone Corporation
Age: 75 (insurance agency); Chairman, Scott
Management Company (administrative
services for insurance companies);
President, The Channick Group
(consultants to insurance companies
and national trade associations);
Trustee of Mackenzie Series Trust
(1994-1998); Director of The
Mackenzie Funds Inc. (1994-1995).
Frank W. DeFriece, Jr. Trustee Director, Manager and Vice
The Landmark Centre President, Director and
113 Landmark Lane, Fund Manager, Massengill-
Suite B DeFriece Foundation
Bristol, TN 37620-2285 (charitable organization)
Age: 77 (1950-present); Trustee and Vice
Chairman, East Tennessee Public
Communications Corp. (WSJK-TV)
(1984-present); Trustee of Mackenzie
Series Trust (1985-1998); Director
of The Mackenzie Funds Inc. (1987-
1995).
Roy J. Glauber Trustee Mallinckrodt Professor of
Lyman Laboratory Physics, Harvard
of Physics University (1974-present);
Harvard University Trustee of Mackenzie Series
Cambridge, MA 02138 Trust (1994-1997).
Age: 72
Michael G. Landry Trustee President, Chief Executive
700 South Federal Hwy. And Officer and Director of
Suite 300 Chairman Mackenzie Investment
Boca Raton, FL 33432 Management Inc. (1987-
Age: 51 present); President,
[*Deemed to be an Director and Chairman of
"interested person" Ivy Management Inc. (1992-
of the Trust, as present); Chairman and
defined under the Director of Ivy Mackenzie
1940 Act.] Services Corp.(1993-present);
Chairman and Director of Ivy
Mackenzie Distributors, Inc.
(1994-present); Director and
President of Ivy Mackenzie
Distributors, Inc. (1993-1994);
Director and President of The
Mackenzie Funds Inc. (1987-1995);
Trustee of Mackenzie Series Trust
(1987-1998); President of Mackenzie
Series Trust (1987-1996); Chairman
of Mackenzie Series Trust (1996-
1998).
Joseph G. Rosenthal Trustee Chartered Accountant
110 Jardin Drive (1958-present); Trustee of
Unit #12 Mackenzie Series Trust
Concord, Ontario Canada (1985-1998); Director of
L4K 2T7 The Mackenzie Funds Inc.
Age: 63 (1987-1995).
Richard N. Silverman Trustee Director, Newton-Wellesley
18 Bonnybrook Road Hospital; Director, Beth
Waban, MA 02168 Israel Hospital; Director,
Age: 74 Boston Ballet; Director, Boston
Children's Museum; Director, Brimmer
and May School.
J. Brendan Swan Trustee President, Airspray
4701 North Federal Hwy. International, Inc.;
Suite 465 Joint Managing Director,
Pompano Beach, FL 33064 Airspray International
Age: 67 B.V. (an environmentally sensitive
packaging company); Director of
Polyglass LTD.; Director, The
Mackenzie Funds Inc. (1992-1995);
Trustee of Mackenzie Series Trust
(1992-1998).
Keith J. Carlson Trustee Senior Vice President of Mackenzie
700 South Federal Hwy. And Investment Management, Inc. (1996 -
Suite 300 President -present); Senior Vice President and
Boca Raton, FL 33432 Director of Mackenzie Investment
Age: 41 Management, Inc. (1994 - 1996);
[*Deemed to be an Senior Vice President and Treasurer
"interested person" of Mackenzie Investment Management,
of the Trust, Inc. (1989-1994);Senior Vice
President
as defined under President and Director of Ivy
the 1940 Act.] Management Inc. (1994-present);
Senior Vice President, Treasurer and
Director of Ivy Management Inc.
(1992-1994); Vice President of The
Mackenzie Funds Inc. (1987-1995);
Senior Vice President and Director,
Ivy Mackenzie Services Corp. (1996-
present); President and Director of
Ivy Mackenzie Services Corp. (1993-
1996); Trustee and President of
Mackenzie Series Trust (1996-1998);
Vice President of Mackenzie Series
Trust (1994-1998); Treasurer of
Mackenzie Series Trust (1985-1994);
President, Chief Executive Officer
and Director of Ivy Mackenzie
Distributors, Inc. (1994-present);
Executive Vice President and
Director of Ivy Mackenzie
Distributors, Inc. (1993-1994);
Trustee of Mackenzie Series Trust
(1996-1998).
C. William Ferris Secretary/ Senior Vice President,
700 South Federal Hwy. Treasurer Chief Financial Officer
Suite 300 and Secretary/Treasurer
Boca Raton, FL 33432 of Mackenzie Investment
Age: 53 Management Inc. (1995-present);
Senior Vice President, Finance and
Administration/Compliance Officer of
Mackenzie Investment Management Inc.
(1989-1994); Senior Vice President,
Secretary/ Treasurer and Clerk of
Ivy Management Inc. (1994-present);
Vice President, Finance/
Administration and Compliance
Officer of Ivy Management Inc.
(1992-1994); Senior Vice President,
Secretary/Treasurer and Director of
Ivy Mackenzie Distributors, Inc.
(1994-present); Secretary/Treasurer
and Director of Ivy Mackenzie
Distributors, Inc. (1993-1994);
President and Director of Ivy
Mackenzie Services Corp.
(1996-present); Secretary/Treasurer
and Director of Ivy Mackenzie
Services Corp. (1993-1996);
Secretary/Treasurer
of The Mackenzie Funds Inc.
(1993-1995); Secretary/Treasurer of
Mackenzie Series Trust (1994-1998).
James W. Broadfoot Vice Executive Vice President,
700 South Federal Hwy. President Ivy Management Inc. (1996-
Suite 300 present); Senior Vice
Boca Raton, FL 33432 President, Ivy Management,
Age: 56 Inc. (1992-1996); Director and
Senior Vice President, Mackenzie
Investment Management Inc. (1995-
present); Senior Vice President,
Mackenzie Investment Management Inc.
(1990-1995).
COMPENSATION TABLE
IVY FUND
(FISCAL YEAR ENDED DECEMBER 31, 1998)
PENSION OR TOTAL COMPENSA-
AGGREGATE RETIREMENT ESTIMATED TION FROM TRUST
NAME, COMPENSATION BENEFITS ACCRUED ANNUAL AND FUND
POSITION FROM TRUST AS PART OF BENEFITS UPON COMPLEX PAID TO
FUND EXPENSES RETIREMENT TRUSTEES
John S. N/A N/A
Anderegg, Jr.
(Trustee)
Paul H. N/A N/A
Broyhill
(Trustee)
Keith J. $0 N/A N/A $0
Carlson
(Trustee and
President)
Stanley N/A N/A
Channick
(Trustee)
Frank W. N/A N/A
DeFriece, Jr.
(Trustee)
Roy J. N/A N/A
Glauber
(Trustee)
Michael G. $0 N/A N/A $0
Landry
(Trustee and
Chairman of
the Board)
Joseph G. N/A N/A
Rosenthal
(Trustee)
Richard N. N/A N/A
Silverman
(Trustee)
J. Brendan N/A N/A
Swan
(Trustee)
C. William $0 N/A N/A $0
Ferris
(Secretary/
Treasurer)
To the knowledge of the Trust, as of [ ], no shareholder owned
beneficially or of record 5% or more of the Fund's outstanding shares of any
class, except that [to be completed by amendment].
As of [ ], the Officers and Trustees of the Trust as a group owned
beneficially or of record less than 1% of the outstanding Class A, Class B,
Class C and Advisor Class shares of the Fund.
PERSONAL INVESTMENTS BY EMPLOYEES OF IMI. Employees of IMI are
permitted to make personal securities transactions, subject to the requirements
and restrictions set forth in IMI's Code of Ethics and Business Conduct Policy
(the "Code of Ethics"). The Code of Ethics is designed to identify and address
certain conflicts of interest between personal investment activities and the
interests of investment advisory clients such as the Fund. Among other things,
the Code of Ethics, which generally complies with standards recommended by the
Investment Company Institute's Advisory Group on Personal Investing, prohibits
certain types of transactions absent prior approval, applies to portfolio
managers, traders, research analysts and others involved in the investment
advisory process, and imposes time periods during which personal transactions
may not be made in certain securities, and requires the submission of duplicate
broker confirmations and monthly reporting of securities transactions.
Exceptions to these and other provisions of the Code of Ethics may be granted in
particular circumstances after review by appropriate personnel.
INVESTMENT ADVISORY AND OTHER SERVICES
BUSINESS MANAGEMENT AND INVESTMENT ADVISORY SERVICES
IMI provides business management and investment advisory services to
the Fund pursuant to a Business Management and Investment Advisory Agreement
(the "Agreement"). The Agreement was approved by the sole shareholder of the
Fund on December 13, 1996. Prior to shareholder approval, the Agreement was
approved with respect to the Fund by the Board, including a majority of the
Trustees who are neither "interested persons" (as defined in the 1940 Act) of
the Trust nor have any direct or indirect financial interest in the operation of
the distribution plan (see "Distribution Services") or in any related agreement
(the "Independent Trustees") at a meeting held on December 7, 1996.
IMI is a wholly owned subsidiary of Mackenzie Investment Management
Inc. ("MIMI"). MIMI, a Delaware corporation, has approximately 10% of its
outstanding common stock listed for trading on the Toronto Stock Exchange
("TSE"). MIMI is a subsidiary of Mackenzie Financial Corporation ("MFC"), 150
Bloor Street West, Toronto, Ontario, Canada, a public corporation organized
under the laws of Ontario whose shares are listed for trading on the TSE. MFC is
registered in Ontario as a mutual fund dealer and advises Ivy Global Natural
Resources Fund. IMI currently acts as manager and investment adviser to the
following additional investment companies registered under the 1940 Act (other
than the Fund): Ivy Bond Fund, Ivy China Region Fund, Ivy Developing Nations
Fund, Ivy European Opportunities Fund, Ivy Global Fund, Ivy Global Science &
Technology Fund, Ivy Growth Fund, Ivy Growth with Income Fund, Ivy International
Fund, Ivy International Fund II, Ivy International Small Companies Fund, Ivy
International Strategic Bond Fund, Ivy Money Market Fund, Ivy Pan-Europe Fund,
Ivy South America Fund, Ivy US Blue Chip Fund and Ivy US Emerging Growth Fund.
IMI also provides business management services to Ivy Global Natural Resources
Fund.
The Agreement obligates IMI to make investments for the account of the
Fund in accordance with its best judgment and within the investment objectives
and restrictions set forth in the Prospectus, the 1940 Act and the provisions of
the Code relating to regulated investment companies, subject to policy decisions
adopted by the Board. IMI also determines the securities to be purchased or sold
by the Fund and places orders with brokers or dealers who deal in such
securities.
Under the Agreement, IMI also provides certain business management
services. IMI is obligated to (1) coordinate with the Fund's Custodian and
monitor the services it provides to the Fund; (2) coordinate with and monitor
any other third parties furnishing services to the Fund; (3) provide the Fund
with necessary office space, telephones and other communications facilities as
are adequate for the Fund's needs; (4) provide the services of individuals
competent to perform administrative and clerical functions that are not
performed by employees or other agents engaged by the Fund or by IMI acting in
some other capacity pursuant to a separate agreement or arrangements with the
Fund; (5) maintain or supervise the maintenance by third parties of such books
and records of the Trust as may be required by applicable Federal or state law;
(6) authorize and permit IMI's directors, officers and employees who may be
elected or appointed as trustees or officers of the Trust to serve in such
capacities; and (7) take such other action with respect to the Trust, after
approval by the Trust as may be required by applicable law, including without
limitation the rules and regulations of the SEC and of state securities
commissions and other regulatory agencies.
The Fund pays IMI a monthly fee for providing business management
and investment advisory services at an annual rate of 1.00% of
the Fund's average net assets.
During the fiscal years ended December 31, 1997 and 1998, the Fund paid
IMI fees of $10,473 and [ ], respectively (of which IMI reimbursed $10,473 and [
], respectively, pursuant to expense limitations).
Under the Agreement, the Trust pays the following expenses: (1) the
fees and expenses of the Trust's Independent Trustees; (2) the salaries and
expenses of any of the Trust's officers or employees who are not affiliated with
IMI; (3) interest expenses; (4) taxes and governmental fees, including any
original issue taxes or transfer taxes applicable to the sale or delivery of
shares or certificates therefor; (5) brokerage commissions and other expenses
incurred in acquiring or disposing of portfolio securities; (6) the expenses of
registering and qualifying shares for sale with the SEC and with various state
securities commissions; (7) accounting and legal costs; (8) insurance premiums;
(9) fees and expenses of the Trust's Custodian and Transfer Agent and any
related services; (10) expenses of obtaining quotations of portfolio securities
and of pricing shares; (11) expenses of maintaining the Trust's legal existence
and of shareholders' meetings; (12) expenses of preparation and distribution to
existing shareholders of periodic reports, proxy materials and prospectuses; and
(13) fees and expenses of membership in industry organizations.
IMI currently limits the Fund's total operating expenses (excluding
Rule 12b-1 fees, interest, taxes, brokerage commissions, litigation,
class-specific expenses, indemnification expenses, and extraordinary expenses)
to an annual rate of 1.95% of the Fund's average net assets, which may lower the
Fund's expenses and increase its yield.
The Agreement will continue in effect with respect to the Fund from
year to year, only so long as the continuance is specifically approved at least
annually (i) by the vote of a majority of the Independent Trustees and (ii)
either (a) by the vote of a majority of the outstanding voting securities (as
defined in the 1940 Act) of the Fund or (b) by the vote of a majority of the
entire Board. If the question of continuance of the Agreement (or adoption of
any new agreement) is presented to the shareholders, continuance (or adoption)
shall be effected only if approved by the affirmative vote of a majority of the
outstanding voting securities of the Fund. See "Capitalization and Voting
Rights."
The Agreement may be terminated with respect to the Fund at any time,
without payment of any penalty, by the vote of a majority of the Board, or by a
vote of a majority of the outstanding voting securities of the Fund, on 60 days'
written notice to IMI, or by IMI on 60 days' written notice to the Trust. The
Agreement shall terminate automatically in the event of its assignment.
DISTRIBUTION SERVICES
IMDI, a wholly owned subsidiary of MIMI, serves as the exclusive
distributor of Ivy Fund's shares pursuant to an Amended and Restated
Distribution Agreement with the Trust dated _______________, 1999, as amended
from time to time (the "Distribution Agreement"). The Distribution Agreement was
approved by the Board on September 17, 1998. IMDI distributes shares of the Fund
through broker-dealers who are members of the National Association of Securities
Dealers, Inc. and who have executed dealer agreements with IMDI. IMDI
distributes shares of the Fund on a continuous basis, but reserves the right to
suspend or discontinue distribution on that basis. IMDI is not obligated to sell
any specific amount of Fund shares.
Pursuant to the Distribution Agreement, IMDI is entitled to deduct a
commission on all Class A Fund shares sold equal to the difference, if any,
between the public offering price, as set forth in the Fund's then-current
prospectus, and the net asset value on which such price is based. Out of that
commission, IMDI may reallow to dealers such concession as IMDI may determine
from time to time. In addition, IMDI is entitled to deduct a CDSC on the
redemption of Class A shares sold without an initial sales charge and Class B
and Class C shares, in accordance with, and in the manner set forth in, the
Prospectus.
Under the Distribution Agreement, the Fund bears, among other expenses,
the expenses of registering and qualifying its shares for sale under Federal and
state securities laws and preparing and distributing to existing shareholders
periodic reports, proxy materials and prospectuses.
During the fiscal year ended December 31, 1998, IMDI received from
sales of Class A shares of the Fund [ ] in sales commissions, of which [ ] was
retained after dealer allowances. During the fiscal year ended December 31,
1998, IMDI received [ ] in CDSCs on redemptions of Class B shares of the Fund.
During the fiscal year ended December 31, 1998, IMDI received [ ] in CDSCs on
redemptions of Class C shares of the Fund.
The Distribution Agreement will continue in effect for successive
one-year periods, provided that such continuance is specifically approved at
least annually by the vote of a majority of the Independent Trustees, cast in
person at a meeting called for that purpose and by the vote of either a majority
of the entire Board or a majority of the outstanding voting securities of the
Fund. The Distribution Agreement may be terminated with respect to the Fund at
any time, without payment of any penalty, by IMDI on 60 days' written notice to
the Fund or by the Fund by vote of either a majority of the outstanding voting
securities of the Fund or a majority of the Independent Trustees on 60 days'
written notice to IMDI. The Distribution Agreement shall terminate automatically
in the event of its assignment.
RULE 18F-3 PLAN. On February 23, 1995, the SEC adopted Rule 18f-3 under
the 1940 Act, which permits a registered open-end investment company to issue
multiple classes of shares in accordance with a written plan approved by the
investment company's board of directors/trustees and filed with the SEC. At a
meeting held on December 7, 1996, the Board adopted a Rule 18f-3 plan on behalf
of the Fund. The Board last approved the Rule 18f-3 plan at a meeting held of
December 5-6, 1997. The key features of the Rule 18f-3 plan are as follows: (i)
shares of each class of the Fund represent an equal pro rata interest in the
Fund and generally have identical voting, dividend, liquidation, and other
rights, preferences, powers, restrictions, limitations, qualifications, terms
and conditions, except that each class bears certain class-specific expenses and
has separate voting rights on certain matters that relate solely to that class
or in which the interests of shareholders of one class differ from the interests
of shareholders of another class; (ii) subject to certain limitations described
in the Prospectus, shares of a particular class of the Fund may be exchanged for
shares of the same class of another Ivy fund; and (iii) the Fund's Class B
shares will convert automatically into Class A shares of the Fund after a period
of eight years, based on the relative net asset value of such shares at the time
of conversion.
RULE 12B-1 DISTRIBUTION PLANS. The Trust has adopted on behalf of the
Fund, in accordance with Rule 12b-1 under the 1940 Act, separate Rule 12b-1
distribution plans pertaining to the Fund's Class A, Class B and Class C shares
(each, a "Plan"). In adopting each Plan, a majority of the Independent Trustees
have concluded in accordance with the requirements of Rule 12b-1 that there is a
reasonable likelihood that each Plan will benefit the Fund and its shareholders.
The Trustees of the Trust believe that the Plans should result in greater sales
and/or fewer redemptions of the Fund's shares, although it is impossible to know
for certain the level of sales and redemptions of the Fund's shares in the
absence of a Plan or under an alternative distribution arrangement.
Under each Plan, the Fund pays IMDI a service fee, accrued daily and
paid monthly, at the annual rate of up to 0.25% of the average daily net assets
attributable to its Class A, Class B or Class C shares, as the case may be. The
services for which service fees may be paid include, among other things,
advising clients or customers regarding the purchase, sale or retention of
shares of the Fund, answering routine inquiries concerning the Fund and
assisting shareholders in changing options or enrolling in specific plans.
Pursuant to each Plan, service fee payments made out of or charged against the
assets attributable to the Fund's Class A, Class B or Class C shares must be in
reimbursement for services rendered for or on behalf of the affected class. The
expenses not reimbursed in any one month may be reimbursed in a subsequent
month. The Class A Plan does not provide for the payment of interest or carrying
charges as distribution expenses.
Under the Fund's Class B and Class C Plans, the Fund also pays IMDI a
distribution fee, accrued daily and paid monthly, at the annual rate of 0.75% of
the average daily net assets attributable to its Class B or Class C shares. IMDI
may reallow to dealers all or a portion of the service and distribution fees as
IMDI may determine from time to time. The distribution fee compensates IMDI for
expenses incurred in connection with activities primarily intended to result in
the sale of the Fund's Class B or Class C shares, including the printing of
prospectuses and reports for persons other than existing shareholders and the
preparation, printing and distribution of sales literature and advertising
materials. Pursuant to each Class B and Class C Plan, IMDI may include interest,
carrying or other finance charges in its calculation of distribution expenses,
if not prohibited from doing so pursuant to an order of or a regulation adopted
by the SEC.
Among other things, each Plan provides that (1) IMDI will submit to the
Board at least quarterly, and the Trustees will review, written reports
regarding all amounts expended under the Plan and the purposes for which such
expenditures were made; (2) each Plan will continue in effect only so long as
such continuance is approved at least annually, and any material amendment
thereto is approved, by the votes of a majority of the Board, including the
Independent Trustees, cast in person at a meeting called for that purpose; (3)
payments by the Fund under each Plan shall not be materially increased without
the affirmative vote of the holders of a majority of the outstanding shares of
the relevant class; and (4) while each Plan is in effect, the selection and
nomination of Independent Trustees shall be committed to the discretion of the
Trustees who are not "interested persons" of the Trust.
IMDI may make payments for distribution assistance and for
administrative and accounting services from resources that may include the
management fees paid by the Fund. IMDI also may make payments (such as the
service fee payments described above) to unaffiliated broker-dealers for
services rendered in the distribution of the Fund's shares. To qualify for such
payments, shares may be subject to a minimum holding period. However, no such
payments will be made to any dealer or broker if at the end of each year the
amount of shares held does not exceed a minimum amount. The minimum holding
period and minimum level of holdings will be determined from time to time by
IMDI.
A report of the amount expended pursuant to each Plan, and the purposes
for which such expenditures were incurred, must be made to the Board for its
review at least quarterly.
During the fiscal year ended December 31, 1998, the Fund paid IMDI [ ]
pursuant to its Class A plan. During the fiscal year ended December 31, 1998 the
Fund paid IMDI [ ] pursuant to its Class B plan. During the fiscal year ended
December 31, 1998, the Fund paid IMDI [ ] pursuant to its Class C plan.
During the fiscal year ended December 31, 1998, IMDI expended the
following amounts in marketing Class A shares of the Fund: advertising [$ ;]
printing and mailing of prospectuses to persons other than current shareholders,
[$ ;] compensation to dealers, [$ ;] compensation to sales personnel [$ ;]
seminars and meetings, [$ ;] travel and entertainment, [$ ;] general and
administrative, [$ ;] telephone, [$ ;] and occupancy and equipment rental, [$ .]
During the fiscal year ended December 31, 1998, IMDI expended the
following amounts in marketing Class B shares of the Fund: advertising, [$ ;]
printing and mailing of prospectuses to persons other than current shareholders,
[$ ;] compensation to dealers, [$ ;] compensation to sales personnel, [$ ;]
seminars and meetings, [$ ;] travel and entertainment, [$ ;] general and
administrative, [$ ;] telephone, [$ ;] and occupancy and equipment rental [$ .]
During the fiscal year ended December 31, 1998, IMDI expended the
following amounts in marketing Class C shares of the Fund: advertising, [$ ;]
printing and mailing of prospectuses to persons other than current shareholders,
[$ ;] compensation to dealers, [$ ;] compensation to sales personnel, [$ ;]
seminars and meetings, [$ ;] travel and entertainment, [$ ;] general
administrative, [$ ;] telephone, [$ ;] and occupancy and equipment rental, [$ .]
Each Plan may be amended at any time with respect to the class of
shares of the Fund to which the Plan relates by vote of the Trustees, including
a majority of the Independent Trustees, cast in person at a meeting called for
the purpose of considering such amendment. Each Plan may be terminated at any
time with respect to the class of shares of the Fund to which the Plan relates,
without payment of any penalty, by vote of a majority of the Independent
Trustees, or by vote of a majority of the outstanding voting securities of that
class.
If the Distribution Agreement or the Distribution Plans are terminated
(or not renewed) with respect to any of the Ivy funds (or class of shares
thereof), each may continue in effect with respect to any other fund (or Class
of shares thereof) as to which they have not been terminated (or have been
renewed).
CUSTODIAN
Pursuant to a Custodian Agreement with the Trust, Brown Brothers
Harriman & Co. (the "Custodian"), a private bank and member of the principal
securities exchanges, located at 40 Water Street, Boston, Massachusetts 02109
(the "Custodian"), maintains custody of the assets of the Fund held in the
United States. Rules adopted under the 1940 Act permit the Trust to maintain its
foreign securities and cash in the custody of certain eligible foreign banks and
securities depositories. Pursuant to those rules, the Custodian has entered into
subcustodial agreements for the holding of the Fund's foreign securities. With
respect to the Fund, the Custodian may receive, as partial payment for its
services to the Fund, a portion of the Trust's brokerage business, subject to
its ability to provide best price and execution.
FUND ACCOUNTING SERVICES
Pursuant to a Fund Accounting Services Agreement, MIMI provides certain
accounting and pricing services for the Fund. As compensation for those
services, the Fund pays MIMI a monthly fee plus out-of-pocket expenses as
incurred. The monthly fee is based upon the net assets of the Fund at the
preceding month end at the following rates: $1,250 when net assets are $10
million and under; $2,500 when net assets are over $10 million to $40 million;
$5,000 when net assets are over $40 million to $75 million; and $6,500 when net
assets are over $75 million.
During the fiscal year ended December 31, 1998, the Fund paid MIMI [ ] under the
agreement.
TRANSFER AGENT AND DIVIDEND PAYING AGENT
Pursuant to a Transfer Agency and Shareholder Service Agreement, Ivy
Mackenzie Services Corp. ("IMSC"), a wholly owned subsidiary of MIMI, is the
transfer agent for the Fund. Under the Agreement, the Fund pays a monthly fee at
an annual rate of $20.00 for each open Class A, Class B, Class C and Advisor
Class account. In addition, the Fund pays a monthly fee at an annual rate of
$4.58 per account that is closed plus certain out-of-pocket expenses. Such fees
and expenses for the fiscal year ended December 31, 1998 for the Fund totaled [$
]. Certain broker-dealers that maintain shareholder accounts with the Fund
through an omnibus account provide transfer agent and other shareholder-related
services that would otherwise be provided by IMSC if the individual accounts
that comprise the omnibus account were opened by their beneficial owners
directly. IMSC pays such broker-dealers a per account fee for each open account
within the omnibus account, or a fixed rate (e.g., 0.10%) fee, based on the
average daily net asset value of the omnibus account (or a combination thereof).
ADMINISTRATOR
Pursuant to an Administrative Services Agreement, MIMI provides certain
administrative services to the Fund. As compensation for these services, the
Fund pays MIMI a monthly fee at the annual rate of 0.10% of the Fund's average
daily net assets. Such fees for the fiscal year ended December 31, 1998 for the
Fund totaled [$ ].
Outside of providing administrative services to the Trust, as described
above, MIMI may also act on behalf of IMDI in paying commissions to
broker-dealers with respect to sales of Class B and Class C shares of the Fund.
AUDITORS
[ ], independent public accountants, has been selected as auditors for
the Trust. The audit services performed by [ ] include audits of the annual
financial statements of each of the funds of the Trust. Other services provided
principally relate to filings with the SEC and the preparation of the funds' tax
returns.
BROKERAGE ALLOCATION
Subject to the overall supervision of the President and the Board, IMI
places orders for the purchase and sale of the Fund's portfolio securities. All
portfolio transactions are effected at the best price and execution obtainable.
Purchases and sales of debt securities are usually principal transactions and
therefore, brokerage commissions are usually not required to be paid by the Fund
for such purchases and sales (although the price paid generally includes
undisclosed compensation to the dealer). The prices paid to underwriters of
newly-issued securities usually include a concession paid by the issuer to the
underwriter, and purchases of after-market securities from dealers normally
reflect the spread between the bid and asked prices. In connection with OTC
transactions, IMI attempts to deal directly with the principal market makers,
except in those circumstances where IMI believes that a better price and
execution are available elsewhere.
IMI selects broker-dealers to execute transactions and evaluates the
reasonableness of commissions on the basis of quality, quantity, and the nature
of the firms' professional services. Commissions to be charged and the rendering
of investment services, including statistical, research, and counseling services
by brokerage firms, are factors to be considered in the placing of brokerage
business. The types of research services provided by brokers may include general
economic and industry data, and information on securities of specific companies.
Research services furnished by brokers through whom the Trust effects securities
transactions may be used by IMI in servicing all of its accounts. In addition,
not all of these services may be used by IMI in connection with the services it
provides to the Fund or the Trust. IMI may consider sales of shares of Ivy funds
as a factor in the selection of broker-dealers and may select broker-dealers who
provide it with research services. IMI will not, however, execute brokerage
transactions other than at the best price and execution.
During the fiscal years ended December 31, 1997 and 1998, the Fund paid
brokerage commissions of $18,500 and [ ], respectively.
The Fund may, under some circumstances, accept securities in lieu of
cash as payment for Fund shares. The Fund will accept securities only to
increase its holdings in a portfolio security or to take a new portfolio
position in a security that IMI deems to be a desirable investment for the Fund.
While no minimum has been established, it is expected that the Fund will not
accept securities having an aggregate value of less than $1 million. The Trust
may reject in whole or in part any or all offers to pay for the Fund shares with
securities and may discontinue accepting securities as payment for the Fund
shares at any time without notice. The Trust will value accepted securities in
the manner and at the same time provided for valuing portfolio securities of the
Fund, and the Fund shares will be sold for net asset value determined at the
same time the accepted securities are valued. The Trust will only accept
securities delivered in proper form and will not accept securities subject to
legal restrictions on transfer. The acceptance of securities by the Trust must
comply with the applicable laws of certain states.
CAPITALIZATION AND VOTING RIGHTS
The capitalization of the Trust consists of an unlimited number of
shares of beneficial interest (no par value per share). When issued, shares of
each class of the Fund are fully paid, non-assessable, redeemable and fully
transferable. No class of shares of the Fund has preemptive rights or
subscription rights.
The Amended and Restated Declaration of Trust permits the Trustees to
create separate series or portfolios and to divide any series or portfolio into
one or more classes. The Trustees have authorized nineteen series, each of which
represents a fund. The Trustees have further authorized the issuance of Class A,
Class B, and Class C shares for Ivy International Fund and Ivy Money Market Fund
and Class A, Class B, Class C and Advisor Class shares for the Fund, Ivy Bond
Fund, Ivy China Region Fund, Ivy Developing Nations Fund, Ivy European
Opportunities Fund, Ivy Global Fund, Ivy Global Natural Resources Fund, Ivy
Global Science & Technology Fund, Ivy Growth Fund, Ivy Growth with Income Fund,
Ivy International Fund II, Ivy International Small Companies Fund, Ivy
International Strategic Bond Fund, Ivy Pan-Europe Fund, Ivy South America Fund,
Ivy US Blue Chip Fund and Ivy US Emerging Growth Fund, as well as Class I shares
for Ivy Bond Fund, Ivy European Opportunities Fund, Ivy Global Science &
Technology Fund, Ivy International Fund, Ivy International Fund II, Ivy
International Small Companies Fund, Ivy International Strategic Bond Fund and
Ivy US Blue Chip Fund.
Shareholders have the right to vote for the election of Trustees of the
Trust and on any and all matters on which they may be entitled to vote by law or
by the provisions of the Trust's By-Laws. The Trust is not required to hold a
regular annual meeting of shareholders, and it does not intend to do so. Shares
of each class of the Fund entitle their holders to one vote per share (with
proportionate voting for fractional shares). Shareholders of the Fund are
entitled to vote alone on matters that only affect the Fund. All classes of
shares of the Fund will vote together, except with respect to the distribution
plan applicable to the Fund's Class A, Class B or Class C shares or when a class
vote is required by the 1940 Act. On matters relating to all funds of the Trust,
but affecting the funds differently, separate votes by the shareholders of each
fund are required. Approval of an investment advisory agreement and a change in
fundamental policies would be regarded as matters requiring separate voting by
the shareholders of each fund of the Trust. If the Trustees determine that a
matter does not affect the interests of the Fund, then the shareholders of the
Fund will not be entitled to vote on that matter. Matters that affect the Trust
in general, such as ratification of the selection of independent public
accountants, will be voted upon collectively by the shareholders of all funds of
the Trust.
As used in this SAI and the Prospectus, the phrase "majority vote of
the outstanding shares" of the Fund means the vote of the lesser of: (1) 67% of
the shares of the Fund (or of the Trust) present at a meeting if the holders of
more than 50% of the outstanding shares are present in person or by proxy; or
(2) more than 50% of the outstanding shares of the Fund (or of the Trust).
With respect to the submission to shareholder vote of a matter
requiring separate voting by the Fund, the matter shall have been effectively
acted upon with respect to the Fund if a majority of the outstanding voting
securities of the Fund votes for the approval of the matter, notwithstanding
that: (1) the matter has not been approved by a majority of the outstanding
voting securities of any other fund of the Trust; or (2) the matter has not been
approved by a majority of the outstanding voting securities of the Trust.
The Amended and Restated Declaration of Trust provides that the holders
of not less than two-thirds of the outstanding shares of the Trust may remove a
person serving as trustee either by declaration in writing or at a meeting
called for such purpose. The Trustees are required to call a meeting for the
purpose of considering the removal of a person serving as Trustee if requested
in writing to do so by the holders of not less than 10% of the outstanding
shares of the Trust. Shareholders will be assisted in communicating with other
shareholders in connection with the removal of a Trustee as if Section 26(c) of
the Act were applicable.
The Trust's shares do not have cumulative voting rights and accordingly
the holders of more than 50% of the outstanding shares could elect the entire
Board, in which case the holders of the remaining shares would not be able to
elect any Trustees.
Under Massachusetts law, the Trust's shareholders could, under certain
circumstances, be held personally liable for the obligations of the Trust.
However, the Amended and Restated Declaration of Trust disclaims liability of
the shareholders, Trustees or officers of the Trust for acts or obligations of
the Trust, which are binding only on the assets and property of the Trust, and
requires that notice of the disclaimer be given in each contract or obligation
entered into or executed by the Trust or its Trustees. The Amended and Restated
Declaration of Trust provides for indemnification out of Fund property for all
loss and expense of any shareholder of the Fund held personally liable for the
obligations of the Fund. The risk of a shareholder of the Trust incurring
financial loss on account of shareholder liability is limited to circumstances
in which the Trust itself would be unable to meet its obligations and, thus,
should be considered remote. No series of the Trust is liable for the
obligations of any other series of the Trust.
SPECIAL RIGHTS AND PRIVILEGES
The Trust offers, and (except as noted below) bears the cost of
providing, to investors the following rights and privileges. The Trust reserves
the right to amend or terminate any one or more of these rights and privileges.
Notice of amendments to or terminations of rights and privileges will be
provided to shareholders in accordance with applicable law.
Certain of the rights and privileges described below refer to funds,
other than the Fund, whose shares are also distributed by IMDI. These funds are:
Ivy Bond Fund, Ivy China Region Fund, Ivy Developing Nations Fund, Ivy European
Opportunities Fund, Ivy Global Fund, Ivy Global Natural Resources Fund, Ivy
Global Science & Technology Fund, Ivy Growth Fund, Ivy Growth with Income Fund,
Ivy International Fund, Ivy International Fund II, Ivy International Small
Companies Fund, Ivy International Strategic Bond Fund, Ivy Money Market Fund,
Ivy Pan-Europe Fund, Ivy South America Fund, Ivy US Blue Chip Fund, and Ivy US
Emerging Growth Fund (the other eighteen series of the Trust). (Effective April
18, 1997, Ivy International Fund suspended the offer of its shares to new
investors). Shareholders should obtain a current prospectus before exercising
any right or privilege that may relate to these funds.
AUTOMATIC INVESTMENT METHOD
The Automatic Investment Method, which enables a Fund shareholder to
have specified amounts automatically drawn each month from his or her bank for
investment in Fund shares, is available for all classes of shares. The minimum
initial and subsequent investment under this method is $50 per month ($250 for
Advisor Class shares), (except in the case of a tax qualified retirement plan
for which the minimum initial and subsequent investment is $25 per month). A
shareholder may terminate the Automatic Investment Method at any time upon
delivery to IMSC of telephone instructions or written notice. See "Automatic
Investment Method" in the Prospectus. To begin the plan, complete Sections 6A
and 7B of the Account Application.
EXCHANGE OF SHARES
As described in the Prospectus, shareholders of the Fund have an
exchange privilege with other Ivy funds (except Ivy International Fund unless
they have an existing Ivy International Fund account). Before effecting an
exchange, shareholders of the Fund should obtain and read the currently
effective prospectus for the Ivy fund into which the exchange is to be made.
INITIAL SALES CHARGE SHARES. Class A shareholders may exchange their
Class A shares ("outstanding Class A shares") for Class A shares of another Ivy
fund ("new Class A Shares") on the basis of the relative net asset value per
Class A share, plus an amount equal to the difference, if any, between the sales
charge previously paid on the outstanding Class A shares and the sales charge
payable at the time of the exchange on the new Class A shares. (The additional
sales charge will be waived for Class A shares that have been invested for a
period of 12 months or longer.) Class A shareholders may also exchange their
shares for shares of Ivy Money Market Fund (no initial sales charge will be
assessed at the time of such an exchange).
CONTINGENT DEFERRED SALES CHARGE SHARES CLASS A: Class A shareholders
may exchange their Class A shares that are subject to a contingent deferred
sales charge ("CDSC"), as described in the Prospectus ("outstanding Class A
shares"), for Class A shares of another Ivy fund ("new Class A shares") on the
basis of the relative net asset value per Class A share, without the payment of
any CDSC that would otherwise be due upon the redemption of the outstanding
Class A shares. Class A shareholders of the Fund exercising the exchange
privilege will continue to be subject to that Fund's CDSC period following an
exchange if such period is longer than the CDSC period, if any, applicable to
the new Class A shares.
For purposes of computing the CDSC that may be payable upon the
redemption of the new Class A shares, the holding period of the outstanding
Class A shares is "tacked" onto the holding period of the new Class A shares.
CLASS B: Class B shareholders may exchange their Class B shares
("outstanding Class B shares") for Class B shares of another Ivy fund ("new
Class B shares") on the basis of the relative net asset value per Class B share,
without the payment of any CDSC that would otherwise be due upon the redemption
of the outstanding Class B shares. Class B shareholders of the Fund exercising
the exchange privilege will continue to be subject to that Fund's CDSC schedule
(or period) following an exchange if such schedule is higher (or such period is
longer) than the CDSC schedule (or period) applicable to the new Class B shares.
Class B shares of the Fund acquired through an exchange of Class B
shares of another Ivy fund will be subject to that Fund's CDSC schedule (or
period) if such schedule is higher (or such period is longer) than the CDSC
schedule (or period) applicable to the Ivy fund from which the exchange was
made.
For purposes of both the conversion feature and computing the CDSC that
may be payable upon the redemption of the new Class B shares (prior to
conversion), the holding period of the outstanding Class B shares is "tacked"
onto the holding period of the new Class B shares.
The following CDSC table applies to Class B shares of Ivy Asia Pacific
Fund, Ivy Bond Fund, Ivy China Region Fund, Ivy Developing Nations Fund, Ivy
European Opportunities Fund, Ivy Global Fund, Ivy Global Natural Resources Fund,
Ivy Global Science & Technology Fund, Ivy Growth Fund, Ivy Growth with Income
Fund, Ivy International Fund, Ivy International Fund II, Ivy International Small
Companies Fund, Ivy International Strategic Bond Fund, Ivy Pan-Europe Fund, Ivy
South America Fund, Ivy US Blue Chip Fund, and Ivy US Emerging Growth Fund.
CONTINGENT DEFERRED SALES CHARGE AS A PERCENTAGE OF
DOLLAR AMOUNT SUBJECT TO CHARGE
YEAR SINCE PURCHASE
First 5%
Second 4%
Third 3%
Fourth 3%
Fifth 2%
Sixth 1%
Seventh and thereafter 0%
CLASS C: Class C shareholders may exchange their Class C shares
("outstanding Class C shares") for Class C shares of another Ivy fund ("new
Class C shares") on the basis of the relative net asset value per Class C share,
without the payment of any CDSC that would otherwise be due upon redemption.
(Class C shares are subject to a CDSC of 1.00% if redeemed within one year of
the date of purchase.)
ADVISOR CLASS: Subject to the restrictions set forth in the following
paragraph, Advisor Class shareholders may exchange their outstanding Advisor
Class shares for Advisor Class shares of another Ivy fund on the basis of the
relative net asset value per share.
ALL CLASSES: The minimum value of shares which may be exchanged into an
Ivy fund in which shares are not already held is $1,000 ($10,000 in the case of
Advisor Class shares). No exchange out of the Fund (other than by a complete
exchange of all Fund shares) may be made if it would reduce the shareholder's
interest in the Fund to less than $1,000 ($10,000 in the case of Advisor Class
shares).
Each exchange will be made on the basis of the relative net asset value
per share of the Ivy funds involved in the exchange next computed following
receipt by IMSC of telephone instructions by IMSC or a properly executed
request. Exchanges, whether written or telephonic, must be received by IMSC by
the close of regular trading on the Exchange (normally 4:00 p.m., eastern time)
to receive the price computed on the day of receipt. Exchange requests received
after that time will receive the price next determined following receipt of the
request. The exchange privilege may be modified or terminated at any time, upon
at least 60 days' notice to the extent required by applicable law. See
"Redemptions."
An exchange of shares between any of the Ivy funds will result in a
taxable gain or loss. Generally, this will be a capital gain or loss (long-term
or short-term, depending on the holding period of the shares) in the amount of
the difference between the net asset value of the shares surrendered and the
shareholder's tax basis for those shares. However, in certain circumstances,
shareholders will be ineligible to take sales charges into account in computing
taxable gain or loss on an exchange. See "Taxation."
With limited exceptions, gain realized by a tax-deferred retirement
plan will not be taxable to the plan and will not be taxed to the participant
until distribution. Each investor should consult his or her tax adviser
regarding the tax consequences of an exchange transaction.
LETTER OF INTENT
Reduced sales charges apply to initial investments in Class A shares of
the Fund made pursuant to a non-binding Letter of Intent. A Letter of Intent may
be submitted by an individual, his or her spouse and children under the age of
21, or a trustee or other fiduciary of a single trust estate or single fiduciary
account. See the Account Application in the Prospectus. Any investor may submit
a Letter of Intent stating that he or she will invest, over a period of 13
months, at least $50,000 in Class A shares of the Fund. A Letter of Intent may
be submitted at the time of an initial purchase of Class A shares of the Fund or
within 90 days of the initial purchase, in which case the Letter of Intent will
be back dated. A shareholder may include, as an accumulation credit, the value
(at the applicable offering price) of all Class A shares of Ivy Asia Pacific
Fund, Ivy Bond Fund, Ivy China Region Fund, Ivy Developing Nations Fund, Ivy
European Opportunities Fund, Ivy Global Fund, Ivy Global Natural Resources Fund,
Ivy Global Science & Technology Fund, Ivy Growth Fund, Ivy Growth with Income
Fund, Ivy International Fund, Ivy International Fund II, Ivy International Small
Companies Fund, Ivy International Strategic Bond Fund, Ivy Pan-Europe Fund, Ivy
South America Fund, Ivy US Blue Chip Fund and Ivy US Emerging Growth Fund (and
shares that have been exchanged into Ivy Money Market Fund from any of the other
funds in the Ivy funds) held of record by him or her as of the date of his or
her Letter of Intent. During the term of the Letter of Intent, the Transfer
Agent will hold Class A shares representing 5% of the indicated amount (less any
accumulation credit value) in escrow. The escrowed Class A shares will be
released when the full indicated amount has been purchased. If the full
indicated amount is not purchased during the term of the Letter of Intent, the
investor is required to pay IMDI an amount equal to the difference between the
dollar amount of sales charge that he or she has paid and that which he or she
would have paid on his or her aggregate purchases if the total of such purchases
had been made at a single time. Such payment will be made by an automatic
liquidation of Class A shares in the escrow account. A Letter of Intent does not
obligate the investor to buy or the Trust to sell the indicated amount of Class
A shares, and the investor should read carefully all the provisions of such
letter before signing.
RETIREMENT PLANS
Shares may be purchased in connection with several types of
tax-deferred retirement plans. Shares of more than one fund distributed by IMDI
may be purchased in a single application establishing a single account under the
plan, and shares held in such an account may be exchanged among the Ivy funds in
accordance with the terms of the applicable plan and the exchange privilege
available to all shareholders. Initial and subsequent purchase payments in
connection with tax-deferred retirement plans must be at least $25 per
participant.
The following fees will be charged to individual shareholder accounts
as described in the retirement prototype plan document:
Retirement Plan New Account Fee no fee
Retirement Plan Annual Maintenance Fee $10.00 per fund account
For shareholders whose retirement accounts are diversified across
several Ivy funds, the annual maintenance fee will be limited to not more than
$20.
The following discussion describes the tax treatment of certain
tax-deferred retirement plans under current Federal income tax law. State income
tax consequences may vary. An individual considering the establishment of a
retirement plan should consult with an attorney and/or an accountant with
respect to the terms and tax aspects of the plan.
INDIVIDUAL RETIREMENT ACCOUNTS: Shares of the Fund may be used as a
funding medium for an Individual Retirement Account ("IRA"). Eligible
individuals may establish an IRA by adopting a model custodial account available
from IMSC, who may impose a charge for establishing the account. Individuals
should consult their tax advisers before investing IRA assets in an Ivy fund if
that fund primarily distributes exempt-interest dividends.
An individual who has not reached age 70-1/2 and who receives
compensation or earned income is eligible to contribute to an IRA, whether or
not he or she is an active participant in a retirement plan. An individual who
receives a distribution from another IRA, a qualified retirement plan, a
qualified annuity plan or a tax-sheltered annuity or custodial account ("403(b)
plan") that qualifies for "rollover" treatment is also eligible to establish an
IRA by rolling over the distribution either directly or within 60 days after its
receipt. Tax advice should be obtained in connection with planning a rollover
contribution to an IRA.
In general, an eligible individual may contribute up to the lesser of
$2,000 or 100% of his or her compensation or earned income to an IRA each year.
If a husband and wife are both employed, and both are under age 70-1/2, each may
set up his or her own IRA within these limits. If both earn at least $2,000 per
year, the maximum potential contribution is $4,000 per year for both. For years
after 1996, the result is similar even if one spouse has no earned income; if
the joint earned income of the spouses is at least $4,000, a contribution of up
to $2,000 may be made to each spouse's IRA. Rollover contributions are not
subject to these limits.
An individual may deduct his or her annual contributions to an IRA in
computing his or her Federal income tax within the limits described above,
provided he or she (or his or her spouse, if they file a joint Federal income
tax return) is not an active participant in a qualified retirement plan (such as
a qualified corporate, sole proprietorship, or partnership pension, profit
sharing, 401(k) or stock bonus plan), qualified annuity plan, 403(b) plan,
simplified employee pension, or governmental plan. If he or she (or his or her
spouse) is an active participant, whether the individual's contribution to an
IRA is fully deductible, partially deductible or not deductible depends on (i)
adjusted gross income and (ii) whether it is the individual or the individual's
spouse who is an active participant, in the case of married individuals filing
jointly. Contributions may be made up to the maximum permissible amount even if
they are not deductible. Rollover contributions are not includable in income for
Federal income tax purposes and therefore are not deductible from it.
Generally, earnings on an IRA are not subject to current Federal income
tax until distributed. Distributions attributable to tax-deductible
contributions and to IRA earnings are taxed as ordinary income. Distributions of
non-deductible contributions are not subject to Federal income tax. In general,
distributions from an IRA to an individual before he or she reaches age 59-1/2
are subject to a nondeductible penalty tax equal to 10% of the taxable amount of
the distribution. The 10% penalty tax does not apply to amounts withdrawn from
an IRA after the individual reaches age 59-1/2, becomes disabled or dies, or if
withdrawn in the form of substantially equal payments over the life or life
expectancy of the individual and his or her designated beneficiary, if any, or
rolled over into another IRA, amounts withdrawn and used to pay for deductible
medical expenses and amounts withdrawn by certain unemployed individuals not in
excess of amounts paid for certain health insurance premiums, amounts used to
pay certain qualified higher education expenses, and amounts used within 120
days of the date the distribution is received to pay for certain first-time
homebuyer expenses. Distributions must begin to be withdrawn not later than
April 1 of the calendar year following the calendar year in which the individual
reaches age 70-1/2. Failure to take certain minimum required distributions will
result in the imposition of a 50% non-deductible penalty tax.
ROTH IRAS: Shares of the Fund also may be used as a funding medium for
a Roth Individual Retirement Account ("Roth IRA"). A Roth IRA is similar in
numerous ways to the regular (traditional) IRA, described above. Some of the
primary differences are as follows.
A single individual earning below $95,000 can contribute up to $2,000
per year to a Roth IRA. The maximum contribution amount diminishes and gradually
falls to zero for single filers with adjusted gross incomes ranging from $95,000
to $110,000. Married couples earning less than $150,000 combined, and filing
jointly, can contribute a full $4,000 per year ($2,000 per IRA). The maximum
contribution amount for married couples filing jointly phases out from $150,000
to $160,000. An individual whose adjusted gross income exceeds the maximum
phase-out amount cannot contribute to a Roth IRA.
An eligible individual can contribute money to a traditional IRA and a
Roth IRA as long as the total contribution to all IRAs does not exceed $2,000.
Contributions to a Roth IRA are not deductible. Contributions to a Roth IRA may
be made even after the individual for whom the account is maintained has
attained age 70 1/2.
No distributions are required to be taken prior to the death of the
original account holder. If a Roth IRA has been established for a minimum of
five years, distributions can be taken tax-free after reaching age 59 1/2, for a
first-time home purchase ($10,000 maximum, one time use), or upon death or
disability. All other distributions from a Roth IRA (other than the amount of
nondeductible contributions) are taxable and subject to a 10% tax penalty unless
an exception applies. Exceptions to the 10% penalty include: reaching age 59
1/2, death, disability, deductible medical expenses, the purchase of health
insurance for certain unemployed individual and qualified higher education
expenses.
An individual with an income of less than $100,000 (who is not married
filing separately) can roll his or her existing IRA into a Roth IRA. However,
the individual must pay taxes on the taxable amount in his or her traditional
IRA. After 1998, all taxes on such a rollover will have to be paid in the tax
year in which the rollover is made.
QUALIFIED PLANS: For those self-employed individuals who wish to
purchase shares of one or more Ivy funds through a qualified retirement plan, a
Custodial Agreement and a Retirement Plan are available from IMSC. The
Retirement Plan may be adopted as a profit sharing plan or a money purchase
pension plan. A profit sharing plan permits an annual contribution to be made in
an amount determined each year by the self-employed individual within certain
limits prescribed by law. A money purchase pension plan requires annual
contributions at the level specified in the Custodial Agreement. There is no
set-up fee for qualified plans and the annual maintenance fee is $20.00 per
account.
In general, if a self-employed individual has any common law employees,
employees who have met certain minimum age and service requirements must be
covered by the Retirement Plan. A self-employed individual generally must
contribute the same percentage of income for common law employees as for himself
or herself.
A self-employed individual may contribute up to the lesser of $30,000
or 25% of compensation or earned income to a money purchase pension plan or to a
combination profit sharing and money purchase pension plan arrangement each year
on behalf of each participant. To be deductible, total contributions to a profit
sharing plan generally may not exceed 15% of the total compensation or earned
income of all participants in the plan, and total contributions to a combination
money purchase-profit sharing arrangement generally may not exceed 25% of the
total compensation or earned income of all participants. The amount of
compensation or earned income of any one participant that may be included in
computing the deduction is limited (generally to $150,000 for benefits accruing
in plan years beginning after 1993, with annual inflation adjustments). A
self-employed individual's contributions to a retirement plan on his or her own
behalf must be deducted in computing his or her earned income.
Corporate employers may also adopt the Custodial Agreement and
Retirement Plan for the benefit of their eligible employees. Similar
contribution and deduction rules apply to corporate employers.
Distributions from the Retirement Plan generally are made after a
participant's separation from service. A 10% penalty tax generally applies to
distributions to an individual before he or she reaches age 59-1/2, unless the
individual (1) has reached age 55 and separated from service; (2) dies; (3)
becomes disabled; (4) uses the withdrawal to pay tax-deductible medical
expenses; (5) takes the withdrawal as part of a series of substantially equal
payments over his or her life expectancy or the joint life expectancy of himself
or herself and a designated beneficiary; or (6) rolls over the distribution.
The Transfer Agent will arrange for Investors Bank & Trust to furnish
custodial services to the employer and any participating employees.
DEFERRED COMPENSATION FOR PUBLIC SCHOOLS AND CHARITABLE ORGANIZATIONS
("403(B)(7) ACCOUNT"): Section 403(b)(7) of the Internal Revenue Code of 1986,
as amended (the "Code") permits public school systems and certain charitable
organizations to use mutual fund shares held in a custodial account to fund
deferred compensation arrangements with their employees. A custodial account
agreement is available for those employers whose employees wish to purchase
shares of the Trust in conjunction with such an arrangement. The special
application for a 403(b)(7) Account is available from IMSC.
Distributions from the 403(b)(7) Account may be made only following
death, disability, separation from service, attainment of age 59-1/2, or
incurring a financial hardship. A 10% penalty tax generally applies to
distributions to an individual before he or she reaches age 59-1/2, unless the
individual (1) has reached age 55 and separated from service; (2) dies or
becomes disabled; (3) uses the withdrawal to pay tax-deductible medical
expenses; (4) takes the withdrawal as part of a series of substantially equal
payments over his or her life expectancy or the joint life expectancy of himself
or herself and a designated beneficiary; or (5) rolls over the distribution.
There is no set-up fee for 403(b)(7) Accounts and the annual maintenance fee is
$20.00 per account.
SIMPLIFIED EMPLOYEE PENSION ("SEP") IRAS: An employer may deduct
contributions to a SEP up to the lesser of $30,000 or 15% of compensation. SEP
accounts generally are subject to all rules applicable to IRA accounts, except
the deduction limits, and are subject to certain employee participation
requirements. No new salary reduction SEPs ("SARSEPs") may be established after
1996, but existing SARSEPs may continue to be maintained, and non-salary
reduction SEPs may continue to be established as well as maintained after 1996.
SIMPLE PLANS: An employer may establish a SIMPLE IRA or a SIMPLE 401(k)
for years after 1996. An employee can make pre-tax salary reduction
contributions to a SIMPLE Plan, up to $6,000 a year (as indexed). Subject to
certain limits, the employer will either match a portion of employee
contributions, or will make a contribution equal to 2% of each employee's
compensation without regard to the amount the employee contributes. An employer
cannot maintain a SIMPLE Plan for its employees if the employer maintains or
maintained any other qualified retirement plan with respect to which any
contributions or benefits have been credited.
REINVESTMENT PRIVILEGE
Shareholders who have redeemed Class A shares of the Fund may reinvest
all or a part of the proceeds of the redemption back into Class A shares of the
Fund at net asset value (without a sales charge) within 60 days from the date of
redemption. This privilege may be exercised only once. The reinvestment will be
made at the net asset value next determined after receipt by IMSC of the
reinvestment order accompanied by the funds to be reinvested. No compensation
will be paid to any sales personnel or dealer in connection with the
transaction.
Any redemption is a taxable event. A loss realized on a redemption
generally may be disallowed for tax purposes if the reinvestment
privilege is exercised within 30 days after the redemption. In certain
circumstances, shareholders will be ineligible to take sales charges into
account in computing taxable gain or loss on a redemption if the
reinvestment privilege is exercised. See "Taxation."
RIGHTS OF ACCUMULATION
A scale of reduced sales charges applies to any investment of $50,000
or more in Class A shares of the Fund. See "Initial Sales Charge Alternative --
Class A Shares" in the Prospectus. The reduced sales charge is applicable to
investments made at one time by an individual, his or her spouse and children
under the age of 21, or a trustee or other fiduciary of a single trust estate or
single fiduciary account (including a pension, profit sharing or other employee
benefit trust created pursuant to a plan qualified under Section 401 of the
Code). Rights of Accumulation is also applicable to current purchases of all of
the funds of Ivy Fund (except Ivy Money Market Fund) by any of the persons
enumerated above, where the aggregate quantity of Class A shares of such funds
(and shares that have been exchanged into Ivy Money Market Fund from any of the
other funds in the Ivy funds) and of any other investment company distributed by
IMDI, previously purchased or acquired and currently owned, determined at the
higher of current offering price or amount invested, plus the Class A shares
being purchased, amounts to $50,000 or more for all funds other than Ivy Bond
Fund; or $100,000 or more for Ivy Bond Fund.
At the time an investment takes place, IMSC must be notified by the
investor or his or her dealer that the investment qualifies for the reduced
sales charge on the basis of previous investments. The reduced sales charge is
subject to confirmation of the investor's holdings through a check of the
particular fund's records.
SYSTEMATIC WITHDRAWAL PLAN
A shareholder (except shareholders with accounts in Class I) may
establish a Systematic Withdrawal Plan (a "Withdrawal Plan"), by telephone
instructions or by delivery to IMSC of a written election to have his or her
shares withdrawn periodically (minimum distribution amount $50 for Advisor Class
shares), accompanied by a surrender to IMSC of all share certificates then
outstanding in such shareholder's name, properly endorsed by the shareholder. To
be eligible to elect a Withdrawal Plan, a shareholder must have at least $5,000
in his or her account (except Advisor Class shareholders, who must continually
maintain an account balance of at least $10,000). A Withdrawal Plan may not be
established if the investor is currently participating in the Automatic
Investment Method. A Withdrawal Plan may involve the depletion of a
shareholder's principal, depending on the amount withdrawn.
A redemption under a Withdrawal Plan is a taxable event. Shareholders
contemplating participating in a Withdrawal Plan should consult their tax
advisers.
Additional investments made by investors participating in a Withdrawal
Plan must equal at least $1,000 each ($250 for Advisor Class shareholders) while
the Withdrawal Plan is in effect. Making additional purchases while a Withdrawal
Plan is in effect may be disadvantageous to the investor because of applicable
initial sales charges or CDSCs.
An investor may terminate his or her participation in the Withdrawal
Plan at any time by delivering written notice to IMSC. If all shares held by the
investor are liquidated at any time, participation in the Withdrawal Plan will
terminate automatically. The Trust or IMSC may terminate the Withdrawal Plan
option at any time after reasonable notice to shareholders.
GROUP SYSTEMATIC INVESTMENT PROGRAM
Shares of the Fund may be purchased in connection with investment
programs established by employee or other groups using systematic payroll
deductions or other systematic payment arrangements. The Trust does not itself
organize, offer or administer any such programs. However, it may, depending upon
the size of the program, waive the minimum initial and additional investment
requirements for purchases by individuals in conjunction with programs organized
and offered by others. Unless shares of the Fund are purchased in conjunction
with IRAs (see "How to Buy Shares" in the Prospectus), such group systematic
investment programs are not entitled to special tax benefits under the Code. The
Trust reserves the right to refuse purchases at any time or suspend the offering
of shares in connection with group systematic investment programs, and to
restrict the offering of shareholder privileges, such as check writing,
simplified redemptions and other optional privileges, as described in the
Prospectus, to shareholders using group systematic investment programs.
With respect to each shareholder account established on or after
September 15, 1972 under a group systematic investment program, the Trust and
IMI each currently charge a maintenance fee of $3.00 (or portion thereof) that
for each twelve-month period (or portion thereof) that the account is
maintained. The Trust may collect such fee (and any fees due to IMI) through a
deduction from distributions to the shareholders involved or by causing on the
date the fee is assessed a redemption in each such shareholder account
sufficient to pay such fee. The Trust reserves the right to change these fees
from time to time without advance notice.
Class A shares of the Fund are made available to Merrill Lynch Daily K
Plan (the "Plan") participants at NAV without an initial sales charge if:
(i) the Plan is recordkept on a daily valuation basis by Merrill
Lynch and, on the date the Plan Sponsor signs the Merrill
Lynch Recordkeeping Service Agreement, the Plan has $3 million
or more in assets invested in broker/dealer funds not advised
or managed by Merrill Lynch Asset Management, L.P. ("MLAM")
that are made available pursuant to a Service Agreement
between Merrill Lynch and the fund's principal underwriter or
distributor and in funds advised or managed by MLAM
(collectively, the "Applicable Investments");
(ii) the Plan is recordkept on a daily valuation basis by an
independent recordkeeper whose services are provided through a
contract or alliance arrangement with Merrill Lynch, and on
the date the Plan Sponsor signs the Merrill Lynch
Recordkeeping Service Agreement, the Plan has $3 million or
more in assets, excluding money market funds, invested in
Applicable Investments; or
(iii) the Plan has 500 or more eligible employees, as determined by
Merrill Lynch plan conversion manager, on the date the Plan
Sponsor signs the Merrill Lynch Recordkeeping Service
Agreement.
Alternatively, Class B shares of the Fund are made available to Plan
participants at NAV without a CDSC if the Plan conforms with the requirements
for eligibility set forth in (i) through (iii) above but either does not meet
the $3 million asset threshold or does not have 500 or more eligible employees.
Plans recordkept on a daily basis by Merrill Lynch or an independent
recordkeeper under a contract with Merrill Lynch that are currently investing in
Class B shares of the Fund convert to Class A shares once the Plan has reached
$5 million invested in Applicable Investments, or 10 years after the date of the
initial purchase by a participant under the Plan--the Plan will receive a Plan
level share conversion.
REDEMPTIONS
Shares of the Fund are redeemed at their net asset value next
determined after a proper redemption request has been received by IMSC, less any
applicable CDSC.
Unless a shareholder requests that the proceeds of any redemption be
wired to his or her bank account, payment for shares tendered for redemption is
made by check within seven days after tender in proper form, except that the
Trust reserves the right to suspend the right of redemption or to postpone the
date of payment upon redemption beyond seven days, (i) for any period during
which the Exchange is closed (other than customary weekend and holiday closings)
or during which trading on the Exchange is restricted, (ii) for any period
during which an emergency exists as determined by the SEC as a result of which
disposal of securities owned by the Fund is not reasonably practicable or it is
not reasonably practicable for the Fund to fairly determine the value of its net
assets, or (iii) for such other periods as the SEC may by order permit for the
protection of shareholders of the Fund.
Under unusual circumstances, when the Board deems it in the best
interest of the Fund's shareholders, the Fund may make payment for shares
repurchased or redeemed in whole or in part in securities of the Fund taken at
current values. If any such redemption in kind is to be made, the Fund may make
an election pursuant to Rule 18f-1 under the 1940 Act. This will require the
Fund to redeem with cash at a shareholder's election in any case where the
redemption involves less than $250,000 (or 1% of the Fund's net asset value at
the beginning of each 90-day period during which such redemptions are in effect,
if that amount is less than $250,000). Should payment be made in securities, the
redeeming shareholder may incur brokerage costs in converting such securities to
cash.
The Trust may redeem those accounts of shareholders who have maintained
an investment, including sales charges paid, of less than $1,000 ($10,000 for
Advisor Class shareholders) in the Fund for a period of more than 12 months. All
accounts below that minimum will be redeemed simultaneously when MIMI deems it
advisable. The $1,000 balance ($10,000 for Advisor Class shareholders) will be
determined by actual dollar amounts invested by the shareholder, unaffected by
market fluctuations. The Trust will notify any such shareholder by certified
mail of its intention to redeem such account, and the shareholder shall have 60
days from the date of such letter to invest such additional sums as shall raise
the value of such account above that minimum. Should the shareholder fail to
forward such sum within 60 days of the date of the Trust's letter of
notification, the Trust will redeem the shares held in such account and transmit
the redemption in value thereof to the shareholder. However, those shareholders
who are investing pursuant to the Automatic Investment Method will not be
redeemed automatically unless they have ceased making payments pursuant to the
plan for a period of at least six consecutive months, and these shareholders
will be given six-months' notice by the Trust before such redemption.
Shareholders in a qualified retirement, pension or profit sharing plan who wish
to avoid tax consequences must "rollover" any sum so redeemed into another
qualified plan within 60 days. The Trustees of the Trust may change the minimum
account size.
If a shareholder has given authorization for telephonic redemption
privilege, shares can be redeemed and proceeds sent by Federal wire to a single
previously designated bank account. Delivery of the proceeds of a wire
redemption request of $250,000 or more may be delayed by the Fund for up to
seven days if deemed appropriate under then-current market conditions. The Trust
reserves the right to change this minimum or to terminate the telephonic
redemption privilege without prior notice. The Trust cannot be responsible for
the efficiency of the Federal wire system of the shareholder's dealer of record
or bank. The shareholder is responsible for any charges by the shareholder's
bank.
The Fund employs reasonable procedures that require personal
identification prior to acting on redemption or exchange instructions
communicated by telephone to confirm that such instructions are genuine. In the
absence of such instructions, the Fund may be liable for any losses due to
unauthorized or fraudulent telephone instructions.
CONVERSION OF CLASS B SHARES
As described in the Prospectus, Class B shares of the Fund will
automatically convert to Class A shares of the Fund, based on the relative net
asset values per share of the two classes, no later than the month following the
eighth anniversary of the initial issuance of such Class B shares of the Fund
occurs. For the purpose of calculating the holding period required for
conversion of Class B shares, the date of initial issuance shall mean: (1) the
date on which such Class B shares were issued, or (2) for Class B shares
obtained through an exchange, or a series of exchanges, (subject to the exchange
privileges for Class B shares) the date on which the original Class B shares
were issued. For purposes of conversion of Class B shares, Class B shares
purchased through the reinvestment of dividends and capital gain distributions
paid in respect of Class B shares will be held in a separate sub-account. Each
time any Class B shares in the shareholder's regular account (other than those
shares in the sub-account) convert to Class A shares, a pro rata portion of the
Class B shares in the sub-account will also convert to Class A shares. The
portion will be determined by the ratio that the shareholder's Class B shares
converting to Class A shares bears to the shareholder's total Class B shares not
acquired through the reinvestment of dividends and capital gain distributions.
NET ASSET VALUE
The net asset value per share of the Fund is computed by dividing the
value of the Fund's aggregate net assets (i.e., its total assets less its
liabilities) by the number of the Fund's shares outstanding. For purposes of
determining the Fund's aggregate net assets, receivables are valued at their
realizable amounts. The Fund's liabilities, if not identifiable as belonging to
a particular class of the Fund, are allocated among the Fund's several classes
based on their relative net asset size. Liabilities attributable to a particular
class are charged to that class directly. The total liabilities for a class are
then deducted from the class's proportionate interest in the Fund's assets, and
the resulting amount is divided by the number of shares of the class outstanding
to produce its net asset value per share.
A security listed or traded on a recognized stock exchange or The
Nasdaq Stock Market, Inc. ("Nasdaq") is valued at the security's last sale price
on the exchange on which the security is principally traded. If no sale is
reported at that time, the average between the last bid and asked price (the
"Calculated Mean") is used. Unless otherwise noted herein, the value of a
foreign security is determined in its national currency as of the normal close
of trading on the foreign exchange on which it is traded or as of the close of
regular trading on the Exchange, if that is earlier, and that value is then
converted into its U.S. dollar equivalent at the foreign exchange rate in effect
at noon, eastern time, on the day the value of the foreign security is
determined. All other securities for which OTC market quotations are readily
available are valued at the Calculated Mean.
A debt security normally is valued on the basis of quotes obtained from
at least two dealers (or one dealer who has made a market in the security) or
pricing services that take into account appropriate valuation factors. Interest
is accrued daily. Money market instruments are valued at amortized cost, which
the Board believes approximates market value.
An exchange-traded option is valued at the last sale price on the
exchange on which it is principally traded, if available, and otherwise is
valued at the last sale price on the other exchange(s). If there were no sales
on any exchange, the option shall be valued at the Calculated Mean, if possible,
and otherwise at the last offering price, in the case of a written option, and
the last bid price, in the case of a purchased option. An OTC option is valued
at the last offering price, in the case of a written option, and the last bid
price, in the case of a purchased option. Exchange listed and widely-traded OTC
futures (and options thereon) are valued at the most recent settlement price.
Securities and other assets for which market prices are not readily
available are priced at their "fair value" as determined by IMI in accordance
with procedures approved by the Board. Trading in securities on many foreign
securities exchanges is normally completed before the close of regular trading
on the Exchange. Trading on foreign exchanges may not take place on all days on
which there is regular trading on the Exchange, or may take place on days on
which there is no regular trading on the Exchange (e.g., any of the national
business holidays identified below). If events materially affecting the value of
the Fund's portfolio securities occur between the time when a foreign exchange
closes and the time when the Fund's net asset value is calculated (see following
paragraph), such securities may be valued at fair value as determined by IMI and
approved by the Board.
Portfolio securities are valued (and net asset value per share is
determined) as of the close of regular trading on the Exchange (normally 4:00
p.m., eastern time) on each day the Exchange is open for trading. The Exchange
and the Trust's offices are expected to be closed, and net asset value will not
be calculated, on the following national business holidays: New Year's Day,
Martin Luther King, Jr. Day, Presidents' Day, Good Friday, Memorial Day,
Independence Day, Labor Day, Thanksgiving Day and Christmas Day. On those days
when either or both of the Fund's Custodian or the Exchange close early as a
result of a partial holiday or otherwise, the Trust reserves the right to
advance the time on that day by which purchase and redemption requests must be
received.
The number of shares you receive when you place a purchase order, and
the payment you receive after submitting a redemption request, is based on the
Fund's net asset value next determined after your instructions are received in
proper form by IMSC or by your registered securities dealer. Each purchase and
redemption order is subject to any applicable sales charge. Since the Fund
normally invests in securities that are listed on foreign exchanges that may
trade on weekends or other days when the Fund does not price its shares, the
Fund's net asset value may change on days when shareholders will not be able to
purchase or redeem the Fund's shares. The sale of the Fund's shares will be
suspended during any period when the determination of its net asset value is
suspended pursuant to rules or orders of the SEC and may be suspended by the
Board whenever in its judgment it is in the Fund's best interest to do so.
TAXATION
The following is a general discussion of certain tax rules thought to
be applicable with respect to the Fund. It is merely a summary and is not an
exhaustive discussion of all possible situations or of all potentially
applicable taxes. Accordingly, shareholders and prospective shareholders should
consult a competent tax adviser about the tax consequences to them of investing
in the Fund.
The Fund intends to be taxed as a regulated investment company under
Subchapter M of the Code. Accordingly, the Fund must, among other things, (a)
derive in each taxable year at least 90% of its gross income from dividends,
interest, payments with respect to certain securities loans, and gains from the
sale or other disposition of stock, securities or foreign currencies, or other
income derived with respect to its business of investing in such stock,
securities or currencies; and (b) diversify its holdings so that, at the end of
each fiscal quarter, (i) at least 50% of the market value of the Fund's assets
is represented by cash, U.S. Government securities, the securities of other
regulated investment companies and other securities, with such other securities
limited, in respect of any one issuer, to an amount not greater than 5% of the
value of the Fund's total assets and 10% of the outstanding voting securities of
such issuer, and (ii) not more than 25% of the value of its total assets is
invested in the securities of any one issuer (other than U.S. Government
securities and the securities of other regulated investment companies).
As a regulated investment company, the Fund generally will not be
subject to U.S. Federal income tax on its income and gains that it distributes
to shareholders, if at least 90% of its investment company taxable income (which
includes, among other items, dividends, interest and the excess of any
short-term capital gains over long-term capital losses) for the taxable year is
distributed. The Fund intends to distribute all such income.
Amounts not distributed on a timely basis in accordance with a calendar
year distribution requirement are subject to a nondeductible 4% excise tax at
the Fund level. To avoid the tax, the Fund must distribute during each calendar
year, (1) at least 98% of its ordinary income (not taking into account any
capital gains or losses) for the calendar year (2) at least 98% of its capital
gains in excess of its capital losses (adjusted for certain ordinary losses) for
a one-year period generally ending on October 31 of the calendar year, and (3)
all ordinary income and capital gains for previous years that were not
distributed during such years. To avoid application of the excise tax, the Fund
intends to make distributions in accordance with the calendar year distribution
requirements. A distribution will be treated as paid on December 31 of the
current calendar year if it is declared by the Fund in October, November or
December of the year with a record date in such a month and paid by the Fund
during January of the following year. Such distributions will be taxable to
shareholders in the calendar year the distributions are declared, rather than
the calendar year in which the distributions are received.
OPTIONS, FUTURES AND FOREIGN CURRENCY FORWARD CONTRACTS
The taxation of equity options and OTC options on debt securities is
governed by Code section 1234. Pursuant to Code section 1234, the premium
received by the Fund for selling a put or call option is not included in income
at the time of receipt. If the option expires, the premium is short-term capital
gain to the Fund. If the Fund enters into a closing transaction, the difference
between the amount paid to close out its position and the premium received is
short-term capital gain or loss. If a call option written by the Fund is
exercised, thereby requiring the Fund to sell the underlying security, the
premium will increase the amount realized upon the sale of such security and any
resulting gain or loss will be a capital gain or loss, and will be long-term or
short-term depending upon the holding period of the security. With respect to a
put or call option that is purchased by the Fund, if the option is sold, any
resulting gain or loss will be a capital gain or loss, and will be long-term or
short-term, depending upon the holding period of the option. If the option
expires, the resulting loss is a capital loss and is long-term or short-term,
depending upon the holding period of the option. If the option is exercised, the
cost of the option, in the case of a call option, is added to the basis of the
purchased security and, in the case of a put option, reduces the amount realized
on the underlying security in determining gain or loss.
Some of the options, futures and foreign currency forward contracts in
which the Fund may invest may be "section 1256 contracts." Gains (or losses) on
these contracts generally are considered to be 60% long-term and 40% short-term
capital gains or losses; however, as described below, foreign currency gains or
losses arising from certain section 1256 contracts are ordinary in character.
Also, section 1256 contracts held by the Fund at the end of each taxable year
(and on certain other dates prescribed in the Code) are "marked-to-market" with
the result that unrealized gains or losses are treated as though they were
realized.
The transactions in options, futures and forward contracts undertaken
by the Fund may result in "straddles" for Federal income tax purposes. The
straddle rules may affect the character of gains or losses realized by the Fund.
In addition, losses realized by the Fund on positions that are part of a
straddle may be deferred under the straddle rules, rather than being taken into
account in calculating the taxable income for the taxable year in which such
losses are realized. Because only a few regulations implementing the straddle
rules have been promulgated, the consequences of such transactions to the Fund
are not entirely clear. The straddle rules may increase the amount of short-term
capital gain realized by the Fund, which is taxed as ordinary income when
distributed to shareholders.
The Fund may make one or more of the elections available under the Code
which are applicable to straddles. If the Fund makes any of the elections, the
amount, character and timing of the recognition of gains or losses from the
affected straddle positions will be determined under rules that vary according
to the election(s) made. The rules applicable under certain of the elections may
operate to accelerate the recognition of gains or losses from the affected
straddle positions.
Because application of the straddle rules may affect the character of
gains or losses, defer losses and/or accelerate the recognition of gains or
losses from the affected straddle positions, the amount which must be
distributed to shareholders as ordinary income or long-term capital gain may be
increased or decreased substantially as compared to a fund that did not engage
in such transactions.
Notwithstanding any of the foregoing, the Fund may recognize gain (but
not loss) from a constructive sale of certain "appreciated financial positions"
if the Fund enters into a short sale, offsetting notional principal contract,
futures or forward contract transaction with respect to the appreciated position
or substantially identical property. Appreciated financial positions subject to
this constructive sale treatment are interests (including options, futures and
forward contracts and short sales) in stock, partnership interests, certain
actively traded trust instruments and certain debt instruments. Constructive
sale treatment of appreciated financial positions does not apply to certain
transactions closed in the 90-day period ending with the 30th day after the
close of the Fund's taxable year, if certain conditions are met.
CURRENCY FLUCTUATIONS -- "SECTION 988" GAINS OR LOSSES
Gains or losses attributable to fluctuations in exchange rates which
occur between the time the Fund accrues receivables or liabilities denominated
in a foreign currency and the time the Fund actually collects such receivables
or pays such liabilities generally are treated as ordinary income or ordinary
loss. Similarly, on disposition of some investments, including debt securities
denominated in a foreign currency and certain options, futures and forward
contracts, gains or losses attributable to fluctuations in the value of the
foreign currency between the date of acquisition of the security or contract and
the date of disposition also are treated as ordinary gain or loss. These gains
and losses, referred to under the Code as "section 988" gains or losses,
increase or decrease the amount of the Fund's investment company taxable income
available to be distributed to its shareholders as ordinary income.
INVESTMENT IN PASSIVE FOREIGN INVESTMENT COMPANIES
The Fund may invest in shares of foreign corporations which may be
classified under the Code as passive foreign investment companies ("PFICs"). In
general, a foreign corporation is classified as a PFIC if at least one-half of
its assets constitute investment-type assets, or 75% or more of its gross income
is investment-type income. If the Fund receives a so-called "excess
distribution" with respect to PFIC stock, the Fund itself may be subject to a
tax on a portion of the excess distribution, whether or not the corresponding
income is distributed by the Fund to shareholders. In general, under the PFIC
rules, an excess distribution is treated as having been realized ratably over
the period during which a Fund held the PFIC shares. The Fund itself will be
subject to tax on the portion, if any, of an excess distribution that is so
allocated to prior Fund taxable years and an interest factor will be added to
the tax, as if the tax had been payable in such prior taxable years. Certain
distributions from a PFIC as well as gain from the sale of PFIC shares are
treated as excess distributions. Excess distributions are characterized as
ordinary income even though, absent application of the PFIC rules, certain
excess distributions might have been classified as capital gain.
The Fund may be eligible to elect alternative tax treatment with
respect to PFIC shares. The Fund may elect to mark to market its PFIC shares,
resulting in the shares being treated as sold at fair market value on the last
business day of each taxable year. Any resulting gain would be reported as
ordinary income; any resulting loss and any loss from an actual disposition of
the shares would be reported as ordinary loss to the extent of any net gains
reported in prior years. Under another election that currently is available in
some circumstances, the Fund generally would be required to include in its gross
income its share of the earnings of a PFIC on a current basis, regardless of
whether distributions are received from the PFIC in a given year.
DEBT SECURITIES ACQUIRED AT A DISCOUNT
Some of the debt securities (with a fixed maturity date of more than
one year from the date of issuance) that may be acquired by the Fund may be
treated as debt securities that are issued originally at a discount. Generally,
the amount of the original issue discount ("OID") is treated as interest income
and is included in income over the term of the debt security, even though
payment of that amount is not received until a later time, usually when the debt
security matures.
Some of the debt securities (with a fixed maturity date of more than
one year from the date of issuance) that may be acquired by the Fund in the
secondary market may be treated as having market discount. Generally, gain
recognized on the disposition of, and any partial payment of principal on, a
debt security having market discount is treated as ordinary income to the extent
the gain, or principal payment, does not exceed the "accrued market discount" on
such debt security. In addition, the deduction of any interest expenses
attributable to debt securities having market discount may be deferred. Market
discount generally accrues in equal daily installments. The Fund may make one or
more of the elections applicable to debt securities having market discount,
which could affect the character and timing of recognition of income.
Some debt securities (with a fixed maturity date of one year or less
from the date of issuance) that may be acquired by the Fund may be treated as
having acquisition discount, or OID in the case of certain types of debt
securities. Generally, the Fund will be required to include the acquisition
discount, or OID, in income over the term of the debt security, even though
payment of that amount is not received until a later time, usually when the debt
security matures. The Fund may make one or more of the elections applicable to
debt securities having acquisition discount, or OID, which could affect the
character and timing of recognition of income.
The Fund generally will be required to distribute dividends to
shareholders representing discount on debt securities that is currently
includable in income, even though cash representing such income may not have
been received by the Fund. Cash to pay such dividends may be obtained from sales
proceeds of securities held by the Fund.
DISTRIBUTIONS
Distributions of investment company taxable income are taxable to a
U.S. shareholder as ordinary income, whether paid in cash or shares. Dividends
paid by the Fund to a corporate shareholder, to the extent such dividends are
attributable to dividends received from U.S. corporations by the Fund, may
qualify for the dividends received deduction. However, the revised alternative
minimum tax applicable to corporations may reduce the value of the dividends
received deduction. Distributions of net capital gains (the excess of net
long-term capital gains over net short-term capital losses), if any, designated
by the Fund as capital gain dividends, are taxable to shareholders as long-term
capital gains whether paid in cash or in shares, and regardless of how long the
shareholder has held the Fund's shares; such distributions are not eligible for
the dividends received deduction. Shareholders receiving distributions in the
form of newly issued shares will have a cost basis in each share received equal
to the net asset value of a share of the Fund on the distribution date. A
distribution of an amount in excess of the Fund's current and accumulated
earnings and profits will be treated by a shareholder as a return of capital
which is applied against and reduces the shareholder's basis in his or her
shares. To the extent that the amount of any such distribution exceeds the
shareholder's basis in his or her shares, the excess will be treated by the
shareholder as gain from a sale or exchange of the shares. Shareholders will be
notified annually as to the U.S. Federal tax status of distributions and
shareholders receiving distributions in the form of newly issued shares will
receive a report as to the net asset value of the shares received.
If the net asset value of shares is reduced below a shareholder's cost
as a result of a distribution by the Fund, such distribution generally will be
taxable even though it represents a return of invested capital. Shareholders
should be careful to consider the tax implications of buying shares just prior
to a distribution. The price of shares purchased at this time may reflect the
amount of the forthcoming distribution. Those purchasing just prior to a
distribution will receive a distribution which generally will be taxable to
them.
DISPOSITION OF SHARES
Upon a redemption, sale or exchange of his or her shares, a shareholder
will realize a taxable gain or loss depending upon his or her basis in the
shares. Such gain or loss will be treated as capital gain or loss if the shares
are capital assets in the shareholder's hands and, if so, will be long-term or
short-term, depending upon the shareholder's holding period for the shares. Any
loss realized on a redemption sale or exchange will be disallowed to the extent
the shares disposed of are replaced (including through reinvestment of
dividends) within a period of 61 days beginning 30 days before and ending 30
days after the shares are disposed of. In such a case, the basis of the shares
acquired will be adjusted to reflect the disallowed loss. Any loss realized by a
shareholder on the sale of Fund shares held by the shareholder for six-months or
less will be treated for tax purposes as a long-term capital loss to the extent
of any distributions of capital gain dividends received or treated as having
been received by the shareholder with respect to such shares.
In some cases, shareholders will not be permitted to take all or
portion of their sales loads into account for purposes of determining the amount
of gain or loss realized on the disposition of their shares. This prohibition
generally applies where (1) the shareholder incurs a sales load in acquiring the
shares of the Fund, (2) the shares are disposed of before the 91st day after the
date on which they were acquired, and (3) the shareholder subsequently acquires
shares in the Fund or another regulated investment company and the otherwise
applicable sales charge is reduced under a "reinvestment right" received upon
the initial purchase of Fund shares. The term "reinvestment right" means any
right to acquire shares of one or more regulated investment companies without
the payment of a sales load or with the payment of a reduced sales charge. Sales
charges affected by this rule are treated as if they were incurred with respect
to the shares acquired under the reinvestment right. This provision may be
applied to successive acquisitions of fund shares.
FOREIGN WITHHOLDING TAXES
Income received by the Fund from sources within a foreign country may
be subject to withholding and other taxes imposed by that country.
If more than 50% of the value of the Fund's total assets at the close
of its taxable year consists of securities of foreign corporations, the Fund
will be eligible and may elect to "pass-through" to the Fund's shareholders the
amount of foreign income and similar taxes paid by the Fund. Pursuant to this
election, a shareholder will be required to include in gross income (in addition
to taxable dividends actually received) his or her pro rata share of the foreign
income and similar taxes paid by the Fund, and will be entitled either to deduct
his or her pro rata share of foreign income and similar taxes in computing his
or her taxable income or to use it as a foreign tax credit against his or her
U.S. Federal income taxes, subject to limitations. No deduction for foreign
taxes may be claimed by a shareholder who does not itemize deductions. Foreign
taxes generally may not be deducted by a shareholder that is an individual in
computing the alternative minimum tax. Each shareholder will be notified within
60 days after the close of the Fund's taxable year whether the foreign taxes
paid by the Fund will "pass-through" for that year and, if so, such notification
will designate (1) the shareholder's portion of the foreign taxes paid to each
such country and (2) the portion of the dividend which represents income derived
from sources within each such country.
Generally, except in the case of certain electing individual taxpayers
who have limited creditable foreign taxes and no foreign source income other
than passive investment-type income, a credit for foreign taxes is subject to
the limitation that it may not exceed the shareholder's U.S. tax attributable to
his or her total foreign source taxable income. For this purpose, if the Fund
makes the election described in the preceding paragraph, the source of the
Fund's income flows through to its shareholders. With respect to the Fund, gains
from the sale of securities generally will be treated as derived from U.S.
sources and section 988 gains will be treated as ordinary income derived from
U.S. sources. The limitation on the foreign tax credit is applied separately to
foreign source passive income, including foreign source passive income received
from the Fund. In addition, the foreign tax credit may offset only 90% of the
revised alternative minimum tax imposed on corporations and individuals.
Furthermore, the foreign tax credit is eliminated with respect to foreign taxes
withheld on dividends if the dividend-paying shares or the shares of the Fund
are held by the Fund or the shareholder, as the case may be, for less than 16
days (46 days in the case of preferred shares) during the 30-day period (90-day
period for preferred shares) beginning 15 days (45 days for preferred shares)
before the shares become ex-dividend. In addition, if the Fund fails to satisfy
these holding period requirements, it cannot elect to pass through to
shareholders the ability to claim a deduction for related foreign taxes.
The foregoing is only a general description of the foreign tax credit
under current law. Because application of the credit depends on the particular
circumstances of each shareholder, shareholders are advised to consult their own
tax advisers.
BACKUP WITHHOLDING
The Fund will be required to report to the Internal Revenue Service
("IRS") all taxable distributions as well as gross proceeds from the redemption
of the Fund's shares, except in the case of certain exempt shareholders. All
such distributions and proceeds will be subject to withholding of Federal income
tax at a rate of 31% ("backup withholding") in the case of non-exempt
shareholders if (1) the shareholder fails to furnish the Fund with and to
certify the shareholder's correct taxpayer identification number or social
security number, (2) the IRS notifies the shareholder or the Fund that the
shareholder has failed to report properly certain interest and dividend income
to the IRS and to respond to notices to that effect, or (3) when required to do
so, the shareholder fails to certify that he or she is not subject to backup
withholding. If the withholding provisions are applicable, any such
distributions or proceeds, whether reinvested in additional shares or taken in
cash, will be reduced by the amounts required to be withheld.
Distributions may also be subject to additional state, local and
foreign taxes depending on each shareholder's particular situation. Non-U.S.
shareholders may be subject to U.S. tax rules that differ significantly from
those summarized above. This discussion does not purport to deal with all of the
tax consequences applicable to the Fund or shareholders. Shareholders are
advised to consult their own tax advisers with respect to the particular tax
consequences to them of an investment in the Fund.
PERFORMANCE INFORMATION
Performance information for the classes of shares of the Fund may be
compared, in reports and promotional literature, to: (i) the S&P 500 Index, the
Dow Jones Industrial Average ("DJIA"), or other unmanaged indices so that
investors may compare the Fund's results with those of a group of unmanaged
securities widely regarded by investors as representative of the securities
markets in general; (ii) other groups of mutual funds tracked by Lipper
Analytical Services, a widely used independent research firm that ranks mutual
funds by overall performance, investment objectives and assets, or tracked by
other services, companies, publications or other criteria; and (iii) the
Consumer Price Index (measure for inflation) to assess the real rate of return
from an investment in the Fund. Unmanaged indices may assume the reinvestment of
dividends but generally do not reflect deductions or administrative and
management costs and expenses. Performance rankings are based on historical
information and are not intended to indicate future performance.
YIELD. Quotations of yield for a specific class of shares of the Fund
will be based on all investment income attributable to that class earned during
a particular 30-day (or one month) period (including dividends and interest),
less expenses attributable to that class accrued during the period ("net
investment income"), and will be computed by dividing the net investment income
per share of that class earned during the period by the maximum offering price
per share (in the case of Class A shares) or the net asset value per share (in
the case of Class B and Class C shares) on the last day of the period, according
to the following formula:
YIELD = 2[({(a-b)/cd} + 1){superscript 6}-1]
Where: a = dividends and interest earned during the period
attributable to a specific class of
shares,
b = expenses accrued for the period attributable to
that class (net of reimbursements),
c = the average daily number of shares
of that class outstanding during the
period that were entitled to receive
dividends, and
d = the maximum offering price per
share (in the case of Class A
shares) or the net asset value per
share (in the case of Class B and
Class C shares) on the last day of
the period.
AVERAGE ANNUAL TOTAL RETURN. Quotations of standardized average annual
total return ("Standardized Return") for a specific class of shares of the Fund
will be expressed in terms of the average annual compounded rate of return that
would cause a hypothetical investment in that class of the Fund made on the
first day of a designated period to equal the ending redeemable value ("ERV") of
such hypothetical investment on the last day of the designated period, according
to the following formula:
P(1 + T){superscript n} = ERV
Where: P = a hypothetical initial payment of $1,000 to
purchase shares of a specific class
T = the average annual total return of shares of that
class
n = the number of years
ERV = the ending redeemable value of a hypothetical
$1,000 payment made at the beginning of the
period.
For purposes of the above computation for the Fund, it is assumed that
all dividends and capital gains distributions made by the Fund are reinvested at
net asset value in additional shares of the same class during the designated
period. In calculating the ending redeemable value for Class A shares and
assuming complete redemption at the end of the applicable period, the maximum
5.75% sales charge is deducted from the initial $1,000 payment and, for Class B
and Class C shares, the applicable CDSC imposed upon redemption of Class B or
Class C shares held for the period is deducted. Standardized Return quotations
for the Fund do not take into account any required payments for federal or state
income taxes. Standardized Return quotations for Class B shares for periods of
over eight years will reflect conversion of the Class B shares to Class A shares
at the end of the eighth year. Standardized Return quotations are determined to
the nearest 1/100 of 1%.
The Fund may, from time to time, include in advertisements, promotional
literature or reports to shareholders or prospective investors total return data
that are not calculated according to the formula set forth above
("Non-Standardized Return"). Neither initial nor CDSCs are taken into account in
calculating Non-Standardized Return; a sales charge, if deducted, would reduce
the return.
The following table summarizes the calculation of Standardized and
Non-Standardized Return for the Class A, Class B, Class C and Advisor Class
shares of the Fund for the periods indicated. In determining the average annual
total return for a specific class of shares of the Fund, recurring fees, if any,
that are charged to all shareholder accounts are taken into consideration. For
any account fees that vary with the size of the account of the Fund, the account
fee used for purposes of the following computations is assumed to be the fee
that would be charged to the mean account size of the Fund.
<TABLE>
<CAPTION>
STANDARDIZED RETURN[*]
CLASS A[1] CLASS B[2] CLASS C[3] ADVISOR CLASS
<S> <C> <C> <C> <C>
Year ended December 31,
1998
% % % %
Inception [#] to year ended December 31, 1998:
% % % %
NON-STANDARDIZED RETURN[**]
CLASS A[4] CLASS B[5] CLASS C[6] ADVISOR CLASS
Year ended December 31,
1998
% % % %
Inception [#] to year ended December 31, 1998:
% % % %
- ------------------------- ----------------- ------------------ -------------------
</TABLE>
[*] The Standardized Return figures for Class A shares reflect the
deduction of the maximum initial sales charge of 5.75%. The Standardized Return
figures for Class B and C shares reflect the deduction of the applicable CDSC
imposed on redemption of Class B or C shares held for the period.
[**] The Non-Standardized Return figures do not reflect the
deduction of any initial sales charge or CDSC.
[#] The inception date for the Fund (and Class A, Class B and Class C
shares of the Fund) was January 1, 1997. Advisor Class shares were first offered
on January 1, 1998.
[1] The Standardized Return figures for the Class A shares reflect
expense reimbursement. Without expense reimbursement, the Standardized Return
for Class A shares for the period from inception through and the one year ended
December 31, 1998 would have been [ %].
[2] The Standardized Return figures for the Class B shares reflect
expense reimbursement. Without expense reimbursement, the Standardized Return
for Class B shares for the period from inception through and the one year ended
December 31, 1998 would have been [ %].
[3] The Standardized Return figures for the Class C shares reflect
expense reimbursement. Without expense reimbursement, the Standardized Return
for Class C shares for the period from inception through and the one year ended
December 31, 1998 would have been [ %].
[4] The Non-Standardized Return figures for Class A shares reflect
expense reimbursement. Without expense reimbursement, the Non-Standardized
Return for Class A shares for the period from inception through and the one year
ended December 31, 1998 would have been [ %].
[5] The Non-Standardized Return figures for Class B shares reflect
expense reimbursement. Without expense reimbursement, the Non-Standardized
Return for Class B shares for the period from inception through and the one year
ended December 31, 1998 would have been [ %].
[6] The Non-Standardized Return figures for Class C shares reflect
expense reimbursement. Without expense reimbursement, the Non-Standardized
Return for Class C shares for the period from inception through and the one year
ended December 31, 1998 would have been [ %].
CUMULATIVE TOTAL RETURN. Cumulative total return is the cumulative rate
of return on a hypothetical initial investment of $1,000 in a specific class of
shares of the Fund for a specified period. Cumulative total return quotations
reflect changes in the price of the Fund's shares and assume that all dividends
and capital gains distributions during the period were reinvested in the Fund
shares. Cumulative total return is calculated by computing the cumulative rates
of return of a hypothetical investment in a specific class of shares of the Fund
over such periods, according to the following formula (cumulative total return
is then expressed as a percentage):
C = (ERV/P) - 1
Where: C = cumulative total return
P = a hypothetical initial investment of $1,000
to purchase shares of a specific class
ERV = ending redeemable value: ERV is
the value, at the end of the
applicable period, of a hypothetical
$1,000 investment made at the
beginning of the applicable period.
The following table summarizes the calculation of Cumulative Total
Return for the periods indicated through December 31, 1998,
assuming the maximum 5.75% sales charge has been assessed.
SINCE INCEPTION[*]
ONE YEAR
Class A
Class B
Class C
Advisor Class
The following table summarizes the calculation of Cumulative Total
Return for the periods indicated through December 31, 1998,
assuming the maximum 5.75% sales charge has not been assessed.
SINCE INCEPTION[*]
ONE YEAR
Class A
Class B
Class C
Advisor Class
- ---------------------------
[*] The inception date for the Fund (Class A, Class B and Class C shares)
was January 1, 1997. Advisor Class shares were first offered on January
1, 1998.
OTHER QUOTATIONS, COMPARISONS AND GENERAL INFORMATION. The foregoing
computation methods are prescribed for advertising and other communications
subject to SEC Rule 482. Communications not subject to this rule may contain a
number of different measures of performance, computation methods and
assumptions, including but not limited to: historical total returns; results of
actual or hypothetical investments; changes in dividends, distributions or share
values; or any graphic illustration of such data. These data may cover any
period of the Trust's existence and may or may not include the impact of sales
charges, taxes or other factors.
Performance quotations for the Fund will vary from time to time
depending on market conditions, the composition of the Fund's portfolio and
operating expenses of the Fund. These factors and possible differences in the
methods used in calculating performance quotations should be considered when
comparing performance information regarding the Fund's shares with information
published for other investment companies and other investment vehicles.
Performance quotations should also be considered relative to changes in the
value of the Fund's shares and the risks associated with the Fund's investment
objectives and policies. At any time in the future, performance quotations may
be higher or lower than past performance quotations and there can be no
assurance that any historical performance quotation will continue in the future.
The Fund may also cite endorsements or use for comparison its
performance rankings and listings reported in such newspapers or business or
consumer publications as, among others: AAII Journal, Barron's, Boston Business
Journal, Boston Globe, Boston Herald, Business Week, Consumer's Digest, Consumer
Guide Publications, Changing Times, Financial Planning, Financial World, Forbes,
Fortune, Growth Fund Guide, Houston Post, Institutional Investor, International
Fund Monitor, Investor's Daily, Los Angeles Times, Medical Economics, Miami
Herald, Money Mutual Fund Forecaster, Mutual Fund Letter, Mutual Fund Source
Book, Mutual Fund Values, National Underwriter, Nelson's Directory of Investment
Managers, New York Times, Newsweek, No Load Fund Investor, No Load Fund* X,
Oakland Tribune, Pension World, Pensions and Investment Age, Personal Investor,
Rugg and Steele, Time, U.S. News and World Report, USA Today, The Wall Street
Journal, and Washington Post.
FINANCIAL STATEMENTS
The Fund's Portfolio of Investments as of December 31, 1998, Statement
of Assets and Liabilities as of December 31, 1998, Statement of Operations for
the fiscal year ended December 31, 1998, Statement of Changes in Net Assets for
the fiscal year ended December 31, 1998, Financial Highlights, Notes to
Financial Statements, and Report of Independent Accountants, which are included
in the Fund's December 31, 1998 Annual Report to shareholders, are incorporated
by reference into this SAI.
<PAGE>
APPENDIX A
DESCRIPTION OF STANDARD & POOR'S RATINGS GROUP ("S&P") AND
MOODY'S INVESTORS SERVICE, INC. ("MOODY'S") CORPORATE
BOND AND COMMERCIAL PAPER RATINGS
[From"Moody's Bond Record," November 1994 Issue (Moody's Investors Service, New
York, 1994), and "Standard & Poor's Municipal Ratings Handbook," October
1997 Issue (McGraw Hill, New York, 1997).]
MOODY'S:
(a) CORPORATE BONDS. Bonds rated Aaa by Moody's are judged by Moody's
to be of the best quality, carrying the smallest degree of investment risk.
Interest payments are protected by a large or exceptionally stable margin and
principal is secure. While the various protective elements are likely to change,
such changes as can be visualized are most unlikely to impair the fundamentally
strong position of such issues. Bonds rated Aa are judged by Moody's to be of
high quality by all standards. Aa bonds are rated lower than Aaa bonds because
margins of protection may not be as large as those of Aaa bonds, or fluctuations
of protective elements may be of greater amplitude, or there may be other
elements present which make the long-term risks appear somewhat larger than
those applicable to Aaa securities. Bonds which are rated A by Moody's possess
many favorable investment attributes and are to be considered as upper
medium-grade obligations. Factors giving security to principal and interest are
considered adequate, but elements may be present which suggest a susceptibility
to impairment sometime in the future. Bonds rated Baa by Moody's are considered
medium-grade obligations (i.e., they are neither highly protected nor poorly
secured). Interest payments and principal security appear adequate for the
present, but certain protective elements may be lacking or may be
characteristically unreliable over any great length of time. Such bonds lack
outstanding investment characteristics and in fact have speculative
characteristics as well. Bonds which are rated Ba are judged to have speculative
elements; their future cannot be considered well-assured. Often the protection
of interest and principal payments may be very moderate and thereby not well
safeguarded during both good and bad times over the future. Uncertainty of
position characterizes bonds in this class. Bonds which are rated B generally
lack characteristics of the desirable investment. Assurance of interest and
principal payments of or maintenance of other terms of the contract over any
long period of time may be small. Bonds which are rated Caa are of poor
standing. Such issues may be in default or there may be present elements of
danger with respect to principal or interest. Bonds which are rated Ca represent
obligations which are speculative in a high degree. Such issues are often in
default or have other marked shortcomings. Bonds which are rated C are the
lowest rated class of bonds and issues so rated can be regarded as having
extremely poor prospects of ever attaining any real investment standing.
(b) COMMERCIAL PAPER. The Prime rating is the highest commercial paper
rating assigned by Moody's. Among the factors considered by Moody's in assigning
ratings are the following: (1) evaluation of the management of the issuer; (2)
economic evaluation of the issuer's industry or industries and an appraisal of
speculative-type risks which may be inherent in certain areas; (3) evaluation of
the issuer's products in relation to competition and customer acceptance; (4)
liquidity; (5) amount and quality of long-term debt; (6) trend of earnings over
a period of ten years; (7) financial strength of a parent company and the
relationships which exist with the issuer; and (8) recognition by management of
obligations which may be present or may arise as a result of public interest
questions and preparations to meet such obligations. Issuers within this Prime
category may be given ratings 1, 2 or 3, depending on the relative strengths of
these factors. The designation of Prime-1 indicates the highest quality
repayment capacity of the rated issue. Issuers rated Prime-2 are deemed to have
a strong ability for repayment while issuers voted Prime-3 are deemed to have an
acceptable ability for repayment. Issuers rated Not Prime do not fall within any
of the Prime rating categories.
S&P:
(a) CORPORATE BONDS. An S&P corporate debt rating is a current
assessment of the creditworthiness of an obligor with respect to a specific
obligation. The ratings are based on current information furnished by the issuer
or obtained by S&P from other sources it considers reliable. The ratings
described below may be modified by the addition of a plus or minus sign to show
relative standing within the major rating categories.
Debt rated AAA has the highest rating assigned by S&P. Capacity to pay
interest and repay principal is extremely strong. Debt rated AA is judged by S&P
to have a very strong capacity to pay interest and repay principal and differs
from the highest rated issues only in small degree. Debt rated A by S&P has a
strong capacity to pay interest and repay principal, although it is somewhat
more susceptible to the adverse effects of changes in circumstances and economic
conditions than debt in higher rated categories.
Debt rated BBB by S&P is regarded by S&P as having an adequate capacity
to pay interest and repay principal. Although such bonds normally exhibit
adequate protection parameters, adverse economic conditions or changing
circumstances are more likely to lead to a weakened capacity to pay interest and
repay principal than debt in higher rated categories.
Debt rated BB, B, CCC, CC and C is regarded as having predominately
speculative characteristics with respect to capacity to pay interest and repay
principal. BB indicates the least degree of speculation and C the highest. While
such debt will likely have some quality and protective characteristics, these
are outweighed by large uncertainties or exposures to adverse conditions. Debt
rated BB has less near-term vulnerability to default than other speculative
issues. However, it faces major ongoing uncertainties or exposure to adverse
business, financial or economic conditions which could lead to inadequate
capacity to meet timely interest and principal payments. The BB rating category
is also used for debt subordinated to senior debt that is assigned an actual or
implied BBB- rating. Debt rated B has a greater vulnerability to default but
currently has the capacity to meet interest payments and principal repayments.
Adverse business, financial, or economic conditions will likely impair capacity
or willingness to pay interest and repay principal. The B rating category is
also used for debt subordinated to senior debt that is assigned an actual or
implied BB or BB- rating. Debt rated CCC has a currently identifiable
vulnerability to default, and is dependent upon favorable business, financial,
and economic conditions to meet timely payment of interest and repayment of
principal. In the event of adverse business, financial or economic conditions,
it is not likely to have the capacity to pay interest and repay principal. The
CCC rating category is also used for debt subordinated to senior debt that is
assigned an actual or implied B or B- rating. The rating CC typically is applied
to debt subordinated to senior debt which is assigned an actual or implied CCC
debt rating. The rating C typically is applied to debt subordinated to senior
debt which is assigned an actual or implied CCC- debt rating. The C rating may
be used to cover a situation where a bankruptcy petition has been filed, but
debt service payments are continued.
The rating CI is reserved for income bonds on which no interest is
being paid. Debt rated D is in payment default. The D rating category is used
when interest payments or principal payments are not made on the date due, even
if the applicable grace period has not expired, unless S&P believes that such
payments will be made during such grace period. The D rating also will be used
upon the filing of a bankruptcy petition if debt service payments are
jeopardized.
(b) COMMERCIAL PAPER. An S&P commercial paper rating is a current
assessment of the likelihood of timely payment of debt considered short-term in
the relevant market.
The commercial paper rating A-1 by S&P indicates that the degree of
safety regarding timely payment is strong. Those issues determined to possess
extremely strong safety characteristics are denoted with a plus sign (+)
designation. For commercial paper with an A-2 rating, the capacity for timely
payment on issues is satisfactory, but not as high as for issues designated A-1.
Issues rated A-3 have adequate capacity for timely payment, but are more
vulnerable to the adverse effects of changes in circumstances than obligations
carrying higher designations.
Issues rated B are regarded as having only speculative capacity for
timely payment. The C rating is assigned to short-term debt obligations with a
doubtful capacity for payment. Debt rated D is in payment default. The D rating
category is used when interest payments or principal payments are not made on
the date due, even if the applicable grace period has not expired, unless S&P
believes such payments will be made during such grace period.
<PAGE>
IVY BOND FUND
a series of
IVY FUND
Via Mizner Financial Plaza, Suite 300
700 South Federal Highway
Boca Raton, Florida 33432
STATEMENT OF ADDITIONAL INFORMATION
April , 1999
Ivy Fund (the "Trust") is an open-end management investment company
that currently consists of nineteen fully managed portfolios, each of which
(except for Ivy South America Fund and Ivy International Strategic Bond Fund) is
diversified. This Statement of Additional Information ("SAI") relates to the
Class A, B, C and I and Advisor Class shares of Ivy Bond Fund (the "Fund"). The
other eighteen portfolios of the Trust are described in separate prospectuses
and SAIs.
This SAI is not a prospectus and should be read in conjunction with the
prospectus for the Fund dated April , 1999 (the "Prospectus"), which may be
obtained upon request and without charge from the Trust at the Distributor's
address and telephone number printed below.
INVESTMENT MANAGER
Ivy Management, Inc. ("IMI")
Via Mizner Financial Plaza, Suite 300
700 South Federal Highway
Boca Raton, Florida 33432
Telephone: (800) 777-6472
DISTRIBUTOR
Ivy Mackenzie Distributors, Inc. ("IMDI")
Via Mizner Financial Plaza, Suite 300
700 South Federal Highway
Boca Raton, Florida 33432
Telephone: (800) 456-5111
<PAGE>
21
TABLE OF CONTENTS
GENERAL INFORMATION.......................................................
INVESTMENT OBJECTIVES, STRATEGIES AND RISKS...............................
COMMON STOCKS....................................................
CONVERTIBLE SECURITIES...........................................
DEBT SECURITIES..................................................
IN GENERAL..............................................
INVESTMENT-GRADE DEBT SECURITIES........................
LOW-RATED DEBT SECURITIES...............................
U.S. GOVERNMENT SECURITIES..............................
MUNICIPAL SECURITIES....................................
ZERO COUPON BONDS.......................................
FIRM COMMITMENT AGREEMENTS AND "WHEN-ISSUED" SECURITIES.
ILLIQUID SECURITIES..............................................
FOREIGN SECURITIES...............................................
DEPOSITORY RECEIPTS..............................................
EMERGING MARKETS.................................................
FOREIGN SOVEREIGN DEBT OBLIGATIONS...............................
FOREIGN CURRENCIES...............................................
FOREIGN CURRENCY EXCHANGE TRANSACTIONS...........................
REPURCHASE AGREEMENTS............................................
BANKING INDUSTRY AND SAVINGS AND LOAN OBLIGATIONS................
COMMERCIAL PAPER.................................................
BORROWING........................................................
OPTIONS TRANSACTIONS.............................................
IN GENERAL..............................................
WRITING OPTIONS ON INDIVIDUAL SECURITIES................
PURCHASING OPTIONS ON INDIVIDUAL SECURITIES.............
PURCHASING AND WRITING OPTIONS ON SECURITIES INDICES....
RISKS OF OPTIONS TRANSACTIONS...........................
FUTURES CONTRACTS AND OPTIONS ON FUTURES CONTRACTS...............
IN GENERAL..............................................
INTEREST RATE FUTURES CONTRACTS.........................
OPTIONS ON INTEREST RATE FUTURES CONTRACTS..............
FOREIGN CURRENCY FUTURES CONTRACTS AND RELATED OPTIONS..
RISKS ASSOCIATED WITH FUTURES AND RELATED OPTIONS.......
COMBINED TRANSACTIONS...................................
INVESTMENT RESTRICTIONS...................................................
PORTFOLIO TURNOVER........................................................
TRUSTEES AND OFFICERS.....................................................
PERSONAL INVESTMENTS BY EMPLOYEES OF IMI................
INVESTMENT ADVISORY AND OTHER SERVICES....................................
BUSINESS MANAGEMENT AND INVESTMENT ADVISORY SERVICES.............
DISTRIBUTION SERVICES............................................
RULE 18F-3 PLAN.........................................
RULE 12B-1 DISTRIBUTION PLANS...........................
CUSTODIAN........................................................
FUND ACCOUNTING SERVICES.........................................
TRANSFER AGENT AND DIVIDEND PAYING AGENT.........................
ADMINISTRATOR....................................................
AUDITORS.........................................................
BROKERAGE ALLOCATION......................................................
CAPITALIZATION AND VOTING RIGHTS..........................................
SPECIAL RIGHTS AND PRIVILEGES.............................................
AUTOMATIC INVESTMENT METHOD......................................
EXCHANGE OF SHARES...............................................
INITIAL SALES CHARGE SHARES.............................
CONTINGENT DEFERRED SALES CHARGE SHARES CLASS A.........
CLASS B.................................................
CLASS C.................................................
CLASS I AND ADVISOR CLASS...............................
ALL CLASSES.............................................
LETTER OF INTENT.................................................
RETIREMENT PLANS.................................................
INDIVIDUAL RETIREMENT ACCOUNTS..........................
ROTH IRAS...............................................
QUALIFIED PLANS.........................................
DEFERRED COMPENSATION FOR PUBLIC SCHOOLS AND CHARITABLE
ORGANIZATIONS ("403(B)(7) ACCOUNT")
SIMPLIFIED EMPLOYEE PENSION ("SEP") IRAS................
SIMPLE PLANS............................................
REINVESTMENT PRIVILEGE...........................................
RIGHTS OF ACCUMULATION...........................................
SYSTEMATIC WITHDRAWAL PLAN.......................................
GROUP SYSTEMATIC INVESTMENT PROGRAM..............................
REDEMPTIONS...............................................................
CONVERSION OF CLASS B SHARES..............................................
NET ASSET VALUE...........................................................
TAXATION 42
OPTIONS, FUTURES AND FOREIGN CURRENCY FORWARD CONTRACTS..........
CURRENCY FLUCTUATIONS -- "SECTION 988" GAINS OR LOSSES...........
INVESTMENT IN PASSIVE FOREIGN INVESTMENT COMPANIES...............
DEBT SECURITIES ACQUIRED AT A DISCOUNT...........................
DISTRIBUTIONS....................................................
DISPOSITION OF SHARES............................................
FOREIGN WITHHOLDING TAXES........................................
BACKUP WITHHOLDING...............................................
PERFORMANCE INFORMATION...................................................
YIELD...................................................
AVERAGE ANNUAL TOTAL RETURN.............................
CUMULATIVE TOTAL RETURN.................................
OTHER QUOTATIONS, COMPARISONS AND GENERAL INFORMATION...
FINANCIAL STATEMENTS......................................................
APPENDIX A................................................................
<PAGE>
GENERAL INFORMATION
The Fund is organized as a separate, diversified portfolio of the
Trust, an open-end management investment company organized as a Massachusetts
business trust on December 21, 1983. The Fund commenced operations (Class A
shares) on September 6, 1985. The inception date for Class B and Class I shares
of the Fund was April 1, 1994. The inception date for Class C shares was April
30, 1996. Advisor Class shares were first offered on January 1, 1998.
Descriptions in this Statement of a particular investment practice or
technique in which the Fund may engage or a financial instrument which the Fund
may purchase are meant to describe the spectrum of investments that IMI, in its
discretion, might, but is not required to, use in managing the Fund's portfolio
assets. IMI may, in its discretion, at any time employ such practice, technique
or instrument for one or more funds but not for all funds advised by it.
Furthermore, it is possible that certain types of financial instruments or
investment techniques described herein may not be available, permissible,
economically feasible or effective for their intended purposes in all markets.
Certain practices, techniques, or instruments may not be principal activities of
the Fund but, to the extent employed, could from time to time have a material
impact on the Fund's performance.
INVESTMENT OBJECTIVES, STRATEGIES AND RISKS
The Fund has its own investment objectives and policies, which are
described in the Prospectus under the captions "Summary" and "Additional
Information About Strategies and Risks." Additional information regarding the
characteristics and risks associated with the Fund's investment techniques is
set forth below.
The Fund seeks a high level of current income by investing primarily in
(i) investment grade corporate bonds (those rated Aaa, Aa, A or Baa by Moody's
Investors Service, Inc. ("Moody's") or AAA, AA, A or BBB by Standard & Poor's
Corporation (S&P"), or, if unrated, considered by IMI to be of comparable
quality) and (ii) U.S. Government securities (including mortgage-backed
securities issued by U.S. Government agencies or instrumentalities) that mature
in more than 13 months. As a fundamental policy, the Fund normally invests at
least 65% of its total assets in these fixed income securities. For temporary
defensive purposes, the Fund may invest without limit in U.S. Government
securities maturing in 13 months or less, certificates of deposit, bankers'
acceptances, commercial paper and repurchase agreements. The Fund may also
invest up to 35% of its total assets in such money market securities in order to
meet redemptions or to maximize income to the Fund while it is arranging
longer-term investments.
The Fund may invest up to 35% of its net assets in corporate debt
securities, including zero coupon bonds (subject to the restrictions set forth
below), rated Ba or below by Moody's or BB or below by S&P, or, if unrated,
considered by IMI to be of comparable quality (commonly referred to as "high
yield" or "junk" bonds). The Fund will not invest in debt securities rated less
than C by either Moody's or S&P. During the twelve months ended December 31,
1998, based upon the dollar-weighted average ratings of the Fund's portfolio
holdings at the end of each month during that period, the Fund had the following
percentages of its total assets invested in debt securities rated in the
categories indicated (all ratings are by either Moody's or S&P, whichever rating
is higher): [........ ]. The asset composition of the Fund subsequent to the
period indicated may or may not approximate these figures. See Appendix A in the
SAI for a description of Moody's and S&P's corporate bond ratings.
The Fund may invest up to 5% of its net assets in dividend-paying
common and preferred stocks (including adjustable rate preferred stocks and
securities convertible into common stocks), municipal bonds, zero coupon bonds,
and securities sold on a "when-issued" or firm commitment basis. As a temporary
measure for extraordinary or emergency purposes, the Fund may borrow from banks
up to 10% of the value of its total assets.
The Fund may invest up to 20% of its net assets in debt securities of
foreign issuers, including non-U.S. dollar-denominated debt securities, American
Depository Receipts ("ADRs"), Global Depository ("GDRs"), American Depository
Shares ("ADSs") and Global Depository Shares ("GDSs"), Eurodollar securities and
debt securities issued, assumed or guaranteed by foreign governments or
political subdivisions or instrumentalities thereof. The Fund may also enter
into forward foreign currency contracts, but not for speculative purposes. The
Fund may not invest more than 15% of the value of its net assets in illiquid
securities.
The Fund may purchase put and call options, provided the premium paid
for such options does not exceed 10% of the Fund's net assets. The Fund may also
sell covered put options with respect to up to 50% of the value of its net
assets, and may write covered call options so long as not more than 20% of the
Fund's net assets in subject to being purchased upon the exercise of the calls.
For hedging purposes only, the Fund may engage in transactions in interest rate
futures contracts, currency futures contracts and options on interest rate
futures and currency futures contracts.
COMMON STOCKS
Common stock can be issued by companies to raise cash; all common stock
shares represent a proportionate ownership interest in a company. As a result,
the value of common stock rises and falls with a company's success or failure.
The market value of common stock can fluctuate significantly, with smaller
companies being particularly susceptible to price swings. Transaction costs in
smaller company stocks may also be higher than those of larger companies.
CONVERTIBLE SECURITIES
The convertible securities in which the Fund may invest include
corporate bonds, notes, debentures, preferred stock and other securities that
may be converted or exchanged at a stated or determinable exchange ratio into
underlying shares of common stock. Investments in convertible securities can
provide income through interest and dividend payments as well as an opportunity
for capital appreciation by virtue of their conversion or exchange features.
Because convertible securities can be converted into equity securities, their
values will normally vary in some proportion with those of the underlying equity
securities. Convertible securities usually provide a higher yield than the
underlying equity, however, so that the price decline of a convertible security
may sometimes be less substantial than that of the underlying equity security.
The exchange ratio for any particular convertible security may be adjusted from
time to time due to stock splits, dividends, spin-offs, other corporate
distributions or scheduled changes in the exchange ratio. Convertible debt
securities and convertible preferred stocks, until converted, have general
characteristics similar to both debt and equity securities. Although to a lesser
extent than with debt securities generally, the market value of convertible
securities tends to decline as interest rates increase and, conversely, tends to
increase as interest rates decline. In addition, because of the conversion or
exchange feature, the market value of convertible securities typically changes
as the market value of the underlying common stock changes, and, therefore, also
tends to follow movements in the general market for equity securities. When the
market price of the underlying common stock increases, the price of a
convertible security tends to rise as a reflection of the value of the
underlying common stock, although typically not as much as the price of the
underlying common stock. While no securities investments are without risk,
investments in convertible securities generally entail less risk than
investments in common stock of the same issuer.
As debt securities, convertible securities are investments that provide
for a stream of income. Like all debt securities, there can be no assurance of
income or principal payments because the issuers of the convertible securities
may default on their obligations. Convertible securities generally offer lower
yields than non-convertible securities of similar quality because of their
conversion or exchange features.
Convertible securities generally are subordinated to other similar but
non-convertible securities of the same issuer, although convertible bonds, as
corporate debt obligations, are senior in right of payment to all equity
securities, and convertible preferred stock is senior to common stock, of the
same issuer. However, convertible bonds and convertible preferred stock
typically have lower coupon rates than similar non-convertible securities.
Convertible securities may be issued as fixed income obligations that pay
current income.
DEBT SECURITIES
IN GENERAL. Investment in debt securities involves both interest rate
and credit risk. Generally, the value of debt instruments rises and falls
inversely with fluctuations in interest rates. As interest rates decline, the
value of debt securities generally increases. Conversely, rising interest rates
tend to cause the value of debt securities to decrease. Bonds with longer
maturities generally are more volatile than bonds with shorter maturities. The
market value of debt securities also varies according to the relative financial
condition of the issuer. In general, lower-quality bonds offer higher yields due
to the increased risk that the issuer will be unable to meet its obligations on
interest or principal payments at the time called for by the debt instrument.
INVESTMENT-GRADE DEBT SECURITIES. Bonds rated Aaa by Moody's Investors
Service, Inc. ("Moody's") and AAA by Standard & Poor's Ratings Group ("S&P") are
judged to be of the best quality (i.e., capacity to pay interest and repay
principal is extremely strong). Bonds rated Aa/AA are considered to be of high
quality (i.e., capacity to pay interest and repay principal is very strong and
differs from the highest rated issues only to a small degree). Bonds rated A are
viewed as having many favorable investment attributes, but elements may be
present that suggest a susceptibility to the adverse effects of changes in
circumstances and economic conditions than debt in higher rated categories.
Bonds rated Baa/BBB (considered by Moody's to be "medium grade" obligations) are
considered to have an adequate capacity to pay interest and repay principal, but
certain protective elements may be lacking (i.e., such bonds lack outstanding
investment characteristics and have some speculative characteristics). The Fund
may invest in debt securities that are given an investment-grade rating by
Moody's or S&P, and may also invest in unrated debt securities that are
considered by IMI to be of comparable quality.
LOW-RATED DEBT SECURITIES. Securities rated lower than Baa by Moody's
or BBB by S&P, and comparable unrated securities (commonly referred to as "high
yield" or "junk" bonds), including many emerging markets bonds, are considered
to be predominantly speculative with respect to the issuer's continuing ability
to meet principal and interest payments. The lower the ratings of corporate debt
securities, the more their risks render them like equity securities. Such
securities carry a high degree of risk (including the possibility of default or
bankruptcy of the issuers of such securities), and generally involve greater
volatility of price and risk of principal and income (and may be less liquid)
than securities in the higher rating categories. (See Appendix A for a more
complete description of the ratings assigned by Moody's and S&P and their
respective characteristics.)
Lower rated and unrated securities are especially subject to adverse
changes in general economic conditions and to changes in the financial condition
of their issuers. Economic downturns may disrupt the high yield market and
impair the ability of issuers to repay principal and interest. Also, an increase
in interest rates would likely have an adverse impact on the value of such
obligations. During an economic downturn or period of rising interest rates,
highly leveraged issuers may experience financial stress which could adversely
affect their ability to service their principal and interest payment
obligations. Prices and yields of high yield securities will fluctuate over time
and, during periods of economic uncertainty, volatility of high yield securities
may adversely affect the Fund's net asset value. In addition, investments in
high yield zero coupon or pay-in-kind bonds, rather than income-bearing high
yield securities, may be more speculative and may be subject to greater
fluctuations in value due to changes in interest rates.
Changes in interest rates may have a less direct or dominant impact on
high yield bonds than on higher quality issues of similar maturities. However,
the price of high yield bonds can change significantly or suddenly due to a host
of factors including changes in interest rates, fundamental credit quality,
market psychology, government regulations, U.S. economic growth and, at times,
stock market activity. High yield bonds may contain redemption or call
provisions. If an issuer exercises these provisions in a declining interest rate
market, the Fund may have to replace the security with a lower yielding
security.
The trading market for high yield securities may be thin to the extent
that there is no established retail secondary market or because of a decline in
the value of such securities. A thin trading market may limit the ability of the
Fund to accurately value high yield securities in the Fund's portfolio, could
adversely affect the price at which the Fund could sell such securities, and
cause large fluctuations in the daily net asset value of the Fund's shares.
Adverse publicity and investor perceptions, whether or not based on fundamental
analysis, may decrease the value and liquidity of low-rated debt securities,
especially in a thinly traded market. When secondary markets for high yield
securities become relatively less liquid, it may be more difficult to value the
securities, requiring additional research and elements of judgment. These
securities may also involve special registration responsibilities, liabilities
and costs, and liquidity and valuation difficulties.
Credit quality in the high yield securities market can change suddenly
and unexpectedly, and even recently issued credit ratings may not fully reflect
the actual risks posed by a particular high yield security. For these reasons,
it is the policy of IMI not to rely exclusively on ratings issued by established
credit rating agencies, but to supplement such ratings with its own independent
and on-going review of credit quality. The achievement of the Fund's investment
objectives by investment in such securities may be more dependent on IMI's
credit analysis than is the case for higher quality bonds. Should the rating of
a portfolio security be downgraded, IMI will determine whether it is in the best
interest of the Fund to retain or dispose of such security. However, should any
individual bond held by the Fund be downgraded below a rating of C, IMI
currently intends to dispose of such bond based on then existing market
conditions.
Prices for high yield securities may be affected by legislative and
regulatory developments. For example, Federal rules require savings and loan
institutions to gradually reduce their holdings of this type of security. Also,
Congress has from time to time considered legislation that would restrict or
eliminate the corporate tax deduction for interest payments in these securities
and regulate corporate restructurings. Such legislation may significantly
depress the prices of outstanding securities of this type.
U.S. GOVERNMENT SECURITIES. U.S. Government securities are obligations of, or
guaranteed by, the U.S. Government, its agencies or instrumentalities.
Securities guaranteed by the U.S. Government include: (1) direct
obligations of the U.S. Treasury (such as Treasury bills, notes, and bonds)
and (2) Federal agency obligations guaranteed as to principal and interest
by the U.S. Treasury (such as GNMA certificates, which are mortgage-backed
securities). When such securities are held to maturity, the payment of
principal and interest is unconditionally guaranteed by the U.S.
Government, and thus they are of the highest possible credit quality. U.S.
Government securities that are not held to maturity are subject to
variations in market value due to fluctuations in interest rates.
Mortgage-backed securities are securities representing part ownership
of a pool of mortgage loans. For example, GNMA certificates are such securities
in which the timely payment of principal and interest is guaranteed by the full
faith and credit of the U.S. Government. Although the mortgage loans in the pool
will have maturities of up to 30 years, the actual average life of the loans
typically will be substantially less because the mortgages will be subject to
principal amortization and may be prepaid prior to maturity. Prepayment rates
vary widely and may be affected by changes in market interest rates. In periods
of falling interest rates, the rate of prepayment tends to increase, thereby
shortening the actual average life of the security. Conversely, rising interest
rates tend to decrease the rate of prepayments, thereby lengthening the actual
average life of the security (and increasing the security's price volatility).
Accordingly, it is not possible to predict accurately the average life of a
particular pool. Reinvestment of prepayment may occur at higher or lower rates
than the original yield on the certificates. Due to the prepayment feature and
the need to reinvest prepayments of principal at current rates, mortgage-backed
securities can be less effective than typical bonds of similar maturities at
"locking in" yields during periods of declining interest rates, and may involve
significantly greater price and yield volatility than traditional debt
securities. Such securities may appreciate or decline in market value during
periods of declining or rising interest rates, respectively.
Securities issued by U.S. Government instrumentalities and certain
Federal agencies are neither direct obligations of nor guaranteed by the U.S.
Treasury; however, they involve Federal sponsorship in one way or another. Some
are backed by specific types of collateral, some are supported by the issuer's
right to borrow from the Treasury, some are supported by the discretionary
authority of the Treasury to purchase certain obligations of the issuer, others
are supported only by the credit of the issuing government agency or
instrumentality. These agencies and instrumentalities include, but are not
limited to, Federal Land Banks, Farmers Home Administration, Central Bank for
Cooperatives, Federal Intermediate Credit Banks, Federal Home Loan Banks,
Federal National Mortgage Association, Federal Home Loan Mortgage Association,
and Student Loan Marketing Association.
MUNICIPAL SECURITIES. Municipal securities are debt obligations that
generally have a maturity at the time of issue in excess of one year and are
issued to obtain funds for vaious public purposes. The two principal
classifications of municipal bonds are "general obligation" and "revenue" bonds.
General obligation bonds are secured by the issuer's pledge of its full faith,
credit and taxing power for the payment of principal and interest. Revenue bonds
are payable only from the revenues derived from a particular facility or class
of facilities, or, in some cases, from the proceeds of a special excise of a
specific revenue source. Industrial development bonds or private activity bonds
are issued by or on behalf of public authorities to obtain funds for
privately-operated facilities and are in most cases revenue bonds that generally
do not carry the pledge of the full faith and credit of the issuer of such
bonds, but depend for payment on the ability of the industrial user to meet its
obligations (or on any property pledged as security).
The market prices of municipal securities, like those of taxable debt
securities, go up and down when interest rates change. Thus, the net asset value
per share can be expected to fluctuate and shareholders may receive more or less
than their purchase price for shares they redeem.
ZERO COUPON BONDS. Zero coupon bonds are debt obligations issued
without any requirement for the periodic payment of interest. Zero coupon bonds
are issued at a significant discount from face value. The discount approximates
the total amount of interest the bonds would accrue and compound over the period
until maturity at a rate of interest reflecting the market rate at the time of
issuance. If the Fund holds zero coupon bonds in its portfolio, it would
recognize income currently for Federal income tax purposes in the amount of the
unpaid, accrued interest and generally would be required to distribute dividends
representing such income to shareholders currently, even though funds
representing such income would not have been received by the Fund. Cash to pay
dividends representing unpaid, accrued interest may be obtained from, for
example, sales proceeds of portfolio securities and Fund shares and from loan
proceeds. The potential sale of portfolio securities to pay cash distributions
from income earned on zero coupon bonds may result in the Fund being forced to
sell portfolio securities at a time when it might otherwise choose not to sell
these securities and when the Fund might incur a capital loss on such sales.
Because interest on zero coupon obligations is not distributed to the Fund on a
current basis, but is in effect compounded, the value of the securities of this
type is subject to greater fluctuations in response to changing interest rates
than the value of debt obligations which distribute income regularly.
FIRM COMMITMENT AGREEMENTS AND "WHEN-ISSUED" SECURITIES. New issues of
certain debt securities are often offered on a "when-issued" basis, meaning the
payment obligation and the interest rate are fixed at the time the buyer enters
into the commitment, but delivery and payment for the securities normally take
place after the date of the commitment to purchase. Firm commitment agreements
call for the purchase of securities at an agreed-upon price on a specified
future date. The Fund uses such investment techniques in order to secure what is
considered to be an advantageous price and yield to the Fund and not for
purposes of leveraging the Fund's assets. In either instance, the Fund will
maintain in a segregated account with its Custodian cash or liquid securities
equal (on a daily market-to-market basis) to the amount of its commitment to
purchase the underlying securities.
ILLIQUID SECURITIES
The Fund may purchase securities other than in the open market. While
such purchases may often offer attractive opportunities for investment not
otherwise available on the open market, the securities so purchased are often
"restricted securities" or "not readily marketable" (i.e., they cannot be sold
to the public without registration under the Securities Act of 1933, as amended
(the "1933 Act"), or the availability of an exemption from registration (such as
Rule 144A) or because they are subject to other legal or contractual delays in
or restrictions on resale). This investment practice, therefore, could have the
effect of increasing the level of illiquidity of the Fund. It is the Fund's
policy that illiquid securities (including repurchase agreements of more than
seven days duration, certain restricted securities, and other securities which
are not readily marketable) may not constitute, at the time of purchase, more
than 15% of the value of the Fund's net assets. The Trust's Board of Trustees
has approved guidelines for use by IMI in determining whether a security is
illiquid.
Generally speaking, restricted securities may be sold (i) only to
qualified institutional buyers; (ii) in a privately negotiated transaction to a
limited number of purchasers; (iii) in limited quantities after they have been
held for a specified period of time and other conditions are met pursuant to an
exemption from registration; or (iv) in a public offering for which a
registration statement is in effect under the 1933 Act. Issuers of restricted
securities may not be subject to the disclosure and other investor protection
requirements that would be applicable if their securities were publicly traded.
If adverse market conditions were to develop during the period between the
Fund's decision to sell a restricted or illiquid security and the point at which
the Fund is permitted or able to sell such security, the Fund might obtain a
price less favorable than the price that prevailed when it decided to sell.
Where a registration statement is required for the resale of restricted
securities, the Fund may be required to bear all or part of the registration
expenses. The Fund may be deemed to be an "underwriter" for purposes of the 1933
Act when selling restricted securities to the public and, in such event, the
Fund may be liable to purchasers of such securities if the registration
statement prepared by the issuer is materially inaccurate or misleading.
Since it is not possible to predict with assurance that the market for
securities eligible for resale under Rule 144A will continue to be liquid, IMI
will monitor such restricted securities subject to the supervision of the Board
of Trustees. Among the factors IMI may consider in reaching liquidity decisions
relating to Rule 144A securities are: (1) the frequency of trades and quotes for
the security; (2) the number of dealers wishing to purchase or sell the security
and the number of other potential purchasers; (3) dealer undertakings to make a
market in the security; and (4) the nature of the security and the nature of the
market for the security (i.e., the time needed to dispose of the security, the
method of soliciting offers, and the mechanics of the transfer).
FOREIGN SECURITIES
The securities of foreign issuers in which the Fund may invest include
non-U.S. dollar-denominated debt securities, Euro dollar securities, sponsored
and unsponsored American Depository Receipts ("ADRs"), Global Depository
Receipts ("GDRs"), American Depository Shares ("ADSs"), Global Depository Shares
("GDSs") and related depository instruments, and debt securities issued, assumed
or guaranteed by foreign governments or political subdivisions or
instrumentalities thereof. Shareholders should consider carefully the
substantial risks involved in investing in securities issued by companies and
governments of foreign nations, which are in addition to the usual risks
inherent in the Fund's domestic investments.
Although IMI intends to invest the Fund's assets only in nations that
are generally considered to have relatively stable and friendly governments,
there is the possibility of expropriation, nationalization, repatriation or
confiscatory taxation, taxation on income earned in a foreign country and other
foreign taxes, foreign exchange controls (which may include suspension of the
ability to transfer currency from a given country), default on foreign
government securities, political or social instability or diplomatic
developments which could affect investments in securities of issuers in those
nations. In addition, in many countries there is less publicly available
information about issuers than is available for U.S. companies. Moreover,
foreign companies are not generally subject to uniform accounting, auditing and
financial reporting standards, and auditing practices and requirements may not
be comparable to those applicable to U.S. companies. In many foreign countries,
there is less governmental supervision and regulation of business and industry
practices, stock exchanges, brokers, and listed companies than in the United
States. Foreign securities transactions may also be subject to higher brokerage
costs than domestic securities transactions. The foreign securities markets of
many of the countries in which the Fund may invest may also be smaller, less
liquid and subject to greater price volatility than those in the United States.
In addition, the Fund may encounter difficulties or be unable to pursue legal
remedies and obtain judgment in foreign courts.
Foreign bond markets have different clearance and settlement procedures
and in certain markets there have been times when settlements have been unable
to keep pace with the volume of securities transactions, making it difficult to
conduct such transactions. Delays in settlement could result in temporary
periods when assets of the Fund are uninvested and no return is earned thereon.
The inability of the Fund to make intended security purchases due to settlement
problems could cause the Fund to miss attractive investment opportunities.
Further, the inability to dispose of portfolio securities due to settlement
problems could result either in losses to the Fund because of subsequent
declines in the value of the portfolio security or, if the Fund has entered into
a contract to sell the security, in possible liability to the purchaser. It may
be more difficult for the Fund's agents to keep currently informed about
corporate actions such as stock dividends or other matters that may affect the
prices of portfolio securities. Communications between the United States and
foreign countries may be less reliable than within the United States, thus
increasing the risk of delayed settlements of portfolio transactions or loss of
certificates for portfolio securities. Moreover, individual foreign economies
may differ favorably or unfavorably from the United States economy in such
respects as growth of gross national product, rate of inflation, capital
reinvestment, resource self-sufficiency and balance of payments position. IMI
seeks to mitigate the risks to the Fund associated with the foregoing
considerations through investment variation and continuous professional
management.
DEPOSITORY RECEIPTS
ADRs, GDRs, ADSs, GDSs and related securities are depository
instruments, the issuance of which is typically administered by a U.S. or
foreign bank or trust company. These instruments evidence ownership of
underlying securities issued by a U.S. or foreign corporation. ADRs are publicly
traded on exchanges or over-the-counter ("OTC") in the United States.
Unsponsored programs are organized independently and without the cooperation of
the issuer of the underlying securities. As a result, information concerning the
issuer may not be as current or as readily available as in the case of sponsored
depository instruments, and their prices may be more volatile than if they were
sponsored by the issuers of the underlying securities.
EMERGING MARKETS
The Fund could have significant investments in securities traded in
emerging markets. Investors should recognize that investing in such countries
involves special considerations, in addition to those set forth above, that are
not typically associated with investing in United States securities and that may
affect the Fund's performance favorably or unfavorably.
In recent years, many emerging market countries around the world have
undergone political changes that have reduced government's role in economic and
personal affairs and have stimulated investment and growth. Historically, there
is a strong direct correlation between economic growth and stock market returns.
While this is no guarantee of future performance, IMI believes that investment
opportunities (particularly in the energy, environmental services, natural
resources, basic materials, power, telecommunications and transportation
industries) may result within the evolving economies of emerging market
countries from which the Fund and its shareholders will benefit.
Investments in companies domiciled in developing countries may be
subject to potentially higher risks than investments in developed countries.
Such risks include (i) less social, political and economic stability; (ii) a
small market for securities and/or a low or nonexistent volume of trading, which
result in a lack of liquidity and in greater price volatility; (iii) certain
national policies that may restrict the Fund's investment opportunities,
including restrictions on investment in issuers or industries deemed sensitive
to national interests; (iv) foreign taxation; (v) the absence of developed
structures governing private or foreign investment or allowing for judicial
redress for injury to private property; (vi) the absence, until relatively
recently in certain Eastern European countries, of a capital market structure or
market-oriented economy; (vii) the possibility that recent favorable economic
developments in Eastern Europe may be slowed or reversed by unanticipated
political or social events in such countries; and (viii) the possibility that
currency devaluations could adversely affect the value of the Fund's
investments. Further, many emerging markets have experienced and continue to
experience high rates of inflation.
Despite the dissolution of the Soviet Union, the Communist Party may
continue to exercise a significant role in certain Eastern European countries.
To the extent of the Communist Party's influence, investments in such countries
will involve risks of nationalization, expropriation and confiscatory taxation.
The communist governments of a number of Eastern European countries expropriated
large amounts of private property in the past, in many cases without adequate
compensation, and there can be no assurance that such expropriation will not
occur in the future. In the event of such expropriation, the Fund could lose a
substantial portion of any investments it has made in the affected countries.
Further, few (if any) accounting standards exist in Eastern European countries.
Finally, even though certain Eastern European currencies may be convertible into
U.S. dollars, the conversion rates may be artificial in relation to the actual
market values and may be adverse to the Fund's net asset value.
Certain Eastern European countries that do not have well-established
trading markets are characterized by an absence of developed legal structures
governing private and foreign investments and private property. In addition,
certain countries require governmental approval prior to investments by foreign
persons, or limit the amount of investment by foreign persons in a particular
company, or limit the investment of foreign persons to only a specific class of
securities of a company that may have less advantageous terms than securities of
the company available for purchase by nationals.
Authoritarian governments in certain Eastern European countries may
require that a governmental or quasi-governmental authority act as custodian of
the Fund's assets invested in such country. To the extent such governmental or
quasi-governmental authorities do not satisfy the requirements of the Investment
Company Act of 1940, as amended (the "1940 Act"), with respect to the custody of
the Fund's cash and securities, the Fund's investment in such countries may be
limited or may be required to be effected through intermediaries. The risk of
loss through governmental confiscation may be increased in such countries.
FOREIGN SOVEREIGN DEBT OBLIGATIONS
Investment in sovereign debt can involve a high degree of risk. The
governmental entity that controls the repayment of sovereign debt may not be
able or willing to repay the principal and/or interest when due in accordance
with the terms of such debt. A governmental entity's willingness or ability to
repay principal and interest due in a timely manner may be affected by, among
other factors, its cash flow situation, the extent of its foreign reserves, the
availability of sufficient foreign exchange on the date a payment is due, the
relative size of the debt service burden to the economy as a whole, the
governmental entity's policy towards the International Monetary Fund, and the
political constraints to which a governmental entity may be subject.
Governmental entities may also be dependent on expected disbursements from
foreign governments, multilateral agencies and others abroad to reduce principal
and interest arrearages on their debt. The commitment on the part of these
governments, agencies and others to make such disbursements may be conditioned
on a governmental entity's implementation of economic reforms and/or economic
performance and the timely service of such debtor's obligations. Failure to
implement such reforms, achieve such levels of economic performance or repay
principal or interest when due may result in the cancellation of such third
parties' commitments to lend funds to the governmental entity, which may further
impair such debtor's ability or willingness to service it debts in a timely
manner. Consequently, governmental entities may default on their sovereign debt.
Holders of sovereign debt (including the Fund) may be request to participate in
the rescheduling of such debt and to extend further loans to governmental
entities. There is no bankruptcy proceeding by which sovereign debt on which
governmental entities have defaulted may be collected in whole or in part.
FOREIGN CURRENCIES
Investment in foreign securities usually will involve currencies of
foreign countries. Moreover, the Fund may temporarily hold funds in bank
deposits in foreign currencies during the completion of investment programs and
may purchase forward foreign currency contracts. Because of these factors, the
value of the assets of the Fund as measured in U.S. dollars may be affected
favorably or unfavorably by changes in foreign currency exchange rates and
exchange control regulations, and the Fund may incur costs in connection with
conversions between various currencies. Although the Fund's custodian values the
Fund's assets daily in terms of U.S. dollars, the Fund does not intend to
convert its holdings of foreign currencies into U.S. dollars on a daily basis.
The Fund will do so from time to time, however, and investors should be aware of
the costs of currency conversion. Although foreign exchange dealers do not
charge a fee for conversion, they do realize a profit based on the difference
(the "spread") between the prices at which they are buying and selling various
currencies. Thus, a dealer may offer to sell a foreign currency to the Fund at
one rate, while offering a lesser rate of exchange should the Fund desire to
resell that currency to the dealer. The Fund will conduct its foreign currency
exchange transactions either on a spot (i.e., cash) basis at the spot rate
prevailing in the foreign currency exchange market, or through entering into
forward contracts to purchase or sell foreign currencies.
Because the Fund normally will be invested in both U.S. and foreign
securities markets, changes in the Fund's share price may have a low correlation
with movements in U.S. markets. The Fund's share price will reflect the
movements of the different stock and bond markets in which it is invested (both
U.S. and foreign), and of the currencies in which the investments are
denominated. Thus, the strength or weakness of the U.S. dollar against foreign
currencies may account for part of the Fund's investment performance. U.S. and
foreign securities markets do not always move in step with each other, and the
total returns from different markets may vary significantly. In addition,
significant uncertainty surrounds the proposed introduction of the euro (a
common currency for the European Union) in January 1999 and its effect on the
value of securities denominated in local European currencies. These and other
currencies in which the Fund's assets are denominated may be devalued against
the U.S. dollar, resulting in a loss to the Fund.
FOREIGN CURRENCY EXCHANGE TRANSACTIONS
The Fund may enter into forward foreign currency contracts in order to
protect against uncertainty in the level of future foreign exchange rates in the
purchase and sale of securities. A forward contract is an obligation to purchase
or sell a specific currency for an agreed price at a future date (usually less
than a year), and typically is individually negotiated and privately traded by
currency traders and their customers. A forward contract generally has no
deposit requirement, and no commissions are charged at any stage for trades.
Although foreign exchange dealers do not charge a fee for commissions, they do
realize a profit based on the difference between the price at which they are
buying and selling various currencies. Although these contracts are intended to
minimize the risk of loss due to a decline in the value of the hedged
currencies, at the same time, they tend to limit any potential gain which might
result should the value of such currencies increase.
While the Fund may enter into forward contracts to reduce currency
exchange risks, changes in currency exchange rates may result in poorer overall
performance for the Fund than if it had not engaged in such transactions.
Moreover, there may be an imperfect correlation between the Fund's portfolio
holdings of securities denominated in a particular currency and forward
contracts entered into by the Fund. An imperfect correlation of this type may
prevent the Fund from achieving the intended hedge or expose the Fund to the
risk of currency exchange loss.
The Fund may purchase currency forwards and combine such purchases with
sufficient cash or short-term securities to create unleveraged substitutes for
investments in foreign markets when deemed advantageous. The Fund may also
combine the foregoing with bond futures or interest rate futures contracts to
create the economic equivalent of an unhedged foreign bond position.
The Fund may also cross-hedge currencies by entering into transactions
to purchase or sell one or more currencies that are expected to decline in value
relative to other currencies to which the Fund has or in which the Fund expects
to have portfolio exposure.
Currency transactions are subject to risks different from those of
other portfolio transactions. Because currency control is of great importance to
the issuing governments and influences economic planning and policy, purchases
and sales of currency and related instruments can be negatively affected by
government exchange controls, blockages, and manipulations or exchange
restrictions imposed by governments. These can result in losses to the Fund if
it is unable to deliver or receive currency or funds in settlement of
obligations and could also cause hedges it has entered into to be rendered
useless, resulting in full currency exposure as well as incurring transactions
costs. Buyers and sellers of currency futures are subject to the same risks that
apply to the use of futures generally. Further, settlement of a currency futures
contract for the purchase of most currencies must occur at a bank based in the
issuing nation. Trading options on currency futures is relatively new, and the
ability to establish and close out positions on such options is subject to the
maintenance of a liquid market which may not always be available. Currency
exchange rates may fluctuate based on factors extrinsic to that country's
economy.
REPURCHASE AGREEMENTS
Repurchase agreements are contracts under which the Fund buys a money
market instrument and obtains a simultaneous commitment from the seller to
repurchase the instrument at a specified time and at an agreed-upon yield. Under
guidelines approved by the Board, the Fund is permitted to enter into repurchase
agreements only if the repurchase agreements are at least fully collateralized
with U.S. Government securities or other securities that IMI has approved for
use as collateral for repurchase agreements and the collateral must be
marked-to-market daily. The Fund will enter into repurchase agreements only with
banks and broker-dealers deemed to be creditworthy by IMI under the
above-referenced guidelines. In the unlikely event of failure of the executing
bank or broker-dealer, the Fund could experience some delay in obtaining direct
ownership of the underlying collateral and might incur a loss if the value of
the security should decline, as well as costs in disposing of the security.
BANKING INDUSTRY AND SAVINGS AND LOAN OBLIGATIONS
Certificates of deposit are negotiable certificates issued against
funds deposited in a commercial bank for a definite period of time and earning a
specified return. Bankers' acceptances are negotiable drafts or bills of
exchange, normally drawn by an importer or exporter to pay for specific
merchandise, which are "accepted" by a bank (meaning, in effect, that the bank
unconditionally agrees to pay the face value of the instrument at maturity). In
addition to investing in certificates of deposit and bankers' acceptances, the
Fund may invest in time deposits in banks or savings and loan associations. Time
deposits are generally similar to certificates of deposit, but are
uncertificated. The Fund's investments in certificates of deposit, time
deposits, and bankers' acceptance are limited to obligations of (i) banks having
total assets in excess of $1 billion, (ii) U.S. banks which do not meet the $1
billion asset requirement, if the principal amount of such obligation is fully
insured by the Federal Deposit Insurance Corporation (the "FDIC"), (iii) savings
and loan association which have total assets in excess of $1 billion and which
are members of the FDIC, and (iv) foreign banks if the obligation is, in IMI's
opinion, of an investment quality comparable to other debt securities which may
be purchased by the Fund. The Fund's investments in certificates of deposit of
savings associations are limited to obligations of Federal and state-chartered
institutions whose total assets exceed $1 billion and whose deposits are insured
by the FDIC.
COMMERCIAL PAPER.
Commercial paper represents short-term unsecured promissory notes
issued in bearer form by bank holding companies, corporations and finance
companies. The Fund may invest in commercial paper that is rated Prime-1 by
Moody's Investors Service, Inc. ("Moody's") or A-1 by Standard & Poor's
Corporation ("S&P") or, if not rated by Moody's or S&P, is issued by companies
having an outstanding debt issue rated Aaa or Aa by Moody's or AAA or AA by S&P.
BORROWING
Borrowing may exaggerate the effect on the Fund's net asset value of
any increase or decrease in the value of the Fund's portfolio securities. Money
borrowed will be subject to interest costs (which may include commitment fees
and/or the cost of maintaining minimum average balances). Although the principal
of the Fund's borrowings will be fixed, the Fund's assets may change in value
during the time a borrowing is outstanding, thus increasing exposure to capital
risk.
OPTIONS TRANSACTIONS
IN GENERAL. A call option is a short-term contract (having a duration
of less than one year) pursuant to which the purchaser, in return for the
premium paid, has the right to buy the security underlying the option at the
specified exercise price at any time during the term of the option. The writer
of the call option, who receives the premium, has the obligation, upon exercise
of the option, to deliver the underlying security against payment of the
exercise price. A put option is a similar contract pursuant to which the
purchaser, in return for the premium paid, has the right to sell the security
underlying the option at the specified exercise price at any time during the
term of the option. The writer of the put option, who receives the premium, has
the obligation, upon exercise of the option, to buy the underlying security at
the exercise price. The premium paid by the purchaser of an option will reflect,
among other things, the relationship of the exercise price to the market price
and volatility of the underlying security, the time remaining to expiration of
the option, supply and demand, and interest rates.
If the writer of an option wishes to terminate the obligation, the
writer may effect a "closing purchase transaction." This is accomplished by
buying an option of the same series as the option previously written. The effect
of the purchase is that the writer's position will be canceled by the Options
Clearing Corporation. However, a writer may not effect a closing purchase
transaction after it has been notified of the exercise of an option. Likewise,
an investor who is the holder of an option may liquidate his or her position by
effecting a "closing sale transaction." This is accomplished by selling an
option of the same series as the option previously purchased. There is no
guarantee that either a closing purchase or a closing sale transaction can be
effected at any particular time or at any acceptable price. If any call or put
option is not exercised or sold, it will become worthless on its expiration
date.
The Fund will realize a gain (or a loss) on a closing purchase
transaction with respect to a call or a put previously written by the Fund if
the premium, plus commission costs, paid by the Fund to purchase the call or the
put is less (or greater) than the premium, less commission costs, received by
the Fund on the sale of the call or the put. A gain also will be realized if a
call or a put that the Fund has written lapses unexercised, because the Fund
would retain the premium. Any such gains (or losses) are considered short-term
capital gains (or losses) for Federal income tax purposes. Net short-term
capital gains, when distributed by the Fund, are taxable as ordinary income. See
"Taxation."
The Fund will realize a gain (or a loss) on a closing sale transaction
with respect to a call or a put previously purchased by the Fund if the premium,
less commission costs, received by the Fund on the sale of the call or the put
is greater (or less) than the premium, plus commission costs, paid by the Fund
to purchase the call or the put. If a put or a call expires unexercised, it will
become worthless on the expiration date, and the Fund will realize a loss in the
amount of the premium paid, plus commission costs. Any such gain or loss will be
long-term or short-term gain or loss, depending upon the Fund's holding period
for the option.
Exchange-traded options generally have standardized terms and are
issued by a regulated clearing organization (such as the Options Clearing
Corporation), which, in effect, guarantees the completion of every
exchange-traded option transaction. In contrast, the terms of OTC options are
negotiated by the Fund and its counterparty (usually a securities dealer or a
financial institution) with no clearing organization guarantee. When the Fund
purchases an OTC option, it relies on the party from whom it has purchased the
option (the "counterparty") to make delivery of the instrument underlying the
option. If the counterparty fails to do so, the Fund will lose any premium paid
for the option, as well as any expected benefit of the transaction. Accordingly,
IMI will assess the creditworthiness of each counterparty to determine the
likelihood that the terms of the OTC option will be satisfied.
WRITING OPTIONS ON INDIVIDUAL SECURITIES. The Fund may write (sell)
covered call options on the Fund's securities in an attempt to realize a greater
current return than would be realized on the securities alone. The Fund may also
write covered call options to hedge a possible stock or bond market decline
(only to the extent of the premium paid to the Fund for the options). In view of
the investment objectives of the Fund, the Fund generally would write call
options only in circumstances where the investment adviser to the Fund does not
anticipate significant appreciation of the underlying security in the near
future or has otherwise determined to dispose of the security.
A "covered" call option means generally that so long as the Fund is
obligated as the writer of a call option, the Fund will (i) own the underlying
securities subject to the option, or (ii) have the right to acquire the
underlying securities through immediate conversion or exchange of convertible
preferred stocks or convertible debt securities owned by the Fund. Although the
Fund receives premium income from these activities, any appreciation realized on
an underlying security will be limited by the terms of the call option. The Fund
may purchase call options on individual securities only to effect a "closing
purchase transaction."
As the writer of a call option, the Fund receives a premium for
undertaking the obligation to sell the underlying security at a fixed price
during the option period, if the option is exercised. So long as the Fund
remains obligated as a writer of a call option, it forgoes the opportunity to
profit from increases in the market price of the underlying security above the
exercise price of the option, except insofar as the premium represents such a
profit (and retains the risk of loss should the value of the underlying security
decline).
PURCHASING OPTIONS ON INDIVIDUAL SECURITIES. The Fund may purchase a
put option on an underlying security owned by the Fund as a defensive technique
in order to protect against an anticipated decline in the value of the security.
The Fund, as the holder of the put option, may sell the underlying security at
the exercise price regardless of any decline in its market price. In order for a
put option to be profitable, the market price of the underlying security must
decline sufficiently below the exercise price to cover the premium and
transaction costs that the Fund must pay. These costs will reduce any profit the
Fund might have realized had it sold the underlying security instead of buying
the put option. The premium paid for the put option would reduce any capital
gain otherwise available for distribution when the security is eventually sold.
The purchase of put options will not be used by the Fund for leverage purposes.
The Fund may also purchase a put option on an underlying security that
it owns and at the same time write a call option on the same security with the
same exercise price and expiration date. Depending on whether the underlying
security appreciates or depreciates in value, the Fund would sell the underlying
security for the exercise price either upon exercise of the call option written
by it or by exercising the put option held by it. The Fund would enter into such
transactions in order to profit from the difference between the premium received
by the Fund for the writing of the call option and the premium paid by the Fund
for the purchase of the put option, thereby increasing the Fund's current
return. The Fund may write (sell) put options on individual securities only to
effect a "closing sale transaction."
PURCHASING AND WRITING OPTIONS ON SECURITIES INDICES. The Fund may
purchase and sell (write) put and call options on securities indices. An index
assigns relative values to the securities included in the index and the index
fluctuates with changes in the market values of the securities so included.
Options on indices are similar to options on individual securities, except that,
rather than giving the purchaser the right to take delivery of an individual
security at a specified price, they give the purchaser the right to receive
cash. The amount of cash is equal to the difference between the closing price of
the index and the exercise price of the option, expressed in dollars, times a
specified multiple (the "multiplier"). The writer of the option is obligated, in
return for the premium received, to make delivery of this amount.
The multiplier for an index option performs a function similar to the
unit of trading for a stock option. It determines the total dollar value per
contract of each point in the difference between the exercise price of an option
and the current level of the underlying index. A multiplier of 100 means that a
one-point difference will yield $100. Options on different indices have
different multipliers.
When the Fund writes a call or put option on a stock index, the option
is "covered", in the case of a call, or "secured", in the case of a put, if the
Fund maintains in a segregated account with the Custodian cash or liquid
securities equal to the contract value. A call option is also covered if the
Fund holds a call on the same index as the call written where the exercise price
of the call held is (i) equal to or less than the exercise price of the call
written or (ii) greater than the exercise price of the call written, provided
that the Fund maintains in a segregated account with the Custodian the
difference in cash or liquid securities. A put option is also "secured" if the
Fund holds a put on the same index as the put written where the exercise price
of the put held is (i) equal to or greater than the exercise price of the put
written or (ii) less than the exercise price of the put written, provided that
the Fund maintains in a segregated account with the Custodian the difference in
cash or liquid securities.
RISKS OF OPTIONS TRANSACTIONS. The purchase and writing of options
involves certain risks. During the option period, the covered call writer has,
in return for the premium on the option, given up the opportunity to profit from
a price increase in the underlying securities above the exercise price, but, as
long as its obligation as a writer continues, has retained the risk of loss
should the price of the underlying security decline. The writer of a U.S. option
has no control over the time when it may be required to fulfill its obligation
as a writer of the option. Once an option writer has received an exercise
notice, it cannot effect a closing purchase transaction in order to terminate
its obligation under the option and must deliver the underlying securities (or
cash in the case of an index option) at the exercise price. If a put or call
option purchased by the Fund is not sold when it has remaining value, and if the
market price of the underlying security (or index), in the case of a put,
remains equal to or greater than the exercise price or, in the case of a call,
remains less than or equal to the exercise price, the Fund will lose its entire
investment in the option. Also, where a put or call option on a particular
security (or index) is purchased to hedge against price movements in a related
security (or securities), the price of the put or call option may move more or
less than the price of the related security (or securities). In this regard,
there are differences between the securities and options markets that could
result in an imperfect correlation between these markets, causing a given
transaction not to achieve its objective.
There can be no assurance that a liquid market will exist when the Fund
seeks to close out an option position. Furthermore, if trading restrictions or
suspensions are imposed on the options markets, the Fund may be unable to close
out a position. Finally, trading could be interrupted, for example, because of
supply and demand imbalances arising from a lack of either buyers or sellers, or
the options exchange could suspend trading after the price has risen or fallen
more than the maximum amount specified by the exchange. Closing transactions can
be made for OTC options only by negotiating directly with the counterparty or by
a transaction in the secondary market, if any such market exists. There is no
assurance that the Fund will be able to close out an OTC option position at a
favorable price prior to its expiration. In the event of insolvency of the
counterparty, the Fund might be unable to close out an OTC option position at
any time prior to its expiration. Although the Fund may be able to offset to
some extent any adverse effects of being unable to liquidate an option position,
the Fund may experience losses in some cases as a result of such inability.
When conducted outside the U.S., options transactions may not be
regulated as rigorously as in the U.S., may not involve a clearing mechanism and
related guarantees, and are subject to the risk of governmental actions
affecting trading in, or the prices of, foreign securities, currencies and other
instruments. The value of such positions also could be adversely affected by:
(i) other complex foreign political, legal and economic factors, (ii) lesser
availability than in the U.S. of data on which to make trading decisions, (iii)
delays in the Fund's ability to act upon economic events occurring in foreign
markets during non-business hours in the U.S., (iv) the imposition of different
exercise and settlement terms and procedures and margin requirements than in the
U.S., and (v) lower trading volume and liquidity.
The Fund's options activities also may have an impact upon the level of
its portfolio turnover and brokerage commissions. See "Portfolio
Turnover."
The Fund's success in using options techniques depends, among other
things, on IMI's ability to predict accurately the direction and volatility of
price movements in the options and securities markets, and to select the proper
type, time and duration of options.
FUTURES CONTRACTS AND OPTIONS ON FUTURES CONTRACTS
IN GENERAL. The Fund may enter into futures contracts and options on
futures contracts for hedging purposes. A futures contract provides for the
future sale by one party and purchase by another party of a specified quantity
of a commodity at a specified price and time. When a purchase or sale of a
futures contract is made by the Fund, the Fund is required to deposit with its
custodian (or broker, if legally permitted) a specified amount of cash or liquid
securities ("initial margin"). The margin required for a futures contract is set
by the exchange on which the contract is traded and may be modified during the
term of the contract. The initial margin is in the nature of a performance bond
or good faith deposit on the futures contract which is returned to the Fund upon
termination of the contract, assuming all contractual obligations have been
satisfied. A futures contract held by the Fund is valued daily at the official
settlement price of the exchange on which it is traded. Each day the Fund pays
or receives cash, called "variation margin," equal to the daily change in value
of the futures contract. This process is known as "marking to market." Variation
margin does not represent a borrowing or loan by the Fund but is instead a
settlement between the Fund and the broker of the amount one would owe the other
if the futures contract expired. In computing daily net asset value, the Fund
will mark-to-market its open futures position.
The Fund is also required to deposit and maintain margin with respect
to put and call options on futures contracts written by it. Such margin deposits
will vary depending on the nature of the underlying futures contract (and the
related initial margin requirements), the current market value of the option,
and other futures positions held by the Fund.
Although some futures contracts call for making or taking delivery of
the underlying securities, generally these obligations are closed out prior to
delivery of offsetting purchases or sales of matching futures contracts (same
exchange, underlying security or index, and delivery month). If an offsetting
purchase price is less than the original sale price, the Fund generally realizes
a capital gain, or if it is more, the Fund generally realizes a capital loss.
Conversely, if an offsetting sale price is more than the original purchase
price, the Fund generally realizes a capital gain, or if it is less, the Fund
generally realizes a capital loss.
The transaction costs must also be included in these calculations.
When purchasing a futures contract, the Fund will maintain with its
Custodian (and mark-to-market on a daily basis) cash or liquid securities that,
when added to the amounts deposited with a futures commission merchant ("FCM")
as margin, are equal to the market value of the futures contract. Alternatively,
the Fund may "cover" its position by purchasing a put option on the same futures
contract with a strike price as high as or higher than the price of the contract
held by the Fund, or, if lower, may cover the difference with cash or short-term
securities.
When selling a futures contract, the Fund will maintain with its
Custodian in a segregated account (and mark-to-market on a daily basis) cash or
liquid securities that, when added to the amounts deposited with an FCM as
margin, are equal to the market value of the instruments underlying the
contract. Alternatively, the Fund may "cover" its position by owning the
instruments underlying the contract (or, in the case of an index futures
contract, a portfolio with a volatility substantially similar to that of the
index on which the futures contract is based), or by holding a call option
permitting the Fund to purchase the same futures contract at a price no higher
than the price of the contract written by the Fund (or at a higher price if the
difference is maintained in liquid assets with the Fund's custodian).
When selling a call option on a futures contract, the Fund will
maintain with its Custodian in a segregated account (and mark-to-market on a
daily basis) cash or liquid securities that, when added to the amounts deposited
with an FCM as margin, equal the total market value of the futures contract
underlying the call option. Alternatively, the Fund may cover its position by
entering into a long position in the same futures contract at a price no higher
than the strike price of the call option, by owning the instruments underlying
the futures contract, or by holding a separate call option permitting the Fund
to purchase the same futures contract at a price not higher than the strike
price of the call option sold by the Fund, or covering the difference if the
price is higher.
When selling a put option on a futures contract, the Fund will maintain
with its Custodian (and mark-to-market on a daily basis) cash or liquid
securities that equal the purchase price of the futures contract less any margin
on deposit. Alternatively, the Fund may cover the position either by entering
into a short position in the same futures contract, or by owning a separate put
option permitting it to sell the same futures contract so long as the strike
price of the purchased put option is the same or higher than the strike price of
the put option sold by the Fund, or, if lower, the Fund may hold securities to
cover the difference.
INTEREST RATE FUTURES CONTRACTS. An interest rate futures contract is
an agreement between parties to buy or sell a specified debt security at a set
price on a future date. The financial instruments that underlie interest rate
futures contracts include long-term U.S. Treasury bonds, U.S. Treasury notes,
and three-month U.S. Treasury bills. In the case of futures contracts traded on
U.S. exchanges, the exchange itself or an affiliated clearing corporation
assumes the opposite side of each transaction (i.e., as buyer or seller). A
futures contract may be satisfied or closed out by delivery or purchase, as the
case may be in the cash financial instrument or by payment of the change in cash
value of the index. Frequently, using futures to effect a particular strategy
instead of using the underlying or related security will result in lower
transaction costs being incurred.
The Fund may sell interest rate futures contracts in order to hedge its
portfolio securities whose value may be sensitive to changes in interest rates.
In addition, the Fund could purchase and sell these futures contracts in order
to hedge its holdings in certain common stocks (such as utilities, banks and
savings and loan) whose value may be sensitive to change in interests rates. The
Fund could sell interest rate futures contracts in anticipation of or doing a
market decline to attempt to offset the decrease in market value of its
securities that might otherwise result. When the Fund is not fully invested in
securities, it could purchase interest rate futures in order to gain rapid
market exposure that may in part or entirely offset increases in the cost of
securities that it intends to purchase. If such purchases are made, an
equivalent amount of interest rate futures contracts will be terminated by
offsetting sales. The Fund may also maintain the futures contract as a
substitute for the underlying securities.
OPTIONS ON INTEREST RATE FUTURES CONTRACTS. The Fund may also purchase
and write put and call options on interest rate futures contracts which are
traded on a U.S. exchange or board of trade and sell or purchase such options to
terminate an existing position. Options on interest rate futures give the
purchaser the right (but not the obligation), in return for the premium paid, to
assume a position in an interest rate futures contract at a specified exercise
price at a time during the period of the option.
Transactions in options on interest rate futures would enable the Fund
to hedge against the possibility that fluctuations in interest rates and other
factors may result in a general decline in prices of debt securities owned by
the Fund. Assuming that any decline in the securities being hedged in
accomplished by a rise in interest rates, the purchase of put options and sale
of call options on the futures contracts may generate gains which can partially
offset any decline in the value of the particular Fund's portfolio securities
which have been hedged. However, if after the Fund purchases or sells an option
on a futures contract, the value of the securities being hedged moves in the
opposite direction from that contemplated, the Fund may experience losses in the
form of premiums on such options which would partially offset gains the Fund
would have.
FOREIGN CURRENCY FUTURES CONTRACTS AND RELATED OPTIONS. The Fund may
engage in foreign currency futures contracts and related options transactions
for hedging purposes. A foreign currency futures contract provides for the
future sale by one party and purchase by another party of a specified quantity
of a foreign currency at a specified price and time.
An option on a foreign currency futures contract gives the holder the
right, in return for the premium paid, to assume a long position (call) or short
position (put) in a futures contract at a specified exercise price at any time
during the period of the option. Upon the exercise of a call option, the holder
acquires a long position in the futures contract and the writer is assigned the
opposite short position. In the case of a put option, the opposite is true.
The Fund may purchase call and put options on foreign currencies as a
hedge against changes in the value of the U.S. dollar (or another currency) in
relation to a foreign currency in which portfolio securities of the Fund may be
denominated. A call option on a foreign currency gives the buyer the right to
buy, and a put option the right to sell, a certain amount of foreign currency at
a specified price during a fixed period of time. The Fund may invest in options
on foreign currency which are either listed on a domestic securities exchange or
traded on a recognized foreign exchange.
In those situations where foreign currency options may not be readily
purchased (or where such options may be deemed illiquid) in the currency in
which the hedge is desired, the hedge may be obtained by purchasing an option on
a "surrogate" currency, i.e., a currency where there is tangible evidence of a
direct correlation in the trading value of the two currencies. A surrogate
currency's exchange rate movements parallel that of the primary currency.
Surrogate currencies are used to hedge an illiquid currency risk, when no liquid
hedge instruments exist in world currency markets for the primary currency.
The Fund will only enter into futures contracts and futures options
which are standardized and traded on a U.S. or foreign exchange, board of trade,
or similar entity or quoted on an automated quotation system. The Fund will not
enter into a futures contract or purchase an option thereon if, immediately
thereafter, the aggregate initial margin deposits for futures contracts held by
the Fund plus premiums paid by it for open futures option positions, less the
amount by which any such positions are "in-the-money," would exceed 5% of the
liquidation value of the Fund's portfolio (or the Fund's net asset value), after
taking into account unrealized profits and unrealized losses on any such
contracts the Fund has entered into. A call option is "in-the-money" if the
value of the futures contract that is the subject of the option exceeds the
exercise price. A put option is "in-the-money" if the exercise price exceeds the
value of the futures contract that is the subject of the option. For additional
information about margin deposits required with respect to futures contracts and
options thereon, see "Futures Contracts and Options on Futures Contracts."
RISKS ASSOCIATED WITH FUTURES AND RELATED OPTIONS. There can be no
guarantee that there will be a correlation between price movements in the
hedging vehicle and in the Fund's portfolio securities being hedged. In
addition, there are significant differences between the securities and futures
markets that could result in an imperfect correlation between the markets,
causing a given hedge not to achieve its objectives. The degree of imperfection
of correlation depends on circumstances such as variations in speculative market
demand for futures and futures options on securities, including technical
influences in futures trading and futures options, and differences between the
financial instruments being hedged and the instruments underlying the standard
contracts available for trading in such respects as interest rate levels,
maturities, and creditworthiness of issuers. A decision as to whether, when and
how to hedge involves the exercise of skill and judgment, and even a
well-conceived hedge may be unsuccessful to some degree because of market
behavior or unexpected interest rate trends.
Futures exchanges may limit the amount of fluctuation permitted in
certain futures contract prices during a single trading day. The daily limit
establishes the maximum amount that the price of a futures contract may vary
either up or down from the previous day's settlement price at the end of the
current trading session. Once the daily limit has been reached in a futures
contract subject to the limit, no more trades may be made on that day at a price
beyond that limit. The daily limit governs only price movements during a
particular trading day and therefore does not limit potential losses because the
limit may work to prevent the liquidation of unfavorable positions. For example,
futures prices have occasionally moved to the daily limit for several
consecutive trading days with little or no trading, thereby preventing prompt
liquidation of positions and subjecting some holders of futures contracts to
substantial losses.
There can be no assurance that a liquid market will exist at a time
when the Fund seeks to close out a futures or a futures option position, and the
Fund would remain obligated to meet margin requirements until the position is
closed. In addition, there can be no assurance that an active secondary market
will continue to exist.
Currency futures contracts and options thereon may be traded on foreign
exchanges. Such transactions may not be regulated as effectively as similar
transactions in the United States; may not involve a clearing mechanism and
related guarantees; and are subject to the risk of governmental actions
affecting trading in, or the prices of, foreign securities. The value of such
position also could be adversely affected by (i) other complex foreign
political, legal and economic factors, (ii) lesser availability than in the
United States of data on which to make trading decisions, (iii) delays in the
Fund's ability to act upon economic events occurring in foreign markets during
non business hours in the United States, (iv) the imposition of different
exercise and settlement terms and procedures and margin requirements than in the
United States, and (v) lesser trading volume.
COMBINED TRANSACTIONS. The Fund may enter into multiple transactions,
including multiple options transactions, multiple futures transactions, multiple
currency transactions (including forward currency contracts) and multiple
interest rate transactions and some combination of futures, options, currency
and interest rate transactions ("component" transactions), instead of a single
transaction, as part of a single or combined strategy when, in the opinion of
IMI, it is in the best interests of the Fund to do so. A combined transaction
will usually contain elements of risk that are present in each of its component
transactions. Although combined transactions are normally entered into based on
IMI's judgment that the combined strategies will reduce risk or otherwise more
effectively achieve the desired portfolio management goal, it is possible that
the combination will instead increase such risks or hinder achievement of the
management objective.
INVESTMENT RESTRICTIONS
The Fund's investment objectives as set forth in the "Summary" section
of the Prospectus, together with the investment restrictions set forth below,
are fundamental policies of the Fund and may not be changed without the approval
of a majority of the outstanding voting shares of the Fund. Under these
restrictions, the Fund may not:
(i) Invest in real estate, real estate mortgage loans,
commodities, commodity futures contracts or interests in oil,
gas and/or mineral exploration or development programs,
although the Fund may purchase and sell (a) securities which
are secured by real estate, (b) securities of issuers which
invest or deal in real estate, and (c) futures contracts as
described in the Fund's prospectus;
(ii) Make investments in securities for the purpose of exercising control over
or management of the issuer;
(iii) Purchase securities on margin, except such short-term credits
as are necessary for the clearance of transactions. The
deposit or payment by the Fund of initial or variation margin
in connection with futures contracts or relate options
transactions is not considered the purchase of a security on
margin;
(iv) Make loans, except that this restriction shall not prohibit
(a) the purchase and holding of a portion of an issue of
publicly distributed debt securities, (b) the lending of
portfolio securities (provided that the loan in secured
continuously by collateral consisting of U.S. Government
securities or cash or cash equivalents maintained on daily
market-to-market basis in an amount at least equal to the
current market value of the securities loaned), or (c) the
entry into repurchase agreements with banks or broker-dealers;
(v) Borrow amounts in excess of 10% of its total assets, taken at
the lower of cost or market value, and then only from banks as
a temporary measure for extraordinary or emergency purposes;
(vi) Mortgage, pledge, hypothecate or in any manner transfer, as
security for indebtedness, any securities owned or held by the
Fund (except as may be necessary in connection with permitted
borrowings and then not in excess of 20% of the Fund's total
assets); provided, however, this does not prohibit escrow,
collateral or margin arrangements in connection with its use
of options, short sales, futures contracts and options on
future contracts;
(vii) Purchase securities of any one issuer (except U.S. Government
securities) if as a result more than 5% of the Fund's total
assets would be invested in such issuer or the Fund would own
or hold more than 10% of the outstanding voting securities of
that issuer; provided, however, that up to 25% of the value of
the Fund's total assets may be invested without regard to
these limitations;
(viii) Purchase the securities of issuers conducting their principal
business activities in the same industry if immediately after
such purchase the value of the Fund's investments in such
industry would exceed 25% of the value of the total assets of
the Fund;
(ix) Participate on a joint or a joint and several basis in any
trading account in securities. The "bunching" of orders of the
Fund -- or of the Fund and of other accounts under the
investment management of the persons rendering investment
advice to the Fund -- for the sale or purchase of portfolio
securities shall not be considered participation in a joint
securities trading account;
(x) Act as an underwriter of securities;
(xi) Issue senior securities, except insofar as the Fund may be
deemed to have issued a senior security in connection with any
repurchase agreement or any permitted borrowing; or
(xii) Make short sales of securities or maintain a short position.
<PAGE>
57
ADDITIONAL RESTRICTIONS
The Fund has adopted the following additional restrictions, which are
not fundamental and which may be changed without shareholder approval, to the
extent permitted by applicable law, regulation or regulatory policy.
Under these restrictions, the Fund may not:
(i) purchase any security if, as a result, the Fund would then
have more than 5% of its total assets (taken at current value)
invested in securities of companies (including predecessors)
less than three years old;
(ii) purchase or sell real estate limited partnership interests;
(iii) purchase or retain securities of any company if officers and
Trustees of the Trust and officers and directors of Ivy
Management, Inc. (the Manager, with respect to Ivy Bond Fund),
MIMI or Mackenzie Financial Corporation who individually own
more than 1/2 of 1% of the securities of that company together
own beneficially more than 5% of such securities;
(iv) purchase or sell interests in oil, gas and mineral leases
(other than securities of companies that invest in or sponsor
such programs); or
(v) invest more than 15% of its net assets taken at market value at the
time of the investment in "illiquid securities." Illiquid securities
may include securities subject to legal or contractual restrictions on
resale (including private placements), repurchase agreements maturing
in more than seven days, certain options traded over the counter that
the Fund has purchased, securities being used to cover certain options
that the Fund has written, securities for which market quotations are
not readily available, or other securities which legally or in IMI's
opinion, subject to the Board's supervision, may be deemed illiquid,
but shall not include any instrument that, due to the existence of a
trading market, to the Fund's compliance with certain conditions
intended to provide liquidity, or to other factors, is liquid.
Whenever an investment objective, policy or restriction set forth in
the Prospectus or this SAI states a maximum percentage of assets that may be
invested in any security or other asset or describes a policy regarding quality
standards, such percentage limitation or standard shall, unless otherwise
indicated, apply to the Fund only at the time a transaction is entered into.
Accordingly, if a percentage limitation is adhered to at the time of investment,
a later increase or decrease in the percentage which results from circumstances
not involving any affirmative action by the Fund, such as a change in market
conditions or a change in the Fund's asset level or other circumstances beyond
the Fund's control, will not be considered a violation.
PORTFOLIO TURNOVER
The Fund purchases securities that are believed by IMI to have above
average potential for capital appreciation. Common stocks are disposed of in
situations where it is believed that potential for such appreciation has
lessened or that other common stocks have a greater potential. Therefore, the
Fund may purchase and sell securities without regard to the length of time the
security is to be, or has been, held. A change in securities held by the Fund is
known as "portfolio turnover" and may involve the payment by the Fund of dealer
markup or underwriting commission and other transaction costs on the sale of
securities, as well as on the reinvestment of the proceeds in other securities.
The Fund's portfolio turnover rate is calculated by dividing the lesser of
purchases or sales of portfolio securities for the most recently completed
fiscal year by the monthly average of the value of the portfolio securities
owned by the Fund during that year. For purposes of determining the Fund's
portfolio turnover rate, all securities whose maturities at the time of
acquisition were one year or less are excluded.
TRUSTEES AND OFFICERS
The Fund's Board of Trustees (the
"Board") is responsible for the
overall management of the Fund, including general supervision and review of the
Fund's investment activities. The Board, in turn, elects the officers who are
responsible for administering the Fund's day-to-day operations.
The Trustees and Executive Officers of the Trust, their business
addresses and principal occupations during the past five years are:
POSITION WITH BUSINESS AFFILIATIONS
NAME, ADDRESS, AGE THE TRUST AND PRINCIPAL OCCUPATIONS
John S. Anderegg, Jr. Trustee Chairman, Dynamics Research
60 Concord Street Corp. (instruments and controls);
Wilmington, MA 01887 Director, Burr-Brown Corp.
Age: 74 (operational amplifiers); Director,
Metritage Incorporated (level
measuring instruments); Trustee of
Mackenzie Series Trust (1992-1998).
Paul H. Broyhill Trustee Chairman, BMC Fund, Inc.
800 Hickory Blvd. (1983-present); Chairman,
Golfview Park-Box 500 Broyhill Family Foundation,
Lenoir, NC 28645 Inc. (1983-Present); Chairman and
Age: 74 President, Broyhill Investments,
Inc. (1983-present); Chairman,
Broyhill Timber Resources (1983-
present); Management of a personal
portfolio of fixed-income and equity
investments (1983-present); Trustee
of Mackenzie Series Trust (1988-
1998); Director of The Mackenzie
Funds Inc. (1988-1995).
Stanley Channick Trustee President and Chief
11 Bala Avenue Executive Officer, The
Bala Cynwyd, PA 19004 Whitestone Corporation
Age: 75 (insurance agency); Chairman, Scott
Management Company (administrative
services for insurance companies);
President, The Channick Group
(consultants to insurance companies
and national trade associations);
Trustee of Mackenzie Series Trust
(1994-1998); Director of The
Mackenzie Funds Inc. (1994-1995).
Frank W. DeFriece, Jr. Trustee Director, Manager and Vice
The Landmark Centre President, Director and
113 Landmark Lane, Fund Manager, Massengill-
Suite B DeFriece Foundation
Bristol, TN 37620-2285 (charitable organization)
Age: 77 (1950-present); Trustee and Vice
Chairman, East Tennessee Public
Communications Corp. (WSJK-TV)
(1984-present); Trustee of Mackenzie
Series Trust (1985-1998); Director
of The Mackenzie Funds Inc. (1987-
1995).
Roy J. Glauber Trustee Mallinckrodt Professor of
Lyman Laboratory Physics, Harvard
of Physics University (1974-present);
Harvard University Trustee of Mackenzie Series
Cambridge, MA 02138 Trust (1994-1997).
Age: 72
Michael G. Landry Trustee President, Chief Executive
700 South Federal Hwy. And Officer and Director of
Suite 300 Chairman Mackenzie Investment
Boca Raton, FL 33432 Management Inc. (1987-
Age: 51 present); President,
[*Deemed to be an Director and Chairman of
"interested person" Ivy Management Inc. (1992-
of the Trust, as present); Chairman and
defined under the Director of Ivy Mackenzie
1940 Act.] Services Corp.(1993-present);
Chairman and Director of Ivy
Mackenzie Distributors, Inc.
(1994-present); Director and
President of Ivy Mackenzie
Distributors, Inc. (1993-1994);
Director and President of The
Mackenzie Funds Inc. (1987-1995);
Trustee of Mackenzie Series Trust
(1987-1998); President of Mackenzie
Series Trust (1987-1996); Chairman
of Mackenzie Series Trust (1996-
1998).
Joseph G. Rosenthal Trustee Chartered Accountant
110 Jardin Drive (1958-present); Trustee of
Unit #12 Mackenzie Series Trust
Concord, Ontario Canada (1985-1998); Director of
L4K 2T7 The Mackenzie Funds Inc.
Age: 63 (1987-1995).
Richard N. Silverman Trustee Director, Newton-Wellesley
18 Bonnybrook Road Hospital; Director, Beth
Waban, MA 02168 Israel Hospital; Director,
Age: 74 Boston Ballet; Director, Boston
Children's Museum; Director, Brimmer
and May School.
J. Brendan Swan Trustee President, Airspray
4701 North Federal Hwy. International, Inc.;
Suite 465 Joint Managing Director,
Pompano Beach, FL 33064 Airspray International
Age: 67 B.V. (an environmentally sensitive
packaging company); Director of
Polyglass LTD.; Director, The
Mackenzie Funds Inc. (1992-1995);
Trustee of Mackenzie Series Trust
(1992-1998).
Keith J. Carlson Trustee Senior Vice President of Mackenzie
700 South Federal Hwy. And Investment Management, Inc. (1996 -
Suite 300 President -present); Senior Vice President and
Boca Raton, FL 33432 Director of Mackenzie Investment
Age: 41 Management, Inc. (1994 - 1996);
[*Deemed to be an Senior Vice President and Treasurer
"interested person" of Mackenzie Investment Management,
of the Trust, Inc. (1989-1994); Senior Vice
President
as defined under President and Director of Ivy
the 1940 Act.] Management Inc. (1994-present);
Senior Vice President, Treasurer and
Director of Ivy Management Inc.
(1992-1994); Vice President of The
Mackenzie Funds Inc. (1987-1995);
Senior Vice President and Director,
Ivy Mackenzie Services Corp. (1996-
present); President and Director of
Ivy Mackenzie Services Corp. (1993-
1996); Trustee and President of
Mackenzie Series Trust (1996-1998);
Vice President of Mackenzie Series
Trust (1994-1998); Treasurer of
Mackenzie Series Trust (1985-1994);
President, Chief Executive Officer
and Director of Ivy Mackenzie
Distributors, Inc. (1994-present);
Executive Vice President and
Director of Ivy Mackenzie
Distributors, Inc. (1993-1994);
Trustee of Mackenzie Series Trust
(1996-1998).
C. William Ferris Secretary/ Senior Vice President,
700 South Federal Hwy. Treasurer Chief Financial Officer
Suite 300 and Secretary/Treasurer
Boca Raton, FL 33432 of Mackenzie Investment
Age: 53 Management Inc. (1995-present);
Senior Vice President, Finance and
Administration/Compliance Officer of
Mackenzie Investment Management Inc.
(1989-1994); Senior Vice President,
Secretary/ Treasurer and Clerk of
Ivy Management Inc. (1994-present);
Vice President, Finance/
Administration and Compliance
Officer of Ivy Management Inc.
(1992-1994); Senior Vice President,
Secretary/Treasurer and Director of
Ivy Mackenzie Distributors, Inc.
(1994-present); Secretary/Treasurer
and Director of Ivy Mackenzie
Distributors, Inc. (1993-1994);
President and Director of Ivy
Mackenzie Services Corp.
(1996-present); Secretary/Treasurer
and Director of Ivy Mackenzie
Services Corp. (1993-1996);
Secretary/Treasurer
of The Mackenzie Funds Inc.
(1993-1995); Secretary/Treasurer of
Mackenzie Series Trust (1994-1998).
James W. Broadfoot Vice Executive Vice President,
700 South Federal Hwy. President Ivy Management Inc. (1996-
Suite 300 present); Senior Vice
Boca Raton, FL 33432 President, Ivy Management,
Age: 56 Inc. (1992-1996); Director and
Senior Vice President, Mackenzie
Investment Management Inc. (1995-
present); Senior Vice President,
Mackenzie Investment Management Inc.
(1990-1995).
COMPENSATION TABLE
IVY FUND
(FISCAL YEAR ENDED DECEMBER 31, 1998)
PENSION OR TOTAL COMPENSA-
AGGREGATE RETIREMENT ESTIMATED TION FROM TRUST
NAME, COMPENSATION BENEFITS ACCRUED ANNUAL AND FUND
POSITION FROM TRUST AS PART OF BENEFITS UPON COMPLEX PAID TO
FUND EXPENSES RETIREMENT TRUSTEES
John S. N/A N/A
Anderegg, Jr.
(Trustee)
Paul H. N/A N/A
Broyhill
(Trustee)
Keith J. $0 N/A N/A $0
Carlson
(Trustee and
President)
Stanley N/A N/A
Channick
(Trustee)
Frank W. N/A N/A
DeFriece, Jr.
(Trustee)
Roy J. N/A N/A
Glauber
(Trustee)
Michael G. $0 N/A N/A $0
Landry
(Trustee and
Chairman of
the Board)
Joseph G. N/A N/A
Rosenthal
(Trustee)
Richard N. N/A N/A
Silverman
(Trustee)
J. Brendan N/A N/A
Swan
(Trustee)
C. William $0 N/A N/A $0
Ferris
(Secretary/
Treasurer)
To the knowledge of the Trust, as of [ ], no shareholder owned
beneficially or of record 5% or more of Fund's outstanding shares of any class,
except that [to be completed by amendment].
As of [ ], the Officers and Trustees of the Trust as a group owned
beneficially or of record less than 1% of the outstanding Class A, Class B,
Class C, Class I and Advisor Class shares of the Fund.
PERSONAL INVESTMENTS BY EMPLOYEES OF IMI. Employees of IMI are
permitted to make personal securities transactions, subject to the requirements
and restrictions set forth in IMI's Code of Ethics and Business Conduct Policy
(the "Code of Ethics"). The Code of Ethics is designed to identify and address
certain conflicts of interest between personal investment activities and the
interests of investment advisory clients such as the Fund. Among other things,
the Code of Ethics, which generally complies with standards recommended by the
Investment Company Institute's Advisory Group on Personal Investing, prohibits
certain types of transactions absent prior approval, applies to portfolio
managers, traders, research analysts and others involved in the investment
advisory process, and imposes time periods during which personal transactions
may not be made in certain securities, and requires the submission of duplicate
broker confirmations and monthly reporting of securities transactions.
Exceptions to these and other provisions of the Code of Ethics may be granted in
particular circumstances after review by appropriate personnel.
INVESTMENT ADVISORY AND OTHER SERVICES
BUSINESS MANAGEMENT AND INVESTMENT ADVISORY SERVICES
IMI provides business management and investment advisory services to
the Fund pursuant to a Business Management and Investment Advisory Agreement
(the "Agreement"). The Agreement was approved by the sole shareholder of the
Fund on December 31, 1994. Prior to shareholder approval, the Agreement was
approved with respect to the Fund by the Board, including a majority of the
Trustees who are neither "interested persons" (as defined in the 1940 Act) of
the Trust nor have any direct or indirect financial interest in the operation of
the distribution plan (see "Distribution Services") or in any related agreement
(the "Independent Trustees") at a meeting held on September 29, 1994.
IMI is a wholly owned subsidiary of Mackenzie Investment Management
Inc. ("MIMI"). MIMI, a Delaware corporation, has approximately 10% of its
outstanding common stock listed for trading on the Toronto Stock Exchange
("TSE"). MIMI is a subsidiary of Mackenzie Financial Corporation ("MFC"), 150
Bloor Street West, Toronto, Ontario, Canada, a public corporation organized
under the laws of Ontario whose shares are listed for trading on the TSE. MFC is
registered in Ontario as a mutual fund dealer and advises Ivy Global Natural
Resources Fund. IMI currently acts as manager and investment adviser to the
following additional investment companies registered under the 1940 Act (other
than the Fund): Ivy Asia Pacific Fund, Ivy China Region Fund, Ivy Developing
Nations Fund, Ivy European Opportunities Fund, Ivy Global Fund, Ivy Global
Science & Technology Fund, Ivy Growth Fund, Ivy Growth with Income Fund, Ivy
International Fund II, Ivy International Fund, Ivy International Small Companies
Fund, Ivy International Strategic Bond Fund, Ivy Money Market Fund, Ivy
Pan-Europe Fund, Ivy South America Fund, Ivy US Blue Chip Fund and Ivy US
Emerging Growth Fund. IMI also provides business management services to Ivy
Global Natural Resources Fund.
The Agreement obligates IMI to make investments for the account of the
Fund in accordance with its best judgment and within the investment objectives
and restrictions set forth in the Prospectus, the 1940 Act and the provisions of
the Code relating to regulated investment companies, subject to policy decisions
adopted by the Board. IMI also determines the securities to be purchased or sold
by the Fund and places orders with brokers or dealers who deal in such
securities.
Under the Agreement, IMI also provides certain business management
services. IMI is obligated to (1) coordinate with the Fund's Custodian and
monitor the services it provides to the Fund; (2) coordinate with and monitor
any other third parties furnishing services to the Fund; (3) provide the Fund
with necessary office space, telephones and other communications facilities as
are adequate for the Fund's needs; (4) provide the services of individuals
competent to perform administrative and clerical functions that are not
performed by employees or other agents engaged by the Fund or by IMI acting in
some other capacity pursuant to a separate agreement or arrangements with the
Fund; (5) maintain or supervise the maintenance by third parties of such books
and records of the Trust as may be required by applicable Federal or state law;
(6) authorize and permit IMI's directors, officers and employees who may be
elected or appointed as trustees or officers of the Trust to serve in such
capacities; and (7) take such other action with respect to the Trust, after
approval by the Trust as may be required by applicable law, including without
limitation the rules and regulations of the SEC and of state securities
commissions and other regulatory agencies.
The Fund pays IMI a monthly fee for providing business management and
investment advisory services at an annual rate of 0.75% of the first $100
million of the Fund's average net assets, reduced to 0.50% of the Fund's average
net assets in excess of $100 million.
During the fiscal years ended December 31, 1996, 1997 and 1998, the
Fund paid IMI fees of $781,647, $800,555, and [ ], respectively (of which IMI
reimbursed $0, $0, and [ ], respectively, pursuant to expense limitations).
Under the Agreement, the Trust pays the following expenses: (1) the
fees and expenses of the Trust's Independent Trustees; (2) the salaries and
expenses of any of the Trust's officers or employees who are not affiliated with
IMI; (3) interest expenses; (4) taxes and governmental fees, including any
original issue taxes or transfer taxes applicable to the sale or delivery of
shares or certificates therefor; (5) brokerage commissions and other expenses
incurred in acquiring or disposing of portfolio securities; (6) the expenses of
registering and qualifying shares for sale with the SEC and with various state
securities commissions; (7) accounting and legal costs; (8) insurance premiums;
(9) fees and expenses of the Trust's Custodian and Transfer Agent and any
related services; (10) expenses of obtaining quotations of portfolio securities
and of pricing shares; (11) expenses of maintaining the Trust's legal existence
and of shareholders' meetings; (12) expenses of preparation and distribution to
existing shareholders of periodic reports, proxy materials and prospectuses; and
(13) fees and expenses of membership in industry organizations.
IMI currently limits the Fund's total operating expenses (excluding
Rule 12b-1 fees, interest, taxes, brokerage commissions, litigation,
class-specific expenses, indemnification expenses, and extraordinary expenses)
to an annual rate of 1.95% of the Fund's average net assets, which may lower the
Fund's expenses and increase its yield.
The Agreement will continue in effect with respect to the Fund from
year to year, only so long as the continuance is specifically approved at least
annually (i) by the vote of a majority of the Independent Trustees and (ii)
either (a) by the vote of a majority of the outstanding voting securities (as
defined in the 1940 Act) of the Fund or (b) by the vote of a majority of the
entire Board. If the question of continuance of the Agreement (or adoption of
any new agreement) is presented to the shareholders, continuance (or adoption)
shall be effected only if approved by the affirmative vote of a majority of the
outstanding voting securities of the Fund. See "Capitalization and Voting
Rights."
The Agreement may be terminated with respect to the Fund at any time,
without payment of any penalty, by the vote of a majority of the Board, or by a
vote of a majority of the outstanding voting securities of the Fund, on 60 days'
written notice to IMI, or by IMI on 60 days' written notice to the Trust. The
Agreement shall terminate automatically in the event of its assignment.
DISTRIBUTION SERVICES
IMDI, a wholly owned subsidiary of MIMI, serves as the exclusive
distributor of Ivy Fund's shares pursuant to an Amended and Restated
Distribution Agreement with the Trust dated __________, 1999, as amended from
time to time (the "Distribution Agreement"). The Distribution Agreement was
approved by the Board on September 17, 1998. IMDI distributes shares of the Fund
through broker-dealers who are members of the National Association of Securities
Dealers, Inc. and who have executed dealer agreements with IMDI. IMDI
distributes shares of the Fund on a continuous basis, but reserves the right to
suspend or discontinue distribution on that basis. IMDI is not obligated to sell
any specific amount of Fund shares.
Pursuant to the Distribution Agreement, IMDI is entitled to deduct a
commission on all Class A Fund shares sold equal to the difference, if any,
between the public offering price, as set forth in the Fund's then-current
prospectus, and the net asset value on which such price is based. Out of that
commission, IMDI may reallow to dealers such concession as IMDI may determine
from time to time. In addition, IMDI is entitled to deduct a CDSC on the
redemption of Class A shares sold without an initial sales charge and Class B
and Class C shares, in accordance with, and in the manner set forth in, the
Prospectus.
Under the Distribution Agreement, the Fund bears, among other expenses,
the expenses of registering and qualifying its shares for sale under Federal and
state securities laws and preparing and distributing to existing shareholders
periodic reports, proxy materials and prospectuses.
During the fiscal year ended December 31, 1998, IMDI received from
sales of Class A shares of the Fund [ ] in sales commissions, of which [ ] was
retained after dealer allowances. During the fiscal year ended December 31,
1998, IMDI received [ ] in CDSCs on redemptions of Class B shares of the Fund.
During the fiscal year ended December 31, 1998, IMDI received [ ] in CDSCs on
redemptions of Class C shares of the Fund.
The Distribution Agreement will continue in effect for successive
one-year periods, provided that such continuance is specifically approved at
least annually by the vote of a majority of the Independent Trustees, cast in
person at a meeting called for that purpose and by the vote of either a majority
of the entire Board or a majority of the outstanding voting securities of the
Fund. The Distribution Agreement may be terminated with respect to the Fund at
any time, without payment of any penalty, by IMDI on 60 days' written notice to
the Fund or by the Fund by vote of either a majority of the outstanding voting
securities of the Fund or a majority of the Independent Trustees on 60 days'
written notice to IMDI. The Distribution Agreement shall terminate automatically
in the event of its assignment.
RULE 18F-3 PLAN. On February 23, 1995, the SEC adopted Rule 18f-3 under
the 1940 Act, which permits a registered open-end investment company to issue
multiple classes of shares in accordance with a written plan approved by the
investment company's board of directors/trustees and filed with the SEC. At a
meeting held on December 1-2, 1995, the Board adopted a Rule 18f-3 plan on
behalf of the Fund. The Board last approved the Rule 18f-3 plan at a meeting
held of December 5-6, 1997. The key features of the Rule 18f-3 plan are as
follows: (i) shares of each class of the Fund represent an equal pro rata
interest in the Fund and generally have identical voting, dividend, liquidation,
and other rights, preferences, powers, restrictions, limitations,
qualifications, terms and conditions, except that each class bears certain
class-specific expenses and has separate voting rights on certain matters that
relate solely to that class or in which the interests of shareholders of one
class differ from the interests of shareholders of another class; (ii) subject
to certain limitations described in the Prospectus, shares of a particular class
of the Fund may be exchanged for shares of the same class of another Ivy fund;
and (iii) the Fund's Class B shares will convert automatically into Class A
shares of the Fund after a period of eight years, based on the relative net
asset value of such shares at the time of conversion.
RULE 12B-1 DISTRIBUTION PLANS. The Trust has adopted on behalf of the
Fund, in accordance with Rule 12b-1 under the 1940 Act, separate Rule 12b-1
distribution plans pertaining to the Fund's Class A, Class B and Class C shares
(each, a "Plan"). In adopting each Plan, a majority of the Independent Trustees
have concluded in accordance with the requirements of Rule 12b-1 that there is a
reasonable likelihood that each Plan will benefit the Fund and its shareholders.
The Trustees of the Trust believe that the Plans should result in greater sales
and/or fewer redemptions of the Fund's shares, although it is impossible to know
for certain the level of sales and redemptions of the Fund's shares in the
absence of a Plan or under an alternative distribution arrangement.
Under each Plan, the Fund pays IMDI a service fee, accrued daily and
paid monthly, at the annual rate of up to 0.25% of the average daily net assets
attributable to its Class A, Class B or Class C shares, as the case may be. The
services for which service fees may be paid include, among other things,
advising clients or customers regarding the purchase, sale or retention of
shares of the Fund, answering routine inquiries concerning the Fund and
assisting shareholders in changing options or enrolling in specific plans.
Pursuant to each Plan, service fee payments made out of or charged against the
assets attributable to the Fund's Class A, Class B or Class C shares must be in
reimbursement for services rendered for or on behalf of the affected class. The
expenses not reimbursed in any one month may be reimbursed in a subsequent
month. The Class A Plan does not provide for the payment of interest or carrying
charges as distribution expenses.
Under the Fund's Class B and Class C Plans, the Fund also pays IMDI a
distribution fee, accrued daily and paid monthly, at the annual rate of 0.75% of
the average daily net assets attributable to its Class B or Class C shares. IMDI
may reallow to dealers all or a portion of the service and distribution fees as
IMDI may determine from time to time. The distribution fee compensates IMDI for
expenses incurred in connection with activities primarily intended to result in
the sale of the Fund's Class B or Class C shares, including the printing of
prospectuses and reports for persons other than existing shareholders and the
preparation, printing and distribution of sales literature and advertising
materials. Pursuant to each Class B and Class C Plan, IMDI may include interest,
carrying or other finance charges in its calculation of distribution expenses,
if not prohibited from doing so pursuant to an order of or a regulation adopted
by the SEC.
Among other things, each Plan provides that (1) IMDI will submit to the
Board at least quarterly, and the Trustees will review, written reports
regarding all amounts expended under the Plan and the purposes for which such
expenditures were made; (2) each Plan will continue in effect only so long as
such continuance is approved at least annually, and any material amendment
thereto is approved, by the votes of a majority of the Board, including the
Independent Trustees, cast in person at a meeting called for that purpose; (3)
payments by the Fund under each Plan shall not be materially increased without
the affirmative vote of the holders of a majority of the outstanding shares of
the relevant class; and (4) while each Plan is in effect, the selection and
nomination of Independent Trustees of the Trust shall be committed to the
discretion of the Trustees who are not "interested persons" of the Trust.
IMDI may make payments for distribution assistance and for
administrative and accounting services from resources that may include the
management fees paid by the Fund. IMDI also may make payments (such as the
service fee payments described above) to unaffiliated broker-dealers for
services rendered in the distribution of the Fund's shares. To qualify for such
payments, shares may be subject to a minimum holding period. However, no such
payments will be made to any dealer or broker if at the end of each year the
amount of shares held does not exceed a minimum amount. The minimum holding
period and minimum level of holdings will be determined from time to time by
IMDI.
A report of the amount expended pursuant to each Plan, and the purposes
for which such expenditures were incurred, must be made to the Board for its
review at least quarterly.
During the fiscal year ended December 31, 1998, the Fund paid IMDI [ ]
pursuant to its Class A plan. During the fiscal year ended December 31, 1998 the
Fund paid IMDI [ ] pursuant to its Class B plan. During the fiscal year ended
December 31, 1998, the Fund paid IMDI [ ] pursuant to its Class C plan.
During the fiscal year ended December 31, 1998, IMDI expended the
following amounts in marketing Class A shares of the Fund: advertising [$ ;]
printing and mailing of prospectuses to persons other than current shareholders,
[$ ;] compensation to dealers, [$ ;] compensation to sales personnel [$ ;]
seminars and meetings, [$ ;] travel and entertainment, [$ ;] general and
administrative, [$ ;] telephone, [$ ;] and occupancy and equipment rental, [$ ]
During the fiscal year ended December 31, 1998, IMDI expended the
following amounts in marketing Class B shares of the Fund: advertising, [$ ;]
printing and mailing of prospectuses to persons other than current shareholders,
[$ ;] compensation to dealers, [$ ;] compensation to sales personnel, [$ ;]
seminars and meetings, [$ ;] travel and entertainment, [$ ;] general and
administrative, [$ ;] telephone, [$ ;] and occupancy and equipment rental [$ .]
During the fiscal year ended December 31, 1998, IMDI expended the
following amounts in marketing Class C shares of the Fund: advertising, [$ ;]
printing and mailing of prospectuses to persons other than current shareholders,
[$ ;] compensation to dealers, [$ ] compensation to sales personnel, [$ ;]
seminars and meetings, [$ ;] travel and entertainment, [$ ;] general
administrative, [$ ;] telephone, [$ ;] and occupancy and equipment rental, [$ .]
Each Plan may be amended at any time with respect to the class of
shares of the Fund to which the Plan relates by vote of the Trustees, including
a majority of the Independent Trustees, cast in person at a meeting called for
the purpose of considering such amendment. Each Plan may be terminated at any
time with respect to the class of shares of the Fund to which the Plan relates,
without payment of any penalty, by vote of a majority of the Independent
Trustees, or by vote of a majority of the outstanding voting securities of that
class.
If the Distribution Agreement or the Distribution Plans are terminated
(or not renewed) with respect to any of the Ivy funds (or class of shares
thereof), each may continue in effect with respect to any other fund (or Class
of shares thereof) as to which they have not been terminated (or have been
renewed).
CUSTODIAN
Pursuant to a Custodian Agreement with the Trust, Brown Brothers
Harriman & Co. (the "Custodian"), a private bank and member of the principal
securities exchanges, located at 40 Water Street, Boston, Massachusetts 02109
(the "Custodian"), maintains custody of the assets of the Fund held in the
United States. Rules adopted under the 1940 Act permit the Trust to maintain its
foreign securities and cash in the custody of certain eligible foreign banks and
securities depositories. Pursuant to those rules, the Custodian has entered into
subcustodial agreements for the holding of the Fund's foreign securities. With
respect to the Fund, the Custodian may receive, as partial payment for its
services to the Fund, a portion of the Trust's brokerage business, subject to
its ability to provide best price and execution.
FUND ACCOUNTING SERVICES
Pursuant to a Fund Accounting Services Agreement, MIMI provides certain
accounting and pricing services for the Fund. As compensation for those
services, the Fund pays MIMI a monthly fee plus out-of-pocket expenses as
incurred. The monthly fee is based upon the net assets of the Fund at the
preceding month end at the following rates: $1,250 when net assets are $10
million and under; $2,500 when net assets are over $10 million to $40 million;
$5,000 when net assets are over $40 million to $75 million; and $6,500 when net
assets are over $75 million.
During the fiscal year ended December 31, 1998, the Fund paid MIMI
[ ] under the agreement.
TRANSFER AGENT AND DIVIDEND PAYING AGENT
Pursuant to a Transfer Agency and Shareholder Service Agreement, Ivy
Mackenzie Services Corp. ("IMSC"), a wholly owned subsidiary of MIMI, is the
transfer agent for the Fund. Under the Agreement, the Fund pays a monthly fee at
an annual rate of $20.75 for each open Class A, Class B, Class C and Advisor
Class account, and $10.25 for each open Class I account. In addition, the Fund
pays a monthly fee at an annual rate of $4.58 per account that is closed plus
certain out-of-pocket expenses. Such fees and expenses for the fiscal year ended
December 31, 1998 for the Fund totaled [$ ]. Certain broker-dealers that
maintain shareholder accounts with the Fund through an omnibus account provide
transfer agent and other shareholder-related services that would otherwise be
provided by IMSC if the individual accounts that comprise the omnibus account
were opened by their beneficial owners directly. IMSC pays such broker-dealers a
per account fee for each open account within the omnibus account, or a fixed
rate (e.g., 0.10%) fee, based on the average daily net asset value of the
omnibus account (or a combination thereof).
ADMINISTRATOR
Pursuant to an Administrative Services Agreement, MIMI provides certain
administrative services to the Fund. As compensation for these services, the
Fund (except with respect to its Class I shares) pays MIMI a monthly fee at the
annual rate of 0.10% of the Fund's average daily net assets. The Fund pays MIMI
a monthly fee at the annual rate of 0.01% of its average daily net assets for
Class I. Such fees for the fiscal year ended December 31, 1998 for the Fund
totaled [$ ].
Outside of providing administrative services to the Trust, as described
above, MIMI may also act on behalf of IMDI in paying commissions to
broker-dealers with respect to sales of Class B and Class C shares of the Fund.
AUDITORS
[ ], independent public accountants, has been selected as auditors for
the Trust. The audit services performed by [ ] include audits of the annual
financial statements of each of the funds of the Trust. Other services provided
principally relate to filings with the SEC and the preparation of the funds' tax
returns.
BROKERAGE ALLOCATION
Subject to the overall supervision of the President and the Board, IMI
places orders for the purchase and sale of the Fund's portfolio securities. All
portfolio transactions are effected at the best price and execution obtainable.
Purchases and sales of debt securities are usually principal transactions and
therefore, brokerage commissions are usually not required to be paid by the Fund
for such purchases and sales (although the price paid generally includes
undisclosed compensation to the dealer). The prices paid to underwriters of
newly-issued securities usually include a concession paid by the issuer to the
underwriter, and purchases of after-market securities from dealers normally
reflect the spread between the bid and asked prices. In connection with OTC
transactions, IMI attempts to deal directly with the principal market makers,
except in those circumstances where IMI believes that a better price and
execution are available elsewhere.
IMI selects broker-dealers to execute transactions and evaluates the
reasonableness of commissions on the basis of quality, quantity, and the nature
of the firms' professional services. Commissions to be charged and the rendering
of investment services, including statistical, research, and counseling services
by brokerage firms, are factors to be considered in the placing of brokerage
business. The types of research services provided by brokers may include general
economic and industry data, and information on securities of specific companies.
Research services furnished by brokers through whom the Trust effects securities
transactions may be used by IMI in servicing all of its accounts. In addition,
not all of these services may be used by IMI in connection with the services it
provides to the Fund or the Trust. IMI may consider sales of shares of Ivy funds
as a factor in the selection of broker-dealers and may select broker-dealers who
provide it with research services. IMI will not, however, execute brokerage
transactions other than at the best price and execution.
During the fiscal years ended December 31, 1996, 1997 and 1998, the
Fund paid brokerage commissions of $398, $1,361, and [ ], respectively.
The Fund may, under some circumstances, accept securities in lieu of
cash as payment for Fund shares. The Fund will accept securities only to
increase its holdings in a portfolio security or to take a new portfolio
position in a security that IMI deems to be a desirable investment for the Fund.
While no minimum has been established, it is expected that the Fund will not
accept securities having an aggregate value of less than $1 million. The Trust
may reject in whole or in part any or all offers to pay for the Fund shares with
securities and may discontinue accepting securities as payment for the Fund
shares at any time without notice. The Trust will value accepted securities in
the manner and at the same time provided for valuing portfolio securities of the
Fund, and the Fund shares will be sold for net asset value determined at the
same time the accepted securities are valued. The Trust will only accept
securities delivered in proper form and will not accept securities subject to
legal restrictions on transfer. The acceptance of securities by the Trust must
comply with the applicable laws of certain states.
CAPITALIZATION AND VOTING RIGHTS
The capitalization of the Trust consists of an unlimited number of
shares of beneficial interest (no par value per share). When issued, shares of
each class of the Fund are fully paid, non-assessable, redeemable and fully
transferable. No class of shares of the Fund has preemptive rights or
subscription rights.
The Amended and Restated Declaration of Trust permits the Trustees to
create separate series or portfolios and to divide any series or portfolio into
one or more classes. The Trustees have authorized nineteen series, each of which
represents a fund. The Trustees have further authorized the issuance of Class A,
Class B, and Class C shares for Ivy International Fund and Ivy Money Market Fund
and Class A, Class B, Class C and Advisor Class shares for the Fund, Ivy Asia
Pacific Fund, Ivy China Region Fund, Ivy Developing Nations Fund, Ivy European
Opportunities Fund Ivy Global Fund, Ivy Global Natural Resources Fund, Ivy
Global Science & Technology Fund, Ivy Growth Fund, Ivy Growth with Income Fund,
Ivy International Fund II, Ivy International Small Companies Fund, Ivy
International Strategic Bond Fund, Ivy Pan-Europe Fund, Ivy South America Fund,
Ivy US Blue Chip Fund and Ivy US Emerging Growth Fund, as well as Class I shares
for the Fund, Ivy US Blue Chip Fund, Ivy International Small Companies Fund, Ivy
European Opportunities Fund, Ivy Global Science & Technology Fund, Ivy
International Fund II, Ivy International Fund, and Ivy International Strategic
Bond Fund.
Shareholders have the right to vote for the election of Trustees of the
Trust and on any and all matters on which they may be entitled to vote by law or
by the provisions of the Trust's By-Laws. The Trust is not required to hold a
regular annual meeting of shareholders, and it does not intend to do so. Shares
of each class of the Fund entitle their holders to one vote per share (with
proportionate voting for fractional shares). Shareholders of the Fund are
entitled to vote alone on matters that only affect the Fund. All classes of
shares of the Fund will vote together, except with respect to the distribution
plan applicable to the Fund's Class A, Class B or Class C shares or when a class
vote is required by the 1940 Act. On matters relating to all funds of the Trust,
but affecting the funds differently, separate votes by the shareholders of each
fund are required. Approval of an investment advisory agreement and a change in
fundamental policies would be regarded as matters requiring separate voting by
the shareholders of each fund of the Trust. If the Trustees determine that a
matter does not affect the interests of the Fund, then the shareholders of the
Fund will not be entitled to vote on that matter. Matters that affect the Trust
in general, such as ratification of the selection of independent public
accountants, will be voted upon collectively by the shareholders of all funds of
the Trust.
As used in this SAI and the Prospectus, the phrase "majority vote of
the outstanding shares" of the Fund means the vote of the lesser of: (1) 67% of
the shares of the Fund (or of the Trust) present at a meeting if the holders of
more than 50% of the outstanding shares are present in person or by proxy; or
(2) more than 50% of the outstanding shares of the Fund (or of the Trust).
With respect to the submission to shareholder vote of a matter
requiring separate voting by the Fund, the matter shall have been effectively
acted upon with respect to the Fund if a majority of the outstanding voting
securities of the Fund votes for the approval of the matter, notwithstanding
that: (1) the matter has not been approved by a majority of the outstanding
voting securities of any other fund of the Trust; or (2) the matter has not been
approved by a majority of the outstanding voting securities of the Trust.
The Amended and Restated Declaration of Trust provides that the holders
of not less than two-thirds of the outstanding shares of the Trust may remove a
person serving as trustee either by declaration in writing or at a meeting
called for such purpose. The Trustees are required to call a meeting for the
purpose of considering the removal of a person serving as Trustee if requested
in writing to do so by the holders of not less than 10% of the outstanding
shares of the Trust. Shareholders will be assisted in communicating with other
shareholders in connection with the removal of a Trustee as if Section 26(c) of
the Act were applicable.
The Trust's shares do not have cumulative voting rights and accordingly
the holders of more than 50% of the outstanding shares could elect the entire
Board, in which case the holders of the remaining shares would not be able to
elect any Trustees.
Under Massachusetts law, the Trust's shareholders could, under certain
circumstances, be held personally liable for the obligations of the Trust.
However, the Amended and Restated Declaration of Trust disclaims liability of
the shareholders, Trustees or officers of the Trust for acts or obligations of
the Trust, which are binding only on the assets and property of the Trust, and
requires that notice of the disclaimer be given in each contract or obligation
entered into or executed by the Trust or its Trustees. The Amended and Restated
Declaration of Trust provides for indemnification out of Fund property for all
loss and expense of any shareholder of the Fund held personally liable for the
obligations of the Fund. The risk of a shareholder of the Trust incurring
financial loss on account of shareholder liability is limited to circumstances
in which the Trust itself would be unable to meet its obligations and, thus,
should be considered remote. No series of the Trust is liable for the
obligations of any other series of the Trust.
SPECIAL RIGHTS AND PRIVILEGES
The Trust offers, and (except as noted below) bears the cost of
providing, to investors the following rights and privileges. The Trust reserves
the right to amend or terminate any one or more of these rights and privileges.
Notice of amendments to or terminations of rights and privileges will be
provided to shareholders in accordance with applicable law.
Certain of the rights and privileges described below refer to funds,
other than the Fund, whose shares are also distributed by IMDI. These funds are:
Ivy Asia Pacific Fund, Ivy China Region Fund, Ivy Developing Nations Fund, Ivy
European Opportunities Fund Ivy Global Fund, Ivy Global Natural Resources Fund,
Ivy Global Science & Technology Fund, Ivy Growth Fund, Ivy Growth with Income
Fund, Ivy International Fund II, Ivy International Fund, Ivy International Small
Companies Fund, Ivy International Strategic Bond Fund, Ivy Money Market Fund,
Ivy Pan-Europe Fund, Ivy South America Fund, Ivy US Blue Chip Fund and Ivy US
Emerging Growth Fund (the other eighteen series of the Trust). (Effective April
18, 1997, Ivy International Fund suspended the offer of its shares to new
investors). Shareholders should obtain a current prospectus before exercising
any right or privilege that may relate to these funds.
AUTOMATIC INVESTMENT METHOD
The Automatic Investment Method, which enables a Fund shareholder to
have specified amounts automatically drawn each month from his or her bank for
investment in Fund shares, is available for all classes of shares, except Class
I. The minimum initial and subsequent investment under this method is $50 per
month ($250 for Advisor Class shares) (except in the case of a tax qualified
retirement plan for which the minimum initial and subsequent investment is $25
per month). A shareholder may terminate the Automatic Investment Method at any
time upon delivery to IMSC of telephone instructions or written notice. See
"Automatic Investment Method" in the Prospectus. To begin the plan, complete
Sections 6A and 7B of the Account Application.
EXCHANGE OF SHARES
As described in the Prospectus, shareholders of the Fund have an
exchange privilege with other Ivy funds (except Ivy International Fund unless
they have an existing Ivy International Fund account). Before effecting an
exchange, shareholders of the Fund should obtain and read the currently
effective prospectus for the Ivy fund into which the exchange is to be made.
INITIAL SALES CHARGE SHARES. Class A shareholders may exchange their
Class A shares ("outstanding Class A shares") for Class A shares of another Ivy
fund ("new Class A Shares") on the basis of the relative net asset value per
Class A share, plus an amount equal to the difference, if any, between the sales
charge previously paid on the outstanding Class A shares and the sales charge
payable at the time of the exchange on the new Class A shares. (The additional
sales charge will be waived for Class A shares that have been invested for a
period of 12 months or longer.) Class A shareholders may also exchange their
shares for shares of Ivy Money Market Fund (no initial sales charge will be
assessed at the time of such an exchange).
CONTINGENT DEFERRED SALES CHARGE SHARES CLASS A: Class A shareholders
may exchange their Class A shares that are subject to a contingent deferred
sales charge ("CDSC"), as described in the Prospectus ("outstanding Class A
shares"), for Class A shares of another Ivy fund ("new Class A shares") on the
basis of the relative net asset value per Class A share, without the payment of
any CDSC that would otherwise be due upon the redemption of the outstanding
Class A shares. Class A shareholders of the Fund exercising the exchange
privilege will continue to be subject to that Fund's CDSC period following an
exchange if such period is longer than the CDSC period, if any, applicable to
the new Class A shares.
For purposes of computing the CDSC that may be payable upon the
redemption of the new Class A shares, the holding period of the outstanding
Class A shares is "tacked" onto the holding period of the new Class A shares.
CLASS B: Class B shareholders may exchange their Class B shares
("outstanding Class B shares") for Class B shares of another Ivy fund ("new
Class B shares") on the basis of the relative net asset value per Class B share,
without the payment of any CDSC that would otherwise be due upon the redemption
of the outstanding Class B shares. Class B shareholders of the Fund exercising
the exchange privilege will continue to be subject to that Fund's CDSC schedule
(or period) following an exchange if such schedule is higher (or such period is
longer) than the CDSC schedule (or period) applicable to the new Class B shares.
Class B shares of the Fund acquired through an exchange of Class B
shares of another Ivy fund will be subject to that Fund's CDSC schedule (or
period) if such schedule is higher (or such period is longer) than the CDSC
schedule (or period) applicable to the Ivy fund from which the exchange was
made.
For purposes of both the conversion feature and computing the CDSC that
may be payable upon the redemption of the new Class B shares (prior to
conversion), the holding period of the outstanding Class B shares is "tacked"
onto the holding period of the new Class B shares.
The following CDSC table applies to Class B shares of Ivy Asia Pacific
Fund, Ivy Bond Fund, Ivy China Region Fund, Ivy Developing Nations Fund, Ivy
European Opportunities Fund, Ivy Global Fund, Ivy Global Natural Resources Fund,
Ivy Global Science & Technology Fund, Ivy Growth Fund, Ivy Growth with Income
Fund, Ivy International Fund II, Ivy International Fund, Ivy International Small
Companies Fund, Ivy International Strategic Bond Fund, Ivy Pan-Europe Fund, Ivy
South America Fund, Ivy US Blue Chip Fund and Ivy US Emerging Growth Fund:
CONTINGENT DEFERRED SALES CHARGE AS A PERCENTAGE OF
DOLLAR AMOUNT SUBJECT TO CHARGE
YEAR SINCE PURCHASE
First 5%
Second 4%
Third 3%
Fourth 3%
Fifth 2%
Sixth 1%
Seventh and thereafter 0%
CLASS C: Class C shareholders may exchange their Class C shares
("outstanding Class C shares") for Class C shares of another Ivy fund ("new
Class C shares") on the basis of the relative net asset value per Class C share,
without the payment of any CDSC that would otherwise be due upon redemption.
(Class C shares are subject to a CDSC of 1.00% if redeemed within one year of
the date of purchase.)
CLASS I AND ADVISOR CLASS: Subject to the restrictions set forth in the
following paragraph, Class I and Advisor Class shareholders may exchange their
outstanding Class I (or Advisor Class) shares for Class I (or Advisor Class)
shares of another Ivy fund on the basis of the relative net asset value per
share.
ALL CLASSES: The minimum value of shares which may be exchanged into an
Ivy fund in which shares are not already held is $1,000 ($5,000,000 in the case
of Class I shares and $10,000 in the case of Advisor Class shares). No exchange
out of the Fund (other than by a complete exchange of all Fund shares) may be
made if it would reduce the shareholder's interest in the Fund to less than
$1,000 ($250,000 in the case of Class I shares and $10,000 in the case of
Advisor Class shares).
Each exchange will be made on the basis of the relative net asset value
per share of the Ivy funds involved in the exchange next computed following
receipt by IMSC of telephone instructions by IMSC or a properly executed
request. Exchanges, whether written or telephonic, must be received by IMSC by
the close of regular trading on the Exchange (normally 4:00 p.m., eastern time)
to receive the price computed on the day of receipt. Exchange requests received
after that time will receive the price next determined following receipt of the
request. The exchange privilege may be modified or terminated at any time, upon
at least 60 days' notice to the extent required by applicable law. See
"Redemptions."
An exchange of shares between any of the Ivy funds will result in a
taxable gain or loss. Generally, this will be a capital gain or loss (long-term
or short-term, depending on the holding period of the shares) in the amount of
the difference between the net asset value of the shares surrendered and the
shareholder's tax basis for those shares. However, in certain circumstances,
shareholders will be ineligible to take sales charges into account in computing
taxable gain or loss on an exchange. See "Taxation."
With limited exceptions, gain realized by a tax-deferred retirement
plan will not be taxable to the plan and will not be taxed to the participant
until distribution. Each investor should consult his or her tax adviser
regarding the tax consequences of an exchange transaction.
LETTER OF INTENT
Reduced sales charges apply to initial investments in Class A shares of
the Fund made pursuant to a non-binding Letter of Intent. A Letter of Intent may
be submitted by an individual, his or her spouse and children under the age of
21, or a trustee or other fiduciary of a single trust estate or single fiduciary
account. See the Account Application in the Prospectus. Any investor may submit
a Letter of Intent stating that he or she will invest, over a period of 13
months, at least $50,000 in Class A shares of the Fund. A Letter of Intent may
be submitted at the time of an initial purchase of Class A shares of the Fund or
within 90 days of the initial purchase, in which case the Letter of Intent will
be back dated. A shareholder may include, as an accumulation credit, the value
(at the applicable offering price) of all Class A shares of Ivy Asia Pacific
Fund, Ivy Bond Fund, Ivy China Region Fund, Ivy Developing Nations Fund, Ivy
European Opportunities Fund, Ivy Global Fund, Ivy Global Natural Resources Fund,
Ivy Global Science & Technology Fund, Ivy Growth Fund, Ivy Growth with Income
Fund, Ivy International Fund II, Ivy International Fund, Ivy International Small
Companies Fund, Ivy International Strategic Bond Fund, Ivy Pan-Europe Fund, Ivy
South America Fund, Ivy US Blue Chip Fund and Ivy US Emerging Growth Fund (and
shares that have been exchanged into Ivy Money Market Fund from any of the other
funds in the Ivy funds) held of record by him or her as of the date of his or
her Letter of Intent. During the term of the Letter of Intent, the Transfer
Agent will hold Class A shares representing 5% of the indicated amount (less any
accumulation credit value) in escrow. The escrowed Class A shares will be
released when the full indicated amount has been purchased. If the full
indicated amount is not purchased during the term of the Letter of Intent, the
investor is required to pay IMDI an amount equal to the difference between the
dollar amount of sales charge that he or she has paid and that which he or she
would have paid on his or her aggregate purchases if the total of such purchases
had been made at a single time. Such payment will be made by an automatic
liquidation of Class A shares in the escrow account. A Letter of Intent does not
obligate the investor to buy or the Trust to sell the indicated amount of Class
A shares, and the investor should read carefully all the provisions of such
letter before signing.
RETIREMENT PLANS
Shares may be purchased in connection with several types of
tax-deferred retirement plans. Shares of more than one fund distributed by IMDI
may be purchased in a single application establishing a single account under the
plan, and shares held in such an account may be exchanged among the Ivy funds in
accordance with the terms of the applicable plan and the exchange privilege
available to all shareholders. Initial and subsequent purchase payments in
connection with tax-deferred retirement plans must be at least $25 per
participant.
The following fees will be charged to individual shareholder accounts
as described in the retirement prototype plan document:
Retirement Plan New Account Fee no fee
Retirement Plan Annual Maintenance Fee $10.00 per fund account
For shareholders whose retirement accounts are diversified across
several Ivy funds, the annual maintenance fee will be limited to not more than
$20.
The following discussion describes the tax treatment of certain
tax-deferred retirement plans under current Federal income tax law. State income
tax consequences may vary. An individual considering the establishment of a
retirement plan should consult with an attorney and/or an accountant with
respect to the terms and tax aspects of the plan.
INDIVIDUAL RETIREMENT ACCOUNTS: Shares of the Fund may be used as a
funding medium for an Individual Retirement Account ("IRA"). Eligible
individuals may establish an IRA by adopting a model custodial account available
from IMSC, who may impose a charge for establishing the account. Individuals
should consult their tax advisers before investing IRA assets in an Ivy fund if
that fund primarily distributes exempt-interest dividends.
An individual who has not reached age 70-1/2 and who receives
compensation or earned income is eligible to contribute to an IRA, whether or
not he or she is an active participant in a retirement plan. An individual who
receives a distribution from another IRA, a qualified retirement plan, a
qualified annuity plan or a tax-sheltered annuity or custodial account ("403(b)
plan") that qualifies for "rollover" treatment is also eligible to establish an
IRA by rolling over the distribution either directly or within 60 days after its
receipt. Tax advice should be obtained in connection with planning a rollover
contribution to an IRA.
In general, an eligible individual may contribute up to the lesser of
$2,000 or 100% of his or her compensation or earned income to an IRA each year.
If a husband and wife are both employed, and both are under age 70-1/2, each may
set up his or her own IRA within these limits. If both earn at least $2,000 per
year, the maximum potential contribution is $4,000 per year for both. For years
after 1996, the result is similar even if one spouse has no earned income; if
the joint earned income of the spouses is at least $4,000, a contribution of up
to $2,000 may be made to each spouse's IRA. Rollover contributions are not
subject to these limits.
An individual may deduct his or her annual contributions to an IRA in
computing his or her Federal income tax within the limits described above,
provided he or she (or his or her spouse, if they file a joint Federal income
tax return) is not an active participant in a qualified retirement plan (such as
a qualified corporate, sole proprietorship, or partnership pension, profit
sharing, 401(k) or stock bonus plan), qualified annuity plan, 403(b) plan,
simplified employee pension, or governmental plan. If he or she (or his or her
spouse) is an active participant, whether the individual's contribution to an
IRA is fully deductible, partially deductible or not deductible depends on (i)
adjusted gross income and (ii) whether it is the individual or the individual's
spouse who is an active participant, in the case of married individuals filing
jointly. Contributions may be made up to the maximum permissible amount even if
they are not deductible. Rollover contributions are not includable in income for
Federal income tax purposes and therefore are not deductible from it.
Generally, earnings on an IRA are not subject to current Federal income
tax until distributed. Distributions attributable to tax-deductible
contributions and to IRA earnings are taxed as ordinary income. Distributions of
non-deductible contributions are not subject to Federal income tax. In general,
distributions from an IRA to an individual before he or she reaches age 59-1/2
are subject to a nondeductible penalty tax equal to 10% of the taxable amount of
the distribution. The 10% penalty tax does not apply to amounts withdrawn from
an IRA after the individual reaches age 59-1/2, becomes disabled or dies, or if
withdrawn in the form of substantially equal payments over the life or life
expectancy of the individual and his or her designated beneficiary, if any, or
rolled over into another IRA, amounts withdrawn and used to pay for deductible
medical expenses and amounts withdrawn by certain unemployed individuals not in
excess of amounts paid for certain health insurance premiums, amounts used to
pay certain qualified higher education expenses, and amounts used within 120
days of the date the distribution is received to pay for certain first-time
homebuyer expenses. Distributions must begin to be withdrawn not later than
April 1 of the calendar year following the calendar year in which the individual
reaches age 70-1/2. Failure to take certain minimum required distributions will
result in the imposition of a 50% non-deductible penalty tax.
ROTH IRAS: Shares of the Fund also may be used as a funding medium for
a Roth Individual Retirement Account ("Roth IRA"). A Roth IRA is similar in
numerous ways to the regular (traditional) IRA, described above.
Some of the primary differences are as follows.
A single individual earning below $95,000 can contribute up to $2,000
per year to a Roth IRA. The maximum contribution amount diminishes and gradually
falls to zero for single filers with adjusted gross incomes ranging from $95,000
to $110,000. Married couples earning less than $150,000 combined, and filing
jointly, can contribute a full $4,000 per year ($2,000 per IRA). The maximum
contribution amount for married couples filing jointly phases out from $150,000
to $160,000. An individual whose adjusted gross income exceeds the maximum
phase-out amount cannot contribute to a Roth IRA.
An eligible individual can contribute money to a traditional IRA and a
Roth IRA as long as the total contribution to all IRAs does not exceed $2,000.
Contributions to a Roth IRA are not deductible. Contributions to a Roth IRA may
be made even after the individual for whom the account is maintained has
attained age 70 1/2.
No distributions are required to be taken prior to the death of the
original account holder. If a Roth IRA has been established for a minimum of
five years, distributions can be taken tax-free after reaching age 59 1/2, for a
first-time home purchase ($10,000 maximum, one time use), or upon death or
disability. All other distributions from a Roth IRA (other than the amount of
nondeductible contributions) are taxable and subject to a 10% tax penalty unless
an exception applies. Exceptions to the 10% penalty include: reaching age 59
1/2, death, disability, deductible medical expenses, the purchase of health
insurance for certain unemployed individual and qualified higher education
expenses.
An individual with an income of less than $100,000 (who is not married
filing separately) can roll his or her existing IRA into a Roth IRA. However,
the individual must pay taxes on the taxable amount in his or her traditional
IRA. After 1998, all taxes on such a rollover will have to be paid in the tax
year in which the rollover is made.
QUALIFIED PLANS: For those self-employed individuals who wish to
purchase shares of one or more Ivy funds through a qualified retirement plan, a
Custodial Agreement and a Retirement Plan are available from IMSC. The
Retirement Plan may be adopted as a profit sharing plan or a money purchase
pension plan. A profit sharing plan permits an annual contribution to be made in
an amount determined each year by the self-employed individual within certain
limits prescribed by law. A money purchase pension plan requires annual
contributions at the level specified in the Custodial Agreement. There is no
set-up fee for qualified plans and the annual maintenance fee is $20.00 per
account.
In general, if a self-employed individual has any common law employees,
employees who have met certain minimum age and service requirements must be
covered by the Retirement Plan. A self-employed individual generally must
contribute the same percentage of income for common law employees as for himself
or herself.
A self-employed individual may contribute up to the lesser of $30,000
or 25% of compensation or earned income to a money purchase pension plan or to a
combination profit sharing and money purchase pension plan arrangement each year
on behalf of each participant. To be deductible, total contributions to a profit
sharing plan generally may not exceed 15% of the total compensation or earned
income of all participants in the plan, and total contributions to a combination
money purchase-profit sharing arrangement generally may not exceed 25% of the
total compensation or earned income of all participants. The amount of
compensation or earned income of any one participant that may be included in
computing the deduction is limited (generally to $150,000 for benefits accruing
in plan years beginning after 1993, with annual inflation adjustments). A
self-employed individual's contributions to a retirement plan on his or her own
behalf must be deducted in computing his or her earned income.
Corporate employers may also adopt the Custodial Agreement and
Retirement Plan for the benefit of their eligible employees. Similar
contribution and deduction rules apply to corporate employers.
Distributions from the Retirement Plan generally are made after a
participant's separation from service. A 10% penalty tax generally applies to
distributions to an individual before he or she reaches age 59-1/2, unless the
individual (1) has reached age 55 and separated from service; (2) dies; (3)
becomes disabled; (4) uses the withdrawal to pay tax-deductible medical
expenses; (5) takes the withdrawal as part of a series of substantially equal
payments over his or her life expectancy or the joint life expectancy of himself
or herself and a designated beneficiary; or (6) rolls over the distribution.
The Transfer Agent will arrange for Investors Bank & Trust to furnish
custodial services to the employer and any participating employees.
DEFERRED COMPENSATION FOR PUBLIC SCHOOLS AND CHARITABLE ORGANIZATIONS
("403(B)(7) ACCOUNT"): Section 403(b)(7) of the Internal Revenue Code of 1986,
as amended (the "Code") permits public school systems and certain charitable
organizations to use mutual fund shares held in a custodial account to fund
deferred compensation arrangements with their employees. A custodial account
agreement is available for those employers whose employees wish to purchase
shares of the Trust in conjunction with such an arrangement. The special
application for a 403(b)(7) Account is available from IMSC.
Distributions from the 403(b)(7) Account may be made only following
death, disability, separation from service, attainment of age 59-1/2, or
incurring a financial hardship. A 10% penalty tax generally applies to
distributions to an individual before he or she reaches age 59-1/2, unless the
individual (1) has reached age 55 and separated from service; (2) dies or
becomes disabled; (3) uses the withdrawal to pay tax-deductible medical
expenses; (4) takes the withdrawal as part of a series of substantially equal
payments over his or her life expectancy or the joint life expectancy of himself
or herself and a designated beneficiary; or (5) rolls over the distribution.
There is no set-up fee for 403(b)(7) Accounts and the annual maintenance fee is
$20.00 per account.
SIMPLIFIED EMPLOYEE PENSION ("SEP") IRAS: An employer may deduct
contributions to a SEP up to the lesser of $30,000 or 15% of compensation. SEP
accounts generally are subject to all rules applicable to IRA accounts, except
the deduction limits, and are subject to certain employee participation
requirements. No new salary reduction SEPs ("SARSEPs") may be established after
1996, but existing SARSEPs may continue to be maintained, and non-salary
reduction SEPs may continue to be established as well as maintained after 1996.
SIMPLE PLANS: An employer may establish a SIMPLE IRA or a SIMPLE 401(k)
for years after 1996. An employee can make pre-tax salary reduction
contributions to a SIMPLE Plan, up to $6,000 a year (as indexed). Subject to
certain limits, the employer will either match a portion of employee
contributions, or will make a contribution equal to 2% of each employee's
compensation without regard to the amount the employee contributes. An employer
cannot maintain a SIMPLE Plan for its employees if the employer maintains or
maintained any other qualified retirement plan with respect to which any
contributions or benefits have been credited.
REINVESTMENT PRIVILEGE
Shareholders who have redeemed Class A shares of the Fund may reinvest
all or a part of the proceeds of the redemption back into Class A shares of the
Fund at net asset value (without a sales charge) within 60 days from the date of
redemption. This privilege may be exercised only once. The reinvestment will be
made at the net asset value next determined after receipt by IMSC of the
reinvestment order accompanied by the funds to be reinvested. No compensation
will be paid to any sales personnel or dealer in connection with the
transaction.
Any redemption is a taxable event. A loss realized on a redemption
generally may be disallowed for tax purposes if the reinvestment
privilege is exercised within 30 days after the redemption. In certain
circumstances, shareholders will be ineligible to take sales charges
into account in computing taxable gain or loss on a redemption if the
reinvestment privilege is exercised. See "Taxation."
RIGHTS OF ACCUMULATION
A scale of reduced sales charges applies to any investment of $50,000
or more in Class A shares of the Fund. See "Initial Sales Charge Alternative --
Class A Shares" in the Prospectus. The reduced sales charge is applicable to
investments made at one time by an individual, his or her spouse and children
under the age of 21, or a trustee or other fiduciary of a single trust estate or
single fiduciary account (including a pension, profit sharing or other employee
benefit trust created pursuant to a plan qualified under Section 401 of the
Code). Rights of Accumulation is also applicable to current purchases of all of
the funds of Ivy Fund (except Ivy Money Market Fund) by any of the persons
enumerated above, where the aggregate quantity of Class A shares of such funds
(and shares that have been exchanged into Ivy Money Market Fund from any of the
other funds in the Ivy funds) and of any other investment company distributed by
IMDI, previously purchased or acquired and currently owned, determined at the
higher of current offering price or amount invested, plus the Class A shares
being purchased, amounts to $50,000 or more for all funds other than Ivy Bond
Fund; or $100,000 or more for Ivy Bond Fund.
At the time an investment takes place, IMSC must be notified by the
investor or his or her dealer that the investment qualifies for the reduced
sales charge on the basis of previous investments. The reduced sales charge is
subject to confirmation of the investor's holdings through a check of the
particular fund's records.
SYSTEMATIC WITHDRAWAL PLAN
A shareholder (except shareholders with accounts in Class I) may
establish a Systematic Withdrawal Plan (a "Withdrawal Plan"), by telephone
instructions or by delivery to IMSC of a written election to have his or her
shares withdrawn periodically (minimum distribution amount $50 for Advisor Class
shares), accompanied by a surrender to IMSC of all share certificates then
outstanding in such shareholder's name, properly endorsed by the shareholder. To
be eligible to elect a Withdrawal Plan, a shareholder must have at least $5,000
in his or her account (except Advisor Class shareholders, who must continually
maintain an account balance of at least $10,000). A Withdrawal Plan may not be
established if the investor is currently participating in the Automatic
Investment Method. A Withdrawal Plan may involve the depletion of a
shareholder's principal, depending on the amount withdrawn.
A redemption under a Withdrawal Plan is a taxable event. Shareholders
contemplating participating in a Withdrawal Plan should consult their tax
advisers.
Additional investments made by investors participating in a Withdrawal
Plan must equal at least $1,000 each ($250 for Advisor Class shareholders) while
the Withdrawal Plan is in effect. Making additional purchases while a Withdrawal
Plan is in effect may be disadvantageous to the investor because of applicable
initial sales charges or CDSCs.
An investor may terminate his or her participation in the Withdrawal
Plan at any time by delivering written notice to IMSC. If all shares held by the
investor are liquidated at any time, participation in the Withdrawal Plan will
terminate automatically. The Trust or IMSC may terminate the Withdrawal Plan
option at any time after reasonable notice to shareholders.
GROUP SYSTEMATIC INVESTMENT PROGRAM
Shares of the Fund may be purchased in connection with investment
programs established by employee or other groups using systematic payroll
deductions or other systematic payment arrangements. The Trust does not itself
organize, offer or administer any such programs. However, it may, depending upon
the size of the program, waive the minimum initial and additional investment
requirements for purchases by individuals in conjunction with programs organized
and offered by others. Unless shares of the Fund are purchased in conjunction
with IRAs (see "How to Buy Shares" in the Prospectus), such group systematic
investment programs are not entitled to special tax benefits under the Code. The
Trust reserves the right to refuse purchases at any time or suspend the offering
of shares in connection with group systematic investment programs, and to
restrict the offering of shareholder privileges, such as check writing,
simplified redemptions and other optional privileges, as described in the
Prospectus, to shareholders using group systematic investment programs.
With respect to each shareholder account established on or after
September 15, 1972 under a group systematic investment program, the Trust and
IMI each currently charge a maintenance fee of $3.00 (or portion thereof) that
for each twelve-month period (or portion thereof) that the account is
maintained. The Trust may collect such fee (and any fees due to IMI) through a
deduction from distributions to the shareholders involved or by causing on the
date the fee is assessed a redemption in each such shareholder account
sufficient to pay such fee. The Trust reserves the right to change these fees
from time to time without advance notice.
Class A shares of the Fund are made available to Merrill Lynch Daily K
Plan (the "Plan") participants at NAV without an initial sales charge if:
(i) the Plan is recordkept on a daily valuation basis by Merrill
Lynch and, on the date the Plan Sponsor signs the Merrill
Lynch Recordkeeping Service Agreement, the Plan has $3 million
or more in assets invested in broker/dealer funds not advised
or managed by Merrill Lynch Asset Management, L.P. ("MLAM")
that are made available pursuant to a Service Agreement
between Merrill Lynch and the fund's principal underwriter or
distributor and in funds advised or managed by MLAM
(collectively, the "Applicable Investments");
(ii) the Plan is recordkept on a daily valuation basis by an
independent recordkeeper whose services are provided through a
contract or alliance arrangement with Merrill Lynch, and on
the date the Plan Sponsor signs the Merrill Lynch
Recordkeeping Service Agreement, the Plan has $3 million or
more in assets, excluding money market funds, invested in
Applicable Investments; or
(iii) the Plan has 500 or more eligible employees, as determined by
Merrill Lynch plan conversion manager, on the date the Plan
Sponsor signs the Merrill Lynch Recordkeeping Service
Agreement.
Alternatively, Class B shares of the Fund are made available to Plan
participants at NAV without a CDSC if the Plan conforms with the requirements
for eligibility set forth in (i) through (iii) above but either does not meet
the $3 million asset threshold or does not have 500 or more eligible employees.
Plans recordkept on a daily basis by Merrill Lynch or an independent
recordkeeper under a contract with Merrill Lynch that are currently investing in
Class B shares of the Fund convert to Class A shares once the Plan has reached
$5 million invested in Applicable Investments, or 10 years after the date of the
initial purchase by a participant under the Plan--the Plan will receive a Plan
level share conversion.
REDEMPTIONS
Shares of the Fund are redeemed at their net asset value next
determined after a proper redemption request has been received by IMSC, less any
applicable CDSC.
Unless a shareholder requests that the proceeds of any redemption be
wired to his or her bank account, payment for shares tendered for redemption is
made by check within seven days after tender in proper form, except that the
Trust reserves the right to suspend the right of redemption or to postpone the
date of payment upon redemption beyond seven days, (i) for any period during
which the Exchange is closed (other than customary weekend and holiday closings)
or during which trading on the Exchange is restricted, (ii) for any period
during which an emergency exists as determined by the SEC as a result of which
disposal of securities owned by the Fund is not reasonably practicable or it is
not reasonably practicable for the Fund to fairly determine the value of its net
assets, or (iii) for such other periods as the SEC may by order permit for the
protection of shareholders of the Fund.
Under unusual circumstances, when the Board deems it in the best
interest of the Fund's shareholders, the Fund may make payment for shares
repurchased or redeemed in whole or in part in securities of the Fund taken at
current values. If any such redemption in kind is to be made, the Fund may make
an election pursuant to Rule 18f-1 under the 1940 Act. This will require the
Fund to redeem with cash at a shareholder's election in any case where the
redemption involves less than $250,000 (or 1% of the Fund's net asset value at
the beginning of each 90-day period during which such redemptions are in effect,
if that amount is less than $250,000). Should payment be made in securities, the
redeeming shareholder may incur brokerage costs in converting such securities to
cash.
The Trust may redeem those accounts of shareholders who have maintained
an investment, including sales charges paid, of less than $1,000 ($10,000 for
Advisor Class shareholders) in the Fund for a period of more than 12 months. All
accounts below that minimum will be redeemed simultaneously when MIMI deems it
advisable. The $1,000 balance ($10,000 for Advisor Class shareholders) will be
determined by actual dollar amounts invested by the shareholder, unaffected by
market fluctuations. The Trust will notify any such shareholder by certified
mail of its intention to redeem such account, and the shareholder shall have 60
days from the date of such letter to invest such additional sums as shall raise
the value of such account above that minimum. Should the shareholder fail to
forward such sum within 60 days of the date of the Trust's letter of
notification, the Trust will redeem the shares held in such account and transmit
the redemption in value thereof to the shareholder. However, those shareholders
who are investing pursuant to the Automatic Investment Method will not be
redeemed automatically unless they have ceased making payments pursuant to the
plan for a period of at least six consecutive months, and these shareholders
will be given six-months' notice by the Trust before such redemption.
Shareholders in a qualified retirement, pension or profit sharing plan who wish
to avoid tax consequences must "rollover" any sum so redeemed into another
qualified plan within 60 days. The Trustees of the Trust may change the minimum
account size.
If a shareholder has given authorization for telephonic redemption
privilege, shares can be redeemed and proceeds sent by Federal wire to a single
previously designated bank account. Delivery of the proceeds of a wire
redemption request of $250,000 or more may be delayed by the Fund for up to
seven days if deemed appropriate under then-current market conditions. The Trust
reserves the right to change this minimum or to terminate the telephonic
redemption privilege without prior notice. The Trust cannot be responsible for
the efficiency of the Federal wire system of the shareholder's dealer of record
or bank. The shareholder is responsible for any charges by the shareholder's
bank.
The Fund employs reasonable procedures that require personal
identification prior to acting on redemption or exchange instructions
communicated by telephone to confirm that such instructions are genuine. In the
absence of such instructions, the Fund may be liable for any losses due to
unauthorized or fraudulent telephone instructions.
CONVERSION OF CLASS B SHARES
As described in the Prospectus, Class B shares of the Fund will
automatically convert to Class A shares of the Fund, based on the relative net
asset values per share of the two classes, no later than the month following the
eighth anniversary of the initial issuance of such Class B shares of the Fund
occurs. For the purpose of calculating the holding period required for
conversion of Class B shares, the date of initial issuance shall mean: (1) the
date on which such Class B shares were issued, or (2) for Class B shares
obtained through an exchange, or a series of exchanges, (subject to the exchange
privileges for Class B shares) the date on which the original Class B shares
were issued. For purposes of conversion of Class B shares, Class B shares
purchased through the reinvestment of dividends and capital gain distributions
paid in respect of Class B shares will be held in a separate sub-account. Each
time any Class B shares in the shareholder's regular account (other than those
shares in the sub-account) convert to Class A shares, a pro rata portion of the
Class B shares in the sub-account will also convert to Class A shares. The
portion will be determined by the ratio that the shareholder's Class B shares
converting to Class A shares bears to the shareholder's total Class B shares not
acquired through the reinvestment of dividends and capital gain distributions.
NET ASSET VALUE
The net asset value per share of the Fund is computed by dividing the
value of the Fund's aggregate net assets (i.e., its total assets less its
liabilities) by the number of the Fund's shares outstanding. For purposes of
determining the Fund's aggregate net assets, receivables are valued at their
realizable amounts. The Fund's liabilities, if not identifiable as belonging to
a particular class of the Fund, are allocated among the Fund's several classes
based on their relative net asset size. Liabilities attributable to a particular
class are charged to that class directly. The total liabilities for a class are
then deducted from the class's proportionate interest in the Fund's assets, and
the resulting amount is divided by the number of shares of the class outstanding
to produce its net asset value per share.
A security listed or traded on a recognized stock exchange or The
Nasdaq Stock Market, Inc. ("Nasdaq") is valued at the security's last sale price
on the exchange on which the security is principally traded. If no sale is
reported at that time, the average between the last bid and asked price (the
"Calculated Mean") is used. Unless otherwise noted herein, the value of a
foreign security is determined in its national currency as of the normal close
of trading on the foreign exchange on which it is traded or as of the close of
regular trading on the Exchange, if that is earlier, and that value is then
converted into its U.S. dollar equivalent at the foreign exchange rate in effect
at noon, eastern time, on the day the value of the foreign security is
determined. All other securities for which OTC market quotations are readily
available are valued at the Calculated Mean.
A debt security normally is valued on the basis of quotes obtained from
at least two dealers (or one dealer who has made a market in the security) or
pricing services that take into account appropriate valuation factors. Interest
is accrued daily. Money market instruments are valued at amortized cost, which
the Board believes approximates market value.
An exchange-traded option is valued at the last sale price on the
exchange on which it is principally traded, if available, and otherwise is
valued at the last sale price on the other exchange(s). If there were no sales
on any exchange, the option shall be valued at the Calculated Mean, if possible,
and otherwise at the last offering price, in the case of a written option, and
the last bid price, in the case of a purchased option. An OTC option is valued
at the last offering price, in the case of a written option, and the last bid
price, in the case of a purchased option. Exchange listed and widely-traded OTC
futures (and options thereon) are valued at the most recent settlement price.
Securities and other assets for which market prices are not readily
available are priced at their "fair value" as determined by IMI in accordance
with procedures approved by the Board. Trading in securities on many foreign
securities exchanges is normally completed before the close of regular trading
on the Exchange. Trading on foreign exchanges may not take place on all days on
which there is regular trading on the Exchange, or may take place on days on
which there is no regular trading on the Exchange (e.g., any of the national
business holidays identified below). If events materially affecting the value of
the Fund's portfolio securities occur between the time when a foreign exchange
closes and the time when the Fund's net asset value is calculated (see following
paragraph), such securities may be valued at fair value as determined by IMI and
approved by the Board.
Portfolio securities are valued (and net asset value per share is
determined) as of the close of regular trading on the Exchange (normally 4:00
p.m., eastern time) on each day the Exchange is open for trading. The Exchange
and the Trust's offices are expected to be closed, and net asset value will not
be calculated, on the following national business holidays: New Year's Day,
Martin Luther King, Jr. Day, Presidents' Day, Good Friday, Memorial Day,
Independence Day, Labor Day, Thanksgiving Day and Christmas Day. On those days
when either or both of the Fund's Custodian or the Exchange close early as a
result of a partial holiday or otherwise, the Trust reserves the right to
advance the time on that day by which purchase and redemption requests must be
received.
The number of shares you receive when you place a purchase order, and
the payment you receive after submitting a redemption request, is based on the
Fund's net asset value next determined after your instructions are received in
proper form by IMSC or by your registered securities dealer. Each purchase and
redemption order is subject to any applicable sales charge. Since the Fund
normally invests in securities that are listed on foreign exchanges that may
trade on weekends or other days when the Fund does not price its shares, the
Fund's net asset value may change on days when shareholders will not be able to
purchase or redeem the Fund's shares. The sale of the Fund's shares will be
suspended during any period when the determination of its net asset value is
suspended pursuant to rules or orders of the SEC and may be suspended by the
Board whenever in its judgment it is in the Fund's best interest to do so.
TAXATION
The following is a general discussion of certain tax rules thought to
be applicable with respect to the Fund. It is merely a summary and is not an
exhaustive discussion of all possible situations or of all potentially
applicable taxes. Accordingly, shareholders and prospective shareholders should
consult a competent tax adviser about the tax consequences to them of investing
in the Fund.
The Fund intends to be taxed as a regulated investment company under
Subchapter M of the Code. Accordingly, the Fund must, among other things, (a)
derive in each taxable year at least 90% of its gross income from dividends,
interest, payments with respect to certain securities loans, and gains from the
sale or other disposition of stock, securities or foreign currencies, or other
income derived with respect to its business of investing in such stock,
securities or currencies; and (b) diversify its holdings so that, at the end of
each fiscal quarter, (i) at least 50% of the market value of the Fund's assets
is represented by cash, U.S. Government securities, the securities of other
regulated investment companies and other securities, with such other securities
limited, in respect of any one issuer, to an amount not greater than 5% of the
value of the Fund's total assets and 10% of the outstanding voting securities of
such issuer, and (ii) not more than 25% of the value of its total assets is
invested in the securities of any one issuer (other than U.S. Government
securities and the securities of other regulated investment companies).
As a regulated investment company, the Fund generally will not be
subject to U.S. Federal income tax on its income and gains that it distributes
to shareholders, if at least 90% of its investment company taxable income (which
includes, among other items, dividends, interest and the excess of any
short-term capital gains over long-term capital losses) for the taxable year is
distributed. The Fund intends to distribute all such income.
Amounts not distributed on a timely basis in accordance with a calendar
year distribution requirement are subject to a nondeductible 4% excise tax at
the Fund level. To avoid the tax, the Fund must distribute during each calendar
year, (1) at least 98% of its ordinary income (not taking into account any
capital gains or losses) for the calendar year (2) at least 98% of its capital
gains in excess of its capital losses (adjusted for certain ordinary losses) for
a one-year period generally ending on October 31 of the calendar year, and (3)
all ordinary income and capital gains for previous years that were not
distributed during such years. To avoid application of the excise tax, the Fund
intends to make distributions in accordance with the calendar year distribution
requirements. A distribution will be treated as paid on December 31 of the
current calendar year if it is declared by the Fund in October, November or
December of the year with a record date in such a month and paid by the Fund
during January of the following year. Such distributions will be taxable to
shareholders in the calendar year the distributions are declared, rather than
the calendar year in which the distributions are received.
OPTIONS, FUTURES AND FOREIGN CURRENCY FORWARD CONTRACTS
The taxation of equity options and OTC options on debt securities is
governed by Code section 1234. Pursuant to Code section 1234, the premium
received by the Fund for selling a put or call option is not included in income
at the time of receipt. If the option expires, the premium is short-term capital
gain to the Fund. If the Fund enters into a closing transaction, the difference
between the amount paid to close out its position and the premium received is
short-term capital gain or loss. If a call option written by the Fund is
exercised, thereby requiring the Fund to sell the underlying security, the
premium will increase the amount realized upon the sale of such security and any
resulting gain or loss will be a capital gain or loss, and will be long-term or
short-term depending upon the holding period of the security. With respect to a
put or call option that is purchased by the Fund, if the option is sold, any
resulting gain or loss will be a capital gain or loss, and will be long-term or
short-term, depending upon the holding period of the option. If the option
expires, the resulting loss is a capital loss and is long-term or short-term,
depending upon the holding period of the option. If the option is exercised, the
cost of the option, in the case of a call option, is added to the basis of the
purchased security and, in the case of a put option, reduces the amount realized
on the underlying security in determining gain or loss.
Some of the options, futures and foreign currency forward contracts in
which the Fund may invest may be "section 1256 contracts." Gains (or losses) on
these contracts generally are considered to be 60% long-term and 40% short-term
capital gains or losses; however, as described below, foreign currency gains or
losses arising from certain section 1256 contracts are ordinary in character.
Also, section 1256 contracts held by the Fund at the end of each taxable year
(and on certain other dates prescribed in the Code) are "marked-to-market" with
the result that unrealized gains or losses are treated as though they were
realized.
The transactions in options, futures and forward contracts undertaken
by the Fund may result in "straddles" for Federal income tax purposes. The
straddle rules may affect the character of gains or losses realized by the Fund.
In addition, losses realized by the Fund on positions that are part of a
straddle may be deferred under the straddle rules, rather than being taken into
account in calculating the taxable income for the taxable year in which such
losses are realized. Because only a few regulations implementing the straddle
rules have been promulgated, the consequences of such transactions to the Fund
are not entirely clear. The straddle rules may increase the amount of short-term
capital gain realized by the Fund, which is taxed as ordinary income when
distributed to shareholders.
The Fund may make one or more of the elections available under the Code
which are applicable to straddles. If the Fund makes any of the elections, the
amount, character and timing of the recognition of gains or losses from the
affected straddle positions will be determined under rules that vary according
to the election(s) made. The rules applicable under certain of the elections may
operate to accelerate the recognition of gains or losses from the affected
straddle positions.
Because application of the straddle rules may affect the character of
gains or losses, defer losses and/or accelerate the recognition of gains or
losses from the affected straddle positions, the amount which must be
distributed to shareholders as ordinary income or long-term capital gain may be
increased or decreased substantially as compared to a fund that did not engage
in such transactions.
Notwithstanding any of the foregoing, the Fund may recognize gain (but
not loss) from a constructive sale of certain "appreciated financial positions"
if the Fund enters into a short sale, offsetting notional principal contract,
futures or forward contract transaction with respect to the appreciated position
or substantially identical property. Appreciated financial positions subject to
this constructive sale treatment are interests (including options, futures and
forward contracts and short sales) in stock, partnership interests, certain
actively traded trust instruments and certain debt instruments. Constructive
sale treatment of appreciated financial positions does not apply to certain
transactions closed in the 90-day period ending with the 30th day after the
close of the Fund's taxable year, if certain conditions are met.
CURRENCY FLUCTUATIONS -- "SECTION 988" GAINS OR LOSSES
Gains or losses attributable to fluctuations in exchange rates which
occur between the time the Fund accrues receivables or liabilities denominated
in a foreign currency and the time the Fund actually collects such receivables
or pays such liabilities generally are treated as ordinary income or ordinary
loss. Similarly, on disposition of some investments, including debt securities
denominated in a foreign currency and certain options, futures and forward
contracts, gains or losses attributable to fluctuations in the value of the
foreign currency between the date of acquisition of the security or contract and
the date of disposition also are treated as ordinary gain or loss. These gains
and losses, referred to under the Code as "section 988" gains or losses,
increase or decrease the amount of the Fund's investment company taxable income
available to be distributed to its shareholders as ordinary income.
INVESTMENT IN PASSIVE FOREIGN INVESTMENT COMPANIES
The Fund may invest in shares of foreign corporations which may be
classified under the Code as passive foreign investment companies ("PFICs"). In
general, a foreign corporation is classified as a PFIC if at least one-half of
its assets constitute investment-type assets, or 75% or more of its gross income
is investment-type income. If the Fund receives a so-called "excess
distribution" with respect to PFIC stock, the Fund itself may be subject to a
tax on a portion of the excess distribution, whether or not the corresponding
income is distributed by the Fund to shareholders. In general, under the PFIC
rules, an excess distribution is treated as having been realized ratably over
the period during which a Fund held the PFIC shares. The Fund itself will be
subject to tax on the portion, if any, of an excess distribution that is so
allocated to prior Fund taxable years and an interest factor will be added to
the tax, as if the tax had been payable in such prior taxable years. Certain
distributions from a PFIC as well as gain from the sale of PFIC shares are
treated as excess distributions. Excess distributions are characterized as
ordinary income even though, absent application of the PFIC rules, certain
excess distributions might have been classified as capital gain.
The Fund may be eligible to elect alternative tax treatment with
respect to PFIC shares. The Fund may elect to mark to market its PFIC shares,
resulting in the shares being treated as sold at fair market value on the last
business day of each taxable year. Any resulting gain would be reported as
ordinary income; any resulting loss and any loss from an actual disposition of
the shares would be reported as ordinary loss to the extent of any net gains
reported in prior years. Under another election that currently is available in
some circumstances, the Fund generally would be required to include in its gross
income its share of the earnings of a PFIC on a current basis, regardless of
whether distributions are received from the PFIC in a given year.
DEBT SECURITIES ACQUIRED AT A DISCOUNT
Some of the debt securities (with a fixed maturity date of more than
one year from the date of issuance) that may be acquired by the Fund may be
treated as debt securities that are issued originally at a discount. Generally,
the amount of the original issue discount ("OID") is treated as interest income
and is included in income over the term of the debt security, even though
payment of that amount is not received until a later time, usually when the debt
security matures.
Some of the debt securities (with a fixed maturity date of more than
one year from the date of issuance) that may be acquired by the Fund in the
secondary market may be treated as having market discount. Generally, gain
recognized on the disposition of, and any partial payment of principal on, a
debt security having market discount is treated as ordinary income to the extent
the gain, or principal payment, does not exceed the "accrued market discount" on
such debt security. In addition, the deduction of any interest expenses
attributable to debt securities having market discount may be deferred. Market
discount generally accrues in equal daily installments. The Fund may make one or
more of the elections applicable to debt securities having market discount,
which could affect the character and timing of recognition of income.
Some debt securities (with a fixed maturity date of one year or less
from the date of issuance) that may be acquired by the Fund may be treated as
having acquisition discount, or OID in the case of certain types of debt
securities. Generally, the Fund will be required to include the acquisition
discount, or OID, in income over the term of the debt security, even though
payment of that amount is not received until a later time, usually when the debt
security matures. The Fund may make one or more of the elections applicable to
debt securities having acquisition discount, or OID, which could affect the
character and timing of recognition of income.
The Fund generally will be required to distribute dividends to
shareholders representing discount on debt securities that is currently
includable in income, even though cash representing such income may not have
been received by the Fund. Cash to pay such dividends may be obtained from sales
proceeds of securities held by the Fund.
DISTRIBUTIONS
Distributions of investment company taxable income are taxable to a
U.S. shareholder as ordinary income, whether paid in cash or shares. Dividends
paid by the Fund to a corporate shareholder, to the extent such dividends are
attributable to dividends received from U.S. corporations by the Fund, may
qualify for the dividends received deduction. However, the revised alternative
minimum tax applicable to corporations may reduce the value of the dividends
received deduction. Distributions of net capital gains (the excess of net
long-term capital gains over net short-term capital losses), if any, designated
by the Fund as capital gain dividends, are taxable to shareholders as long-term
capital gains whether paid in cash or in shares, and regardless of how long the
shareholder has held the Fund's shares; such distributions are not eligible for
the dividends received deduction. Shareholders receiving distributions in the
form of newly issued shares will have a cost basis in each share received equal
to the net asset value of a share of the Fund on the distribution date. A
distribution of an amount in excess of the Fund's current and accumulated
earnings and profits will be treated by a shareholder as a return of capital
which is applied against and reduces the shareholder's basis in his or her
shares. To the extent that the amount of any such distribution exceeds the
shareholder's basis in his or her shares, the excess will be treated by the
shareholder as gain from a sale or exchange of the shares. Shareholders will be
notified annually as to the U.S. Federal tax status of distributions and
shareholders receiving distributions in the form of newly issued shares will
receive a report as to the net asset value of the shares received.
If the net asset value of shares is reduced below a shareholder's cost
as a result of a distribution by the Fund, such distribution generally will be
taxable even though it represents a return of invested capital. Shareholders
should be careful to consider the tax implications of buying shares just prior
to a distribution. The price of shares purchased at this time may reflect the
amount of the forthcoming distribution. Those purchasing just prior to a
distribution will receive a distribution which generally will be taxable to
them.
DISPOSITION OF SHARES
Upon a redemption, sale or exchange of his or her shares, a shareholder
will realize a taxable gain or loss depending upon his or her basis in the
shares. Such gain or loss will be treated as capital gain or loss if the shares
are capital assets in the shareholder's hands and, if so, will be long-term or
short-term, depending upon the shareholder's holding period for the shares. Any
loss realized on a redemption sale or exchange will be disallowed to the extent
the shares disposed of are replaced (including through reinvestment of
dividends) within a period of 61 days beginning 30 days before and ending 30
days after the shares are disposed of. In such a case, the basis of the shares
acquired will be adjusted to reflect the disallowed loss. Any loss realized by a
shareholder on the sale of Fund shares held by the shareholder for six-months or
less will be treated for tax purposes as a long-term capital loss to the extent
of any distributions of capital gain dividends received or treated as having
been received by the shareholder with respect to such shares.
In some cases, shareholders will not be permitted to take all or
portion of their sales loads into account for purposes of determining the amount
of gain or loss realized on the disposition of their shares. This prohibition
generally applies where (1) the shareholder incurs a sales load in acquiring the
shares of the Fund, (2) the shares are disposed of before the 91st day after the
date on which they were acquired, and (3) the shareholder subsequently acquires
shares in the Fund or another regulated investment company and the otherwise
applicable sales charge is reduced under a "reinvestment right" received upon
the initial purchase of Fund shares. The term "reinvestment right" means any
right to acquire shares of one or more regulated investment companies without
the payment of a sales load or with the payment of a reduced sales charge. Sales
charges affected by this rule are treated as if they were incurred with respect
to the shares acquired under the reinvestment right. This provision may be
applied to successive acquisitions of fund shares.
FOREIGN WITHHOLDING TAXES
Income received by the Fund from sources within a foreign country may
be subject to withholding and other taxes imposed by that country.
If more than 50% of the value of the Fund's total assets at the close
of its taxable year consists of securities of foreign corporations, the Fund
will be eligible and may elect to "pass-through" to the Fund's shareholders the
amount of foreign income and similar taxes paid by the Fund. Pursuant to this
election, a shareholder will be required to include in gross income (in addition
to taxable dividends actually received) his or her pro rata share of the foreign
income and similar taxes paid by the Fund, and will be entitled either to deduct
his or her pro rata share of foreign income and similar taxes in computing his
or her taxable income or to use it as a foreign tax credit against his or her
U.S. Federal income taxes, subject to limitations. No deduction for foreign
taxes may be claimed by a shareholder who does not itemize deductions. Foreign
taxes generally may not be deducted by a shareholder that is an individual in
computing the alternative minimum tax. Each shareholder will be notified within
60 days after the close of the Fund's taxable year whether the foreign taxes
paid by the Fund will "pass-through" for that year and, if so, such notification
will designate (1) the shareholder's portion of the foreign taxes paid to each
such country and (2) the portion of the dividend which represents income derived
from sources within each such country.
Generally, except in the case of certain electing individual taxpayers
who have limited creditable foreign taxes and no foreign source income other
than passive investment-type income, a credit for foreign taxes is subject to
the limitation that it may not exceed the shareholder's U.S. tax attributable to
his or her total foreign source taxable income. For this purpose, if the Fund
makes the election described in the preceding paragraph, the source of the
Fund's income flows through to its shareholders. With respect to the Fund, gains
from the sale of securities generally will be treated as derived from U.S.
sources and section 988 gains will be treated as ordinary income derived from
U.S. sources. The limitation on the foreign tax credit is applied separately to
foreign source passive income, including foreign source passive income received
from the Fund. In addition, the foreign tax credit may offset only 90% of the
revised alternative minimum tax imposed on corporations and individuals.
Furthermore, the foreign tax credit is eliminated with respect to foreign taxes
withheld on dividends if the dividend-paying shares or the shares of the Fund
are held by the Fund or the shareholder, as the case may be, for less than 16
days (46 days in the case of preferred shares) during the 30-day period (90-day
period for preferred shares) beginning 15 days (45 days for preferred shares)
before the shares become ex-dividend. In addition, if the Fund fails to satisfy
these holding period requirements, it cannot elect to pass through to
shareholders the ability to claim a deduction for related foreign taxes.
The foregoing is only a general description of the foreign tax credit
under current law. Because application of the credit depends on the particular
circumstances of each shareholder, shareholders are advised to consult their own
tax advisers.
BACKUP WITHHOLDING
The Fund will be required to report to the Internal Revenue Service
("IRS") all taxable distributions as well as gross proceeds from the redemption
of the Fund's shares, except in the case of certain exempt shareholders. All
such distributions and proceeds will be subject to withholding of Federal income
tax at a rate of 31% ("backup withholding") in the case of non-exempt
shareholders if (1) the shareholder fails to furnish the Fund with and to
certify the shareholder's correct taxpayer identification number or social
security number, (2) the IRS notifies the shareholder or the Fund that the
shareholder has failed to report properly certain interest and dividend income
to the IRS and to respond to notices to that effect, or (3) when required to do
so, the shareholder fails to certify that he or she is not subject to backup
withholding. If the withholding provisions are applicable, any such
distributions or proceeds, whether reinvested in additional shares or taken in
cash, will be reduced by the amounts required to be withheld.
Distributions may also be subject to additional state, local and
foreign taxes depending on each shareholder's particular situation. Non-U.S.
shareholders may be subject to U.S. tax rules that differ significantly from
those summarized above. This discussion does not purport to deal with all of the
tax consequences applicable to the Fund or shareholders. Shareholders are
advised to consult their own tax advisers with respect to the particular tax
consequences to them of an investment in the Fund.
PERFORMANCE INFORMATION
Performance information for the classes of shares of the Fund may be
compared, in reports and promotional literature, to: (i) the S&P 500 Index, the
Dow Jones Industrial Average ("DJIA"), or other unmanaged indices so that
investors may compare the Fund's results with those of a group of unmanaged
securities widely regarded by investors as representative of the securities
markets in general; (ii) other groups of mutual funds tracked by Lipper
Analytical Services, a widely used independent research firm that ranks mutual
funds by overall performance, investment objectives and assets, or tracked by
other services, companies, publications or other criteria; and (iii) the
Consumer Price Index (measure for inflation) to assess the real rate of return
from an investment in the Fund. Unmanaged indices may assume the reinvestment of
dividends but generally do not reflect deductions or administrative and
management costs and expenses. Performance rankings are based on historical
information and are not intended to indicate future performance.
YIELD. Quotations of yield for a specific class of shares of the Fund
will be based on all investment income attributable to that class earned during
a particular 30-day (or one month) period (including dividends and interest),
less expenses attributable to that class accrued during the period ("net
investment income"), and will be computed by dividing the net investment income
per share of that class earned during the period by the maximum offering price
per share (in the case of Class A shares) or the net asset value per share (in
the case of Class B and Class C shares) on the last day of the period, according
to the following formula:
YIELD = 2[({(a-b)/cd} + 1){superscript 6}-1]
Where: a = dividends and interest earned during the period attributable
to a specific class of shares,
b = expenses accrued for the period attributable to that class
(net of reimbursements),
c = the average daily number of shares
of that class outstanding during the
period that were entitled to receive
dividends, and
d = the maximum offering price per
share (in the case of Class A
shares) or the net asset value per
share (in the case of Class B
shares, Class C shares and Class I
shares) on the last day of the
period.
The yield for Class A, Class B, Class C, Class I and Advisor Class
shares of the Fund for the 30-day period ended December 31, 1998 was [ ].
AVERAGE ANNUAL TOTAL RETURN. Quotations of standardized average annual
total return ("Standardized Return") for a specific class of shares of the Fund
will be expressed in terms of the average annual compounded rate of return that
would cause a hypothetical investment in that class of the Fund made on the
first day of a designated period to equal the ending redeemable value ("ERV") of
such hypothetical investment on the last day of the designated period, according
to the following formula:
P(1 + T){superscript n} = ERV
Where: P = a hypothetical initial payment of $1,000 to purchase shares of a
specific class
T = the average annual total return of shares of that class
n = the number of years
ERV = the ending redeemable value of a
hypothetical $1,000 payment made at
the beginning of the period.
For purposes of the above computation for the Fund, it is assumed that
all dividends and capital gains distributions made by the Fund are reinvested at
net asset value in additional shares of the same class during the designated
period. In calculating the ending redeemable value for Class A shares and
assuming complete redemption at the end of the applicable period, the maximum
4.75% sales charge is deducted from the initial $1,000 payment and, for Class B
and Class C shares, the applicable CDSC imposed upon redemption of Class B or
Class C shares held for the period is deducted. Standardized Return quotations
for the Fund do not take into account any required payments for federal or state
income taxes. Standardized Return quotations for Class B shares for periods of
over eight years will reflect conversion of the Class B shares to Class A shares
at the end of the eighth year. Standardized Return quotations are determined to
the nearest 1/100 of 1%.
The Fund may, from time to time, include in advertisements, promotional
literature or reports to shareholders or prospective investors total return data
that are not calculated according to the formula set forth above
("Non-Standardized Return"). Neither initial nor CDSCs are taken into account in
calculating Non-Standardized Return; a sales charge, if deducted, would reduce
the return.
The following table summarizes the calculation of Standardized and
Non-Standardized Return for the Class A, Class B, Class, C, Class I and Advisor
Class shares of the Fund for the periods indicated. In determining the average
annual total return for a specific class of shares of the Fund, recurring fees,
if any, that are charged to all shareholder accounts are taken into
consideration. For any account fees that vary with the size of the account of
the Fund, the account fee used for purposes of the following computations is
assumed to be the fee that would be charged to the mean account size of the
Fund.
<TABLE>
<CAPTION>
STANDARDIZED RETURN[*]
CLASS A[1] CLASS B[2] CLASS C[3] CLASS I[4] ADVISOR CLASS
<S> <C> <C> <C> <C> <C>
One year ended December
31, 1998
%
% % % %
Five years ended
December 31, 1998
% % % % %
Ten years ended
December 31, 1998
% % % % %
Inception [#] to year
ended December 31, 1998
[8]:
% % % % %
NON-STANDARDIZED RETURN[**]
CLASS A[5] CLASS B[6] CLASS C[7] CLASS I[4] ADVISOR CLASS
Year ended December 31,
1998
%
% % % %
Five years ended
December 31, 1998
% % % % %
Ten years ended
December 31, 1998
% % % % %
Inception [#] to year
ended December 31, 1998
[8]:
% % % % %
- ------------------------- ----------------- ------------------ -------------------
</TABLE>
[*] The Standardized Return figures for Class A shares reflect the
deduction of the maximum initial sales charge of 4.75%. The Standardized Return
figures for Class B and C shares reflect the deduction of the applicable CDSC
imposed on a redemption of Class B or C shares held for the period. Class I
shares are not subject to an initial or a CDSC; therefore, the Non-Standardized
Return figures would be identical to the Standardized Return figures.
[**] The Non-Standardized Return figures do not reflect the deduction of
any initial sales charge or CDSC.
[#] Until December 31, 1994, MIMI served as investment adviser to Ivy
Bond Fund, which until that date was a series of Mackenzie Series Trust. The
inception date for the Fund (and the Class A shares of the Fund) was September
6, 1985; the inception date for the Class B and Class I shares of the Fund was
April 1, 1994; and the inception date for the Class C shares of the Fund is
April 30, 1996. Advisor Class shares were first offered on January 1, 1998.
[1] The Standardized Return figures for the Class A shares reflects
expense reimbursement. Without expense reimbursement, the Standardized Return
for Class A shares for the period from inception through and the one, five and
ten year periods ended December 31, 1998 would have been [ %].
[2] The Standardized Return figures for the Class B shares reflects
expense reimbursement. Without expense reimbursement, the Standardized Return
for Class B shares for the period from inception through and the one year period
ended December 31, 1998 would have been [ %]. (Since the inception date for
Class B shares of the Fund was April 1, 1994, there were no Class B shares
outstanding for the duration of the five year or ten year periods ending
December 31, 1998.)
[3] The Standardized Return figures for the Class C shares reflects
expense reimbursement. Without expense reimbursement, the Standardized Return
for Class C shares for the period from inception through and the one year ended
December 31, 1998 would have been [ %]. (Since the inception date for Class C
shares of the Fund was April 30, 1996, there were no Class C shares outstanding
for the duration of the five year or ten year periods ending December 31, 1998.)
[4] The Non-Standardized Return figures for Class A shares reflects
expense reimbursement. Without expense reimbursement, the Non-Standardized
Return for Class A shares for the period from inception through and the one,
five and ten year periods ended December 31, 1998 would have been [ %].
[5] The Non-Standardized Return figures for Class B shares reflect
expense reimbursement. Without expense reimbursement, the Non-Standardized
Return for Class B shares for the period from inception through and the one year
ended December 31, 1998 would have been [ %]. (Since the inception date for
Class B shares of the Fund was April 1, 1994, there were no Class B shares
outstanding for the duration of the five year or ten year periods ending
December 31, 1998.)
[6] The Non-Standardized Return figures for Class C shares reflect
expense reimbursement. Without expense reimbursement, the Non-Standardized
Return for Class C shares for the period from inception through and the one year
ending December 31, 1998 would have been [ %]. (Since the inception date for
Class C shares of the Fund was April 30, 1997, there were no Class C shares
outstanding for the duration of the five year or ten year periods ending
December 31, 1998.)
[7] No Class I shares were outstanding during the time periods
indicated.
[8] The total return for a period less than a full year is calculated
on an aggregate basis and is not annualized.
CUMULATIVE TOTAL RETURN. Cumulative total return is the cumulative rate
of return on a hypothetical initial investment of $1,000 in a specific class of
shares of the Fund for a specified period. Cumulative total return quotations
reflect changes in the price of the Fund's shares and assume that all dividends
and capital gains distributions during the period were reinvested in the Fund
shares. Cumulative total return is calculated by computing the cumulative rates
of return of a hypothetical investment in a specific class of shares of the Fund
over such periods, according to the following formula (cumulative total return
is then expressed as a percentage):
C = (ERV/P) - 1
Where: C = cumulative total return
P = a hypothetical initial investment of $1,000 to purchase
shares of a specific class
ERV = ending redeemable value: ERV is
the value, at the end of the
applicable period, of a hypothetical
$1,000 investment made at the
beginning of the applicable period.
The following table summarizes the calculation of Cumulative Total
Return for the periods indicated through December 31, 1998, assuming the maximum
4.75% sales charge has been assessed.
ONE YEAR FIVE YEARS TEN YEARS SINCE INCEPTION[*]
Class A
Class B
Class C
Class I
Advisor Class
The following table summarizes the calculation of Cumulative Total
Return for the periods indicated through December 31, 1998, assuming the maximum
4.75% sales charge has not been assessed.
ONE YEAR FIVE YEARS TEN YEARS SINCE INCEPTION[*]
Class A
Class B
Class C
Class I
Advisor Class
- ---------------------------
[*] Until December 31, 1994, MIMI served as investment adviser to the
Fund, which until that date was a series of Mackenzie Series Trust. The
inception date for the Fund (Class A shares) was September 6, 1985; the
inception date for the Class B and Class I shares of the Fund was April 1, 1994.
The inception date for Class C shares of the Fund was April 30, 1996. The
inception date for Advisor Class shares was January 1, 1998.
OTHER QUOTATIONS, COMPARISONS AND GENERAL INFORMATION. The foregoing
computation methods are prescribed for advertising and other communications
subject to SEC Rule 482. Communications not subject to this rule may contain a
number of different measures of performance, computation methods and
assumptions, including but not limited to: historical total returns; results of
actual or hypothetical investments; changes in dividends, distributions or share
values; or any graphic illustration of such data. These data may cover any
period of the Trust's existence and may or may not include the impact of sales
charges, taxes or other factors.
Performance quotations for the Fund will vary from time to time
depending on market conditions, the composition of the Fund's portfolio and
operating expenses of the Fund. These factors and possible differences in the
methods used in calculating performance quotations should be considered when
comparing performance information regarding the Fund's shares with information
published for other investment companies and other investment vehicles.
Performance quotations should also be considered relative to changes in the
value of the Fund's shares and the risks associated with the Fund's investment
objectives and policies. At any time in the future, performance quotations may
be higher or lower than past performance quotations and there can be no
assurance that any historical performance quotation will continue in the future.
The Fund may also cite endorsements or use for comparison its
performance rankings and listings reported in such newspapers or business or
consumer publications as, among others: AAII Journal, Barron's, Boston Business
Journal, Boston Globe, Boston Herald, Business Week, Consumer's Digest, Consumer
Guide Publications, Changing Times, Financial Planning, Financial World, Forbes,
Fortune, Growth Fund Guide, Houston Post, Institutional Investor, International
Fund Monitor, Investor's Daily, Los Angeles Times, Medical Economics, Miami
Herald, Money Mutual Fund Forecaster, Mutual Fund Letter, Mutual Fund Source
Book, Mutual Fund Values, National Underwriter, Nelson's Directory of Investment
Managers, New York Times, Newsweek, No Load Fund Investor, No Load Fund* X,
Oakland Tribune, Pension World, Pensions and Investment Age, Personal Investor,
Rugg and Steele, Time, U.S. News and World Report, USA Today, The Wall Street
Journal, and Washington Post.
FINANCIAL STATEMENTS
The Fund's Portfolio of Investments as of December 31, 1998, Statement
of Assets and Liabilities as of December 31, 1998, Statement of Operations for
the fiscal year ended December 31, 1998, Statement of Changes in Net Assets for
the fiscal year ended December 31, 1998, Financial Highlights, Notes to
Financial Statements, and Report of Independent Accountants, which are included
in the Fund's December 31, 1998 Annual Report to shareholders, are incorporated
by reference into this SAI.
<PAGE>
APPENDIX A
DESCRIPTION OF STANDARD & POOR'S RATINGS GROUP ("S&P") AND MOODY'S
INVESTORS SERVICE, INC. ("MOODY'S") CORPORATE BOND AND COMMERCIAL
PAPER RATINGS
[From"Moody's Bond Record," November 1994 Issue (Moody's Investors
Service, New York, 1994), and "Standard & Poor's Municipal Ratings
Handbook," October 1997 Issue (McGraw Hill, New York, 1997).]
MOODY'S:
(a) CORPORATE BONDS. Bonds rated Aaa by Moody's are judged by Moody's
to be of the best quality, carrying the smallest degree of investment risk.
Interest payments are protected by a large or exceptionally stable margin and
principal is secure. While the various protective elements are likely to change,
such changes as can be visualized are most unlikely to impair the fundamentally
strong position of such issues. Bonds rated Aa are judged by Moody's to be of
high quality by all standards. Aa bonds are rated lower than Aaa bonds because
margins of protection may not be as large as those of Aaa bonds, or fluctuations
of protective elements may be of greater amplitude, or there may be other
elements present which make the long-term risks appear somewhat larger than
those applicable to Aaa securities. Bonds which are rated A by Moody's possess
many favorable investment attributes and are to be considered as upper
medium-grade obligations. Factors giving security to principal and interest are
considered adequate, but elements may be present which suggest a susceptibility
to impairment sometime in the future. Bonds rated Baa by Moody's are considered
medium-grade obligations (i.e., they are neither highly protected nor poorly
secured). Interest payments and principal security appear adequate for the
present, but certain protective elements may be lacking or may be
characteristically unreliable over any great length of time. Such bonds lack
outstanding investment characteristics and in fact have speculative
characteristics as well. Bonds which are rated Ba are judged to have speculative
elements; their future cannot be considered well-assured. Often the protection
of interest and principal payments may be very moderate and thereby not well
safeguarded during both good and bad times over the future. Uncertainty of
position characterizes bonds in this class. Bonds which are rated B generally
lack characteristics of the desirable investment. Assurance of interest and
principal payments of or maintenance of other terms of the contract over any
long period of time may be small. Bonds which are rated Caa are of poor
standing. Such issues may be in default or there may be present elements of
danger with respect to principal or interest. Bonds which are rated Ca represent
obligations which are speculative in a high degree. Such issues are often in
default or have other marked shortcomings. Bonds which are rated C are the
lowest rated class of bonds and issues so rated can be regarded as having
extremely poor prospects of ever attaining any real investment standing.
(b) COMMERCIAL PAPER. The Prime rating is the highest commercial paper
rating assigned by Moody's. Among the factors considered by Moody's in assigning
ratings are the following: (1) evaluation of the management of the issuer; (2)
economic evaluation of the issuer's industry or industries and an appraisal of
speculative-type risks which may be inherent in certain areas; (3) evaluation of
the issuer's products in relation to competition and customer acceptance; (4)
liquidity; (5) amount and quality of long-term debt; (6) trend of earnings over
a period of ten years; (7) financial strength of a parent company and the
relationships which exist with the issuer; and (8) recognition by management of
obligations which may be present or may arise as a result of public interest
questions and preparations to meet such obligations. Issuers within this Prime
category may be given ratings 1, 2 or 3, depending on the relative strengths of
these factors. The designation of Prime-1 indicates the highest quality
repayment capacity of the rated issue. Issuers rated Prime-2 are deemed to have
a strong ability for repayment while issuers voted Prime-3 are deemed to have an
acceptable ability for repayment. Issuers rated Not Prime do not fall within any
of the Prime rating categories.
S&P:
(a) CORPORATE BONDS. An S&P corporate debt rating is a current
assessment of the creditworthiness of an obligor with respect to a specific
obligation. The ratings are based on current information furnished by the issuer
or obtained by S&P from other sources it considers reliable. The ratings
described below may be modified by the addition of a plus or minus sign to show
relative standing within the major rating categories.
Debt rated AAA has the highest rating assigned by S&P. Capacity to pay
interest and repay principal is extremely strong. Debt rated AA is judged by S&P
to have a very strong capacity to pay interest and repay principal and differs
from the highest rated issues only in small degree. Debt rated A by S&P has a
strong capacity to pay interest and repay principal, although it is somewhat
more susceptible to the adverse effects of changes in circumstances and economic
conditions than debt in higher rated categories.
Debt rated BBB by S&P is regarded by S&P as having an adequate capacity
to pay interest and repay principal. Although such bonds normally exhibit
adequate protection parameters, adverse economic conditions or changing
circumstances are more likely to lead to a weakened capacity to pay interest and
repay principal than debt in higher rated categories.
Debt rated BB, B, CCC, CC and C is regarded as having predominately
speculative characteristics with respect to capacity to pay interest and repay
principal. BB indicates the least degree of speculation and C the highest. While
such debt will likely have some quality and protective characteristics, these
are outweighed by large uncertainties or exposures to adverse conditions. Debt
rated BB has less near-term vulnerability to default than other speculative
issues. However, it faces major ongoing uncertainties or exposure to adverse
business, financial or economic conditions which could lead to inadequate
capacity to meet timely interest and principal payments. The BB rating category
is also used for debt subordinated to senior debt that is assigned an actual or
implied BBB- rating. Debt rated B has a greater vulnerability to default but
currently has the capacity to meet interest payments and principal repayments.
Adverse business, financial, or economic conditions will likely impair capacity
or willingness to pay interest and repay principal. The B rating category is
also used for debt subordinated to senior debt that is assigned an actual or
implied BB or BB- rating. Debt rated CCC has a currently identifiable
vulnerability to default, and is dependent upon favorable business, financial,
and economic conditions to meet timely payment of interest and repayment of
principal. In the event of adverse business, financial or economic conditions,
it is not likely to have the capacity to pay interest and repay principal. The
CCC rating category is also used for debt subordinated to senior debt that is
assigned an actual or implied B or B- rating. The rating CC typically is applied
to debt subordinated to senior debt which is assigned an actual or implied CCC
debt rating. The rating C typically is applied to debt subordinated to senior
debt which is assigned an actual or implied CCC- debt rating. The C rating may
be used to cover a situation where a bankruptcy petition has been filed, but
debt service payments are continued.
The rating CI is reserved for income bonds on which no interest is
being paid. Debt rated D is in payment default. The D rating category is used
when interest payments or principal payments are not made on the date due, even
if the applicable grace period has not expired, unless S&P believes that such
payments will be made during such grace period. The D rating also will be used
upon the filing of a bankruptcy petition if debt service payments are
jeopardized.
(b) COMMERCIAL PAPER. An S&P commercial paper rating is a current
assessment of the likelihood of timely payment of debt considered short-term in
the relevant market.
The commercial paper rating A-1 by S&P indicates that the degree of
safety regarding timely payment is strong. Those issues determined to possess
extremely strong safety characteristics are denoted with a plus sign (+)
designation. For commercial paper with an A-2 rating, the capacity for timely
payment on issues is satisfactory, but not as high as for issues designated A-1.
Issues rated A-3 have adequate capacity for timely payment, but are more
vulnerable to the adverse effects of changes in circumstances than obligations
carrying higher designations.
Issues rated B are regarded as having only speculative capacity for
timely payment. The C rating is assigned to short-term debt obligations with a
doubtful capacity for payment. Debt rated D is in payment default. The D rating
category is used when interest payments or principal payments are not made on
the date due, even if the applicable grace period has not expired, unless S&P
believes such payments will be made during such grace period.
<PAGE>
IVY CHINA REGION FUND
a series of
IVY FUND
Via Mizner Financial Plaza, Suite 300
700 South Federal Highway
Boca Raton, Florida 33432
STATEMENT OF ADDITIONAL INFORMATION
April , 1999
Ivy Fund (the "Trust") is an open-end management investment company
that currently consists of nineteen fully managed portfolios, each of which
(except for Ivy South America Fund and Ivy International Strategic Bond Fund) is
diversified. This Statement of Additional Information ("SAI") relates to the
Class A, B, C and Advisor Class shares of Ivy China Region Fund (the "Fund").
The other eighteen portfolios of the Trust are described in separate
prospectuses and SAIs.
This SAI is not a prospectus and should be read in conjunction with the
prospectus for the Fund dated April , 1999 (the "Prospectus"), which may be
obtained upon request and without charge from the Trust at the Distributor's
address and telephone number printed below.
INVESTMENT MANAGER
Ivy Management, Inc. ("IMI")
Via Mizner Financial Plaza, Suite 300
700 South Federal Highway
Boca Raton, Florida 33432
Telephone: (800) 777-6472
DISTRIBUTOR
Ivy Mackenzie Distributors, Inc. ("IMDI")
Via Mizner Financial Plaza, Suite 300
700 South Federal Highway
Boca Raton, Florida 33432
Telephone: (800) 456-5111
<PAGE>
i
TABLE OF CONTENTS
GENERAL INFORMATION.........................................................
INVESTMENT OBJECTIVES, STRATEGIES AND RISKS.................................
COMMON STOCKS......................................................
THE CHINA REGION...................................................
DEBT SECURITIES....................................................
IN GENERAL................................................
INVESTMENT-GRADE DEBT SECURITIES..........................
LOW-RATED DEBT SECURITIES.................................
U.S. GOVERNMENT SECURITIES................................
ZERO COUPON BONDS.........................................
"WHEN-ISSUED"SECURITIES AND FIRM COMMITMENTS..............
ILLIQUID SECURITIES................................................
FOREIGN SECURITIES.................................................
DEPOSITORY RECEIPTS................................................
EMERGING MARKETS...................................................
FOREIGN CURRENCIES.................................................
FOREIGN CURRENCY EXCHANGE TRANSACTIONS.............................
OTHER INVESTMENT COMPANIES.........................................
REPURCHASE AGREEMENTS..............................................
BANKING INDUSTRY AND SAVINGS AND LOAN OBLIGATIONS..................
COMMERCIAL PAPER...................................................
BORROWING..........................................................
WARRANTS...........................................................
OPTIONS TRANSACTIONS...............................................
IN GENERAL................................................
WRITING OPTIONS ON INDIVIDUAL SECURITIES..................
PURCHASING OPTIONS ON INDIVIDUAL SECURITIES...............
PURCHASING AND WRITING OPTIONS ON SECURITIES INDICES......
RISKS OF OPTIONS TRANSACTIONS.............................
FUTURES CONTRACTS AND OPTIONS ON FUTURES CONTRACTS.................
IN GENERAL................................................
RISKS ASSOCIATED WITH FUTURES AND RELATED OPTIONS.........
SECURITIES INDEX FUTURES CONTRACTS.................................
RISKS OF SECURITIES INDEX FUTURES.........................
COMBINED TRANSACTIONS.....................................
INVESTMENT RESTRICTIONS.....................................................
PORTFOLIO TURNOVER..........................................................
TRUSTEES AND OFFICERS.......................................................
PERSONAL INVESTMENTS BY EMPLOYEES OF IMI..................
INVESTMENT ADVISORY AND OTHER SERVICES......................................
BUSINESS MANAGEMENT AND INVESTMENT ADVISORY SERVICES...............
DISTRIBUTION SERVICES..............................................
RULE 18F-3 PLAN...........................................
RULE 12B-1 DISTRIBUTION PLANS.............................
CUSTODIAN..........................................................
FUND ACCOUNTING SERVICES...........................................
TRANSFER AGENT AND DIVIDEND PAYING AGENT...........................
ADMINISTRATOR......................................................
AUDITORS...........................................................
BROKERAGE ALLOCATION........................................................
CAPITALIZATION AND VOTING RIGHTS............................................
SPECIAL RIGHTS AND PRIVILEGES...............................................
AUTOMATIC INVESTMENT METHOD........................................
EXCHANGE OF SHARES.................................................
INITIAL SALES CHARGE SHARES...............................
CONTINGENT DEFERRED SALES CHARGE SHARES CLASS A...........
CLASS B...................................................
CLASS C...................................................
ADVISOR CLASS.............................................
ALL CLASSES...............................................
LETTER OF INTENT...................................................
RETIREMENT PLANS...................................................
INDIVIDUAL RETIREMENT ACCOUNTS............................
ROTH IRAS.................................................
QUALIFIED PLANS...........................................
DEFERRED COMPENSATION FOR PUBLIC SCHOOLS AND
CHARITABLE ORGANIZATIONS ("403(B)(7) ACCOUNT")....
SIMPLIFIED EMPLOYEE PENSION ("SEP") IRAS..................
SIMPLE PLANS..............................................
REINVESTMENT PRIVILEGE.............................................
RIGHTS OF ACCUMULATION.............................................
SYSTEMATIC WITHDRAWAL PLAN.........................................
GROUP SYSTEMATIC INVESTMENT PROGRAM................................
REDEMPTIONS.................................................................
CONVERSION OF CLASS B SHARES................................................
NET ASSET VALUE.............................................................
TAXATION 43
OPTIONS, FUTURES AND FOREIGN CURRENCY FORWARD CONTRACTS............
CURRENCY FLUCTUATIONS -- "SECTION 988" GAINS OR LOSSES.............
INVESTMENT IN PASSIVE FOREIGN INVESTMENT COMPANIES.................
DEBT SECURITIES ACQUIRED AT A DISCOUNT.............................
DISTRIBUTIONS......................................................
DISPOSITION OF SHARES..............................................
FOREIGN WITHHOLDING TAXES..........................................
BACKUP WITHHOLDING.................................................
PERFORMANCE INFORMATION.....................................................
YIELD.....................................................
AVERAGE ANNUAL TOTAL RETURN...............................
CUMULATIVE TOTAL RETURN...................................
OTHER QUOTATIONS, COMPARISONS AND GENERAL INFORMATION.....
FINANCIAL STATEMENTS........................................................
APPENDIX A..................................................................
<PAGE>
57
GENERAL INFORMATION
The Fund is organized as a separate, diversified portfolio of the
Trust, an open-end management investment company organized as a Massachusetts
business trust on December 21, 1983. The Fund's inception date for Class A and
Class B shares was October 23, 1993. The inception dates for the Fund's Class C
and Advisor Class shares were April 30, 1996, and January 1, 1998, respectively.
Descriptions in this Statement of a particular investment practice or
technique in which the Fund may engage or a financial instrument which the Fund
may purchase are meant to describe the spectrum of investments that IMI, in its
discretion, might, but is not required to, use in managing the Fund's portfolio
assets. IMI may, in its discretion, at any time employ such practice, technique
or instrument for one or more funds but not for all funds advised by it.
Furthermore, it is possible that certain types of financial instruments or
investment techniques described herein may not be available, permissible,
economically feasible or effective for their intended purposes in all markets.
Certain practices, techniques, or instruments may not be principal activities of
the Fund but, to the extent employed, could from time to time have a material
impact on the Fund's performance.
INVESTMENT OBJECTIVES, STRATEGIES AND RISKS
The Fund has its own investment objectives and policies, which are
described in the Prospectus under the captions "Summary" and "Additional
Information about Strategies and Risks." Additional information regarding the
characteristics and risks associated with the Fund's investment techniques is
set forth below.
The Fund's principal investment objective is long-term capital growth.
Consideration of current income is secondary to this principal objective. The
Fund seeks to meet its objective primarily by investing in the equity securities
of companies that are expected to benefit from the economic development and
growth of China, Hong Kong and Taiwan. A significant percentage of the Fund's
assets may also be invested in the securities markets of South Korea, Singapore,
Malaysia, Thailand, Indonesia and the Philippines (collectively, with China,
Hong Kong and Taiwan, the "China Region").
The Fund normally invests at least 65% of its total assets in "Greater
China growth companies," defined as companies that (a) that are organized in or
for which the principal securities trading markets are the China Region; (b)
that have at least 50% of their assets in one or more China Region countries or
derive at least 50% of their gross sales revenues or profits from providing
goods or services to or from within one or more China Region countries; or (c)
that have at least 35% of their assets in China, Hong Kong or Taiwan, derive at
least 35% of their gross sales revenues or profits from providing goods or
services to or from within these three countries, or have significant
manufacturing or other operations in these countries. IMI's determination as to
whether a company qualifies as a Greater China growth company is based primarily
on information contained in financial statements, reports, analyses and other
pertinent information (some of which may be obtained directly from the company).
The Fund may invest 25% or more of its total assets in the securities of issuers
located in any one China Region country, and currently expects to invest more
than 50% of its total assets in Hong Kong.
The balance of the Fund's assets ordinarily are invested in (i) certain
investment-grade debt securities and (ii) the equity securities of "China Region
associated companies," which are companies that do not meet the definition of a
Greater China growth company, but whose current or expected performance, based
on certain identified factors (such as the growth trends in the location of a
company's assets and the sources of its revenues and profits), is judged by IMI
to be strongly associated with the China Region. The investment-grade debt
securities in which the Fund may invest include (a) obligations of the U.S.
Government or its agencies or instrumentalities, (b) obligations of U.S. banks
and other banks organized and existing under the laws of Hong Kong, Taiwan or
countries that are member of the Organization for Economic Cooperation and
Development ("OECD"), (c) obligations denominated in any currency issued by
international development institutions and Hong Kong, Taiwan and OECD member
governments and their agencies and instrumentalities, and (d) corporate bonds
rated Baa or higher by Moody's or BBB or higher by S&P (or if unrated, are
considered by IMI to be of comparable quality), as well as repurchase agreements
with respect to any of the foregoing instruments. The Fund may also invest in
zero coupon bonds.
The Fund may invest less than 35% of its net assets in debt securities
rated Ba or below by Moody's or BB or below by S&P, or, if unrated, considered
by IMI to be of comparable quality (commonly referred to as "high yield" or
"junk" bonds). The Fund will not invest in debt securities rated less than C by
either Moody's or S&P. [As of December 31, 1998, the Fund held no low-rated debt
securities.]
The Fund may invest in sponsored or unsponsored ADRs, GDRs, ADSs, and
GDSs, warrants, and securities issued on a "when-issued" or firm commitment
basis, and may engage in foreign currency exchange transactions and enter into
forward foreign currency contracts. The Fund may also invest up to 10% of its
total assets in other investment companies, and up to 15% of its net assets in
illiquid securities.
For temporary defensive purposes and during periods when IMI believes
that circumstances warrant, the Fund may reduce its position in Greater China
growth companies and Greater China associated companies and increase its
investment in cash and liquid debt securities, such as U.S. Government
securities, bank obligations, commercial paper, short-term notes and repurchase
agreements. For temporary or emergency purposes, the Fund may also borrow up to
10% of the value of its total assets from banks.
The Fund may purchase put and call options on securities and stock
indices, provided the premium paid for such options does not exceed 5% of the
Fund's net assets. The fund may also sell covered put options with respect to up
to 10% of the value of its net assets, and may write covered call options so
long as not more than 25% of the Fund's net assets is subject to being purchased
upon the exercise of the calls. For hedging purposes only, the Fund may engage
in transactions in stock index futures contracts, provided that the Fund's
equivalent exposure in such contracts does not exceed 15% of its total assets.
COMMON STOCKS
Common stock can be issued by companies to raise cash; all common stock
shares represent a proportionate ownership interest in a company. As a result,
the value of common stock rises and falls with a company's success or failure.
The market value of common stock can fluctuate significantly, with smaller
companies being particularly susceptible to price swings. Transaction costs in
smaller company stocks may also be higher than those of larger companies.
THE CHINA REGION
Investors in Ivy China Region Fund should be aware that many of the
China Region countries in which the Fund is likely to invest may be subject to a
greater degree of economic, political and social instability than is the case in
the United States or other developed countries. Among the factors causing this
instability are (i) authoritarian governments or military involvement in
political and economic decision making, (ii) popular unrest associated with
demands for improved political, economic and social conditions, (iii) internal
insurgencies, (iv) hostile relations with neighboring countries, (v) ethnic,
religious and racial disaffection, and (vi) changes in trading status, any one
of which could disrupt the principal financial markets in which the Ivy China
Region Fund invests and adversely affect the value of its assets.
China Region countries tend to be heavily dependent on international
trade, as a result of which their markets are highly sensitive to protective
trade barriers and the economic conditions of their principal trading partners
(i.e., the United States, Japan and Western European countries). Protectionist
trade legislation, reduction of foreign investment in China Region economies and
general declines in the international securities markets could have a
significant adverse effect on the China Region securities markets. In addition,
certain China Region countries have in the past failed to recognize private
property rights and have at times nationalized or expropriated the assets of
private companies. There is a heightened risk in these countries that such
adverse actions might be repeated.
To the extent that any China Region country experiences rapid increases
in its money supply or investment in equity securities for speculative purposes,
the equity securities traded in such countries may trade at price-earning
multiples higher than those of comparable companies trading on securities
markets in the United States, which may not be sustainable. Finally,
restrictions on foreign investment exists to varying degrees in some China
Region countries. Where such restrictions apply, investments may be limited and
may increase the Fund's expenses.
DEBT SECURITIES
IN GENERAL. Investment in debt securities involves both interest rate
and credit risk. Generally, the value of debt instruments rises and falls
inversely with fluctuations in interest rates. As interest rates decline, the
value of debt securities generally increases. Conversely, rising interest rates
tend to cause the value of debt securities to decrease. Bonds with longer
maturities generally are more volatile than bonds with shorter maturities. The
market value of debt securities also varies according to the relative financial
condition of the issuer. In general, lower-quality bonds offer higher yields due
to the increased risk that the issuer will be unable to meet its obligations on
interest or principal payments at the time called for by the debt instrument.
INVESTMENT-GRADE DEBT SECURITIES. Bonds rated Aaa by Moody's Investors
Service, Inc. ("Moody's") and AAA by Standard & Poor's Ratings Group ("S&P") are
judged to be of the best quality (i.e., capacity to pay interest and repay
principal is extremely strong). Bonds rated Aa/AA are considered to be of high
quality (i.e., capacity to pay interest and repay principal is very strong and
differs from the highest rated issues only to a small degree). Bonds rated A are
viewed as having many favorable investment attributes, but elements may be
present that suggest a susceptibility to the adverse effects of changes in
circumstances and economic conditions than debt in higher rated categories.
Bonds rated Baa/BBB (considered by Moody's to be "medium grade" obligations) are
considered to have an adequate capacity to pay interest and repay principal, but
certain protective elements may be lacking (i.e., such bonds lack outstanding
investment characteristics and have some speculative characteristics). The Fund
may invest in debt securities that are given an investment-grade rating by
Moody's or S&P, and may also invest in unrated debt securities that are
considered by IMI to be of comparable quality.
LOW-RATED DEBT SECURITIES. Securities rated lower than Baa by Moody's
or BBB by S&P, and comparable unrated securities (commonly referred to as "high
yield" or "junk" bonds), including many emerging markets bonds, are considered
to be predominantly speculative with respect to the issuer's continuing ability
to meet principal and interest payments. The lower the ratings of corporate debt
securities, the more their risks render them like equity securities. Such
securities carry a high degree of risk (including the possibility of default or
bankruptcy of the issuers of such securities), and generally involve greater
volatility of price and risk of principal and income (and may be less liquid)
than securities in the higher rating categories. (See Appendix A for a more
complete description of the ratings assigned by Moody's and S&P and their
respective characteristics.)
Lower rated and unrated securities are especially subject to adverse
changes in general economic conditions and to changes in the financial condition
of their issuers. Economic downturns may disrupt the high yield market and
impair the ability of issuers to repay principal and interest. Also, an increase
in interest rates would likely have an adverse impact on the value of such
obligations. During an economic downturn or period of rising interest rates,
highly leveraged issuers may experience financial stress which could adversely
affect their ability to service their principal and interest payment
obligations. Prices and yields of high yield securities will fluctuate over time
and, during periods of economic uncertainty, volatility of high yield securities
may adversely affect the Fund's net asset value. In addition, investments in
high yield zero coupon or pay-in-kind bonds, rather than income-bearing high
yield securities, may be more speculative and may be subject to greater
fluctuations in value due to changes in interest rates.
Changes in interest rates may have a less direct or dominant impact on
high yield bonds than on higher quality issues of similar maturities. However,
the price of high yield bonds can change significantly or suddenly due to a host
of factors including changes in interest rates, fundamental credit quality,
market psychology, government regulations, U.S. economic growth and, at times,
stock market activity. High yield bonds may contain redemption or call
provisions. If an issuer exercises these provisions in a declining interest rate
market, the Fund may have to replace the security with a lower yielding
security.
The trading market for high yield securities may be thin to the extent
that there is no established retail secondary market or because of a decline in
the value of such securities. A thin trading market may limit the ability of the
Fund to accurately value high yield securities in the Fund's portfolio, could
adversely affect the price at which the Fund could sell such securities, and
cause large fluctuations in the daily net asset value of the Fund's shares.
Adverse publicity and investor perceptions, whether or not based on fundamental
analysis, may decrease the value and liquidity of low-rated debt securities,
especially in a thinly traded market. When secondary markets for high yield
securities become relatively less liquid, it may be more difficult to value the
securities, requiring additional research and elements of judgment. These
securities may also involve special registration responsibilities, liabilities
and costs, and liquidity and valuation difficulties.
Credit quality in the high yield securities market can change suddenly
and unexpectedly, and even recently issued credit ratings may not fully reflect
the actual risks posed by a particular high yield security. For these reasons,
it is the policy of IMI not to rely exclusively on ratings issued by established
credit rating agencies, but to supplement such ratings with its own independent
and on-going review of credit quality. The achievement of the Fund's investment
objectives by investment in such securities may be more dependent on IMI's
credit analysis than is the case for higher quality bonds. Should the rating of
a portfolio security be downgraded, IMI will determine whether it is in the best
interest of the Fund to retain or dispose of such security. However, should any
individual bond held by the Fund be downgraded below a rating of C, IMI
currently intends to dispose of such bond based on then existing market
conditions.
Prices for high yield securities may be affected by legislative and
regulatory developments. For example, Federal rules require savings and loan
institutions to gradually reduce their holdings of this type of security. Also,
Congress has from time to time considered legislation that would restrict or
eliminate the corporate tax deduction for interest payments in these securities
and regulate corporate restructurings. Such legislation may significantly
depress the prices of outstanding securities of this type.
U.S. GOVERNMENT SECURITIES. U.S. Government securities are obligations of,
or guaranteed by, the U.S. Government, its agencies or instrumentalities.
Securities guaranteed by the U.S. Government include: (1) direct obligations of
the U.S. Treasury (such as Treasury bills, notes, and bonds) and (2) Federal
agency obligations guaranteed as to principal and interest by the U.S. Treasury
(such as GNMA certificates, which are mortgage-backed securities). When such
securities are held to maturity, the payment of principal and interest is
unconditionally guaranteed by the U.S. Government, and thus they are of the
highest possible credit quality. U.S. Government securities that are not held to
maturity are subject to variations in market value due to fluctuations in
interest rates.
Mortgage-backed securities are securities representing part ownership
of a pool of mortgage loans. For example, GNMA certificates are such securities
in which the timely payment of principal and interest is guaranteed by the full
faith and credit of the U.S. Government. Although the mortgage loans in the pool
will have maturities of up to 30 years, the actual average life of the loans
typically will be substantially less because the mortgages will be subject to
principal amortization and may be prepaid prior to maturity. Prepayment rates
vary widely and may be affected by changes in market interest rates. In periods
of falling interest rates, the rate of prepayment tends to increase, thereby
shortening the actual average life of the security. Conversely, rising interest
rates tend to decrease the rate of prepayments, thereby lengthening the actual
average life of the security (and increasing the security's price volatility).
Accordingly, it is not possible to predict accurately the average life of a
particular pool. Reinvestment of prepayment may occur at higher or lower rates
than the original yield on the certificates. Due to the prepayment feature and
the need to reinvest prepayments of principal at current rates, mortgage-backed
securities can be less effective than typical bonds of similar maturities at
"locking in" yields during periods of declining interest rates, and may involve
significantly greater price and yield volatility than traditional debt
securities. Such securities may appreciate or decline in market value during
periods of declining or rising interest rates, respectively.
Securities issued by U.S. Government instrumentalities and certain
Federal agencies are neither direct obligations of nor guaranteed by the U.S.
Treasury; however, they involve Federal sponsorship in one way or another. Some
are backed by specific types of collateral, some are supported by the issuer's
right to borrow from the Treasury, some are supported by the discretionary
authority of the Treasury to purchase certain obligations of the issuer, others
are supported only by the credit of the issuing government agency or
instrumentality. These agencies and instrumentalities include, but are not
limited to, Federal Land Banks, Farmers Home Administration, Central Bank for
Cooperatives, Federal Intermediate Credit Banks, Federal Home Loan Banks,
Federal National Mortgage Association, Federal Home Loan Mortgage Association,
and Student Loan Marketing Association.
ZERO COUPON BONDS. Zero coupon bonds are debt obligations issued
without any requirement for the periodic payment of interest. Zero coupon bonds
are issued at a significant discount from face value. The discount approximates
the total amount of interest the bonds would accrue and compound over the period
until maturity at a rate of interest reflecting the market rate at the time of
issuance. If the Fund holds zero coupon bonds in its portfolio, it would
recognize income currently for Federal income tax purposes in the amount of the
unpaid, accrued interest and generally would be required to distribute dividends
representing such income to shareholders currently, even though funds
representing such income would not have been received by the Fund. Cash to pay
dividends representing unpaid, accrued interest may be obtained from, for
example, sales proceeds of portfolio securities and Fund shares and from loan
proceeds. The potential sale of portfolio securities to pay cash distributions
from income earned on zero coupon bonds may result in the Fund being forced to
sell portfolio securities at a time when it might otherwise choose not to sell
these securities and when the Fund might incur a capital loss on such sales.
Because interest on zero coupon obligations is not distributed to the Fund on a
current basis, but is in effect compounded, the value of the securities of this
type is subject to greater fluctuations in response to changing interest rates
than the value of debt obligations which distribute income regularly.
"WHEN-ISSUED" SECURITIES AND FIRM COMMITMENTS. New issues of certain
debt securities are often offered on a "when-issued" basis, meaning the payment
obligation and the interest rate are fixed at the time the buyer enters into the
commitments, but delivery and payment for the securities normally take place
after the date of the commitment to purchase. Firm commitment agreements call
for the purchase of securities at an agreed-upon price on a specified future
date. The Fund uses such investment techniques in order to secure what is
considered to be an advantageous price and yield to the Fund and not for
purposes of leveraging the Fund's assets. In either instance, the Fund will
maintain in a segregated account with its Custodian cash or liquid securities
equal (on a daily marked-to-market basis) to the amount of its commitment to
purchase the underlying securities.
ILLIQUID SECURITIES
The Fund may purchase securities other than in the open market. While
such purchases may often offer attractive opportunities for investment not
otherwise available on the open market, the securities so purchased are often
"restricted securities" or "not readily marketable" (i.e., they cannot be sold
to the public without registration under the Securities Act of 1933, as amended
(the "1933 Act"), or the availability of an exemption from registration (such as
Rule 144A) or because they are subject to other legal or contractual delays in
or restrictions on resale). This investment practice, therefore, could have the
effect of increasing the level of illiquidity of the Fund. It is the Fund's
policy that illiquid securities (including repurchase agreements of more than
seven days duration, certain restricted securities, and other securities which
are not readily marketable) may not constitute, at the time of purchase, more
than 15% of the value of the Fund's net assets. The Trust's Board of Trustees
has approved guidelines for use by IMI in determining whether a security is
illiquid.
Generally speaking, restricted securities may be sold (i) only to
qualified institutional buyers; (ii) in a privately negotiated transaction to a
limited number of purchasers; (iii) in limited quantities after they have been
held for a specified period of time and other conditions are met pursuant to an
exemption from registration; or (iv) in a public offering for which a
registration statement is in effect under the 1933 Act. Issuers of restricted
securities may not be subject to the disclosure and other investor protection
requirements that would be applicable if their securities were publicly traded.
If adverse market conditions were to develop during the period between the
Fund's decision to sell a restricted or illiquid security and the point at which
the Fund is permitted or able to sell such security, the Fund might obtain a
price less favorable than the price that prevailed when it decided to sell.
Where a registration statement is required for the resale of restricted
securities, the Fund may be required to bear all or part of the registration
expenses. The Fund may be deemed to be an "underwriter" for purposes of the 1933
Act when selling restricted securities to the public and, in such event, the
Fund may be liable to purchasers of such securities if the registration
statement prepared by the issuer is materially inaccurate or misleading.
Since it is not possible to predict with assurance that the market for
securities eligible for resale under Rule 144A will continue to be liquid, IMI
will monitor such restricted securities subject to the supervision of the Board
of Trustees. Among the factors IMI may consider in reaching liquidity decisions
relating to Rule 144A securities are: (1) the frequency of trades and quotes for
the security; (2) the number of dealers wishing to purchase or sell the security
and the number of other potential purchasers; (3) dealer undertakings to make a
market in the security; and (4) the nature of the security and the nature of the
market for the security (i.e., the time needed to dispose of the security, the
method of soliciting offers, and the mechanics of the transfer).
FOREIGN SECURITIES
The securities of foreign issuers in which the Fund may invest include
non-U.S. dollar-denominated debt securities, Euro dollar securities, sponsored
and unsponsored American Depository Receipts ("ADRs"), Global Depository
Receipts ("GDRs"), American Depository Shares ("ADSs"), Global Depository Shares
("GDSs") and related depository instruments, and debt securities issued, assumed
or guaranteed by foreign governments or political subdivisions or
instrumentalities thereof. Shareholders should consider carefully the
substantial risks involved in investing in securities issued by companies and
governments of foreign nations, which are in addition to the usual risks
inherent in the Fund's domestic investments.
Although IMI intends to invest the Fund's assets only in nations that
are generally considered to have relatively stable and friendly governments,
there is the possibility of expropriation, nationalization, repatriation or
confiscatory taxation, taxation on income earned in a foreign country and other
foreign taxes, foreign exchange controls (which may include suspension of the
ability to transfer currency from a given country), default on foreign
government securities, political or social instability or diplomatic
developments which could affect investments in securities of issuers in those
nations. In addition, in many countries there is less publicly available
information about issuers than is available for U.S. companies. Moreover,
foreign companies are not generally subject to uniform accounting, auditing and
financial reporting standards, and auditing practices and requirements may not
be comparable to those applicable to U.S. companies. In many foreign countries,
there is less governmental supervision and regulation of business and industry
practices, stock exchanges, brokers, and listed companies than in the United
States. Foreign securities transactions may also be subject to higher brokerage
costs than domestic securities transactions. The foreign securities markets of
many of the countries in which the Fund may invest may also be smaller, less
liquid and subject to greater price volatility than those in the United States.
In addition, the Fund may encounter difficulties or be unable to pursue legal
remedies and obtain judgment in foreign courts.
Foreign bond markets have different clearance and settlement procedures
and in certain markets there have been times when settlements have been unable
to keep pace with the volume of securities transactions, making it difficult to
conduct such transactions. Delays in settlement could result in temporary
periods when assets of the Fund are uninvested and no return is earned thereon.
The inability of the Fund to make intended security purchases due to settlement
problems could cause the Fund to miss attractive investment opportunities.
Further, the inability to dispose of portfolio securities due to settlement
problems could result either in losses to the Fund because of subsequent
declines in the value of the portfolio security or, if the Fund has entered into
a contract to sell the security, in possible liability to the purchaser. It may
be more difficult for the Fund's agents to keep currently informed about
corporate actions such as stock dividends or other matters that may affect the
prices of portfolio securities. Communications between the United States and
foreign countries may be less reliable than within the United States, thus
increasing the risk of delayed settlements of portfolio transactions or loss of
certificates for portfolio securities. Moreover, individual foreign economies
may differ favorably or unfavorably from the United States economy in such
respects as growth of gross national product, rate of inflation, capital
reinvestment, resource self-sufficiency and balance of payments position. IMI
seeks to mitigate the risks to the Fund associated with the foregoing
considerations through investment variation and continuous professional
management.
DEPOSITORY RECEIPTS
ADRs, GDRs, ADSs, GDSs and related securities are depository
instruments, the issuance of which is typically administered by a U.S. or
foreign bank or trust company. These instruments evidence ownership of
underlying securities issued by a U.S. or foreign corporation. ADRs are publicly
traded on exchanges or over-the-counter ("OTC") in the United States.
Unsponsored programs are organized independently and without the cooperation of
the issuer of the underlying securities. As a result, information concerning the
issuer may not be as current or as readily available as in the case of sponsored
depository instruments, and their prices may be more volatile than if they were
sponsored by the issuers of the underlying securities.
EMERGING MARKETS
The Fund could have significant investments in securities traded in
emerging markets. Investors should recognize that investing in such countries
involves special considerations, in addition to those set forth above, that are
not typically associated with investing in United States securities and that may
affect the Fund's performance favorably or unfavorably.
In recent years, many emerging market countries around the world have
undergone political changes that have reduced government's role in economic and
personal affairs and have stimulated investment and growth. Historically, there
is a strong direct correlation between economic growth and stock market returns.
While this is no guarantee of future performance, IMI believes that investment
opportunities (particularly in the energy, environmental services, natural
resources, basic materials, power, telecommunications and transportation
industries) may result within the evolving economies of emerging market
countries from which the Fund and its shareholders will benefit.
Investments in companies domiciled in developing countries may be
subject to potentially higher risks than investments in developed countries.
Such risks include (i) less social, political and economic stability; (ii) a
small market for securities and/or a low or nonexistent volume of trading, which
result in a lack of liquidity and in greater price volatility; (iii) certain
national policies that may restrict the Fund's investment opportunities,
including restrictions on investment in issuers or industries deemed sensitive
to national interests; (iv) foreign taxation; (v) the absence of developed
structures governing private or foreign investment or allowing for judicial
redress for injury to private property; (vi) the absence, until relatively
recently in certain Eastern European countries, of a capital market structure or
market-oriented economy; (vii) the possibility that recent favorable economic
developments in Eastern Europe may be slowed or reversed by unanticipated
political or social events in such countries; and (viii) the possibility that
currency devaluations could adversely affect the value of the Fund's
investments. Further, many emerging markets have experienced and continue to
experience high rates of inflation.
Despite the dissolution of the Soviet Union, the Communist Party may
continue to exercise a significant role in certain Eastern European countries.
To the extent of the Communist Party's influence, investments in such countries
will involve risks of nationalization, expropriation and confiscatory taxation.
The communist governments of a number of Eastern European countries expropriated
large amounts of private property in the past, in many cases without adequate
compensation, and there can be no assurance that such expropriation will not
occur in the future. In the event of such expropriation, the Fund could lose a
substantial portion of any investments it has made in the affected countries.
Further, few (if any) accounting standards exist in Eastern European countries.
Finally, even though certain Eastern European currencies may be convertible into
U.S. dollars, the conversion rates may be artificial in relation to the actual
market values and may be adverse to the Fund's net asset value.
Certain Eastern European countries that do not have well-established
trading markets are characterized by an absence of developed legal structures
governing private and foreign investments and private property. In addition,
certain countries require governmental approval prior to investments by foreign
persons, or limit the amount of investment by foreign persons in a particular
company, or limit the investment of foreign persons to only a specific class of
securities of a company that may have less advantageous terms than securities of
the company available for purchase by nationals.
Authoritarian governments in certain Eastern European countries may
require that a governmental or quasi-governmental authority act as custodian of
the Fund's assets invested in such country. To the extent such governmental or
quasi-governmental authorities do not satisfy the requirements of the Investment
Company Act of 1940, as amended (the "1940 Act"), with respect to the custody of
the Fund's cash and securities, the Fund's investment in such countries may be
limited or may be required to be effected through intermediaries. The risk of
loss through governmental confiscation may be increased in such countries.
FOREIGN CURRENCIES
Investment in foreign securities usually will involve currencies of
foreign countries. Moreover, the Fund may temporarily hold funds in bank
deposits in foreign currencies during the completion of investment programs and
may purchase forward foreign currency contracts. Because of these factors, the
value of the assets of the Fund as measured in U.S. dollars may be affected
favorably or unfavorably by changes in foreign currency exchange rates and
exchange control regulations, and the Fund may incur costs in connection with
conversions between various currencies. Although the Fund's custodian values the
Fund's assets daily in terms of U.S. dollars, the Fund does not intend to
convert its holdings of foreign currencies into U.S. dollars on a daily basis.
The Fund will do so from time to time, however, and investors should be aware of
the costs of currency conversion. Although foreign exchange dealers do not
charge a fee for conversion, they do realize a profit based on the difference
(the "spread") between the prices at which they are buying and selling various
currencies. Thus, a dealer may offer to sell a foreign currency to the Fund at
one rate, while offering a lesser rate of exchange should the Fund desire to
resell that currency to the dealer. The Fund will conduct its foreign currency
exchange transactions either on a spot (i.e., cash) basis at the spot rate
prevailing in the foreign currency exchange market, or through entering into
forward contracts to purchase or sell foreign currencies.
Because the Fund normally will be invested in both U.S. and foreign
securities markets, changes in the Fund's share price may have a low correlation
with movements in U.S. markets. The Fund's share price will reflect the
movements of the different stock and bond markets in which it is invested (both
U.S. and foreign), and of the currencies in which the investments are
denominated. Thus, the strength or weakness of the U.S. dollar against foreign
currencies may account for part of the Fund's investment performance. U.S. and
foreign securities markets do not always move in step with each other, and the
total returns from different markets may vary significantly. In addition,
significant uncertainty surrounds the proposed introduction of the euro (a
common currency for the European Union) in January 1999 and its effect on the
value of securities denominated in local European currencies. These and other
currencies in which the Fund's assets are denominated may be devalued against
the U.S. dollar, resulting in a loss to the Fund.
FOREIGN CURRENCY EXCHANGE TRANSACTIONS
The Fund may enter into forward foreign currency contracts in order to
protect against uncertainty in the level of future foreign exchange rates in the
purchase and sale of securities. A forward contract is an obligation to purchase
or sell a specific currency for an agreed price at a future date (usually less
than a year), and typically is individually negotiated and privately traded by
currency traders and their customers. A forward contract generally has no
deposit requirement, and no commissions are charged at any stage for trades.
Although foreign exchange dealers do not charge a fee for commissions, they do
realize a profit based on the difference between the price at which they are
buying and selling various currencies. Although these contracts are intended to
minimize the risk of loss due to a decline in the value of the hedged
currencies, at the same time, they tend to limit any potential gain which might
result should the value of such currencies increase.
While the Fund may enter into forward contracts to reduce currency
exchange risks, changes in currency exchange rates may result in poorer overall
performance for the Fund than if it had not engaged in such transactions.
Moreover, there may be an imperfect correlation between the Fund's portfolio
holdings of securities denominated in a particular currency and forward
contracts entered into by the Fund. An imperfect correlation of this type may
prevent the Fund from achieving the intended hedge or expose the Fund to the
risk of currency exchange loss.
The Fund may purchase currency forwards and combine such purchases with
sufficient cash or short-term securities to create unleveraged substitutes for
investments in foreign markets when deemed advantageous. The Fund may also
combine the foregoing with bond futures or interest rate futures contracts to
create the economic equivalent of an unhedged foreign bond position.
The Fund may also cross-hedge currencies by entering into transactions
to purchase or sell one or more currencies that are expected to decline in value
relative to other currencies to which the Fund has or in which the Fund expects
to have portfolio exposure.
Currency transactions are subject to risks different from those of
other portfolio transactions. Because currency control is of great importance to
the issuing governments and influences economic planning and policy, purchases
and sales of currency and related instruments can be negatively affected by
government exchange controls, blockages, and manipulations or exchange
restrictions imposed by governments. These can result in losses to the Fund if
it is unable to deliver or receive currency or funds in settlement of
obligations and could also cause hedges it has entered into to be rendered
useless, resulting in full currency exposure as well as incurring transactions
costs. Buyers and sellers of currency futures are subject to the same risks that
apply to the use of futures generally. Further, settlement of a currency futures
contract for the purchase of most currencies must occur at a bank based in the
issuing nation. Trading options on currency futures is relatively new, and the
ability to establish and close out positions on such options is subject to the
maintenance of a liquid market which may not always be available. Currency
exchange rates may fluctuate based on factors extrinsic to that country's
economy.
OTHER INVESTMENT COMPANIES
The Fund may invest up to 10% of its total assets in the shares of
other investment companies. As a shareholder of an investment company, the Fund
would bear its ratable shares of the fund's expenses (which often include an
asset-based management fee). The Fund could also lose money by investing in
other investment companies, since the value of their respective investments and
the income they generate will vary daily based on prevailing market conditions.
REPURCHASE AGREEMENTS
Repurchase agreements are contracts under which the Fund buys a money
market instrument and obtains a simultaneous commitment from the seller to
repurchase the instrument at a specified time and at an agreed-upon yield. Under
guidelines approved by the Board, the Fund is permitted to enter into repurchase
agreements only if the repurchase agreements are at least fully collateralized
with U.S. Government securities or other securities that IMI has approved for
use as collateral for repurchase agreements and the collateral must be
marked-to-market daily. The Fund will enter into repurchase agreements only with
banks and broker-dealers deemed to be creditworthy by IMI under the
above-referenced guidelines. In the unlikely event of failure of the executing
bank or broker-dealer, the Fund could experience some delay in obtaining direct
ownership of the underlying collateral and might incur a loss if the value of
the security should decline, as well as costs in disposing of the security.
BANKING INDUSTRY AND SAVINGS AND LOAN OBLIGATIONS
Certificates of deposit are negotiable certificates issued against
funds deposited in a commercial bank for a definite period of time and earning a
specified return. Bankers' acceptances are negotiable drafts or bills of
exchange, normally drawn by an importer or exporter to pay for specific
merchandise, which are "accepted" by a bank (meaning, in effect, that the bank
unconditionally agrees to pay the face value of the instrument at maturity). In
addition to investing in certificates of deposit and bankers' acceptances, the
Fund may invest in time deposits in banks or savings and loan associations. Time
deposits are generally similar to certificates of deposit, but are
uncertificated. The Fund's investments in certificates of deposit, time
deposits, and bankers' acceptance are limited to obligations of (i) banks having
total assets in excess of $1 billion, (ii) U.S. banks which do not meet the $1
billion asset requirement, if the principal amount of such obligation is fully
insured by the Federal Deposit Insurance Corporation (the "FDIC"), (iii) savings
and loan association which have total assets in excess of $1 billion and which
are members of the FDIC, and (iv) foreign banks if the obligation is, in IMI's
opinion, of an investment quality comparable to other debt securities which may
be purchased by the Fund. The Fund's investments in certificates of deposit of
savings associations are limited to obligations of Federal and state-chartered
institutions whose total assets exceed $1 billion and whose deposits are insured
by the FDIC.
COMMERCIAL PAPER
Commercial paper represents short-term unsecured promissory notes
issued in bearer form by bank holding companies, corporations and finance
companies. The Fund may invest in commercial paper that is rated Prime-1 by
Moody's Investors Service, Inc. ("Moody's") or A-1 by Standard & Poor's
Corporation ("S&P") or, if not rated by Moody's or S&P, is issued by companies
having an outstanding debt issue rated Aaa or Aa by Moody's or AAA or AA by S&P.
BORROWING
Borrowing may exaggerate the effect on the Fund's net asset value of
any increase or decrease in the value of the Fund's portfolio securities. Money
borrowed will be subject to interest costs (which may include commitment fees
and/or the cost of maintaining minimum average balances). Although the principal
of the Fund's borrowings will be fixed, the Fund's assets may change in value
during the time a borrowing is outstanding, thus increasing exposure to capital
risk.
WARRANTS
The holder of a warrant has the right, until the warrant expires, to
purchase a given number of shares of a particular issuer at a specified price.
Such investments can provide a greater potential for profit or loss than an
equivalent investment in the underlying security. However, prices of warrants do
not necessarily move in a tandem with the prices of the underlying securities,
and are, therefore, considered speculative investments. Warrants pay no
dividends and confer no rights other than a purchase option. Thus, if a warrant
held by the Fund were not exercised by the date of its expiration, the Fund
would lose the entire purchase price of the warrant.
OPTIONS TRANSACTIONS
IN GENERAL. A call option is a short-term contract (having a duration
of less than one year) pursuant to which the purchaser, in return for the
premium paid, has the right to buy the security underlying the option at the
specified exercise price at any time during the term of the option. The writer
of the call option, who receives the premium, has the obligation, upon exercise
of the option, to deliver the underlying security against payment of the
exercise price. A put option is a similar contract pursuant to which the
purchaser, in return for the premium paid, has the right to sell the security
underlying the option at the specified exercise price at any time during the
term of the option. The writer of the put option, who receives the premium, has
the obligation, upon exercise of the option, to buy the underlying security at
the exercise price. The premium paid by the purchaser of an option will reflect,
among other things, the relationship of the exercise price to the market price
and volatility of the underlying security, the time remaining to expiration of
the option, supply and demand, and interest rates.
If the writer of an option wishes to terminate the obligation, the
writer may effect a "closing purchase transaction." This is accomplished by
buying an option of the same series as the option previously written. The effect
of the purchase is that the writer's position will be canceled by the Options
Clearing Corporation. However, a writer may not effect a closing purchase
transaction after it has been notified of the exercise of an option. Likewise,
an investor who is the holder of an option may liquidate his or her position by
effecting a "closing sale transaction." This is accomplished by selling an
option of the same series as the option previously purchased. There is no
guarantee that either a closing purchase or a closing sale transaction can be
effected at any particular time or at any acceptable price. If any call or put
option is not exercised or sold, it will become worthless on its expiration
date.
The Fund will realize a gain (or a loss) on a closing purchase
transaction with respect to a call or a put previously written by the Fund if
the premium, plus commission costs, paid by the Fund to purchase the call or the
put is less (or greater) than the premium, less commission costs, received by
the Fund on the sale of the call or the put. A gain also will be realized if a
call or a put that the Fund has written lapses unexercised, because the Fund
would retain the premium. Any such gains (or losses) are considered short-term
capital gains (or losses) for Federal income tax purposes. Net short-term
capital gains, when distributed by the Fund, are taxable as ordinary income. See
"Taxation."
The Fund will realize a gain (or a loss) on a closing sale transaction
with respect to a call or a put previously purchased by the Fund if the premium,
less commission costs, received by the Fund on the sale of the call or the put
is greater (or less) than the premium, plus commission costs, paid by the Fund
to purchase the call or the put. If a put or a call expires unexercised, it will
become worthless on the expiration date, and the Fund will realize a loss in the
amount of the premium paid, plus commission costs. Any such gain or loss will be
long-term or short-term gain or loss, depending upon the Fund's holding period
for the option.
Exchange-traded options generally have standardized terms and are
issued by a regulated clearing organization (such as the Options Clearing
Corporation), which, in effect, guarantees the completion of every
exchange-traded option transaction. In contrast, the terms of OTC options are
negotiated by the Fund and its counterparty (usually a securities dealer or a
financial institution) with no clearing organization guarantee. When the Fund
purchases an OTC option, it relies on the party from whom it has purchased the
option (the "counterparty") to make delivery of the instrument underlying the
option. If the counterparty fails to do so, the Fund will lose any premium paid
for the option, as well as any expected benefit of the transaction. Accordingly,
IMI will assess the creditworthiness of each counterparty to determine the
likelihood that the terms of the OTC option will be satisfied.
WRITING OPTIONS ON INDIVIDUAL SECURITIES. The Fund may write (sell)
covered call options on the Fund's securities in an attempt to realize a greater
current return than would be realized on the securities alone. The Fund may also
write covered call options to hedge a possible stock or bond market decline
(only to the extent of the premium paid to the Fund for the options). In view of
the investment objectives of the Fund, the Fund generally would write call
options only in circumstances where the investment adviser to the Fund does not
anticipate significant appreciation of the underlying security in the near
future or has otherwise determined to dispose of the security.
A "covered" call option means generally that so long as the Fund is
obligated as the writer of a call option, the Fund will (i) own the underlying
securities subject to the option, or (ii) have the right to acquire the
underlying securities through immediate conversion or exchange of convertible
preferred stocks or convertible debt securities owned by the Fund. Although the
Fund receives premium income from these activities, any appreciation realized on
an underlying security will be limited by the terms of the call option. The Fund
may purchase call options on individual securities only to effect a "closing
purchase transaction."
As the writer of a call option, the Fund receives a premium for
undertaking the obligation to sell the underlying security at a fixed price
during the option period, if the option is exercised. So long as the Fund
remains obligated as a writer of a call option, it forgoes the opportunity to
profit from increases in the market price of the underlying security above the
exercise price of the option, except insofar as the premium represents such a
profit (and retains the risk of loss should the value of the underlying security
decline).
PURCHASING OPTIONS ON INDIVIDUAL SECURITIES. The Fund may purchase a
put option on an underlying security owned by the Fund as a defensive technique
in order to protect against an anticipated decline in the value of the security.
The Fund, as the holder of the put option, may sell the underlying security at
the exercise price regardless of any decline in its market price. In order for a
put option to be profitable, the market price of the underlying security must
decline sufficiently below the exercise price to cover the premium and
transaction costs that the Fund must pay. These costs will reduce any profit the
Fund might have realized had it sold the underlying security instead of buying
the put option. The premium paid for the put option would reduce any capital
gain otherwise available for distribution when the security is eventually sold.
The purchase of put options will not be used by the Fund for leverage purposes.
The Fund may also purchase a put option on an underlying security that
it owns and at the same time write a call option on the same security with the
same exercise price and expiration date. Depending on whether the underlying
security appreciates or depreciates in value, the Fund would sell the underlying
security for the exercise price either upon exercise of the call option written
by it or by exercising the put option held by it. The Fund would enter into such
transactions in order to profit from the difference between the premium received
by the Fund for the writing of the call option and the premium paid by the Fund
for the purchase of the put option, thereby increasing the Fund's current
return. The Fund may write (sell) put options on individual securities only to
effect a "closing sale transaction."
PURCHASING AND WRITING OPTIONS ON SECURITIES INDICES. The Fund may
purchase and sell (write) put and call options on securities indices. An index
assigns relative values to the securities included in the index and the index
fluctuates with changes in the market values of the securities so included.
Options on indices are similar to options on individual securities, except that,
rather than giving the purchaser the right to take delivery of an individual
security at a specified price, they give the purchaser the right to receive
cash. The amount of cash is equal to the difference between the closing price of
the index and the exercise price of the option, expressed in dollars, times a
specified multiple (the "multiplier"). The writer of the option is obligated, in
return for the premium received, to make delivery of this amount.
The multiplier for an index option performs a function similar to the
unit of trading for a stock option. It determines the total dollar value per
contract of each point in the difference between the exercise price of an option
and the current level of the underlying index. A multiplier of 100 means that a
one-point difference will yield $100. Options on different indices have
different multipliers.
When the Fund writes a call or put option on a stock index, the option
is "covered", in the case of a call, or "secured", in the case of a put, if the
Fund maintains in a segregated account with the Custodian cash or liquid
securities equal to the contract value. A call option is also covered if the
Fund holds a call on the same index as the call written where the exercise price
of the call held is (i) equal to or less than the exercise price of the call
written or (ii) greater than the exercise price of the call written, provided
that the Fund maintains in a segregated account with the Custodian the
difference in cash or liquid securities. A put option is also "secured" if the
Fund holds a put on the same index as the put written where the exercise price
of the put held is (i) equal to or greater than the exercise price of the put
written or (ii) less than the exercise price of the put written, provided that
the Fund maintains in a segregated account with the Custodian the difference in
cash or liquid securities.
RISKS OF OPTIONS TRANSACTIONS. The purchase and writing of options
involves certain risks. During the option period, the covered call writer has,
in return for the premium on the option, given up the opportunity to profit from
a price increase in the underlying securities above the exercise price, but, as
long as its obligation as a writer continues, has retained the risk of loss
should the price of the underlying security decline. The writer of a U.S. option
has no control over the time when it may be required to fulfill its obligation
as a writer of the option. Once an option writer has received an exercise
notice, it cannot effect a closing purchase transaction in order to terminate
its obligation under the option and must deliver the underlying securities (or
cash in the case of an index option) at the exercise price. If a put or call
option purchased by the Fund is not sold when it has remaining value, and if the
market price of the underlying security (or index), in the case of a put,
remains equal to or greater than the exercise price or, in the case of a call,
remains less than or equal to the exercise price, the Fund will lose its entire
investment in the option. Also, where a put or call option on a particular
security (or index) is purchased to hedge against price movements in a related
security (or securities), the price of the put or call option may move more or
less than the price of the related security (or securities). In this regard,
there are differences between the securities and options markets that could
result in an imperfect correlation between these markets, causing a given
transaction not to achieve its objective.
There can be no assurance that a liquid market will exist when the Fund
seeks to close out an option position. Furthermore, if trading restrictions or
suspensions are imposed on the options markets, the Fund may be unable to close
out a position. Finally, trading could be interrupted, for example, because of
supply and demand imbalances arising from a lack of either buyers or sellers, or
the options exchange could suspend trading after the price has risen or fallen
more than the maximum amount specified by the exchange. Closing transactions can
be made for OTC options only by negotiating directly with the counterparty or by
a transaction in the secondary market, if any such market exists. There is no
assurance that the Fund will be able to close out an OTC option position at a
favorable price prior to its expiration. In the event of insolvency of the
counterparty, the Fund might be unable to close out an OTC option position at
any time prior to its expiration. Although the Fund may be able to offset to
some extent any adverse effects of being unable to liquidate an option position,
the Fund may experience losses in some cases as a result of such inability.
When conducted outside the U.S., options transactions may not be
regulated as rigorously as in the U.S., may not involve a clearing mechanism and
related guarantees, and are subject to the risk of governmental actions
affecting trading in, or the prices of, foreign securities, currencies and other
instruments. The value of such positions also could be adversely affected by:
(i) other complex foreign political, legal and economic factors, (ii) lesser
availability than in the U.S. of data on which to make trading decisions, (iii)
delays in the Fund's ability to act upon economic events occurring in foreign
markets during non-business hours in the U.S., (iv) the imposition of different
exercise and settlement terms and procedures and margin requirements than in the
U.S., and (v) lower trading volume and liquidity.
The Fund's options activities also may have an impact upon the level of its
portfolio turnover and brokerage commissions. See "Portfolio Turnover."
The Fund's success in using options techniques depends, among other
things, on IMI's ability to predict accurately the direction and volatility of
price movements in the options and securities markets, and to select the proper
type, time and duration of options.
FUTURES CONTRACTS AND OPTIONS ON FUTURES CONTRACTS
IN GENERAL. The Fund may enter into futures contracts and options on
futures contracts for hedging purposes. A futures contract provides for the
future sale by one party and purchase by another party of a specified quantity
of a commodity at a specified price and time. When a purchase or sale of a
futures contract is made by the Fund, the Fund is required to deposit with its
custodian (or broker, if legally permitted) a specified amount of cash or liquid
securities ("initial margin"). The margin required for a futures contract is set
by the exchange on which the contract is traded and may be modified during the
term of the contract. The initial margin is in the nature of a performance bond
or good faith deposit on the futures contract which is returned to the Fund upon
termination of the contract, assuming all contractual obligations have been
satisfied. A futures contract held by the Fund is valued daily at the official
settlement price of the exchange on which it is traded. Each day the Fund pays
or receives cash, called "variation margin," equal to the daily change in value
of the futures contract. This process is known as "marking to market." Variation
margin does not represent a borrowing or loan by the Fund but is instead a
settlement between the Fund and the broker of the amount one would owe the other
if the futures contract expired. In computing daily net asset value, the Fund
will mark-to-market its open futures position.
The Fund is also required to deposit and maintain margin with respect
to put and call options on futures contracts written by it. Such margin deposits
will vary depending on the nature of the underlying futures contract (and the
related initial margin requirements), the current market value of the option,
and other futures positions held by the Fund.
Although some futures contracts call for making or taking delivery of
the underlying securities, generally these obligations are closed out prior to
delivery of offsetting purchases or sales of matching futures contracts (same
exchange, underlying security or index, and delivery month). If an offsetting
purchase price is less than the original sale price, the Fund generally realizes
a capital gain, or if it is more, the Fund generally realizes a capital loss.
Conversely, if an offsetting sale price is more than the original purchase
price, the Fund generally realizes a capital gain, or if it is less, the Fund
generally realizes a capital loss.
The transaction costs must also be included in these calculations.
When purchasing a futures contract, the Fund will maintain with its
Custodian (and mark-to-market on a daily basis) cash or liquid securities that,
when added to the amounts deposited with a futures commission merchant ("FCM")
as margin, are equal to the market value of the futures contract. Alternatively,
the Fund may "cover" its position by purchasing a put option on the same futures
contract with a strike price as high as or higher than the price of the contract
held by the Fund, or, if lower, may cover the difference with cash or short-term
securities.
When selling a futures contract, the Fund will maintain with its
Custodian in a segregated account (and mark-to-market on a daily basis) cash or
liquid securities that, when added to the amounts deposited with an FCM as
margin, are equal to the market value of the instruments underlying the
contract. Alternatively, the Fund may "cover" its position by owning the
instruments underlying the contract (or, in the case of an index futures
contract, a portfolio with a volatility substantially similar to that of the
index on which the futures contract is based), or by holding a call option
permitting the Fund to purchase the same futures contract at a price no higher
than the price of the contract written by the Fund (or at a higher price if the
difference is maintained in liquid assets with the Fund's custodian).
When selling a call option on a futures contract, the Fund will
maintain with its Custodian in a segregated account (and mark-to-market on a
daily basis) cash or liquid securities that, when added to the amounts deposited
with an FCM as margin, equal the total market value of the futures contract
underlying the call option. Alternatively, the Fund may cover its position by
entering into a long position in the same futures contract at a price no higher
than the strike price of the call option, by owning the instruments underlying
the futures contract, or by holding a separate call option permitting the Fund
to purchase the same futures contract at a price not higher than the strike
price of the call option sold by the Fund, or covering the difference if the
price is higher.
When selling a put option on a futures contract, the Fund will maintain
with its Custodian (and mark-to-market on a daily basis) cash or liquid
securities that equal the purchase price of the futures contract less any margin
on deposit. Alternatively, the Fund may cover the position either by entering
into a short position in the same futures contract, or by owning a separate put
option permitting it to sell the same futures contract so long as the strike
price of the purchased put option is the same or higher than the strike price of
the put option sold by the Fund, or, if lower, the Fund may hold securities to
cover the difference.
RISKS ASSOCIATED WITH FUTURES AND RELATED OPTIONS. There can be no
guarantee that there will be a correlation between price movements in the
hedging vehicle and in the Fund's portfolio securities being hedged. In
addition, there are significant differences between the securities and futures
markets that could result in an imperfect correlation between the markets,
causing a given hedge not to achieve its objectives. The degree of imperfection
of correlation depends on circumstances such as variations in speculative market
demand for futures and futures options on securities, including technical
influences in futures trading and futures options, and differences between the
financial instruments being hedged and the instruments underlying the standard
contracts available for trading in such respects as interest rate levels,
maturities, and creditworthiness of issuers. A decision as to whether, when and
how to hedge involves the exercise of skill and judgment, and even a
well-conceived hedge may be unsuccessful to some degree because of market
behavior or unexpected interest rate trends.
Futures exchanges may limit the amount of fluctuation permitted in
certain futures contract prices during a single trading day. The daily limit
establishes the maximum amount that the price of a futures contract may vary
either up or down from the previous day's settlement price at the end of the
current trading session. Once the daily limit has been reached in a futures
contract subject to the limit, no more trades may be made on that day at a price
beyond that limit. The daily limit governs only price movements during a
particular trading day and therefore does not limit potential losses because the
limit may work to prevent the liquidation of unfavorable positions. For example,
futures prices have occasionally moved to the daily limit for several
consecutive trading days with little or no trading, thereby preventing prompt
liquidation of positions and subjecting some holders of futures contracts to
substantial losses.
There can be no assurance that a liquid market will exist at a time
when the Fund seeks to close out a futures or a futures option position, and the
Fund would remain obligated to meet margin requirements until the position is
closed. In addition, there can be no assurance that an active secondary market
will continue to exist.
Currency futures contracts and options thereon may be traded on foreign
exchanges. Such transactions may not be regulated as effectively as similar
transactions in the United States; may not involve a clearing mechanism and
related guarantees; and are subject to the risk of governmental actions
affecting trading in, or the prices of, foreign securities. The value of such
position also could be adversely affected by (i) other complex foreign
political, legal and economic factors, (ii) lesser availability than in the
United States of data on which to make trading decisions, (iii) delays in the
Fund's ability to act upon economic events occurring in foreign markets during
non business hours in the United States, (iv) the imposition of different
exercise and settlement terms and procedures and margin requirements than in the
United States, and (v) lesser trading volume.
SECURITIES INDEX FUTURES CONTRACTS
The Fund may enter into securities index futures contracts as an
efficient means of regulating the Fund's exposure to the equity markets. The
Fund will not engage in transactions in futures contracts for speculation, but
only as a hedge against changes resulting from market conditions in the values
of securities held in the Fund's portfolio or which it intends to purchase. An
index futures contract is a contract to buy or sell units of an index at a
specified future date at a price agreed upon when the contract is made. Entering
into a contract to buy units of an index is commonly referred to as purchasing a
contract or holding a long position in the index. Entering into a contract to
sell units of an index is commonly referred to as selling a contract or holding
a short position. The value of a unit is the current value of the stock index.
For example, the S&P 500 Index is composed of 500 selected common stocks, most
of which are listed on the New York Stock Exchange (the "Exchange"). The S&P 500
Index assigns relative weightings to the 500 common stocks included in the
Index, and the Index fluctuates with changes in the market values of the shares
of those common stocks. In the case of the S&P 500 Index, contracts are to buy
or sell 500 units. Thus, if the value of the S&P 500 Index were $150, one
contract would be worth $75,000 (500 units x $150). The index futures contract
specifies that no delivery of the actual securities making up the index will
take place. Instead, settlement in cash must occur upon the termination of the
contract, with the settlement being the difference between the contract price
and the actual level of the stock index at the expiration of the contract. For
example, if the Fund enters into a futures contract to buy 500 units of the S&P
500 Index at a specified future date at a contract price of $150 and the S&P 500
Index is at $154 on that future date, the Fund will gain $2,000 (500 units x
gain of $4). If the Fund enters into a futures contract to sell 500 units of the
stock index at a specified future date at a contract price of $150 and the S&P
500 Index is at $154 on that future date, the Fund will lose $2,000 (500 units x
loss of $4).
RISKS OF SECURITIES INDEX FUTURES. The Fund's success in using hedging
techniques depends, among other things, on IMI's ability to predict correctly
the direction and volatility of price movements in the futures and options
markets as well as in the securities markets and to select the proper type, time
and duration of hedges. The skills necessary for successful use of hedges are
different from those used in the selection of individual stocks.
The Fund's ability to hedge effectively all or a portion of its
securities through transactions in index futures (and therefore the extent of
its gain or loss on such transactions) depends on the degree to which price
movements in the underlying index correlate with price movements in the Fund's
securities. Inasmuch as such securities will not duplicate the components of an
index, the correlation probably will not be perfect. Consequently, the Fund will
bear the risk that the prices of the securities being hedged will not move in
the same amount as the hedging instrument. This risk will increase as the
composition of the Fund's portfolio diverges from the composition of the hedging
instrument.
Although the Fund intends to establish positions in these instruments
only when there appears to be an active market, there is no assurance that a
liquid market will exist at a time when the Fund seeks to close a particular
option or futures position. Trading could be interrupted, for example, because
of supply and demand imbalances arising from a lack of either buyers or sellers.
In addition, the futures exchanges may suspend trading after the price has risen
or fallen more than the maximum amount specified by the exchange. In some cases,
the Fund may experience losses as a result of its inability to close out a
position, and it may have to liquidate other investments to meet its cash needs.
Although some index futures contracts call for making or taking
delivery of the underlying securities, generally these obligations are closed
out prior to delivery by offsetting purchases or sales of matching futures
contracts (same exchange, underlying security or index, and delivery month). If
an offsetting purchase price is less than the original sale price, the Fund
generally realizes a capital gain, or if it is more, the Fund generally realizes
a capital loss. Conversely, if an offsetting sale price is more than the
original purchase price, the Fund generally realizes a capital gain, or if it is
less, the Fund generally realizes a capital loss.
The transaction costs must also be included in these calculations.
The Fund will only enter into index futures contracts or futures
options that are standardized and traded on a U.S. or foreign exchange or board
of trade, or similar entity, or quoted on an automated quotation system. The
Fund will use futures contracts and related options only for "bona fide hedging"
purposes, as such term is defined in applicable regulations of the CFTC.
When purchasing an index futures contract, the Fund will maintain with
its Custodian (and mark-to-market on a daily basis) cash or liquid securities
that, when added to the amounts deposited with a futures commission merchant
("FCM") as margin, are equal to the market value of the futures contract.
Alternatively, the Fund may "cover" its position by purchasing a put option on
the same futures contract with a strike price as high as or higher than the
price of the contract held by the Fund.
When selling an index futures contract, the Fund will maintain with its
Custodian (and mark-to-market on a daily basis) cash or liquid securities that,
when added to the amounts deposited with an FCM as margin, are equal to the
market value of the instruments underlying the contract. Alternatively, the Fund
may "cover" its position by owning the instruments underlying the contract (or,
in the case of an index futures contract, a portfolio with a volatility
substantially similar to that of the index on which the futures contract is
based), or by holding a call option permitting the Fund to purchase the same
futures contract at a price no higher than the price of the contract written by
the Fund (or at a higher price if the difference is maintained in cash or liquid
assets in a segregated account with the Fund's custodian).
COMBINED TRANSACTIONS. The Fund may enter into multiple transactions,
including multiple options transactions, multiple futures transactions, and
multiple currency transactions (including forward currency contracts) and some
combination of futures, options, and currency transactions ("component"
transactions), instead of a single transaction, as part of a single or combined
strategy when, in the opinion of IMI, it is in the best interests of the Fund to
do so. A combined transaction will usually contain elements of risk that are
present in each of its component transactions. Although combined transactions
are normally entered into based on IMI's judgment that the combined strategies
will reduce risk or otherwise more effectively achieve the desired portfolio
management goal, it is possible that the combination will instead increase such
risks or hinder achievement of the management objective.
INVESTMENT RESTRICTIONS
The Fund's investment objectives as set forth in the "Summary" section
of the Prospectus, together with the investment restrictions set forth below,
are fundamental policies of the Fund and may not be changed without the approval
of a majority of the outstanding voting shares of the Fund. Under these
restrictions, the Fund may not:
(i) borrow money, except for temporary purposes where investment
transactions might advantageously require it. Any such loan
may not be for a period in excess of 60 days, and the
aggregate amount of all outstanding loans may not at any time
exceed 10% of the value of the total assets of the Fund at the
time any such loan is made;
(ii) purchase securities on margin;
(iii) sell securities short;
(iv) lend any funds or other assets, except that this restriction
shall not prohibit (a) the entry into repurchase agreements, (b)
the purchase of publicly distributed bonds, debentures and other
securities of a similar type, or privately placed municipal or
corporate bonds, debentures and other securities of a type
customarily purchased by institutional investors or publicly
traded in the securities markets, or (c) the lending of portfolio
securities (provided that the loan is secured continuously by
collateral consisting of U.S. Government securities or cash or
cash equivalents maintained on a daily marked-to-market basis in
an amount at least equal to the market value of the securities
loaned);
(v) participate in an underwriting or selling group in connection
with the public distribution of securities except for its own
capital stock;
(vi) purchase from or sell to any of its officers or trustees, or
firms of which any of them are members or which they control,
any securities (other than capital stock of the Fund), but
such persons or firms may act as brokers for the Fund for
customary commissions to the extent permitted by the
Investment Company Act of 1940;
(vii) purchase or sell real estate or commodities and commodity contracts;
(viii) make an investment in securities of companies in any one
industry (except obligations of domestic banks or the U.S.
government, its agencies, authorities, or instrumentalities)
if such investment would cause investments in such industry to
exceed 25% of the market value of the Fund's total assets at
the time of such investment;
(ix) issue senior securities, except as appropriate to evidence
indebtedness which it is permitted to incur, and except to the
extent that shares of the separate classes or series of the
Trust may be deemed to be senior securities; provided that
collateral arrangements with respect to currency-related
contracts, futures contracts, options or other permitted
investments, including deposits of initial and variation
margin, are not considered to be the issuance of senior
securities or purposes of this restriction; or
(x) purchase securities of any one issuer (except U.S. Government
securities) if as a result more than 5% of the Fund's total
assets would be invested in such issuer or the Fund would own
or hold more than 10% of the outstanding voting securities of
that issuer; provided, however, that up to 25% of the value of
the Fund's total assets may be invested without regard to
these limitations.
The Fund will continue to interpret fundamental investment restriction
(vii) to prohibit investment in real estate limited partnership interests; this
restriction shall not, however, prohibit investment in readily marketable
securities of companies that invest in real estate or interests therein,
including real estate investment trusts.
ADDITIONAL RESTRICTIONS
The Fund has adopted the following additional restrictions, which are
not fundamental and which may be changed without shareholder approval, to the
extent permitted by applicable law, regulation or regulatory policy.
Under these restrictions, the Fund may not:
(i) invest in oil, gas or other mineral leases or exploration or
development programs;
(ii) invest in companies for the purpose of exercising control of
management;
(iii) invest more than 5% of its total assets in warrants,
valued at the lower of cost or market, or more than
2% of its total assets in warrants, so valued, which
are not listed on either the New York or American
Stock Exchanges;
(iv) purchase securities of other investment companies,
except in connection with a merger, consolidation or
sale of assets, and except that it may purchase
shares of other investment companies subject to such
restrictions as may be imposed by the Investment
Company Act of 1940 and rules thereunder; or
(v) invest more than 15% of its net assets taken at market value at
the time of the investment in "illiquid securities." Illiquid
securities may include securities subject to legal or contractual
restrictions on resale (including private placements), repurchase
agreements maturing in more than seven days, certain options
traded over the counter that the Fund has purchased, securities
being used to cover certain options that the Fund has written,
securities for which market quotations are not readily available,
or other securities which legally or in IMI's opinion, subject to
the Board's supervision, may be deemed illiquid, but shall not
include any instrument that, due to the existence of a trading
market, to the Fund's compliance with certain conditions intended
to provide liquidity, or to other factors, is liquid;
Whenever an investment objective, policy or restriction set forth in
the Prospectus or this SAI states a maximum percentage of assets that may be
invested in any security or other asset or describes a policy regarding quality
standards, such percentage limitation or standard shall, unless otherwise
indicated, apply to the Fund only at the time a transaction is entered into.
Accordingly, if a percentage limitation is adhered to at the time of investment,
a later increase or decrease in the percentage which results from circumstances
not involving any affirmative action by the Fund, such as a change in market
conditions or a change in the Fund's asset level or other circumstances beyond
the Fund's control, will not be considered a violation.
PORTFOLIO TURNOVER
The Fund purchases securities that are believed by IMI to have above
average potential for capital appreciation. Common stocks are disposed of in
situations where it is believed that potential for such appreciation has
lessened or that other common stocks have a greater potential. Therefore, the
Fund may purchase and sell securities without regard to the length of time the
security is to be, or has been, held. A change in securities held by the Fund is
known as "portfolio turnover" and may involve the payment by the Fund of dealer
markup or underwriting commission and other transaction costs on the sale of
securities, as well as on the reinvestment of the proceeds in other securities.
The Fund's portfolio turnover rate is calculated by dividing the lesser of
purchases or sales of portfolio securities for the most recently completed
fiscal year by the monthly average of the value of the portfolio securities
owned by the Fund during that year. For purposes of determining the Fund's
portfolio turnover rate, all securities whose maturities at the time of
acquisition were one year or less are excluded.
TRUSTEES AND OFFICERS
The Fund's Board of Trustees (the "Board") is responsible for the
overall management of the Fund, including general supervision and review of the
Fund's investment activities. The Board, in turn, elects the officers who are
responsible for administering the Fund's day-to-day operations.
The Trustees and Executive Officers of the Trust, their business
addresses and principal occupations during the past five years are:
POSITION WITH BUSINESS AFFILIATIONS
NAME, ADDRESS, AGE THE TRUST AND PRINCIPAL OCCUPATIONS
John S. Anderegg, Jr. Trustee Chairman, Dynamics Research
60 Concord Street Corp. (instruments and controls);
Wilmington, MA 01887 Director, Burr-Brown Corp.
Age: 74 (operational amplifiers); Director,
Metritage Incorporated (level
measuring instruments); Trustee of
Mackenzie Series Trust (1992-1998).
Paul H. Broyhill Trustee Chairman, BMC Fund, Inc.
800 Hickory Blvd. (1983-present); Chairman,
Golfview Park-Box 500 Broyhill Family Foundation,
Lenoir, NC 28645 Inc. (1983-Present); Chairman and
Age: 74 President, Broyhill Investments,
Inc. (1983-present); Chairman,
Broyhill Timber Resources (1983-
present); Management of a personal
portfolio of fixed-income and equity
investments (1983-present); Trustee
of Mackenzie Series Trust (1988-
1998); Director of The Mackenzie
Funds Inc. (1988-1995).
Stanley Channick Trustee President and Chief
11 Bala Avenue Executive Officer, The
Bala Cynwyd, PA 19004 Whitestone Corporation
Age: 75 (insurance agency); Chairman, Scott
Management Company (administrative
services for insurance companies);
President, The Channick Group
(consultants to insurance companies
and national trade associations);
Trustee of Mackenzie Series Trust
(1994-1998); Director of The
Mackenzie Funds Inc. (1994-1995).
Frank W. DeFriece, Jr. Trustee Director, Manager and Vice
The Landmark Centre President, Director and
113 Landmark Lane, Fund Manager, Massengill-
Suite B DeFriece Foundation
Bristol, TN 37620-2285 (charitable organization)
Age: 77 (1950-present); Trustee and Vice
Chairman, East Tennessee Public
Communications Corp. (WSJK-TV)
(1984-present); Trustee of Mackenzie
Series Trust (1985-1998); Director
of The Mackenzie Funds Inc. (1987-
1995).
Roy J. Glauber Trustee Mallinckrodt Professor of
Lyman Laboratory Physics, Harvard
of Physics University (1974-present);
Harvard University Trustee of Mackenzie Series
Cambridge, MA 02138 Trust (1994-1997).
Age: 72
Michael G. Landry Trustee President, Chief Executive
700 South Federal Hwy. And Officer and Director of
Suite 300 Chairman Mackenzie Investment
Boca Raton, FL 33432 Management Inc. (1987-
Age: 51 present); President,
[*Deemed to be an Director and Chairman of
"interested person" Ivy Management Inc. (1992-
of the Trust, as present); Chairman and
defined under the Director of Ivy Mackenzie
1940 Act.] Services Corp.(1993-present);
Chairman and Director of Ivy
Mackenzie Distributors, Inc.
(1994-present); Director and
President of Ivy Mackenzie
Distributors, Inc. (1993-1994);
Director and President of The
Mackenzie Funds Inc. (1987-1995);
Trustee of Mackenzie Series Trust
(1987-1998); President of Mackenzie
Series Trust (1987-1996); Chairman
of Mackenzie Series Trust (1996-
1998).
Joseph G. Rosenthal Trustee Chartered Accountant
110 Jardin Drive (1958-present); Trustee of
Unit #12 Mackenzie Series Trust
Concord, Ontario Canada (1985-1998); Director of
L4K 2T7 The Mackenzie Funds Inc.
Age: 63 (1987-1995).
Richard N. Silverman Trustee Director, Newton-Wellesley
18 Bonnybrook Road Hospital; Director, Beth
Waban, MA 02168 Israel Hospital; Director,
Age: 74 Boston Ballet; Director, Boston
Children's Museum; Director, Brimmer
and May School.
J. Brendan Swan Trustee President, Airspray
4701 North Federal Hwy. International, Inc.;
Suite 465 Joint Managing Director,
Pompano Beach, FL 33064 Airspray International
Age: 67 B.V. (an environmentally sensitive
packaging company); Director of
Polyglass LTD.; Director, The
Mackenzie Funds Inc. (1992-1995);
Trustee of Mackenzie Series Trust
(1992-1998).
Keith J. Carlson Trustee Senior Vice President of Mackenzie
700 South Federal Hwy. And Investment Management, Inc. (1996 -
Suite 300 President -present); Senior Vice President and
Boca Raton, FL 33432 Director of Mackenzie Investment
Age: 41 Management, Inc. (1994 - 1996);
[*Deemed to be an Senior Vice President and Treasurer
"interested person" of Mackenzie Investment Management,
of the Trust, Inc. (1989-1994); Senior Vice President
as defined under President and Director of Ivy
the 1940 Act.] Management Inc. (1994-present);
Senior Vice President, Treasurer and
Director of Ivy Management Inc.
(1992-1994); Vice President of The
Mackenzie Funds Inc. (1987-1995);
Senior Vice President and Director,
Ivy Mackenzie Services Corp. (1996-
present); President and Director of
Ivy Mackenzie Services Corp. (1993-
1996); Trustee and President of
Mackenzie Series Trust (1996-1998);
Vice President of Mackenzie Series
Trust (1994-1998); Treasurer of
Mackenzie Series Trust (1985-1994);
President, Chief Executive Officer
and Director of Ivy Mackenzie
Distributors, Inc. (1994-present);
Executive Vice President and
Director of Ivy Mackenzie
Distributors, Inc. (1993-1994);
Trustee of Mackenzie Series Trust
(1996-1998).
C. William Ferris Secretary/ Senior Vice President,
700 South Federal Hwy. Treasurer Chief Financial Officer
Suite 300 and Secretary/Treasurer
Boca Raton, FL 33432 of Mackenzie Investment
Age: 53 Management Inc. (1995-present);
Senior Vice President, Finance and
Administration/Compliance Officer of
Mackenzie Investment Management Inc.
(1989-1994); Senior Vice President,
Secretary/ Treasurer and Clerk of
Ivy Management Inc. (1994-present);
Vice President, Finance/
Administration and Compliance
Officer of Ivy Management Inc.
(1992-1994); Senior Vice President,
Secretary/Treasurer and Director of
Ivy Mackenzie Distributors, Inc.
(1994-present); Secretary/Treasurer
and Director of Ivy Mackenzie
Distributors, Inc. (1993-1994);
President and Director of Ivy
Mackenzie Services Corp.
(1996-present); Secretary/Treasurer
and Director of Ivy Mackenzie
Services Corp. (1993-1996);
Secretary/Treasurer
of The Mackenzie Funds Inc.
(1993-1995); Secretary/Treasurer of
Mackenzie Series Trust (1994-1998).
James W. Broadfoot Vice Executive Vice President,
700 South Federal Hwy. President Ivy Management Inc. (1996-
Suite 300 present); Senior Vice
Boca Raton, FL 33432 President, Ivy Management,
Age: 56 Inc. (1992-1996); Director and
Senior Vice President, Mackenzie
Investment Management Inc. (1995-
present); Senior Vice President,
Mackenzie Investment Management Inc.
(1990-1995).
COMPENSATION TABLE
IVY FUND
(FISCAL YEAR ENDED DECEMBER 31, 1998)
PENSION OR TOTAL COMPENSA-
AGGREGATE RETIREMENT ESTIMATED TION FROM TRUST
NAME, COMPENSATION BENEFITS ACCRUED ANNUAL AND FUND
POSITION FROM TRUST AS PART OF BENEFITS UPON COMPLEX PAID TO
FUND EXPENSES RETIREMENT TRUSTEES
John S. N/A N/A
Anderegg, Jr.
(Trustee)
Paul H. N/A N/A
Broyhill
(Trustee)
Keith J. $0 N/A N/A $0
Carlson
(Trustee and
President)
Stanley N/A N/A
Channick
(Trustee)
Frank W. N/A N/A
DeFriece, Jr.
(Trustee)
Roy J. N/A N/A
Glauber
(Trustee)
Michael G. $0 N/A N/A $0
Landry
(Trustee and
Chairman of
the Board)
Joseph G. N/A N/A
Rosenthal
(Trustee)
Richard N. N/A N/A
Silverman
(Trustee)
J. Brendan N/A N/A
Swan
(Trustee)
C. William $0 N/A N/A $0
Ferris
(Secretary/
Treasurer)
To the knowledge of the Trust, as of [ ], no shareholder owned
beneficially or of record 5% or more of the Fund's outstanding shares of any
class, except that [to be completed by amendment].
As of [.. ], the Officers and Trustees of the Trust as a group owned
beneficially or of record less than 1% of the outstanding Class A, Class B,
Class C, and Advisor Class shares of the Fund.
PERSONAL INVESTMENTS BY EMPLOYEES OF IMI. Employees of IMI are
permitted to make personal securities transactions, subject to the requirements
and restrictions set forth in IMI's Code of Ethics and Business Conduct Policy
(the "Code of Ethics"). The Code of Ethics is designed to identify and address
certain conflicts of interest between personal investment activities and the
interests of investment advisory clients such as the Fund. Among other things,
the Code of Ethics, which generally complies with standards recommended by the
Investment Company Institute's Advisory Group on Personal Investing, prohibits
certain types of transactions absent prior approval, applies to portfolio
managers, traders, research analysts and others involved in the investment
advisory process, and imposes time periods during which personal transactions
may not be made in certain securities, and requires the submission of duplicate
broker confirmations and monthly reporting of securities transactions.
Exceptions to these and other provisions of the Code of Ethics may be granted in
particular circumstances after review by appropriate personnel.
INVESTMENT ADVISORY AND OTHER SERVICES
BUSINESS MANAGEMENT AND INVESTMENT ADVISORY SERVICES
IMI provides business management and investment advisory services to
the Fund pursuant to a Business Management and Investment Advisory Agreement
(the "Agreement"). The Agreement was approved by the sole shareholder of the
Fund on October 23, 1993. Prior to shareholder approval, the Agreement was
approved with respect to the Fund by the Board, including a majority of the
Trustees who are neither "interested persons" (as defined in the 1940 Act) of
the Trust nor have any direct or indirect financial interest in the operation of
the distribution plan (see "Distribution Services") or in any related agreement
(the "Independent Trustees") at a meeting held on August 23, 1993.
IMI is a wholly owned subsidiary of Mackenzie Investment Management
Inc. ("MIMI"). MIMI, a Delaware corporation, has approximately 10% of its
outstanding common stock listed for trading on the Toronto Stock Exchange
("TSE"). MIMI is a subsidiary of Mackenzie Financial Corporation ("MFC"), 150
Bloor Street West, Toronto, Ontario, Canada, a public corporation organized
under the laws of Ontario whose shares are listed for trading on the TSE. MFC is
registered in Ontario as a mutual fund dealer and advises Ivy Global Natural
Resources Fund. IMI currently acts as manager and investment adviser to the
following additional investment companies registered under the 1940 Act (other
than the Fund): Ivy Asia Pacific Fund, Ivy Bond Fund, Ivy Developing Nations
Fund, Ivy European Opportunities Fund, Ivy Global Fund, Ivy Global Science &
Technology Fund, Ivy Growth Fund, Ivy Growth with Income Fund, Ivy International
Fund II, Ivy International Fund, Ivy International Small Companies Fund, Ivy
International Strategic Bond Fund, Ivy Money Market Fund, Ivy Pan-Europe Fund,
Ivy South America Fund, Ivy US Blue Chip Fund and Ivy US Emerging Growth Fund.
IMI also provides business management services to Ivy Global Natural Resources
Fund.
The Agreement obligates IMI to make investments for the account of the
Fund in accordance with its best judgment and within the investment objectives
and restrictions set forth in the Prospectus, the 1940 Act and the provisions of
the Code relating to regulated investment companies, subject to policy decisions
adopted by the Board. IMI also determines the securities to be purchased or sold
by the Fund and places orders with brokers or dealers who deal in such
securities.
Under the Agreement, IMI also provides certain business management
services. IMI is obligated to (1) coordinate with the Fund's Custodian and
monitor the services it provides to the Fund; (2) coordinate with and monitor
any other third parties furnishing services to the Fund; (3) provide the Fund
with necessary office space, telephones and other communications facilities as
are adequate for the Fund's needs; (4) provide the services of individuals
competent to perform administrative and clerical functions that are not
performed by employees or other agents engaged by the Fund or by IMI acting in
some other capacity pursuant to a separate agreement or arrangements with the
Fund; (5) maintain or supervise the maintenance by third parties of such books
and records of the Trust as may be required by applicable Federal or state law;
(6) authorize and permit IMI's directors, officers and employees who may be
elected or appointed as trustees or officers of the Trust to serve in such
capacities; and (7) take such other action with respect to the Trust, after
approval by the Trust as may be required by applicable law, including without
limitation the rules and regulations of the SEC and of state securities
commissions and other regulatory agencies.
The Fund pays IMI a monthly fee for providing business management and
investment advisory services at an annual rate of 1.00% of the Fund's average
net assets.
During the fiscal years ended December 31, 1996, 1997 and 1998, the
Fund paid IMI fees of $233,804, $277,601 and [.... ], respectively (of which IMI
reimbursed $65,675, $18,377 and [ ], respectively, pursuant to expense
limitations).
Under the Agreement, the Trust pays the following expenses: (1) the
fees and expenses of the Trust's Independent Trustees; (2) the salaries and
expenses of any of the Trust's officers or employees who are not affiliated with
IMI; (3) interest expenses; (4) taxes and governmental fees, including any
original issue taxes or transfer taxes applicable to the sale or delivery of
shares or certificates therefor; (5) brokerage commissions and other expenses
incurred in acquiring or disposing of portfolio securities; (6) the expenses of
registering and qualifying shares for sale with the SEC and with various state
securities commissions; (7) accounting and legal costs; (8) insurance premiums;
(9) fees and expenses of the Trust's Custodian and Transfer Agent and any
related services; (10) expenses of obtaining quotations of portfolio securities
and of pricing shares; (11) expenses of maintaining the Trust's legal existence
and of shareholders' meetings; (12) expenses of preparation and distribution to
existing shareholders of periodic reports, proxy materials and prospectuses; and
(13) fees and expenses of membership in industry organizations.
IMI currently limits the Fund's total operating expenses (excluding
Rule 12b-1 fees, interest, taxes, brokerage commissions, litigation,
class-specific expenses, indemnification expenses, and extraordinary expenses)
to an annual rate of 1.95% of the Fund's average net assets, which may lower the
Fund's expenses and increase its yield.
The Agreement will continue in effect with respect to the Fund from
year to year, only so long as the continuance is specifically approved at least
annually (i) by the vote of a majority of the Independent Trustees and (ii)
either (a) by the vote of a majority of the outstanding voting securities (as
defined in the 1940 Act) of the Fund or (b) by the vote of a majority of the
entire Board. If the question of continuance of the Agreement (or adoption of
any new agreement) is presented to the shareholders, continuance (or adoption)
shall be effected only if approved by the affirmative vote of a majority of the
outstanding voting securities of the Fund. See "Capitalization and Voting
Rights."
The Agreement may be terminated with respect to the Fund at any time,
without payment of any penalty, by the vote of a majority of the Board, or by a
vote of a majority of the outstanding voting securities of the Fund, on 60 days'
written notice to IMI, or by IMI on 60 days' written notice to the Trust. The
Agreement shall terminate automatically in the event of its assignment.
DISTRIBUTION SERVICES
IMDI, a wholly owned subsidiary of MIMI, serves as the exclusive
distributor of Ivy Fund's shares pursuant to an Amended and Restated
Distribution Agreement with the Trust dated _________, 1999, as amended from
time to time (the "Distribution Agreement"). The Distribution Agreement was
approved by the Board on September 17, 1998. IMDI distributes shares of the Fund
through broker-dealers who are members of the National Association of Securities
Dealers, Inc. and who have executed dealer agreements with IMDI. IMDI
distributes shares of the Fund on a continuous basis, but reserves the right to
suspend or discontinue distribution on that basis. IMDI is not obligated to sell
any specific amount of Fund shares.
Pursuant to the Distribution Agreement, IMDI is entitled to deduct a
commission on all Class A Fund shares sold equal to the difference, if any,
between the public offering price, as set forth in the Fund's then-current
prospectus, and the net asset value on which such price is based. Out of that
commission, IMDI may reallow to dealers such concession as IMDI may determine
from time to time. In addition, IMDI is entitled to deduct a CDSC on the
redemption of Class A shares sold without an initial sales charge and Class B
and Class C shares, in accordance with, and in the manner set forth in, the
Prospectus.
Under the Distribution Agreement, the Fund bears, among other expenses,
the expenses of registering and qualifying its shares for sale under federal and
state securities laws and preparing and distributing to existing shareholders
periodic reports, proxy materials and prospectuses.
During the fiscal year ended December 31, 1998, IMDI received from
sales of Class A shares of the Fund [ ] in sales commissions, of which [ ] was
retained after dealer allowances. During the fiscal year ended December 31,
1998, IMDI received [ ] in CDSCs on redemptions of Class B shares of the Fund.
During the fiscal year ended December 31, 1998, IMDI received [ ] in CDSCs on
redemptions of Class C shares of the Fund.
The Distribution Agreement will continue in effect for successive
one-year periods, provided that such continuance is specifically approved at
least annually by the vote of a majority of the Independent Trustees, cast in
person at a meeting called for that purpose and by the vote of either a majority
of the entire Board or a majority of the outstanding voting securities of the
Fund. The Distribution Agreement may be terminated with respect to the Fund at
any time, without payment of any penalty, by IMDI on 60 days' written notice to
the Fund or by the Fund by vote of either a majority of the outstanding voting
securities of the Fund or a majority of the Independent Trustees on 60 days'
written notice to IMDI. The Distribution Agreement shall terminate automatically
in the event of its assignment.
RULE 18F-3 PLAN. On February 23, 1995, the SEC adopted Rule 18f-3 under
the 1940 Act, which permits a registered open-end investment company to issue
multiple classes of shares in accordance with a written plan approved by the
investment company's board of directors/trustees and filed with the SEC. At a
meeting held on December 1-2, 1995, the Board adopted a Rule 18f-3 plan on
behalf of the Fund. The Board last approved the Rule 18f-3 plan at a meeting
held of December 5-6, 1997. The key features of the Rule 18f-3 plan are as
follows: (i) shares of each class of the Fund represent an equal pro rata
interest in the Fund and generally have identical voting, dividend, liquidation,
and other rights, preferences, powers, restrictions, limitations,
qualifications, terms and conditions, except that each class bears certain
class-specific expenses and has separate voting rights on certain matters that
relate solely to that class or in which the interests of shareholders of one
class differ from the interests of shareholders of another class; (ii) subject
to certain limitations described in the Prospectus, shares of a particular class
of the Fund may be exchanged for shares of the same class of another Ivy fund;
and (iii) the Fund's Class B shares will convert automatically into Class A
shares of the Fund after a period of eight years, based on the relative net
asset value of such shares at the time of conversion.
RULE 12B-1 DISTRIBUTION PLANS. The Trust has adopted on behalf of the
Fund, in accordance with Rule 12b-1 under the 1940 Act, separate Rule 12b-1
distribution plans pertaining to the Fund's Class A, Class B and Class C shares
(each, a "Plan"). In adopting each Plan, a majority of the Independent Trustees
have concluded in accordance with the requirements of Rule 12b-1 that there is a
reasonable likelihood that each Plan will benefit the Fund and its shareholders.
The Trustees of the Trust believe that the Plans should result in greater sales
and/or fewer redemptions of the Fund's shares, although it is impossible to know
for certain the level of sales and redemptions of the Fund's shares in the
absence of a Plan or under an alternative distribution arrangement.
Under each Plan, the Fund pays IMDI a service fee, accrued daily and
paid monthly, at the annual rate of up to 0.25% of the average daily net assets
attributable to its Class A, Class B or Class C shares, as the case may be. The
services for which service fees may be paid include, among other things,
advising clients or customers regarding the purchase, sale or retention of
shares of the Fund, answering routine inquiries concerning the Fund and
assisting shareholders in changing options or enrolling in specific plans.
Pursuant to each Plan, service fee payments made out of or charged against the
assets attributable to the Fund's Class A, Class B or Class C shares must be in
reimbursement for services rendered for or on behalf of the affected class. The
expenses not reimbursed in any one month may be reimbursed in a subsequent
month. The Class A Plan does not provide for the payment of interest or carrying
charges as distribution expenses.
Under the Fund's Class B and Class C Plans, the Fund also pays IMDI a
distribution fee, accrued daily and paid monthly, at the annual rate of 0.75% of
the average daily net assets attributable to its Class B or Class C shares. IMDI
may reallow to dealers all or a portion of the service and distribution fees as
IMDI may determine from time to time. The distribution fee compensates IMDI for
expenses incurred in connection with activities primarily intended to result in
the sale of the Fund's Class B or Class C shares, including the printing of
prospectuses and reports for persons other than existing shareholders and the
preparation, printing and distribution of sales literature and advertising
materials. Pursuant to each Class B and Class C Plan, IMDI may include interest,
carrying or other finance charges in its calculation of distribution expenses,
if not prohibited from doing so pursuant to an order of or a regulation adopted
by the SEC.
Among other things, each Plan provides that (1) IMDI will submit to the
Board at least quarterly, and the Trustees will review, written reports
regarding all amounts expended under the Plan and the purposes for which such
expenditures were made; (2) each Plan will continue in effect only so long as
such continuance is approved at least annually, and any material amendment
thereto is approved, by the votes of a majority of the Board, including the
Independent Trustees, cast in person at a meeting called for that purpose; (3)
payments by the Fund under each Plan shall not be materially increased without
the affirmative vote of the holders of a majority of the outstanding shares of
the relevant class; and (4) while each Plan is in effect, the selection and
nomination of Independent Trustees shall be committed to the discretion of the
Trustees who are not "interested persons" of the Trust.
IMDI may make payments for distribution assistance and for
administrative and accounting services from resources that may include the
management fees paid by the Fund. IMDI also may make payments (such as the
service fee payments described above) to unaffiliated broker-dealers for
services rendered in the distribution of the Fund's shares. To qualify for such
payments, shares may be subject to a minimum holding period. However, no such
payments will be made to any dealer or broker if at the end of each year the
amount of shares held does not exceed a minimum amount. The minimum holding
period and minimum level of holdings will be determined from time to time by
IMDI.
A report of the amount expended pursuant to each Plan, and the purposes
for which such expenditures were incurred, must be made to the Board for its
review at least quarterly.
During the fiscal year ended December 31, 1998, the Fund paid IMDI [ ]
pursuant to its Class A plan. During the fiscal year ended December 31, 1998 the
Fund paid IMDI [ ] pursuant to its Class B plan. During the fiscal year ended
December 31, 1998, the Fund paid IMDI [ ] pursuant to its Class C plan.
During the fiscal year ended December 31, 1998, IMDI expended the
following amounts in marketing Class A shares of the Fund: advertising [$ ;]
printing and mailing of prospectuses to persons other than current shareholders,
[$.. ;] compensation to dealers, [$ ;] compensation to sales personnel [$ ;]
seminars and meetings, [$ ;] travel and entertainment, [$ ;] general and
administrative, [$ ;] telephone, [$.. ;] and occupancy and equipment rental, [$
]
During the fiscal year ended December 31, 1998, IMDI expended the
following amounts in marketing Class B shares of the Fund: advertising, [$ ;]
printing and mailing of prospectuses to persons other than current shareholders,
[$.. ;] compensation to dealers, [$ ;] compensation to sales personnel, [$ ;]
seminars and meetings, [$ ;] travel and entertainment, [$ ;] general and
administrative, [$ ;] telephone, [$..;] and occupancy and equipment rental [$ .]
During the fiscal year ended December 31, 1998, IMDI expended the
following amounts in marketing Class C shares of the Fund: advertising, [$ ;]
printing and mailing of prospectuses to persons other than current shareholders,
[$..;] compensation to dealers, [$ ] compensation to sales personnel, [$ ;]
seminars and meetings, [$ ;] travel and entertainment, [$ ;] general
administrative, [$ ;] telephone, [$.. ;] and occupancy and equipment rental, [$
.]
Each Plan may be amended at any time with respect to the class of
shares of the Fund to which the Plan relates by vote of the Trustees, including
a majority of the Independent Trustees, cast in person at a meeting called for
the purpose of considering such amendment. Each Plan may be terminated at any
time with respect to the class of shares of the Fund to which the Plan relates,
without payment of any penalty, by vote of a majority of the Independent
Trustees, or by vote of a majority of the outstanding voting securities of that
class.
If the Distribution Agreement or the Distribution Plans are terminated
(or not renewed) with respect to any of the Ivy funds (or class of shares
thereof), each may continue in effect with respect to any other fund (or Class
of shares thereof) as to which they have not been terminated (or have been
renewed).
CUSTODIAN
Pursuant to a Custodian Agreement with the Trust, Brown Brothers
Harriman & Co. (the "Custodian"), a private bank and member of the principal
securities exchanges, located at 40 Water Street, Boston, Massachusetts 02109
(the "Custodian"), maintains custody of the assets of the Fund held in the
United States. Rules adopted under the 1940 Act permit the Trust to maintain its
foreign securities and cash in the custody of certain eligible foreign banks and
securities depositories. Pursuant to those rules, the Custodian has entered into
subcustodial agreements for the holding of the Fund's foreign securities. With
respect to the Fund, the Custodian may receive, as partial payment for its
services to the Fund, a portion of the Trust's brokerage business, subject to
its ability to provide best price and execution.
FUND ACCOUNTING SERVICES
Pursuant to a Fund Accounting Services Agreement, MIMI provides certain
accounting and pricing services for the Fund. As compensation for those
services, the Fund pays MIMI a monthly fee plus out-of-pocket expenses as
incurred. The monthly fee is based upon the net assets of the Fund at the
preceding month end at the following rates: $1,250 when net assets are $10
million and under; $2,500 when net assets are over $10 million to $40 million;
$5,000 when net assets are over $40 million to $75 million; and $6,500 when net
assets are over $75 million.
During the fiscal year ended December 31, 1998, the Fund paid MIMI
[ ] under the agreement.
TRANSFER AGENT AND DIVIDEND PAYING AGENT
Pursuant to a Transfer Agency and Shareholder Service Agreement, Ivy
Mackenzie Services Corp. ("IMSC"), a wholly owned subsidiary of MIMI, is the
transfer agent for the Fund. Under the Agreement, the Fund pays a monthly fee at
an annual rate of $20.00 for each open Class A, Class B, Class C and Advisor
Class account. In addition, the Fund pays a monthly fee at an annual rate of
$4.58 per account that is closed plus certain out-of-pocket expenses. Such fees
and expenses for the fiscal year ended December 31, 1998 for the Fund totaled [$
.........]. Certain broker-dealers that maintain shareholder accounts with the
Fund through an omnibus account provide transfer agent and other
shareholder-related services that would otherwise be provided by IMSC if the
individual accounts that comprise the omnibus account were opened by their
beneficial owners directly. IMSC pays such broker-dealers a per account fee for
each open account within the omnibus account, or a fixed rate (e.g., 0.10%) fee,
based on the average daily net asset value of the omnibus account (or a
combination thereof).
ADMINISTRATOR
Pursuant to an Administrative Services Agreement, MIMI provides certain
administrative services to the Fund. As compensation for these services, the
Fund pays MIMI a monthly fee at the annual rate of 0.10% of the Fund's average
daily net assets. Such fees for the fiscal year ended December 31, 1998 for the
Fund totaled [$ ].
Outside of providing administrative services to the Trust, as described
above, MIMI may also act on behalf of IMDI in paying commissions to
broker-dealers with respect to sales of Class B and Class C shares of the Fund.
AUDITORS
[........ ], independent public accountants, has been selected as
auditors for the Trust. The audit services performed by [ ] include audits of
the annual financial statements of each of the funds of the Trust. Other
services provided principally relate to filings with the SEC and the preparation
of the funds' tax returns.
BROKERAGE ALLOCATION
Subject to the overall supervision of the President and the Board, IMI
places orders for the purchase and sale of the Fund's portfolio securities. All
portfolio transactions are effected at the best price and execution obtainable.
Purchases and sales of debt securities are usually principal transactions and
therefore, brokerage commissions are usually not required to be paid by the Fund
for such purchases and sales (although the price paid generally includes
undisclosed compensation to the dealer). The prices paid to underwriters of
newly-issued securities usually include a concession paid by the issuer to the
underwriter, and purchases of after-market securities from dealers normally
reflect the spread between the bid and asked prices. In connection with OTC
transactions, IMI attempts to deal directly with the principal market makers,
except in those circumstances where IMI believes that a better price and
execution are available elsewhere.
IMI selects broker-dealers to execute transactions and evaluates the
reasonableness of commissions on the basis of quality, quantity, and the nature
of the firms' professional services. Commissions to be charged and the rendering
of investment services, including statistical, research, and counseling services
by brokerage firms, are factors to be considered in the placing of brokerage
business. The types of research services provided by brokers may include general
economic and industry data, and information on securities of specific companies.
Research services furnished by brokers through whom the Trust effects securities
transactions may be used by IMI in servicing all of its accounts. In addition,
not all of these services may be used by IMI in connection with the services it
provides to the Fund or the Trust. IMI may consider sales of shares of Ivy funds
as a factor in the selection of broker-dealers and may select broker-dealers who
provide it with research services. IMI will not, however, execute brokerage
transactions other than at the best price and execution.
During the fiscal years ended December 31, 1996, 1997 and 1998, the
Fund paid brokerage commissions of $62,812, $70,846 and [ ], respectively.
The Fund may, under some circumstances, accept securities in lieu of
cash as payment for Fund shares. The Fund will accept securities only to
increase its holdings in a portfolio security or to take a new portfolio
position in a security that IMI deems to be a desirable investment for the Fund.
While no minimum has been established, it is expected that the Fund will not
accept securities having an aggregate value of less than $1 million. The Trust
may reject in whole or in part any or all offers to pay for the Fund shares with
securities and may discontinue accepting securities as payment for the Fund
shares at any time without notice. The Trust will value accepted securities in
the manner and at the same time provided for valuing portfolio securities of the
Fund, and the Fund shares will be sold for net asset value determined at the
same time the accepted securities are valued. The Trust will only accept
securities delivered in proper form and will not accept securities subject to
legal restrictions on transfer. The acceptance of securities by the Trust must
comply with the applicable laws of certain states.
CAPITALIZATION AND VOTING RIGHTS
The capitalization of the Trust consists of an unlimited number of
shares of beneficial interest (no par value per share). When issued, shares of
each class of the Fund are fully paid, non-assessable, redeemable and fully
transferable. No class of shares of the Fund has preemptive rights or
subscription rights.
The Amended and Restated Declaration of Trust permits the Trustees to
create separate series or portfolios and to divide any series or portfolio into
one or more classes. The Trustees have authorized nineteen series, each of which
represents a fund. The Trustees have further authorized the issuance of Class A,
Class B, and Class C shares for Ivy International Fund and Ivy Money Market Fund
and Class A, Class B, Class C and Advisor Class shares for the Fund, Ivy Asia
Pacific Fund, Ivy Bond Fund, Ivy Developing Nations Fund, Ivy European
Opportunities Fund, Ivy Global Fund, Ivy Global Natural Resources Fund, Ivy
Global Science & Technology Fund, Ivy Growth Fund, Ivy Growth with Income Fund,
Ivy International Fund II, Ivy International Small Companies Fund, Ivy
International Strategic Bond Fund, Ivy Pan-Europe Fund, Ivy South America Fund,
Ivy US Blue Chip Fund and Ivy US Emerging Growth Fund, as well as Class I shares
for Ivy Bond Fund, Ivy European Opportunities Fund, Ivy Global Science &
Technology Fund, Ivy International Fund, Ivy International Fund II, Ivy
International Small Companies Fund, Ivy International Strategic Bond Fund and
Ivy US Blue Chip Fund.
Shareholders have the right to vote for the election of Trustees of the
Trust and on any and all matters on which they may be entitled to vote by law or
by the provisions of the Trust's By-Laws. The Trust is not required to hold a
regular annual meeting of shareholders, and it does not intend to do so. Shares
of each class of the Fund entitle their holders to one vote per share (with
proportionate voting for fractional shares). Shareholders of the Fund are
entitled to vote alone on matters that only affect the Fund. All classes of
shares of the Fund will vote together, except with respect to the distribution
plan applicable to the Fund's Class A, Class B or Class C shares or when a class
vote is required by the 1940 Act. On matters relating to all funds of the Trust,
but affecting the funds differently, separate votes by the shareholders of each
fund are required. Approval of an investment advisory agreement and a change in
fundamental policies would be regarded as matters requiring separate voting by
the shareholders of each fund of the Trust. If the Trustees determine that a
matter does not affect the interests of the Fund, then the shareholders of the
Fund will not be entitled to vote on that matter. Matters that affect the Trust
in general, such as ratification of the selection of independent public
accountants, will be voted upon collectively by the shareholders of all funds of
the Trust.
As used in this SAI and the Prospectus, the phrase "majority vote of
the outstanding shares" of the Fund means the vote of the lesser of: (1) 67% of
the shares of the Fund (or of the Trust) present at a meeting if the holders of
more than 50% of the outstanding shares are present in person or by proxy; or
(2) more than 50% of the outstanding shares of the Fund (or of the Trust).
With respect to the submission to shareholder vote of a matter
requiring separate voting by the Fund, the matter shall have been effectively
acted upon with respect to the Fund if a majority of the outstanding voting
securities of the Fund votes for the approval of the matter, notwithstanding
that: (1) the matter has not been approved by a majority of the outstanding
voting securities of any other fund of the Trust; or (2) the matter has not been
approved by a majority of the outstanding voting securities of the Trust.
The Amended and Restated Declaration of Trust provides that the holders
of not less than two-thirds of the outstanding shares of the Trust may remove a
person serving as trustee either by declaration in writing or at a meeting
called for such purpose. The Trustees are required to call a meeting for the
purpose of considering the removal of a person serving as Trustee if requested
in writing to do so by the holders of not less than 10% of the outstanding
shares of the Trust. Shareholders will be assisted in communicating with other
shareholders in connection with the removal of a Trustee as if Section 26(c) of
the Act were applicable.
The Trust's shares do not have cumulative voting rights and accordingly
the holders of more than 50% of the outstanding shares could elect the entire
Board, in which case the holders of the remaining shares would not be able to
elect any Trustees.
Under Massachusetts law, the Trust's shareholders could, under certain
circumstances, be held personally liable for the obligations of the Trust.
However, the Amended and Restated Declaration of Trust disclaims liability of
the shareholders, Trustees or officers of the Trust for acts or obligations of
the Trust, which are binding only on the assets and property of the Trust, and
requires that notice of the disclaimer be given in each contract or obligation
entered into or executed by the Trust or its Trustees. The Amended and Restated
Declaration of Trust provides for indemnification out of Fund property for all
loss and expense of any shareholder of the Fund held personally liable for the
obligations of the Fund. The risk of a shareholder of the Trust incurring
financial loss on account of shareholder liability is limited to circumstances
in which the Trust itself would be unable to meet its obligations and, thus,
should be considered remote. No series of the Trust is liable for the
obligations of any other series of the Trust.
SPECIAL RIGHTS AND PRIVILEGES
The Trust offers, and (except as noted below) bears the cost of
providing, to investors the following rights and privileges. The Trust reserves
the right to amend or terminate any one or more of these rights and privileges.
Notice of amendments to or terminations of rights and privileges will be
provided to shareholders in accordance with applicable law.
Certain of the rights and privileges described below refer to funds,
other than the Fund, whose shares are also distributed by IMDI. These funds are:
Ivy Asia Pacific Fund, Ivy Bond Fund, Ivy Developing Nations Fund, Ivy European
Opportunities Fund, Ivy Global Fund, Ivy Global Natural Resources Fund, Ivy
Global Science & Technology Fund, Ivy Growth Fund, Ivy Growth with Income Fund,
Ivy International Fund, Ivy International Fund II, Ivy International Small
Companies Fund, Ivy International Strategic Bond Fund, Ivy Money Market Fund Ivy
Pan-Europe Fund, Ivy South America Fund, Ivy US Blue Chip Fund and Ivy US
Emerging Growth Fund (the other eighteen series of the Trust). (Effective April
18, 1997, Ivy International Fund suspended the offer of its shares to new
investors). Shareholders should obtain a current prospectus before exercising
any right or privilege that may relate to these funds.
AUTOMATIC INVESTMENT METHOD
The Automatic Investment Method, which enables a Fund shareholder to
have specified amounts automatically drawn each month from his or her bank for
investment in Fund shares, is available for all classes of shares. The minimum
initial and subsequent investment under this method is $50 per month ($250 for
Advisor Class shares), (except in the case of a tax qualified retirement plan
for which the minimum initial and subsequent investment is $25 per month). A
shareholder may terminate the Automatic Investment Method at any time upon
delivery to IMSC of telephone instructions or written notice. See "Automatic
Investment Method" in the Prospectus. To begin the plan, complete Sections 6A
and 7B of the Account Application.
EXCHANGE OF SHARES
As described in the Prospectus, shareholders of the Fund have an
exchange privilege with other Ivy funds (except Ivy International Fund unless
they have an existing Ivy International Fund account). Before effecting an
exchange, shareholders of the Fund should obtain and read the currently
effective prospectus for the Ivy fund into which the exchange is to be made.
INITIAL SALES CHARGE SHARES. Class A shareholders may exchange their
Class A shares ("outstanding Class A shares") for Class A shares of another Ivy
fund ("new Class A Shares") on the basis of the relative net asset value per
Class A share, plus an amount equal to the difference, if any, between the sales
charge previously paid on the outstanding Class A shares and the sales charge
payable at the time of the exchange on the new Class A shares. (The additional
sales charge will be waived for Class A shares that have been invested for a
period of 12 months or longer.) Class A shareholders may also exchange their
shares for shares of Ivy Money Market Fund (no initial sales charge will be
assessed at the time of such an exchange).
CONTINGENT DEFERRED SALES CHARGE SHARES CLASS A: Class A shareholders
may exchange their Class A shares that are subject to a contingent deferred
sales charge ("CDSC"), as described in the Prospectus ("outstanding Class A
shares"), for Class A shares of another Ivy fund ("new Class A shares") on the
basis of the relative net asset value per Class A share, without the payment of
any CDSC that would otherwise be due upon the redemption of the outstanding
Class A shares. Class A shareholders of the Fund exercising the exchange
privilege will continue to be subject to that Fund's CDSC period following an
exchange if such period is longer than the CDSC period, if any, applicable to
the new Class A shares.
For purposes of computing the CDSC that may be payable upon the
redemption of the new Class A shares, the holding period of the outstanding
Class A shares is "tacked" onto the holding period of the new Class A shares.
CLASS B: Class B shareholders may exchange their Class B shares
("outstanding Class B shares") for Class B shares of another Ivy fund ("new
Class B shares") on the basis of the relative net asset value per Class B share,
without the payment of any CDSC that would otherwise be due upon the redemption
of the outstanding Class B shares. Class B shareholders of the Fund exercising
the exchange privilege will continue to be subject to that Fund's CDSC schedule
(or period) following an exchange if such schedule is higher (or such period is
longer) than the CDSC schedule (or period) applicable to the new Class B shares.
Class B shares of the Fund acquired through an exchange of Class B
shares of another Ivy fund will be subject to that Fund's CDSC schedule (or
period) if such schedule is higher (or such period is longer) than the CDSC
schedule (or period) applicable to the Ivy fund from which the exchange was
made.
For purposes of both the conversion feature and computing the CDSC that
may be payable upon the redemption of the new Class B shares (prior to
conversion), the holding period of the outstanding Class B shares is "tacked"
onto the holding period of the new Class B shares.
The following CDSC table applies to Class B shares of Ivy Asia Pacific
Fund, Ivy Bond Fund, Ivy China Region Fund, Ivy Developing Nations Fund, Ivy
European Opportunities Fund, Ivy Global Fund, Ivy Global Natural Resources Fund,
Ivy Global Science & Technology Fund, Ivy Growth Fund, Ivy Growth with Income
Fund, Ivy International Fund II, Ivy International Fund, Ivy International Small
Companies Fund, Ivy International Strategic Bond Fund, Ivy Pan-Europe Fund, Ivy
South America Fund, Ivy US Blue Chip Fund and Ivy US Emerging Growth Fund:
CONTINGENT DEFERRED SALES CHARGE AS A PERCENTAGE OF
DOLLAR AMOUNT SUBJECT TO CHARGE
YEAR SINCE PURCHASE
First 5%
Second 4%
Third 3%
Fourth 3%
Fifth 2%
Sixth 1%
Seventh and thereafter 0%
CLASS C: Class C shareholders may exchange their Class C shares
("outstanding Class C shares") for Class C shares of another Ivy fund ("new
Class C shares") on the basis of the relative net asset value per Class C share,
without the payment of any CDSC that would otherwise be due upon redemption.
(Class C shares are subject to a CDSC of 1.00% if redeemed within one year of
the date of purchase.)
ADVISOR CLASS: Subject to the restrictions set forth in the following
paragraph, Advisor Class shareholders may exchange their outstanding Advisor
Class shares for Advisor Class shares of another Ivy fund on the basis of the
relative net asset value per share.
ALL CLASSES: The minimum value of shares which may be exchanged into an
Ivy fund in which shares are not already held is $1,000 ($10,000 in the case of
Advisor Class shares). No exchange out of the Fund (other than by a complete
exchange of all Fund shares) may be made if it would reduce the shareholder's
interest in the Fund to less than $1,000 ($10,000 in the case of Advisor Class
shares).
Each exchange will be made on the basis of the relative net asset value
per share of the Ivy funds involved in the exchange next computed following
receipt by IMSC of telephone instructions by IMSC or a properly executed
request. Exchanges, whether written or telephonic, must be received by IMSC by
the close of regular trading on the Exchange (normally 4:00 p.m., eastern time)
to receive the price computed on the day of receipt. Exchange requests received
after that time will receive the price next determined following receipt of the
request. The exchange privilege may be modified or terminated at any time, upon
at least 60 days' notice to the extent required by applicable law. See
"Redemptions."
An exchange of shares between any of the Ivy funds will result in a
taxable gain or loss. Generally, this will be a capital gain or loss (long-term
or short-term, depending on the holding period of the shares) in the amount of
the difference between the net asset value of the shares surrendered and the
shareholder's tax basis for those shares. However, in certain circumstances,
shareholders will be ineligible to take sales charges into account in computing
taxable gain or loss on an exchange. See "Taxation."
With limited exceptions, gain realized by a tax-deferred retirement
plan will not be taxable to the plan and will not be taxed to the participant
until distribution. Each investor should consult his or her tax adviser
regarding the tax consequences of an exchange transaction.
LETTER OF INTENT
Reduced sales charges apply to initial investments in Class A shares of
the Fund made pursuant to a non-binding Letter of Intent. A Letter of Intent may
be submitted by an individual, his or her spouse and children under the age of
21, or a trustee or other fiduciary of a single trust estate or single fiduciary
account. See the Account Application in the Prospectus. Any investor may submit
a Letter of Intent stating that he or she will invest, over a period of 13
months, at least $50,000 in Class A shares of the Fund. A Letter of Intent may
be submitted at the time of an initial purchase of Class A shares of the Fund or
within 90 days of the initial purchase, in which case the Letter of Intent will
be back dated. A shareholder may include, as an accumulation credit, the value
(at the applicable offering price) of all Class A shares of Ivy Asia Pacific
Fund, Ivy Bond Fund, Ivy China Region Fund, Ivy Developing Nations Fund, Ivy
European Opportunities Fund, Ivy Global Fund, Ivy Global Natural Resources Fund,
Ivy Global Science & Technology Fund, Ivy Growth Fund, Ivy Growth with Income
Fund, Ivy International Fund, Ivy International Fund II, Ivy International Small
Companies Fund, Ivy International Strategic Bond Fund, Ivy Pan-Europe Fund, Ivy
South America Fund, Ivy US Blue Chip Fund and Ivy US Emerging Growth Fund (and
shares that have been exchanged into Ivy Money Market Fund from any of the other
funds in the Ivy funds) held of record by him or her as of the date of his or
her Letter of Intent. During the term of the Letter of Intent, the Transfer
Agent will hold Class A shares representing 5% of the indicated amount (less any
accumulation credit value) in escrow. The escrowed Class A shares will be
released when the full indicated amount has been purchased. If the full
indicated amount is not purchased during the term of the Letter of Intent, the
investor is required to pay IMDI an amount equal to the difference between the
dollar amount of sales charge that he or she has paid and that which he or she
would have paid on his or her aggregate purchases if the total of such purchases
had been made at a single time. Such payment will be made by an automatic
liquidation of Class A shares in the escrow account. A Letter of Intent does not
obligate the investor to buy or the Trust to sell the indicated amount of Class
A shares, and the investor should read carefully all the provisions of such
letter before signing.
RETIREMENT PLANS
Shares may be purchased in connection with several types of
tax-deferred retirement plans. Shares of more than one fund distributed by IMDI
may be purchased in a single application establishing a single account under the
plan, and shares held in such an account may be exchanged among the Ivy funds in
accordance with the terms of the applicable plan and the exchange privilege
available to all shareholders. Initial and subsequent purchase payments in
connection with tax-deferred retirement plans must be at least $25 per
participant.
The following fees will be charged to individual shareholder accounts
as described in the retirement prototype plan document:
Retirement Plan New Account Fee no fee
Retirement Plan Annual Maintenance Fee $10.00 per fund account
For shareholders whose retirement accounts are diversified across
several Ivy funds, the annual maintenance fee will be limited to not more than
$20.
The following discussion describes the tax treatment of certain
tax-deferred retirement plans under current Federal income tax law. State income
tax consequences may vary. An individual considering the establishment of a
retirement plan should consult with an attorney and/or an accountant with
respect to the terms and tax aspects of the plan.
INDIVIDUAL RETIREMENT ACCOUNTS: Shares of the Fund may be used as a
funding medium for an Individual Retirement Account ("IRA"). Eligible
individuals may establish an IRA by adopting a model custodial account available
from IMSC, who may impose a charge for establishing the account. Individuals
should consult their tax advisers before investing IRA assets in an Ivy fund if
that fund primarily distributes exempt-interest dividends.
An individual who has not reached age 70-1/2 and who receives
compensation or earned income is eligible to contribute to an IRA, whether or
not he or she is an active participant in a retirement plan. An individual who
receives a distribution from another IRA, a qualified retirement plan, a
qualified annuity plan or a tax-sheltered annuity or custodial account ("403(b)
plan") that qualifies for "rollover" treatment is also eligible to establish an
IRA by rolling over the distribution either directly or within 60 days after its
receipt. Tax advice should be obtained in connection with planning a rollover
contribution to an IRA.
In general, an eligible individual may contribute up to the lesser of
$2,000 or 100% of his or her compensation or earned income to an IRA each year.
If a husband and wife are both employed, and both are under age 70-1/2, each may
set up his or her own IRA within these limits. If both earn at least $2,000 per
year, the maximum potential contribution is $4,000 per year for both. For years
after 1996, the result is similar even if one spouse has no earned income; if
the joint earned income of the spouses is at least $4,000, a contribution of up
to $2,000 may be made to each spouse's IRA. Rollover contributions are not
subject to these limits.
An individual may deduct his or her annual contributions to an IRA in
computing his or her Federal income tax within the limits described above,
provided he or she (or his or her spouse, if they file a joint Federal income
tax return) is not an active participant in a qualified retirement plan (such as
a qualified corporate, sole proprietorship, or partnership pension, profit
sharing, 401(k) or stock bonus plan), qualified annuity plan, 403(b) plan,
simplified employee pension, or governmental plan. If he or she (or his or her
spouse) is an active participant, whether the individual's contribution to an
IRA is fully deductible, partially deductible or not deductible depends on (i)
adjusted gross income and (ii) whether it is the individual or the individual's
spouse who is an active participant, in the case of married individuals filing
jointly. Contributions may be made up to the maximum permissible amount even if
they are not deductible. Rollover contributions are not includable in income for
Federal income tax purposes and therefore are not deductible from it.
Generally, earnings on an IRA are not subject to current Federal income
tax until distributed. Distributions attributable to tax-deductible
contributions and to IRA earnings are taxed as ordinary income. Distributions of
non-deductible contributions are not subject to Federal income tax. In general,
distributions from an IRA to an individual before he or she reaches age 59-1/2
are subject to a nondeductible penalty tax equal to 10% of the taxable amount of
the distribution. The 10% penalty tax does not apply to amounts withdrawn from
an IRA after the individual reaches age 59-1/2, becomes disabled or dies, or if
withdrawn in the form of substantially equal payments over the life or life
expectancy of the individual and his or her designated beneficiary, if any, or
rolled over into another IRA, amounts withdrawn and used to pay for deductible
medical expenses and amounts withdrawn by certain unemployed individuals not in
excess of amounts paid for certain health insurance premiums, amounts used to
pay certain qualified higher education expenses, and amounts used within 120
days of the date the distribution is received to pay for certain first-time
homebuyer expenses. Distributions must begin to be withdrawn not later than
April 1 of the calendar year following the calendar year in which the individual
reaches age 70-1/2. Failure to take certain minimum required distributions will
result in the imposition of a 50% non-deductible penalty tax.
ROTH IRAS: Shares of the Fund also may be used as a funding medium for
a Roth Individual Retirement Account ("Roth IRA"). A Roth IRA is similar in
numerous ways to the regular (traditional) IRA, described above.
Some of the primary differences are as follows.
A single individual earning below $95,000 can contribute up to $2,000
per year to a Roth IRA. The maximum contribution amount diminishes and gradually
falls to zero for single filers with adjusted gross incomes ranging from $95,000
to $110,000. Married couples earning less than $150,000 combined, and filing
jointly, can contribute a full $4,000 per year ($2,000 per IRA). The maximum
contribution amount for married couples filing jointly phases out from $150,000
to $160,000. An individual whose adjusted gross income exceeds the maximum
phase-out amount cannot contribute to a Roth IRA.
An eligible individual can contribute money to a traditional IRA and a
Roth IRA as long as the total contribution to all IRAs does not exceed $2,000.
Contributions to a Roth IRA are not deductible. Contributions to a Roth IRA may
be made even after the individual for whom the account is maintained has
attained age 70 1/2.
No distributions are required to be taken prior to the death of the
original account holder. If a Roth IRA has been established for a minimum of
five years, distributions can be taken tax-free after reaching age 59 1/2, for a
first-time home purchase ($10,000 maximum, one time use), or upon death or
disability. All other distributions from a Roth IRA (other than the amount of
nondeductible contributions) are taxable and subject to a 10% tax penalty unless
an exception applies. Exceptions to the 10% penalty include: reaching age 59
1/2, death, disability, deductible medical expenses, the purchase of health
insurance for certain unemployed individual and qualified higher education
expenses.
An individual with an income of less than $100,000 (who is not married
filing separately) can roll his or her existing IRA into a Roth IRA. However,
the individual must pay taxes on the taxable amount in his or her traditional
IRA. After 1998, all taxes on such a rollover will have to be paid in the tax
year in which the rollover is made.
QUALIFIED PLANS: For those self-employed individuals who wish to
purchase shares of one or more Ivy funds through a qualified retirement plan, a
Custodial Agreement and a Retirement Plan are available from IMSC. The
Retirement Plan may be adopted as a profit sharing plan or a money purchase
pension plan. A profit sharing plan permits an annual contribution to be made in
an amount determined each year by the self-employed individual within certain
limits prescribed by law. A money purchase pension plan requires annual
contributions at the level specified in the Custodial Agreement. There is no
set-up fee for qualified plans and the annual maintenance fee is $20.00 per
account.
In general, if a self-employed individual has any common law employees,
employees who have met certain minimum age and service requirements must be
covered by the Retirement Plan. A self-employed individual generally must
contribute the same percentage of income for common law employees as for himself
or herself.
A self-employed individual may contribute up to the lesser of $30,000
or 25% of compensation or earned income to a money purchase pension plan or to a
combination profit sharing and money purchase pension plan arrangement each year
on behalf of each participant. To be deductible, total contributions to a profit
sharing plan generally may not exceed 15% of the total compensation or earned
income of all participants in the plan, and total contributions to a combination
money purchase-profit sharing arrangement generally may not exceed 25% of the
total compensation or earned income of all participants. The amount of
compensation or earned income of any one participant that may be included in
computing the deduction is limited (generally to $150,000 for benefits accruing
in plan years beginning after 1993, with annual inflation adjustments). A
self-employed individual's contributions to a retirement plan on his or her own
behalf must be deducted in computing his or her earned income.
Corporate employers may also adopt the Custodial Agreement and
Retirement Plan for the benefit of their eligible employees. Similar
contribution and deduction rules apply to corporate employers.
Distributions from the Retirement Plan generally are made after a
participant's separation from service. A 10% penalty tax generally applies to
distributions to an individual before he or she reaches age 59-1/2, unless the
individual (1) has reached age 55 and separated from service; (2) dies; (3)
becomes disabled; (4) uses the withdrawal to pay tax-deductible medical
expenses; (5) takes the withdrawal as part of a series of substantially equal
payments over his or her life expectancy or the joint life expectancy of himself
or herself and a designated beneficiary; or (6) rolls over the distribution.
The Transfer Agent will arrange for Investors Bank & Trust to furnish
custodial services to the employer and any participating employees.
DEFERRED COMPENSATION FOR PUBLIC SCHOOLS AND CHARITABLE ORGANIZATIONS
("403(B)(7) ACCOUNT"): Section 403(b)(7) of the Internal Revenue Code of 1986,
as amended (the "Code") permits public school systems and certain charitable
organizations to use mutual fund shares held in a custodial account to fund
deferred compensation arrangements with their employees. A custodial account
agreement is available for those employers whose employees wish to purchase
shares of the Trust in conjunction with such an arrangement. The special
application for a 403(b)(7) Account is available from IMSC.
Distributions from the 403(b)(7) Account may be made only following
death, disability, separation from service, attainment of age 59-1/2, or
incurring a financial hardship. A 10% penalty tax generally applies to
distributions to an individual before he or she reaches age 59-1/2, unless the
individual (1) has reached age 55 and separated from service; (2) dies or
becomes disabled; (3) uses the withdrawal to pay tax-deductible medical
expenses; (4) takes the withdrawal as part of a series of substantially equal
payments over his or her life expectancy or the joint life expectancy of himself
or herself and a designated beneficiary; or (5) rolls over the distribution.
There is no set-up fee for 403(b)(7) Accounts and the annual maintenance fee is
$20.00 per account.
SIMPLIFIED EMPLOYEE PENSION ("SEP") IRAS: An employer may deduct
contributions to a SEP up to the lesser of $30,000 or 15% of compensation. SEP
accounts generally are subject to all rules applicable to IRA accounts, except
the deduction limits, and are subject to certain employee participation
requirements. No new salary reduction SEPs ("SARSEPs") may be established after
1996, but existing SARSEPs may continue to be maintained, and non-salary
reduction SEPs may continue to be established as well as maintained after 1996.
SIMPLE PLANS: An employer may establish a SIMPLE IRA or a SIMPLE 401(k)
for years after 1996. An employee can make pre-tax salary reduction
contributions to a SIMPLE Plan, up to $6,000 a year (as indexed). Subject to
certain limits, the employer will either match a portion of employee
contributions, or will make a contribution equal to 2% of each employee's
compensation without regard to the amount the employee contributes. An employer
cannot maintain a SIMPLE Plan for its employees if the employer maintains or
maintained any other qualified retirement plan with respect to which any
contributions or benefits have been credited.
REINVESTMENT PRIVILEGE
Shareholders who have redeemed Class A shares of the Fund may reinvest
all or a part of the proceeds of the redemption back into Class A shares of the
Fund at net asset value (without a sales charge) within 60 days from the date of
redemption. This privilege may be exercised only once. The reinvestment will be
made at the net asset value next determined after receipt by IMSC of the
reinvestment order accompanied by the funds to be reinvested. No compensation
will be paid to any sales personnel or dealer in connection with the
transaction.
Any redemption is a taxable event. A loss realized on a redemption
generally may be disallowed for tax purposes if the reinvestment privilege is
exercised within 30 days after the redemption. In certain circumstances,
shareholders will be ineligible to take sales charges into account in computing
taxable gain or loss on a redemption if the reinvestment privilege is exercised.
See "Taxation."
RIGHTS OF ACCUMULATION
A scale of reduced sales charges applies to any investment of $50,000
or more in Class A shares of the Fund. See "Initial Sales Charge Alternative --
Class A Shares" in the Prospectus. The reduced sales charge is applicable to
investments made at one time by an individual, his or her spouse and children
under the age of 21, or a trustee or other fiduciary of a single trust estate or
single fiduciary account (including a pension, profit sharing or other employee
benefit trust created pursuant to a plan qualified under Section 401 of the
Code). Rights of Accumulation is also applicable to current purchases of all of
the funds of Ivy Fund (except Ivy Money Market Fund) by any of the persons
enumerated above, where the aggregate quantity of Class A shares of such funds
(and shares that have been exchanged into Ivy Money Market Fund from any of the
other funds in the Ivy funds) and of any other investment company distributed by
IMDI, previously purchased or acquired and currently owned, determined at the
higher of current offering price or amount invested, plus the Class A shares
being purchased, amounts to $50,000 or more for all funds other than Ivy Bond
Fund; or $100,000 or more for Ivy Bond Fund.
At the time an investment takes place, IMSC must be notified by the
investor or his or her dealer that the investment qualifies for the reduced
sales charge on the basis of previous investments. The reduced sales charge is
subject to confirmation of the investor's holdings through a check of the
particular fund's records.
SYSTEMATIC WITHDRAWAL PLAN
A shareholder may establish a Systematic Withdrawal Plan (a "Withdrawal
Plan"), by telephone instructions or by delivery to IMSC of a written election
to have his or her shares withdrawn periodically (minimum distribution amount
$50 for Advisor Class shares), accompanied by a surrender to IMSC of all share
certificates then outstanding in such shareholder's name, properly endorsed by
the shareholder. To be eligible to elect a Withdrawal Plan, a shareholder must
have at least $5,000 in his or her account (except Advisor Class shareholders,
who must continually maintain an account balance of at least $10,000). A
Withdrawal Plan may not be established if the investor is currently
participating in the Automatic Investment Method. A Withdrawal Plan may involve
the depletion of a shareholder's principal, depending on the amount withdrawn.
A redemption under a Withdrawal Plan is a taxable event. Shareholders
contemplating participating in a Withdrawal Plan should consult their tax
advisers.
Additional investments made by investors participating in a Withdrawal
Plan must equal at least $1,000 each ($250 for Advisor Class shareholders) while
the Withdrawal Plan is in effect. Making additional purchases while a Withdrawal
Plan is in effect may be disadvantageous to the investor because of applicable
initial sales charges or CDSCs.
An investor may terminate his or her participation in the Withdrawal
Plan at any time by delivering written notice to IMSC. If all shares held by the
investor are liquidated at any time, participation in the Withdrawal Plan will
terminate automatically. The Trust or IMSC may terminate the Withdrawal Plan
option at any time after reasonable notice to shareholders.
GROUP SYSTEMATIC INVESTMENT PROGRAM
Shares of the Fund may be purchased in connection with investment
programs established by employee or other groups using systematic payroll
deductions or other systematic payment arrangements. The Trust does not itself
organize, offer or administer any such programs. However, it may, depending upon
the size of the program, waive the minimum initial and additional investment
requirements for purchases by individuals in conjunction with programs organized
and offered by others. Unless shares of the Fund are purchased in conjunction
with IRAs (see "How to Buy Shares" in the Prospectus), such group systematic
investment programs are not entitled to special tax benefits under the Code. The
Trust reserves the right to refuse purchases at any time or suspend the offering
of shares in connection with group systematic investment programs, and to
restrict the offering of shareholder privileges, such as check writing,
simplified redemptions and other optional privileges, as described in the
Prospectus, to shareholders using group systematic investment programs.
With respect to each shareholder account established on or after
September 15, 1972 under a group systematic investment program, the Trust and
IMI each currently charge a maintenance fee of $3.00 (or portion thereof) that
for each twelve-month period (or portion thereof) that the account is
maintained. The Trust may collect such fee (and any fees due to IMI) through a
deduction from distributions to the shareholders involved or by causing on the
date the fee is assessed a redemption in each such shareholder account
sufficient to pay such fee. The Trust reserves the right to change these fees
from time to time without advance notice.
Class A shares of the Fund are made available to Merrill Lynch Daily K
Plan (the "Plan") participants at NAV without an initial sales charge if:
(i) the Plan is recordkept on a daily valuation basis by
Merrill Lynch and, on the date the Plan Sponsor signs
the Merrill Lynch Recordkeeping Service Agreement,
the Plan has $3 million or more in assets invested in
broker/dealer funds not advised or managed by Merrill
Lynch Asset Management, L.P. ("MLAM") that are made
available pursuant to a Service Agreement between
Merrill Lynch and the fund's principal underwriter or
distributor and in funds advised or managed by MLAM
(collectively, the "Applicable Investments");
(ii) the Plan is recordkept on a daily valuation basis by
an independent recordkeeper whose services are
provided through a contract or alliance arrangement
with Merrill Lynch, and on the date the Plan Sponsor
signs the Merrill Lynch Recordkeeping Service
Agreement, the Plan has $3 million or more in assets,
excluding money market funds, invested in Applicable
Investments; or
(iii) the Plan has 500 or more eligible employees, as
determined by Merrill Lynch plan conversion manager,
on the date the Plan Sponsor signs the Merrill Lynch
Recordkeeping Service Agreement.
Alternatively, Class B shares of the Fund are made available to Plan
participants at NAV without a CDSC if the Plan conforms with the requirements
for eligibility set forth in (i) through (iii) above but either does not meet
the $3 million asset threshold or does not have 500 or more eligible employees.
Plans recordkept on a daily basis by Merrill Lynch or an independent
recordkeeper under a contract with Merrill Lynch that are currently investing in
Class B shares of the Fund convert to Class A shares once the Plan has reached
$5 million invested in Applicable Investments, or 10 years after the date of the
initial purchase by a participant under the Plan--the Plan will receive a Plan
level share conversion.
REDEMPTIONS
Shares of the Fund are redeemed at their net asset value next
determined after a proper redemption request has been received by IMSC, less any
applicable CDSC.
Unless a shareholder requests that the proceeds of any redemption be
wired to his or her bank account, payment for shares tendered for redemption is
made by check within seven days after tender in proper form, except that the
Trust reserves the right to suspend the right of redemption or to postpone the
date of payment upon redemption beyond seven days, (i) for any period during
which the Exchange is closed (other than customary weekend and holiday closings)
or during which trading on the Exchange is restricted, (ii) for any period
during which an emergency exists as determined by the SEC as a result of which
disposal of securities owned by the Fund is not reasonably practicable or it is
not reasonably practicable for the Fund to fairly determine the value of its net
assets, or (iii) for such other periods as the SEC may by order permit for the
protection of shareholders of the Fund.
Under unusual circumstances, when the Board deems it in the best
interest of the Fund's shareholders, the Fund may make payment for shares
repurchased or redeemed in whole or in part in securities of the Fund taken at
current values. If any such redemption in kind is to be made, the Fund may make
an election pursuant to Rule 18f-1 under the 1940 Act. This will require the
Fund to redeem with cash at a shareholder's election in any case where the
redemption involves less than $250,000 (or 1% of the Fund's net asset value at
the beginning of each 90-day period during which such redemptions are in effect,
if that amount is less than $250,000). Should payment be made in securities, the
redeeming shareholder may incur brokerage costs in converting such securities to
cash.
The Trust may redeem those accounts of shareholders who have maintained
an investment, including sales charges paid, of less than $1,000 ($10,000 for
Advisor Class shareholders) in the Fund for a period of more than 12 months. All
accounts below that minimum will be redeemed simultaneously when MIMI deems it
advisable. The $1,000 balance ($10,000 for Advisor Class shareholders) will be
determined by actual dollar amounts invested by the shareholder, unaffected by
market fluctuations. The Trust will notify any such shareholder by certified
mail of its intention to redeem such account, and the shareholder shall have 60
days from the date of such letter to invest such additional sums as shall raise
the value of such account above that minimum. Should the shareholder fail to
forward such sum within 60 days of the date of the Trust's letter of
notification, the Trust will redeem the shares held in such account and transmit
the redemption in value thereof to the shareholder. However, those shareholders
who are investing pursuant to the Automatic Investment Method will not be
redeemed automatically unless they have ceased making payments pursuant to the
plan for a period of at least six consecutive months, and these shareholders
will be given six-months' notice by the Trust before such redemption.
Shareholders in a qualified retirement, pension or profit sharing plan who wish
to avoid tax consequences must "rollover" any sum so redeemed into another
qualified plan within 60 days. The Trustees of the Trust may change the minimum
account size.
If a shareholder has given authorization for telephonic redemption
privilege, shares can be redeemed and proceeds sent by Federal wire to a single
previously designated bank account. Delivery of the proceeds of a wire
redemption request of $250,000 or more may be delayed by the Fund for up to
seven days if deemed appropriate under then-current market conditions. The Trust
reserves the right to change this minimum or to terminate the telephonic
redemption privilege without prior notice. The Trust cannot be responsible for
the efficiency of the Federal wire system of the shareholder's dealer of record
or bank. The shareholder is responsible for any charges by the shareholder's
bank.
The Fund employs reasonable procedures that require personal
identification prior to acting on redemption or exchange instructions
communicated by telephone to confirm that such instructions are genuine. In the
absence of such instructions, the Fund may be liable for any losses due to
unauthorized or fraudulent telephone instructions.
CONVERSION OF CLASS B SHARES
As described in the Prospectus, Class B shares of the Fund will
automatically convert to Class A shares of the Fund, based on the relative net
asset values per share of the two classes, no later than the month following the
eighth anniversary of the initial issuance of such Class B shares of the Fund
occurs. For the purpose of calculating the holding period required for
conversion of Class B shares, the date of initial issuance shall mean: (1) the
date on which such Class B shares were issued, or (2) for Class B shares
obtained through an exchange, or a series of exchanges, (subject to the exchange
privileges for Class B shares) the date on which the original Class B shares
were issued. For purposes of conversion of Class B shares, Class B shares
purchased through the reinvestment of dividends and capital gain distributions
paid in respect of Class B shares will be held in a separate sub-account. Each
time any Class B shares in the shareholder's regular account (other than those
shares in the sub-account) convert to Class A shares, a pro rata portion of the
Class B shares in the sub-account will also convert to Class A shares. The
portion will be determined by the ratio that the shareholder's Class B shares
converting to Class A shares bears to the shareholder's total Class B shares not
acquired through the reinvestment of dividends and capital gain distributions.
NET ASSET VALUE
The net asset value per share of the Fund is computed by dividing the
value of the Fund's aggregate net assets (i.e., its total assets less its
liabilities) by the number of the Fund's shares outstanding. For purposes of
determining the Fund's aggregate net assets, receivables are valued at their
realizable amounts. The Fund's liabilities, if not identifiable as belonging to
a particular class of the Fund, are allocated among the Fund's several classes
based on their relative net asset size. Liabilities attributable to a particular
class are charged to that class directly. The total liabilities for a class are
then deducted from the class's proportionate interest in the Fund's assets, and
the resulting amount is divided by the number of shares of the class outstanding
to produce its net asset value per share.
A security listed or traded on a recognized stock exchange or The
Nasdaq Stock Market, Inc. ("Nasdaq") is valued at the security's last sale price
on the exchange on which the security is principally traded. If no sale is
reported at that time, the average between the last bid and asked price (the
"Calculated Mean") is used. Unless otherwise noted herein, the value of a
foreign security is determined in its national currency as of the normal close
of trading on the foreign exchange on which it is traded or as of the close of
regular trading on the Exchange, if that is earlier, and that value is then
converted into its U.S. dollar equivalent at the foreign exchange rate in effect
at noon, eastern time, on the day the value of the foreign security is
determined. All other securities for which OTC market quotations are readily
available are valued at the Calculated Mean.
A debt security normally is valued on the basis of quotes obtained from
at least two dealers (or one dealer who has made a market in the security) or
pricing services that take into account appropriate valuation factors. Interest
is accrued daily. Money market instruments are valued at amortized cost, which
the Board believes approximates market value.
An exchange-traded option is valued at the last sale price on the
exchange on which it is principally traded, if available, and otherwise is
valued at the last sale price on the other exchange(s). If there were no sales
on any exchange, the option shall be valued at the Calculated Mean, if possible,
and otherwise at the last offering price, in the case of a written option, and
the last bid price, in the case of a purchased option. An OTC option is valued
at the last offering price, in the case of a written option, and the last bid
price, in the case of a purchased option. Exchange listed and widely-traded OTC
futures (and options thereon) are valued at the most recent settlement price.
Securities and other assets for which market prices are not readily
available are priced at their "fair value" as determined by IMI in accordance
with procedures approved by the Board. Trading in securities on many foreign
securities exchanges is normally completed before the close of regular trading
on the Exchange. Trading on foreign exchanges may not take place on all days on
which there is regular trading on the Exchange, or may take place on days on
which there is no regular trading on the Exchange (e.g., any of the national
business holidays identified below). If events materially affecting the value of
the Fund's portfolio securities occur between the time when a foreign exchange
closes and the time when the Fund's net asset value is calculated (see following
paragraph), such securities may be valued at fair value as determined by IMI and
approved by the Board.
Portfolio securities are valued (and net asset value per share is
determined) as of the close of regular trading on the Exchange (normally 4:00
p.m., eastern time) on each day the Exchange is open for trading. The Exchange
and the Trust's offices are expected to be closed, and net asset value will not
be calculated, on the following national business holidays: New Year's Day,
Martin Luther King, Jr. Day, Presidents' Day, Good Friday, Memorial Day,
Independence Day, Labor Day, Thanksgiving Day and Christmas Day. On those days
when either or both of the Fund's Custodian or the Exchange close early as a
result of a partial holiday or otherwise, the Trust reserves the right to
advance the time on that day by which purchase and redemption requests must be
received.
The number of shares you receive when you place a purchase order, and
the payment you receive after submitting a redemption request, is based on the
Fund's net asset value next determined after your instructions are received in
proper form by IMSC or by your registered securities dealer. Each purchase and
redemption order is subject to any applicable sales charge. Since the Fund
normally invests in securities that are listed on foreign exchanges that may
trade on weekends or other days when the Fund does not price its shares, the
Fund's net asset value may change on days when shareholders will not be able to
purchase or redeem the Fund's shares. The sale of the Fund's shares will be
suspended during any period when the determination of its net asset value is
suspended pursuant to rules or orders of the SEC and may be suspended by the
Board whenever in its judgment it is in the Fund's best interest to do so.
TAXATION
The following is a general discussion of certain tax rules thought to
be applicable with respect to the Fund. It is merely a summary and is not an
exhaustive discussion of all possible situations or of all potentially
applicable taxes. Accordingly, shareholders and prospective shareholders should
consult a competent tax adviser about the tax consequences to them of investing
in the Fund.
The Fund intends to be taxed as a regulated investment company under
Subchapter M of the Code. Accordingly, the Fund must, among other things, (a)
derive in each taxable year at least 90% of its gross income from dividends,
interest, payments with respect to certain securities loans, and gains from the
sale or other disposition of stock, securities or foreign currencies, or other
income derived with respect to its business of investing in such stock,
securities or currencies; and (b) diversify its holdings so that, at the end of
each fiscal quarter, (i) at least 50% of the market value of the Fund's assets
is represented by cash, U.S. Government securities, the securities of other
regulated investment companies and other securities, with such other securities
limited, in respect of any one issuer, to an amount not greater than 5% of the
value of the Fund's total assets and 10% of the outstanding voting securities of
such issuer, and (ii) not more than 25% of the value of its total assets is
invested in the securities of any one issuer (other than U.S. Government
securities and the securities of other regulated investment companies).
As a regulated investment company, the Fund generally will not be
subject to U.S. Federal income tax on its income and gains that it distributes
to shareholders, if at least 90% of its investment company taxable income (which
includes, among other items, dividends, interest and the excess of any
short-term capital gains over long-term capital losses) for the taxable year is
distributed. The Fund intends to distribute all such income.
Amounts not distributed on a timely basis in accordance with a calendar
year distribution requirement are subject to a nondeductible 4% excise tax at
the Fund level. To avoid the tax, the Fund must distribute during each calendar
year, (1) at least 98% of its ordinary income (not taking into account any
capital gains or losses) for the calendar year (2) at least 98% of its capital
gains in excess of its capital losses (adjusted for certain ordinary losses) for
a one-year period generally ending on October 31 of the calendar year, and (3)
all ordinary income and capital gains for previous years that were not
distributed during such years. To avoid application of the excise tax, the Fund
intends to make distributions in accordance with the calendar year distribution
requirements. A distribution will be treated as paid on December 31 of the
current calendar year if it is declared by the Fund in October, November or
December of the year with a record date in such a month and paid by the Fund
during January of the following year. Such distributions will be taxable to
shareholders in the calendar year the distributions are declared, rather than
the calendar year in which the distributions are received.
OPTIONS, FUTURES AND FOREIGN CURRENCY FORWARD CONTRACTS
The taxation of equity options and OTC options on debt securities is
governed by Code section 1234. Pursuant to Code section 1234, the premium
received by the Fund for selling a put or call option is not included in income
at the time of receipt. If the option expires, the premium is short-term capital
gain to the Fund. If the Fund enters into a closing transaction, the difference
between the amount paid to close out its position and the premium received is
short-term capital gain or loss. If a call option written by the Fund is
exercised, thereby requiring the Fund to sell the underlying security, the
premium will increase the amount realized upon the sale of such security and any
resulting gain or loss will be a capital gain or loss, and will be long-term or
short-term depending upon the holding period of the security. With respect to a
put or call option that is purchased by the Fund, if the option is sold, any
resulting gain or loss will be a capital gain or loss, and will be long-term or
short-term, depending upon the holding period of the option. If the option
expires, the resulting loss is a capital loss and is long-term or short-term,
depending upon the holding period of the option. If the option is exercised, the
cost of the option, in the case of a call option, is added to the basis of the
purchased security and, in the case of a put option, reduces the amount realized
on the underlying security in determining gain or loss.
Some of the options, futures and foreign currency forward contracts in
which the Fund may invest may be "section 1256 contracts." Gains (or losses) on
these contracts generally are considered to be 60% long-term and 40% short-term
capital gains or losses; however, as described below, foreign currency gains or
losses arising from certain section 1256 contracts are ordinary in character.
Also, section 1256 contracts held by the Fund at the end of each taxable year
(and on certain other dates prescribed in the Code) are "marked-to-market" with
the result that unrealized gains or losses are treated as though they were
realized.
The transactions in options, futures and forward contracts undertaken
by the Fund may result in "straddles" for Federal income tax purposes. The
straddle rules may affect the character of gains or losses realized by the Fund.
In addition, losses realized by the Fund on positions that are part of a
straddle may be deferred under the straddle rules, rather than being taken into
account in calculating the taxable income for the taxable year in which such
losses are realized. Because only a few regulations implementing the straddle
rules have been promulgated, the consequences of such transactions to the Fund
are not entirely clear. The straddle rules may increase the amount of short-term
capital gain realized by the Fund, which is taxed as ordinary income when
distributed to shareholders.
The Fund may make one or more of the elections available under the Code
which are applicable to straddles. If the Fund makes any of the elections, the
amount, character and timing of the recognition of gains or losses from the
affected straddle positions will be determined under rules that vary according
to the election(s) made. The rules applicable under certain of the elections may
operate to accelerate the recognition of gains or losses from the affected
straddle positions.
Because application of the straddle rules may affect the character of
gains or losses, defer losses and/or accelerate the recognition of gains or
losses from the affected straddle positions, the amount which must be
distributed to shareholders as ordinary income or long-term capital gain may be
increased or decreased substantially as compared to a fund that did not engage
in such transactions.
Notwithstanding any of the foregoing, the Fund may recognize gain (but
not loss) from a constructive sale of certain "appreciated financial positions"
if the Fund enters into a short sale, offsetting notional principal contract,
futures or forward contract transaction with respect to the appreciated position
or substantially identical property. Appreciated financial positions subject to
this constructive sale treatment are interests (including options, futures and
forward contracts and short sales) in stock, partnership interests, certain
actively traded trust instruments and certain debt instruments. Constructive
sale treatment of appreciated financial positions does not apply to certain
transactions closed in the 90-day period ending with the 30th day after the
close of the Fund's taxable year, if certain conditions are met.
CURRENCY FLUCTUATIONS -- "SECTION 988" GAINS OR LOSSES
Gains or losses attributable to fluctuations in exchange rates which
occur between the time the Fund accrues receivables or liabilities denominated
in a foreign currency and the time the Fund actually collects such receivables
or pays such liabilities generally are treated as ordinary income or ordinary
loss. Similarly, on disposition of some investments, including debt securities
denominated in a foreign currency and certain options, futures and forward
contracts, gains or losses attributable to fluctuations in the value of the
foreign currency between the date of acquisition of the security or contract and
the date of disposition also are treated as ordinary gain or loss. These gains
and losses, referred to under the Code as "section 988" gains or losses,
increase or decrease the amount of the Fund's investment company taxable income
available to be distributed to its shareholders as ordinary income.
INVESTMENT IN PASSIVE FOREIGN INVESTMENT COMPANIES
The Fund may invest in shares of foreign corporations which may be
classified under the Code as passive foreign investment companies ("PFICs"). In
general, a foreign corporation is classified as a PFIC if at least one-half of
its assets constitute investment-type assets, or 75% or more of its gross income
is investment-type income. If the Fund receives a so-called "excess
distribution" with respect to PFIC stock, the Fund itself may be subject to a
tax on a portion of the excess distribution, whether or not the corresponding
income is distributed by the Fund to shareholders. In general, under the PFIC
rules, an excess distribution is treated as having been realized ratably over
the period during which a Fund held the PFIC shares. The Fund itself will be
subject to tax on the portion, if any, of an excess distribution that is so
allocated to prior Fund taxable years and an interest factor will be added to
the tax, as if the tax had been payable in such prior taxable years. Certain
distributions from a PFIC as well as gain from the sale of PFIC shares are
treated as excess distributions. Excess distributions are characterized as
ordinary income even though, absent application of the PFIC rules, certain
excess distributions might have been classified as capital gain.
The Fund may be eligible to elect alternative tax treatment with
respect to PFIC shares. The Fund may elect to mark to market its PFIC shares,
resulting in the shares being treated as sold at fair market value on the last
business day of each taxable year. Any resulting gain would be reported as
ordinary income; any resulting loss and any loss from an actual disposition of
the shares would be reported as ordinary loss to the extent of any net gains
reported in prior years. Under another election that currently is available in
some circumstances, the Fund generally would be required to include in its gross
income its share of the earnings of a PFIC on a current basis, regardless of
whether distributions are received from the PFIC in a given year.
DEBT SECURITIES ACQUIRED AT A DISCOUNT
Some of the debt securities (with a fixed maturity date of more than
one year from the date of issuance) that may be acquired by the Fund may be
treated as debt securities that are issued originally at a discount. Generally,
the amount of the original issue discount ("OID") is treated as interest income
and is included in income over the term of the debt security, even though
payment of that amount is not received until a later time, usually when the debt
security matures.
Some of the debt securities (with a fixed maturity date of more than
one year from the date of issuance) that may be acquired by the Fund in the
secondary market may be treated as having market discount. Generally, gain
recognized on the disposition of, and any partial payment of principal on, a
debt security having market discount is treated as ordinary income to the extent
the gain, or principal payment, does not exceed the "accrued market discount" on
such debt security. In addition, the deduction of any interest expenses
attributable to debt securities having market discount may be deferred. Market
discount generally accrues in equal daily installments. The Fund may make one or
more of the elections applicable to debt securities having market discount,
which could affect the character and timing of recognition of income.
Some debt securities (with a fixed maturity date of one year or less
from the date of issuance) that may be acquired by the Fund may be treated as
having acquisition discount, or OID in the case of certain types of debt
securities. Generally, the Fund will be required to include the acquisition
discount, or OID, in income over the term of the debt security, even though
payment of that amount is not received until a later time, usually when the debt
security matures. The Fund may make one or more of the elections applicable to
debt securities having acquisition discount, or OID, which could affect the
character and timing of recognition of income.
The Fund generally will be required to distribute dividends to
shareholders representing discount on debt securities that is currently
includable in income, even though cash representing such income may not have
been received by the Fund. Cash to pay such dividends may be obtained from sales
proceeds of securities held by the Fund.
DISTRIBUTIONS
Distributions of investment company taxable income are taxable to a
U.S. shareholder as ordinary income, whether paid in cash or shares. Dividends
paid by the Fund to a corporate shareholder, to the extent such dividends are
attributable to dividends received from U.S. corporations by the Fund, may
qualify for the dividends received deduction. However, the revised alternative
minimum tax applicable to corporations may reduce the value of the dividends
received deduction. Distributions of net capital gains (the excess of net
long-term capital gains over net short-term capital losses), if any, designated
by the Fund as capital gain dividends, are taxable to shareholders as long-term
capital gains whether paid in cash or in shares, and regardless of how long the
shareholder has held the Fund's shares; such distributions are not eligible for
the dividends received deduction. Shareholders receiving distributions in the
form of newly issued shares will have a cost basis in each share received equal
to the net asset value of a share of the Fund on the distribution date. A
distribution of an amount in excess of the Fund's current and accumulated
earnings and profits will be treated by a shareholder as a return of capital
which is applied against and reduces the shareholder's basis in his or her
shares. To the extent that the amount of any such distribution exceeds the
shareholder's basis in his or her shares, the excess will be treated by the
shareholder as gain from a sale or exchange of the shares. Shareholders will be
notified annually as to the U.S. Federal tax status of distributions and
shareholders receiving distributions in the form of newly issued shares will
receive a report as to the net asset value of the shares received.
If the net asset value of shares is reduced below a shareholder's cost
as a result of a distribution by the Fund, such distribution generally will be
taxable even though it represents a return of invested capital. Shareholders
should be careful to consider the tax implications of buying shares just prior
to a distribution. The price of shares purchased at this time may reflect the
amount of the forthcoming distribution. Those purchasing just prior to a
distribution will receive a distribution which generally will be taxable to
them.
DISPOSITION OF SHARES
Upon a redemption, sale or exchange of his or her shares, a shareholder
will realize a taxable gain or loss depending upon his or her basis in the
shares. Such gain or loss will be treated as capital gain or loss if the shares
are capital assets in the shareholder's hands and, if so, will be long-term or
short-term, depending upon the shareholder's holding period for the shares. Any
loss realized on a redemption sale or exchange will be disallowed to the extent
the shares disposed of are replaced (including through reinvestment of
dividends) within a period of 61 days beginning 30 days before and ending 30
days after the shares are disposed of. In such a case, the basis of the shares
acquired will be adjusted to reflect the disallowed loss. Any loss realized by a
shareholder on the sale of Fund shares held by the shareholder for six-months or
less will be treated for tax purposes as a long-term capital loss to the extent
of any distributions of capital gain dividends received or treated as having
been received by the shareholder with respect to such shares.
In some cases, shareholders will not be permitted to take all or
portion of their sales loads into account for purposes of determining the amount
of gain or loss realized on the disposition of their shares. This prohibition
generally applies where (1) the shareholder incurs a sales load in acquiring the
shares of the Fund, (2) the shares are disposed of before the 91st day after the
date on which they were acquired, and (3) the shareholder subsequently acquires
shares in the Fund or another regulated investment company and the otherwise
applicable sales charge is reduced under a "reinvestment right" received upon
the initial purchase of Fund shares. The term "reinvestment right" means any
right to acquire shares of one or more regulated investment companies without
the payment of a sales load or with the payment of a reduced sales charge. Sales
charges affected by this rule are treated as if they were incurred with respect
to the shares acquired under the reinvestment right. This provision may be
applied to successive acquisitions of fund shares.
FOREIGN WITHHOLDING TAXES
Income received by the Fund from sources within a foreign country may
be subject to withholding and other taxes imposed by that country.
If more than 50% of the value of the Fund's total assets at the close
of its taxable year consists of securities of foreign corporations, the Fund
will be eligible and may elect to "pass-through" to the Fund's shareholders the
amount of foreign income and similar taxes paid by the Fund. Pursuant to this
election, a shareholder will be required to include in gross income (in addition
to taxable dividends actually received) his or her pro rata share of the foreign
income and similar taxes paid by the Fund, and will be entitled either to deduct
his or her pro rata share of foreign income and similar taxes in computing his
or her taxable income or to use it as a foreign tax credit against his or her
U.S. Federal income taxes, subject to limitations. No deduction for foreign
taxes may be claimed by a shareholder who does not itemize deductions. Foreign
taxes generally may not be deducted by a shareholder that is an individual in
computing the alternative minimum tax. Each shareholder will be notified within
60 days after the close of the Fund's taxable year whether the foreign taxes
paid by the Fund will "pass-through" for that year and, if so, such notification
will designate (1) the shareholder's portion of the foreign taxes paid to each
such country and (2) the portion of the dividend which represents income derived
from sources within each such country.
Generally, except in the case of certain electing individual taxpayers
who have limited creditable foreign taxes and no foreign source income other
than passive investment-type income, a credit for foreign taxes is subject to
the limitation that it may not exceed the shareholder's U.S. tax attributable to
his or her total foreign source taxable income. For this purpose, if the Fund
makes the election described in the preceding paragraph, the source of the
Fund's income flows through to its shareholders. With respect to the Fund, gains
from the sale of securities generally will be treated as derived from U.S.
sources and section 988 gains will be treated as ordinary income derived from
U.S. sources. The limitation on the foreign tax credit is applied separately to
foreign source passive income, including foreign source passive income received
from the Fund. In addition, the foreign tax credit may offset only 90% of the
revised alternative minimum tax imposed on corporations and individuals.
Furthermore, the foreign tax credit is eliminated with respect to foreign taxes
withheld on dividends if the dividend-paying shares or the shares of the Fund
are held by the Fund or the shareholder, as the case may be, for less than 16
days (46 days in the case of preferred shares) during the 30-day period (90-day
period for preferred shares) beginning 15 days (45 days for preferred shares)
before the shares become ex-dividend. In addition, if the Fund fails to satisfy
these holding period requirements, it cannot elect to pass through to
shareholders the ability to claim a deduction for related foreign taxes.
The foregoing is only a general description of the foreign tax credit
under current law. Because application of the credit depends on the particular
circumstances of each shareholder, shareholders are advised to consult their own
tax advisers.
BACKUP WITHHOLDING
The Fund will be required to report to the Internal Revenue Service
("IRS") all taxable distributions as well as gross proceeds from the redemption
of the Fund's shares, except in the case of certain exempt shareholders. All
such distributions and proceeds will be subject to withholding of Federal income
tax at a rate of 31% ("backup withholding") in the case of non-exempt
shareholders if (1) the shareholder fails to furnish the Fund with and to
certify the shareholder's correct taxpayer identification number or social
security number, (2) the IRS notifies the shareholder or the Fund that the
shareholder has failed to report properly certain interest and dividend income
to the IRS and to respond to notices to that effect, or (3) when required to do
so, the shareholder fails to certify that he or she is not subject to backup
withholding. If the withholding provisions are applicable, any such
distributions or proceeds, whether reinvested in additional shares or taken in
cash, will be reduced by the amounts required to be withheld.
Distributions may also be subject to additional state, local and
foreign taxes depending on each shareholder's particular situation. Non-U.S.
shareholders may be subject to U.S. tax rules that differ significantly from
those summarized above. This discussion does not purport to deal with all of the
tax consequences applicable to the Fund or shareholders. Shareholders are
advised to consult their own tax advisers with respect to the particular tax
consequences to them of an investment in the Fund.
PERFORMANCE INFORMATION
Performance information for the classes of shares of the Fund may be
compared, in reports and promotional literature, to: (i) the S&P 500 Index, the
Dow Jones Industrial Average ("DJIA"), or other unmanaged indices so that
investors may compare the Fund's results with those of a group of unmanaged
securities widely regarded by investors as representative of the securities
markets in general; (ii) other groups of mutual funds tracked by Lipper
Analytical Services, a widely used independent research firm that ranks mutual
funds by overall performance, investment objectives and assets, or tracked by
other services, companies, publications or other criteria; and (iii) the
Consumer Price Index (measure for inflation) to assess the real rate of return
from an investment in the Fund. Unmanaged indices may assume the reinvestment of
dividends but generally do not reflect deductions or administrative and
management costs and expenses. Performance rankings are based on historical
information and are not intended to indicate future performance.
YIELD. Quotations of yield for a specific class of shares of the Fund
will be based on all investment income attributable to that class earned during
a particular 30-day (or one month) period (including dividends and interest),
less expenses attributable to that class accrued during the period ("net
investment income"), and will be computed by dividing the net investment income
per share of that class earned during the period by the maximum offering price
per share (in the case of Class A shares) or the net asset value per share (in
the case of Class B and Class C shares) on the last day of the period, according
to the following formula:
YIELD = 2[({(a-b)/cd} + 1){superscript 6}-1]
Where: a = dividends and interest earned
during the period attributable to a
specific class of shares,
b = expenses accrued for the period
attributable to that class (net of
reimbursements),
c = the average daily number of shares
of that class outstanding during the
period that were entitled to receive
dividends, and
d = the maximum offering price per
share (in the case of Class A
shares) or the net asset value per
share (in the case of Class B and
Class C shares) on the last day of
the period.
AVERAGE ANNUAL TOTAL RETURN. Quotations of standardized average annual
total return ("Standardized Return") for a specific class of shares of the Fund
will be expressed in terms of the average annual compounded rate of return that
would cause a hypothetical investment in that class of the Fund made on the
first day of a designated period to equal the ending redeemable value ("ERV") of
such hypothetical investment on the last day of the designated period, according
to the following formula:
P(1 + T){superscript n} = ERV
Where: P = a hypothetical initial payment of
$1,000 to purchase shares of a
specific class
T = the average annual total return of
shares of that class
n = the number of years
ERV = the ending redeemable value of a
hypothetical $1,000 payment made at
the beginning of the period.
For purposes of the above computation for the Fund, it is assumed that
all dividends and capital gains distributions made by the Fund are reinvested at
net asset value in additional shares of the same class during the designated
period. In calculating the ending redeemable value for Class A shares and
assuming complete redemption at the end of the applicable period, the maximum
5.75% sales charge is deducted from the initial $1,000 payment and, for Class B
and Class C shares, the applicable CDSC imposed upon redemption of Class B or
Class C shares held for the period is deducted. Standardized Return quotations
for the Fund do not take into account any required payments for federal or state
income taxes. Standardized Return quotations for Class B shares for periods of
over eight years will reflect conversion of the Class B shares to Class A shares
at the end of the eighth year. Standardized Return quotations are determined to
the nearest 1/100 of 1%.
The Fund may, from time to time, include in advertisements, promotional
literature or reports to shareholders or prospective investors total return data
that are not calculated according to the formula set forth above
("Non-Standardized Return"). Neither initial nor CDSCs are taken into account in
calculating Non-Standardized Return; a sales charge, if deducted, would reduce
the return.
The following table summarizes the calculation of Standardized and
Non-Standardized Return for the Class A, Class B, Class C and Advisor Class
shares of the Fund for the periods indicated. In determining the average annual
total return for a specific class of shares of the Fund, recurring fees, if any,
that are charged to all shareholder accounts are taken into consideration. For
any account fees that vary with the size of the account of the Fund, the account
fee used for purposes of the following computations is assumed to be the fee
that would be charged to the mean account size of the Fund.
STANDARDIZED RETURN[*]
<TABLE>
CLASS A[1] CLASS B[2] CLASS C[3] ADVISOR CLASS
<S> <C> <C> <C> <C>
Year ended December 31,
1998
% % % %
Five years ended
December 31, 1998
% % % %
Inception [#] to year
ended December 31,
1998[7]:
% % % %
NON-STANDARDIZED RETURN[**]
CLASS A[4] CLASS B[5] CLASS C[6] ADVISOR CLASS
Year ended December 31,
1998
% % % %
Five years ended
December 31, 1998
% % % %
Inception [#] to year
ended December 31,
1998[7]:
% % % %
- ------------------------- ----------------- ------------------
</TABLE>
[*] The Standardized Return figures for Class A shares reflect the
deduction of the maximum initial sales charge of 5.75%. The Standardized Return
figures for Class B and C shares reflect the deduction of the applicable CDSC
imposed on redemption of Class B or C shares held for the period.
[**] The Non-Standardized Return figures do not reflect the deduction of
any initial sales charge or CDSC.
[#] The inception date for the Fund (and Class A and Class B shares of
the Fund) was October 23, 1993. The inception date for Class C shares was April
30, 1996. The inception date for Advisor Class shares was January 1, 1998.
[1] The Standardized Return figures for the Class A shares reflect
expense reimbursement. Without expense reimbursement, the Standardized Return
for Class A shares for the period from inception through and the one year and
five years ended December 31, 1998 would have been [ ].
[2] The Standardized Return figures for the Class B shares reflect
expense reimbursement. Without expense reimbursement, the Standardized Return
for Class B shares for the period from inception through and the one year and
five years ended December 31, 1998 would have been[ ].
[3] The Standardized Return figures for the Class C shares reflect
expense reimbursement. Without expense reimbursement, the Standardized Return
for Class C shares for the period from inception through and the one year and
five years ended December 31, 1998 would have been [ ].
[4] The Non-Standardized Return figures for Class A shares reflect
expense reimbursement. Without expense reimbursement, the Non-Standardized
Return for Class A shares for the period from inception through and the one year
and five years ended December 31, 1998 would have been [ ].
[5] The Non-Standardized Return figures for Class B shares reflect
expense reimbursement. Without expense reimbursement, the Non-Standardized
Return for Class B shares for the period from inception through and the one year
and five years ended December 31, 1998 would have been [ ].
[6] The Non-Standardized Return figures for Class C shares reflect
expense reimbursement. Without expense reimbursement, the Non-Standardized
Return for Class C shares for the period from inception through and the one year
and five years ended December 31, 1998 would have been [ ].
[7] The total return for a period less than a full year is calculated
on an aggregate basis and is not annualized.
CUMULATIVE TOTAL RETURN. Cumulative total return is the cumulative rate
of return on a hypothetical initial investment of $1,000 in a specific class of
shares of the Fund for a specified period. Cumulative total return quotations
reflect changes in the price of the Fund's shares and assume that all dividends
and capital gains distributions during the period were reinvested in the Fund
shares. Cumulative total return is calculated by computing the cumulative rates
of return of a hypothetical investment in a specific class of shares of the Fund
over such periods, according to the following formula (cumulative total return
is then expressed as a percentage):
C = (ERV/P) - 1
Where: C = cumulative total return
P = a hypothetical initial investment
of $1,000 to purchase shares of a
specific class
ERV = ending redeemable value: ERV is
the value, at the end of the
applicable period, of a hypothetical
$1,000 investment made at the
beginning of the applicable period.
The following table summarizes the calculation of Cumulative Total
Return for the periods indicated through December 31, 1998, assuming the maximum
5.75% sales charge has been assessed.
ONE YEAR FIVE YEARS SINCE INCEPTION[*]
Class A
Class B
Class C
Advisor Class
The following table summarizes the calculation of Cumulative Total
Return for the periods indicated through December 31, 1998, assuming the maximum
5.75% sales charge has not been assessed.
ONE YEAR FIVE YEARS SINCE INCEPTION[*]
Class A
Class B
Class C
Advisor Class
- ---------------------------
[*] The inception date for the Fund (Class A and Class B shares) was
October 23, 1993. The inception date for Class C shares of the Fund was
April 30, 1996. The inception date for Advisor Class shares was January
1, 1998.
OTHER QUOTATIONS, COMPARISONS AND GENERAL INFORMATION. The foregoing
computation methods are prescribed for advertising and other communications
subject to SEC Rule 482. Communications not subject to this rule may contain a
number of different measures of performance, computation methods and
assumptions, including but not limited to: historical total returns; results of
actual or hypothetical investments; changes in dividends, distributions or share
values; or any graphic illustration of such data. These data may cover any
period of the Trust's existence and may or may not include the impact of sales
charges, taxes or other factors.
Performance quotations for the Fund will vary from time to time
depending on market conditions, the composition of the Fund's portfolio and
operating expenses of the Fund. These factors and possible differences in the
methods used in calculating performance quotations should be considered when
comparing performance information regarding the Fund's shares with information
published for other investment companies and other investment vehicles.
Performance quotations should also be considered relative to changes in the
value of the Fund's shares and the risks associated with the Fund's investment
objectives and policies. At any time in the future, performance quotations may
be higher or lower than past performance quotations and there can be no
assurance that any historical performance quotation will continue in the future.
The Fund may also cite endorsements or use for comparison its
performance rankings and listings reported in such newspapers or business or
consumer publications as, among others: AAII Journal, Barron's, Boston Business
Journal, Boston Globe, Boston Herald, Business Week, Consumer's Digest, Consumer
Guide Publications, Changing Times, Financial Planning, Financial World, Forbes,
Fortune, Growth Fund Guide, Houston Post, Institutional Investor, International
Fund Monitor, Investor's Daily, Los Angeles Times, Medical Economics, Miami
Herald, Money Mutual Fund Forecaster, Mutual Fund Letter, Mutual Fund Source
Book, Mutual Fund Values, National Underwriter, Nelson's Directory of Investment
Managers, New York Times, Newsweek, No Load Fund Investor, No Load Fund* X,
Oakland Tribune, Pension World, Pensions and Investment Age, Personal Investor,
Rugg and Steele, Time, U.S. News and World Report, USA Today, The Wall Street
Journal, and Washington Post.
FINANCIAL STATEMENTS
The Fund's Portfolio of Investments as of December 31, 1998, Statement
of Assets and Liabilities as of December 31, 1998, Statement of Operations for
the fiscal year ended December 31, 1998, Statement of Changes in Net Assets for
the fiscal year ended December 31, 1998, Financial Highlights, Notes to
Financial Statements, and Report of Independent Accountants, which are included
in the Fund's December 31, 1998 Annual Report to shareholders, are incorporated
by reference into this SAI.
<PAGE>
APPENDIX A
DESCRIPTION OF STANDARD & POOR'S RATINGS GROUP ("S&P") AND
MOODY'S INVESTORS SERVICE, INC. ("MOODY'S") CORPORATE
BOND AND COMMERCIAL PAPER RATINGS
[From "Moody's Bond Record," November 1994 Issue (Moody's Investors
Service, New York, 1994), and "Standard & Poor's Municipal Ratings Handbook,"
October 1997 Issue (McGraw Hill, New York, 1997).]
MOODY'S:
(a) CORPORATE BONDS. Bonds rated Aaa by Moody's are judged by Moody's
to be of the best quality, carrying the smallest degree of investment risk.
Interest payments are protected by a large or exceptionally stable margin and
principal is secure. While the various protective elements are likely to change,
such changes as can be visualized are most unlikely to impair the fundamentally
strong position of such issues. Bonds rated Aa are judged by Moody's to be of
high quality by all standards. Aa bonds are rated lower than Aaa bonds because
margins of protection may not be as large as those of Aaa bonds, or fluctuations
of protective elements may be of greater amplitude, or there may be other
elements present which make the long-term risks appear somewhat larger than
those applicable to Aaa securities. Bonds which are rated A by Moody's possess
many favorable investment attributes and are to be considered as upper
medium-grade obligations. Factors giving security to principal and interest are
considered adequate, but elements may be present which suggest a susceptibility
to impairment sometime in the future. Bonds rated Baa by Moody's are considered
medium-grade obligations (i.e., they are neither highly protected nor poorly
secured). Interest payments and principal security appear adequate for the
present, but certain protective elements may be lacking or may be
characteristically unreliable over any great length of time. Such bonds lack
outstanding investment characteristics and in fact have speculative
characteristics as well. Bonds which are rated Ba are judged to have speculative
elements; their future cannot be considered well-assured. Often the protection
of interest and principal payments may be very moderate and thereby not well
safeguarded during both good and bad times over the future. Uncertainty of
position characterizes bonds in this class. Bonds which are rated B generally
lack characteristics of the desirable investment. Assurance of interest and
principal payments of or maintenance of other terms of the contract over any
long period of time may be small. Bonds which are rated Caa are of poor
standing. Such issues may be in default or there may be present elements of
danger with respect to principal or interest. Bonds which are rated Ca represent
obligations which are speculative in a high degree. Such issues are often in
default or have other marked shortcomings. Bonds which are rated C are the
lowest rated class of bonds and issues so rated can be regarded as having
extremely poor prospects of ever attaining any real investment standing.
(b) COMMERCIAL PAPER. The Prime rating is the highest commercial paper
rating assigned by Moody's. Among the factors considered by Moody's in assigning
ratings are the following: (1) evaluation of the management of the issuer; (2)
economic evaluation of the issuer's industry or industries and an appraisal of
speculative-type risks which may be inherent in certain areas; (3) evaluation of
the issuer's products in relation to competition and customer acceptance; (4)
liquidity; (5) amount and quality of long-term debt; (6) trend of earnings over
a period of ten years; (7) financial strength of a parent company and the
relationships which exist with the issuer; and (8) recognition by management of
obligations which may be present or may arise as a result of public interest
questions and preparations to meet such obligations. Issuers within this Prime
category may be given ratings 1, 2 or 3, depending on the relative strengths of
these factors. The designation of Prime-1 indicates the highest quality
repayment capacity of the rated issue. Issuers rated Prime-2 are deemed to have
a strong ability for repayment while issuers voted Prime-3 are deemed to have an
acceptable ability for repayment. Issuers rated Not Prime do not fall within any
of the Prime rating categories.
S&P:
(a) CORPORATE BONDS. An S&P corporate debt rating is a current
assessment of the creditworthiness of an obligor with respect to a specific
obligation. The ratings are based on current information furnished by the issuer
or obtained by S&P from other sources it considers reliable. The ratings
described below may be modified by the addition of a plus or minus sign to show
relative standing within the major rating categories.
Debt rated AAA has the highest rating assigned by S&P. Capacity to pay
interest and repay principal is extremely strong. Debt rated AA is judged by S&P
to have a very strong capacity to pay interest and repay principal and differs
from the highest rated issues only in small degree. Debt rated A by S&P has a
strong capacity to pay interest and repay principal, although it is somewhat
more susceptible to the adverse effects of changes in circumstances and economic
conditions than debt in higher rated categories.
Debt rated BBB by S&P is regarded by S&P as having an adequate capacity
to pay interest and repay principal. Although such bonds normally exhibit
adequate protection parameters, adverse economic conditions or changing
circumstances are more likely to lead to a weakened capacity to pay interest and
repay principal than debt in higher rated categories.
Debt rated BB, B, CCC, CC and C is regarded as having predominately
speculative characteristics with respect to capacity to pay interest and repay
principal. BB indicates the least degree of speculation and C the highest. While
such debt will likely have some quality and protective characteristics, these
are outweighed by large uncertainties or exposures to adverse conditions. Debt
rated BB has less near-term vulnerability to default than other speculative
issues. However, it faces major ongoing uncertainties or exposure to adverse
business, financial or economic conditions which could lead to inadequate
capacity to meet timely interest and principal payments. The BB rating category
is also used for debt subordinated to senior debt that is assigned an actual or
implied BBB- rating. Debt rated B has a greater vulnerability to default but
currently has the capacity to meet interest payments and principal repayments.
Adverse business, financial, or economic conditions will likely impair capacity
or willingness to pay interest and repay principal. The B rating category is
also used for debt subordinated to senior debt that is assigned an actual or
implied BB or BB- rating. Debt rated CCC has a currently identifiable
vulnerability to default, and is dependent upon favorable business, financial,
and economic conditions to meet timely payment of interest and repayment of
principal. In the event of adverse business, financial or economic conditions,
it is not likely to have the capacity to pay interest and repay principal. The
CCC rating category is also used for debt subordinated to senior debt that is
assigned an actual or implied B or B- rating. The rating CC typically is applied
to debt subordinated to senior debt which is assigned an actual or implied CCC
debt rating. The rating C typically is applied to debt subordinated to senior
debt which is assigned an actual or implied CCC- debt rating. The C rating may
be used to cover a situation where a bankruptcy petition has been filed, but
debt service payments are continued.
The rating CI is reserved for income bonds on which no interest is
being paid. Debt rated D is in payment default. The D rating category is used
when interest payments or principal payments are not made on the date due, even
if the applicable grace period has not expired, unless S&P believes that such
payments will be made during such grace period. The D rating also will be used
upon the filing of a bankruptcy petition if debt service payments are
jeopardized.
(b) COMMERCIAL PAPER. An S&P commercial paper rating is a current
assessment of the likelihood of timely payment of debt considered short-term in
the relevant market.
The commercial paper rating A-1 by S&P indicates that the degree of
safety regarding timely payment is strong. Those issues determined to possess
extremely strong safety characteristics are denoted with a plus sign (+)
designation. For commercial paper with an A-2 rating, the capacity for timely
payment on issues is satisfactory, but not as high as for issues designated A-1.
Issues rated A-3 have adequate capacity for timely payment, but are more
vulnerable to the adverse effects of changes in circumstances than obligations
carrying higher designations.
Issues rated B are regarded as having only speculative capacity for
timely payment. The C rating is assigned to short-term debt obligations with a
doubtful capacity for payment. Debt rated D is in payment default. The D rating
category is used when interest payments or principal payments are not made on
the date due, even if the applicable grace period has not expired, unless S&P
believes such payments will be made during such grace period.
<PAGE>
IVY DEVELOPING NATIONS FUND
a series of
IVY FUND
Via Mizner Financial Plaza, Suite 300
700 South Federal Highway
Boca Raton, Florida 33432
STATEMENT OF ADDITIONAL INFORMATION
April , 1999
Ivy Fund (the "Trust") is an open-end management investment company
that currently consists of nineteen fully managed portfolios, each of which
(except for Ivy South America Fund and Ivy International Strategic Bond Fund) is
diversified. This Statement of Additional Information ("SAI") relates to the
Class A, B, C and Advisor Class shares of Ivy Developing Nations Fund (the
"Fund"). The other eighteen portfolios of the Trust are described in separate
prospectuses and SAIs.
This SAI is not a prospectus and should be read in conjunction with the
prospectus for the Fund dated April , 1999 (the "Prospectus"), which may be
obtained upon request and without charge from the Trust at the Distributor's
address and telephone number printed below.
INVESTMENT MANAGER
Ivy Management, Inc. ("IMI")
Via Mizner Financial Plaza, Suite 300
700 South Federal Highway
Boca Raton, Florida 33432
Telephone: (800) 777-6472
DISTRIBUTOR
Ivy Mackenzie Distributors, Inc. ("IMDI")
Via Mizner Financial Plaza, Suite 300
700 South Federal Highway
Boca Raton, Florida 33432
Telephone: (800) 456-5111
<PAGE>
iii
TABLE OF CONTENTS
GENERAL INFORMATION.......................................................
INVESTMENT OBJECTIVES, STRATEGIES AND RISKS...............................
COMMON STOCKS....................................................
CONVERTIBLE SECURITIES...........................................
DEBT SECURITIES..................................................
IN GENERAL..............................................
INVESTMENT-GRADE DEBT SECURITIES........................
LOW-RATED DEBT SECURITIES...............................
U.S. GOVERNMENT SECURITIES..............................
ZERO COUPON BONDS.......................................
FIRM COMMITMENT AGREEMENTS AND "WHEN-ISSUED" SECURITIES.
ILLIQUID SECURITIES..............................................
FOREIGN SECURITIES...............................................
DEPOSITORY RECEIPTS..............................................
EMERGING MARKETS.................................................
FOREIGN CURRENCIES...............................................
FOREIGN CURRENCY EXCHANGE TRANSACTIONS...........................
OTHER INVESTMENT COMPANIES.......................................
REPURCHASE AGREEMENTS............................................
BANKING INDUSTRY AND SAVINGS AND LOAN OBLIGATIONS................
COMMERCIAL PAPER.................................................
BORROWING........................................................
WARRANTS.........................................................
OPTIONS TRANSACTIONS.............................................
IN GENERAL..............................................
WRITING OPTIONS ON INDIVIDUAL SECURITIES................
PURCHASING OPTIONS ON INDIVIDUAL SECURITIES.............
PURCHASING AND WRITING OPTIONS ON SECURITIES INDICES....
RISKS OF OPTIONS TRANSACTIONS...........................
FUTURES CONTRACTS AND OPTIONS ON FUTURES CONTRACTS...............
IN GENERAL..............................................
FOREIGN CURRENCY FUTURES CONTRACTS AND RELATED OPTIONS..
RISKS ASSOCIATED WITH FUTURES AND RELATED OPTIONS.......
SECURITIES INDEX FUTURES CONTRACTS...............................
RISKS OF SECURITIES INDEX FUTURES.......................
COMBINED TRANSACTIONS...................................
INVESTMENT RESTRICTIONS...................................................
PORTFOLIO TURNOVER........................................................
TRUSTEES AND OFFICERS.....................................................
PERSONAL INVESTMENTS BY EMPLOYEES OF IMI................
INVESTMENT ADVISORY AND OTHER SERVICES....................................
BUSINESS MANAGEMENT AND INVESTMENT ADVISORY SERVICES.............
DISTRIBUTION SERVICES............................................
RULE 18F-3 PLAN.........................................
RULE 12B-1 DISTRIBUTION PLANS...........................
CUSTODIAN........................................................
FUND ACCOUNTING SERVICES.........................................
TRANSFER AGENT AND DIVIDEND PAYING AGENT.........................
ADMINISTRATOR....................................................
AUDITORS.........................................................
BROKERAGE ALLOCATION......................................................
CAPITALIZATION AND VOTING RIGHTS..........................................
SPECIAL RIGHTS AND PRIVILEGES.............................................
AUTOMATIC INVESTMENT METHOD......................................
EXCHANGE OF SHARES...............................................
INITIAL SALES CHARGE SHARES.............................
CONTINGENT DEFERRED SALES CHARGE SHARES CLASS A.........
CLASS B.................................................
CLASS C.................................................
ADVISOR CLASS...........................................
ALL CLASSES.............................................
LETTER OF INTENT.................................................
RETIREMENT PLANS.................................................
INDIVIDUAL RETIREMENT ACCOUNTS..........................
ROTH IRAS...............................................
QUALIFIED PLANS.........................................
DEFERRED COMPENSATION FOR PUBLIC SCHOOLS AND CHARITABLE
ORGANIZATIONS ("403(B)(7) ACCOUNT")
SIMPLIFIED EMPLOYEE PENSION ("SEP") IRAS.................
SIMPLE PLANS.............................................
REINVESTMENT PRIVILEGE............................................
RIGHTS OF ACCUMULATION............................................
SYSTEMATIC WITHDRAWAL PLAN........................................
GROUP SYSTEMATIC INVESTMENT PROGRAM...............................
REDEMPTIONS................................................................
CONVERSION OF CLASS B SHARES...............................................
NET ASSET VALUE............................................................
TAXATION 43
OPTIONS, FUTURES AND FOREIGN CURRENCY FORWARD CONTRACTS...........
CURRENCY FLUCTUATIONS -- "SECTION 988" GAINS OR LOSSES............
INVESTMENT IN PASSIVE FOREIGN INVESTMENT COMPANIES................
DEBT SECURITIES ACQUIRED AT A DISCOUNT............................
DISTRIBUTIONS.....................................................
DISPOSITION OF SHARES.............................................
FOREIGN WITHHOLDING TAXES.........................................
BACKUP WITHHOLDING................................................
PERFORMANCE INFORMATION....................................................
YIELD....................................................
AVERAGE ANNUAL TOTAL RETURN..............................
CUMULATIVE TOTAL RETURN..................................
OTHER QUOTATIONS, COMPARISONS AND GENERAL INFORMATION....
FINANCIAL STATEMENTS.......................................................
APPENDIX A.................................................................
<PAGE>
GENERAL INFORMATION
The Fund is organized as a separate, diversified portfolio of the
Trust, an open-end management investment company organized as a Massachusetts
business trust on December 21, 1983. The inception date for the Fund's Class A
and Class B shares was November 1, 1994. The inception dates for the Fund's
Class C and Advisor Class shares were April 30, 1996 and January 1, 1998,
respectively.
Descriptions in this Statement of a particular investment practice or
technique in which the Fund may engage or a financial instrument which the Fund
may purchase are meant to describe the spectrum of investments that IMI, in its
discretion, might, but is not required to, use in managing the Fund's portfolio
assets. IMI may, in its discretion, at any time employ such practice, technique
or instrument for one or more funds but not for all funds advised by it.
Furthermore, it is possible that certain types of financial instruments or
investment techniques described herein may not be available, permissible,
economically feasible or effective for their intended purposes in all markets.
Certain practices, techniques, or instruments may not be principal activities of
the Fund but, to the extent employed, could from time to time have a material
impact on the Fund's performance.
INVESTMENT OBJECTIVES, STRATEGIES AND RISKS
The Fund has its own investment objectives and policies, which are
described in the Prospectus under the captions "Summary" and "Additional
Information About Strategies and Risks." Additional information regarding the
characteristics and risks associated with the Fund's investment techniques is
set forth below.
The Fund's principal objective is long-term growth. Consideration of
current income is secondary to this principal objective. In pursuing its
objective, the Fund invests primarily in the equity securities of companies that
IMI believes will benefit from the economic development and growth of emerging
markets. The Fund considers countries having emerging markets to be those that
(i) are generally considered to be "developing" or "emerging" by the World Bank
and the International Finance Corporation, or (ii) are classified by the United
Nations (or otherwise regarded by their authorities) as "emerging." Under normal
market conditions, the Fund invests at least 65% of its total assets in equity
securities (including common and preferred stocks, convertible debt obligations,
warrants, options (subject to the restrictions set forth below), rights, and
sponsored or unsponsored ADRs, GDRs, ADSs and GDSs that are listed on stock
exchanges or traded over-the-counter) of "Emerging Market growth companies,"
which are defined as companies (a) for which the principal securities trading
market is an emerging market (as defined above), (b) that each (alone or on a
consolidated basis) derives 50% or more of its total revenue either from goods,
sales or services in emerging markets, or (c) that are organized under the laws
of (and with a principal office in) an emerging market country.
The Fund normally invests its assets in the securities of issuers
located in at least three emerging market countries, and may invest 25% or more
of its total assets in the securities of issuers located in any one country.
IMI's determination as to whether a company qualifies as an Emerging Market
growth company is based primarily on information contained in financial
statements, reports, analyses and other pertinent information (some of which may
be obtained directly from the company).
For purposes of capital appreciation, the Fund may invest up to 35% of
its total assets in (i) debt securities of government or corporate issuers in
emerging market countries, (ii) equity and debt securities of issuers in
developed countries (including the United States), and (iii) cash or cash
equivalents such as bank obligations (including certificates of deposit and
bankers' acceptances), commercial paper, short-term notes and repurchase
agreements. For temporary defensive purposes, the Fund may invest without limit
in such instruments. The Fund may also invest in zero coupon bonds and purchase
securities on a "when-issued" or firm commitment basis.
The Fund will not invest more than 20% of its total assets in debt
securities rated Ba or lower by Moody's or BB or lower by S&P, or if unrated,
considered by IMI to be of comparable quality (commonly referred to as "high
yield" or "junk" bonds). The Fund will not invest in debt securities rated less
than C by either Moody's or S&P. [As of December 31, 1998, the Fund held no
low-rated debt securities.]
For temporary or emergency purposes, the Fund may borrow up to
one-third of the value of its total assets from banks, but may not purchase
securities at any time during which the value of the Fund's outstanding loans
exceeds 10% of the value of the Fund's total assets. The Fund may engage in
foreign currency exchange transactions and enter into forward foreign currency
contracts. The Fund may also invest up to 10% of its total assets in other
investment companies, and up to 15% of its net assets in illiquid securities.
The Fund may purchase put and call options on securities and stock
indices, provided the premium paid for such options does not exceed 5% of the
Fund's net assets. The Fund may also sell covered put options with respect to up
to 10% of the value of its net assets, and may write covered call options so
long as not more than 25% of the Fund's net assets is subject to being purchased
upon the exercise of the calls. For hedging purposes only, the Fund may engage
in transactions in (and options on) stock index and foreign currency futures
contracts, provided that the Fund's equivalent exposure in such contracts does
not exceed 15% of its total assets.
COMMON STOCKS
Common stock can be issued by companies to raise cash; all common stock
shares represent a proportionate ownership interest in a company. As a result,
the value of common stock rises and falls with a company's success or failure.
The market value of common stock can fluctuate significantly, with smaller
companies being particularly susceptible to price swings. Transaction costs in
smaller company stocks may also be higher than those of larger companies.
CONVERTIBLE SECURITIES
The convertible securities in which the Fund may invest include
corporate bonds, notes, debentures, preferred stock and other securities that
may be converted or exchanged at a stated or determinable exchange ratio into
underlying shares of common stock. Investments in convertible securities can
provide income through interest and dividend payments as well as an opportunity
for capital appreciation by virtue of their conversion or exchange features.
Because convertible securities can be converted into equity securities, their
values will normally vary in some proportion with those of the underlying equity
securities. Convertible securities usually provide a higher yield than the
underlying equity, however, so that the price decline of a convertible security
may sometimes be less substantial than that of the underlying equity security.
The exchange ratio for any particular convertible security may be adjusted from
time to time due to stock splits, dividends, spin-offs, other corporate
distributions or scheduled changes in the exchange ratio. Convertible debt
securities and convertible preferred stocks, until converted, have general
characteristics similar to both debt and equity securities. Although to a lesser
extent than with debt securities generally, the market value of convertible
securities tends to decline as interest rates increase and, conversely, tends to
increase as interest rates decline. In addition, because of the conversion or
exchange feature, the market value of convertible securities typically changes
as the market value of the underlying common stock changes, and, therefore, also
tends to follow movements in the general market for equity securities. When the
market price of the underlying common stock increases, the price of a
convertible security tends to rise as a reflection of the value of the
underlying common stock, although typically not as much as the price of the
underlying common stock. While no securities investments are without risk,
investments in convertible securities generally entail less risk than
investments in common stock of the same issuer.
As debt securities, convertible securities are investments that provide
for a stream of income. Like all debt securities, there can be no assurance of
income or principal payments because the issuers of the convertible securities
may default on their obligations. Convertible securities generally offer lower
yields than non-convertible securities of similar quality because of their
conversion or exchange features.
Convertible securities generally are subordinated to other similar but
non-convertible securities of the same issuer, although convertible bonds, as
corporate debt obligations, are senior in right of payment to all equity
securities, and convertible preferred stock is senior to common stock, of the
same issuer. However, convertible bonds and convertible preferred stock
typically have lower coupon rates than similar non-convertible securities.
Convertible securities may be issued as fixed income obligations that pay
current income.
DEBT SECURITIES
IN GENERAL. Investment in debt securities involves both interest rate
and credit risk. Generally, the value of debt instruments rises and falls
inversely with fluctuations in interest rates. As interest rates decline, the
value of debt securities generally increases. Conversely, rising interest rates
tend to cause the value of debt securities to decrease. Bonds with longer
maturities generally are more volatile than bonds with shorter maturities. The
market value of debt securities also varies according to the relative financial
condition of the issuer. In general, lower-quality bonds offer higher yields due
to the increased risk that the issuer will be unable to meet its obligations on
interest or principal payments at the time called for by the debt instrument.
INVESTMENT-GRADE DEBT SECURITIES. Bonds rated Aaa by Moody's Investors
Service, Inc. ("Moody's") and AAA by Standard & Poor's Ratings Group ("S&P") are
judged to be of the best quality (i.e., capacity to pay interest and repay
principal is extremely strong). Bonds rated Aa/AA are considered to be of high
quality (i.e., capacity to pay interest and repay principal is very strong and
differs from the highest rated issues only to a small degree). Bonds rated A are
viewed as having many favorable investment attributes, but elements may be
present that suggest a susceptibility to the adverse effects of changes in
circumstances and economic conditions than debt in higher rated categories.
Bonds rated Baa/BBB (considered by Moody's to be "medium grade" obligations) are
considered to have an adequate capacity to pay interest and repay principal, but
certain protective elements may be lacking (i.e., such bonds lack outstanding
investment characteristics and have some speculative characteristics). The Fund
may invest in debt securities that are given an investment-grade rating by
Moody's or S&P, and may also invest in unrated debt securities that are
considered by IMI to be of comparable quality.
LOW-RATED DEBT SECURITIES. Securities rated lower than Baa by Moody's
or BBB by S&P, and comparable unrated securities (commonly referred to as "high
yield" or "junk" bonds), including many emerging markets bonds, are considered
to be predominantly speculative with respect to the issuer's continuing ability
to meet principal and interest payments. The lower the ratings of corporate debt
securities, the more their risks render them like equity securities. Such
securities carry a high degree of risk (including the possibility of default or
bankruptcy of the issuers of such securities), and generally involve greater
volatility of price and risk of principal and income (and may be less liquid)
than securities in the higher rating categories. (See Appendix A for a more
complete description of the ratings assigned by Moody's and S&P and their
respective characteristics.)
Lower rated and unrated securities are especially subject to adverse
changes in general economic conditions and to changes in the financial condition
of their issuers. Economic downturns may disrupt the high yield market and
impair the ability of issuers to repay principal and interest. Also, an increase
in interest rates would likely have an adverse impact on the value of such
obligations. During an economic downturn or period of rising interest rates,
highly leveraged issuers may experience financial stress which could adversely
affect their ability to service their principal and interest payment
obligations. Prices and yields of high yield securities will fluctuate over time
and, during periods of economic uncertainty, volatility of high yield securities
may adversely affect the Fund's net asset value. In addition, investments in
high yield zero coupon or pay-in-kind bonds, rather than income-bearing high
yield securities, may be more speculative and may be subject to greater
fluctuations in value due to changes in interest rates.
Changes in interest rates may have a less direct or dominant impact on
high yield bonds than on higher quality issues of similar maturities. However,
the price of high yield bonds can change significantly or suddenly due to a host
of factors including changes in interest rates, fundamental credit quality,
market psychology, government regulations, U.S. economic growth and, at times,
stock market activity. High yield bonds may contain redemption or call
provisions. If an issuer exercises these provisions in a declining interest rate
market, the Fund may have to replace the security with a lower yielding
security.
The trading market for high yield securities may be thin to the extent
that there is no established retail secondary market or because of a decline in
the value of such securities. A thin trading market may limit the ability of the
Fund to accurately value high yield securities in the Fund's portfolio, could
adversely affect the price at which the Fund could sell such securities, and
cause large fluctuations in the daily net asset value of the Fund's shares.
Adverse publicity and investor perceptions, whether or not based on fundamental
analysis, may decrease the value and liquidity of low-rated debt securities,
especially in a thinly traded market. When secondary markets for high yield
securities become relatively less liquid, it may be more difficult to value the
securities, requiring additional research and elements of judgment. These
securities may also involve special registration responsibilities, liabilities
and costs, and liquidity and valuation difficulties.
Credit quality in the high yield securities market can change suddenly
and unexpectedly, and even recently issued credit ratings may not fully reflect
the actual risks posed by a particular high yield security. For these reasons,
it is the policy of IMI not to rely exclusively on ratings issued by established
credit rating agencies, but to supplement such ratings with its own independent
and on-going review of credit quality. The achievement of the Fund's investment
objectives by investment in such securities may be more dependent on IMI's
credit analysis than is the case for higher quality bonds. Should the rating of
a portfolio security be downgraded, IMI will determine whether it is in the best
interest of the Fund to retain or dispose of such security. However, should any
individual bond held by the Fund be downgraded below a rating of C, IMI
currently intends to dispose of such bond based on then existing market
conditions.
Prices for high yield securities may be affected by legislative and
regulatory developments. For example, Federal rules require savings and loan
institutions to gradually reduce their holdings of this type of security. Also,
Congress has from time to time considered legislation that would restrict or
eliminate the corporate tax deduction for interest payments in these securities
and regulate corporate restructurings. Such legislation may significantly
depress the prices of outstanding securities of this type.
U.S. GOVERNMENT SECURITIES. U.S. Government securities are obligations of,
or guaranteed by, the U.S. Government, its agencies or
instrumentalities. Securities guaranteed by the U.S. Government
include: (1) direct obligations of the U.S. Treasury (such as Treasury
bills, notes, and bonds) and (2) Federal agency obligations guaranteed
as to principal and interest by the U.S. Treasury (such as GNMA
certificates, which are mortgage-backed securities). When such
securities are held to maturity, the payment of principal and interest
is unconditionally guaranteed by the U.S. Government, and thus they
are of the highest possible credit quality. U.S. Government securities
that are not held to maturity are subject to variations in market
value due to fluctuations in interest rates.
Mortgage-backed securities are securities representing part ownership
of a pool of mortgage loans. For example, GNMA certificates are such securities
in which the timely payment of principal and interest is guaranteed by the full
faith and credit of the U.S. Government. Although the mortgage loans in the pool
will have maturities of up to 30 years, the actual average life of the loans
typically will be substantially less because the mortgages will be subject to
principal amortization and may be prepaid prior to maturity. Prepayment rates
vary widely and may be affected by changes in market interest rates. In periods
of falling interest rates, the rate of prepayment tends to increase, thereby
shortening the actual average life of the security. Conversely, rising interest
rates tend to decrease the rate of prepayments, thereby lengthening the actual
average life of the security (and increasing the security's price volatility).
Accordingly, it is not possible to predict accurately the average life of a
particular pool. Reinvestment of prepayment may occur at higher or lower rates
than the original yield on the certificates. Due to the prepayment feature and
the need to reinvest prepayments of principal at current rates, mortgage-backed
securities can be less effective than typical bonds of similar maturities at
"locking in" yields during periods of declining interest rates, and may involve
significantly greater price and yield volatility than traditional debt
securities. Such securities may appreciate or decline in market value during
periods of declining or rising interest rates, respectively.
Securities issued by U.S. Government instrumentalities and certain
Federal agencies are neither direct obligations of nor guaranteed by the U.S.
Treasury; however, they involve Federal sponsorship in one way or another. Some
are backed by specific types of collateral, some are supported by the issuer's
right to borrow from the Treasury, some are supported by the discretionary
authority of the Treasury to purchase certain obligations of the issuer, others
are supported only by the credit of the issuing government agency or
instrumentality. These agencies and instrumentalities include, but are not
limited to, Federal Land Banks, Farmers Home Administration, Central Bank for
Cooperatives, Federal Intermediate Credit Banks, Federal Home Loan Banks,
Federal National Mortgage Association, Federal Home Loan Mortgage Association,
and Student Loan Marketing Association.
ZERO COUPON BONDS. Zero coupon bonds are debt obligations issued
without any requirement for the periodic payment of interest. Zero coupon bonds
are issued at a significant discount from face value. The discount approximates
the total amount of interest the bonds would accrue and compound over the period
until maturity at a rate of interest reflecting the market rate at the time of
issuance. If the Fund holds zero coupon bonds in its portfolio, it would
recognize income currently for Federal income tax purposes in the amount of the
unpaid, accrued interest and generally would be required to distribute dividends
representing such income to shareholders currently, even though funds
representing such income would not have been received by the Fund. Cash to pay
dividends representing unpaid, accrued interest may be obtained from, for
example, sales proceeds of portfolio securities and Fund shares and from loan
proceeds. The potential sale of portfolio securities to pay cash distributions
from income earned on zero coupon bonds may result in the Fund being forced to
sell portfolio securities at a time when it might otherwise choose not to sell
these securities and when the Fund might incur a capital loss on such sales.
Because interest on zero coupon obligations is not distributed to the Fund on a
current basis, but is in effect compounded, the value of the securities of this
type is subject to greater fluctuations in response to changing interest rates
than the value of debt obligations which distribute income regularly.
FIRM COMMITMENT AGREEMENTS AND "WHEN-ISSUED" SECURITIES. New issues of
certain debt securities are often offered on a "when-issued" basis, meaning the
payment obligation and the interest rate are fixed at the time the buyer enters
into the commitment, but delivery and payment for the securities normally take
place after the date of the commitment to purchase. Firm commitment agreements
call for the purchase of securities at an agreed-upon price on a specified
future date. The Fund uses such investment techniques in order to secure what is
considered to be an advantageous price and yield to the Fund and not for
purposes of leveraging the Fund's assets. In either instance, the Fund will
maintain in a segregated account with its Custodian cash or liquid securities
equal (on a daily marked-to-market basis) to the amount of its commitment to
purchase the underlying securities.
ILLIQUID SECURITIES
The Fund may purchase securities other than in the open market. While
such purchases may often offer attractive opportunities for investment not
otherwise available on the open market, the securities so purchased are often
"restricted securities" or "not readily marketable" (i.e., they cannot be sold
to the public without registration under the Securities Act of 1933, as amended
(the "1933 Act"), or the availability of an exemption from registration (such as
Rule 144A) or because they are subject to other legal or contractual delays in
or restrictions on resale). This investment practice, therefore, could have the
effect of increasing the level of illiquidity of the Fund. It is the Fund's
policy that illiquid securities (including repurchase agreements of more than
seven days duration, certain restricted securities, and other securities which
are not readily marketable) may not constitute, at the time of purchase, more
than 15% of the value of the Fund's net assets. The Trust's Board of Trustees
has approved guidelines for use by IMI in determining whether a security is
illiquid.
Generally speaking, restricted securities may be sold (i) only to
qualified institutional buyers; (ii) in a privately negotiated transaction to a
limited number of purchasers; (iii) in limited quantities after they have been
held for a specified period of time and other conditions are met pursuant to an
exemption from registration; or (iv) in a public offering for which a
registration statement is in effect under the 1933 Act. Issuers of restricted
securities may not be subject to the disclosure and other investor protection
requirements that would be applicable if their securities were publicly traded.
If adverse market conditions were to develop during the period between the
Fund's decision to sell a restricted or illiquid security and the point at which
the Fund is permitted or able to sell such security, the Fund might obtain a
price less favorable than the price that prevailed when it decided to sell.
Where a registration statement is required for the resale of restricted
securities, the Fund may be required to bear all or part of the registration
expenses. The Fund may be deemed to be an "underwriter" for purposes of the 1933
Act when selling restricted securities to the public and, in such event, the
Fund may be liable to purchasers of such securities if the registration
statement prepared by the issuer is materially inaccurate or misleading.
Since it is not possible to predict with assurance that the market for
securities eligible for resale under Rule 144A will continue to be liquid, IMI
will monitor such restricted securities subject to the supervision of the Board
of Trustees. Among the factors IMI may consider in reaching liquidity decisions
relating to Rule 144A securities are: (1) the frequency of trades and quotes for
the security; (2) the number of dealers wishing to purchase or sell the security
and the number of other potential purchasers; (3) dealer undertakings to make a
market in the security; and (4) the nature of the security and the nature of the
market for the security (i.e., the time needed to dispose of the security, the
method of soliciting offers, and the mechanics of the transfer).
FOREIGN SECURITIES
The securities of foreign issuers in which the Fund may invest include
non-U.S. dollar-denominated debt securities, Euro dollar securities, sponsored
and unsponsored American Depository Receipts ("ADRs"), Global Depository
Receipts ("GDRs") and related depository instruments, American Depository Shares
("ADSs"), Global Depository Shares ("GDSs"), and debt securities issued, assumed
or guaranteed by foreign governments or political subdivisions or
instrumentalities thereof. Shareholders should consider carefully the
substantial risks involved in investing in securities issued by companies and
governments of foreign nations, which are in addition to the usual risks
inherent in the Fund's domestic investments.
Although IMI intends to invest the Fund's assets only in nations that
are generally considered to have relatively stable and friendly governments,
there is the possibility of expropriation, nationalization, repatriation or
confiscatory taxation, taxation on income earned in a foreign country and other
foreign taxes, foreign exchange controls (which may include suspension of the
ability to transfer currency from a given country), default on foreign
government securities, political or social instability or diplomatic
developments which could affect investments in securities of issuers in those
nations. In addition, in many countries there is less publicly available
information about issuers than is available for U.S. companies. Moreover,
foreign companies are not generally subject to uniform accounting, auditing and
financial reporting standards, and auditing practices and requirements may not
be comparable to those applicable to U.S. companies. In many foreign countries,
there is less governmental supervision and regulation of business and industry
practices, stock exchanges, brokers, and listed companies than in the United
States. Foreign securities transactions may also be subject to higher brokerage
costs than domestic securities transactions. The foreign securities markets of
many of the countries in which the Fund may invest may also be smaller, less
liquid and subject to greater price volatility than those in the United States.
In addition, the Fund may encounter difficulties or be unable to pursue legal
remedies and obtain judgment in foreign courts.
Foreign bond markets have different clearance and settlement procedures
and in certain markets there have been times when settlements have been unable
to keep pace with the volume of securities transactions, making it difficult to
conduct such transactions. Delays in settlement could result in temporary
periods when assets of the Fund are uninvested and no return is earned thereon.
The inability of the Fund to make intended security purchases due to settlement
problems could cause the Fund to miss attractive investment opportunities.
Further, the inability to dispose of portfolio securities due to settlement
problems could result either in losses to the Fund because of subsequent
declines in the value of the portfolio security or, if the Fund has entered into
a contract to sell the security, in possible liability to the purchaser. It may
be more difficult for the Fund's agents to keep currently informed about
corporate actions such as stock dividends or other matters that may affect the
prices of portfolio securities. Communications between the United States and
foreign countries may be less reliable than within the United States, thus
increasing the risk of delayed settlements of portfolio transactions or loss of
certificates for portfolio securities. Moreover, individual foreign economies
may differ favorably or unfavorably from the United States economy in such
respects as growth of gross national product, rate of inflation, capital
reinvestment, resource self-sufficiency and balance of payments position. IMI
seeks to mitigate the risks to the Fund associated with the foregoing
considerations through investment variation and continuous professional
management.
DEPOSITORY RECEIPTS
ADRs, GDRs, ADSs, GDSs and related securities are depository
instruments, the issuance of which is typically administered by a U.S. or
foreign bank or trust company. These instruments evidence ownership of
underlying securities issued by a U.S. or foreign corporation. ADRs are publicly
traded on exchanges or over-the-counter ("OTC") in the United States.
Unsponsored programs are organized independently and without the cooperation of
the issuer of the underlying securities. As a result, information concerning the
issuer may not be as current or as readily available as in the case of sponsored
depository instruments, and their prices may be more volatile than if they were
sponsored by the issuers of the underlying securities.
EMERGING MARKETS
The Fund could have significant investments in securities traded in
emerging markets. Investors should recognize that investing in such countries
involves special considerations, in addition to those set forth above, that are
not typically associated with investing in United States securities and that may
affect the Fund's performance favorably or unfavorably.
In recent years, many emerging market countries around the world have
undergone political changes that have reduced government's role in economic and
personal affairs and have stimulated investment and growth. Historically, there
is a strong direct correlation between economic growth and stock market returns.
While this is no guarantee of future performance, IMI believes that investment
opportunities (particularly in the energy, environmental services, natural
resources, basic materials, power, telecommunications and transportation
industries) may result within the evolving economies of emerging market
countries from which the Fund and its shareholders will benefit.
Investments in companies domiciled in developing countries may be
subject to potentially higher risks than investments in developed countries.
Such risks include (i) less social, political and economic stability; (ii) a
small market for securities and/or a low or nonexistent volume of trading, which
result in a lack of liquidity and in greater price volatility; (iii) certain
national policies that may restrict the Fund's investment opportunities,
including restrictions on investment in issuers or industries deemed sensitive
to national interests; (iv) foreign taxation; (v) the absence of developed
structures governing private or foreign investment or allowing for judicial
redress for injury to private property; (vi) the absence, until relatively
recently in certain Eastern European countries, of a capital market structure or
market-oriented economy; (vii) the possibility that recent favorable economic
developments in Eastern Europe may be slowed or reversed by unanticipated
political or social events in such countries; and (viii) the possibility that
currency devaluations could adversely affect the value of the Fund's
investments. Further, many emerging markets have experienced and continue to
experience high rates of inflation.
Despite the dissolution of the Soviet Union, the Communist Party may
continue to exercise a significant role in certain Eastern European countries.
To the extent of the Communist Party's influence, investments in such countries
will involve risks of nationalization, expropriation and confiscatory taxation.
The communist governments of a number of Eastern European countries expropriated
large amounts of private property in the past, in many cases without adequate
compensation, and there can be no assurance that such expropriation will not
occur in the future. In the event of such expropriation, the Fund could lose a
substantial portion of any investments it has made in the affected countries.
Further, few (if any) accounting standards exist in Eastern European countries.
Finally, even though certain Eastern European currencies may be convertible into
U.S. dollars, the conversion rates may be artificial in relation to the actual
market values and may be adverse to the Fund's net asset value.
Certain Eastern European countries that do not have well-established
trading markets are characterized by an absence of developed legal structures
governing private and foreign investments and private property. In addition,
certain countries require governmental approval prior to investments by foreign
persons, or limit the amount of investment by foreign persons in a particular
company, or limit the investment of foreign persons to only a specific class of
securities of a company that may have less advantageous terms than securities of
the company available for purchase by nationals.
Authoritarian governments in certain Eastern European countries may
require that a governmental or quasi-governmental authority act as custodian of
the Fund's assets invested in such country. To the extent such governmental or
quasi-governmental authorities do not satisfy the requirements of the Investment
Company Act of 1940, as amended (the "1940 Act"), with respect to the custody of
the Fund's cash and securities, the Fund's investment in such countries may be
limited or may be required to be effected through intermediaries. The risk of
loss through governmental confiscation may be increased in such countries.
FOREIGN CURRENCIES
Investment in foreign securities usually will involve currencies of
foreign countries. Moreover, the Fund may temporarily hold funds in bank
deposits in foreign currencies during the completion of investment programs and
may purchase forward foreign currency contracts. Because of these factors, the
value of the assets of the Fund as measured in U.S. dollars may be affected
favorably or unfavorably by changes in foreign currency exchange rates and
exchange control regulations, and the Fund may incur costs in connection with
conversions between various currencies. Although the Fund's custodian values the
Fund's assets daily in terms of U.S. dollars, the Fund does not intend to
convert its holdings of foreign currencies into U.S. dollars on a daily basis.
The Fund will do so from time to time, however, and investors should be aware of
the costs of currency conversion. Although foreign exchange dealers do not
charge a fee for conversion, they do realize a profit based on the difference
(the "spread") between the prices at which they are buying and selling various
currencies. Thus, a dealer may offer to sell a foreign currency to the Fund at
one rate, while offering a lesser rate of exchange should the Fund desire to
resell that currency to the dealer. The Fund will conduct its foreign currency
exchange transactions either on a spot (i.e., cash) basis at the spot rate
prevailing in the foreign currency exchange market, or through entering into
forward contracts to purchase or sell foreign currencies.
Because the Fund normally will be invested in both U.S. and foreign
securities markets, changes in the Fund's share price may have a low correlation
with movements in U.S. markets. The Fund's share price will reflect the
movements of the different stock and bond markets in which it is invested (both
U.S. and foreign), and of the currencies in which the investments are
denominated. Thus, the strength or weakness of the U.S. dollar against foreign
currencies may account for part of the Fund's investment performance. U.S. and
foreign securities markets do not always move in step with each other, and the
total returns from different markets may vary significantly. In addition,
significant uncertainty surrounds the proposed introduction of the euro (a
common currency for the European Union) in January 1999 and its effect on the
value of securities denominated in local European currencies. These and other
currencies in which the Fund's assets are denominated may be devalued against
the U.S. dollar, resulting in a loss to the Fund.
FOREIGN CURRENCY EXCHANGE TRANSACTIONS
The Fund may enter into forward foreign currency contracts in order to
protect against uncertainty in the level of future foreign exchange rates in the
purchase and sale of securities. A forward contract is an obligation to purchase
or sell a specific currency for an agreed price at a future date (usually less
than a year), and typically is individually negotiated and privately traded by
currency traders and their customers. A forward contract generally has no
deposit requirement, and no commissions are charged at any stage for trades.
Although foreign exchange dealers do not charge a fee for commissions, they do
realize a profit based on the difference between the price at which they are
buying and selling various currencies. Although these contracts are intended to
minimize the risk of loss due to a decline in the value of the hedged
currencies, at the same time, they tend to limit any potential gain which might
result should the value of such currencies increase.
While the Fund may enter into forward contracts to reduce currency
exchange risks, changes in currency exchange rates may result in poorer overall
performance for the Fund than if it had not engaged in such transactions.
Moreover, there may be an imperfect correlation between the Fund's portfolio
holdings of securities denominated in a particular currency and forward
contracts entered into by the Fund. An imperfect correlation of this type may
prevent the Fund from achieving the intended hedge or expose the Fund to the
risk of currency exchange loss.
The Fund may purchase currency forwards and combine such purchases with
sufficient cash or short-term securities to create unleveraged substitutes for
investments in foreign markets when deemed advantageous. The Fund may also
combine the foregoing with bond futures or interest rate futures contracts to
create the economic equivalent of an unhedged foreign bond position.
The Fund may also cross-hedge currencies by entering into transactions
to purchase or sell one or more currencies that are expected to decline in value
relative to other currencies to which the Fund has or in which the Fund expects
to have portfolio exposure.
Currency transactions are subject to risks different from those of
other portfolio transactions. Because currency control is of great importance to
the issuing governments and influences economic planning and policy, purchases
and sales of currency and related instruments can be negatively affected by
government exchange controls, blockages, and manipulations or exchange
restrictions imposed by governments. These can result in losses to the Fund if
it is unable to deliver or receive currency or funds in settlement of
obligations and could also cause hedges it has entered into to be rendered
useless, resulting in full currency exposure as well as incurring transactions
costs. Buyers and sellers of currency futures are subject to the same risks that
apply to the use of futures generally. Further, settlement of a currency futures
contract for the purchase of most currencies must occur at a bank based in the
issuing nation. Trading options on currency futures is relatively new, and the
ability to establish and close out positions on such options is subject to the
maintenance of a liquid market which may not always be available. Currency
exchange rates may fluctuate based on factors extrinsic to that country's
economy.
OTHER INVESTMENT COMPANIES
The Fund may invest up to 10% of its total assets in the shares of
other investment companies. As a shareholder of an investment company, the Fund
would bear its ratable shares of the fund's expenses (which often include an
asset-based management fee). The Fund could also lose money by investing in
other investment companies, since the value of their respective investments and
the income they generate will vary daily based on prevailing market conditions.
REPURCHASE AGREEMENTS
Repurchase agreements are contracts under which the Fund buys a money
market instrument and obtains a simultaneous commitment from the seller to
repurchase the instrument at a specified time and at an agreed-upon yield. Under
guidelines approved by the Board, the Fund is permitted to enter into repurchase
agreements only if the repurchase agreements are at least fully collateralized
with U.S. Government securities or other securities that IMI has approved for
use as collateral for repurchase agreements and the collateral must be
marked-to-market daily. The Fund will enter into repurchase agreements only with
banks and broker-dealers deemed to be creditworthy by IMI under the
above-referenced guidelines. In the unlikely event of failure of the executing
bank or broker-dealer, the Fund could experience some delay in obtaining direct
ownership of the underlying collateral and might incur a loss if the value of
the security should decline, as well as costs in disposing of the security.
BANKING INDUSTRY AND SAVINGS AND LOAN OBLIGATIONS
Certificates of deposit are negotiable certificates issued against
funds deposited in a commercial bank for a definite period of time and earning a
specified return. Bankers' acceptances are negotiable drafts or bills of
exchange, normally drawn by an importer or exporter to pay for specific
merchandise, which are "accepted" by a bank (meaning, in effect, that the bank
unconditionally agrees to pay the face value of the instrument at maturity). In
addition to investing in certificates of deposit and bankers' acceptances, the
Fund may invest in time deposits in banks or savings and loan associations. Time
deposits are generally similar to certificates of deposit, but are
uncertificated. The Fund's investments in certificates of deposit, time
deposits, and bankers' acceptance are limited to obligations of (i) banks having
total assets in excess of $1 billion, (ii) U.S. banks which do not meet the $1
billion asset requirement, if the principal amount of such obligation is fully
insured by the Federal Deposit Insurance Corporation (the "FDIC"), (iii) savings
and loan association which have total assets in excess of $1 billion and which
are members of the FDIC, and (iv) foreign banks if the obligation is, in IMI's
opinion, of an investment quality comparable to other debt securities which may
be purchased by the Fund. The Fund's investments in certificates of deposit of
savings associations are limited to obligations of Federal and state-chartered
institutions whose total assets exceed $1 billion and whose deposits are insured
by the FDIC.
COMMERCIAL PAPER
Commercial paper represents short-term unsecured promissory notes
issued in bearer form by bank holding companies, corporations and finance
companies. The Fund may invest in commercial paper that is rated Prime-1 by
Moody's Investors Service, Inc. ("Moody's") or A-1 by Standard & Poor's
Corporation ("S&P") or, if not rated by Moody's or S&P, is issued by companies
having an outstanding debt issue rated Aaa or Aa by Moody's or AAA or AA by S&P.
BORROWING
Borrowing may exaggerate the effect on the Fund's net asset value of
any increase or decrease in the value of the Fund's portfolio securities. Money
borrowed will be subject to interest costs (which may include commitment fees
and/or the cost of maintaining minimum average balances). Although the principal
of the Fund's borrowings will be fixed, the Fund's assets may change in value
during the time a borrowing is outstanding, thus increasing exposure to capital
risk.
WARRANTS
The holder of a warrant has the right, until the warrant expires, to
purchase a given number of shares of a particular issuer at a specified price.
Such investments can provide a greater potential for profit or loss than an
equivalent investment in the underlying security. However, prices of warrants do
not necessarily move in a tandem with the prices of the underlying securities,
and are, therefore, considered speculative investments. Warrants pay no
dividends and confer no rights other than a purchase option. Thus, if a warrant
held by the Fund were not exercised by the date of its expiration, the Fund
would lose the entire purchase price of the warrant.
OPTIONS TRANSACTIONS
IN GENERAL. A call option is a short-term contract (having a duration
of less than one year) pursuant to which the purchaser, in return for the
premium paid, has the right to buy the security underlying the option at the
specified exercise price at any time during the term of the option. The writer
of the call option, who receives the premium, has the obligation, upon exercise
of the option, to deliver the underlying security against payment of the
exercise price. A put option is a similar contract pursuant to which the
purchaser, in return for the premium paid, has the right to sell the security
underlying the option at the specified exercise price at any time during the
term of the option. The writer of the put option, who receives the premium, has
the obligation, upon exercise of the option, to buy the underlying security at
the exercise price. The premium paid by the purchaser of an option will reflect,
among other things, the relationship of the exercise price to the market price
and volatility of the underlying security, the time remaining to expiration of
the option, supply and demand, and interest rates.
If the writer of an option wishes to terminate the obligation, the
writer may effect a "closing purchase transaction." This is accomplished by
buying an option of the same series as the option previously written. The effect
of the purchase is that the writer's position will be canceled by the Options
Clearing Corporation. However, a writer may not effect a closing purchase
transaction after it has been notified of the exercise of an option. Likewise,
an investor who is the holder of an option may liquidate his or her position by
effecting a "closing sale transaction." This is accomplished by selling an
option of the same series as the option previously purchased. There is no
guarantee that either a closing purchase or a closing sale transaction can be
effected at any particular time or at any acceptable price. If any call or put
option is not exercised or sold, it will become worthless on its expiration
date.
The Fund will realize a gain (or a loss) on a closing purchase
transaction with respect to a call or a put previously written by the Fund if
the premium, plus commission costs, paid by the Fund to purchase the call or the
put is less (or greater) than the premium, less commission costs, received by
the Fund on the sale of the call or the put. A gain also will be realized if a
call or a put that the Fund has written lapses unexercised, because the Fund
would retain the premium. Any such gains (or losses) are considered short-term
capital gains (or losses) for Federal income tax purposes. Net short-term
capital gains, when distributed by the Fund, are taxable as ordinary income. See
"Taxation."
The Fund will realize a gain (or a loss) on a closing sale transaction
with respect to a call or a put previously purchased by the Fund if the premium,
less commission costs, received by the Fund on the sale of the call or the put
is greater (or less) than the premium, plus commission costs, paid by the Fund
to purchase the call or the put. If a put or a call expires unexercised, it will
become worthless on the expiration date, and the Fund will realize a loss in the
amount of the premium paid, plus commission costs. Any such gain or loss will be
long-term or short-term gain or loss, depending upon the Fund's holding period
for the option.
Exchange-traded options generally have standardized terms and are
issued by a regulated clearing organization (such as the Options Clearing
Corporation), which, in effect, guarantees the completion of every
exchange-traded option transaction. In contrast, the terms of OTC options are
negotiated by the Fund and its counterparty (usually a securities dealer or a
financial institution) with no clearing organization guarantee. When the Fund
purchases an OTC option, it relies on the party from whom it has purchased the
option (the "counterparty") to make delivery of the instrument underlying the
option. If the counterparty fails to do so, the Fund will lose any premium paid
for the option, as well as any expected benefit of the transaction. Accordingly,
IMI will assess the creditworthiness of each counterparty to determine the
likelihood that the terms of the OTC option will be satisfied.
WRITING OPTIONS ON INDIVIDUAL SECURITIES. The Fund may write (sell)
covered call options on the Fund's securities in an attempt to realize a greater
current return than would be realized on the securities alone. The Fund may also
write covered call options to hedge a possible stock or bond market decline
(only to the extent of the premium paid to the Fund for the options). In view of
the investment objectives of the Fund, the Fund generally would write call
options only in circumstances where the investment adviser to the Fund does not
anticipate significant appreciation of the underlying security in the near
future or has otherwise determined to dispose of the security.
A "covered" call option means generally that so long as the Fund is
obligated as the writer of a call option, the Fund will (i) own the underlying
securities subject to the option, or (ii) have the right to acquire the
underlying securities through immediate conversion or exchange of convertible
preferred stocks or convertible debt securities owned by the Fund. Although the
Fund receives premium income from these activities, any appreciation realized on
an underlying security will be limited by the terms of the call option. The Fund
may purchase call options on individual securities only to effect a "closing
purchase transaction."
As the writer of a call option, the Fund receives a premium for
undertaking the obligation to sell the underlying security at a fixed price
during the option period, if the option is exercised. So long as the Fund
remains obligated as a writer of a call option, it forgoes the opportunity to
profit from increases in the market price of the underlying security above the
exercise price of the option, except insofar as the premium represents such a
profit (and retains the risk of loss should the value of the underlying security
decline).
PURCHASING OPTIONS ON INDIVIDUAL SECURITIES. The Fund may purchase a
put option on an underlying security owned by the Fund as a defensive technique
in order to protect against an anticipated decline in the value of the security.
The Fund, as the holder of the put option, may sell the underlying security at
the exercise price regardless of any decline in its market price. In order for a
put option to be profitable, the market price of the underlying security must
decline sufficiently below the exercise price to cover the premium and
transaction costs that the Fund must pay. These costs will reduce any profit the
Fund might have realized had it sold the underlying security instead of buying
the put option. The premium paid for the put option would reduce any capital
gain otherwise available for distribution when the security is eventually sold.
The purchase of put options will not be used by the Fund for leverage purposes.
The Fund may also purchase a put option on an underlying security that
it owns and at the same time write a call option on the same security with the
same exercise price and expiration date. Depending on whether the underlying
security appreciates or depreciates in value, the Fund would sell the underlying
security for the exercise price either upon exercise of the call option written
by it or by exercising the put option held by it. The Fund would enter into such
transactions in order to profit from the difference between the premium received
by the Fund for the writing of the call option and the premium paid by the Fund
for the purchase of the put option, thereby increasing the Fund's current
return. The Fund may write (sell) put options on individual securities only to
effect a "closing sale transaction."
PURCHASING AND WRITING OPTIONS ON SECURITIES INDICES. The Fund may
purchase and sell (write) put and call options on securities indices. An index
assigns relative values to the securities included in the index and the index
fluctuates with changes in the market values of the securities so included.
Options on indices are similar to options on individual securities, except that,
rather than giving the purchaser the right to take delivery of an individual
security at a specified price, they give the purchaser the right to receive
cash. The amount of cash is equal to the difference between the closing price of
the index and the exercise price of the option, expressed in dollars, times a
specified multiple (the "multiplier"). The writer of the option is obligated, in
return for the premium received, to make delivery of this amount.
The multiplier for an index option performs a function similar to the
unit of trading for a stock option. It determines the total dollar value per
contract of each point in the difference between the exercise price of an option
and the current level of the underlying index. A multiplier of 100 means that a
one-point difference will yield $100. Options on different indices have
different multipliers.
When the Fund writes a call or put option on a stock index, the option
is "covered", in the case of a call, or "secured", in the case of a put, if the
Fund maintains in a segregated account with the Custodian cash or liquid
securities equal to the contract value. A call option is also covered if the
Fund holds a call on the same index as the call written where the exercise price
of the call held is (i) equal to or less than the exercise price of the call
written or (ii) greater than the exercise price of the call written, provided
that the Fund maintains in a segregated account with the Custodian the
difference in cash or liquid securities. A put option is also "secured" if the
Fund holds a put on the same index as the put written where the exercise price
of the put held is (i) equal to or greater than the exercise price of the put
written or (ii) less than the exercise price of the put written, provided that
the Fund maintains in a segregated account with the Custodian the difference in
cash or liquid securities.
RISKS OF OPTIONS TRANSACTIONS. The purchase and writing of options
involves certain risks. During the option period, the covered call writer has,
in return for the premium on the option, given up the opportunity to profit from
a price increase in the underlying securities above the exercise price, but, as
long as its obligation as a writer continues, has retained the risk of loss
should the price of the underlying security decline. The writer of a U.S. option
has no control over the time when it may be required to fulfill its obligation
as a writer of the option. Once an option writer has received an exercise
notice, it cannot effect a closing purchase transaction in order to terminate
its obligation under the option and must deliver the underlying securities (or
cash in the case of an index option) at the exercise price. If a put or call
option purchased by the Fund is not sold when it has remaining value, and if the
market price of the underlying security (or index), in the case of a put,
remains equal to or greater than the exercise price or, in the case of a call,
remains less than or equal to the exercise price, the Fund will lose its entire
investment in the option. Also, where a put or call option on a particular
security (or index) is purchased to hedge against price movements in a related
security (or securities), the price of the put or call option may move more or
less than the price of the related security (or securities). In this regard,
there are differences between the securities and options markets that could
result in an imperfect correlation between these markets, causing a given
transaction not to achieve its objective.
There can be no assurance that a liquid market will exist when the Fund
seeks to close out an option position. Furthermore, if trading restrictions or
suspensions are imposed on the options markets, the Fund may be unable to close
out a position. Finally, trading could be interrupted, for example, because of
supply and demand imbalances arising from a lack of either buyers or sellers, or
the options exchange could suspend trading after the price has risen or fallen
more than the maximum amount specified by the exchange. Closing transactions can
be made for OTC options only by negotiating directly with the counterparty or by
a transaction in the secondary market, if any such market exists. There is no
assurance that the Fund will be able to close out an OTC option position at a
favorable price prior to its expiration. In the event of insolvency of the
counterparty, the Fund might be unable to close out an OTC option position at
any time prior to its expiration. Although the Fund may be able to offset to
some extent any adverse effects of being unable to liquidate an option position,
the Fund may experience losses in some cases as a result of such inability.
When conducted outside the U.S., options transactions may not be
regulated as rigorously as in the U.S., may not involve a clearing mechanism and
related guarantees, and are subject to the risk of governmental actions
affecting trading in, or the prices of, foreign securities, currencies and other
instruments. The value of such positions also could be adversely affected by:
(i) other complex foreign political, legal and economic factors, (ii) lesser
availability than in the U.S. of data on which to make trading decisions, (iii)
delays in the Fund's ability to act upon economic events occurring in foreign
markets during non-business hours in the U.S., (iv) the imposition of different
exercise and settlement terms and procedures and margin requirements than in the
U.S., and (v) lower trading volume and liquidity.
The Fund's options activities also may have an impact upon the level of its
portfolio turnover and brokerage commissions. See "Portfolio Turnover."
The Fund's success in using options techniques depends, among other
things, on IMI's ability to predict accurately the direction and volatility of
price movements in the options and securities markets, and to select the proper
type, time and duration of options.
FUTURES CONTRACTS AND OPTIONS ON FUTURES CONTRACTS
IN GENERAL. The Fund may enter into futures contracts and options on
futures contracts for hedging purposes. A futures contract provides for the
future sale by one party and purchase by another party of a specified quantity
of a commodity at a specified price and time. When a purchase or sale of a
futures contract is made by the Fund, the Fund is required to deposit with its
custodian (or broker, if legally permitted) a specified amount of cash or liquid
securities ("initial margin"). The margin required for a futures contract is set
by the exchange on which the contract is traded and may be modified during the
term of the contract. The initial margin is in the nature of a performance bond
or good faith deposit on the futures contract which is returned to the Fund upon
termination of the contract, assuming all contractual obligations have been
satisfied. A futures contract held by the Fund is valued daily at the official
settlement price of the exchange on which it is traded. Each day the Fund pays
or receives cash, called "variation margin," equal to the daily change in value
of the futures contract. This process is known as "marking to market." Variation
margin does not represent a borrowing or loan by the Fund but is instead a
settlement between the Fund and the broker of the amount one would owe the other
if the futures contract expired. In computing daily net asset value, the Fund
will mark-to-market its open futures position.
The Fund is also required to deposit and maintain margin with respect
to put and call options on futures contracts written by it. Such margin deposits
will vary depending on the nature of the underlying futures contract (and the
related initial margin requirements), the current market value of the option,
and other futures positions held by the Fund.
Although some futures contracts call for making or taking delivery of
the underlying securities, generally these obligations are closed out prior to
delivery of offsetting purchases or sales of matching futures contracts (same
exchange, underlying security or index, and delivery month). If an offsetting
purchase price is less than the original sale price, the Fund generally realizes
a capital gain, or if it is more, the Fund generally realizes a capital loss.
Conversely, if an offsetting sale price is more than the original purchase
price, the Fund generally realizes a capital gain, or if it is less, the Fund
generally realizes a capital loss.
The transaction costs must also be included in these calculations.
When purchasing a futures contract, the Fund will maintain with its
Custodian (and mark-to-market on a daily basis) cash or liquid securities that,
when added to the amounts deposited with a futures commission merchant ("FCM")
as margin, are equal to the market value of the futures contract. Alternatively,
the Fund may "cover" its position by purchasing a put option on the same futures
contract with a strike price as high as or higher than the price of the contract
held by the Fund, or, if lower, may cover the difference with cash or short-term
securities.
When selling a futures contract, the Fund will maintain with its
Custodian in a segregated account (and mark-to-market on a daily basis) cash or
liquid securities that, when added to the amounts deposited with an FCM as
margin, are equal to the market value of the instruments underlying the
contract. Alternatively, the Fund may "cover" its position by owning the
instruments underlying the contract (or, in the case of an index futures
contract, a portfolio with a volatility substantially similar to that of the
index on which the futures contract is based), or by holding a call option
permitting the Fund to purchase the same futures contract at a price no higher
than the price of the contract written by the Fund (or at a higher price if the
difference is maintained in liquid assets with the Fund's custodian).
When selling a call option on a futures contract, the Fund will
maintain with its Custodian in a segregated account (and mark-to-market on a
daily basis) cash or liquid securities that, when added to the amounts deposited
with an FCM as margin, equal the total market value of the futures contract
underlying the call option. Alternatively, the Fund may cover its position by
entering into a long position in the same futures contract at a price no higher
than the strike price of the call option, by owning the instruments underlying
the futures contract, or by holding a separate call option permitting the Fund
to purchase the same futures contract at a price not higher than the strike
price of the call option sold by the Fund, or covering the difference if the
price is higher.
When selling a put option on a futures contract, the Fund will maintain
with its Custodian (and mark-to-market on a daily basis) cash or liquid
securities that equal the purchase price of the futures contract less any margin
on deposit. Alternatively, the Fund may cover the position either by entering
into a short position in the same futures contract, or by owning a separate put
option permitting it to sell the same futures contract so long as the strike
price of the purchased put option is the same or higher than the strike price of
the put option sold by the Fund, or, if lower, the Fund may hold securities to
cover the difference.
FOREIGN CURRENCY FUTURES CONTRACTS AND RELATED OPTIONS. The Fund may
engage in foreign currency futures contracts and related options transactions
for hedging purposes. A foreign currency futures contract provides for the
future sale by one party and purchase by another party of a specified quantity
of a foreign currency at a specified price and time.
An option on a foreign currency futures contract gives the holder the
right, in return for the premium paid, to assume a long position (call) or short
position (put) in a futures contract at a specified exercise price at any time
during the period of the option. Upon the exercise of a call option, the holder
acquires a long position in the futures contract and the writer is assigned the
opposite short position. In the case of a put option, the opposite is true.
The Fund may purchase call and put options on foreign currencies as a
hedge against changes in the value of the U.S. dollar (or another currency) in
relation to a foreign currency in which portfolio securities of the Fund may be
denominated. A call option on a foreign currency gives the buyer the right to
buy, and a put option the right to sell, a certain amount of foreign currency at
a specified price during a fixed period of time. The Fund may invest in options
on foreign currency which are either listed on a domestic securities exchange or
traded on a recognized foreign exchange.
In those situations where foreign currency options may not be readily
purchased (or where such options may be deemed illiquid) in the currency in
which the hedge is desired, the hedge may be obtained by purchasing an option on
a "surrogate" currency, i.e., a currency where there is tangible evidence of a
direct correlation in the trading value of the two currencies. A surrogate
currency's exchange rate movements parallel that of the primary currency.
Surrogate currencies are used to hedge an illiquid currency risk, when no liquid
hedge instruments exist in world currency markets for the primary currency.
The Fund will only enter into futures contracts and futures options
which are standardized and traded on a U.S. or foreign exchange, board of trade,
or similar entity or quoted on an automated quotation system. The Fund will not
enter into a futures contract or purchase an option thereon if, immediately
thereafter, the aggregate initial margin deposits for futures contracts held by
the Fund plus premiums paid by it for open futures option positions, less the
amount by which any such positions are "in-the-money," would exceed 5% of the
liquidation value of the Fund's portfolio (or the Fund's net asset value), after
taking into account unrealized profits and unrealized losses on any such
contracts the Fund has entered into. A call option is "in-the-money" if the
value of the futures contract that is the subject of the option exceeds the
exercise price. A put option is "in-the-money" if the exercise price exceeds the
value of the futures contract that is the subject of the option. For additional
information about margin deposits required with respect to futures contracts and
options thereon, see "Futures Contracts and Options on Futures Contracts."
RISKS ASSOCIATED WITH FUTURES AND RELATED OPTIONS. There can be no
guarantee that there will be a correlation between price movements in the
hedging vehicle and in the Fund's portfolio securities being hedged. In
addition, there are significant differences between the securities and futures
markets that could result in an imperfect correlation between the markets,
causing a given hedge not to achieve its objectives. The degree of imperfection
of correlation depends on circumstances such as variations in speculative market
demand for futures and futures options on securities, including technical
influences in futures trading and futures options, and differences between the
financial instruments being hedged and the instruments underlying the standard
contracts available for trading in such respects as interest rate levels,
maturities, and creditworthiness of issuers. A decision as to whether, when and
how to hedge involves the exercise of skill and judgment, and even a
well-conceived hedge may be unsuccessful to some degree because of market
behavior or unexpected interest rate trends.
Futures exchanges may limit the amount of fluctuation permitted in
certain futures contract prices during a single trading day. The daily limit
establishes the maximum amount that the price of a futures contract may vary
either up or down from the previous day's settlement price at the end of the
current trading session. Once the daily limit has been reached in a futures
contract subject to the limit, no more trades may be made on that day at a price
beyond that limit. The daily limit governs only price movements during a
particular trading day and therefore does not limit potential losses because the
limit may work to prevent the liquidation of unfavorable positions. For example,
futures prices have occasionally moved to the daily limit for several
consecutive trading days with little or no trading, thereby preventing prompt
liquidation of positions and subjecting some holders of futures contracts to
substantial losses.
There can be no assurance that a liquid market will exist at a time
when the Fund seeks to close out a futures or a futures option position, and the
Fund would remain obligated to meet margin requirements until the position is
closed. In addition, there can be no assurance that an active secondary market
will continue to exist.
Currency futures contracts and options thereon may be traded on foreign
exchanges. Such transactions may not be regulated as effectively as similar
transactions in the United States; may not involve a clearing mechanism and
related guarantees; and are subject to the risk of governmental actions
affecting trading in, or the prices of, foreign securities. The value of such
position also could be adversely affected by (i) other complex foreign
political, legal and economic factors, (ii) lesser availability than in the
United States of data on which to make trading decisions, (iii) delays in the
Fund's ability to act upon economic events occurring in foreign markets during
non business hours in the United States, (iv) the imposition of different
exercise and settlement terms and procedures and margin requirements than in the
United States, and (v) lesser trading volume.
SECURITIES INDEX FUTURES CONTRACTS
The Fund may enter into securities index futures contracts as an
efficient means of regulating the Fund's exposure to the equity markets. The
Fund will not engage in transactions in futures contracts for speculation, but
only as a hedge against changes resulting from market conditions in the values
of securities held in the Fund's portfolio or which it intends to purchase. An
index futures contract is a contract to buy or sell units of an index at a
specified future date at a price agreed upon when the contract is made. Entering
into a contract to buy units of an index is commonly referred to as purchasing a
contract or holding a long position in the index. Entering into a contract to
sell units of an index is commonly referred to as selling a contract or holding
a short position. The value of a unit is the current value of the stock index.
For example, the S&P 500 Index is composed of 500 selected common stocks, most
of which are listed on the New York Stock Exchange (the "Exchange"). The S&P 500
Index assigns relative weightings to the 500 common stocks included in the
Index, and the Index fluctuates with changes in the market values of the shares
of those common stocks. In the case of the S&P 500 Index, contracts are to buy
or sell 500 units. Thus, if the value of the S&P 500 Index were $150, one
contract would be worth $75,000 (500 units x $150). The index futures contract
specifies that no delivery of the actual securities making up the index will
take place. Instead, settlement in cash must occur upon the termination of the
contract, with the settlement being the difference between the contract price
and the actual level of the stock index at the expiration of the contract. For
example, if the Fund enters into a futures contract to buy 500 units of the S&P
500 Index at a specified future date at a contract price of $150 and the S&P 500
Index is at $154 on that future date, the Fund will gain $2,000 (500 units x
gain of $4). If the Fund enters into a futures contract to sell 500 units of the
stock index at a specified future date at a contract price of $150 and the S&P
500 Index is at $154 on that future date, the Fund will lose $2,000 (500 units x
loss of $4).
RISKS OF SECURITIES INDEX FUTURES. The Fund's success in using hedging
techniques depends, among other things, on IMI's ability to predict correctly
the direction and volatility of price movements in the futures and options
markets as well as in the securities markets and to select the proper type, time
and duration of hedges. The skills necessary for successful use of hedges are
different from those used in the selection of individual stocks.
The Fund's ability to hedge effectively all or a portion of its
securities through transactions in index futures (and therefore the extent of
its gain or loss on such transactions) depends on the degree to which price
movements in the underlying index correlate with price movements in the Fund's
securities. Inasmuch as such securities will not duplicate the components of an
index, the correlation probably will not be perfect. Consequently, the Fund will
bear the risk that the prices of the securities being hedged will not move in
the same amount as the hedging instrument. This risk will increase as the
composition of the Fund's portfolio diverges from the composition of the hedging
instrument.
Although the Fund intends to establish positions in these instruments
only when there appears to be an active market, there is no assurance that a
liquid market will exist at a time when the Fund seeks to close a particular
option or futures position. Trading could be interrupted, for example, because
of supply and demand imbalances arising from a lack of either buyers or sellers.
In addition, the futures exchanges may suspend trading after the price has risen
or fallen more than the maximum amount specified by the exchange. In some cases,
the Fund may experience losses as a result of its inability to close out a
position, and it may have to liquidate other investments to meet its cash needs.
Although some index futures contracts call for making or taking
delivery of the underlying securities, generally these obligations are closed
out prior to delivery by offsetting purchases or sales of matching futures
contracts (same exchange, underlying security or index, and delivery month). If
an offsetting purchase price is less than the original sale price, the Fund
generally realizes a capital gain, or if it is more, the Fund generally realizes
a capital loss. Conversely, if an offsetting sale price is more than the
original purchase price, the Fund generally realizes a capital gain, or if it is
less, the Fund generally realizes a capital loss.
The transaction costs must also be included in these calculations.
The Fund will only enter into index futures contracts or futures
options that are standardized and traded on a U.S. or foreign exchange or board
of trade, or similar entity, or quoted on an automated quotation system. The
Fund will use futures contracts and related options only for "bona fide hedging"
purposes, as such term is defined in applicable regulations of the CFTC.
When purchasing an index futures contract, the Fund will maintain with
its Custodian (and mark-to-market on a daily basis) cash or liquid securities
that, when added to the amounts deposited with a futures commission merchant
("FCM") as margin, are equal to the market value of the futures contract.
Alternatively, the Fund may "cover" its position by purchasing a put option on
the same futures contract with a strike price as high as or higher than the
price of the contract held by the Fund.
When selling an index futures contract, the Fund will maintain with its
Custodian (and mark-to-market on a daily basis) cash or liquid securities that,
when added to the amounts deposited with an FCM as margin, are equal to the
market value of the instruments underlying the contract. Alternatively, the Fund
may "cover" its position by owning the instruments underlying the contract (or,
in the case of an index futures contract, a portfolio with a volatility
substantially similar to that of the index on which the futures contract is
based), or by holding a call option permitting the Fund to purchase the same
futures contract at a price no higher than the price of the contract written by
the Fund (or at a higher price if the difference is maintained in cash or liquid
assets in a segregated account with the Fund's custodian).
COMBINED TRANSACTIONS. The Fund may enter into multiple transactions,
including multiple options transactions, multiple futures transactions and
multiple currency transactions (including forward currency contracts) and some
combination of futures, options, and currency transactions ("component"
transactions), instead of a single transaction, as part of a single or combined
strategy when, in the opinion of IMI, it is in the best interests of the Fund to
do so. A combined transaction will usually contain elements of risk that are
present in each of its component transactions. Although combined transactions
are normally entered into based on IMI's judgment that the combined strategies
will reduce risk or otherwise more effectively achieve the desired portfolio
management goal, it is possible that the combination will instead increase such
risks or hinder achievement of the management objective.
INVESTMENT RESTRICTIONS
The Fund's investment objectives as set forth in the "Summary" section
of the Prospectus, together with the investment restrictions set forth below,
are fundamental policies of the Fund and may not be changed without the approval
of a majority of the outstanding voting shares of the Fund. Under these
restrictions, the Fund may not:
(i) borrow money, except for temporary or emergency purposes;
provided that the Fund Maintains asset coverage of 300% for
all borrowings;
(ii) purchase securities on margin;
(iii) sell securities short;
(iv) lend any funds or other assets, except that this restriction shall not
prohibit (a) the entry into repurchase agreements, (b) the purchase of
publicly distributed bonds, debentures and other securities of a
similar type, or privately placed municipal or corporate bonds,
debentures and other securities of a type customarily purchased by
institutional investor or publicly traded in the securities markets,
or (c) the lending of portfolio securities (provided that the loan is
secured continuously by collateral consisting of U.S. Government
securities or cash or cash equivalents maintained on a daily
marked-to-market basis in an amount at least equal to the market value
of the securities loaned);
(v) participate in the underwriting or selling group in connection
with the public distribution of securities except for its own
capital stock;
(vi) purchase from or sell to any of its officers or trustees, or
firms of which any of them are members or which they control,
any securities (other than capital stock of the Fund), but
such persons or firms may act a brokers for the Fund for
customary commissions to the extent permitted by the
Investment Company Act of 1940;
(vii) purchase or sell real estate or commodities and commodity contracts;
(viii) make an investment in securities of companies in any one
industry (except obligations of domestic banks or the U.S.
Government, its agencies, authorities, or instrumentalities)
if such investment would cause investments in such industry to
exceed 25% of the market value of the Fund's total assets at
the time of such investment;
(ix) issue senior securities, except as appropriate to evidence
indebtedness which it is permitted to incur, and except to the
extent that shares of the separate classes or series of the
Trust may be deemed to be senior securities; provided that
collateral arrangements with respect to currency-related
contracts, futures contracts, options or other permitted
investments, including deposits of initial and variation
margin, are not considered to be the issuance of senior
securities for purposes of this restriction; or
(x) purchase securities of any one issuer (except U.S. Government
securities) if as a result more than 5% of the Fund's total
assets would be invested in such issuer or the Fund would own
or hold more than 10% of the outstanding voting securities of
the issuer; provided, however, that up to 25% of the value of
the Fund's total assets may be invested without regard to
these limitations.
Under the 1940 Act, the Fund is permitted, subject to the above
investment restrictions, to borrow money only from banks. The Trust has no
current intention of borrowing amounts in excess of 5% of the Fund's assets. The
Fund will continue to interpret fundamental investment restrictions (vii) to
prohibit investment in real estate limited partnership interests; this
restriction shall not, however, prohibit investment in readily marketable
securities of companies that invest in real estate or interests therein,
including real estate investment trusts.
ADDITIONAL RESTRICTIONS
Unless otherwise indicated, the Fund has adopted the following
additional restrictions, which are not fundamental and which may be changed
without shareholder approval to the extent permitted by applicable law,
regulation or regulatory policy. Under these restrictions, the Fund may not:
(i) invest in oil, gas or other mineral leases or exploration or
development programs;
(ii) invest in companies for the purpose of exercising control of
management;
(iii)invest more than 5% of its total assets in warrants, valued at the
lower of cost or market, or more than 2% of its total assets in
warrants, so valued, which are not listed on either the New York or
American Stock Exchanges;
(iv) purchase securities of other investment companies, except in
connection with a merger, consolidation or sale of assets, and
except that it may purchase shares of other investment
companies subject to such restrictions as may be imposed by
the Investment Company Act of 1940 and rules thereunder; or
(v) invest more than 15% of its net assets taken at market value at the
time of investment in "illiquid securities." Illiquid securities may
include securities subject to legal or contractual restrictions on
resale (including private placements), repurchase agreements maturing
in more than seven days, certain options traded over the counter that
the Fund has purchased, securities being used to cover certain options
that the Fund has written, securities for which market quotations are
not readily available, or other securities which legally or in IMI's
opinion, subject to the Board's supervision, may be deemed illiquid,
but shall not include any instrument that, due to the existence of a
trading market, to the Fund's compliance with certain conditions
intended to provide liquidity, or to other factors, is liquid.
Whenever an investment objective, policy or restriction set forth in
the Prospectus or this SAI states a maximum percentage of assets that may be
invested in any security or other asset or describes a policy regarding quality
standards, such percentage limitation or standard shall, unless otherwise
indicated, apply to the Fund only at the time a transaction is entered into.
Accordingly, if a percentage limitation is adhered to at the time of investment,
a later increase or decrease in the percentage which results from circumstances
not involving any affirmative action by the Fund, such as a change in market
conditions or a change in the Fund's asset level or other circumstances beyond
the Fund's control, will not be considered a violation.
PORTFOLIO TURNOVER
The Fund purchases securities that are believed by IMI to have above
average potential for capital appreciation. Common stocks are disposed of in
situations where it is believed that potential for such appreciation has
lessened or that other common stocks have a greater potential. Therefore, the
Fund may purchase and sell securities without regard to the length of time the
security is to be, or has been, held. A change in securities held by the Fund is
known as "portfolio turnover" and may involve the payment by the Fund of dealer
markup or underwriting commission and other transaction costs on the sale of
securities, as well as on the reinvestment of the proceeds in other securities.
The Fund's portfolio turnover rate is calculated by dividing the lesser of
purchases or sales of portfolio securities for the most recently completed
fiscal year by the monthly average of the value of the portfolio securities
owned by the Fund during that year. For purposes of determining the Fund's
portfolio turnover rate, all securities whose maturities at the time of
acquisition were one year or less are excluded.
TRUSTEES AND OFFICERS
The Fund's Board of Trustees (the "Board") is responsible for the
overall management of the Fund, including general supervision and review of the
Fund's investment activities. The Board, in turn, elects the officers who are
responsible for administering the Fund's day-to-day operations.
The Trustees and Executive Officers of the Trust, their business
addresses and principal occupations during the past five years are:
POSITION WITH BUSINESS AFFILIATIONS
NAME, ADDRESS, AGE THE TRUST AND PRINCIPAL OCCUPATIONS
John S. Anderegg, Jr. Trustee Chairman, Dynamics Research
60 Concord Street Corp. (instruments and controls);
Wilmington, MA 01887 Director, Burr-Brown Corp.
Age: 74 (operational amplifiers); Director,
Metritage Incorporated (level
measuring instruments); Trustee of
Mackenzie Series Trust (1992-1998).
Paul H. Broyhill Trustee Chairman, BMC Fund, Inc.
800 Hickory Blvd. (1983-present); Chairman,
Golfview Park-Box 500 Broyhill Family Foundation,
Lenoir, NC 28645 Inc. (1983-Present); Chairman and
Age: 74 President, Broyhill Investments,
Inc. (1983-present); Chairman,
Broyhill Timber Resources (1983-
present); Management of a personal
portfolio of fixed-income and equity
investments (1983-present); Trustee
of Mackenzie Series Trust (1988-
1998); Director of The Mackenzie
Funds Inc. (1988-1995).
Stanley Channick Trustee President and Chief
11 Bala Avenue Executive Officer, The
Bala Cynwyd, PA 19004 Whitestone Corporation
Age: 75 (insurance agency); Chairman, Scott
Management Company (administrative
services for insurance companies);
President, The Channick Group
(consultants to insurance companies
and national trade associations);
Trustee of Mackenzie Series Trust
(1994-1998); Director of The
Mackenzie Funds Inc. (1994-1995).
Frank W. DeFriece, Jr. Trustee Director, Manager and Vice
The Landmark Centre President, Director and
113 Landmark Lane, Fund Manager, Massengill-
Suite B DeFriece Foundation
Bristol, TN 37620-2285 (charitable organization)
Age: 77 (1950-present); Trustee and Vice
Chairman, East Tennessee Public
Communications Corp. (WSJK-TV)
(1984-present); Trustee of Mackenzie
Series Trust (1985-1998); Director
of The Mackenzie Funds Inc. (1987-
1995).
Roy J. Glauber Trustee Mallinckrodt Professor of
Lyman Laboratory Physics, Harvard
of Physics University (1974-present);
Harvard University Trustee of Mackenzie Series
Cambridge, MA 02138 Trust (1994-1997).
Age: 72
Michael G. Landry Trustee President, Chief Executive
700 South Federal Hwy. And Officer and Director of
Suite 300 Chairman Mackenzie Investment
Boca Raton, FL 33432 Management Inc. (1987-
Age: 51 present); President,
[*Deemed to be an Director and Chairman of
"interested person" Ivy Management Inc. (1992-
of the Trust, as present); Chairman and
defined under the Director of Ivy Mackenzie
1940 Act.] Services Corp.(1993-present);
Chairman and Director of Ivy
Mackenzie Distributors, Inc.
(1994-present); Director and
President of Ivy Mackenzie
Distributors, Inc. (1993-1994);
Director and President of The
Mackenzie Funds Inc. (1987-1995);
Trustee of Mackenzie Series Trust
(1987-1998); President of Mackenzie
Series Trust (1987-1996); Chairman
of Mackenzie Series Trust (1996-
1998).
Joseph G. Rosenthal Trustee Chartered Accountant
110 Jardin Drive (1958-present); Trustee of
Unit #12 Mackenzie Series Trust
Concord, Ontario Canada (1985-1998); Director of
L4K 2T7 The Mackenzie Funds Inc.
Age: 63 (1987-1995).
Richard N. Silverman Trustee Director, Newton-Wellesley
18 Bonnybrook Road Hospital; Director, Beth
Waban, MA 02168 Israel Hospital; Director,
Age: 74 Boston Ballet; Director, Boston
Children's Museum; Director, Brimmer
and May School.
J. Brendan Swan Trustee President, Airspray
4701 North Federal Hwy. International, Inc.;
Suite 465 Joint Managing Director,
Pompano Beach, FL 33064 Airspray International
Age: 67 B.V. (an environmentally sensitive
packaging company); Director of
Polyglass LTD.; Director, The
Mackenzie Funds Inc. (1992-1995);
Trustee of Mackenzie Series Trust
(1992-1998).
Keith J. Carlson Trustee Senior Vice President of Mackenzie
700 South Federal Hwy. And Investment Management, Inc. (1996 -
Suite 300 President -present); Senior Vice President and
Boca Raton, FL 33432 Director of Mackenzie Investment
Age: 41 Management, Inc. (1994 - 1996);
[*Deemed to be an Senior Vice President and Treasurer
"interested person" of Mackenzie Investment Management,
of the Trust, Inc. (1989-1994); Senior Vice President
as defined under President and Director of Ivy
the 1940 Act.] Management Inc. (1994-present);
Senior Vice President, Treasurer and
Director of Ivy Management Inc.
(1992-1994); Vice President of The
Mackenzie Funds Inc. (1987-1995);
Senior Vice President and Director,
Ivy Mackenzie Services Corp. (1996-
present); President and Director of
Ivy Mackenzie Services Corp. (1993-
1996); Trustee and President of
Mackenzie Series Trust (1996-1998);
Vice President of Mackenzie Series
Trust (1994-1998); Treasurer of
Mackenzie Series Trust (1985-1994);
President, Chief Executive Officer
and Director of Ivy Mackenzie
Distributors, Inc. (1994-present);
Executive Vice President and
Director of Ivy Mackenzie
Distributors, Inc. (1993-1994);
Trustee of Mackenzie Series Trust
(1996-1998).
C. William Ferris Secretary/ Senior Vice President,
700 South Federal Hwy. Treasurer Chief Financial Officer
Suite 300 and Secretary/Treasurer
Boca Raton, FL 33432 of Mackenzie Investment
Age: 53 Management Inc. (1995-present);
Senior Vice President, Finance and
Administration/Compliance Officer of
Mackenzie Investment Management Inc.
(1989-1994); Senior Vice President,
Secretary/ Treasurer and Clerk of
Ivy Management Inc. (1994-present);
Vice President, Finance/
Administration and Compliance
Officer of Ivy Management Inc.
(1992-1994); Senior Vice President,
Secretary/Treasurer and Director of
Ivy Mackenzie Distributors, Inc.
(1994-present); Secretary/Treasurer
and Director of Ivy Mackenzie
Distributors, Inc. (1993-1994);
President and Director of Ivy
Mackenzie Services Corp.
(1996-present); Secretary/Treasurer
and Director of Ivy Mackenzie
Services Corp. (1993-1996);
Secretary/Treasurer
of The Mackenzie Funds Inc.
(1993-1995); Secretary/Treasurer of
Mackenzie Series Trust (1994-1998).
James W. Broadfoot Vice Executive Vice President,
700 South Federal Hwy. President Ivy Management Inc. (1996-
Suite 300 present); Senior Vice
Boca Raton, FL 33432 President, Ivy Management,
Age: 56 Inc. (1992-1996); Director and
Senior Vice President, Mackenzie
Investment Management Inc. (1995-
present); Senior Vice President,
Mackenzie Investment Management Inc.
(1990-1995).
COMPENSATION TABLE
IVY FUND
(FISCAL YEAR ENDED DECEMBER 31, 1998)
PENSION OR TOTAL COMPENSA-
AGGREGATE RETIREMENT ESTIMATED TION FROM TRUST
NAME, COMPENSATION BENEFITS ACCRUED ANNUAL AND FUND
POSITION FROM TRUST AS PART OF BENEFITS UPON COMPLEX PAID TO
FUND EXPENSES RETIREMENT TRUSTEES
John S. N/A N/A
Anderegg, Jr.
(Trustee)
Paul H. N/A N/A
Broyhill
(Trustee)
Keith J. $0 N/A N/A $0
Carlson
(Trustee and
President)
Stanley N/A N/A
Channick
(Trustee)
Frank W. N/A N/A
DeFriece, Jr.
(Trustee)
Roy J. N/A N/A
Glauber
(Trustee)
Michael G. $0 N/A N/A $0
Landry
(Trustee and
Chairman of
the Board)
Joseph G. N/A N/A
Rosenthal
(Trustee)
Richard N. N/A N/A
Silverman
(Trustee)
J. Brendan N/A N/A
Swan
(Trustee)
C. William $0 N/A N/A $0
Ferris
(Secretary/
Treasurer)
To the knowledge of the Trust, as of [ ], no shareholder owned
beneficially or of record 5% or more of the Fund's outstanding shares of any
class, except that [to be completed by amendment]
As of [ ], the Officers and Trustees of the Trust as a group owned
beneficially or of record less than 1% of the outstanding Class A, Class B,
Class C and Advisor Class shares of the Fund.
PERSONAL INVESTMENTS BY EMPLOYEES OF IMI. Employees of IMI are
permitted to make personal securities transactions, subject to the requirements
and restrictions set forth in IMI's Code of Ethics and Business Conduct Policy
(the "Code of Ethics"). The Code of Ethics is designed to identify and address
certain conflicts of interest between personal investment activities and the
interests of investment advisory clients such as the Fund. Among other things,
the Code of Ethics, which generally complies with standards recommended by the
Investment Company Institute's Advisory Group on Personal Investing, prohibits
certain types of transactions absent prior approval, applies to portfolio
managers, traders, research analysts and others involved in the investment
advisory process, and imposes time periods during which personal transactions
may not be made in certain securities, and requires the submission of duplicate
broker confirmations and monthly reporting of securities transactions.
Exceptions to these and other provisions of the Code of Ethics may be granted in
particular circumstances after review by appropriate personnel.
INVESTMENT ADVISORY AND OTHER SERVICES
BUSINESS MANAGEMENT AND INVESTMENT ADVISORY SERVICES
IMI provides business management and investment advisory services to
the Fund pursuant to a Business Management and Investment Advisory Agreement
(the "Agreement"). The Agreement was approved by the sole shareholder of the
Fund on October 28, 1994. Prior to shareholder approval, the Agreement was
approved with respect to the Fund by the Board, including a majority of the
Trustees who are neither "interested persons" (as defined in the 1940 Act) of
the Trust nor have any direct or indirect financial interest in the operation of
the distribution plan (see "Distribution Services") or in any related agreement
(the "Independent Trustees") at a meeting held on September 17, 1994.
IMI is a wholly owned subsidiary of Mackenzie Investment Management
Inc. ("MIMI"). MIMI, a Delaware corporation, has approximately 10% of its
outstanding common stock listed for trading on the Toronto Stock Exchange
("TSE"). MIMI is a subsidiary of Mackenzie Financial Corporation ("MFC"), 150
Bloor Street West, Toronto, Ontario, Canada, a public corporation organized
under the laws of Ontario whose shares are listed for trading on the TSE. MFC is
registered in Ontario as a mutual fund dealer and advises Ivy Global Natural
Resources Fund. IMI currently acts as manager and investment adviser to the
following additional investment companies registered under the 1940 Act (other
than the Fund): Ivy Asia Pacific Fund, Ivy Bond Fund, Ivy China Region Fund, Ivy
European Opportunities Fund, Ivy Global Fund, Ivy Global Science & Technology
Fund, Ivy Growth Fund, Ivy Growth with Income Fund, Ivy International Fund II,
Ivy International Fund, Ivy International Small Companies Fund, Ivy
International Strategic Bond Fund, Ivy Money Market Fund, Ivy Pan-Europe Fund,
Ivy South America Fund, Ivy US Blue Chip Fund and Ivy US Emerging Growth Fund.
IMI also provides business management services to Ivy Global Natural Resources
Fund.
The Agreement obligates IMI to make investments for the account of the
Fund in accordance with its best judgment and within the investment objectives
and restrictions set forth in the Prospectus, the 1940 Act and the provisions of
the Code relating to regulated investment companies, subject to policy decisions
adopted by the Board. IMI also determines the securities to be purchased or sold
by the Fund and places orders with brokers or dealers who deal in such
securities.
Under the Agreement, IMI also provides certain business management
services. IMI is obligated to (1) coordinate with the Fund's Custodian and
monitor the services it provides to the Fund; (2) coordinate with and monitor
any other third parties furnishing services to the Fund; (3) provide the Fund
with necessary office space, telephones and other communications facilities as
are adequate for the Fund's needs; (4) provide the services of individuals
competent to perform administrative and clerical functions that are not
performed by employees or other agents engaged by the Fund or by IMI acting in
some other capacity pursuant to a separate agreement or arrangements with the
Fund; (5) maintain or supervise the maintenance by third parties of such books
and records of the Trust as may be required by applicable Federal or state law;
(6) authorize and permit IMI's directors, officers and employees who may be
elected or appointed as trustees or officers of the Trust to serve in such
capacities; and (7) take such other action with respect to the Trust, after
approval by the Trust as may be required by applicable law, including without
limitation the rules and regulations of the SEC and of state securities
commissions and other regulatory agencies.
The Fund pays IMI a monthly fee for providing business management
and investment advisory services at an annual rate of 1.00% of
the Fund's average net assets.
During the fiscal years ended December 31, 1996, 1997 and 1998, the
Fund paid IMI fees of $109,125, $284,290 and [ ], respectively (of which IMI
reimbursed $67,600, $22,860 and [ ], respectively, pursuant to expense
limitations).
Under the Agreement, the Trust pays the following expenses: (1) the
fees and expenses of the Trust's Independent Trustees; (2) the salaries and
expenses of any of the Trust's officers or employees who are not affiliated with
IMI; (3) interest expenses; (4) taxes and governmental fees, including any
original issue taxes or transfer taxes applicable to the sale or delivery of
shares or certificates therefor; (5) brokerage commissions and other expenses
incurred in acquiring or disposing of portfolio securities; (6) the expenses of
registering and qualifying shares for sale with the SEC and with various state
securities commissions; (7) accounting and legal costs; (8) insurance premiums;
(9) fees and expenses of the Trust's Custodian and Transfer Agent and any
related services; (10) expenses of obtaining quotations of portfolio securities
and of pricing shares; (11) expenses of maintaining the Trust's legal existence
and of shareholders' meetings; (12) expenses of preparation and distribution to
existing shareholders of periodic reports, proxy materials and prospectuses; and
(13) fees and expenses of membership in industry organizations.
IMI currently limits the Fund's total operating expenses (excluding
Rule 12b-1 fees, interest, taxes, brokerage commissions, litigation,
class-specific expenses, indemnification expenses, and extraordinary expenses)
to an annual rate of 1.95% of the Fund's average net assets, which may lower the
Fund's expenses and increase its yield.
The Agreement will continue in effect with respect to the Fund from
year to year, only so long as the continuance is specifically approved at least
annually (i) by the vote of a majority of the Independent Trustees and (ii)
either (a) by the vote of a majority of the outstanding voting securities (as
defined in the 1940 Act) of the Fund or (b) by the vote of a majority of the
entire Board. If the question of continuance of the Agreement (or adoption of
any new agreement) is presented to the shareholders, continuance (or adoption)
shall be effected only if approved by the affirmative vote of a majority of the
outstanding voting securities of the Fund. See "Capitalization and Voting
Rights."
The Agreement may be terminated with respect to the Fund at any time,
without payment of any penalty, by the vote of a majority of the Board, or by a
vote of a majority of the outstanding voting securities of the Fund, on 60 days'
written notice to IMI, or by IMI on 60 days' written notice to the Trust. The
Agreement shall terminate automatically in the event of its assignment.
DISTRIBUTION SERVICES
IMDI, a wholly owned subsidiary of MIMI, serves as the exclusive
distributor of Ivy Fund's shares pursuant to an Amended and Restated
Distribution Agreement with the Trust dated , 1999, as amended from time to time
(the "Distribution Agreement"). The Distribution Agreement was last approved by
the Board on September 17, 1998. IMDI distributes shares of the Fund through
broker-dealers who are members of the National Association of Securities
Dealers, Inc. and who have executed dealer agreements with IMDI. IMDI
distributes shares of the Fund on a continuous basis, but reserves the right to
suspend or discontinue distribution on that basis. IMDI is not obligated to sell
any specific amount of Fund shares.
Pursuant to the Distribution Agreement, IMDI is entitled to deduct a
commission on all Class A Fund shares sold equal to the difference, if any,
between the public offering price, as set forth in the Fund's then-current
prospectus, and the net asset value on which such price is based. Out of that
commission, IMDI may reallow to dealers such concession as IMDI may determine
from time to time. In addition, IMDI is entitled to deduct a CDSC on the
redemption of Class A shares sold without an initial sales charge and Class B
and Class C shares, in accordance with, and in the manner set forth in, the
Prospectus.
Under the Distribution Agreement, the Fund bears, among other expenses,
the expenses of registering and qualifying its shares for sale under Federal and
state securities laws and preparing and distributing to existing shareholders
periodic reports, proxy materials and prospectuses.
During the fiscal year ended December 31, 1998, IMDI received from
sales of Class A shares of the Fund [ ] in sales commissions, of which [ ] was
retained after dealer allowances. During the fiscal year ended December 31,
1998, IMDI received [ ] in CDSCs on redemptions of Class B shares of the Fund.
During the fiscal year ended December 31, 1998, IMDI received [ ] in CDSCs on
redemptions of Class C shares of the Fund.
The Distribution Agreement will continue in effect for successive
one-year periods, provided that such continuance is specifically approved at
least annually by the vote of a majority of the Independent Trustees, cast in
person at a meeting called for that purpose and by the vote of either a majority
of the entire Board or a majority of the outstanding voting securities of the
Fund. The Distribution Agreement may be terminated with respect to the Fund at
any time, without payment of any penalty, by IMDI on 60 days' written notice to
the Fund or by the Fund by vote of either a majority of the outstanding voting
securities of the Fund or a majority of the Independent Trustees on 60 days'
written notice to IMDI. The Distribution Agreement shall terminate automatically
in the event of its assignment.
RULE 18F-3 PLAN. On February 23, 1995, the SEC adopted Rule 18f-3 under
the 1940 Act, which permits a registered open-end investment company to issue
multiple classes of shares in accordance with a written plan approved by the
investment company's board of directors/trustees and filed with the SEC. At a
meeting held on December 1-2, 1995, the Board adopted a Rule 18f-3 plan on
behalf of the Fund. The Board last approved the Rule 18f-3 plan at a meeting
held of December 5-6, 1997. The key features of the Rule 18f-3 plan are as
follows: (i) shares of each class of the Fund represent an equal pro rata
interest in the Fund and generally have identical voting, dividend, liquidation,
and other rights, preferences, powers, restrictions, limitations,
qualifications, terms and conditions, except that each class bears certain
class-specific expenses and has separate voting rights on certain matters that
relate solely to that class or in which the interests of shareholders of one
class differ from the interests of shareholders of another class; (ii) subject
to certain limitations described in the Prospectus, shares of a particular class
of the Fund may be exchanged for shares of the same class of another Ivy fund;
and (iii) the Fund's Class B shares will convert automatically into Class A
shares of the Fund after a period of eight years, based on the relative net
asset value of such shares at the time of conversion.
RULE 12B-1 DISTRIBUTION PLANS. The Trust has adopted on behalf of the
Fund, in accordance with Rule 12b-1 under the 1940 Act, separate Rule 12b-1
distribution plans pertaining to the Fund's Class A, Class B and Class C shares
(each, a "Plan"). In adopting each Plan, a majority of the Independent Trustees
have concluded in accordance with the requirements of Rule 12b-1 that there is a
reasonable likelihood that each Plan will benefit the Fund and its shareholders.
The Trustees of the Trust believe that the Plans should result in greater sales
and/or fewer redemptions of the Fund's shares, although it is impossible to know
for certain the level of sales and redemptions of the Fund's shares in the
absence of a Plan or under an alternative distribution arrangement.
Under each Plan, the Fund pays IMDI a service fee, accrued daily and
paid monthly, at the annual rate of up to 0.25% of the average daily net assets
attributable to its Class A, Class B or Class C shares, as the case may be. The
services for which service fees may be paid include, among other things,
advising clients or customers regarding the purchase, sale or retention of
shares of the Fund, answering routine inquiries concerning the Fund and
assisting shareholders in changing options or enrolling in specific plans.
Pursuant to each Plan, service fee payments made out of or charged against the
assets attributable to the Fund's Class A, Class B or Class C shares must be in
reimbursement for services rendered for or on behalf of the affected class. The
expenses not reimbursed in any one month may be reimbursed in a subsequent
month. The Class A Plan does not provide for the payment of interest or carrying
charges as distribution expenses.
Under the Fund's Class B and Class C Plans, the Fund also pays IMDI a
distribution fee, accrued daily and paid monthly, at the annual rate of 0.75% of
the average daily net assets attributable to its Class B or Class C shares. IMDI
may reallow to dealers all or a portion of the service and distribution fees as
IMDI may determine from time to time. The distribution fee compensates IMDI for
expenses incurred in connection with activities primarily intended to result in
the sale of the Fund's Class B or Class C shares, including the printing of
prospectuses and reports for persons other than existing shareholders and the
preparation, printing and distribution of sales literature and advertising
materials. Pursuant to each Class B and Class C Plan, IMDI may include interest,
carrying or other finance charges in its calculation of distribution expenses,
if not prohibited from doing so pursuant to an order of or a regulation adopted
by the SEC.
Among other things, each Plan provides that (1) IMDI will submit to the
Board at least quarterly, and the Trustees will review, written reports
regarding all amounts expended under the Plan and the purposes for which such
expenditures were made; (2) each Plan will continue in effect only so long as
such continuance is approved at least annually, and any material amendment
thereto is approved, by the votes of a majority of the Board, including the
Independent Trustees, cast in person at a meeting called for that purpose; (3)
payments by the Fund under each Plan shall not be materially increased without
the affirmative vote of the holders of a majority of the outstanding shares of
the relevant class; and (4) while each Plan is in effect, the selection and
nomination of Independent Trustees shall be committed to the discretion of the
Trustees who are not "interested persons" of the Trust.
IMDI may make payments for distribution assistance and for
administrative and accounting services from resources that may include the
management fees paid by the Fund. IMDI also may make payments (such as the
service fee payments described above) to unaffiliated broker-dealers for
services rendered in the distribution of the Fund's shares. To qualify for such
payments, shares may be subject to a minimum holding period. However, no such
payments will be made to any dealer or broker if at the end of each year the
amount of shares held does not exceed a minimum amount. The minimum holding
period and minimum level of holdings will be determined from time to time by
IMDI.
A report of the amount expended pursuant to each Plan, and the purposes
for which such expenditures were incurred, must be made to the Board for its
review at least quarterly.
During the fiscal year ended December 31, 1998, the Fund paid IMDI [ ]
pursuant to its Class A plan. During the fiscal year ended December 31, 1998 the
Fund paid IMDI [ ] pursuant to its Class B plan. During the fiscal year ended
December 31, 1998, the Fund paid IMDI [ ] pursuant to its Class C plan.
During the fiscal year ended December 31, 1998, IMDI expended the
following amounts in marketing Class A shares of the Fund: advertising [$ ;]
printing and mailing of prospectuses to persons other than current shareholders,
[$ ;] compensation to dealers, [$ ;] compensation to sales personnel [$ ;]
seminars and meetings, [$ ;] travel and entertainment, [$ ;] general and
administrative, [$ ;] telephone, [$ ;] and occupancy and equipment rental, [$ ]
During the fiscal year ended December 31, 1998, IMDI expended the
following amounts in marketing Class B shares of the Fund: advertising, [$ ;]
printing and mailing of prospectuses to persons other than current shareholders,
[$ ;] compensation to dealers, [$ ;] compensation to sales personnel, [$ ;]
seminars and meetings, [$ ;] travel and entertainment, [$ ;] general and
administrative, [$ ;] telephone, [$ ;] and occupancy and equipment rental [$ .]
During the fiscal year ended December 31, 1998, IMDI expended the
following amounts in marketing Class C shares of the Fund: advertising, [$ ;]
printing and mailing of prospectuses to persons other than current shareholders,
[$ ;] compensation to dealers, [$ ] compensation to sales personnel, [$ ;]
seminars and meetings, [$ ;] travel and entertainment, [$ ;] general
administrative, [$ ;] telephone, [$ ;] and occupancy and equipment rental, [$ .]
Each Plan may be amended at any time with respect to the class of
shares of the Fund to which the Plan relates by vote of the Trustees, including
a majority of the Independent Trustees, cast in person at a meeting called for
the purpose of considering such amendment. Each Plan may be terminated at any
time with respect to the class of shares of the Fund to which the Plan relates,
without payment of any penalty, by vote of a majority of the Independent
Trustees, or by vote of a majority of the outstanding voting securities of that
class.
If the Distribution Agreement or the Distribution Plans are terminated
(or not renewed) with respect to any of the Ivy funds (or class of shares
thereof), each may continue in effect with respect to any other fund (or Class
of shares thereof) as to which they have not been terminated (or have been
renewed).
CUSTODIAN
Pursuant to a Custodian Agreement with the Trust, Brown Brothers
Harriman & Co. (the "Custodian"), a private bank and member of the principal
securities exchanges, located at 40 Water Street, Boston, Massachusetts 02109
(the "Custodian"), maintains custody of the assets of the Fund held in the
United States. Rules adopted under the 1940 Act permit the Trust to maintain its
foreign securities and cash in the custody of certain eligible foreign banks and
securities depositories. Pursuant to those rules, the Custodian has entered into
subcustodial agreements for the holding of the Fund's foreign securities. With
respect to the Fund, the Custodian may receive, as partial payment for its
services to the Fund, a portion of the Trust's brokerage business, subject to
its ability to provide best price and execution.
FUND ACCOUNTING SERVICES
Pursuant to a Fund Accounting Services Agreement, MIMI provides certain
accounting and pricing services for the Fund. As compensation for those
services, the Fund pays MIMI a monthly fee plus out-of-pocket expenses as
incurred. The monthly fee is based upon the net assets of the Fund at the
preceding month end at the following rates: $1,250 when net assets are $10
million and under; $2,500 when net assets are over $10 million to $40 million;
$5,000 when net assets are over $40 million to $75 million; and $6,500 when net
assets are over $75 million.
During the fiscal year ended December 31, 1998, the Fund paid MIMI
[ ] under the agreement.
TRANSFER AGENT AND DIVIDEND PAYING AGENT
Pursuant to a Transfer Agency and Shareholder Service Agreement, IMSC,
a wholly owned subsidiary of MIMI, is the transfer agent for the Fund. Under the
Agreement, the Fund pays a monthly fee at an annual rate of $20.00 for each open
Class A, Class B, Class C and Advisor Class account. In addition, the Fund pays
a monthly fee at an annual rate of $4.58 per account that is closed plus certain
out-of-pocket expenses. Such fees and expenses for the fiscal year ended
December 31, 1998 for the Fund totaled [$ ]. Certain broker-dealers that
maintain shareholder accounts with the Fund through an omnibus account provide
transfer agent and other shareholder-related services that would otherwise be
provided by IMSC if the individual accounts that comprise the omnibus account
were opened by their beneficial owners directly. IMSC pays such broker-dealers a
per account fee for each open account within the omnibus account, or a fixed
rate (e.g., 0.10%) fee, based on the average daily net asset value of the
omnibus account (or a combination thereof).
ADMINISTRATOR
Pursuant to an Administrative Services Agreement, MIMI provides certain
administrative services to the Fund. As compensation for these services, the
Fund pays MIMI a monthly fee at the annual rate of 0.10% of the Fund's average
daily net assets. Such fees for the fiscal year ended December 31, 1998 for the
Fund totaled [$ ].
Outside of providing administrative services to the Trust, as described
above, MIMI may also act on behalf of IMDI in paying commissions to
broker-dealers with respect to sales of Class B and Class C shares of the Fund.
AUDITORS
[ ], independent public accountants, has been selected as auditors for
the Trust. The audit services performed by [ ] include audits of the annual
financial statements of each of the funds of the Trust. Other services provided
principally relate to filings with the SEC and the preparation of the funds' tax
returns.
BROKERAGE ALLOCATION
Subject to the overall supervision of the President and the Board, IMI
places orders for the purchase and sale of the Fund's portfolio securities. All
portfolio transactions are effected at the best price and execution obtainable.
Purchases and sales of debt securities are usually principal transactions and
therefore, brokerage commissions are usually not required to be paid by the Fund
for such purchases and sales (although the price paid generally includes
undisclosed compensation to the dealer). The prices paid to underwriters of
newly-issued securities usually include a concession paid by the issuer to the
underwriter, and purchases of after-market securities from dealers normally
reflect the spread between the bid and asked prices. In connection with OTC
transactions, IMI attempts to deal directly with the principal market makers,
except in those circumstances where IMI believes that a better price and
execution are available elsewhere.
IMI selects broker-dealers to execute transactions and evaluates the
reasonableness of commissions on the basis of quality, quantity, and the nature
of the firms' professional services. Commissions to be charged and the rendering
of investment services, including statistical, research, and counseling services
by brokerage firms, are factors to be considered in the placing of brokerage
business. The types of research services provided by brokers may include general
economic and industry data, and information on securities of specific companies.
Research services furnished by brokers through whom the Trust effects securities
transactions may be used by IMI in servicing all of its accounts. In addition,
not all of these services may be used by IMI in connection with the services it
provides to the Fund or the Trust. IMI may consider sales of shares of Ivy funds
as a factor in the selection of broker-dealers and may select broker-dealers who
provide it with research services. IMI will not, however, execute brokerage
transactions other than at the best price and execution.
During the fiscal years ended December 31, 1996, 1997 and 1998, the
Fund paid brokerage commissions of $95,606, $181,553 and [ ], respectively.
The Fund may, under some circumstances, accept securities in lieu of
cash as payment for Fund shares. The Fund will accept securities only to
increase its holdings in a portfolio security or to take a new portfolio
position in a security that IMI deems to be a desirable investment for the Fund.
While no minimum has been established, it is expected that the Fund will not
accept securities having an aggregate value of less than $1 million. The Trust
may reject in whole or in part any or all offers to pay for the Fund shares with
securities and may discontinue accepting securities as payment for the Fund
shares at any time without notice. The Trust will value accepted securities in
the manner and at the same time provided for valuing portfolio securities of the
Fund, and the Fund shares will be sold for net asset value determined at the
same time the accepted securities are valued. The Trust will only accept
securities delivered in proper form and will not accept securities subject to
legal restrictions on transfer. The acceptance of securities by the Trust must
comply with the applicable laws of certain states.
CAPITALIZATION AND VOTING RIGHTS
The capitalization of the Trust consists of an unlimited number of
shares of beneficial interest (no par value per share). When issued, shares of
each class of the Fund are fully paid, non-assessable, redeemable and fully
transferable. No class of shares of the Fund has preemptive rights or
subscription rights.
The Amended and Restated Declaration of Trust permits the Trustees to
create separate series or portfolios and to divide any series or portfolio into
one or more classes. The Trustees have authorized nineteen series, each of which
represents a fund. The Trustees have further authorized the issuance of Class A,
Class B, and Class C shares for Ivy International Fund and Ivy Money Market Fund
and Class A, Class B, Class C and Advisor Class shares for the Fund, Ivy Asia
Pacific Fund, Ivy Bond Fund, Ivy China Region Fund, Ivy European Opportunities
Fund, Ivy Global Fund, Ivy Global Natural Resources Fund, Ivy Global Science &
Technology Fund, Ivy Growth Fund, Ivy Growth with Income Fund, Ivy International
Fund II, Ivy International Small Companies Fund, Ivy International Strategic
Bond Fund, Ivy Pan-Europe Fund, Ivy South America Fund, Ivy US Blue Chip Fund,
and Ivy US Emerging Growth Fund, as well as Class I shares for Ivy Bond Fund,
Ivy European Opportunities Fund, Ivy Global Science & Technology Fund, Ivy
International Fund II, Ivy International Fund, Ivy International Small Companies
Fund, Ivy International Strategic Bond Fund, and Ivy US Blue Chip Fund.
Shareholders have the right to vote for the election of Trustees of the
Trust and on any and all matters on which they may be entitled to vote by law or
by the provisions of the Trust's By-Laws. The Trust is not required to hold a
regular annual meeting of shareholders, and it does not intend to do so. Shares
of each class of the Fund entitle their holders to one vote per share (with
proportionate voting for fractional shares). Shareholders of the Fund are
entitled to vote alone on matters that only affect the Fund. All classes of
shares of the Fund will vote together, except with respect to the distribution
plan applicable to the Fund's Class A, Class B or Class C shares or when a class
vote is required by the 1940 Act. On matters relating to all funds of the Trust,
but affecting the funds differently, separate votes by the shareholders of each
fund are required. Approval of an investment advisory agreement and a change in
fundamental policies would be regarded as matters requiring separate voting by
the shareholders of each fund of the Trust. If the Trustees determine that a
matter does not affect the interests of the Fund, then the shareholders of the
Fund will not be entitled to vote on that matter. Matters that affect the Trust
in general, such as ratification of the selection of independent public
accountants, will be voted upon collectively by the shareholders of all funds of
the Trust.
As used in this SAI and the Prospectus, the phrase "majority vote of
the outstanding shares" of the Fund means the vote of the lesser of: (1) 67% of
the shares of the Fund (or of the Trust) present at a meeting if the holders of
more than 50% of the outstanding shares are present in person or by proxy; or
(2) more than 50% of the outstanding shares of the Fund (or of the Trust).
With respect to the submission to shareholder vote of a matter
requiring separate voting by the Fund, the matter shall have been effectively
acted upon with respect to the Fund if a majority of the outstanding voting
securities of the Fund votes for the approval of the matter, notwithstanding
that: (1) the matter has not been approved by a majority of the outstanding
voting securities of any other fund of the Trust; or (2) the matter has not been
approved by a majority of the outstanding voting securities of the Trust.
The Amended and Restated Declaration of Trust provides that the holders
of not less than two-thirds of the outstanding shares of the Trust may remove a
person serving as trustee either by declaration in writing or at a meeting
called for such purpose. The Trustees are required to call a meeting for the
purpose of considering the removal of a person serving as Trustee if requested
in writing to do so by the holders of not less than 10% of the outstanding
shares of the Trust. Shareholders will be assisted in communicating with other
shareholders in connection with the removal of a Trustee as if Section 26(c) of
the Act were applicable.
The Trust's shares do not have cumulative voting rights and accordingly
the holders of more than 50% of the outstanding shares could elect the entire
Board, in which case the holders of the remaining shares would not be able to
elect any Trustees.
Under Massachusetts law, the Trust's shareholders could, under certain
circumstances, be held personally liable for the obligations of the Trust.
However, the Amended and Restated Declaration of Trust disclaims liability of
the shareholders, Trustees or officers of the Trust for acts or obligations of
the Trust, which are binding only on the assets and property of the Trust, and
requires that notice of the disclaimer be given in each contract or obligation
entered into or executed by the Trust or its Trustees. The Amended and Restated
Declaration of Trust provides for indemnification out of Fund property for all
loss and expense of any shareholder of the Fund held personally liable for the
obligations of the Fund. The risk of a shareholder of the Trust incurring
financial loss on account of shareholder liability is limited to circumstances
in which the Trust itself would be unable to meet its obligations and, thus,
should be considered remote. No series of the Trust is liable for the
obligations of any other series of the Trust.
SPECIAL RIGHTS AND PRIVILEGES
The Trust offers, and (except as noted below) bears the cost of
providing, to investors the following rights and privileges. The Trust reserves
the right to amend or terminate any one or more of these rights and privileges.
Notice of amendments to or terminations of rights and privileges will be
provided to shareholders in accordance with applicable law.
Certain of the rights and privileges described below refer to funds,
other than the Fund, whose shares are also distributed by IMDI. These funds are:
Ivy Asia Pacific Fund, Ivy Bond Fund, Ivy China Region Fund, Ivy European
Opportunities Fund, Ivy Global Fund, Ivy Global Natural Resources Fund, Ivy
Global Science & Technology Fund, Ivy Growth Fund, Ivy Growth with Income Fund,
Ivy International Fund, Ivy International Fund II, Ivy International Small
Companies Fund, Ivy International Strategic Bond Fund, Ivy Money Market Fund,
Ivy Pan-Europe Fund, Ivy South America Fund, Ivy US Blue Chip Fund, and Ivy US
Emerging Growth Fund (the other eighteen series of the Trust). (Effective April
18, 1997, Ivy International Fund suspended the offer of its shares to new
investors). Shareholders should obtain a current prospectus before exercising
any right or privilege that may relate to these funds.
AUTOMATIC INVESTMENT METHOD
The Automatic Investment Method, which enables a Fund shareholder to
have specified amounts automatically drawn each month from his or her bank for
investment in Fund shares, is available for all classes of shares. The minimum
initial and subsequent investment under this method is $50 per month ($250 for
Advisor Class shares), (except in the case of a tax qualified retirement plan
for which the minimum initial and subsequent investment is $25 per month). A
shareholder may terminate the Automatic Investment Method at any time upon
delivery to Ivy Mackenzie Services Corp. ("IMSC") of telephone instructions or
written notice. See "Automatic Investment Method" in the Prospectus. To begin
the plan, complete Sections 6A and 7B of the Account Application.
EXCHANGE OF SHARES
As described in the Prospectus, shareholders of the Fund have an
exchange privilege with other Ivy funds (except Ivy International Fund unless
they have an existing Ivy International Fund account). Before effecting an
exchange, shareholders of the Fund should obtain and read the currently
effective prospectus for the Ivy fund into which the exchange is to be made.
INITIAL SALES CHARGE SHARES. Class A shareholders may exchange their
Class A shares ("outstanding Class A shares") for Class A shares of another Ivy
fund ("new Class A Shares") on the basis of the relative net asset value per
Class A share, plus an amount equal to the difference, if any, between the sales
charge previously paid on the outstanding Class A shares and the sales charge
payable at the time of the exchange on the new Class A shares. (The additional
sales charge will be waived for Class A shares that have been invested for a
period of 12 months or longer.) Class A shareholders may also exchange their
shares for shares of Ivy Money Market Fund (no initial sales charge will be
assessed at the time of such an exchange).
CONTINGENT DEFERRED SALES CHARGE SHARES CLASS A: Class A shareholders
may exchange their Class A shares that are subject to a contingent deferred
sales charge ("CDSC"), as described in the Prospectus ("outstanding Class A
shares"), for Class A shares of another Ivy fund ("new Class A shares") on the
basis of the relative net asset value per Class A share, without the payment of
any CDSC that would otherwise be due upon the redemption of the outstanding
Class A shares. Class A shareholders of the Fund exercising the exchange
privilege will continue to be subject to that Fund's CDSC period following an
exchange if such period is longer than the CDSC period, if any, applicable to
the new Class A shares.
For purposes of computing the CDSC that may be payable upon the
redemption of the new Class A shares, the holding period of the outstanding
Class A shares is "tacked" onto the holding period of the new Class A shares.
CLASS B: Class B shareholders may exchange their Class B shares
("outstanding Class B shares") for Class B shares of another Ivy fund ("new
Class B shares") on the basis of the relative net asset value per Class B share,
without the payment of any CDSC that would otherwise be due upon the redemption
of the outstanding Class B shares. Class B shareholders of the Fund exercising
the exchange privilege will continue to be subject to that Fund's CDSC schedule
(or period) following an exchange if such schedule is higher (or such period is
longer) than the CDSC schedule (or period) applicable to the new Class B shares.
Class B shares of the Fund acquired through an exchange of Class B
shares of another Ivy fund will be subject to that Fund's CDSC schedule (or
period) if such schedule is higher (or such period is longer) than the CDSC
schedule (or period) applicable to the Ivy fund from which the exchange was
made.
For purposes of both the conversion feature and computing the CDSC that
may be payable upon the redemption of the new Class B shares (prior to
conversion), the holding period of the outstanding Class B shares is "tacked"
onto the holding period of the new Class B shares.
The following CDSC table applies to Class B shares of Ivy Asia Pacific
Fund, Ivy Bond Fund, Ivy China Region Fund, Ivy Developing Nations Fund, Ivy
European Opportunities Fund, Ivy Global Fund, Ivy Global Natural Resources Fund,
Ivy Global Science & Technology Fund, Ivy Growth Fund, Ivy Growth with Income
Fund, Ivy International Fund II, Ivy International Fund, Ivy International Small
Companies Fund, Ivy International Strategic Bond Fund, Ivy Pan-Europe Fund, Ivy
South America Fund, Ivy US Blue Chip Fund, and Ivy US Emerging Growth Fund.
CONTINGENT DEFERRED SALES CHARGE AS A PERCENTAGE OF
DOLLAR AMOUNT SUBJECT TO CHARGE
YEAR SINCE PURCHASE
First 5%
Second 4%
Third 3%
Fourth 3%
Fifth 2%
Sixth 1%
Seventh and thereafter 0%
CLASS C: Class C shareholders may exchange their Class C shares
("outstanding Class C shares") for Class C shares of another Ivy fund ("new
Class C shares") on the basis of the relative net asset value per Class C share,
without the payment of any CDSC that would otherwise be due upon redemption.
(Class C shares are subject to a CDSC of 1.00% if redeemed within one year of
the date of purchase.)
ADVISOR CLASS: Subject to the restrictions set forth in the following
paragraph, Advisor Class shareholders may exchange their outstanding Advisor
Class shares for Advisor Class shares of another Ivy Fund on the basis of the
relative net asset value per share.
ALL CLASSES: The minimum value of shares which may be exchanged into an
Ivy fund in which shares are not already held is $1,000 ($10,000 in the case of
Advisor Class shares). No exchange out of the Fund (other than by a complete
exchange of all Fund shares) may be made if it would reduce the shareholder's
interest in the Fund to less than $1,000 ($10,000 in the case of Advisor Class
shares).
Each exchange will be made on the basis of the relative net asset value
per share of the Ivy funds involved in the exchange next computed following
receipt by IMSC of telephone instructions by IMSC or a properly executed
request. Exchanges, whether written or telephonic, must be received by IMSC by
the close of regular trading on the Exchange (normally 4:00 p.m., eastern time)
to receive the price computed on the day of receipt. Exchange requests received
after that time will receive the price next determined following receipt of the
request. The exchange privilege may be modified or terminated at any time, upon
at least 60 days' notice to the extent required by applicable law. See
"Redemptions."
An exchange of shares between any of the Ivy funds will result in a
taxable gain or loss. Generally, this will be a capital gain or loss (long-term
or short-term, depending on the holding period of the shares) in the amount of
the difference between the net asset value of the shares surrendered and the
shareholder's tax basis for those shares. However, in certain circumstances,
shareholders will be ineligible to take sales charges into account in computing
taxable gain or loss on an exchange. See "Taxation."
With limited exceptions, gain realized by a tax-deferred retirement
plan will not be taxable to the plan and will not be taxed to the participant
until distribution. Each investor should consult his or her tax adviser
regarding the tax consequences of an exchange transaction.
LETTER OF INTENT
Reduced sales charges apply to initial investments in Class A shares of
the Fund made pursuant to a non-binding Letter of Intent. A Letter of Intent may
be submitted by an individual, his or her spouse and children under the age of
21, or a trustee or other fiduciary of a single trust estate or single fiduciary
account. See the Account Application in the Prospectus. Any investor may submit
a Letter of Intent stating that he or she will invest, over a period of 13
months, at least $50,000 in Class A shares of the Fund. A Letter of Intent may
be submitted at the time of an initial purchase of Class A shares of the Fund or
within 90 days of the initial purchase, in which case the Letter of Intent will
be back dated. A shareholder may include, as an accumulation credit, the value
(at the applicable offering price) of all Class A shares of Ivy Asia Pacific
Fund, Ivy Bond Fund, Ivy China Region Fund, Ivy Developing Nations Fund, Ivy
European Opportunities Fund, Ivy Global Fund, Ivy Global Natural Resources Fund,
Ivy Global Science & Technology Fund, Ivy Growth Fund, Ivy Growth with Income
Fund, Ivy International Fund II, Ivy International Fund, Ivy International Small
Companies Fund, Ivy International Strategic Bond Fund, Ivy Pan-Europe Fund, Ivy
South America Fund, Ivy US Blue Chip Fund and Ivy US Emerging Growth Fund (and
shares that have been exchanged into Ivy Money Market Fund from any of the other
funds in the Ivy Funds) held of record by him or her as of the date of his or
her Letter of Intent. During the term of the Letter of Intent, the Transfer
Agent will hold Class A shares representing 5% of the indicated amount (less any
accumulation credit value) in escrow. The escrowed Class A shares will be
released when the full indicated amount has been purchased. If the full
indicated amount is not purchased during the term of the Letter of Intent, the
investor is required to pay IMDI an amount equal to the difference between the
dollar amount of sales charge that he or she has paid and that which he or she
would have paid on his or her aggregate purchases if the total of such purchases
had been made at a single time. Such payment will be made by an automatic
liquidation of Class A shares in the escrow account. A Letter of Intent does not
obligate the investor to buy or the Trust to sell the indicated amount of Class
A shares, and the investor should read carefully all the provisions of such
letter before signing.
RETIREMENT PLANS
Shares may be purchased in connection with several types of
tax-deferred retirement plans. Shares of more than one fund distributed by IMDI
may be purchased in a single application establishing a single account under the
plan, and shares held in such an account may be exchanged among the Ivy funds in
accordance with the terms of the applicable plan and the exchange privilege
available to all shareholders. Initial and subsequent purchase payments in
connection with tax-deferred retirement plans must be at least $25 per
participant.
The following fees will be charged to individual shareholder accounts
as described in the retirement prototype plan document:
Retirement Plan New Account Fee no fee
Retirement Plan Annual Maintenance Fee $10.00 per fund account
For shareholders whose retirement accounts are diversified across
several Ivy funds, the annual maintenance fee will be limited to not more than
$20.
The following discussion describes the tax treatment of certain
tax-deferred retirement plans under current Federal income tax law. State income
tax consequences may vary. An individual considering the establishment of a
retirement plan should consult with an attorney and/or an accountant with
respect to the terms and tax aspects of the plan.
INDIVIDUAL RETIREMENT ACCOUNTS: Shares of the Fund may be used as a
funding medium for an Individual Retirement Account ("IRA"). Eligible
individuals may establish an IRA by adopting a model custodial account available
from IMSC, who may impose a charge for establishing the account. Individuals
should consult their tax advisers before investing IRA assets in an Ivy fund if
that fund primarily distributes exempt-interest dividends.
An individual who has not reached age 70-1/2 and who receives
compensation or earned income is eligible to contribute to an IRA, whether or
not he or she is an active participant in a retirement plan. An individual who
receives a distribution from another IRA, a qualified retirement plan, a
qualified annuity plan or a tax-sheltered annuity or custodial account ("403(b)
plan") that qualifies for "rollover" treatment is also eligible to establish an
IRA by rolling over the distribution either directly or within 60 days after its
receipt. Tax advice should be obtained in connection with planning a rollover
contribution to an IRA.
In general, an eligible individual may contribute up to the lesser of
$2,000 or 100% of his or her compensation or earned income to an IRA each year.
If a husband and wife are both employed, and both are under age 70-1/2, each may
set up his or her own IRA within these limits. If both earn at least $2,000 per
year, the maximum potential contribution is $4,000 per year for both. For years
after 1996, the result is similar even if one spouse has no earned income; if
the joint earned income of the spouses is at least $4,000, a contribution of up
to $2,000 may be made to each spouse's IRA. Rollover contributions are not
subject to these limits.
An individual may deduct his or her annual contributions to an IRA in
computing his or her Federal income tax within the limits described above,
provided he or she (or his or her spouse, if they file a joint Federal income
tax return) is not an active participant in a qualified retirement plan (such as
a qualified corporate, sole proprietorship, or partnership pension, profit
sharing, 401(k) or stock bonus plan), qualified annuity plan, 403(b) plan,
simplified employee pension, or governmental plan. If he or she (or his or her
spouse) is an active participant, whether the individual's contribution to an
IRA is fully deductible, partially deductible or not deductible depends on (i)
adjusted gross income and (ii) whether it is the individual or the individual's
spouse who is an active participant, in the case of married individuals filing
jointly. Contributions may be made up to the maximum permissible amount even if
they are not deductible. Rollover contributions are not includable in income for
Federal income tax purposes and therefore are not deductible from it.
Generally, earnings on an IRA are not subject to current Federal income
tax until distributed. Distributions attributable to tax-deductible
contributions and to IRA earnings are taxed as ordinary income. Distributions of
non-deductible contributions are not subject to Federal income tax. In general,
distributions from an IRA to an individual before he or she reaches age 59-1/2
are subject to a nondeductible penalty tax equal to 10% of the taxable amount of
the distribution. The 10% penalty tax does not apply to amounts withdrawn from
an IRA after the individual reaches age 59-1/2, becomes disabled or dies, or if
withdrawn in the form of substantially equal payments over the life or life
expectancy of the individual and his or her designated beneficiary, if any, or
rolled over into another IRA, amounts withdrawn and used to pay for deductible
medical expenses and amounts withdrawn by certain unemployed individuals not in
excess of amounts paid for certain health insurance premiums, amounts used to
pay certain qualified higher education expenses, and amounts used within 120
days of the date the distribution is received to pay for certain first-time
homebuyer expenses. Distributions must begin to be withdrawn not later than
April 1 of the calendar year following the calendar year in which the individual
reaches age 70-1/2. Failure to take certain minimum required distributions will
result in the imposition of a 50% non-deductible penalty tax.
ROTH IRAS: Shares of the Fund also may be used as a funding medium for
a Roth Individual Retirement Account ("Roth IRA"). A Roth IRA is similar in
numerous ways to the regular (traditional) IRA, described above.
Some of the primary differences are as follows.
A single individual earning below $95,000 can contribute up to $2,000
per year to a Roth IRA. The maximum contribution amount diminishes and gradually
falls to zero for single filers with adjusted gross incomes ranging from $95,000
to $110,000. Married couples earning less than $150,000 combined, and filing
jointly, can contribute a full $4,000 per year ($2,000 per IRA). The maximum
contribution amount for married couples filing jointly phases out from $150,000
to $160,000. An individual whose adjusted gross income exceeds the maximum
phase-out amount cannot contribute to a Roth IRA.
An eligible individual can contribute money to a traditional IRA and a
Roth IRA as long as the total contribution to all IRAs does not exceed $2,000.
Contributions to a Roth IRA are not deductible. Contributions to a Roth IRA may
be made even after the individual for whom the account is maintained has
attained age 70 1/2.
No distributions are required to be taken prior to the death of the
original account holder. If a Roth IRA has been established for a minimum of
five years, distributions can be taken tax-free after reaching age 59 1/2, for a
first-time home purchase ($10,000 maximum, one time use), or upon death or
disability. All other distributions from a Roth IRA (other than the amount of
nondeductible contributions) are taxable and subject to a 10% tax penalty unless
an exception applies. Exceptions to the 10% penalty include: reaching age 59
1/2, death, disability, deductible medical expenses, the purchase of health
insurance for certain unemployed individual and qualified higher education
expenses.
An individual with an income of less than $100,000 (who is not married
filing separately) can roll his or her existing IRA into a Roth IRA. However,
the individual must pay taxes on the taxable amount in his or her traditional
IRA. After 1998, all taxes on such a rollover will have to be paid in the tax
year in which the rollover is made.
QUALIFIED PLANS: For those self-employed individuals who wish to
purchase shares of one or more Ivy funds through a qualified retirement plan, a
Custodial Agreement and a Retirement Plan are available from IMSC. The
Retirement Plan may be adopted as a profit sharing plan or a money purchase
pension plan. A profit sharing plan permits an annual contribution to be made in
an amount determined each year by the self-employed individual within certain
limits prescribed by law. A money purchase pension plan requires annual
contributions at the level specified in the Custodial Agreement. There is no
set-up fee for qualified plans and the annual maintenance fee is $20.00 per
account.
In general, if a self-employed individual has any common law employees,
employees who have met certain minimum age and service requirements must be
covered by the Retirement Plan. A self-employed individual generally must
contribute the same percentage of income for common law employees as for himself
or herself.
A self-employed individual may contribute up to the lesser of $30,000
or 25% of compensation or earned income to a money purchase pension plan or to a
combination profit sharing and money purchase pension plan arrangement each year
on behalf of each participant. To be deductible, total contributions to a profit
sharing plan generally may not exceed 15% of the total compensation or earned
income of all participants in the plan, and total contributions to a combination
money purchase-profit sharing arrangement generally may not exceed 25% of the
total compensation or earned income of all participants. The amount of
compensation or earned income of any one participant that may be included in
computing the deduction is limited (generally to $150,000 for benefits accruing
in plan years beginning after 1993, with annual inflation adjustments). A
self-employed individual's contributions to a retirement plan on his or her own
behalf must be deducted in computing his or her earned income.
Corporate employers may also adopt the Custodial Agreement and
Retirement Plan for the benefit of their eligible employees. Similar
contribution and deduction rules apply to corporate employers.
Distributions from the Retirement Plan generally are made after a
participant's separation from service. A 10% penalty tax generally applies to
distributions to an individual before he or she reaches age 59-1/2, unless the
individual (1) has reached age 55 and separated from service; (2) dies; (3)
becomes disabled; (4) uses the withdrawal to pay tax-deductible medical
expenses; (5) takes the withdrawal as part of a series of substantially equal
payments over his or her life expectancy or the joint life expectancy of himself
or herself and a designated beneficiary; or (6) rolls over the distribution.
The Transfer Agent will arrange for Investors Bank & Trust to furnish
custodial services to the employer and any participating employees.
DEFERRED COMPENSATION FOR PUBLIC SCHOOLS AND CHARITABLE ORGANIZATIONS
("403(B)(7) ACCOUNT"): Section 403(b)(7) of the Internal Revenue Code of 1986,
as amended (the "Code") permits public school systems and certain charitable
organizations to use mutual fund shares held in a custodial account to fund
deferred compensation arrangements with their employees. A custodial account
agreement is available for those employers whose employees wish to purchase
shares of the Trust in conjunction with such an arrangement. The special
application for a 403(b)(7) Account is available from IMSC.
Distributions from the 403(b)(7) Account may be made only following
death, disability, separation from service, attainment of age 59-1/2, or
incurring a financial hardship. A 10% penalty tax generally applies to
distributions to an individual before he or she reaches age 59-1/2, unless the
individual (1) has reached age 55 and separated from service; (2) dies or
becomes disabled; (3) uses the withdrawal to pay tax-deductible medical
expenses; (4) takes the withdrawal as part of a series of substantially equal
payments over his or her life expectancy or the joint life expectancy of himself
or herself and a designated beneficiary; or (5) rolls over the distribution.
There is no set-up fee for 403(b)(7) Accounts and the annual maintenance fee is
$20.00 per account.
SIMPLIFIED EMPLOYEE PENSION ("SEP") IRAS: An employer may deduct
contributions to a SEP up to the lesser of $30,000 or 15% of compensation. SEP
accounts generally are subject to all rules applicable to IRA accounts, except
the deduction limits, and are subject to certain employee participation
requirements. No new salary reduction SEPs ("SARSEPs") may be established after
1996, but existing SARSEPs may continue to be maintained, and non-salary
reduction SEPs may continue to be established as well as maintained after 1996.
SIMPLE PLANS: An employer may establish a SIMPLE IRA or a SIMPLE 401(k)
for years after 1996. An employee can make pre-tax salary reduction
contributions to a SIMPLE Plan, up to $6,000 a year (as indexed). Subject to
certain limits, the employer will either match a portion of employee
contributions, or will make a contribution equal to 2% of each employee's
compensation without regard to the amount the employee contributes. An employer
cannot maintain a SIMPLE Plan for its employees if the employer maintains or
maintained any other qualified retirement plan with respect to which any
contributions or benefits have been credited.
REINVESTMENT PRIVILEGE
Shareholders who have redeemed Class A shares of the Fund may reinvest
all or a part of the proceeds of the redemption back into Class A shares of the
Fund at net asset value (without a sales charge) within 60 days from the date of
redemption. This privilege may be exercised only once. The reinvestment will be
made at the net asset value next determined after receipt by IMSC of the
reinvestment order accompanied by the funds to be reinvested. No compensation
will be paid to any sales personnel or dealer in connection with the
transaction.
Any redemption is a taxable event. A loss realized on a redemption
generally may be disallowed for tax purposes if the reinvestment
privilege is exercised within 30 days after the redemption. In certain
circumstances, shareholders will be ineligible to take sales charges
into account in computing taxable gain or loss on a redemption if the
reinvestment privilege is exercised. See "Taxation."
RIGHTS OF ACCUMULATION
A scale of reduced sales charges applies to any investment of $50,000
or more in Class A shares of the Fund. See "Initial Sales Charge Alternative --
Class A Shares" in the Prospectus. The reduced sales charge is applicable to
investments made at one time by an individual, his or her spouse and children
under the age of 21, or a trustee or other fiduciary of a single trust estate or
single fiduciary account (including a pension, profit sharing or other employee
benefit trust created pursuant to a plan qualified under Section 401 of the
Code). Rights of Accumulation is also applicable to current purchases of all of
the funds of Ivy Fund (except Ivy Money Market Fund) by any of the persons
enumerated above, where the aggregate quantity of Class A shares of such funds
(and shares that have been exchanged into Ivy Money Market Fund from any of the
other funds in the Ivy funds) and of any other investment company distributed by
IMDI, previously purchased or acquired and currently owned, determined at the
higher of current offering price or amount invested, plus the Class A shares
being purchased, amounts to $50,000 or more for all funds other than Ivy Bond;
or $100,000 or more for Ivy Bond Fund.
At the time an investment takes place, IMSC must be notified by the
investor or his or her dealer that the investment qualifies for the reduced
sales charge on the basis of previous investments. The reduced sales charge is
subject to confirmation of the investor's holdings through a check of the
particular fund's records.
SYSTEMATIC WITHDRAWAL PLAN
A shareholder may establish a Systematic Withdrawal Plan (a "Withdrawal
Plan"), by telephone instructions or by delivery to IMSC of a written election
to have his or her shares withdrawn periodically (minimum distribution amount
$50 for Advisor Class shares), accompanied by a surrender to IMSC of all share
certificates then outstanding in such shareholder's name, properly endorsed by
the shareholder. To be eligible to elect a Withdrawal Plan, a shareholder must
have at least $5,000 in his or her account (except Advisor Class shareholders,
who must continually maintain an account balance of at least $10,000). A
Withdrawal Plan may not be established if the investor is currently
participating in the Automatic Investment Method. A Withdrawal Plan may involve
the depletion of a shareholder's principal, depending on the amount withdrawn.
A redemption under a Withdrawal Plan is a taxable event. Shareholders
contemplating participating in a Withdrawal Plan should consult their tax
advisers.
Additional investments made by investors participating in a Withdrawal
Plan must equal at least $1,000 each ($250 for Advisor Class shareholders) while
the Withdrawal Plan is in effect. Making additional purchases while a Withdrawal
Plan is in effect may be disadvantageous to the investor because of applicable
initial sales charges or CDSCs.
An investor may terminate his or her participation in the Withdrawal
Plan at any time by delivering written notice to IMSC. If all shares held by the
investor are liquidated at any time, participation in the Withdrawal Plan will
terminate automatically. The Trust or IMSC may terminate the Withdrawal Plan
option at any time after reasonable notice to shareholders.
GROUP SYSTEMATIC INVESTMENT PROGRAM
Shares of the Fund may be purchased in connection with investment
programs established by employee or other groups using systematic payroll
deductions or other systematic payment arrangements. The Trust does not itself
organize, offer or administer any such programs. However, it may, depending upon
the size of the program, waive the minimum initial and additional investment
requirements for purchases by individuals in conjunction with programs organized
and offered by others. Unless shares of the Fund are purchased in conjunction
with IRAs (see "How to Buy Shares" in the Prospectus), such group systematic
investment programs are not entitled to special tax benefits under the Code. The
Trust reserves the right to refuse purchases at any time or suspend the offering
of shares in connection with group systematic investment programs, and to
restrict the offering of shareholder privileges, such as check writing,
simplified redemptions and other optional privileges, as described in the
Prospectus, to shareholders using group systematic investment programs.
With respect to each shareholder account established on or after
September 15, 1972 under a group systematic investment program, the Trust and
IMI each currently charge a maintenance fee of $3.00 (or portion thereof) that
for each twelve-month period (or portion thereof) that the account is
maintained. The Trust may collect such fee (and any fees due to IMI) through a
deduction from distributions to the shareholders involved or by causing on the
date the fee is assessed a redemption in each such shareholder account
sufficient to pay such fee. The Trust reserves the right to change these fees
from time to time without advance notice.
Class A shares of the Fund are made available to Merrill Lynch Daily K
Plan (the "Plan") participants at NAV without an initial sales charge if:
(i) the Plan is recordkept on a daily valuation basis by Merrill
Lynch and, on the date the Plan Sponsor signs the Merrill
Lynch Recordkeeping Service Agreement, the Plan has $3 million
or more in assets invested in broker/dealer funds not advised
or managed by Merrill Lynch Asset Management, L.P. ("MLAM")
that are made available pursuant to a Service Agreement
between Merrill Lynch and the fund's principal underwriter or
distributor and in funds advised or managed by MLAM
(collectively, the "Applicable Investments");
(ii) the Plan is recordkept on a daily valuation basis by an
independent recordkeeper whose services are provided through a
contract or alliance arrangement with Merrill Lynch, and on
the date the Plan Sponsor signs the Merrill Lynch
Recordkeeping Service Agreement, the Plan has $3 million or
more in assets, excluding money market funds, invested in
Applicable Investments; or
(iii) the Plan has 500 or more eligible employees, as determined by
Merrill Lynch plan conversion manager, on the date the Plan
Sponsor signs the Merrill Lynch Recordkeeping Service
Agreement.
Alternatively, Class B shares of the Fund are made available to Plan
participants at NAV without a CDSC if the Plan conforms with the requirements
for eligibility set forth in (i) through (iii) above but either does not meet
the $3 million asset threshold or does not have 500 or more eligible employees.
Plans recordkept on a daily basis by Merrill Lynch or an independent
recordkeeper under a contract with Merrill Lynch that are currently investing in
Class B shares of the Fund convert to Class A shares once the Plan has reached
$5 million invested in Applicable Investments, or 10 years after the date of the
initial purchase by a participant under the Plan--the Plan will receive a Plan
level share conversion.
REDEMPTIONS
Shares of the Fund are redeemed at their net asset value next
determined after a proper redemption request has been received by IMSC, less any
applicable CDSC.
Unless a shareholder requests that the proceeds of any redemption be
wired to his or her bank account, payment for shares tendered for redemption is
made by check within seven days after tender in proper form, except that the
Trust reserves the right to suspend the right of redemption or to postpone the
date of payment upon redemption beyond seven days, (i) for any period during
which the Exchange is closed (other than customary weekend and holiday closings)
or during which trading on the Exchange is restricted, (ii) for any period
during which an emergency exists as determined by the SEC as a result of which
disposal of securities owned by the Fund is not reasonably practicable or it is
not reasonably practicable for the Fund to fairly determine the value of its net
assets, or (iii) for such other periods as the SEC may by order permit for the
protection of shareholders of the Fund.
Under unusual circumstances, when the Board deems it in the best
interest of the Fund's shareholders, the Fund may make payment for shares
repurchased or redeemed in whole or in part in securities of the Fund taken at
current values. If any such redemption in kind is to be made, the Fund may make
an election pursuant to Rule 18f-1 under the 1940 Act. This will require the
Fund to redeem with cash at a shareholder's election in any case where the
redemption involves less than $250,000 (or 1% of the Fund's net asset value at
the beginning of each 90-day period during which such redemptions are in effect,
if that amount is less than $250,000). Should payment be made in securities, the
redeeming shareholder may incur brokerage costs in converting such securities to
cash.
The Trust may redeem those accounts of shareholders who have maintained
an investment, including sales charges paid, of less than $1,000 ($10,000 for
Advisor Class shareholders) in the Fund for a period of more than 12 months. All
accounts below that minimum will be redeemed simultaneously when MIMI deems it
advisable. The $1,000 balance ($10,000 for Advisor Class shareholders) will be
determined by actual dollar amounts invested by the shareholder, unaffected by
market fluctuations. The Trust will notify any such shareholder by certified
mail of its intention to redeem such account, and the shareholder shall have 60
days from the date of such letter to invest such additional sums as shall raise
the value of such account above that minimum. Should the shareholder fail to
forward such sum within 60 days of the date of the Trust's letter of
notification, the Trust will redeem the shares held in such account and transmit
the redemption in value thereof to the shareholder. However, those shareholders
who are investing pursuant to the Automatic Investment Method will not be
redeemed automatically unless they have ceased making payments pursuant to the
plan for a period of at least six consecutive months, and these shareholders
will be given six-months' notice by the Trust before such redemption.
Shareholders in a qualified retirement, pension or profit sharing plan who wish
to avoid tax consequences must "rollover" any sum so redeemed into another
qualified plan within 60 days. The Trustees of the Trust may change the minimum
account size.
If a shareholder has given authorization for telephonic redemption
privilege, shares can be redeemed and proceeds sent by Federal wire to a single
previously designated bank account. Delivery of the proceeds of a wire
redemption request of $250,000 or more may be delayed by the Fund for up to
seven days if deemed appropriate under then-current market conditions. The Trust
reserves the right to change this minimum or to terminate the telephonic
redemption privilege without prior notice. The Trust cannot be responsible for
the efficiency of the Federal wire system of the shareholder's dealer of record
or bank. The shareholder is responsible for any charges by the shareholder's
bank.
The Fund employs reasonable procedures that require personal
identification prior to acting on redemption or exchange instructions
communicated by telephone to confirm that such instructions are genuine. In the
absence of such instructions, the Fund may be liable for any losses due to
unauthorized or fraudulent telephone instructions.
CONVERSION OF CLASS B SHARES
As described in the Prospectus, Class B shares of the Fund will
automatically convert to Class A shares of the Fund, based on the relative net
asset values per share of the two classes, no later than the month following the
eighth anniversary of the initial issuance of such Class B shares of the Fund
occurs. For the purpose of calculating the holding period required for
conversion of Class B shares, the date of initial issuance shall mean: (1) the
date on which such Class B shares were issued, or (2) for Class B shares
obtained through an exchange, or a series of exchanges, (subject to the exchange
privileges for Class B shares) the date on which the original Class B shares
were issued. For purposes of conversion of Class B shares, Class B shares
purchased through the reinvestment of dividends and capital gain distributions
paid in respect of Class B shares will be held in a separate sub-account. Each
time any Class B shares in the shareholder's regular account (other than those
shares in the sub-account) convert to Class A shares, a pro rata portion of the
Class B shares in the sub-account will also convert to Class A shares. The
portion will be determined by the ratio that the shareholder's Class B shares
converting to Class A shares bears to the shareholder's total Class B shares not
acquired through the reinvestment of dividends and capital gain distributions.
NET ASSET VALUE
The net asset value per share of the Fund is computed by dividing the
value of the Fund's aggregate net assets (i.e., its total assets less its
liabilities) by the number of the Fund's shares outstanding. For purposes of
determining the Fund's aggregate net assets, receivables are valued at their
realizable amounts. The Fund's liabilities, if not identifiable as belonging to
a particular class of the Fund, are allocated among the Fund's several classes
based on their relative net asset size. Liabilities attributable to a particular
class are charged to that class directly. The total liabilities for a class are
then deducted from the class's proportionate interest in the Fund's assets, and
the resulting amount is divided by the number of shares of the class outstanding
to produce its net asset value per share.
A security listed or traded on a recognized stock exchange or The
Nasdaq Stock Market, Inc. ("Nasdaq") is valued at the security's last sale price
on the exchange on which the security is principally traded. If no sale is
reported at that time, the average between the last bid and asked price (the
"Calculated Mean") is used. Unless otherwise noted herein, the value of a
foreign security is determined in its national currency as of the normal close
of trading on the foreign exchange on which it is traded or as of the close of
regular trading on the Exchange, if that is earlier, and that value is then
converted into its U.S. dollar equivalent at the foreign exchange rate in effect
at noon, eastern time, on the day the value of the foreign security is
determined. All other securities for which OTC market quotations are readily
available are valued at the Calculated Mean.
A debt security normally is valued on the basis of quotes obtained from
at least two dealers (or one dealer who has made a market in the security) or
pricing services that take into account appropriate valuation factors. Interest
is accrued daily. Money market instruments are valued at amortized cost, which
the Board believes approximates market value.
An exchange-traded option is valued at the last sale price on the
exchange on which it is principally traded, if available, and otherwise is
valued at the last sale price on the other exchange(s). If there were no sales
on any exchange, the option shall be valued at the Calculated Mean, if possible,
and otherwise at the last offering price, in the case of a written option, and
the last bid price, in the case of a purchased option. An OTC option is valued
at the last offering price, in the case of a written option, and the last bid
price, in the case of a purchased option. Exchange listed and widely-traded OTC
futures (and options thereon) are valued at the most recent settlement price.
Securities and other assets for which market prices are not readily
available are priced at their "fair value" as determined by IMI in accordance
with procedures approved by the Board. Trading in securities on many foreign
securities exchanges is normally completed before the close of regular trading
on the Exchange. Trading on foreign exchanges may not take place on all days on
which there is regular trading on the Exchange, or may take place on days on
which there is no regular trading on the Exchange (e.g., any of the national
business holidays identified below). If events materially affecting the value of
the Fund's portfolio securities occur between the time when a foreign exchange
closes and the time when the Fund's net asset value is calculated (see following
paragraph), such securities may be valued at fair value as determined by IMI and
approved by the Board.
Portfolio securities are valued (and net asset value per share is
determined) as of the close of regular trading on the Exchange (normally 4:00
p.m., eastern time) on each day the Exchange is open for trading. The Exchange
and the Trust's offices are expected to be closed, and net asset value will not
be calculated, on the following national business holidays: New Year's Day,
Martin Luther King, Jr. Day, Presidents' Day, Good Friday, Memorial Day,
Independence Day, Labor Day, Thanksgiving Day and Christmas Day. On those days
when either or both of the Fund's Custodian or the Exchange close early as a
result of a partial holiday or otherwise, the Trust reserves the right to
advance the time on that day by which purchase and redemption requests must be
received.
The number of shares you receive when you place a purchase order, and
the payment you receive after submitting a redemption request, is based on the
Fund's net asset value next determined after your instructions are received in
proper form by IMSC or by your registered securities dealer. Each purchase and
redemption order is subject to any applicable sales charge. Since the Fund
invests in securities that are listed on foreign exchanges that may trade on
weekends or other days when the Fund does not price its shares, the Fund's net
asset value may change on days when shareholders will not be able to purchase or
redeem the Fund's shares. The sale of the Fund's shares will be suspended during
any period when the determination of its net asset value is suspended pursuant
to rules or orders of the SEC and may be suspended by the Board whenever in its
judgment it is in the Fund's best interest to do so.
TAXATION
The following is a general discussion of certain tax rules thought to
be applicable with respect to the Fund. It is merely a summary and is not an
exhaustive discussion of all possible situations or of all potentially
applicable taxes. Accordingly, shareholders and prospective shareholders should
consult a competent tax adviser about the tax consequences to them of investing
in the Fund.
The Fund intends to be taxed as a regulated investment company under
Subchapter M of the Code. Accordingly, the Fund must, among other things, (a)
derive in each taxable year at least 90% of its gross income from dividends,
interest, payments with respect to certain securities loans, and gains from the
sale or other disposition of stock, securities or foreign currencies, or other
income derived with respect to its business of investing in such stock,
securities or currencies; and (b) diversify its holdings so that, at the end of
each fiscal quarter, (i) at least 50% of the market value of the Fund's assets
is represented by cash, U.S. Government securities, the securities of other
regulated investment companies and other securities, with such other securities
limited, in respect of any one issuer, to an amount not greater than 5% of the
value of the Fund's total assets and 10% of the outstanding voting securities of
such issuer, and (ii) not more than 25% of the value of its total assets is
invested in the securities of any one issuer (other than U.S. Government
securities and the securities of other regulated investment companies).
As a regulated investment company, the Fund generally will not be
subject to U.S. Federal income tax on its income and gains that it distributes
to shareholders, if at least 90% of its investment company taxable income (which
includes, among other items, dividends, interest and the excess of any
short-term capital gains over long-term capital losses) for the taxable year is
distributed. The Fund intends to distribute all such income.
Amounts not distributed on a timely basis in accordance with a calendar
year distribution requirement are subject to a nondeductible 4% excise tax at
the Fund level. To avoid the tax, the Fund must distribute during each calendar
year, (1) at least 98% of its ordinary income (not taking into account any
capital gains or losses) for the calendar year (2) at least 98% of its capital
gains in excess of its capital losses (adjusted for certain ordinary losses) for
a one-year period generally ending on October 31 of the calendar year, and (3)
all ordinary income and capital gains for previous years that were not
distributed during such years. To avoid application of the excise tax, the Fund
intends to make distributions in accordance with the calendar year distribution
requirements. A distribution will be treated as paid on December 31 of the
current calendar year if it is declared by the Fund in October, November or
December of the year with a record date in such a month and paid by the Fund
during January of the following year. Such distributions will be taxable to
shareholders in the calendar year the distributions are declared, rather than
the calendar year in which the distributions are received.
OPTIONS, FUTURES AND FOREIGN CURRENCY FORWARD CONTRACTS
The taxation of equity options and OTC options on debt securities is
governed by Code section 1234. Pursuant to Code section 1234, the premium
received by the Fund for selling a put or call option is not included in income
at the time of receipt. If the option expires, the premium is short-term capital
gain to the Fund. If the Fund enters into a closing transaction, the difference
between the amount paid to close out its position and the premium received is
short-term capital gain or loss. If a call option written by the Fund is
exercised, thereby requiring the Fund to sell the underlying security, the
premium will increase the amount realized upon the sale of such security and any
resulting gain or loss will be a capital gain or loss, and will be long-term or
short-term depending upon the holding period of the security. With respect to a
put or call option that is purchased by the Fund, if the option is sold, any
resulting gain or loss will be a capital gain or loss, and will be long-term or
short-term, depending upon the holding period of the option. If the option
expires, the resulting loss is a capital loss and is long-term or short-term,
depending upon the holding period of the option. If the option is exercised, the
cost of the option, in the case of a call option, is added to the basis of the
purchased security and, in the case of a put option, reduces the amount realized
on the underlying security in determining gain or loss.
Some of the options, futures and foreign currency forward contracts in
which the Fund may invest may be "section 1256 contracts." Gains (or losses) on
these contracts generally are considered to be 60% long-term and 40% short-term
capital gains or losses; however, as described below, foreign currency gains or
losses arising from certain section 1256 contracts are ordinary in character.
Also, section 1256 contracts held by the Fund at the end of each taxable year
(and on certain other dates prescribed in the Code) are "marked-to-market" with
the result that unrealized gains or losses are treated as though they were
realized.
The transactions in options, futures and forward contracts undertaken
by the Fund may result in "straddles" for Federal income tax purposes. The
straddle rules may affect the character of gains or losses realized by the Fund.
In addition, losses realized by the Fund on positions that are part of a
straddle may be deferred under the straddle rules, rather than being taken into
account in calculating the taxable income for the taxable year in which such
losses are realized. Because only a few regulations implementing the straddle
rules have been promulgated, the consequences of such transactions to the Fund
are not entirely clear. The straddle rules may increase the amount of short-term
capital gain realized by the Fund, which is taxed as ordinary income when
distributed to shareholders.
The Fund may make one or more of the elections available under the Code
which are applicable to straddles. If the Fund makes any of the elections, the
amount, character and timing of the recognition of gains or losses from the
affected straddle positions will be determined under rules that vary according
to the election(s) made. The rules applicable under certain of the elections may
operate to accelerate the recognition of gains or losses from the affected
straddle positions.
Because application of the straddle rules may affect the character of
gains or losses, defer losses and/or accelerate the recognition of gains or
losses from the affected straddle positions, the amount which must be
distributed to shareholders as ordinary income or long-term capital gain may be
increased or decreased substantially as compared to a fund that did not engage
in such transactions.
Notwithstanding any of the foregoing, the Fund may recognize gain (but
not loss) from a constructive sale of certain "appreciated financial positions"
if the Fund enters into a short sale, offsetting notional principal contract,
futures or forward contract transaction with respect to the appreciated position
or substantially identical property. Appreciated financial positions subject to
this constructive sale treatment are interests (including options, futures and
forward contracts and short sales) in stock, partnership interests, certain
actively traded trust instruments and certain debt instruments. Constructive
sale treatment of appreciated financial positions does not apply to certain
transactions closed in the 90-day period ending with the 30th day after the
close of the Fund's taxable year, if certain conditions are met.
CURRENCY FLUCTUATIONS -- "SECTION 988" GAINS OR LOSSES
Gains or losses attributable to fluctuations in exchange rates which
occur between the time the Fund accrues receivables or liabilities denominated
in a foreign currency and the time the Fund actually collects such receivables
or pays such liabilities generally are treated as ordinary income or ordinary
loss. Similarly, on disposition of some investments, including debt securities
denominated in a foreign currency and certain options, futures and forward
contracts, gains or losses attributable to fluctuations in the value of the
foreign currency between the date of acquisition of the security or contract and
the date of disposition also are treated as ordinary gain or loss. These gains
and losses, referred to under the Code as "section 988" gains or losses,
increase or decrease the amount of the Fund's investment company taxable income
available to be distributed to its shareholders as ordinary income.
INVESTMENT IN PASSIVE FOREIGN INVESTMENT COMPANIES
The Fund may invest in shares of foreign corporations which may be
classified under the Code as passive foreign investment companies ("PFICs"). In
general, a foreign corporation is classified as a PFIC if at least one-half of
its assets constitute investment-type assets, or 75% or more of its gross income
is investment-type income. If the Fund receives a so-called "excess
distribution" with respect to PFIC stock, the Fund itself may be subject to a
tax on a portion of the excess distribution, whether or not the corresponding
income is distributed by the Fund to shareholders. In general, under the PFIC
rules, an excess distribution is treated as having been realized ratably over
the period during which a Fund held the PFIC shares. The Fund itself will be
subject to tax on the portion, if any, of an excess distribution that is so
allocated to prior Fund taxable years and an interest factor will be added to
the tax, as if the tax had been payable in such prior taxable years. Certain
distributions from a PFIC as well as gain from the sale of PFIC shares are
treated as excess distributions. Excess distributions are characterized as
ordinary income even though, absent application of the PFIC rules, certain
excess distributions might have been classified as capital gain.
The Fund may be eligible to elect alternative tax treatment with
respect to PFIC shares. The Fund may elect to mark to market its PFIC shares,
resulting in the shares being treated as sold at fair market value on the last
business day of each taxable year. Any resulting gain would be reported as
ordinary income; any resulting loss and any loss from an actual disposition of
the shares would be reported as ordinary loss to the extent of any net gains
reported in prior years. Under another election that currently is available in
some circumstances, the Fund generally would be required to include in its gross
income its share of the earnings of a PFIC on a current basis, regardless of
whether distributions are received from the PFIC in a given year.
DEBT SECURITIES ACQUIRED AT A DISCOUNT
Some of the debt securities (with a fixed maturity date of more than
one year from the date of issuance) that may be acquired by the Fund may be
treated as debt securities that are issued originally at a discount. Generally,
the amount of the original issue discount ("OID") is treated as interest income
and is included in income over the term of the debt security, even though
payment of that amount is not received until a later time, usually when the debt
security matures.
Some of the debt securities (with a fixed maturity date of more than
one year from the date of issuance) that may be acquired by the Fund in the
secondary market may be treated as having market discount. Generally, gain
recognized on the disposition of, and any partial payment of principal on, a
debt security having market discount is treated as ordinary income to the extent
the gain, or principal payment, does not exceed the "accrued market discount" on
such debt security. In addition, the deduction of any interest expenses
attributable to debt securities having market discount may be deferred. Market
discount generally accrues in equal daily installments. The Fund may make one or
more of the elections applicable to debt securities having market discount,
which could affect the character and timing of recognition of income.
Some debt securities (with a fixed maturity date of one year or less
from the date of issuance) that may be acquired by the Fund may be treated as
having acquisition discount, or OID in the case of certain types of debt
securities. Generally, the Fund will be required to include the acquisition
discount, or OID, in income over the term of the debt security, even though
payment of that amount is not received until a later time, usually when the debt
security matures. The Fund may make one or more of the elections applicable to
debt securities having acquisition discount, or OID, which could affect the
character and timing of recognition of income.
The Fund generally will be required to distribute dividends to
shareholders representing discount on debt securities that is currently
includable in income, even though cash representing such income may not have
been received by the Fund. Cash to pay such dividends may be obtained from sales
proceeds of securities held by the Fund.
DISTRIBUTIONS
Distributions of investment company taxable income are taxable to a
U.S. shareholder as ordinary income, whether paid in cash or shares. Dividends
paid by the Fund to a corporate shareholder, to the extent such dividends are
attributable to dividends received from U.S. corporations by the Fund, may
qualify for the dividends received deduction. However, the revised alternative
minimum tax applicable to corporations may reduce the value of the dividends
received deduction. Distributions of net capital gains (the excess of net
long-term capital gains over net short-term capital losses), if any, designated
by the Fund as capital gain dividends, are taxable to shareholders as long-term
capital gains whether paid in cash or in shares, and regardless of how long the
shareholder has held the Fund's shares; such distributions are not eligible for
the dividends received deduction. Shareholders receiving distributions in the
form of newly issued shares will have a cost basis in each share received equal
to the net asset value of a share of the Fund on the distribution date. A
distribution of an amount in excess of the Fund's current and accumulated
earnings and profits will be treated by a shareholder as a return of capital
which is applied against and reduces the shareholder's basis in his or her
shares. To the extent that the amount of any such distribution exceeds the
shareholder's basis in his or her shares, the excess will be treated by the
shareholder as gain from a sale or exchange of the shares. Shareholders will be
notified annually as to the U.S. Federal tax status of distributions and
shareholders receiving distributions in the form of newly issued shares will
receive a report as to the net asset value of the shares received.
If the net asset value of shares is reduced below a shareholder's cost
as a result of a distribution by the Fund, such distribution generally will be
taxable even though it represents a return of invested capital. Shareholders
should be careful to consider the tax implications of buying shares just prior
to a distribution. The price of shares purchased at this time may reflect the
amount of the forthcoming distribution. Those purchasing just prior to a
distribution will receive a distribution which generally will be taxable to
them.
DISPOSITION OF SHARES
Upon a redemption, sale or exchange of his or her shares, a shareholder
will realize a taxable gain or loss depending upon his or her basis in the
shares. Such gain or loss will be treated as capital gain or loss if the shares
are capital assets in the shareholder's hands and, if so, will be long-term or
short-term, depending upon the shareholder's holding period for the shares. Any
loss realized on a redemption sale or exchange will be disallowed to the extent
the shares disposed of are replaced (including through reinvestment of
dividends) within a period of 61 days beginning 30 days before and ending 30
days after the shares are disposed of. In such a case, the basis of the shares
acquired will be adjusted to reflect the disallowed loss. Any loss realized by a
shareholder on the sale of Fund shares held by the shareholder for six-months or
less will be treated for tax purposes as a long-term capital loss to the extent
of any distributions of capital gain dividends received or treated as having
been received by the shareholder with respect to such shares.
In some cases, shareholders will not be permitted to take all or
portion of their sales loads into account for purposes of determining the amount
of gain or loss realized on the disposition of their shares. This prohibition
generally applies where (1) the shareholder incurs a sales load in acquiring the
shares of the Fund, (2) the shares are disposed of before the 91st day after the
date on which they were acquired, and (3) the shareholder subsequently acquires
shares in the Fund or another regulated investment company and the otherwise
applicable sales charge is reduced under a "reinvestment right" received upon
the initial purchase of Fund shares. The term "reinvestment right" means any
right to acquire shares of one or more regulated investment companies without
the payment of a sales load or with the payment of a reduced sales charge. Sales
charges affected by this rule are treated as if they were incurred with respect
to the shares acquired under the reinvestment right. This provision may be
applied to successive acquisitions of fund shares.
FOREIGN WITHHOLDING TAXES
Income received by the Fund from sources within a foreign country may
be subject to withholding and other taxes imposed by that country.
If more than 50% of the value of the Fund's total assets at the close
of its taxable year consists of securities of foreign corporations, the Fund
will be eligible and may elect to "pass-through" to the Fund's shareholders the
amount of foreign income and similar taxes paid by the Fund. Pursuant to this
election, a shareholder will be required to include in gross income (in addition
to taxable dividends actually received) his or her pro rata share of the foreign
income and similar taxes paid by the Fund, and will be entitled either to deduct
his or her pro rata share of foreign income and similar taxes in computing his
or her taxable income or to use it as a foreign tax credit against his or her
U.S. Federal income taxes, subject to limitations. No deduction for foreign
taxes may be claimed by a shareholder who does not itemize deductions. Foreign
taxes generally may not be deducted by a shareholder that is an individual in
computing the alternative minimum tax. Each shareholder will be notified within
60 days after the close of the Fund's taxable year whether the foreign taxes
paid by the Fund will "pass-through" for that year and, if so, such notification
will designate (1) the shareholder's portion of the foreign taxes paid to each
such country and (2) the portion of the dividend which represents income derived
from sources within each such country.
Generally, except in the case of certain electing individual taxpayers
who have limited creditable foreign taxes and no foreign source income other
than passive investment-type income, a credit for foreign taxes is subject to
the limitation that it may not exceed the shareholder's U.S. tax attributable to
his or her total foreign source taxable income. For this purpose, if the Fund
makes the election described in the preceding paragraph, the source of the
Fund's income flows through to its shareholders. With respect to the Fund, gains
from the sale of securities generally will be treated as derived from U.S.
sources and section 988 gains will be treated as ordinary income derived from
U.S. sources. The limitation on the foreign tax credit is applied separately to
foreign source passive income, including foreign source passive income received
from the Fund. In addition, the foreign tax credit may offset only 90% of the
revised alternative minimum tax imposed on corporations and individuals.
Furthermore, the foreign tax credit is eliminated with respect to foreign taxes
withheld on dividends if the dividend-paying shares or the shares of the Fund
are held by the Fund or the shareholder, as the case may be, for less than 16
days (46 days in the case of preferred shares) during the 30-day period (90-day
period for preferred shares) beginning 15 days (45 days for preferred shares)
before the shares become ex-dividend. In addition, if the Fund fails to satisfy
these holding period requirements, it cannot elect to pass through to
shareholders the ability to claim a deduction for related foreign taxes.
The foregoing is only a general description of the foreign tax credit
under current law. Because application of the credit depends on the particular
circumstances of each shareholder, shareholders are advised to consult their own
tax advisers.
BACKUP WITHHOLDING
The Fund will be required to report to the Internal Revenue Service
("IRS") all taxable distributions as well as gross proceeds from the redemption
of the Fund's shares, except in the case of certain exempt shareholders. All
such distributions and proceeds will be subject to withholding of Federal income
tax at a rate of 31% ("backup withholding") in the case of non-exempt
shareholders if (1) the shareholder fails to furnish the Fund with and to
certify the shareholder's correct taxpayer identification number or social
security number, (2) the IRS notifies the shareholder or the Fund that the
shareholder has failed to report properly certain interest and dividend income
to the IRS and to respond to notices to that effect, or (3) when required to do
so, the shareholder fails to certify that he or she is not subject to backup
withholding. If the withholding provisions are applicable, any such
distributions or proceeds, whether reinvested in additional shares or taken in
cash, will be reduced by the amounts required to be withheld.
Distributions may also be subject to additional state, local and
foreign taxes depending on each shareholder's particular situation. Non-U.S.
shareholders may be subject to U.S. tax rules that differ significantly from
those summarized above. This discussion does not purport to deal with all of the
tax consequences applicable to the Fund or shareholders. Shareholders are
advised to consult their own tax advisers with respect to the particular tax
consequences to them of an investment in the Fund.
PERFORMANCE INFORMATION
Performance information for the classes of shares of the Fund may be
compared, in reports and promotional literature, to: (i) the S&P 500 Index, the
Dow Jones Industrial Average ("DJIA"), or other unmanaged indices so that
investors may compare the Fund's results with those of a group of unmanaged
securities widely regarded by investors as representative of the securities
markets in general; (ii) other groups of mutual funds tracked by Lipper
Analytical Services, a widely used independent research firm that ranks mutual
funds by overall performance, investment objectives and assets, or tracked by
other services, companies, publications or other criteria; and (iii) the
Consumer Price Index (measure for inflation) to assess the real rate of return
from an investment in the Fund. Unmanaged indices may assume the reinvestment of
dividends but generally do not reflect deductions or administrative and
management costs and expenses. Performance rankings are based on historical
information and are not intended to indicate future performance.
YIELD. Quotations of yield for a specific class of shares of the Fund
will be based on all investment income attributable to that class earned during
a particular 30-day (or one month) period (including dividends and interest),
less expenses attributable to that class accrued during the period ("net
investment income"), and will be computed by dividing the net investment income
per share of that class earned during the period by the maximum offering price
per share (in the case of Class A shares) or the net asset value per share (in
the case of Class B and Class C shares) on the last day of the period, according
to the following formula:
YIELD = 2[({(a-b)/cd} + 1){superscript 6}-1]
Where: a = dividends and interest earned during the period
attributable to a specific class of shares,
b = expenses accrued for the period attributable to that class
(net of reimbursements),
c = the average daily number of shares
of that class outstanding during the
period that were entitled to receive
dividends, and
d = the maximum offering price per
share (in the case of Class A
shares) or the net asset value per
share (in the case of Class B shares
and Class C shares) on the last day
of the period.
AVERAGE ANNUAL TOTAL RETURN. Quotations of standardized average annual
total return ("Standardized Return") for a specific class of shares of the Fund
will be expressed in terms of the average annual compounded rate of return that
would cause a hypothetical investment in that class of the Fund made on the
first day of a designated period to equal the ending redeemable value ("ERV") of
such hypothetical investment on the last day of the designated period, according
to the following formula:
P(1 + T){superscript n} = ERV
Where: P = a hypothetical initial payment of $1,000 to purchase shares of
a specific class
T = the average annual total return of shares of that class
n = the number of years
ERV = the ending redeemable value of a
hypothetical $1,000 payment made at
the beginning of the period.
For purposes of the above computation for the Fund, it is assumed that
all dividends and capital gains distributions made by the Fund are reinvested at
net asset value in additional shares of the same class during the designated
period. In calculating the ending redeemable value for Class A shares and
assuming complete redemption at the end of the applicable period, the maximum
5.75% sales charge is deducted from the initial $1,000 payment and, for Class B
and Class C shares, the applicable CDSC imposed upon redemption of Class B or
Class C shares held for the period is deducted. Standardized Return quotations
for the Fund do not take into account any required payments for federal or state
income taxes. Standardized Return quotations for Class B shares for periods of
over eight years will reflect conversion of the Class B shares to Class A shares
at the end of the eighth year. Standardized Return quotations are determined to
the nearest 1/100 of 1%.
The Fund may, from time to time, include in advertisements, promotional
literature or reports to shareholders or prospective investors total return data
that are not calculated according to the formula set forth above
("Non-Standardized Return"). Neither initial nor CDSCs are taken into account in
calculating Non-Standardized Return; a sales charge, if deducted, would reduce
the return.
The following table summarizes the calculation of Standardized and
Non-Standardized Return for the Class A, Class B, Class C and Advisor Class
shares of the Fund for the periods indicated. In determining the average annual
total return for a specific class of shares of the Fund, recurring fees, if any,
that are charged to all shareholder accounts are taken into consideration. For
any account fees that vary with the size of the account of the Fund, the account
fee used for purposes of the following computations is assumed to be the fee
that would be charged to the mean account size of the Fund.
STANDARDIZED RETURN[*]
CLASS A[1] CLASS B[2] CLASS C[3] ADVISOR CLASS
Year ended December 31, 1998:
Inception [#] to year
ended December 31,
1998[7]:
NON-STANDARDIZED RETURN[**]
CLASS A[4] CLASS B[5] CLASS C[6] ADVISOR CLASS
Year ended December 31,
1998:
Inception [#] to year
ended December 31,
1998[7]:
- ------------------------- ----------------- ------------------ -----------------
[*] The Standardized Return figures for Class A shares reflect the
deduction of the maximum initial sales charge of 5.75%. The Standardized Return
figures for Class B and C shares reflect the deduction of the applicable CDSC
imposed on redemption of Class B or C shares held for the period.
[**] The Non-Standardized Return figures do not reflect the deduction of
any initial sales charge or CDSC.
[#] The inception date for the Fund (Class A and Class B shares) was
November 1, 1994. The inception dates for Class C and Advisor Class shares of
the Fund were April 30, 1996 and January 1, 1998, respectively.
[1] The Standardized Return figures for the Class A shares reflect
expense reimbursement. Without expense reimbursement, the Standardized Return
for Class A shares for the period from inception through and the one year ended
December 31, 1998 would have been [ ].
[2] The Standardized Return figures for the Class B shares reflect
expense reimbursement. Without expense reimbursement, the Standardized Return
for Class B shares for the period from inception through and the one year ended
December 31, 1998 would have been [ ].
[3] The Standardized Return figures for the Class C shares reflect
expense reimbursement. Without expense reimbursement, the Standardized Return
for Class C shares for the period from inception through and the one year ended
December 31, 1998 would have been [ ].
[4] The Non-Standardized Return figures for Class A shares reflect
expense reimbursement. Without expense reimbursement, the Non-Standardized
Return for Class A shares for the period from inception through and the one year
ended December 31, 1998 would have been [ ].
[5] The Non-Standardized Return figures for Class B shares reflect
expense reimbursement. Without expense reimbursement, the Non-Standardized
Return for Class B shares for the period from inception through and the one year
ended December 31, 1998 would have been [ ].
[6] The Non-Standardized Return figures for Class C shares reflect
expense reimbursement. Without expense reimbursement, the Non-Standardized
Return for Class C shares for the period from inception through and the one year
ended December 31, 1998 would have been [ ].
[7] The total return for a period less than a full year is calculated
on an aggregate basis and is not annualized.
CUMULATIVE TOTAL RETURN. Cumulative total return is the cumulative rate
of return on a hypothetical initial investment of $1,000 in a specific class of
shares of the Fund for a specified period. Cumulative total return quotations
reflect changes in the price of the Fund's shares and assume that all dividends
and capital gains distributions during the period were reinvested in the Fund
shares. Cumulative total return is calculated by computing the cumulative rates
of return of a hypothetical investment in a specific class of shares of the Fund
over such periods, according to the following formula (cumulative total return
is then expressed as a percentage):
C = (ERV/P) - 1
Where: C = cumulative total return
P = a hypothetical initial investment of $1,000 to
purchase shares of a specific class
ERV = ending redeemable value: ERV is
the value, at the end of the
applicable period, of a hypothetical
$1,000 investment made at the
beginning of the applicable period.
The following table summarizes the calculation of Cumulative Total
Return for the periods indicated through December 31, 1998,
assuming the maximum 5.75% sales charge has been assessed.
ONE YEAR SINCE
INCEPTION[*]
Class A
Class B
Class C
Advisor Class
The following table summarizes the calculation of Cumulative Total
Return for the periods indicated through December 31, 1998,
assuming the maximum 5.75% sales charge has not been assessed.
ONE YEAR SINCE
INCEPTION[*]
Class A
Class B
Class C
Advisor Class
- ---------------------------
[*] The inception date for the Fund (Class A and Class B shares)
was November 1, 1994. The inception dates for Class C shares
and Adviser Class shares were April 30, 1996 and January 1,
1998, respectively.
OTHER QUOTATIONS, COMPARISONS AND GENERAL INFORMATION. The foregoing
computation methods are prescribed for advertising and other communications
subject to SEC Rule 482. Communications not subject to this rule may contain a
number of different measures of performance, computation methods and
assumptions, including but not limited to: historical total returns; results of
actual or hypothetical investments; changes in dividends, distributions or share
values; or any graphic illustration of such data. These data may cover any
period of the Trust's existence and may or may not include the impact of sales
charges, taxes or other factors.
Performance quotations for the Fund will vary from time to time
depending on market conditions, the composition of the Fund's portfolio and
operating expenses of the Fund. These factors and possible differences in the
methods used in calculating performance quotations should be considered when
comparing performance information regarding the Fund's shares with information
published for other investment companies and other investment vehicles.
Performance quotations should also be considered relative to changes in the
value of the Fund's shares and the risks associated with the Fund's investment
objectives and policies. At any time in the future, performance quotations may
be higher or lower than past performance quotations and there can be no
assurance that any historical performance quotation will continue in the future.
The Fund may also cite endorsements or use for comparison its
performance rankings and listings reported in such newspapers or business or
consumer publications as, among others: AAII Journal, Barron's, Boston Business
Journal, Boston Globe, Boston Herald, Business Week, Consumer's Digest, Consumer
Guide Publications, Changing Times, Financial Planning, Financial World, Forbes,
Fortune, Growth Fund Guide, Houston Post, Institutional Investor, International
Fund Monitor, Investor's Daily, Los Angeles Times, Medical Economics, Miami
Herald, Money Mutual Fund Forecaster, Mutual Fund Letter, Mutual Fund Source
Book, Mutual Fund Values, National Underwriter, Nelson's Directory of Investment
Managers, New York Times, Newsweek, No Load Fund Investor, No Load Fund* X,
Oakland Tribune, Pension World, Pensions and Investment Age, Personal Investor,
Rugg and Steele, Time, U.S. News and World Report, USA Today, The Wall Street
Journal, and Washington Post.
FINANCIAL STATEMENTS
The Fund's Portfolio of Investments as of December 31, 1998, Statement
of Assets and Liabilities as of December 31, 1998, Statement of Operations for
the fiscal year ended December 31, 1998, Statement of Changes in Net Assets for
the fiscal year ended December 31, 1998, Financial Highlights, Notes to
Financial Statements, and Report of Independent Accountants, which are included
in the Fund's December 31, 1998 Annual Report to shareholders, are incorporated
by reference into this SAI.
<PAGE>
APPENDIX A
DESCRIPTION OF STANDARD & POOR'S RATINGS GROUP ("S&P") AND MOODY'S
INVESTORS SERVICE, INC. ("MOODY'S") CORPORATE BOND AND COMMERCIAL
PAPER RATINGS
[From"Moody's Bond Record," November 1994 Issue (Moody's Investors
Service, New York, 1994), and "Standard & Poor's Municipal Ratings
Handbook," October 1997 Issue (McGraw Hill, New York, 1997).]
MOODY'S:
(a) CORPORATE BONDS. Bonds rated Aaa by Moody's are judged by Moody's
to be of the best quality, carrying the smallest degree of investment risk.
Interest payments are protected by a large or exceptionally stable margin and
principal is secure. While the various protective elements are likely to change,
such changes as can be visualized are most unlikely to impair the fundamentally
strong position of such issues. Bonds rated Aa are judged by Moody's to be of
high quality by all standards. Aa bonds are rated lower than Aaa bonds because
margins of protection may not be as large as those of Aaa bonds, or fluctuations
of protective elements may be of greater amplitude, or there may be other
elements present which make the long-term risks appear somewhat larger than
those applicable to Aaa securities. Bonds which are rated A by Moody's possess
many favorable investment attributes and are to be considered as upper
medium-grade obligations. Factors giving security to principal and interest are
considered adequate, but elements may be present which suggest a susceptibility
to impairment sometime in the future. Bonds rated Baa by Moody's are considered
medium-grade obligations (i.e., they are neither highly protected nor poorly
secured). Interest payments and principal security appear adequate for the
present, but certain protective elements may be lacking or may be
characteristically unreliable over any great length of time. Such bonds lack
outstanding investment characteristics and in fact have speculative
characteristics as well. Bonds which are rated Ba are judged to have speculative
elements; their future cannot be considered well-assured. Often the protection
of interest and principal payments may be very moderate and thereby not well
safeguarded during both good and bad times over the future. Uncertainty of
position characterizes bonds in this class. Bonds which are rated B generally
lack characteristics of the desirable investment. Assurance of interest and
principal payments of or maintenance of other terms of the contract over any
long period of time may be small. Bonds which are rated Caa are of poor
standing. Such issues may be in default or there may be present elements of
danger with respect to principal or interest. Bonds which are rated Ca represent
obligations which are speculative in a high degree. Such issues are often in
default or have other marked shortcomings. Bonds which are rated C are the
lowest rated class of bonds and issues so rated can be regarded as having
extremely poor prospects of ever attaining any real investment standing.
(b) COMMERCIAL PAPER. The Prime rating is the highest commercial paper
rating assigned by Moody's. Among the factors considered by Moody's in assigning
ratings are the following: (1) evaluation of the management of the issuer; (2)
economic evaluation of the issuer's industry or industries and an appraisal of
speculative-type risks which may be inherent in certain areas; (3) evaluation of
the issuer's products in relation to competition and customer acceptance; (4)
liquidity; (5) amount and quality of long-term debt; (6) trend of earnings over
a period of ten years; (7) financial strength of a parent company and the
relationships which exist with the issuer; and (8) recognition by management of
obligations which may be present or may arise as a result of public interest
questions and preparations to meet such obligations. Issuers within this Prime
category may be given ratings 1, 2 or 3, depending on the relative strengths of
these factors. The designation of Prime-1 indicates the highest quality
repayment capacity of the rated issue. Issuers rated Prime-2 are deemed to have
a strong ability for repayment while issuers voted Prime-3 are deemed to have an
acceptable ability for repayment. Issuers rated Not Prime do not fall within any
of the Prime rating categories.
S&P:
(a) CORPORATE BONDS. An S&P corporate debt rating is a current
assessment of the creditworthiness of an obligor with respect to a specific
obligation. The ratings are based on current information furnished by the issuer
or obtained by S&P from other sources it considers reliable. The ratings
described below may be modified by the addition of a plus or minus sign to show
relative standing within the major rating categories.
Debt rated AAA has the highest rating assigned by S&P. Capacity to pay
interest and repay principal is extremely strong. Debt rated AA is judged by S&P
to have a very strong capacity to pay interest and repay principal and differs
from the highest rated issues only in small degree. Debt rated A by S&P has a
strong capacity to pay interest and repay principal, although it is somewhat
more susceptible to the adverse effects of changes in circumstances and economic
conditions than debt in higher rated categories.
Debt rated BBB by S&P is regarded by S&P as having an adequate capacity
to pay interest and repay principal. Although such bonds normally exhibit
adequate protection parameters, adverse economic conditions or changing
circumstances are more likely to lead to a weakened capacity to pay interest and
repay principal than debt in higher rated categories.
Debt rated BB, B, CCC, CC and C is regarded as having predominately
speculative characteristics with respect to capacity to pay interest and repay
principal. BB indicates the least degree of speculation and C the highest. While
such debt will likely have some quality and protective characteristics, these
are outweighed by large uncertainties or exposures to adverse conditions. Debt
rated BB has less near-term vulnerability to default than other speculative
issues. However, it faces major ongoing uncertainties or exposure to adverse
business, financial or economic conditions which could lead to inadequate
capacity to meet timely interest and principal payments. The BB rating category
is also used for debt subordinated to senior debt that is assigned an actual or
implied BBB- rating. Debt rated B has a greater vulnerability to default but
currently has the capacity to meet interest payments and principal repayments.
Adverse business, financial, or economic conditions will likely impair capacity
or willingness to pay interest and repay principal. The B rating category is
also used for debt subordinated to senior debt that is assigned an actual or
implied BB or BB- rating. Debt rated CCC has a currently identifiable
vulnerability to default, and is dependent upon favorable business, financial,
and economic conditions to meet timely payment of interest and repayment of
principal. In the event of adverse business, financial or economic conditions,
it is not likely to have the capacity to pay interest and repay principal. The
CCC rating category is also used for debt subordinated to senior debt that is
assigned an actual or implied B or B- rating. The rating CC typically is applied
to debt subordinated to senior debt which is assigned an actual or implied CCC
debt rating. The rating C typically is applied to debt subordinated to senior
debt which is assigned an actual or implied CCC- debt rating. The C rating may
be used to cover a situation where a bankruptcy petition has been filed, but
debt service payments are continued.
The rating CI is reserved for income bonds on which no interest is
being paid. Debt rated D is in payment default. The D rating category is used
when interest payments or principal payments are not made on the date due, even
if the applicable grace period has not expired, unless S&P believes that such
payments will be made during such grace period. The D rating also will be used
upon the filing of a bankruptcy petition if debt service payments are
jeopardized.
(b) COMMERCIAL PAPER. An S&P commercial paper rating is a current
assessment of the likelihood of timely payment of debt considered short-term in
the relevant market.
The commercial paper rating A-1 by S&P indicates that the degree of
safety regarding timely payment is strong. Those issues determined to possess
extremely strong safety characteristics are denoted with a plus sign (+)
designation. For commercial paper with an A-2 rating, the capacity for timely
payment on issues is satisfactory, but not as high as for issues designated A-1.
Issues rated A-3 have adequate capacity for timely payment, but are more
vulnerable to the adverse effects of changes in circumstances than obligations
carrying higher designations.
Issues rated B are regarded as having only speculative capacity for
timely payment. The C rating is assigned to short-term debt obligations with a
doubtful capacity for payment. Debt rated D is in payment default. The D rating
category is used when interest payments or principal payments are not made on
the date due, even if the applicable grace period has not expired, unless S&P
believes such payments will be made during such grace period.
<PAGE>
IVY EUROPEAN OPPORTUNITIES FUND
series of
IVY FUND
Via Mizner Financial Plaza, Suite 300
700 South Federal Highway
Boca Raton, Florida 33432
STATEMENT OF ADDITIONAL INFORMATION
April [ ], 1999
Ivy Fund (the "Trust") is an open-end management investment company
that currently consists of twenty fully managed portfolios, each of which
(except for Ivy South America Fund and Ivy International Strategic Bond Fund) is
diversified. This Statement of Additional Information ("SAI") relates to Class
A, B, C, I and Advisor Class shares of Ivy European Opportunities Fund (the
"Fund"). The other eighteen portfolios of the Trust are described in separate
prospectuses and SAIs.
This SAI is not a prospectus and should be read in conjunction with the
prospectus for the Fund dated April [ ], 1999 (the "Prospectus"), which may be
obtained upon request and without charge from the Trust at the Distributor's
address and telephone number printed below.
INVESTMENT MANAGER
Ivy Management, Inc. ("IMI")
Via Mizner Financial Plaza, Suite 300
700 South Federal Highway
Boca Raton, Florida 33432
Telephone: (800) 777-6472
DISTRIBUTOR
Ivy Mackenzie Distributors, Inc.
Via Mizner Financial Plaza, Suite 300
700 South Federal Highway
Boca Raton, Florida 33432
Telephone: (800) 456-5111
<PAGE>
iii
TABLE OF CONTENTS
INVESTMENT OBJECTIVE AND POLICIES.........................................
RISK FACTORS..............................................................
BANKING INDUSTRY AND SAVINGS AND LOAN OBLIGATIONS................
BORROWING........................................................
COMMERCIAL PAPER.................................................
CONVERTIBLE SECURITIES...........................................
DEBT SECURITIES..................................................
IN GENERAL..............................................
U.S. GOVERNMENT SECURITIES..............................
INVESTMENT-GRADE DEBT SECURITIES........................
LOW-RATED DEBT SECURITIES...............................
ZERO COUPON BONDS.......................................
FIRM COMMITMENT AGREEMENTS AND "WHEN-ISSUED" SECURITIES..........
FOREIGN CURRENCIES...............................................
FORWARD FOREIGN CURRENCY CONTRACTS...............................
FOREIGN SECURITIES...............................................
DEPOSITORY RECEIPTS..............................................
EMERGING MARKETS.................................................
FOREIGN SOVEREIGN DEBT OBLIGATIONS...............................
BRADY BONDS......................................................
ILLIQUID SECURITIES..............................................
REPURCHASE AGREEMENTS............................................
SHARES OF OTHER INVESTMENT COMPANIES.............................
WARRANTS.........................................................
OPTIONS TRANSACTIONS.............................................
IN GENERAL..............................................
WRITING OPTIONS ON INDIVIDUAL SECURITIES................
PURCHASING OPTIONS ON INDIVIDUAL SECURITIES.............
PURCHASING AND WRITING OPTIONS ON SECURITIES INDICES....
RISKS OF OPTIONS TRANSACTIONS...........................
FUTURES CONTRACTS AND OPTIONS ON FUTURES CONTRACTS...............
IN GENERAL..............................................
EURO CONVERSION RISKS...................................
RISKS ASSOCIATED WITH FUTURES AND RELATED OPTIONS.......
SECURITIES INDEX FUTURES CONTRACTS...............................
RISKS OF SECURITIES INDEX FUTURES.......................
COMBINED TRANSACTIONS............................................
INVESTMENT RESTRICTIONS...................................................
ADDITIONAL RESTRICTIONS...................................................
ADDITIONAL RIGHTS AND PRIVILEGES..........................................
AUTOMATIC INVESTMENT METHOD......................................
EXCHANGE OF SHARES...............................................
INITIAL SALES CHARGE SHARES.............................
CONTINGENT DEFERRED SALES CHARGE SHARES CLASS A.........
CLASS B.................................................
CLASS C.................................................
CLASS I.................................................
ALL CLASSES.............................................
LETTER OF INTENT.................................................
RETIREMENT PLANS.................................................
INDIVIDUAL RETIREMENT ACCOUNTS..........................
ROTH IRAS...............................................
QUALIFIED PLANS.........................................
DEFERRED COMPENSATION FOR PUBLIC SCHOOLS AND
CHARITABLE ORGANIZATIONS ("403(B)(7) ACCOUNT")....
SIMPLIFIED EMPLOYEE PENSION ("SEP") IRAS................
SIMPLE PLANS............................................
REINVESTMENT PRIVILEGE...........................................
RIGHTS OF ACCUMULATION...........................................
SYSTEMATIC WITHDRAWAL PLAN.......................................
GROUP SYSTEMATIC INVESTMENT PROGRAM..............................
BROKERAGE ALLOCATION......................................................
TRUSTEES AND OFFICERS.....................................................
PERSONAL INVESTMENTS BY EMPLOYEES OF IMI................
COMPENSATION TABLE........................................................
INVESTMENT ADVISORY AND OTHER SERVICES....................................
BUSINESS MANAGEMENT AND INVESTMENT ADVISORY SERVICES.............
DISTRIBUTION SERVICES............................................
RULE 18F-3 PLAN.........................................
RULE 12B-1 DISTRIBUTION PLANS...........................
CUSTODIAN........................................................
FUND ACCOUNTING SERVICES.........................................
TRANSFER AGENT AND DIVIDEND PAYING AGENT.........................
ADMINISTRATOR....................................................
AUDITORS.........................................................
YEAR 2000 RISKS..................................................
CAPITALIZATION AND VOTING RIGHTS..........................................
NET ASSET VALUE...........................................................
PORTFOLIO TURNOVER........................................................
REDEMPTIONS...............................................................
CONVERSION OF CLASS B SHARES..............................................
TAXATION 48
OPTIONS, FUTURES AND FOREIGN CURRENCY FORWARD CONTRACTS..........
CURRENCY FLUCTUATIONS -- "SECTION 988" GAINS OR LOSSES...........
INVESTMENT IN PASSIVE FOREIGN INVESTMENT COMPANIES...............
DEBT SECURITIES ACQUIRED AT A DISCOUNT...........................
DISTRIBUTIONS....................................................
DISPOSITION OF SHARES............................................
FOREIGN WITHHOLDING TAXES........................................
BACKUP WITHHOLDING...............................................
PERFORMANCE INFORMATION...................................................
YIELD...................................................
AVERAGE ANNUAL TOTAL RETURN.............................
CUMULATIVE TOTAL RETURN.................................
OTHER QUOTATIONS, COMPARISONS AND GENERAL INFORMATION...
FINANCIAL STATEMENTS......................................................
APPENDIX A................................................................
APPENDIX B................................................................
<PAGE>
32
INVESTMENT OBJECTIVE AND POLICIES
The Fund has its own investment objective and policies, which are
described in the Prospectus under the captions "Investment Objective and
Policies" and "Risk Factors and Investment Techniques." Additional information
regarding the characteristics and risks associated with the Fund's investment
techniques is set forth below.
RISK FACTORS
BANKING INDUSTRY AND SAVINGS AND LOAN OBLIGATIONS
Certificates of deposit are negotiable certificates issued against
funds deposited in a commercial bank for a definite period of time and earning a
specified return. Bankers' acceptances are negotiable drafts or bills of
exchange, normally drawn by an importer or exporter to pay for specific
merchandise, which are "accepted" by a bank (meaning, in effect, that the bank
unconditionally agrees to pay the face value of the instrument at maturity). In
addition to investing in certificates of deposit and bankers' acceptances, the
Fund may invest in time deposits in banks or savings and loan associations. Time
deposits are generally similar to certificates of deposit, but are
uncertificated. The Fund's investments in certificates of deposit, time
deposits, and bankers' acceptances are limited to obligations of (i) banks
having total assets in excess of $1 billion, (ii) U.S. banks which do not meet
the $1 billion asset requirement, if the principal amount of such obligation is
fully insured by the Federal Deposit Insurance Corporation (the "FDIC"), (iii)
savings and loan associations which have total assets in excess of $1 billion
and which are members of the FDIC, and (iv) foreign banks if the obligation is,
in IMI's opinion, of an investment quality comparable to other debt securities
which may be purchased by the Fund. The Fund's investments in certificates of
deposit of savings associations are limited to obligations of Federal or
state-chartered institutions whose total assets exceed $1 billion and whose
deposits are insured by the FDIC.
BORROWING
Borrowing may exaggerate the effect on the Fund's net asset value of
any increase or decrease in the value of the Fund's portfolio securities. Money
borrowed will be subject to interest costs (which may include commitment fees
and/or the cost of maintaining minimum average balances). Although the principal
of the Fund's borrowings will be fixed, the Fund's assets may change in value
during the time a borrowing is outstanding, thus increasing exposure to capital
risk.
COMMERCIAL PAPER
Commercial paper represents short-term unsecured promissory notes
issued in bearer form by bank holding companies, corporations and finance
companies. The Fund's investments in commercial paper are not limited to a
particular Moody's or S&P rating category. The lower an issuer's rating,
however, the greater the risk of payment default.
CONVERTIBLE SECURITIES
The convertible securities in which the Fund may invest include
corporate bonds, notes, debentures, preferred stock and other securities that
may be converted or exchanged at a stated or determinable exchange ratio into
underlying shares of common stock. Investments in convertible securities can
provide income through interest and dividend payments as well as an opportunity
for capital appreciation by virtue of their conversion or exchange features.
Because convertible securities can be converted into equity securities, their
values will normally vary in some proportion with those of the underlying equity
securities. Convertible securities usually provide a higher yield than the
underlying equity, however, so that the price decline of a convertible security
may sometimes be less substantial than that of the underlying equity security.
The exchange ratio for any particular convertible security may be adjusted from
time to time due to stock splits, dividends, spin-offs, other corporate
distributions or scheduled changes in the exchange ratio. Convertible debt
securities and convertible preferred stocks, until converted, have general
characteristics similar to both debt and equity securities. Although to a lesser
extent than with debt securities generally, the market value of convertible
securities tends to decline as interest rates increase and, conversely, tends to
increase as interest rates decline. In addition, because of the conversion or
exchange feature, the market value of convertible securities typically changes
as the market value of the underlying common stock changes, and, therefore, also
tends to follow movements in the general market for equity securities. When the
market price of the underlying common stock increases, the price of a
convertible security tends to rise as a reflection of the value of the
underlying common stock, although typically not as much as the price of the
underlying common stock. While no securities investments are without risk,
investments in convertible securities generally entail less risk than
investments in common stock of the same issuer.
As debt securities, convertible securities are investments that provide
for a stream of income. Like all debt securities, there can be no assurance of
income or principal payments because the issuers of the convertible securities
may default on their obligations (see following section). Convertible securities
generally offer lower yields than non-convertible securities of similar quality
because of their conversion or exchange features.
Convertible securities generally are subordinated to other similar but
non-convertible securities of the same issuer, although convertible bonds, as
corporate debt obligations, are senior in right of payment to all equity
securities, and convertible preferred stock is senior to common stock, of the
same issuer. However, convertible bonds and convertible preferred stock
typically have lower coupon rates than similar non-convertible securities.
Convertible securities may be issued as fixed income obligations that pay
current income.
DEBT SECURITIES
IN GENERAL. Investing in debt securities involves both interest rate
and credit risk. Generally, the value of debt instruments rises and falls
inversely with fluctuations in interest rates. As interest rates decline, the
value of debt securities generally increases. Conversely, rising interest rates
tend to cause the value of debt securities to decrease. Bonds with longer
maturities generally are more volatile than bonds with shorter maturities. The
market value of debt securities also varies according to the relative financial
condition of the issuer. In general, lower-quality bonds offer higher yields due
to the increased risk that the issuer will be unable to meet its obligations on
interest or principal payments at the time called for by the debt instrument.
U.S. GOVERNMENT SECURITIES. U.S. Government securities are obligations of,
or guaranteed by, the U.S. Government, its agencies or instrumentalities.
Securities guaranteed by the U.S. Government include: (1) direct
obligations of the U.S. Treasury (such as Treasury bills, notes, and bonds)
and (2) Federal agency obligations guaranteed as to principal and interest
by the U.S. Treasury (such as GNMA certificates, which are mortgage-backed
securities). When such securities are held to maturity, the payment of
principal and interest is unconditionally guaranteed by the U.S.
Government, and thus they are of the highest possible credit quality. U.S.
Government securities that are not held to maturity are subject to
variations in market value due to fluctuations in interest rates.
Mortgage-backed securities are securities representing part ownership
of a pool of mortgage loans. For example, GNMA certificates are such securities
in which the timely payment of principal and interest is guaranteed by the full
faith and credit of the U.S. Government. Although the mortgage loans in the pool
will have maturities of up to 30 years, the actual average life of the loans
typically will be substantially less because the mortgages will be subject to
principal amortization and may be prepaid prior to maturity. Prepayment rates
vary widely and may be affected by changes in market interest rates. In periods
of falling interest rates, the rate of prepayments tends to increase, thereby
shortening the actual average life of the security. Conversely, rising interest
rates tend to decrease the rate of prepayment, thereby lengthening the actual
average life of the security (and increasing the security's price volatility).
Accordingly, it is not possible to predict accurately the average life of a
particular pool. Reinvestment of prepayment may occur at higher or lower rates
than the original yield on the certificates. Due to the prepayment feature and
the need to reinvest prepayments of principal at current rates, mortgage-backed
securities can be less effective than typical bonds of similar maturities at
"locking in" yields during periods of declining interest rates, and may involve
significantly greater price and yield volatility than traditional debt
securities. Such securities may appreciate or decline in market value during
periods of declining or rising interest rates, respectively.
Securities issued by U.S. Government instrumentalities and certain
federal agencies are neither direct obligations of nor guaranteed by the U.S.
Treasury; however, they involve Federal sponsorship in one way or another. Some
are backed by specific types of collateral, some are supported by the issuer's
right to borrow from the Treasury, some are supported by the discretionary
authority of the Treasury to purchase certain obligations of the issuer, others
are supported only by the credit of the issuing government agency or
instrumentality. These agencies and instrumentalities include, but are not
limited to, Federal Land Banks, Farmers Home Administration, Central Bank for
Cooperatives, Federal Intermediate Credit Banks, Federal Home Loan Banks,
Federal National Mortgage Association, Federal Home Loan Mortgage Association
and Student Loan Marketing Association.
INVESTMENT-GRADE DEBT SECURITIES. Bonds rated Aaa by Moody's and AAA by
S&P are judged to be of the best quality (i.e., capacity to pay interest and
repay principal is extremely strong). Bonds rated Aa/AA are considered to be of
high quality (i.e., capacity to pay interest and repay principal is very strong
and differs from the highest rated issues only to a small degree). Bonds rated A
are viewed as having many favorable investment attributes, but elements may be
present that suggest a susceptibility to the adverse effects of changes in
circumstances and economic conditions than debt in higher rated categories.
Bonds rated Baa/BBB (considered by Moody's to be "medium grade" obligations) are
considered to have an adequate capacity to pay interest and repay principal, but
certain protective elements may be lacking (i.e., such bonds lack outstanding
investment characteristics and have some speculative characteristics). The Fund
may invest in debt securities that are given an investment-grade rating by
Moody's or S&P, and may also invest in unrated debt securities that are
considered by the Fund's subadviser, Henderson Investment Management Limited
("Henderson Investors" or the "Subadviser") to be of comparable quality.
LOW-RATED DEBT SECURITIES. Securities rated lower than Baa or BBB and
comparable unrated securities (commonly referred to as "high yield" or "junk"
bonds) are considered to be predominantly speculative with respect to the
issuer's continuing ability to meet principal and interest payments. The lower
the ratings of corporate debt securities, the more their risks render them like
equity securities. Such securities carry a high degree of risk (including the
possibility of default or bankruptcy of the issuers of such securities), and
generally involve greater volatility of price and risk of principal and income
(and may be less liquid) than securities in the higher rating categories. (See
Appendix A for a more complete description of the ratings assigned by Moody's
and S&P and their respective characteristics.)
Economic downturns may disrupt the high yield market and impair the
ability of issuers to repay principal and interest. Also, an increase in
interest rates would likely have an adverse impact on the value of such
obligations. During an economic downturn or period of rising interest rates,
highly leveraged issuers may experience financial stress which could adversely
affect their ability to service their principal and interest payment
obligations. Prices and yields of high yield securities will fluctuate over time
and, during periods of economic uncertainty, volatility of high yield securities
may adversely affect the Fund's net asset value. In addition, investments in
high yield zero coupon or pay-in-kind bonds, rather than income-bearing high
yield securities, may be more speculative and may be subject to greater
fluctuations in value due to changes in interest rates.
The trading market for high yield securities may be thin to the extent
that there is no established retail secondary market or because of a decline in
the value of such securities. A thin trading market may limit the ability of the
Fund to accurately value high yield securities in the Fund's portfolio, could
adversely affect the price at which the Fund could sell such securities, and
cause large fluctuations in the daily net asset value of the Fund's shares.
Adverse publicity and investor perceptions, whether or not based on fundamental
analysis, may decrease the value and liquidity of low-rated debt securities,
especially in a thinly traded market. When secondary markets for high yield
securities become relatively less liquid, it may be more difficult to value the
securities, requiring additional research and elements of judgment. These
securities may also involve special registration responsibilities, liabilities
and costs, and liquidity and valuation difficulties.
Credit quality in the high yield securities market can change suddenly
and unexpectedly, and even recently issued credit ratings may not fully reflect
the actual risks posed by a particular high-yield security. For these reasons,
it is the policy of Henderson Investors not to rely exclusively on ratings
issued by established credit rating agencies, but to supplement such ratings
with its own independent and on-going review of credit quality. The achievement
of the Fund's investment objective by investment in such securities may be more
dependent on Henderson Investors' credit analysis than is the case for higher
quality bonds. Should the rating of a portfolio security be downgraded,
Henderson Investors will determine whether it is in the best interest of the
Fund to retain or dispose of such security.
Prices for high yield securities may be affected by legislative and
regulatory developments. For example, Federal rules require savings and loan
institutions to gradually reduce their holdings of this type of security. Also,
Congress has from time to time considered legislation that would restrict or
eliminate the corporate tax deduction for interest payments in these securities
and regulate corporate restructurings. Such legislation may significantly
depress the prices of outstanding securities of this type.
ZERO COUPON BONDS. Zero coupon bonds are debt obligations issued
without any requirement for the periodic payment of interest. Zero coupon bonds
are issued at a significant discount from face value. The discount approximates
the total amount of interest the bonds would accrue and compound over the period
until maturity at a rate of interest reflecting the market rate at the time of
issuance. If the Fund holds zero coupon bonds in its portfolio, it would
recognize income currently for Federal income tax purposes in the amount of the
unpaid, accrued interest and generally would be required to distribute dividends
representing such income to shareholders currently, even though funds
representing such income would not have been received by the Fund. Cash to pay
dividends representing unpaid, accrued interest may be obtained from, for
example, sales proceeds of portfolio securities and Fund shares and from loan
proceeds. The potential sale of portfolio securities to pay cash distributions
from income earned on zero coupon bonds may result in the Fund being forced to
sell portfolio securities at a time when it might otherwise choose not to sell
these securities and when the Fund might incur a capital loss on such sales.
Because interest on zero coupon obligations is not distributed to the Fund on a
current basis, but is in effect compounded, the value of such securities of this
type is subject to greater fluctuations in response to changing interest rates
than the value of debt obligations which distribute income regularly.
FIRM COMMITMENT AGREEMENTS AND "WHEN-ISSUED" SECURITIES
New issues of certain debt securities are often offered on a
"when-issued" basis, meaning the payment obligation and the interest rate are
fixed at the time the buyer enters into the commitment, but delivery and payment
for the securities normally take place after the date of the commitment to
purchase. Firm commitment agreements call for the purchase of securities at an
agreed-upon price on a specified future date. The Fund uses such investment
techniques in order to secure what is considered to be an advantageous price and
yield to the Fund and not for purposes of leveraging the Fund's assets. In
either instance, the Fund will maintain in a segregated account with its
Custodian cash or liquid securities equal (on a daily marked-to-market basis) to
the amount of its commitment to purchase the underlying securities.
EURO CONVERSION RISKS
On January 1, 1999, a new European currency called the "Euro" was
introduced and adopted for use by eleven European countries. The transition to
daily usage of the Euro, including circulation of Euro bills and coins, will
occur during the period from January 1, 1999 through December 31, 2001. During
this transition, European debt and equity securities will have to be
redenominated and various accounting differences and/or adverse tax results
could occur. In addition, certain European Union (EU) members, including the
United Kingdom, did not officially implement the Euro on January 1, 1999 and may
cause market disruptions when and if they decide to do so. In any of these
instances, the Fund could experience investment losses.
FOREIGN CURRENCIES
Investment in foreign securities usually will involve currencies of
foreign countries. Moreover, the Fund may temporarily hold funds in bank
deposits in foreign currencies during the completion of investment programs and
may purchase forward foreign currency contracts. Because of these factors, the
value of the assets of the Fund as measured in U.S. dollars may be affected
favorably or unfavorably by changes in foreign currency exchange rates and
exchange control regulations, and the Fund may incur costs in connection with
conversions between various currencies. Although the Fund's Custodian values the
Fund's assets daily in terms of U.S. dollars, the Fund does not intend to
convert its holdings of foreign currencies into U.S. dollars on a daily basis.
The Fund will do so from time to time, however, and investors should be aware of
the costs of currency conversion. Although foreign exchange dealers do not
charge a fee for conversion, they do realize a profit based on the difference
(the "spread") between the prices at which they are buying and selling various
currencies. Thus, a dealer may offer to sell a foreign currency to the Fund at
one rate, while offering a lesser rate of exchange should the Fund desire to
resell that currency to the dealer. The Fund will conduct its foreign currency
exchange transactions either on a spot (i.e., cash) basis at the spot rate
prevailing in the foreign currency exchange market, or through entering into
forward contracts to purchase or sell foreign currencies.
FORWARD FOREIGN CURRENCY CONTRACTS
A forward contract is an obligation to purchase or sell a specific
currency for an agreed price at a future date (usually less than a year), and
typically is individually negotiated and privately traded by currency traders
and their customers. A forward contract generally has no deposit requirement,
and no commissions are charged at any stage for trades. Although foreign
exchange dealers do not charge a fee for commissions, they do realize a profit
based on the difference between the price at which they are buying and selling
various currencies. Although these contracts are intended to minimize the risk
of loss due to a decline in the value of the hedged currencies, at the same
time, they tend to limit any potential gain which might result should the value
of such currencies increase.
While the Fund may enter into forward contracts to reduce currency
exchange risks, changes in currency exchange rates may result in poorer overall
performance for the Fund than if it had not engaged in such transactions.
Moreover, there may be an imperfect correlation between the Fund's portfolio
holdings of securities denominated in a particular currency and forward
contracts entered into by the Fund. An imperfect correlation of this type may
prevent the Fund from achieving the intended hedge or expose the Fund to the
risk of currency exchange loss.
The Fund will not enter into forward contracts or maintain a net
exposure to such contracts where the consummation of the contract would obligate
the Fund to deliver an amount of currency in excess of the value of the Fund's
portfolio securities or other assets denominated in that currency. Further, the
Fund generally will not enter into a forward contract with a term of greater
than one year.
The Fund will hold cash or liquid securities in a segregated account
with its Custodian in an amount equal (on a daily marked-to-market basis) to the
amount of the commitments under these contracts. At the maturity of a forward
contract, the Fund may either accept or make delivery of the currency specified
in the contract, or, prior to maturity, enter into a closing purchase
transaction involving the purchase or sale of an offsetting contract. Closing
purchase transactions with respect to forward contracts are usually effected
with the currency trader who is a party to the original forward contract.
FOREIGN SECURITIES
The Fund will invest in securities of foreign issuers, including
non-U.S. dollar-denominated debt securities, Euro dollar securities, sponsored
and unsponsored American Depository Receipts ("ADRs"), American Depository
Shares ("ADSs"), European Depository Receipts ("EDRs"), European Depository
Shares ("EDSs"), Global Depository Receipts ("GDRs"), Global Depository Shares
("GDSs") and debt securities issued, assumed or guaranteed by foreign
(governments or political subdivisions or instrumentalities thereof).
Shareholders should consider carefully the substantial risks involved in
investing in securities issued by companies and governments of foreign nations,
which are in addition to the usual risks inherent in the Fund's domestic
investments.
Investment of the Fund's assets in the securities of foreign issuers
involves the possibility of expropriation, nationalization, repatriation or
confiscatory taxation, taxation on income earned in a foreign country and other
foreign taxes, foreign exchange controls (which may include suspension of the
ability to transfer currency from a given country), default on foreign
government securities, political or social instability or diplomatic
developments which could affect investments in securities of issuers in those
nations. In addition, in many countries there is less publicly available
information about issuers than is available for U.S. companies. Moreover,
foreign companies are not generally subject to uniform accounting, auditing and
financial reporting standards, and auditing practices and requirements may not
be comparable to those applicable to U.S. companies. In many foreign countries,
there is less governmental supervision and regulation of business and industry
practices, stock exchanges, brokers, and listed companies than in the United
States. Foreign securities transactions may also be subject to higher brokerage
costs than domestic securities transactions. The foreign securities markets of
many of the countries in which the Fund may invest may also be smaller, less
liquid and subject to greater price volatility than those in the United States.
In addition, the Fund may encounter difficulties or be unable to pursue legal
remedies and obtain judgment in foreign courts.
Foreign stock markets have different clearance and settlement
procedures and in certain markets there have been times when settlements have
been unable to keep pace with the volume of securities transactions, making it
difficult to conduct such transactions. Delays in settlement could result in
temporary periods when assets of the Fund are uninvested and no return is earned
thereon. The inability of the Fund to make intended security purchases due to
settlement problems could cause the Fund to miss attractive investment
opportunities. Further, the inability to dispose of portfolio securities due to
settlement problems could result either in losses to the Fund because of
subsequent declines in the value of the portfolio security or, if the Fund has
entered into a contract to sell the security, in possible liability to the
purchaser. Fixed commissions on some foreign securities exchanges are generally
higher than negotiated commissions on U.S. exchanges, although Henderson
Investors will endeavor to achieve the most favorable net results on the Fund's
portfolio transactions. It may be more difficult for the Fund's agents to keep
currently informed about corporate actions such as stock dividends or other
matters that may affect the prices of portfolio securities. Communications
between the United States (or the United Kingdom, as the case may be) and
foreign countries may be less reliable than within the United States (or the
United Kingdom), thus increasing the risk of delayed settlements of portfolio
transactions or loss of certificates for portfolio securities. Moreover,
individual foreign economies may differ favorably or unfavorably from the United
States economy in such respects as growth of gross national product, rate of
inflation, capital reinvestment, resource self-sufficiency and balance of
payments position. Henderson Investors seeks to mitigate the risks to the Fund
associated with the foregoing considerations through investment variation and
continuous professional management.
DEPOSITORY RECEIPTS
ADRs, EDRs, GDRs and similar instruments, the issuance of which is
typically administered by a U.S. or foreign bank or trust company, evidence
ownership of underlying securities issued by a U.S. or foreign corporation. ADRs
are publicly traded on exchanges or over-the-counter ("OTC") in the United
States. Unsponsored programs are organized independently and without the
cooperation of the issuer of the underlying securities. As a result, information
concerning the issuer may not be as current or as readily available as in the
case of sponsored depository instruments, and their prices may be more volatile
than if they were sponsored by the issuers of the underlying securities.
EMERGING MARKETS
The Fund could have significant investments in securities traded in
emerging markets. Investors should recognize that investing in such countries
involves special considerations, in addition to those set forth above, that are
not typically associated with investing in United States securities and that may
affect the Fund's performance favorably or unfavorably.
Investments in companies domiciled in developing countries may be
subject to potentially higher risks than investments in developed countries.
Such risks include (i) less social, political and economic stability; (ii) a
small market for securities and/or a low or nonexistent volume of trading, which
result in a lack of liquidity and in greater price volatility; (iii) certain
national policies that may restrict the Fund's investment opportunities,
including restrictions on investment in issuers or industries deemed sensitive
to national interests; (iv) foreign taxation; (v) the absence of developed
structures governing private or foreign investment or allowing for judicial
redress for injury to private property; (vi) the absence, until relatively
recently in certain Eastern European countries, of a capital market structure or
market-oriented economy; (vii) the possibility that recent favorable economic
developments in Eastern Europe may be slowed or reversed by unanticipated
political or social events in such countries; and (viii) the possibility that
currency devaluations could adversely affect the value of the Fund's
investments. Further, many emerging markets have experienced and continue to
experience high rates of inflation.
Despite the dissolution of the Soviet Union, the Communist Party may
continue to exercise a significant role in certain Eastern European countries.
To the extent of the Communist Party's influence, investments in such countries
will involve risks of nationalization, expropriation and confiscatory taxation.
The communist governments of a number of Eastern European countries expropriated
large amounts of private property in the past, in many cases without adequate
compensation, and there can be no assurance that such expropriation will not
occur in the future. In the event of such expropriation, the Fund could lose a
substantial portion of any investments it has made in the affected countries.
Further, few (if any) accounting standards exist in Eastern European countries.
Finally, even though certain Eastern European currencies may be convertible into
U.S. dollars, the conversion rates may be artificial in relation to the actual
market values and may be adverse to the Fund's net asset value.
Certain Eastern European countries that do not have well-established
trading markets are characterized by an absence of developed legal structures
governing private and foreign investments and private property. In addition,
certain countries require governmental approval prior to investments by foreign
persons, or limit the amount of investment by foreign persons in a particular
company, or limit the investment of foreign persons to only a specific class of
securities of a company that may have less advantageous terms than securities of
the company available for purchase by nationals.
Authoritarian governments in certain Eastern European countries may
require that a governmental or quasi-governmental authority act as custodian of
the Fund's assets invested in such country. To the extent such governmental or
quasi-governmental authorities do not satisfy the requirements of the Investment
Company Act of 1940, as amended (the "1940 Act"), with respect to the custody of
the Fund's cash and securities, the Fund's investment in such countries may be
limited or may be required to be effected through intermediaries. The risk of
loss through governmental confiscation may be increased in such countries.
FOREIGN SOVEREIGN DEBT OBLIGATIONS
Investment in sovereign debt can involve a high degree of risk. The
governmental entity that controls the repayment of sovereign debt may not be
able or willing to repay the principal and/or interest when due in accordance
with the terms of such debt. A governmental entity's willingness or ability to
repay principal and interest due in a timely manner may be affected by, among
other factors, its cash flow situation, the extent of its foreign reserves, the
availability of sufficient foreign exchange on the date a payment is due, the
relative size of the debt service burden to the economy as a whole, the
governmental entity's policy towards the International Monetary Fund, and the
political constraints to which a governmental entity may be subject.
Governmental entities may also be dependent on expected disbursements from
foreign governments, multilateral agencies and others abroad to reduce principal
and interest arrearages on their debt. The commitment on the part of these
governments, agencies and others to make such disbursements may be conditioned
on a governmental entity's implementation of economic reforms and/or economic
performance and the timely service of such debtor's obligations. Failure to
implement such reforms, achieve such levels of economic performance or repay
principal or interest when due may result in the cancellation of such third
parties' commitments to lend funds to the governmental entity, which may further
impair such debtor's ability or willingness to service its debts in a timely
manner. Consequently, governmental entities may default on their sovereign debt.
Holders of sovereign debt (including the Fund) may be requested to participate
in the rescheduling of such debt and to extend further loans to governmental
entities. There is no bankruptcy proceeding by which sovereign debt on which
governmental entities have defaulted may be collected in whole or in part.
BRADY BONDS
The Fund may invest in Brady Bonds, which are securities created
through the exchange of existing commercial bank loans to public and private
entities in certain emerging markets for new bonds in connection with debt
restructurings under a debt restructuring plan introduced by former U.S.
Secretary of the Treasury, Nicholas F. Brady (the "Brady Plan"). Brady Plan debt
restructurings have been implemented to date in Argentina, Brazil, Bulgaria,
Costa Rica, the Dominican Republic, Ecuador, Jordan, Mexico, Nigeria, Peru, the
Philippines, Poland, Uruguay, and Venezuela.
Brady Bonds have been issued only recently, and for that reason do not
have a long payment history. Brady Bonds may be collateralized or
uncollateralized, are issued in various currencies (but primarily the U.S.
dollar) and are actively traded in over-the-counter secondary markets.
Dollar-denominated, collateralized Brady Bonds, which may be fixed-rate bonds or
floating-rate bonds, are generally collateralized in full as to principal by
U.S. Treasury zero coupon bonds having the same maturity as the cash or
securities in an amount that, in the case of fixed rate bonds, is equal to at
least one year of rolling interest payments or, in the case of floating rate
bonds, initially is equal to at least one year's rolling interest payments based
on the applicable interest rate at that time and is adjusted at regular
intervals thereafter.
Brady Bonds are often viewed as having three or four valuation
components: the collateralized repayment of principal at final maturity; the
collateralized interest payments; the uncollateralized interest payments; and
any uncollateralized repayment of principal at maturity (these uncollateralized
amounts constitute the "residual risk"). In light of the residual risk of Brady
Bonds and the history of defaults of countries issuing Brady Bonds, with respect
to commercial bank loans by public and private entities, investments in Brady
Bonds may be viewed as speculative.
ILLIQUID SECURITIES
The Fund may purchase securities other than in the open market. While
such purchases may often offer attractive opportunities for investment not
otherwise available on the open market, the securities so purchased are often
"restricted securities" or "not readily marketable" (i.e., they cannot be sold
to the public without registration or the availability of an exemption from
registration (such as Rule 144A) or because they are subject to other legal or
contractual delays in or restrictions on resale). This investment practice,
therefore, could have the effect of increasing the level of illiquidity of the
Fund. It is the Fund's policy that illiquid securities (including repurchase
agreements of more than seven days duration, certain restricted securities, and
other securities which are not readily marketable) may not constitute, at the
time of purchase, more than 15% of the value of the Fund's net assets. The
Trust's Board of Trustees has approved guidelines for use in determining whether
a security is illiquid.
Generally speaking, in the U.S. restricted securities may be sold (i)
only to qualified institutional buyers; (ii) in a privately negotiated
transaction to a limited number of purchasers; (iii) in limited quantities after
they have been held for a specified period of time and other conditions are met
pursuant to an exemption from registration; or (iv) in a public offering for
which a registration statement is in effect under the Securities Act of 1933, as
amended (the "1933 Act"). Issuers of restricted securities may not be subject to
the disclosure and other investor protection requirements that would be
applicable if their securities were publicly traded. If adverse market
conditions were to develop during the period between the Fund's decision to sell
a restricted or illiquid security and the point at which the Fund is permitted
or able to sell such security, the Fund might obtain a price less favorable than
the price that prevailed when it decided to sell. Where a registration statement
is required for the resale of restricted securities, the Fund may be required to
bear all or part of the registration expenses. In the U.S., the Fund may be
deemed to be an "underwriter" for purposes of the 1933 Act when selling
restricted securities to the public and, in such event, the Fund may be liable
to purchasers of such securities if the registration statement prepared by the
issuer is materially inaccurate or misleading.
Since it is not possible to predict with assurance that the market for
securities eligible for resale under Rule 144A will continue to be liquid, IMI
will monitor such restricted securities subject to the supervision of the Board
of Trustees. Among the factors IMI may consider in reaching liquidity decisions
relating to Rule 144A securities are: (1) the frequency of trades and quotes for
the security; (2) the number of dealers wishing to purchase or sell the security
and the number of other potential purchasers; (3) dealer undertakings to make a
market in the security; and (4) the nature of the security and the nature of the
market for the security (i.e., the time needed to dispose of the security, the
method of soliciting offers, and the mechanics of the transfer).
REPURCHASE AGREEMENTS
Repurchase agreements are contracts under which the Fund buys a money
market instrument and obtains a simultaneous commitment from the seller to
repurchase the instrument at a specified time and at an agreed-upon yield. Under
guidelines approved by the Board, the Fund is permitted to enter into repurchase
agreements only if the repurchase agreements are at least fully collateralized
with U.S. Government securities or other securities that Henderson Investors has
approved for use as collateral for repurchase agreements and the collateral must
be marked-to-market daily. The Fund will enter into repurchase agreements only
with banks and broker-dealers deemed to be creditworthy by Henderson Investors
under the above-referenced guidelines. In the unlikely event of failure of the
executing bank or broker-dealer, the Fund could experience some delay in
obtaining direct ownership of the underlying collateral and might incur a loss
if the value of the security should decline, as well as costs in disposing of
the security.
SMALL COMPANIES
Investing in smaller company stocks involves certain special
considerations and risks that are not usually associated with investing in
larger, more established companies. For example, the securities of small or new
companies may be subject to more abrupt or erratic market movements because they
tend to be thinly traded and are subject to a greater degree to changes in the
issuer's earnings and prospects. Small companies also tend to have limited
product lines, markets or financial resources. Transaction costs in smaller
company stocks also may be higher than those of larger companies.
SHARES OF OTHER INVESTMENT COMPANIES
As a shareholder of an investment company, the Fund will bear its
ratable share of the investment company's expenses (including management fees,
in the case of a management investment company).
WARRANTS
The holder of a warrant has the right, until the warrant expires, to
purchase a given number of shares of a particular issuer at a specified price.
Such investments can provide a greater potential for profit or loss than an
equivalent investment in the underlying security. However, prices of warrants do
not necessarily move in a tandem with the prices of the underlying securities,
and are, therefore, considered speculative investments. Warrants pay no
dividends and confer no rights other than a purchase option. Thus, if a warrant
held by the Fund were not exercised by the date of its expiration, the Fund
would lose the entire purchase price of the warrant.
OPTIONS TRANSACTIONS
IN GENERAL. The Fund may engage in transactions in options on
securities and stock indices in accordance with its stated investment objective
and policies. The Fund may also purchase put options on securities and may
purchase and sell (write) put and call options on stock indices. Options on
securities and stock indices purchased or written by the Fund will be limited to
options traded on national securities exchanges, boards of trade or similar
entities, or in the OTC markets.
A call option is a short-term contract (having a duration of less than
one year) pursuant to which the purchaser, in return for a premium paid, has the
right to buy the security underlying the option at a specified exercise price at
any time during the term of the option. The writer of the call option, who
receives the premium, has the obligation, upon exercise of the option, to
deliver the underlying security against payment of the exercise price. A put
option is a similar contract pursuant to which the purchaser, in return for a
premium paid, has the right to sell the security underlying the option at a
specified exercise price at any time during the term of the option. The writer
of the put option, who receives the premium, has the obligation, upon exercise
of the option, to buy the underlying security at the exercise price. The premium
paid by the purchaser of an option will reflect, among other things, the
relationship of the exercise price to the market price and volatility of the
underlying security, the time remaining to expiration of the option, supply and
demand, and interest rates.
If the writer of an option wishes to terminate the obligation, the
writer may effect a "closing purchase transaction." This is accomplished by
buying an option of the same series as the option previously written. The effect
of the purchase is that the writer's position will be canceled by the Options
Clearing Corporation. However, a writer may not effect a closing purchase
transaction after it has been notified of the exercise of an option. Likewise,
an investor who is the holder of an option may liquidate his or her position by
effecting a "closing sale transaction." This is accomplished by selling an
option of the same series as the option previously purchased. There is no
guarantee that either a closing purchase or a closing sale transaction can be
effected at any particular time or at any acceptable price. If any call or put
option is not exercised or sold, it will become worthless on its expiration
date.
The Fund will realize a gain (or a loss) on a closing purchase
transaction with respect to a call or a put previously written by the Fund if
the premium, plus commission costs, paid by the Fund to purchase the call or the
put is less (or greater) than the premium, less commission costs, received by
the Fund on the sale of the call or the put. A gain also will be realized if a
call or a put that the Fund has written lapses unexercised, because the Fund
would retain the premium. Any such gains (or losses) are considered short-term
capital gains (or losses) for Federal income tax purposes. Net short-term
capital gains, when distributed by the Fund, are taxable as ordinary income. See
"Taxation."
The Fund will realize a gain (or a loss) on a closing sale transaction
with respect to a call or a put previously purchased by the Fund if the premium,
less commission costs, received by the Fund on the sale of the call or the put
is greater (or less) than the premium, plus commission costs, paid by the Fund
to purchase the call or the put. If a put or a call expires unexercised, it will
become worthless on the expiration date, and the Fund will realize a loss in the
amount of the premium paid, plus commission costs. Any such gain or loss will be
long-term or short-term gain or loss, depending upon the Fund's holding period
for the option.
Exchange-traded options generally have standardized terms and are
issued by a regulated clearing organization (such as the Options Clearing
Corporation), which, in effect, guarantees the completion of every
exchange-traded option transaction. In contrast, the terms of OTC options are
negotiated by the Fund and its counterparty (usually a securities dealer or a
financial institution) with no clearing organization guarantee. When the Fund
purchases an OTC option, it relies on the party from whom it has purchased the
option (the "counterparty") to make delivery of the instrument underlying the
option. If the counterparty fails to do so, the Fund will lose any premium paid
for the option, as well as any expected benefit of the transaction. Accordingly,
IMI will assess the creditworthiness of each counterparty to determine the
likelihood that the terms of the OTC option will be satisfied.
WRITING OPTIONS ON INDIVIDUAL SECURITIES. The Fund may write (sell)
covered call options on the Fund's securities in an attempt to realize a greater
current return than would be realized on the securities alone. The Fund may also
write covered call options to hedge a possible stock or bond market decline
(only to the extent of the premium paid to the Fund for the options). In view of
the investment objective of the Fund, the Fund generally would write call
options only in circumstances where Henderson Investors does not anticipate
significant appreciation of the underlying security in the near future or has
otherwise determined to dispose of the security.
The Fund may write covered call options as described in the Fund's
Prospectus. A "covered" call option means generally that so long as the Fund is
obligated as the writer of a call option, the Fund will (i) own the underlying
securities subject to the option, or (ii) have the right to acquire the
underlying securities through immediate conversion or exchange of convertible
preferred stocks or convertible debt securities owned by the Fund. Although the
Fund receives premium income from these activities, any appreciation realized on
an underlying security will be limited by the terms of the call option. The Fund
may purchase call options on individual securities only to effect a "closing
purchase transaction."
As the writer of a call option, the Fund receives a premium for
undertaking the obligation to sell the underlying security at a fixed price
during the option period, if the option is exercised. So long as the Fund
remains obligated as a writer of a call option, it forgoes the opportunity to
profit from increases in the market price of the underlying security above the
exercise price of the option, except insofar as the premium represents such a
profit (and retains the risk of loss should the value of the underlying security
decline).
PURCHASING OPTIONS ON INDIVIDUAL SECURITIES. The Fund may purchase a
put option on an underlying security owned by the Fund as a defensive technique
in order to protect against an anticipated decline in the value of the security.
The Fund, as the holder of the put option, may sell the underlying security at
the exercise price regardless of any decline in its market price. In order for a
put option to be profitable, the market price of the underlying security must
decline sufficiently below the exercise price to cover the premium and
transaction costs that the Fund must pay. These costs will reduce any profit the
Fund might have realized had it sold the underlying security instead of buying
the put option. The premium paid for the put option would reduce any capital
gain otherwise available for distribution when the security is eventually sold.
The purchase of put options will not be used by the Fund for leveraging
purposes.
The Fund may also purchase a put option on an underlying security that
it owns and at the same time write a call option on the same security with the
same exercise price and expiration date. Depending on whether the underlying
security appreciates or depreciates in value, the Fund would sell the underlying
security for the exercise price either upon exercise of the call option written
by it or by exercising the put option held by it. The Fund would enter into such
transactions in order to profit from the difference between the premium received
by the Fund for the writing of the call option and the premium paid by the Fund
for the purchase of the put option, thereby increasing the Fund's current
return. The Fund may write (sell) put options on individual securities only to
effect a "closing sale transaction."
PURCHASING AND WRITING OPTIONS ON SECURITIES INDICES. The Fund may
purchase and sell (write) put and call options on securities indices. An index
assigns relative values to the securities included in the index and the index
fluctuates with changes in the market values of the securities so included.
Options on indices are similar to options on individual securities, except that,
rather than giving the purchaser the right to take delivery of an individual
security at a specified price, they give the purchaser the right to receive
cash. The amount of cash is equal to the difference between the closing price of
the index and the exercise price of the option, expressed in dollars, times a
specified multiple (the "multiplier"). The writer of the option is obligated, in
return for the premium received, to make delivery of this amount.
The multiplier for an index option performs a function similar to the
unit of trading for a stock option. It determines the total dollar value per
contract of each point in the difference between the exercise price of an option
and the current level of the underlying index. A multiplier of 100 means that a
one-point difference will yield $100. Options on different indices have
different multipliers.
When the Fund writes a call or put option on a stock index, the option
is "covered", in the case of a call, or "secured", in the case of a put, if the
Fund maintains in a segregated account with the Custodian cash or liquid
securities equal to the contract value. A call option is also covered if the
Fund holds a call on the same index as the call written where the exercise price
of the call held is (i) equal to or less than the exercise price of the call
written or (ii) greater than the exercise price of the call written, provided
that the Fund maintains in a segregated account with the Custodian the
difference in cash or liquid securities. A put option is also "secured" if the
Fund holds a put on the same index as the put written where the exercise price
of the put held is (i) equal to or greater than the exercise price of the put
written or (ii) less than the exercise price of the put written, provided that
the Fund maintains in a segregated account with the Custodian the difference in
cash or liquid securities.
RISKS OF OPTIONS TRANSACTIONS. The purchase and writing of options
involves certain special risks. During the option period, the covered call
writer, in return for the premium on the option, has given up the opportunity to
profit from a price increase in the underlying securities above the exercise
price, but, as long as its obligation as a writer continues, has retained the
risk of loss should the price of the underlying security decline. The writer of
an option has no control over the time when it may be required to fulfill its
obligation as a writer of the option. Once an option writer has received an
exercise notice, it cannot effect a closing purchase transaction in order to
terminate its obligation under the option and must deliver the underlying
securities (or cash in the case of an index option) at the exercise price. If a
put or call option purchased by the Fund is not sold when it has remaining
value, and if the market price of the underlying security (or index), in the
case of a put, remains equal to or greater than the exercise price or, in the
case of a call, remains less than or equal to the exercise price, the Fund will
lose its entire investment in the option. Also, where a put or call option on a
particular security (or index) is purchased to hedge against price movements in
a related security (or securities), the price of the put or call option may move
more or less than the price of the related security (or securities). In this
regard, there are differences between the securities and options markets that
could result in an imperfect correlation between these markets, causing a given
transaction not to achieve its objective.
There can be no assurance that a liquid market will exist when the Fund
seeks to close out an option position. Furthermore, if trading restrictions or
suspensions are imposed on the options markets, the Fund may be unable to close
out a position. Finally, trading could be interrupted, for example, because of
supply and demand imbalances arising from a lack of either buyers or sellers, or
the options exchange could suspend trading after the price has risen or fallen
more than the maximum amount specified by the exchange. Closing transactions can
be made for OTC options only by negotiating directly with the counterparty or by
a transaction in the secondary market, if any such market exists. There is no
assurance that the Fund will be able to close out an OTC option position at a
favorable price prior to its expiration. In the event of insolvency of the
counterparty, the Fund might be unable to close out an OTC option position at
any time prior to its expiration. Although the Fund may be able to offset to
some extent any adverse effects of being unable to liquidate an option position,
the Fund may experience losses in some cases as a result of such inability.
The Fund's options activities may impact the level of its portfolio
turnover and brokerage commissions. See "Portfolio Turnover."
The Fund's success in using options techniques depends, among other
things, on Henderson Investors' ability to predict accurately the direction and
volatility of price movements in the options and securities markets, and to
select the proper type, time and duration of options.
FUTURES CONTRACTS AND OPTIONS ON FUTURES CONTRACTS
IN GENERAL. The Fund may enter into futures contracts and options on
futures contracts for hedging purposes. A futures contract provides for the
future sale by one party and purchase by another party of a specified quantity
of a commodity at a specified price and time. When a purchase or sale of a
futures contract is made by the Fund, the Fund is required to deposit with its
Custodian (or broker, if legally permitted) in a segregated account a specified
amount of cash or liquid securities ("initial margin"). The margin required for
a futures contract is set by the exchange on which the contract is traded and
may be modified during the term of the contract. The initial margin is in the
nature of a performance bond or good faith deposit on the futures contract which
is returned to the Fund upon termination of the contract, assuming all
contractual obligations have been satisfied. A futures contract held by the Fund
is valued daily at the official settlement price of the exchange on which it is
traded. Each day the Fund pays or receives cash, called "variation margin,"
equal to the daily change in value of the futures contract. This process is
known as "marking to market." Variation margin does not represent a borrowing or
loan by the Fund but is instead a settlement between the Fund and the broker of
the amount one would owe the other if the futures contract expired. In computing
daily net asset value, the Fund will mark-to-market its open futures position.
The Fund is also required to deposit and maintain margin with respect
to put and call options on futures contracts it has written. Such margin
deposits will vary depending on the nature of the underlying futures contract
(and the related initial margin requirements), the current market value of the
option, and other futures positions held by the Fund.
Although some futures contracts call for making or taking delivery of
the underlying securities, generally these obligations are closed out prior to
delivery of offsetting purchases or sales of matching futures contracts (same
exchange, underlying security or index, and delivery month). If an offsetting
purchase price is less than the original sale price, the Fund generally realizes
a capital gain, or if it is more, the Fund generally realizes a capital loss.
Conversely, if an offsetting sale price is more than the original purchase
price, the Fund generally realizes a capital gain, or if it is less, the Fund
generally realizes a capital loss.
The transaction costs must also be included in these calculations.
When purchasing a futures contract, the Fund will maintain in a
segregated account with its Custodian (and mark-to-market on a daily basis) cash
or liquid securities that, when added to the amounts deposited with a futures
commission merchant ("FCM") as margin, are equal to the market value of the
futures contract. Alternatively, the Fund may "cover" its position by purchasing
a put option on the same futures contract with a strike price as high as or
higher than the price of the contract held by the Fund.
When selling a futures contact, the Fund will maintain with its
Custodian in a segregated account (and mark-to-market on a daily basis) cash or
liquid securities that, when added to the amounts deposited with an FCM as
margin, are equal to the market value of the instruments underlying the
contract. Alternatively, the Fund may "cover" its position by owning the
instruments underlying the contract (or, in the case of an index futures
contract, a portfolio with a volatility substantially similar to that of the
index on which the futures contract is based), or by holding a call option
permitting the Fund to purchase the same futures contract at a price no higher
than the price of the contract written by the Fund (or at a higher price if the
difference is maintained in cash or liquid assets in a segregated account with
the Fund's Custodian).
When selling a call option on a futures contract, the Fund will
maintain with its Custodian in a segregated account (and mark-to-market on a
daily basis) cash or liquid securities that, when added to the amounts deposited
with an FCM as margin, equal the total market value of the futures contract
underlying the call option. Alternatively, the Fund may cover its position by
entering into a long position in the same futures contract at a price no higher
than the strike price of the call option, by owning the instruments underlying
the futures contract, or by holding a separate call option permitting the Fund
to purchase the same futures contract at a price not higher than the strike
price of the call option sold by the Fund.
When selling a put option on a futures contract, the Fund will maintain
with its Custodian in a segregated account (and mark-to-market on a daily basis)
cash or liquid securities that equal the purchase price of the futures contract
less any margin on deposit. Alternatively, the Fund may cover the position
either by entering into a short position in the same futures contract, or by
owning a separate put option permitting it to sell the same futures contract so
long as the strike price of the purchased put option is the same or higher than
the strike price of the put option sold by the Fund.
FOREIGN CURRENCY FUTURES CONTRACTS AND RELATED OPTIONS. The Fund may
engage in foreign currency futures contracts and related options transactions
for hedging purposes. A foreign currency futures contract provides for the
future sale by one party and purchase by another party of a specified quantity
of a foreign currency at a specified price and time.
An option on a foreign currency futures contract gives the holder the
right, in return for the premium paid, to assume a long position (call) or short
position (put) in a futures contract at a specified exercise price at any time
during the period of the option. Upon the exercise of a call option, the holder
acquires a long position in the futures contract and the writer is assigned the
opposite short position. In the case of a put option, the opposite is true.
The Fund may purchase call and put options on foreign currencies as a
hedge against changes in the value of the U.S. dollar (or another currency) in
relation to a foreign currency in which portfolio securities of the Fund may be
denominated. A call option on a foreign currency gives the buyer the right to
buy, and a put option the right to sell, a certain amount of foreign currency at
a specified price during a fixed period of time. The Fund may invest in options
on foreign currency which are either listed on a domestic securities exchange or
traded on a recognized foreign exchange.
In those situations where foreign currency options may not be readily
purchased (or where such options may be deemed illiquid) in the currency in
which the hedge is desired, the hedge may be obtained by purchasing an option on
a "surrogate" currency (i.e., a currency where there is tangible evidence of a
direct correlation in the trading value of the two currencies). A surrogate
currency's exchange rate movements parallel that of the primary currency.
Surrogate currencies are used to hedge an illiquid currency risk, when no liquid
hedge instruments exist in world currency markets for the primary currency.
The Fund will only enter into currency futures contracts and futures
options that are standardized and traded on a U.S. or foreign exchange, board of
trade, or similar entity or quoted on an automated quotation system. The Fund
will not enter into a futures contract or purchase an option thereon if,
immediately thereafter, the aggregate initial margin deposits for futures
contracts held by the Fund plus premiums paid by it for open futures option
positions, less the amount by which any such positions are "in-the-money," would
exceed 5% of the liquidation value of the Fund's portfolio (or the Fund's net
asset value), after taking into account unrealized profits and unrealized losses
on any such contracts the Fund has entered into. A call option is "in-the-money"
if the value of the futures contract that is the subject of the option exceeds
the exercise price. A put option is "in the money" if the exercise price exceeds
the value of the futures contract that is the subject of the option. For
additional information about margin deposits required with respect to futures
contracts and options thereon, see "Futures Contracts and Options on Futures
Contracts."
RISKS ASSOCIATED WITH FUTURES AND RELATED OPTIONS. A purchase or sale
of a futures contract may result in losses in excess of the amount invested in
the futures contract. There can be no guarantee that there will be a correlation
between price movements in the hedging vehicle and in the Fund's portfolio
securities being hedged. In addition, there are significant differences between
the securities and futures markets that could result in an imperfect correlation
between the markets, causing a given hedge not to achieve its objectives. The
degree of imperfection of correlation depends on circumstances such as
variations in speculative market demand for futures and futures options on
securities, including technical influences in futures trading and futures
options, and differences between the financial instruments being hedged and the
instruments underlying the standard contracts available for trading in such
respects as interest rate levels, maturities, and creditworthiness of issuers. A
decision as to whether, when and how to hedge involves the exercise of skill and
judgment, and even a well-conceived hedge may be unsuccessful to some degree
because of market behavior or unexpected interest rate trends.
Futures exchanges may limit the amount of fluctuation permitted in
certain futures contract prices during a single trading day. The daily limit
establishes the maximum amount that the price of a futures contract may vary
either up or down from the previous day's settlement price at the end of the
current trading session. Once the daily limit has been reached in a futures
contract subject to the limit, no more trades may be made on that day at a price
beyond that limit. The daily limit governs only price movements during a
particular trading day and therefore does not limit potential losses because the
limit may work to prevent the liquidation of unfavorable positions. For example,
futures prices have occasionally moved to the daily limit for several
consecutive trading days with little or no trading, thereby preventing prompt
liquidation of positions and subjecting some holders of futures contracts to
substantial losses.
There can be no assurance that a liquid market will exist at a time
when the Fund seeks to close out a futures or a futures option position, and the
Fund would remain obligated to meet margin requirements until the position is
closed. In addition, there can be no assurance that an active secondary market
will continue to exist.
SECURITIES INDEX FUTURES CONTRACTS
The Fund may enter into securities index futures contracts as an
efficient means of regulating the Fund's exposure to the equity markets. The
Fund will not engage in transactions in futures contracts for speculation but
only as a hedge against changes resulting from market conditions in the values
of securities held in the Fund's portfolio or which it intends to purchase. An
index futures contract is a contract to buy or sell units of an index at a
specified future date at a price agreed upon when the contract is made. Entering
into a contract to buy units of an index is commonly referred to as purchasing a
contract or holding a long position in the index. Entering into a contract to
sell units of an index is commonly referred to as selling a contract or holding
a short position. The value of a unit is the current value of the stock index.
For example, the S&P 500 Index is composed of 500 selected common stocks, most
of which are listed on the New York Stock Exchange, Inc. (the "Exchange"). The
S&P 500 Index assigns relative weightings to the 500 common stocks included in
the Index, and the Index fluctuates with changes in the market values of the
shares of those common stocks. In the case of the S&P 500 Index, contracts are
to buy or sell 500 units. Thus, if the value of the S&P 500 Index were $150, one
contract would be worth $75,000 (500 units x $150). The index futures contract
specifies that no delivery of the actual securities making up the index will
take place. Instead, settlement in cash must occur upon the termination of the
contract, with the settlement being the difference between the contract price
and the actual level of the stock index at the expiration of the contract. For
example, if the Fund enters into a futures contract to buy 500 units of the S&P
500 Index at a specified future date at a contract price of $150 and the S&P 500
Index is at $154 on that future date, the Fund will gain $2,000 (500 units x
gain of $4). If the Fund enters into a futures contract to sell 500 units of the
stock index at a specified future date at a contract price of $150 and the S&P
500 Index is at $154 on that future date, the Fund will lose $2,000 (500 units x
loss of $4).
RISKS OF SECURITIES INDEX FUTURES. The Fund's success in using hedging
techniques depends, among other things, on Henderson Investors' ability to
predict correctly the direction and volatility of price movements in the futures
and options markets as well as in the securities markets and to select the
proper type, time and duration of hedges. The skills necessary for successful
use of hedges are different from those used in the selection of individual
stocks.
The Fund's ability to hedge effectively all or a portion of its
securities through transactions in index futures (and therefore the extent of
its gain or loss on such transactions) depends on the degree to which price
movements in the underlying index correlate with price movements in the Fund's
securities. Insofar as such securities do not duplicate the components of an
index, the correlation probably will not be perfect. Consequently, the Fund will
bear the risk that the prices of the securities being hedged will not move in
the same amount as the hedging instrument. This risk will increase as the
composition of the Fund's portfolio diverges from the composition of the hedging
instrument.
Although the Fund intends to establish positions in these instruments
only when there appears to be an active market, there is no assurance that a
liquid market will exist at a time when the Fund seeks to close a particular
option or futures position. Trading could be interrupted, for example, because
of supply and demand imbalances arising from a lack of either buyers or sellers.
In addition, the futures exchanges may suspend trading after the price has risen
or fallen more than the maximum amount specified by the exchange. In some cases,
the Fund may experience losses as a result of its inability to close out a
position, and it may have to liquidate other investments to meet its cash needs.
Although some index futures contracts call for making or taking
delivery of the underlying securities, generally these obligations are closed
out prior to delivery by offsetting purchases or sales of matching futures
contracts (same exchange, underlying security or index, and delivery month). If
an offsetting purchase price is less than the original sale price, the Fund
generally realizes a capital gain, or if it is more, the Fund generally realizes
a capital loss. Conversely, if an offsetting sale price is more than the
original purchase price, the Fund generally realizes a capital gain, or if it is
less, the Fund generally realizes a capital loss.
The transaction costs must also be included in these calculations.
The Fund will only enter into index futures contracts or futures
options that are standardized and traded on a U.S. or foreign exchange or board
of trade, or similar entity, or quoted on an automated quotation system. The
Fund will use futures contracts and related options only for "bona fide hedging"
purposes, as such term is defined in applicable regulations of the CFTC.
When purchasing an index futures contract, the Fund will maintain with
its Custodian in a segregated account (and mark-to-market on a daily basis) cash
or liquid securities that, when added to the amounts deposited with a futures
commission merchant ("FCM") as margin, are equal to the market value of the
futures contract. Alternatively, the Fund may "cover" its position by purchasing
a put option on the same futures contract with a strike price as high as or
higher than the price of the contract held by the Fund.
When selling an index futures contract, the Fund will maintain with its
Custodian in a segregated account (and mark-to-market on a daily basis) cash or
liquid securities that, when added to the amounts deposited with an FCM as
margin, are equal to the market value of the instruments underlying the
contract. Alternatively, the Fund may "cover" its position by owning the
instruments underlying the contract (or, in the case of an index futures
contract, a portfolio with a volatility substantially similar to that of the
index on which the futures contract is based), or by holding a call option
permitting the Fund to purchase the same futures contract at a price no higher
than the price of the contract written by the Fund (or at a higher price if the
difference is maintained in cash or liquid assets in a segregated account with
the Fund's Custodian).
COMBINED TRANSACTIONS
The Fund may enter into multiple transactions, including multiple
options transactions, multiple futures transactions and some combination of
futures and options transactions ("component" transactions), instead of a single
transaction, as part of a single or combined strategy when, in the opinion of
Henderson Investors, it is in the best interests of the Fund to do so. A
combined transaction will usually contain elements of risk that are present in
each of its component transactions. Although combined transactions are normally
entered into based on Henderson Investors' judgment that the combined strategies
will reduce risk or otherwise more effectively achieve the desired portfolio
management goal, it is possible that the combination will instead increase such
risks or hinder achievement of the management objective.
INVESTMENT RESTRICTIONS
The Fund's investment objective, as set forth in the Prospectus under
"Investment Objective and Policies," and the investment restrictions set forth
below are fundamental policies of the Fund and may not be changed with respect
to the approval of a majority (as defined in the 1940 Act) of the outstanding
voting shares of the Fund. Under these restrictions, the Fund may not:
(i) make an investment in securities of companies in any
one industry (except obligations of domestic banks or
the U.S. Government, its agencies, authorities, or
instrumentalities) if such investment would cause
investments in such industry to exceed 25% of the
market value of the Fund's total assets at the time
of such investment;
(ii) issue senior securities, except as appropriate to
evidence indebtedness which it is permitted to incur,
and except to the extent that shares of the separate
classes or series of the Trust may be deemed to be
senior securities; provided that collateral
arrangements with respect to currency-related
contracts, futures contracts, options or other
permitted investments, including deposits of initial
and variation margin, are not considered to be the
issuance of senior securities for purposes of this
restriction;
(iii) purchase securities of any one issuer (except U.S.
Government securities) if as a result more than 5% of
the Fund's total assets would be invested in such
issuer or the Fund would own or hold more than 10% of
the outstanding voting securities of that issuer;
provided, however, that up to 25% of the value of the
Fund's total assets may be invested without regard to
these limitations;
(iv) purchase securities on margin, except such short-term
credits as are necessary for the clearance of
transactions, but the Fund may make margin deposits
in connection with transactions in options, futures
and options on futures;
(v) make loans, except this restriction shall not
prohibit (a) the purchase and holding of a portion of
an issue of publicly distributed debt securities, (b)
the entry into repurchase agreements with banks or
broker-dealers, or (c) the lending of the Fund's
portfolio securities in accordance with applicable
guidelines established by the Securities and Exchange
Commission (the "SEC") and any guidelines established
by the Trust's Trustees;
(vi) make investments in securities for the purpose of exercising control over
or management of the issuer;
(vii) act as an underwriter of securities, except to the
extent that, in connection with the sale of
securities, it may be deemed to be an underwriter
under applicable securities laws;
(viii) borrow money, except for temporary, extraordinary or
emergency purposes, and provided that the Fund
maintains asset coverage of 300% for all borrowings;
or
(ix) invest in real estate, real estate mortgage loans, commodities or
interests in oil, gas and/or mineral exploration or development
programs (other than securities of companies that invest in or
sponsor such programs), although (a) the Fund may purchase and
sell marketable securities of issuers which are secured by real
estate, (b) the Fund may purchase and sell securities of issuers
which invest or deal in real estate, (c) the Fund may enter into
forward foreign currency contracts as described in the Fund's
prospectus, and (d) the Fund may write or buy puts, calls,
straddles or spreads and may invest in commodity futures
contracts and options on futures contracts.
ADDITIONAL RESTRICTIONS
The Fund has adopted the following additional restrictions, which are
not fundamental and which may be changed without shareholder approval, to the
extent permitted by applicable law, regulation or regulatory policy. Under these
restrictions, the Fund may not:
(i) invest more than 15% of its net assets taken at market value at
the time of investment in "illiquid securities." Illiquid
securities may include securities subject to legal or contractual
restrictions on resale (including private placements), repurchase
agreements maturing in more than seven days, certain options
traded over the counter that the Fund has purchased, securities
being used to cover certain options that the Fund has written,
securities for which market quotations are not readily available,
or other securities which legally or in the subadviser's opinion,
subject to the Board's supervision, may be deemed illiquid, but
shall not include any instrument that, due to the existence of a
trading market or to other factors, is liquid;
(ii) purchase securities of other investment companies,
except in connection with a merger, consolidation or
sale of assets, and except that it may purchase
shares of other investment companies subject to such
restrictions as may be imposed by the Investment
Company Act of 1940 and rules thereunder;
(iii) purchase or sell real estate limited partnership interests;
(iv) sell securities short, except for short sales "against the box"; or
(v) participate on a joint or a joint and several basis
in any trading account in securities. The "bunching"
of orders of the Fund and of other accounts under the
investment management of the Fund's subadviser, for
the sale or purchase of portfolio securities shall
not be considered participation in a joint securities
trading account.
PORTFOLIO TURNOVER
The Fund purchases securities that are believed by IMI to have above
average potential for capital appreciation. Common stocks are disposed of in
situations where it is believed that potential for such appreciation has
lessened or that other common stocks have a greater potential. Therefore, the
Fund may purchase and sell securities without regard to the length of time the
security is to be, or has been, held. A change in securities held by the Fund is
known as "portfolio turnover" and may involve the payment by the Fund of dealer
markup or underwriting commission and other transaction costs on the sale of
securities, as well as on the reinvestment of the proceeds in other securities.
The Fund's portfolio turnover rate is calculated by dividing the lesser of
purchases or sales of portfolio securities for the most recently completed
fiscal year by the monthly average of the value of the portfolio securities
owned by the Fund during that year. For purposes of determining the Fund's
portfolio turnover rate, all securities whose maturities at the time of
acquisition were one year or less are excluded.
TRUSTEES AND OFFICERS
The Fund's Board of Trustees (the "Board") is responsible for the
overall management of the Fund, including general supervision and review of the
Fund's investment activities. The Board, in turn, elects the officers who are
responsible for administering the Fund's day-to-day operations.
The Trustees and Executive Officers of the Trust, their business
addresses and principal occupations during the past five years are:
POSITION WITH BUSINESS AFFILIATIONS
NAME, ADDRESS, AGE THE TRUST AND PRINCIPAL OCCUPATIONS
John S. Anderegg, Jr. Trustee Chairman, Dynamics Research
60 Concord Street Corp. (instruments and controls);
Wilmington, MA 01887 Director, Burr-Brown Corp.
Age: 74 (operational amplifiers); Director,
Metritage Incorporated (level
measuring instruments); Trustee of
Mackenzie Series Trust (1992-1998).
Paul H. Broyhill Trustee Chairman, BMC Fund, Inc.
800 Hickory Blvd. (1983-present); Chairman,
Golfview Park-Box 500 Broyhill Family Foundation,
Lenoir, NC 28645 Inc. (1983-Present); Chairman and
Age: 74 President, Broyhill Investments,
Inc. (1983-present); Chairman,
Broyhill Timber Resources (1983-
present); Management of a personal
portfolio of fixed-income and equity
investments (1983-present); Trustee
of Mackenzie Series Trust (1988-
1998); Director of The Mackenzie
Funds Inc. (1988-1995).
Stanley Channick Trustee President and Chief
11 Bala Avenue Executive Officer, The
Bala Cynwyd, PA 19004 Whitestone Corporation
Age: 75 (insurance agency); Chairman, Scott
Management Company (administrative
services for insurance companies);
President, The Channick Group
(consultants to insurance companies
and national trade associations);
Trustee of Mackenzie Series Trust
(1994-1998); Director of The
Mackenzie Funds Inc. (1994-1995).
Frank W. DeFriece, Jr. Trustee Director, Manager and Vice
The Landmark Centre President, Director and
113 Landmark Lane, Fund Manager, Massengill-
Suite B DeFriece Foundation
Bristol, TN 37620-2285 (charitable organization)
Age: 77 (1950-present); Trustee and Vice
Chairman, East Tennessee Public
Communications Corp. (WSJK-TV)
(1984-present); Trustee of Mackenzie
Series Trust (1985-1998); Director
of The Mackenzie Funds Inc. (1987-
1995).
Roy J. Glauber Trustee Mallinckrodt Professor of
Lyman Laboratory Physics, Harvard
of Physics University (1974-present);
Harvard University Trustee of Mackenzie Series
Cambridge, MA 02138 Trust (1994-1997).
Age: 72
Michael G. Landry Trustee President, Chief Executive
700 South Federal Hwy. And Officer and Director of
Suite 300 Chairman Mackenzie Investment
Boca Raton, FL 33432 Management Inc. (1987-
Age: 51 present); President,
[*Deemed to be an Director and Chairman of
"interested person" Ivy Management Inc. (1992-
of the Trust, as present); Chairman and
defined under the Director of Ivy Mackenzie
1940 Act.] Services Corp.(1993-present);
Chairman and Director of Ivy
Mackenzie Distributors, Inc.
(1994-present); Director and
President of Ivy Mackenzie
Distributors, Inc. (1993-1994);
Director and President of The
Mackenzie Funds Inc. (1987-1995);
Trustee of Mackenzie Series Trust
(1987-1998); President of Mackenzie
Series Trust (1987-1996); Chairman
of Mackenzie Series Trust (1996-
1998).
Joseph G. Rosenthal Trustee Chartered Accountant
110 Jardin Drive (1958-present); Trustee of
Unit #12 Mackenzie Series Trust
Concord, Ontario Canada (1985-1998); Director of
L4K 2T7 The Mackenzie Funds Inc.
Age: 63 (1987-1995).
Richard N. Silverman Trustee Director, Newton-Wellesley
18 Bonnybrook Road Hospital; Director, Beth
Waban, MA 02168 Israel Hospital; Director,
Age: 74 Boston Ballet; Director, Boston
Children's Museum; Director, Brimmer
and May School.
J. Brendan Swan Trustee President, Airspray
4701 North Federal Hwy. International, Inc.;
Suite 465 Joint Managing Director,
Pompano Beach, FL 33064 Airspray International
Age: 67 B.V. (an environmentally sensitive
packaging company); Director of
Polyglass LTD.; Director, The
Mackenzie Funds Inc. (1992-1995);
Trustee of Mackenzie Series Trust
(1992-1998).
Keith J. Carlson Trustee Senior Vice President of Mackenzie
700 South Federal Hwy. And Investment Management, Inc. (1996 -
Suite 300 President -present); Senior Vice President and
Boca Raton, FL 33432 Director of Mackenzie Investment
Age: 41 Management, Inc. (1994 - 1996);
[*Deemed to be an Senior Vice President and Treasurer
"interested person" of Mackenzie Investment Management,
of the Trust, Inc. (1989-1994); Senior Vice President
as defined under President and Director of Ivy
the 1940 Act.] Management Inc. (1994-present);
Senior Vice President, Treasurer and
Director of Ivy Management Inc.
(1992-1994); Vice President of The
Mackenzie Funds Inc. (1987-1995);
Senior Vice President and Director,
Ivy Mackenzie Services Corp. (1996-
present); President and Director of
Ivy Mackenzie Services Corp. (1993-
1996); Trustee and President of
Mackenzie Series Trust (1996-1998);
Vice President of Mackenzie Series
Trust (1994-1998); Treasurer of
Mackenzie Series Trust (1985-1994);
President, Chief Executive Officer
and Director of Ivy Mackenzie
Distributors, Inc. (1994-present);
Executive Vice President and
Director of Ivy Mackenzie
Distributors, Inc. (1993-1994);
Trustee of Mackenzie Series Trust
(1996-1998).
C. William Ferris Secretary/ Senior Vice President,
700 South Federal Hwy. Treasurer Chief Financial Officer
Suite 300 and Secretary/Treasurer
Boca Raton, FL 33432 of Mackenzie Investment
Age: 53 Management Inc. (1995-present);
Senior Vice President, Finance and
Administration/Compliance Officer of
Mackenzie Investment Management Inc.
(1989-1994); Senior Vice President,
Secretary/ Treasurer and Clerk of
Ivy Management Inc. (1994-present);
Vice President, Finance/
Administration and Compliance
Officer of Ivy Management Inc.
(1992-1994); Senior Vice President,
Secretary/Treasurer and Director of
Ivy Mackenzie Distributors, Inc.
(1994-present); Secretary/Treasurer
and Director of Ivy Mackenzie
Distributors, Inc. (1993-1994);
President and Director of Ivy
Mackenzie Services Corp.
(1996-present); Secretary/Treasurer
and Director of Ivy Mackenzie
Services Corp. (1993-1996);
Secretary/Treasurer
of The Mackenzie Funds Inc.
(1993-1995); Secretary/Treasurer of
Mackenzie Series Trust (1994-1998).
James W. Broadfoot Vice Executive Vice President,
700 South Federal Hwy. President Ivy Management Inc. (1996-
Suite 300 present); Senior Vice
Boca Raton, FL 33432 President, Ivy Management,
Age: 56 Inc. (1992-1996); Director and
Senior Vice President, Mackenzie
Investment Management Inc. (1995-
present); Senior Vice President,
Mackenzie Investment Management Inc.
(1990-1995).
COMPENSATION TABLE
IVY FUND
(FISCAL YEAR ENDED DECEMBER 31, 1998)
PENSION OR TOTAL COMPENSA-
AGGREGATE RETIREMENT ESTIMATED TION FROM TRUST
NAME, COMPENSATION BENEFITS ACCRUED ANNUAL AND FUND
POSITION FROM TRUST AS PART OF BENEFITS UPON COMPLEX PAID TO
FUND EXPENSES RETIREMENT TRUSTEES
John S. N/A N/A
Anderegg, Jr.
(Trustee)
Paul H. N/A N/A
Broyhill
(Trustee)
Keith J. $0 N/A N/A $0
Carlson
(Trustee and
President)
Stanley N/A N/A
Channick
(Trustee)
Frank W. N/A N/A
DeFriece, Jr.
(Trustee)
Roy J. N/A N/A
Glauber
(Trustee)
Michael G. $0 N/A N/A $0
Landry
(Trustee and
Chairman of
the Board)
Joseph G. N/A N/A
Rosenthal
(Trustee)
Richard N. N/A N/A
Silverman
(Trustee)
J. Brendan N/A N/A
Swan
(Trustee)
C. William $0 N/A N/A $0
Ferris
(Secretary/
Treasurer)
To the knowledge of the Trust, as of [ ], no shareholder owned
beneficially or of record 5% or more of the Fund's outstanding shares of any
class, except that [to be completed by amendment].
As of [.. ], the Officers and Trustees of the Trust as a group owned
beneficially or of record less than 1% of the outstanding Class A, Class B,
Class C, Class I and Advisor Class shares of the Fund.
PERSONAL INVESTMENTS BY EMPLOYEES OF IMI. Employees of IMI are
permitted to make personal securities transactions, subject to the requirements
and restrictions set forth in IMI's Code of Ethics and Business Conduct Policy
(the "Code of Ethics"). The Code of Ethics is designed to identify and address
certain conflicts of interest between personal investment activities and the
interests of investment advisory clients such as the Fund. Among other things,
the Code of Ethics, which generally complies with standards recommended by the
Investment Company Institute's Advisory Group on Personal Investing, prohibits
certain types of transactions absent prior approval, applies to portfolio
managers, traders, research analysts and others involved in the investment
advisory process, and imposes time periods during which personal transactions
may not be made in certain securities, and requires the submission of duplicate
broker confirmations and monthly reporting of securities transactions.
Exceptions to these and other provisions of the Code of Ethics may be granted in
particular circumstances after review by appropriate personnel.
INVESTMENT ADVISORY AND OTHER SERVICES
BUSINESS MANAGEMENT AND INVESTMENT ADVISORY SERVICES
IMI provides business management and investment advisory services to
the Fund pursuant to a Business Management and Investment Advisory Agreement
(the "Agreement"). The Agreement was approved by the sole shareholder of the
Fund on December 13, 1996. Prior to shareholder approval, the Agreement was
approved with respect to the Fund by the Board, including a majority of the
Trustees who are neither "interested persons" (as defined in the 1940 Act) of
the Trust nor have any direct or indirect financial interest in the operation of
the distribution plan (see "Distribution Services") or in any related agreement
(the "Independent Trustees") at a meeting held on December 7, 1996.
IMI is a wholly owned subsidiary of Mackenzie Investment Management
Inc. ("MIMI"). MIMI, a Delaware corporation, has approximately 10% of its
outstanding common stock listed for trading on the Toronto Stock Exchange
("TSE"). MIMI is a subsidiary of Mackenzie Financial Corporation ("MFC"), 150
Bloor Street West, Toronto, Ontario, Canada, a public corporation organized
under the laws of Ontario whose shares are listed for trading on the TSE. MFC is
registered in Ontario as a mutual fund dealer and advises Ivy Global Natural
Resources Fund. IMI currently acts as manager and investment adviser to the
following additional investment companies registered under the 1940 Act (other
than the Fund): Ivy Asia Pacific Fund, Ivy Bond Fund, Ivy China Region Fund, Ivy
Developing Nations Fund, Ivy European Opportunities Fund, Ivy Global Fund, Ivy
Global Science & Technology Fund, Ivy Growth Fund, Ivy Growth with Income Fund,
Ivy International Fund II, Ivy International Fund, Ivy International Strategic
Bond Fund, Ivy Money Market Fund, Ivy Pan-Europe Fund, Ivy South America Fund,
Ivy US Blue Chip Fund and Ivy US Emerging Growth Fund. IMI also provides
business management service to Ivy Global Natural Resources Fund.
The Agreement obligates IMI to make investments for the account of the
Fund in accordance with its best judgment and within the investment objectives
and restrictions set forth in the Prospectus, the 1940 Act and the provisions of
the Code relating to regulated investment companies, subject to policy decisions
adopted by the Board. IMI also determines the securities to be purchased or sold
by the Fund and places orders with brokers or dealers who deal in such
securities.
Under the Agreement, IMI also provides certain business management
services. IMI is obligated to (1) coordinate with the Fund's Custodian and
monitor the services it provides to the Fund; (2) coordinate with and monitor
any other third parties furnishing services to the Fund; (3) provide the Fund
with necessary office space, telephones and other communications facilities as
are adequate for the Fund's needs; (4) provide the services of individuals
competent to perform administrative and clerical functions that are not
performed by employees or other agents engaged by the Fund or by IMI acting in
some other capacity pursuant to a separate agreement or arrangements with the
Fund; (5) maintain or supervise the maintenance by third parties of such books
and records of the Trust as may be required by applicable Federal or state law;
(6) authorize and permit IMI's directors, officers and employees who may be
elected or appointed as trustees or officers of the Trust to serve in such
capacities; and (7) take such other action with respect to the Trust, after
approval by the Trust as may be required by applicable law, including without
limitation the rules and regulations of the SEC and of state securities
commissions and other regulatory agencies.
The Fund pays IMI a monthly fee for providing business management and
investment advisory services at an annual rate of 1.00% of the Fund's average
net assets.
Under the Agreement, the Trust pays the following expenses: (1) the
fees and expenses of the Trust's Independent Trustees; (2) the salaries and
expenses of any of the Trust's officers or employees who are not affiliated with
IMI; (3) interest expenses; (4) taxes and governmental fees, including any
original issue taxes or transfer taxes applicable to the sale or delivery of
shares or certificates therefor; (5) brokerage commissions and other expenses
incurred in acquiring or disposing of portfolio securities; (6) the expenses of
registering and qualifying shares for sale with the SEC and with various state
securities commissions; (7) accounting and legal costs; (8) insurance premiums;
(9) fees and expenses of the Trust's Custodian and Transfer Agent and any
related services; (10) expenses of obtaining quotations of portfolio securities
and of pricing shares; (11) expenses of maintaining the Trust's legal existence
and of shareholders' meetings; (12) expenses of preparation and distribution to
existing shareholders of periodic reports, proxy materials and prospectuses; and
(13) fees and expenses of membership in industry organizations.
IMI currently limits the Fund's total operating expenses (excluding
Rule 12b-1 fees, interest, taxes, brokerage commissions, litigation,
class-specific expenses, indemnification expenses, and extraordinary expenses)
to an annual rate of 1.95% of the Fund's average net assets, which may lower the
Fund's expenses and increase its yield.
The Agreement will continue in effect with respect to the Fund from
year to year, only so long as the continuance is specifically approved at least
annually (i) by the vote of a majority of the Independent Trustees and (ii)
either (a) by the vote of a majority of the outstanding voting securities (as
defined in the 1940 Act) of the Fund or (b) by the vote of a majority of the
entire Board. If the question of continuance of the Agreement (or adoption of
any new agreement) is presented to the shareholders, continuance (or adoption)
shall be effected only if approved by the affirmative vote of a majority of the
outstanding voting securities of the Fund. See "Capitalization and Voting
Rights."
The Agreement may be terminated with respect to the Fund at any time,
without payment of any penalty, by the vote of a majority of the Board, or by a
vote of a majority of the outstanding voting securities of the Fund, on 60 days'
written notice to IMI, or by IMI on 60 days' written notice to the Trust. The
Agreement shall terminate automatically in the event of its assignment.
DISTRIBUTION SERVICES
IMDI, a wholly owned subsidiary of MIMI, serves as the exclusive
distributor of Ivy Fund's shares pursuant to an Amended and Restated
Distribution Agreement with the Trust dated , 1999, as amended from time to time
(the "Distribution Agreement"). The Distribution Agreement was approved by the
Board on September 17, 1998. IMDI distributes shares of the Fund through
broker-dealers who are members of the National Association of Securities
Dealers, Inc. and who have executed dealer agreements with IMDI. IMDI
distributes shares of the Fund on a continuous basis, but reserves the right to
suspend or discontinue distribution on that basis. IMDI is not obligated to sell
any specific amount of Fund shares.
The Fund has authorized IMDI to accept on its behalf purchase and
redemption orders for its Advisor Class shares. IMDI is also authorized to
designate other intermediaries to accept purchase and redemption orders for the
Fund's Advisor Class shares on the Fund's behalf. The Fund will be deemed to
have received a purchase or redemption order for Advisor Class shares when an
authorized intermediary or, if applicable, an intermediary's authorized
designee, accepts the order. Client orders will be priced at the Fund's Net
Asset Value next computed after an authorized intermediary or the intermediary's
authorized designee accepts them.
Pursuant to the Distribution Agreement, IMDI is entitled to deduct a
commission on all Class A Fund shares sold equal to the difference, if any,
between the public offering price, as set forth in the Fund's then-current
prospectus, and the net asset value on which such price is based. Out of that
commission, IMDI may reallow to dealers such concession as IMDI may determine
from time to time. In addition, IMDI is entitled to deduct a CDSC on the
redemption of Class A shares sold without an initial sales charge and Class B
and Class C shares, in accordance with, and in the manner set forth in, the
Prospectus.
Under the Distribution Agreement, the Fund bears, among other expenses,
the expenses of registering and qualifying its shares for sale under Federal and
state securities laws and preparing and distributing to existing shareholders
periodic reports, proxy materials and prospectuses.
The Distribution Agreement will continue in effect for successive
one-year periods, provided that such continuance is specifically approved at
least annually by the vote of a majority of the Independent Trustees, cast in
person at a meeting called for that purpose and by the vote of either a majority
of the entire Board or a majority of the outstanding voting securities of the
Fund. The Distribution Agreement may be terminated with respect to the Fund at
any time, without payment of any penalty, by IMDI on 60 days' written notice to
the Fund or by the Fund by vote of either a majority of the outstanding voting
securities of the Fund or a majority of the Independent Trustees on 60 days'
written notice to IMDI. The Distribution Agreement shall terminate automatically
in the event of its assignment.
RULE 18F-3 PLAN. On February 23, 1995, the SEC adopted Rule 18f-3 under
the 1940 Act, which permits a registered open-end investment company to issue
multiple classes of shares in accordance with a written plan approved by the
investment company's board of directors/trustees and filed with the SEC. At a
meeting held on _________________, the Board adopted a Rule 18f-3 plan on behalf
of the Fund. The key features of the Rule 18f-3 plan are as follows: (i) shares
of each class of the Fund represent an equal pro rata interest in the Fund and
generally have identical voting, dividend, liquidation, and other rights,
preferences, powers, restrictions, limitations, qualifications, terms and
conditions, except that each class bears certain class-specific expenses and has
separate voting rights on certain matters that relate solely to that class or in
which the interests of shareholders of one class differ from the interests of
shareholders of another class; (ii) subject to certain limitations described in
the Prospectus, shares of a particular class of the Fund may be exchanged for
shares of the same class of another Ivy fund; and (iii) the Fund's Class B
shares will convert automatically into Class A shares of the Fund after a period
of eight years, based on the relative net asset value of such shares at the time
of conversion.
RULE 12B-1 DISTRIBUTION PLANS. The Trust has adopted on behalf of the
Fund, in accordance with Rule 12b-1 under the 1940 Act, separate Rule 12b-1
distribution plans pertaining to the Fund's Class A, Class B and Class C shares
(each, a "Plan"). In adopting each Plan, a majority of the Independent Trustees
have concluded in accordance with the requirements of Rule 12b-1 that there is a
reasonable likelihood that each Plan will benefit the Fund and its shareholders.
The Trustees of the Trust believe that the Plans should result in greater sales
and/or fewer redemptions of the Fund's shares, although it is impossible to know
for certain the level of sales and redemptions of the Fund's shares in the
absence of a Plan or under an alternative distribution arrangement.
Under each Plan, the Fund pays IMDI a service fee, accrued daily and
paid monthly, at the annual rate of up to 0.25% of the average daily net assets
attributable to its Class A, Class B or Class C shares, as the case may be. The
services for which service fees may be paid include, among other things,
advising clients or customers regarding the purchase, sale or retention of
shares of the Fund, answering routine inquiries concerning the Fund and
assisting shareholders in changing options or enrolling in specific plans.
Pursuant to each Plan, service fee payments made out of or charged against the
assets attributable to the Fund's Class A, Class B or Class C shares must be in
reimbursement for services rendered for or on behalf of the affected class. The
expenses not reimbursed in any one month may be reimbursed in a subsequent
month. The Class A Plan does not provide for the payment of interest or carrying
charges as distribution expenses.
Under the Fund's Class B and Class C Plans, the Fund also pays IMDI a
distribution fee, accrued daily and paid monthly, at the annual rate of 0.75% of
the average daily net assets attributable to its Class B or Class C shares. IMDI
may reallow to dealers all or a portion of the service and distribution fees as
IMDI may determine from time to time. The distribution fee compensates IMDI for
expenses incurred in connection with activities primarily intended to result in
the sale of the Fund's Class B or Class C shares, including the printing of
prospectuses and reports for persons other than existing shareholders and the
preparation, printing and distribution of sales literature and advertising
materials. Pursuant to each Class B and Class C Plan, IMDI may include interest,
carrying or other finance charges in its calculation of distribution expenses,
if not prohibited from doing so pursuant to an order of or a regulation adopted
by the SEC.
Among other things, each Plan provides that (1) IMDI will submit to the
Board at least quarterly, and the Trustees will review, written reports
regarding all amounts expended under the Plan and the purposes for which such
expenditures were made; (2) each Plan will continue in effect only so long as
such continuance is approved at least annually, and any material amendment
thereto is approved, by the votes of a majority of the Board, including the
Independent Trustees, cast in person at a meeting called for that purpose; (3)
payments by the Fund under each Plan shall not be materially increased without
the affirmative vote of the holders of a majority of the outstanding shares of
the relevant class; and (4) while each Plan is in effect, the selection and
nomination of Independent Trustees shall be committed to the discretion of the
Trustees who are not "interested persons" of the Trust.
IMDI may make payments for distribution assistance and for
administrative and accounting services from resources that may include the
management fees paid by the Fund. IMDI also may make payments (such as the
service fee payments described above) to unaffiliated broker-dealers for
services rendered in the distribution of the Fund's shares. To qualify for such
payments, shares may be subject to a minimum holding period. However, no such
payments will be made to any dealer or broker if at the end of each year the
amount of shares held does not exceed a minimum amount. The minimum holding
period and minimum level of holdings will be determined from time to time by
IMDI.
A report of the amount expended pursuant to each Plan, and the purposes
for which such expenditures were incurred, must be made to the Board for its
review at least quarterly.
Each Plan may be amended at any time with respect to the class of
shares of the Fund to which the Plan relates by vote of the Trustees, including
a majority of the Independent Trustees, cast in person at a meeting called for
the purpose of considering such amendment. Each Plan may be terminated at any
time with respect to the class of shares of the Fund to which the Plan relates,
without payment of any penalty, by vote of a majority of the Independent
Trustees, or by vote of a majority of the outstanding voting securities of that
class.
If the Distribution Agreement or the Distribution Plans are terminated
(or not renewed) with respect to any of the Ivy funds (or class of shares
thereof), each may continue in effect with respect to any other fund (or Class
of shares thereof) as to which they have not been terminated (or have been
renewed).
CUSTODIAN
Pursuant to a Custodian Agreement with the Trust, Brown Brothers
Harriman & Co. (the "Custodian"), a private bank and member of the principal
securities exchanges, located at 40 Water Street, Boston, Massachusetts 02109
(the "Custodian"), maintains custody of the assets of the Fund held in the
United States. Rules adopted under the 1940 Act permit the Trust to maintain its
foreign securities and cash in the custody of certain eligible foreign banks and
securities depositories. Pursuant to those rules, the Custodian has entered into
subcustodial agreements for the holding of the Fund's foreign securities. With
respect to the Fund, the Custodian may receive, as partial payment for its
services to the Fund, a portion of the Trust's brokerage business, subject to
its ability to provide best price and execution.
FUND ACCOUNTING SERVICES
Pursuant to a Fund Accounting Services Agreement, MIMI provides certain
accounting and pricing services for the Fund. As compensation for those
services, the Fund pays MIMI a monthly fee plus out-of-pocket expenses as
incurred. The monthly fee is based upon the net assets of the Fund at the
preceding month end at the following rates: $1,250 when net assets are $10
million and under; $2,500 when net assets are over $10 million to $40 million;
$5,000 when net assets are over $40 million to $75 million; and $6,500 when net
assets are over $75 million.
TRANSFER AGENT AND DIVIDEND PAYING AGENT
Pursuant to a Transfer Agency and Shareholder Service Agreement, Ivy
Mackenzie Services Corp. ("IMSC"), a wholly owned subsidiary of MIMI, is the
transfer agent for the Fund. Under the Agreement, the Fund pays a monthly fee at
an annual rate of $20.00 for each open Class A, Class B , Class C and Advisor
Class account. The Fund pays $10.25 per open Class I account. In addition, the
Fund pays a monthly fee at an annual rate of $4.58 per account that is closed
plus certain out-of-pocket expenses. Certain broker-dealers that maintain
shareholder accounts with the Fund through an omnibus account provide transfer
agent and other shareholder-related services that would otherwise be provided by
IMSC if the individual accounts that comprise the omnibus account were opened by
their beneficial owners directly. IMSC pays such broker-dealers a per account
fee for each open account within the omnibus account, or a fixed rate (e.g.,
0.10%) fee, based on the average daily net asset value of the omnibus account
(or a combination thereof).
ADMINISTRATOR
Pursuant to an Administrative Services Agreement, MIMI provides certain
administrative services to the Fund. As compensation for these services, the
Fund (except with respect to its Class I shares) pays MIMI a monthly fee at the
annual rate of 0.10% of the Fund's average daily net assets. The Fund pays MIMI
a monthly fee at the annual rate of 0.01% of its average daily net assets for
Class I.
Outside of providing administrative services to the Trust, as described
above, MIMI may also act on behalf of IMDI in paying commissions to
broker-dealers with respect to sales of Class B and Class C shares of the Fund.
AUDITORS
[........ ], independent public accountants, has been selected as
auditors for the Trust. The audit services performed by [ ], include audits of
the annual financial statements of each of the funds of the Trust. Other
services provided principally relate to filings with the SEC and the preparation
of the funds' tax returns.
BROKERAGE ALLOCATION
Subject to the overall supervision of the President and the Board, IMI
places orders for the purchase and sale of the Fund's portfolio securities. All
portfolio transactions are effected at the best price and execution obtainable.
Purchases and sales of debt securities are usually principal transactions and
therefore, brokerage commissions are usually not required to be paid by the Fund
for such purchases and sales (although the price paid generally includes
undisclosed compensation to the dealer). The prices paid to underwriters of
newly-issued securities usually include a concession paid by the issuer to the
underwriter, and purchases of after-market securities from dealers normally
reflect the spread between the bid and asked prices. In connection with OTC
transactions, IMI attempts to deal directly with the principal market makers,
except in those circumstances where IMI believes that a better price and
execution are available elsewhere.
IMI selects broker-dealers to execute transactions and evaluates the
reasonableness of commissions on the basis of quality, quantity, and the nature
of the firms' professional services. Commissions to be charged and the rendering
of investment services, including statistical, research, and counseling services
by brokerage firms, are factors to be considered in the placing of brokerage
business. The types of research services provided by brokers may include general
economic and industry data, and information on securities of specific companies.
Research services furnished by brokers through whom the Trust effects securities
transactions may be used by IMI in servicing all of its accounts. In addition,
not all of these services may be used by IMI in connection with the services it
provides to the Fund or the Trust. IMI may consider sales of shares of Ivy funds
as a factor in the selection of broker-dealers and may select broker-dealers who
provide it with research services. IMI will not, however, execute brokerage
transactions other than at the best price and execution.
The Fund may, under some circumstances, accept securities in lieu of
cash as payment for Fund shares. The Fund will accept securities only to
increase its holdings in a portfolio security or to take a new portfolio
position in a security that IMI deems to be a desirable investment for the Fund.
While no minimum has been established, it is expected that the Fund will not
accept securities having an aggregate value of less than $1 million. The Trust
may reject in whole or in part any or all offers to pay for the Fund shares with
securities and may discontinue accepting securities as payment for the Fund
shares at any time without notice. The Trust will value accepted securities in
the manner and at the same time provided for valuing portfolio securities of the
Fund, and the Fund shares will be sold for net asset value determined at the
same time the accepted securities are valued. The Trust will only accept
securities delivered in proper form and will not accept securities subject to
legal restrictions on transfer. The acceptance of securities by the Trust must
comply with the applicable laws of certain states.
CAPITALIZATION AND VOTING RIGHTS
The capitalization of the Trust consists of an unlimited number of
shares of beneficial interest (no par value per share). When issued, shares of
each class of the Fund are fully paid, non-assessable, redeemable and fully
transferable. No class of shares of the Fund has preemptive rights or
subscription rights.
The Amended and Restated Declaration of Trust permits the Trustees to
create separate series or portfolios and to divide any series or portfolio into
one or more classes. The Trustees have authorized nineteen series, each of which
represents a fund. The Trustees have further authorized the issuance of Class A,
Class B, and Class C shares for Ivy International Fund and Ivy Money Market Fund
and Class A, Class B, Class C and Advisor Class shares for the Fund, Ivy Asia
Pacific Fund, Ivy Bond Fund, Ivy China Region Fund, Ivy Developing Nations Fund,
Ivy International Small Companies Fund, Ivy Global Fund, Ivy Global Natural
Resources Fund, Ivy Global Science & Technology Fund, Ivy Growth Fund, Ivy
Growth with Income Fund, Ivy International Fund II, Ivy International Strategic
Bond Fund, Ivy Pan-Europe Fund, Ivy South America Fund, Ivy US Blue Chip Fund
and Ivy US Emerging Growth Fund, as well as Class I shares for the Fund, Ivy
Bond Fund, Ivy International Small Companies Fund, Ivy Global Science &
Technology Fund, Ivy International Fund II, Ivy International Fund, Ivy
International Strategic Bond Fund and Ivy US Blue Chip Fund.
Shareholders have the right to vote for the election of Trustees of the
Trust and on any and all matters on which they may be entitled to vote by law or
by the provisions of the Trust's By-Laws. The Trust is not required to hold a
regular annual meeting of shareholders, and it does not intend to do so. Shares
of each class of the Fund entitle their holders to one vote per share (with
proportionate voting for fractional shares). Shareholders of the Fund are
entitled to vote alone on matters that only affect the Fund. All classes of
shares of the Fund will vote together, except with respect to the distribution
plan applicable to the Fund's Class A, Class B or Class C shares or when a class
vote is required by the 1940 Act. On matters relating to all funds of the Trust,
but affecting the funds differently, separate votes by the shareholders of each
fund are required. Approval of an investment advisory agreement and a change in
fundamental policies would be regarded as matters requiring separate voting by
the shareholders of each fund of the Trust. If the Trustees determine that a
matter does not affect the interests of the Fund, then the shareholders of the
Fund will not be entitled to vote on that matter. Matters that affect the Trust
in general, such as ratification of the selection of independent public
accountants, will be voted upon collectively by the shareholders of all funds of
the Trust.
As used in this SAI and the Prospectus, the phrase "majority vote of
the outstanding shares" of the Fund means the vote of the lesser of: (1) 67% of
the shares of the Fund (or of the Trust) present at a meeting if the holders of
more than 50% of the outstanding shares are present in person or by proxy; or
(2) more than 50% of the outstanding shares of the Fund (or of the Trust).
With respect to the submission to shareholder vote of a matter
requiring separate voting by the Fund, the matter shall have been effectively
acted upon with respect to the Fund if a majority of the outstanding voting
securities of the Fund votes for the approval of the matter, notwithstanding
that: (1) the matter has not been approved by a majority of the outstanding
voting securities of any other fund of the Trust; or (2) the matter has not been
approved by a majority of the outstanding voting securities of the Trust.
The Amended and Restated Declaration of Trust provides that the holders
of not less than two-thirds of the outstanding shares of the Trust may remove a
person serving as trustee either by declaration in writing or at a meeting
called for such purpose. The Trustees are required to call a meeting for the
purpose of considering the removal of a person serving as Trustee if requested
in writing to do so by the holders of not less than 10% of the outstanding
shares of the Trust. Shareholders will be assisted in communicating with other
shareholders in connection with the removal of a Trustee as if Section 26(c) of
the Act were applicable.
The Trust's shares do not have cumulative voting rights and accordingly
the holders of more than 50% of the outstanding shares could elect the entire
Board, in which case the holders of the remaining shares would not be able to
elect any Trustees.
Under Massachusetts law, the Trust's shareholders could, under certain
circumstances, be held personally liable for the obligations of the Trust.
However, the Amended and Restated Declaration of Trust disclaims liability of
the shareholders, Trustees or officers of the Trust for acts or obligations of
the Trust, which are binding only on the assets and property of the Trust, and
requires that notice of the disclaimer be given in each contract or obligation
entered into or executed by the Trust or its Trustees. The Amended and Restated
Declaration of Trust provides for indemnification out of Fund property for all
loss and expense of any shareholder of the Fund held personally liable for the
obligations of the Fund. The risk of a shareholder of the Trust incurring
financial loss on account of shareholder liability is limited to circumstances
in which the Trust itself would be unable to meet its obligations and, thus,
should be considered remote. No series of the Trust is liable for the
obligations of any other series of the Trust.
SPECIAL RIGHTS AND PRIVILEGES
The Trust offers, and (except as noted below) bears the cost of
providing, to investors the following rights and privileges. The Trust reserves
the right to amend or terminate any one or more of these rights and privileges.
Notice of amendments to or terminations of rights and privileges will be
provided to shareholders in accordance with applicable law.
Certain of the rights and privileges described below refer to funds,
other than the Fund, whose shares are also distributed by IMDI. These funds are:
Ivy Asia Pacific Fund, Ivy Bond Fund, Ivy China Region Fund, Ivy Developing
Nations Fund, Ivy International Small Companies Fund, Ivy Global Fund, Ivy
Global Natural Resources Fund, Ivy Global Science & Technology Fund, Ivy Growth
Fund, Ivy Growth with Income Fund, Ivy International Fund II, Ivy International
Fund, Ivy International Strategic Bond Fund, Ivy Money Market Fund, Ivy
Pan-Europe Fund, Ivy South America Fund, Ivy US Blue Chip Fund and Ivy US
Emerging Growth Fund, (the other eighteen series of the Trust). (Effective April
18, 1997, Ivy International Fund suspended the offer of its shares to new
investors). Shareholders should obtain a current prospectus before exercising
any right or privilege that may relate to these funds.
AUTOMATIC INVESTMENT METHOD
The Automatic Investment Method, which enables a Fund shareholder to
have specified amounts automatically drawn each month from his or her bank for
investment in Fund shares, is available for all classes of shares, except Class
I. The minimum initial and subsequent investment under this method is $50 per
month ($250 for Advisor Class shares), (except in the case of a tax qualified
retirement plan for which the minimum initial and subsequent investment is $25
per month). A shareholder may terminate the Automatic Investment Method at any
time upon delivery to IMSC of telephone instructions or written notice. See
"Automatic Investment Method" in the Prospectus. To begin the plan, complete
Sections 6A and 7B of the Account Application.
EXCHANGE OF SHARES
As described in the Prospectus, shareholders of the Fund have an
exchange privilege with other Ivy funds (except Ivy International Fund unless
they have an existing Ivy International Fund account). Before effecting an
exchange, shareholders of the Fund should obtain and read the currently
effective prospectus for the Ivy fund into which the exchange is to be made.
INITIAL SALES CHARGE SHARES. Class A shareholders may exchange their
Class A shares ("outstanding Class A shares") for Class A shares of another Ivy
fund ("new Class A Shares") on the basis of the relative net asset value per
Class A share, plus an amount equal to the difference, if any, between the sales
charge previously paid on the outstanding Class A shares and the sales charge
payable at the time of the exchange on the new Class A shares. (The additional
sales charge will be waived for Class A shares that have been invested for a
period of 12 months or longer.) Class A shareholders may also exchange their
shares for shares of Ivy Money Market Fund (no initial sales charge will be
assessed at the time of such an exchange).
CONTINGENT DEFERRED SALES CHARGE SHARES CLASS A: Class A shareholders
may exchange their Class A shares that are subject to a contingent deferred
sales charge ("CDSC"), as described in the Prospectus ("outstanding Class A
shares"), for Class A shares of another Ivy fund ("new Class A shares") on the
basis of the relative net asset value per Class A share, without the payment of
any CDSC that would otherwise be due upon the redemption of the outstanding
Class A shares. Class A shareholders of the Fund exercising the exchange
privilege will continue to be subject to that Fund's CDSC period following an
exchange if such period is longer than the CDSC period, if any, applicable to
the new Class A shares.
For purposes of computing the CDSC that may be payable upon the
redemption of the new Class A shares, the holding period of the outstanding
Class A shares is "tacked" onto the holding period of the new Class A shares.
CLASS B: Class B shareholders may exchange their Class B shares
("outstanding Class B shares") for Class B shares of another Ivy fund ("new
Class B shares") on the basis of the relative net asset value per Class B share,
without the payment of any CDSC that would otherwise be due upon the redemption
of the outstanding Class B shares. Class B shareholders of the Fund exercising
the exchange privilege will continue to be subject to that Fund's CDSC schedule
(or period) following an exchange if such schedule is higher (or such period is
longer) than the CDSC schedule (or period) applicable to the new Class B shares.
Class B shares of the Fund acquired through an exchange of Class B
shares of another Ivy fund will be subject to that Fund's CDSC schedule (or
period) if such schedule is higher (or such period is longer) than the CDSC
schedule (or period) applicable to the Ivy fund from which the exchange was
made.
For purposes of both the conversion feature and computing the CDSC that
may be payable upon the redemption of the new Class B shares (prior to
conversion), the holding period of the outstanding Class B shares is "tacked"
onto the holding period of the new Class B shares.
The following CDSC table applies to Class B shares of Ivy Asia Pacific
Fund, Ivy Bond Fund, Ivy China Region Fund, Ivy Developing Nations Fund, Ivy
International Small Companies Fund, Ivy Global Fund, Ivy Global Natural
Resources Fund, Ivy Global Science & Technology Fund, Ivy Growth Fund, Ivy
Growth with Income Fund, Ivy International Fund II, Ivy International Fund, Ivy
International Small Companies Fund, Ivy International Strategic Bond Fund, Ivy
Pan-Europe Fund, Ivy South America Fund, Ivy US Blue Chip Fund and Ivy US
Emerging Growth Fund:
CONTINGENT DEFERRED SALES CHARGE AS A PERCENTAGE OF
DOLLAR AMOUNT SUBJECT TO CHARGE
YEAR SINCE PURCHASE
First 5%
Second 4%
Third 3%
Fourth 3%
Fifth 2%
Sixth 1%
Seventh and thereafter 0%
CLASS C: Class C shareholders may exchange their Class C shares
("outstanding Class C shares") for Class C shares of another Ivy fund ("new
Class C shares") on the basis of the relative net asset value per Class C share,
without the payment of any CDSC that would otherwise be due upon redemption.
(Class C shares are subject to a CDSC of 1.00% if redeemed within one year of
the date of purchase.)
CLASS I AND ADVISOR CLASS: Subject to the restrictions set forth in the
following paragraph, Class I and Advisor Class shareholders may exchange their
outstanding Class I (or Advisor Class) shares for Class I (or Advisor Class)
shares of another Ivy fund on the basis of the relative net asset value per
share.
ALL CLASSES: The minimum value of shares which may be exchanged into an
Ivy fund in which shares are not already held is $1,000 ($5,000,000 in the case
of Class I shares and $10,000 in the case of Advisor Class shares). No exchange
out of the Fund (other than by a complete exchange of all Fund shares) may be
made if it would reduce the shareholder's interest in the Fund to less than
$1,000 ($250,000 in the case of Class I shares and $10,000 in the case of
Advisor Class shares).
Each exchange will be made on the basis of the relative net asset value
per share of the Ivy funds involved in the exchange next computed following
receipt by IMSC of telephone instructions by IMSC or a properly executed
request. Exchanges, whether written or telephonic, must be received by IMSC by
the close of regular trading on the Exchange (normally 4:00 p.m., eastern time)
to receive the price computed on the day of receipt. Exchange requests received
after that time will receive the price next determined following receipt of the
request. The exchange privilege may be modified or terminated at any time, upon
at least 60 days' notice to the extent required by applicable law. See
"Redemptions."
An exchange of shares between any of the Ivy funds will result in a
taxable gain or loss. Generally, this will be a capital gain or loss (long-term
or short-term, depending on the holding period of the shares) in the amount of
the difference between the net asset value of the shares surrendered and the
shareholder's tax basis for those shares. However, in certain circumstances,
shareholders will be ineligible to take sales charges into account in computing
taxable gain or loss on an exchange. See "Taxation."
With limited exceptions, gain realized by a tax-deferred retirement
plan will not be taxable to the plan and will not be taxed to the participant
until distribution. Each investor should consult his or her tax adviser
regarding the tax consequences of an exchange transaction.
LETTER OF INTENT
Reduced sales charges apply to initial investments in Class A shares of
the Fund made pursuant to a non-binding Letter of Intent. A Letter of Intent may
be submitted by an individual, his or her spouse and children under the age of
21, or a trustee or other fiduciary of a single trust estate or single fiduciary
account. See the Account Application in the Prospectus. Any investor may submit
a Letter of Intent stating that he or she will invest, over a period of 13
months, at least $50,000 in Class A shares of the Fund. A Letter of Intent may
be submitted at the time of an initial purchase of Class A shares of the Fund or
within 90 days of the initial purchase, in which case the Letter of Intent will
be back dated. A shareholder may include, as an accumulation credit, the value
(at the applicable offering price) of all Class A shares of Ivy Asia Pacific
Fund, Ivy Bond Fund, Ivy China Region Fund, Ivy Developing Nations Fund, Ivy
International Small Companies Fund, Ivy Global Fund, Ivy Global Natural
Resources Fund, Ivy Global Science & Technology Fund, Ivy Growth Fund, Ivy
Growth with Income Fund, Ivy International Fund II, Ivy International Fund, Ivy
International Small Companies Fund, Ivy International Strategic Bond Fund, Ivy
Pan-Europe Fund, Ivy South America Fund, Ivy US Blue Chip Fund and Ivy US
Emerging Growth Fund (and shares that have been exchanged into Ivy Money Market
Fund from any of the other funds in the Ivy funds) held of record by him or her
as of the date of his or her Letter of Intent. During the term of the Letter of
Intent, the Transfer Agent will hold Class A shares representing 5% of the
indicated amount (less any accumulation credit value) in escrow. The escrowed
Class A shares will be released when the full indicated amount has been
purchased. If the full indicated amount is not purchased during the term of the
Letter of Intent, the investor is required to pay IMDI an amount equal to the
difference between the dollar amount of sales charge that he or she has paid and
that which he or she would have paid on his or her aggregate purchases if the
total of such purchases had been made at a single time. Such payment will be
made by an automatic liquidation of Class A shares in the escrow account. A
Letter of Intent does not obligate the investor to buy or the Trust to sell the
indicated amount of Class A shares, and the investor should read carefully all
the provisions of such letter before signing.
RETIREMENT PLANS
Shares may be purchased in connection with several types of
tax-deferred retirement plans. Shares of more than one fund distributed by IMDI
may be purchased in a single application establishing a single account under the
plan, and shares held in such an account may be exchanged among the Ivy funds in
accordance with the terms of the applicable plan and the exchange privilege
available to all shareholders. Initial and subsequent purchase payments in
connection with tax-deferred retirement plans must be at least $25 per
participant.
The following fees will be charged to individual shareholder accounts
as described in the retirement prototype plan document:
Retirement Plan New Account Fee no fee
Retirement Plan Annual Maintenance Fee $10.00 per fund account
For shareholders whose retirement accounts are diversified across
several Ivy funds, the annual maintenance fee will be limited to not more than
$20.
The following discussion describes the tax treatment of certain
tax-deferred retirement plans under current Federal income tax law. State income
tax consequences may vary. An individual considering the establishment of a
retirement plan should consult with an attorney and/or an accountant with
respect to the terms and tax aspects of the plan.
INDIVIDUAL RETIREMENT ACCOUNTS: Shares of the Fund may be used as a
funding medium for an Individual Retirement Account ("IRA"). Eligible
individuals may establish an IRA by adopting a model custodial account available
from IMSC, who may impose a charge for establishing the account. Individuals
should consult their tax advisers before investing IRA assets in an Ivy fund if
that fund primarily distributes exempt-interest dividends.
An individual who has not reached age 70-1/2 and who receives
compensation or earned income is eligible to contribute to an IRA, whether or
not he or she is an active participant in a retirement plan. An individual who
receives a distribution from another IRA, a qualified retirement plan, a
qualified annuity plan or a tax-sheltered annuity or custodial account ("403(b)
plan") that qualifies for "rollover" treatment is also eligible to establish an
IRA by rolling over the distribution either directly or within 60 days after its
receipt. Tax advice should be obtained in connection with planning a rollover
contribution to an IRA.
In general, an eligible individual may contribute up to the lesser of
$2,000 or 100% of his or her compensation or earned income to an IRA each year.
If a husband and wife are both employed, and both are under age 70-1/2, each may
set up his or her own IRA within these limits. If both earn at least $2,000 per
year, the maximum potential contribution is $4,000 per year for both. For years
after 1996, the result is similar even if one spouse has no earned income; if
the joint earned income of the spouses is at least $4,000, a contribution of up
to $2,000 may be made to each spouse's IRA. Rollover contributions are not
subject to these limits.
An individual may deduct his or her annual contributions to an IRA in
computing his or her Federal income tax within the limits described above,
provided he or she (or his or her spouse, if they file a joint Federal income
tax return) is not an active participant in a qualified retirement plan (such as
a qualified corporate, sole proprietorship, or partnership pension, profit
sharing, 401(k) or stock bonus plan), qualified annuity plan, 403(b) plan,
simplified employee pension, or governmental plan. If he or she (or his or her
spouse) is an active participant, whether the individual's contribution to an
IRA is fully deductible, partially deductible or not deductible depends on (i)
adjusted gross income and (ii) whether it is the individual or the individual's
spouse who is an active participant, in the case of married individuals filing
jointly. Contributions may be made up to the maximum permissible amount even if
they are not deductible. Rollover contributions are not includable in income for
Federal income tax purposes and therefore are not deductible from it.
Generally, earnings on an IRA are not subject to current Federal income
tax until distributed. Distributions attributable to tax-deductible
contributions and to IRA earnings are taxed as ordinary income. Distributions of
non-deductible contributions are not subject to Federal income tax. In general,
distributions from an IRA to an individual before he or she reaches age 59-1/2
are subject to a nondeductible penalty tax equal to 10% of the taxable amount of
the distribution. The 10% penalty tax does not apply to amounts withdrawn from
an IRA after the individual reaches age 59-1/2, becomes disabled or dies, or if
withdrawn in the form of substantially equal payments over the life or life
expectancy of the individual and his or her designated beneficiary, if any, or
rolled over into another IRA, amounts withdrawn and used to pay for deductible
medical expenses and amounts withdrawn by certain unemployed individuals not in
excess of amounts paid for certain health insurance premiums, amounts used to
pay certain qualified higher education expenses, and amounts used within 120
days of the date the distribution is received to pay for certain first-time
homebuyer expenses. Distributions must begin to be withdrawn not later than
April 1 of the calendar year following the calendar year in which the individual
reaches age 70-1/2. Failure to take certain minimum required distributions will
result in the imposition of a 50% non-deductible penalty tax.
ROTH IRAS: Shares of the Fund also may be used as a funding medium for
a Roth Individual Retirement Account ("Roth IRA"). A Roth IRA is similar in
numerous ways to the regular (traditional) IRA, described above.
Some of the primary differences are as follows.
A single individual earning below $95,000 can contribute up to $2,000
per year to a Roth IRA. The maximum contribution amount diminishes and gradually
falls to zero for single filers with adjusted gross incomes ranging from $95,000
to $110,000. Married couples earning less than $150,000 combined, and filing
jointly, can contribute a full $4,000 per year ($2,000 per IRA). The maximum
contribution amount for married couples filing jointly phases out from $150,000
to $160,000. An individual whose adjusted gross income exceeds the maximum
phase-out amount cannot contribute to a Roth IRA.
An eligible individual can contribute money to a traditional IRA and a
Roth IRA as long as the total contribution to all IRAs does not exceed $2,000.
Contributions to a Roth IRA are not deductible. Contributions to a Roth IRA may
be made even after the individual for whom the account is maintained has
attained age 70 1/2.
No distributions are required to be taken prior to the death of the
original account holder. If a Roth IRA has been established for a minimum of
five years, distributions can be taken tax-free after reaching age 59 1/2, for a
first-time home purchase ($10,000 maximum, one time use), or upon death or
disability. All other distributions from a Roth IRA (other than the amount of
nondeductible contributions) are taxable and subject to a 10% tax penalty unless
an exception applies. Exceptions to the 10% penalty include: reaching age 59
1/2, death, disability, deductible medical expenses, the purchase of health
insurance for certain unemployed individual and qualified higher education
expenses.
An individual with an income of less than $100,000 (who is not married
filing separately) can roll his or her existing IRA into a Roth IRA. However,
the individual must pay taxes on the taxable amount in his or her traditional
IRA. After 1998, all taxes on such a rollover will have to be paid in the tax
year in which the rollover is made.
QUALIFIED PLANS: For those self-employed individuals who wish to
purchase shares of one or more Ivy funds through a qualified retirement plan, a
Custodial Agreement and a Retirement Plan are available from IMSC. The
Retirement Plan may be adopted as a profit sharing plan or a money purchase
pension plan. A profit sharing plan permits an annual contribution to be made in
an amount determined each year by the self-employed individual within certain
limits prescribed by law. A money purchase pension plan requires annual
contributions at the level specified in the Custodial Agreement. There is no
set-up fee for qualified plans and the annual maintenance fee is $20.00 per
account.
In general, if a self-employed individual has any common law employees,
employees who have met certain minimum age and service requirements must be
covered by the Retirement Plan. A self-employed individual generally must
contribute the same percentage of income for common law employees as for himself
or herself.
A self-employed individual may contribute up to the lesser of $30,000
or 25% of compensation or earned income to a money purchase pension plan or to a
combination profit sharing and money purchase pension plan arrangement each year
on behalf of each participant. To be deductible, total contributions to a profit
sharing plan generally may not exceed 15% of the total compensation or earned
income of all participants in the plan, and total contributions to a combination
money purchase-profit sharing arrangement generally may not exceed 25% of the
total compensation or earned income of all participants. The amount of
compensation or earned income of any one participant that may be included in
computing the deduction is limited (generally to $150,000 for benefits accruing
in plan years beginning after 1993, with annual inflation adjustments). A
self-employed individual's contributions to a retirement plan on his or her own
behalf must be deducted in computing his or her earned income.
Corporate employers may also adopt the Custodial Agreement and
Retirement Plan for the benefit of their eligible employees. Similar
contribution and deduction rules apply to corporate employers.
Distributions from the Retirement Plan generally are made after a
participant's separation from service. A 10% penalty tax generally applies to
distributions to an individual before he or she reaches age 59-1/2, unless the
individual (1) has reached age 55 and separated from service; (2) dies; (3)
becomes disabled; (4) uses the withdrawal to pay tax-deductible medical
expenses; (5) takes the withdrawal as part of a series of substantially equal
payments over his or her life expectancy or the joint life expectancy of himself
or herself and a designated beneficiary; or (6) rolls over the distribution.
The Transfer Agent will arrange for Investors Bank & Trust to furnish
custodial services to the employer and any participating employees.
DEFERRED COMPENSATION FOR PUBLIC SCHOOLS AND CHARITABLE ORGANIZATIONS
("403(B)(7) ACCOUNT"): Section 403(b)(7) of the Internal Revenue Code of 1986,
as amended (the "Code") permits public school systems and certain charitable
organizations to use mutual fund shares held in a custodial account to fund
deferred compensation arrangements with their employees. A custodial account
agreement is available for those employers whose employees wish to purchase
shares of the Trust in conjunction with such an arrangement. The special
application for a 403(b)(7) Account is available from IMSC.
Distributions from the 403(b)(7) Account may be made only following
death, disability, separation from service, attainment of age 59-1/2, or
incurring a financial hardship. A 10% penalty tax generally applies to
distributions to an individual before he or she reaches age 59-1/2, unless the
individual (1) has reached age 55 and separated from service; (2) dies or
becomes disabled; (3) uses the withdrawal to pay tax-deductible medical
expenses; (4) takes the withdrawal as part of a series of substantially equal
payments over his or her life expectancy or the joint life expectancy of himself
or herself and a designated beneficiary; or (5) rolls over the distribution.
There is no set-up fee for 403(b)(7) Accounts and the annual maintenance fee is
$20.00 per account.
SIMPLIFIED EMPLOYEE PENSION ("SEP") IRAS: An employer may deduct
contributions to a SEP up to the lesser of $30,000 or 15% of compensation. SEP
accounts generally are subject to all rules applicable to IRA accounts, except
the deduction limits, and are subject to certain employee participation
requirements. No new salary reduction SEPs ("SARSEPs") may be established after
1996, but existing SARSEPs may continue to be maintained, and non-salary
reduction SEPs may continue to be established as well as maintained after 1996.
SIMPLE PLANS: An employer may establish a SIMPLE IRA or a SIMPLE 401(k)
for years after 1996. An employee can make pre-tax salary reduction
contributions to a SIMPLE Plan, up to $6,000 a year (as indexed). Subject to
certain limits, the employer will either match a portion of employee
contributions, or will make a contribution equal to 2% of each employee's
compensation without regard to the amount the employee contributes. An employer
cannot maintain a SIMPLE Plan for its employees if the employer maintains or
maintained any other qualified retirement plan with respect to which any
contributions or benefits have been credited.
REINVESTMENT PRIVILEGE
Shareholders who have redeemed Class A shares of the Fund may reinvest
all or a part of the proceeds of the redemption back into Class A shares of the
Fund at net asset value (without a sales charge) within 60 days from the date of
redemption. This privilege may be exercised only once. The reinvestment will be
made at the net asset value next determined after receipt by IMSC of the
reinvestment order accompanied by the funds to be reinvested. No compensation
will be paid to any sales personnel or dealer in connection with the
transaction.
Any redemption is a taxable event. A loss realized on a redemption
generally may be disallowed for tax purposes if the reinvestment privilege is
exercised within 30 days after the redemption. In certain circumstances,
shareholders will be ineligible to take sales charges into account in
computing taxable gain or loss on a redemption if the reinvestment privilege
is exercised. See "Taxation."
RIGHTS OF ACCUMULATION
A scale of reduced sales charges applies to any investment of $50,000
or more in Class A shares of the Fund. See "Initial Sales Charge Alternative --
Class A Shares" in the Prospectus. The reduced sales charge is applicable to
investments made at one time by an individual, his or her spouse and children
under the age of 21, or a trustee or other fiduciary of a single trust estate or
single fiduciary account (including a pension, profit sharing or other employee
benefit trust created pursuant to a plan qualified under Section 401 of the
Code). Rights of Accumulation is also applicable to current purchases of all of
the funds of Ivy Fund (except Ivy Money Market Fund) by any of the persons
enumerated above, where the aggregate quantity of Class A shares of such funds
(and shares that have been exchanged into Ivy Money Market Fund from any of the
other funds in the Ivy funds) and of any other investment company distributed by
IMDI, previously purchased or acquired and currently owned, determined at the
higher of current offering price or amount invested, plus the Class A shares
being purchased, amounts to $50,000 or more for all funds other than Ivy Bond
Fund; or $100,000 or more for Ivy Bond Fund.
At the time an investment takes place, IMSC must be notified by the
investor or his or her dealer that the investment qualifies for the reduced
sales charge on the basis of previous investments. The reduced sales charge is
subject to confirmation of the investor's holdings through a check of the
particular fund's records.
SYSTEMATIC WITHDRAWAL PLAN
A shareholder (except shareholders with accounts in Class I) may
establish a Systematic Withdrawal Plan (a "Withdrawal Plan"), by telephone
instructions or by delivery to IMSC of a written election to have his or her
shares withdrawn periodically (minimum distribution amount $50 for Advisor Class
shares), accompanied by a surrender to IMSC of all share certificates then
outstanding in such shareholder's name, properly endorsed by the shareholder. To
be eligible to elect a Withdrawal Plan, a shareholder must have at least $5,000
in his or her account (except Advisor Class shareholders, who must continually
maintain an account balance of at least $10,000). A Withdrawal Plan may not be
established if the investor is currently participating in the Automatic
Investment Method. A Withdrawal Plan may involve the depletion of a
shareholder's principal, depending on the amount withdrawn.
A redemption under a Withdrawal Plan is a taxable event. Shareholders
contemplating participating in a Withdrawal Plan should consult their tax
advisers.
Additional investments made by investors participating in a Withdrawal
Plan must equal at least $1,000 each ($250 for Advisor Class shareholders) while
the Withdrawal Plan is in effect. Making additional purchases while a Withdrawal
Plan is in effect may be disadvantageous to the investor because of applicable
initial sales charges or CDSCs.
An investor may terminate his or her participation in the Withdrawal
Plan at any time by delivering written notice to IMSC. If all shares held by the
investor are liquidated at any time, participation in the Withdrawal Plan will
terminate automatically. The Trust or IMSC may terminate the Withdrawal Plan
option at any time after reasonable notice to shareholders.
GROUP SYSTEMATIC INVESTMENT PROGRAM
Shares of the Fund may be purchased in connection with investment
programs established by employee or other groups using systematic payroll
deductions or other systematic payment arrangements. The Trust does not itself
organize, offer or administer any such programs. However, it may, depending upon
the size of the program, waive the minimum initial and additional investment
requirements for purchases by individuals in conjunction with programs organized
and offered by others. Unless shares of the Fund are purchased in conjunction
with IRAs (see "How to Buy Shares" in the Prospectus), such group systematic
investment programs are not entitled to special tax benefits under the Code. The
Trust reserves the right to refuse purchases at any time or suspend the offering
of shares in connection with group systematic investment programs, and to
restrict the offering of shareholder privileges, such as check writing,
simplified redemptions and other optional privileges, as described in the
Prospectus, to shareholders using group systematic investment programs.
With respect to each shareholder account established on or after
September 15, 1972 under a group systematic investment program, the Trust and
IMI each currently charge a maintenance fee of $3.00 (or portion thereof) that
for each twelve-month period (or portion thereof) that the account is
maintained. The Trust may collect such fee (and any fees due to IMI) through a
deduction from distributions to the shareholders involved or by causing on the
date the fee is assessed a redemption in each such shareholder account
sufficient to pay such fee. The Trust reserves the right to change these fees
from time to time without advance notice.
Class A shares of the Fund are made available to Merrill Lynch Daily K
Plan (the "Plan") participants at NAV without an initial sales charge if:
(i) the Plan is recordkept on a daily valuation basis by
Merrill Lynch and, on the date the Plan Sponsor signs
the Merrill Lynch Recordkeeping Service Agreement,
the Plan has $3 million or more in assets invested in
broker/dealer funds not advised or managed by Merrill
Lynch Asset Management, L.P. ("MLAM") that are made
available pursuant to a Service Agreement between
Merrill Lynch and the fund's principal underwriter or
distributor and in funds advised or managed by MLAM
(collectively, the "Applicable Investments");
(ii) the Plan is recordkept on a daily valuation basis by
an independent recordkeeper whose services are
provided through a contract or alliance arrangement
with Merrill Lynch, and on the date the Plan Sponsor
signs the Merrill Lynch Recordkeeping Service
Agreement, the Plan has $3 million or more in assets,
excluding money market funds, invested in Applicable
Investments; or
(iii) the Plan has 500 or more eligible employees, as
determined by Merrill Lynch plan conversion manager,
on the date the Plan Sponsor signs the Merrill Lynch
Recordkeeping Service Agreement.
Alternatively, Class B shares of the Fund are made available to Plan
participants at NAV without a CDSC if the Plan conforms with the requirements
for eligibility set forth in (i) through (iii) above but either does not meet
the $3 million asset threshold or does not have 500 or more eligible employees.
Plans recordkept on a daily basis by Merrill Lynch or an independent
recordkeeper under a contract with Merrill Lynch that are currently investing in
Class B shares of the Fund convert to Class A shares once the Plan has reached
$5 million invested in Applicable Investments, or 10 years after the date of the
initial purchase by a participant under the Plan--the Plan will receive a Plan
level share conversion.
REDEMPTIONS
Shares of the Fund are redeemed at their net asset value next
determined after a proper redemption request has been received by IMSC, less any
applicable CDSC.
Unless a shareholder requests that the proceeds of any redemption be
wired to his or her bank account, payment for shares tendered for redemption is
made by check within seven days after tender in proper form, except that the
Trust reserves the right to suspend the right of redemption or to postpone the
date of payment upon redemption beyond seven days, (i) for any period during
which the Exchange is closed (other than customary weekend and holiday closings)
or during which trading on the Exchange is restricted, (ii) for any period
during which an emergency exists as determined by the SEC as a result of which
disposal of securities owned by the Fund is not reasonably practicable or it is
not reasonably practicable for the Fund to fairly determine the value of its net
assets, or (iii) for such other periods as the SEC may by order permit for the
protection of shareholders of the Fund.
Under unusual circumstances, when the Board deems it in the best
interest of the Fund's shareholders, the Fund may make payment for shares
repurchased or redeemed in whole or in part in securities of the Fund taken at
current values. If any such redemption in kind is to be made, the Fund may make
an election pursuant to Rule 18f-1 under the 1940 Act. This will require the
Fund to redeem with cash at a shareholder's election in any case where the
redemption involves less than $250,000 (or 1% of the Fund's net asset value at
the beginning of each 90-day period during which such redemptions are in effect,
if that amount is less than $250,000). Should payment be made in securities, the
redeeming shareholder may incur brokerage costs in converting such securities to
cash.
The Trust may redeem those accounts of shareholders who have maintained
an investment, including sales charges paid, of less than $1,000 ($10,000 for
Advisor Class shareholders) in the Fund for a period of more than 12 months. All
accounts below that minimum will be redeemed simultaneously when MIMI deems it
advisable. The $1,000 balance ($10,000 for Advisor Class shareholders) will be
determined by actual dollar amounts invested by the shareholder, unaffected by
market fluctuations. The Trust will notify any such shareholder by certified
mail of its intention to redeem such account, and the shareholder shall have 60
days from the date of such letter to invest such additional sums as shall raise
the value of such account above that minimum. Should the shareholder fail to
forward such sum within 60 days of the date of the Trust's letter of
notification, the Trust will redeem the shares held in such account and transmit
the redemption in value thereof to the shareholder. However, those shareholders
who are investing pursuant to the Automatic Investment Method will not be
redeemed automatically unless they have ceased making payments pursuant to the
plan for a period of at least six consecutive months, and these shareholders
will be given six-months' notice by the Trust before such redemption.
Shareholders in a qualified retirement, pension or profit sharing plan who wish
to avoid tax consequences must "rollover" any sum so redeemed into another
qualified plan within 60 days. The Trustees of the Trust may change the minimum
account size.
If a shareholder has given authorization for telephonic redemption
privilege, shares can be redeemed and proceeds sent by Federal wire to a single
previously designated bank account. Delivery of the proceeds of a wire
redemption request of $250,000 or more may be delayed by the Fund for up to
seven days if deemed appropriate under then-current market conditions. The Trust
reserves the right to change this minimum or to terminate the telephonic
redemption privilege without prior notice. The Trust cannot be responsible for
the efficiency of the Federal wire system of the shareholder's dealer of record
or bank. The shareholder is responsible for any charges by the shareholder's
bank.
The Fund employs reasonable procedures that require personal
identification prior to acting on redemption or exchange instructions
communicated by telephone to confirm that such instructions are genuine. In the
absence of such instructions, the Fund may be liable for any losses due to
unauthorized or fraudulent telephone instructions.
CONVERSION OF CLASS B SHARES
As described in the Prospectus, Class B shares of the Fund will
automatically convert to Class A shares of the Fund, based on the relative net
asset values per share of the two classes, no later than the month following the
eighth anniversary of the initial issuance of such Class B shares of the Fund
occurs. For the purpose of calculating the holding period required for
conversion of Class B shares, the date of initial issuance shall mean: (1) the
date on which such Class B shares were issued, or (2) for Class B shares
obtained through an exchange, or a series of exchanges, (subject to the exchange
privileges for Class B shares) the date on which the original Class B shares
were issued. For purposes of conversion of Class B shares, Class B shares
purchased through the reinvestment of dividends and capital gain distributions
paid in respect of Class B shares will be held in a separate sub-account. Each
time any Class B shares in the shareholder's regular account (other than those
shares in the sub-account) convert to Class A shares, a pro rata portion of the
Class B shares in the sub-account will also convert to Class A shares. The
portion will be determined by the ratio that the shareholder's Class B shares
converting to Class A shares bears to the shareholder's total Class B shares not
acquired through the reinvestment of dividends and capital gain distributions.
NET ASSET VALUE
The net asset value per share of the Fund is computed by dividing the
value of the Fund's aggregate net assets (i.e., its total assets less its
liabilities) by the number of the Fund's shares outstanding. For purposes of
determining the Fund's aggregate net assets, receivables are valued at their
realizable amounts. The Fund's liabilities, if not identifiable as belonging to
a particular class of the Fund, are allocated among the Fund's several classes
based on their relative net asset size. Liabilities attributable to a particular
class are charged to that class directly. The total liabilities for a class are
then deducted from the class's proportionate interest in the Fund's assets, and
the resulting amount is divided by the number of shares of the class outstanding
to produce its net asset value per share.
A security listed or traded on a recognized stock exchange or The
Nasdaq Stock Market, Inc. ("Nasdaq") is valued at the security's last sale price
on the exchange on which the security is principally traded. If no sale is
reported at that time, the average between the last bid and asked price (the
"Calculated Mean") is used. Unless otherwise noted herein, the value of a
foreign security is determined in its national currency as of the normal close
of trading on the foreign exchange on which it is traded or as of the close of
regular trading on the Exchange, if that is earlier, and that value is then
converted into its U.S. dollar equivalent at the foreign exchange rate in effect
at noon, eastern time, on the day the value of the foreign security is
determined. All other securities for which OTC market quotations are readily
available are valued at the Calculated Mean.
A debt security normally is valued on the basis of quotes obtained from
at least two dealers (or one dealer who has made a market in the security) or
pricing services that take into account appropriate valuation factors. Interest
is accrued daily. Money market instruments are valued at amortized cost, which
the Board believes approximates market value.
An exchange-traded option is valued at the last sale price on the
exchange on which it is principally traded, if available, and otherwise is
valued at the last sale price on the other exchange(s). If there were no sales
on any exchange, the option shall be valued at the Calculated Mean, if possible,
and otherwise at the last offering price, in the case of a written option, and
the last bid price, in the case of a purchased option. An OTC option is valued
at the last offering price, in the case of a written option, and the last bid
price, in the case of a purchased option. Exchange listed and widely-traded OTC
futures (and options thereon) are valued at the most recent settlement price.
Securities and other assets for which market prices are not readily
available are priced at their "fair value" as determined by IMI in accordance
with procedures approved by the Board. Trading in securities on many foreign
securities exchanges is normally completed before the close of regular trading
on the Exchange. Trading on foreign exchanges may not take place on all days on
which there is regular trading on the Exchange, or may take place on days on
which there is no regular trading on the Exchange (e.g., any of the national
business holidays identified below). If events materially affecting the value of
the Fund's portfolio securities occur between the time when a foreign exchange
closes and the time when the Fund's net asset value is calculated (see following
paragraph), such securities may be valued at fair value as determined by IMI and
approved by the Board.
Portfolio securities are valued (and net asset value per share is
determined) as of the close of regular trading on the Exchange (normally 4:00
p.m., eastern time) on each day the Exchange is open for trading. The Exchange
and the Trust's offices are expected to be closed, and net asset value will not
be calculated, on the following national business holidays: New Year's Day,
Martin Luther King, Jr. Day, Presidents' Day, Good Friday, Memorial Day,
Independence Day, Labor Day, Thanksgiving Day and Christmas Day. On those days
when either or both of the Fund's Custodian or the Exchange close early as a
result of a partial holiday or otherwise, the Trust reserves the right to
advance the time on that day by which purchase and redemption requests must be
received.
The number of shares you receive when you place a purchase order, and
the payment you receive after submitting a redemption request, is based on the
Fund's net asset value next determined after your instructions are received in
proper from by IMSC or by your registered securities dealer. Each purchase and
redemption order is subject to any applicable sales charge. Since the Fund
normally invests in securities that are listed on foreign exchanges that may
trade on weekends or other days when the Fund does not price its shares, the
Fund's net asset value may change on days when shareholders will not be able to
purchase or redeem the Fund's shares. The sale of the Fund's shares will be
suspended during any period when the determination of its net asset value is
suspended pursuant to rules or orders of the SEC and may be suspended by the
Board whenever in its judgment it is in the Fund's best interest to do so.
TAXATION
The following is a general discussion of certain tax rules thought to
be applicable with respect to the Fund. It is merely a summary and is not an
exhaustive discussion of all possible situations or of all potentially
applicable taxes. Accordingly, shareholders and prospective shareholders should
consult a competent tax adviser about the tax consequences to them of investing
in the Fund.
The Fund intends to be taxed as a regulated investment company under
Subchapter M of the Code. Accordingly, the Fund must, among other things, (a)
derive in each taxable year at least 90% of its gross income from dividends,
interest, payments with respect to certain securities loans, and gains from the
sale or other disposition of stock, securities or foreign currencies, or other
income derived with respect to its business of investing in such stock,
securities or currencies; and (b) diversify its holdings so that, at the end of
each fiscal quarter, (i) at least 50% of the market value of the Fund's assets
is represented by cash, U.S. Government securities, the securities of other
regulated investment companies and other securities, with such other securities
limited, in respect of any one issuer, to an amount not greater than 5% of the
value of the Fund's total assets and 10% of the outstanding voting securities of
such issuer, and (ii) not more than 25% of the value of its total assets is
invested in the securities of any one issuer (other than U.S. Government
securities and the securities of other regulated investment companies).
As a regulated investment company, the Fund generally will not be
subject to U.S. Federal income tax on its income and gains that it distributes
to shareholders, if at least 90% of its investment company taxable income (which
includes, among other items, dividends, interest and the excess of any
short-term capital gains over long-term capital losses) for the taxable year is
distributed. The Fund intends to distribute all such income.
Amounts not distributed on a timely basis in accordance with a calendar
year distribution requirement are subject to a nondeductible 4% excise tax at
the Fund level. To avoid the tax, the Fund must distribute during each calendar
year, (1) at least 98% of its ordinary income (not taking into account any
capital gains or losses) for the calendar year (2) at least 98% of its capital
gains in excess of its capital losses (adjusted for certain ordinary losses) for
a one-year period generally ending on October 31 of the calendar year, and (3)
all ordinary income and capital gains for previous years that were not
distributed during such years. To avoid application of the excise tax, the Fund
intends to make distributions in accordance with the calendar year distribution
requirements. A distribution will be treated as paid on December 31 of the
current calendar year if it is declared by the Fund in October, November or
December of the year with a record date in such a month and paid by the Fund
during January of the following year. Such distributions will be taxable to
shareholders in the calendar year the distributions are declared, rather than
the calendar year in which the distributions are received.
OPTIONS, FUTURES AND FOREIGN CURRENCY FORWARD CONTRACTS
The taxation of equity options and OTC options on debt securities is
governed by Code section 1234. Pursuant to Code section 1234, the premium
received by the Fund for selling a put or call option is not included in income
at the time of receipt. If the option expires, the premium is short-term capital
gain to the Fund. If the Fund enters into a closing transaction, the difference
between the amount paid to close out its position and the premium received is
short-term capital gain or loss. If a call option written by the Fund is
exercised, thereby requiring the Fund to sell the underlying security, the
premium will increase the amount realized upon the sale of such security and any
resulting gain or loss will be a capital gain or loss, and will be long-term or
short-term depending upon the holding period of the security. With respect to a
put or call option that is purchased by the Fund, if the option is sold, any
resulting gain or loss will be a capital gain or loss, and will be long-term or
short-term, depending upon the holding period of the option. If the option
expires, the resulting loss is a capital loss and is long-term or short-term,
depending upon the holding period of the option. If the option is exercised, the
cost of the option, in the case of a call option, is added to the basis of the
purchased security and, in the case of a put option, reduces the amount realized
on the underlying security in determining gain or loss.
Some of the options, futures and foreign currency forward contracts in
which the Fund may invest may be "section 1256 contracts." Gains (or losses) on
these contracts generally are considered to be 60% long-term and 40% short-term
capital gains or losses; however, as described below, foreign currency gains or
losses arising from certain section 1256 contracts are ordinary in character.
Also, section 1256 contracts held by the Fund at the end of each taxable year
(and on certain other dates prescribed in the Code) are "marked-to-market" with
the result that unrealized gains or losses are treated as though they were
realized.
The transactions in options, futures and forward contracts undertaken
by the Fund may result in "straddles" for Federal income tax purposes. The
straddle rules may affect the character of gains or losses realized by the Fund.
In addition, losses realized by the Fund on positions that are part of a
straddle may be deferred under the straddle rules, rather than being taken into
account in calculating the taxable income for the taxable year in which such
losses are realized. Because only a few regulations implementing the straddle
rules have been promulgated, the consequences of such transactions to the Fund
are not entirely clear. The straddle rules may increase the amount of short-term
capital gain realized by the Fund, which is taxed as ordinary income when
distributed to shareholders.
The Fund may make one or more of the elections available under the Code
which are applicable to straddles. If the Fund makes any of the elections, the
amount, character and timing of the recognition of gains or losses from the
affected straddle positions will be determined under rules that vary according
to the election(s) made. The rules applicable under certain of the elections may
operate to accelerate the recognition of gains or losses from the affected
straddle positions.
Because application of the straddle rules may affect the character of
gains or losses, defer losses and/or accelerate the recognition of gains or
losses from the affected straddle positions, the amount which must be
distributed to shareholders as ordinary income or long-term capital gain may be
increased or decreased substantially as compared to a fund that did not engage
in such transactions.
Notwithstanding any of the foregoing, the Fund may recognize gain (but
not loss) from a constructive sale of certain "appreciated financial positions"
if the Fund enters into a short sale, offsetting notional principal contract,
futures or forward contract transaction with respect to the appreciated position
or substantially identical property. Appreciated financial positions subject to
this constructive sale treatment are interests (including options, futures and
forward contracts and short sales) in stock, partnership interests, certain
actively traded trust instruments and certain debt instruments. Constructive
sale treatment of appreciated financial positions does not apply to certain
transactions closed in the 90-day period ending with the 30th day after the
close of the Fund's taxable year, if certain conditions are met.
CURRENCY FLUCTUATIONS -- "SECTION 988" GAINS OR LOSSES
Gains or losses attributable to fluctuations in exchange rates which
occur between the time the Fund accrues receivables or liabilities denominated
in a foreign currency and the time the Fund actually collects such receivables
or pays such liabilities generally are treated as ordinary income or ordinary
loss. Similarly, on disposition of some investments, including debt securities
denominated in a foreign currency and certain options, futures and forward
contracts, gains or losses attributable to fluctuations in the value of the
foreign currency between the date of acquisition of the security or contract and
the date of disposition also are treated as ordinary gain or loss. These gains
and losses, referred to under the Code as "section 988" gains or losses,
increase or decrease the amount of the Fund's investment company taxable income
available to be distributed to its shareholders as ordinary income.
INVESTMENT IN PASSIVE FOREIGN INVESTMENT COMPANIES
The Fund may invest in shares of foreign corporations which may be
classified under the Code as passive foreign investment companies ("PFICs"). In
general, a foreign corporation is classified as a PFIC if at least one-half of
its assets constitute investment-type assets, or 75% or more of its gross income
is investment-type income. If the Fund receives a so-called "excess
distribution" with respect to PFIC stock, the Fund itself may be subject to a
tax on a portion of the excess distribution, whether or not the corresponding
income is distributed by the Fund to shareholders. In general, under the PFIC
rules, an excess distribution is treated as having been realized ratably over
the period during which a Fund held the PFIC shares. The Fund itself will be
subject to tax on the portion, if any, of an excess distribution that is so
allocated to prior Fund taxable years and an interest factor will be added to
the tax, as if the tax had been payable in such prior taxable years. Certain
distributions from a PFIC as well as gain from the sale of PFIC shares are
treated as excess distributions. Excess distributions are characterized as
ordinary income even though, absent application of the PFIC rules, certain
excess distributions might have been classified as capital gain.
The Fund may be eligible to elect alternative tax treatment with
respect to PFIC shares. The Fund may elect to mark to market its PFIC shares,
resulting in the shares being treated as sold at fair market value on the last
business day of each taxable year. Any resulting gain would be reported as
ordinary income; any resulting loss and any loss from an actual disposition of
the shares would be reported as ordinary loss to the extent of any net gains
reported in prior years. Under another election that currently is available in
some circumstances, the Fund generally would be required to include in its gross
income its share of the earnings of a PFIC on a current basis, regardless of
whether distributions are received from the PFIC in a given year.
DEBT SECURITIES ACQUIRED AT A DISCOUNT
Some of the debt securities (with a fixed maturity date of more than
one year from the date of issuance) that may be acquired by the Fund may be
treated as debt securities that are issued originally at a discount. Generally,
the amount of the original issue discount ("OID") is treated as interest income
and is included in income over the term of the debt security, even though
payment of that amount is not received until a later time, usually when the debt
security matures.
Some of the debt securities (with a fixed maturity date of more than
one year from the date of issuance) that may be acquired by the Fund in the
secondary market may be treated as having market discount. Generally, gain
recognized on the disposition of, and any partial payment of principal on, a
debt security having market discount is treated as ordinary income to the extent
the gain, or principal payment, does not exceed the "accrued market discount" on
such debt security. In addition, the deduction of any interest expenses
attributable to debt securities having market discount may be deferred. Market
discount generally accrues in equal daily installments. The Fund may make one or
more of the elections applicable to debt securities having market discount,
which could affect the character and timing of recognition of income.
Some debt securities (with a fixed maturity date of one year or less
from the date of issuance) that may be acquired by the Fund may be treated as
having acquisition discount, or OID in the case of certain types of debt
securities. Generally, the Fund will be required to include the acquisition
discount, or OID, in income over the term of the debt security, even though
payment of that amount is not received until a later time, usually when the debt
security matures. The Fund may make one or more of the elections applicable to
debt securities having acquisition discount, or OID, which could affect the
character and timing of recognition of income.
The Fund generally will be required to distribute dividends to
shareholders representing discount on debt securities that is currently
includable in income, even though cash representing such income may not have
been received by the Fund. Cash to pay such dividends may be obtained from sales
proceeds of securities held by the Fund.
DISTRIBUTIONS
Distributions of investment company taxable income are taxable to a
U.S. shareholder as ordinary income, whether paid in cash or shares. Dividends
paid by the Fund to a corporate shareholder, to the extent such dividends are
attributable to dividends received from U.S. corporations by the Fund, may
qualify for the dividends received deduction. However, the revised alternative
minimum tax applicable to corporations may reduce the value of the dividends
received deduction. Distributions of net capital gains (the excess of net
long-term capital gains over net short-term capital losses), if any, designated
by the Fund as capital gain dividends, are taxable to shareholders as long-term
capital gains whether paid in cash or in shares, and regardless of how long the
shareholder has held the Fund's shares; such distributions are not eligible for
the dividends received deduction. Shareholders receiving distributions in the
form of newly issued shares will have a cost basis in each share received equal
to the net asset value of a share of the Fund on the distribution date. A
distribution of an amount in excess of the Fund's current and accumulated
earnings and profits will be treated by a shareholder as a return of capital
which is applied against and reduces the shareholder's basis in his or her
shares. To the extent that the amount of any such distribution exceeds the
shareholder's basis in his or her shares, the excess will be treated by the
shareholder as gain from a sale or exchange of the shares. Shareholders will be
notified annually as to the U.S. Federal tax status of distributions and
shareholders receiving distributions in the form of newly issued shares will
receive a report as to the net asset value of the shares received.
If the net asset value of shares is reduced below a shareholder's cost
as a result of a distribution by the Fund, such distribution generally will be
taxable even though it represents a return of invested capital. Shareholders
should be careful to consider the tax implications of buying shares just prior
to a distribution. The price of shares purchased at this time may reflect the
amount of the forthcoming distribution. Those purchasing just prior to a
distribution will receive a distribution which generally will be taxable to
them.
DISPOSITION OF SHARES
Upon a redemption, sale or exchange of his or her shares, a shareholder
will realize a taxable gain or loss depending upon his or her basis in the
shares. Such gain or loss will be treated as capital gain or loss if the shares
are capital assets in the shareholder's hands and, if so, will be long-term or
short-term, depending upon the shareholder's holding period for the shares. Any
loss realized on a redemption sale or exchange will be disallowed to the extent
the shares disposed of are replaced (including through reinvestment of
dividends) within a period of 61 days beginning 30 days before and ending 30
days after the shares are disposed of. In such a case, the basis of the shares
acquired will be adjusted to reflect the disallowed loss. Any loss realized by a
shareholder on the sale of Fund shares held by the shareholder for six-months or
less will be treated for tax purposes as a long-term capital loss to the extent
of any distributions of capital gain dividends received or treated as having
been received by the shareholder with respect to such shares.
In some cases, shareholders will not be permitted to take all or
portion of their sales loads into account for purposes of determining the amount
of gain or loss realized on the disposition of their shares. This prohibition
generally applies where (1) the shareholder incurs a sales load in acquiring the
shares of the Fund, (2) the shares are disposed of before the 91st day after the
date on which they were acquired, and (3) the shareholder subsequently acquires
shares in the Fund or another regulated investment company and the otherwise
applicable sales charge is reduced under a "reinvestment right" received upon
the initial purchase of Fund shares. The term "reinvestment right" means any
right to acquire shares of one or more regulated investment companies without
the payment of a sales load or with the payment of a reduced sales charge. Sales
charges affected by this rule are treated as if they were incurred with respect
to the shares acquired under the reinvestment right. This provision may be
applied to successive acquisitions of fund shares.
FOREIGN WITHHOLDING TAXES
Income received by the Fund from sources within a foreign country may
be subject to withholding and other taxes imposed by that country.
If more than 50% of the value of the Fund's total assets at the close
of its taxable year consists of securities of foreign corporations, the Fund
will be eligible and may elect to "pass-through" to the Fund's shareholders the
amount of foreign income and similar taxes paid by the Fund. Pursuant to this
election, a shareholder will be required to include in gross income (in addition
to taxable dividends actually received) his or her pro rata share of the foreign
income and similar taxes paid by the Fund, and will be entitled either to deduct
his or her pro rata share of foreign income and similar taxes in computing his
or her taxable income or to use it as a foreign tax credit against his or her
U.S. Federal income taxes, subject to limitations. No deduction for foreign
taxes may be claimed by a shareholder who does not itemize deductions. Foreign
taxes generally may not be deducted by a shareholder that is an individual in
computing the alternative minimum tax. Each shareholder will be notified within
60 days after the close of the Fund's taxable year whether the foreign taxes
paid by the Fund will "pass-through" for that year and, if so, such notification
will designate (1) the shareholder's portion of the foreign taxes paid to each
such country and (2) the portion of the dividend which represents income derived
from sources within each such country.
Generally, except in the case of certain electing individual taxpayers
who have limited creditable foreign taxes and no foreign source income other
than passive investment-type income, a credit for foreign taxes is subject to
the limitation that it may not exceed the shareholder's U.S. tax attributable to
his or her total foreign source taxable income. For this purpose, if the Fund
makes the election described in the preceding paragraph, the source of the
Fund's income flows through to its shareholders. With respect to the Fund, gains
from the sale of securities generally will be treated as derived from U.S.
sources and section 988 gains will be treated as ordinary income derived from
U.S. sources. The limitation on the foreign tax credit is applied separately to
foreign source passive income, including foreign source passive income received
from the Fund. In addition, the foreign tax credit may offset only 90% of the
revised alternative minimum tax imposed on corporations and individuals.
Furthermore, the foreign tax credit is eliminated with respect to foreign taxes
withheld on dividends if the dividend-paying shares or the shares of the Fund
are held by the Fund or the shareholder, as the case may be, for less than 16
days (46 days in the case of preferred shares) during the 30-day period (90-day
period for preferred shares) beginning 15 days (45 days for preferred shares)
before the shares become ex-dividend. In addition, if the Fund fails to satisfy
these holding period requirements, it cannot elect to pass through to
shareholders the ability to claim a deduction for related foreign taxes.
The foregoing is only a general description of the foreign tax credit
under current law. Because application of the credit depends on the particular
circumstances of each shareholder, shareholders are advised to consult their own
tax advisers.
BACKUP WITHHOLDING
The Fund will be required to report to the Internal Revenue Service
("IRS") all taxable distributions as well as gross proceeds from the redemption
of the Fund's shares, except in the case of certain exempt shareholders. All
such distributions and proceeds will be subject to withholding of Federal income
tax at a rate of 31% ("backup withholding") in the case of non-exempt
shareholders if (1) the shareholder fails to furnish the Fund with and to
certify the shareholder's correct taxpayer identification number or social
security number, (2) the IRS notifies the shareholder or the Fund that the
shareholder has failed to report properly certain interest and dividend income
to the IRS and to respond to notices to that effect, or (3) when required to do
so, the shareholder fails to certify that he or she is not subject to backup
withholding. If the withholding provisions are applicable, any such
distributions or proceeds, whether reinvested in additional shares or taken in
cash, will be reduced by the amounts required to be withheld.
Distributions may also be subject to additional state, local and
foreign taxes depending on each shareholder's particular situation. Non-U.S.
shareholders may be subject to U.S. tax rules that differ significantly from
those summarized above. This discussion does not purport to deal with all of the
tax consequences applicable to the Fund or shareholders. Shareholders are
advised to consult their own tax advisers with respect to the particular tax
consequences to them of an investment in the Fund.
PERFORMANCE INFORMATION
Performance information for the classes of shares of the Fund may be
compared, in reports and promotional literature, to: (i) the S&P 500 Index, the
Dow Jones Industrial Average ("DJIA"), or other unmanaged indices so that
investors may compare the Fund's results with those of a group of unmanaged
securities widely regarded by investors as representative of the securities
markets in general; (ii) other groups of mutual funds tracked by Lipper
Analytical Services, a widely used independent research firm that ranks mutual
funds by overall performance, investment objectives and assets, or tracked by
other services, companies, publications or other criteria; and (iii) the
Consumer Price Index (measure for inflation) to assess the real rate of return
from an investment in the Fund. Unmanaged indices may assume the reinvestment of
dividends but generally do not reflect deductions or administrative and
management costs and expenses. Performance rankings are based on historical
information and are not intended to indicate future performance.
YIELD. Quotations of yield for a specific class of shares of the Fund
will be based on all investment income attributable to that class earned during
a particular 30-day (or one month) period (including dividends and interest),
less expenses attributable to that class accrued during the period ("net
investment income"), and will be computed by dividing the net investment income
per share of that class earned during the period by the maximum offering price
per share (in the case of Class A shares) or the net asset value per share (in
the case of Class B and Class C shares) on the last day of the period, according
to the following formula:
YIELD = 2[({(a-b)/cd} + 1){superscript 6}-1]
Where: a = dividends and interest earned during the period
attributable to a specific class of shares,
b = expenses accrued for the period attributable to that
class (net of reimbursements),
c = the average daily number of shares
of that class outstanding during the
period that were entitled to receive
dividends, and
d = the maximum offering price per
share (in the case of Class A
shares) or the net asset value per
share (in the case of Class B
shares, Class C shares and Class I
shares) on the last day of the
period.
AVERAGE ANNUAL TOTAL RETURN. Quotations of standardized average annual
total return ("Standardized Return") for a specific class of shares of the Fund
will be expressed in terms of the average annual compounded rate of return that
would cause a hypothetical investment in that class of the Fund made on the
first day of a designated period to equal the ending redeemable value ("ERV") of
such hypothetical investment on the last day of the designated period, according
to the following formula:
P(1 + T){superscript n} = ERV
Where: P = a hypothetical initial payment of
$1,000 to purchase shares of a
specific class
T = the average annual total return
of shares of that class
n = the number of years
ERV = the ending redeemable value of a
hypothetical $1,000 payment made at
the beginning of the period.
For purposes of the above computation for the Fund, it is assumed that
all dividends and capital gains distributions made by the Fund are reinvested at
net asset value in additional shares of the same class during the designated
period. In calculating the ending redeemable value for Class A shares and
assuming complete redemption at the end of the applicable period, the maximum
5.75% sales charge is deducted from the initial $1,000 payment and, for Class B
and Class C shares, the applicable CDSC imposed upon redemption of Class B or
Class C shares held for the period is deducted. Standardized Return quotations
for the Fund do not take into account any required payments for federal or state
income taxes. Standardized Return quotations for Class B shares for periods of
over eight years will reflect conversion of the Class B shares to Class A shares
at the end of the eighth year. Standardized Return quotations are determined to
the nearest 1/100 of 1%.
The Fund may, from time to time, include in advertisements, promotional
literature or reports to shareholders or prospective investors total return data
that are not calculated according to the formula set forth above
("Non-Standardized Return"). Neither initial nor CDSCs are taken into account in
calculating Non-Standardized Return; a sales charge, if deducted, would reduce
the return.
The following table summarizes the calculation of Standardized and
Non-Standardized Return for the Class A, Class B, Class, C, Class I and Advisor
Class shares of the Fund for the periods indicated. In determining the average
annual total return for a specific class of shares of the Fund, recurring fees,
if any, that are charged to all shareholder accounts are taken into
consideration. For any account fees that vary with the size of the account of
the Fund, the account fee used for purposes of the following computations is
assumed to be the fee that would be charged to the mean account size of the
Fund.
CUMULATIVE TOTAL RETURN. Cumulative total return is the cumulative rate
of return on a hypothetical initial investment of $1,000 in a specific class of
shares of the Fund for a specified period. Cumulative total return quotations
reflect changes in the price of the Fund's shares and assume that all dividends
and capital gains distributions during the period were reinvested in the Fund
shares. Cumulative total return is calculated by computing the cumulative rates
of return of a hypothetical investment in a specific class of shares of the Fund
over such periods, according to the following formula (cumulative total return
is then expressed as a percentage):
C = (ERV/P) - 1
Where: C = cumulative total return
P = a hypothetical initial investment
of $1,000 to purchase shares of a
specific class
ERV = ending redeemable value: ERV is
the value, at the end of the
applicable period, of a hypothetical
$1,000 investment made at the
beginning of the applicable period.
OTHER QUOTATIONS, COMPARISONS AND GENERAL INFORMATION. The foregoing
computation methods are prescribed for advertising and other communications
subject to SEC Rule 482. Communications not subject to this rule may contain a
number of different measures of performance, computation methods and
assumptions, including but not limited to: historical total returns; results of
actual or hypothetical investments; changes in dividends, distributions or share
values; or any graphic illustration of such data. These data may cover any
period of the Trust's existence and may or may not include the impact of sales
charges, taxes or other factors.
Performance quotations for the Fund will vary from time to time
depending on market conditions, the composition of the Fund's portfolio and
operating expenses of the Fund. These factors and possible differences in the
methods used in calculating performance quotations should be considered when
comparing performance information regarding the Fund's shares with information
published for other investment companies and other investment vehicles.
Performance quotations should also be considered relative to changes in the
value of the Fund's shares and the risks associated with the Fund's investment
objectives and policies. At any time in the future, performance quotations may
be higher or lower than past performance quotations and there can be no
assurance that any historical performance quotation will continue in the future.
The Fund may also cite endorsements or use for comparison its
performance rankings and listings reported in such newspapers or business or
consumer publications as, among others: AAII Journal, Barron's, Boston Business
Journal, Boston Globe, Boston Herald, Business Week, Consumer's Digest, Consumer
Guide Publications, Changing Times, Financial Planning, Financial World, Forbes,
Fortune, Growth Fund Guide, Houston Post, Institutional Investor, International
Fund Monitor, Investor's Daily, Los Angeles Times, Medical Economics, Miami
Herald, Money Mutual Fund Forecaster, Mutual Fund Letter, Mutual Fund Source
Book, Mutual Fund Values, National Underwriter, Nelson's Directory of Investment
Managers, New York Times, Newsweek, No Load Fund Investor, No Load Fund* X,
Oakland Tribune, Pension World, Pensions and Investment Age, Personal Investor,
Rugg and Steele, Time, U.S. News and World Report, USA Today, The Wall Street
Journal, and Washington Post.
FINANCIAL STATEMENTS
The Fund's Statement of Assets and Liabilities as of [________, 1999]
and the Notes thereto are attached hereto as Appendix B.
<PAGE>
APPENDIX A
DESCRIPTION OF STANDARD & POOR'S RATINGS GROUP ("S&P") AND MOODY'S
INVESTORS SERVICE, INC. ("MOODY'S") CORPORATE BOND AND COMMERCIAL PAPER
RATINGS
[From "Moody's Bond Record," November 1994 Issue (Moody's Investors
Service, New York, 1994), and "Standard & Poor's Municipal Ratings
Handbook," October 1997 Issue (McGraw Hill, New York, 1997).]
MOODY'S:
(a) CORPORATE BONDS. Bonds rated Aaa by Moody's are judged by Moody's
to be of the best quality, carrying the smallest degree of investment risk.
Interest payments are protected by a large or exceptionally stable margin and
principal is secure. While the various protective elements are likely to change,
such changes as can be visualized are most unlikely to impair the fundamentally
strong position of such issues. Bonds rated Aa are judged by Moody's to be of
high quality by all standards. Aa bonds are rated lower than Aaa bonds because
margins of protection may not be as large as those of Aaa bonds, or fluctuations
of protective elements may be of greater amplitude, or there may be other
elements present which make the long-term risks appear somewhat larger than
those applicable to Aaa securities. Bonds which are rated A by Moody's possess
many favorable investment attributes and are to be considered as upper
medium-grade obligations. Factors giving security to principal and interest are
considered adequate, but elements may be present which suggest a susceptibility
to impairment sometime in the future. Bonds rated Baa by Moody's are considered
medium-grade obligations (i.e., they are neither highly protected nor poorly
secured). Interest payments and principal security appear adequate for the
present, but certain protective elements may be lacking or may be
characteristically unreliable over any great length of time. Such bonds lack
outstanding investment characteristics and in fact have speculative
characteristics as well. Bonds which are rated Ba are judged to have speculative
elements; their future cannot be considered well-assured. Often the protection
of interest and principal payments may be very moderate and thereby not well
safeguarded during both good and bad times over the future. Uncertainty of
position characterizes bonds in this class. Bonds which are rated B generally
lack characteristics of the desirable investment. Assurance of interest and
principal payments of or maintenance of other terms of the contract over any
long period of time may be small. Bonds which are rated Caa are of poor
standing. Such issues may be in default or there may be present elements of
danger with respect to principal or interest. Bonds which are rated Ca represent
obligations which are speculative in a high degree. Such issues are often in
default or have other marked shortcomings. Bonds which are rated C are the
lowest rated class of bonds and issues so rated can be regarded as having
extremely poor prospects of ever attaining any real investment standing.
(b) COMMERCIAL PAPER. The Prime rating is the highest commercial paper
rating assigned by Moody's. Among the factors considered by Moody's in assigning
ratings are the following: (1) evaluation of the management of the issuer; (2)
economic evaluation of the issuer's industry or industries and an appraisal of
speculative-type risks which may be inherent in certain areas; (3) evaluation of
the issuer's products in relation to competition and customer acceptance; (4)
liquidity; (5) amount and quality of long-term debt; (6) trend of earnings over
a period of ten years; (7) financial strength of a parent company and the
relationships which exist with the issuer; and (8) recognition by management of
obligations which may be present or may arise as a result of public interest
questions and preparations to meet such obligations. Issuers within this Prime
category may be given ratings 1, 2 or 3, depending on the relative strengths of
these factors. The designation of Prime-1 indicates the highest quality
repayment capacity of the rated issue. Issuers rated Prime-2 are deemed to have
a strong ability for repayment while issuers voted Prime-3 are deemed to have an
acceptable ability for repayment. Issuers rated Not Prime do not fall within any
of the Prime rating categories.
S&P:
(a) CORPORATE BONDS. An S&P corporate debt rating is a current
assessment of the creditworthiness of an obligor with respect to a specific
obligation. The ratings are based on current information furnished by the issuer
or obtained by S&P from other sources it considers reliable. The ratings
described below may be modified by the addition of a plus or minus sign to show
relative standing within the major rating categories.
Debt rated AAA has the highest rating assigned by S&P. Capacity to pay
interest and repay principal is extremely strong. Debt rated AA is judged by S&P
to have a very strong capacity to pay interest and repay principal and differs
from the highest rated issues only in small degree. Debt rated A by S&P has a
strong capacity to pay interest and repay principal, although it is somewhat
more susceptible to the adverse effects of changes in circumstances and economic
conditions than debt in higher rated categories.
Debt rated BBB by S&P is regarded by S&P as having an adequate capacity
to pay interest and repay principal. Although such bonds normally exhibit
adequate protection parameters, adverse economic conditions or changing
circumstances are more likely to lead to a weakened capacity to pay interest and
repay principal than debt in higher rated categories.
Debt rated BB, B, CCC, CC and C is regarded as having predominately
speculative characteristics with respect to capacity to pay interest and repay
principal. BB indicates the least degree of speculation and C the highest. While
such debt will likely have some quality and protective characteristics, these
are outweighed by large uncertainties or exposures to adverse conditions. Debt
rated BB has less near-term vulnerability to default than other speculative
issues. However, it faces major ongoing uncertainties or exposure to adverse
business, financial or economic conditions which could lead to inadequate
capacity to meet timely interest and principal payments. The BB rating category
is also used for debt subordinated to senior debt that is assigned an actual or
implied BBB- rating. Debt rated B has a greater vulnerability to default but
currently has the capacity to meet interest payments and principal repayments.
Adverse business, financial, or economic conditions will likely impair capacity
or willingness to pay interest and repay principal. The B rating category is
also used for debt subordinated to senior debt that is assigned an actual or
implied BB or BB- rating. Debt rated CCC has a currently identifiable
vulnerability to default, and is dependent upon favorable business, financial,
and economic conditions to meet timely payment of interest and repayment of
principal. In the event of adverse business, financial or economic conditions,
it is not likely to have the capacity to pay interest and repay principal. The
CCC rating category is also used for debt subordinated to senior debt that is
assigned an actual or implied B or B- rating. The rating CC typically is applied
to debt subordinated to senior debt which is assigned an actual or implied CCC
debt rating. The rating C typically is applied to debt subordinated to senior
debt which is assigned an actual or implied CCC- debt rating. The C rating may
be used to cover a situation where a bankruptcy petition has been filed, but
debt service payments are continued.
The rating CI is reserved for income bonds on which no interest is
being paid. Debt rated D is in payment default. The D rating category is used
when interest payments or principal payments are not made on the date due, even
if the applicable grace period has not expired, unless S&P believes that such
payments will be made during such grace period. The D rating also will be used
upon the filing of a bankruptcy petition if debt service payments are
jeopardized.
(b) COMMERCIAL PAPER. An S&P commercial paper rating is a current
assessment of the likelihood of timely payment of debt considered short-term in
the relevant market.
The commercial paper rating A-1 by S&P indicates that the degree of
safety regarding timely payment is strong. Those issues determined to possess
extremely strong safety characteristics are denoted with a plus sign (+)
designation. For commercial paper with an A-2 rating, the capacity for timely
payment on issues is satisfactory, but not as high as for issues designated A-1.
Issues rated A-3 have adequate capacity for timely payment, but are more
vulnerable to the adverse effects of changes in circumstances than obligations
carrying higher designations.
Issues rated B are regarded as having only speculative capacity for
timely payment. The C rating is assigned to short-term debt obligations with a
doubtful capacity for payment. Debt rated D is in payment default. The D rating
category is used when interest payments or principal payments are not made on
the date due, even if the applicable grace period has not expired, unless S&P
believes such payments will be made during such grace period.
<PAGE>
APPENDIX B
STATEMENT OF ASSETS AND LIABILITIES
AS OF [________, 1999]
AND REPORT OF INDEPENDENT ACCOUNTANTS
<PAGE>
IVY GLOBAL FUND
a series of
IVY FUND
Via Mizner Financial Plaza, Suite 300
700 South Federal Highway
Boca Raton, Florida 33432
STATEMENT OF ADDITIONAL INFORMATION
April , 1999
Ivy Fund (the "Trust") is an open-end management investment company
that currently consists of nineteen fully managed portfolios, each of which
(except for Ivy South America Fund and Ivy International Strategic Bond Fund) is
diversified. This Statement of Additional Information ("SAI") relates to the
Class A, B, C and Advisor Class shares of Ivy Global Fund (the "Fund"). The
other eighteen portfolios of the Trust are described in separate prospectuses
and SAIs.
This SAI is not a prospectus and should be read in conjunction with the
prospectus for the Fund dated April , 1999 (the "Prospectus"), which may be
obtained upon request and without charge from the Trust at the Distributor's
address and telephone number printed below.
INVESTMENT MANAGER
Ivy Management, Inc. ("IMI")
Via Mizner Financial Plaza, Suite 300
700 South Federal Highway
Boca Raton, Florida 33432
Telephone: (800) 777-6472
DISTRIBUTOR
Ivy Mackenzie Distributors, Inc. ("IMDI")
Via Mizner Financial Plaza, Suite 300
700 South Federal Highway
Boca Raton, Florida 33432
Telephone: (800) 456-5111
<PAGE>
iii
TABLE OF CONTENTS
GENERAL INFORMATION.......................................................
INVESTMENT OBJECTIVES, STRATEGIES AND RISKS...............................
COMMON STOCKS....................................................
CONVERTIBLE SECURITIES...........................................
DEBT SECURITIES..................................................
IN GENERAL..............................................
INVESTMENT-GRADE DEBT SECURITIES........................
LOW-RATED DEBT SECURITIES...............................
U.S. GOVERNMENT SECURITIES..............................
ZERO COUPON BONDS.......................................
FIRM COMMITMENT AGREEMENTS AND "WHEN-ISSUED" SECURITIES.
ILLIQUID SECURITIES..............................................
FOREIGN SECURITIES...............................................
DEPOSITORY RECEIPTS..............................................
EMERGING MARKETS.................................................
FOREIGN CURRENCIES...............................................
FOREIGN CURRENCY EXCHANGE TRANSACTIONS...........................
OTHER INVESTMENT COMPANIES.......................................
REPURCHASE AGREEMENTS............................................
BANKING INDUSTRY AND SAVINGS AND LOAN OBLIGATIONS................
COMMERCIAL PAPER.................................................
BORROWING........................................................
WARRANTS.........................................................
REAL ESTATE INVESTMENT TRUSTS (REITS)............................
OPTIONS TRANSACTIONS.............................................
IN GENERAL..............................................
WRITING OPTIONS ON INDIVIDUAL SECURITIES................
PURCHASING OPTIONS ON INDIVIDUAL SECURITIES.............
PURCHASING AND WRITING OPTIONS ON SECURITIES INDICES....
RISKS OF OPTIONS TRANSACTIONS...........................
FUTURES CONTRACTS AND OPTIONS ON FUTURES CONTRACTS...............
IN GENERAL..............................................
FOREIGN CURRENCY FUTURES CONTRACTS AND RELATED OPTIONS..
RISKS ASSOCIATED WITH FUTURES AND RELATED OPTIONS.......
SECURITIES INDEX FUTURES CONTRACTS...............................
RISKS OF SECURITIES INDEX FUTURES.......................
COMBINED TRANSACTIONS...................................
INVESTMENT RESTRICTIONS...................................................
PORTFOLIO TURNOVER........................................................
TRUSTEES AND OFFICERS.....................................................
PERSONAL INVESTMENTS BY EMPLOYEES OF IMI................
INVESTMENT ADVISORY AND OTHER SERVICES....................................
BUSINESS MANAGEMENT AND INVESTMENT ADVISORY SERVICES.............
DISTRIBUTION SERVICES............................................
RULE 18F-3 PLAN.........................................
RULE 12B-1 DISTRIBUTION PLANS...........................
CUSTODIAN........................................................
FUND ACCOUNTING SERVICES.........................................
TRANSFER AGENT AND DIVIDEND PAYING AGENT.........................
ADMINISTRATOR....................................................
AUDITORS.........................................................
BROKERAGE ALLOCATION......................................................
CAPITALIZATION AND VOTING RIGHTS..........................................
SPECIAL RIGHTS AND PRIVILEGES.............................................
AUTOMATIC INVESTMENT METHOD......................................
EXCHANGE OF SHARES...............................................
INITIAL SALES CHARGE SHARES.............................
CONTINGENT DEFERRED SALES CHARGE SHARES CLASS A.........
CLASS B.................................................
CLASS C.................................................
ADVISOR CLASS...........................................
ALL CLASSES.............................................
LETTER OF INTENT.................................................
RETIREMENT PLANS.................................................
INDIVIDUAL RETIREMENT ACCOUNTS..........................
ROTH IRAS...............................................
QUALIFIED PLANS.........................................
DEFERRED COMPENSATION FOR PUBLIC SCHOOLS AND CHARITABLE
ORGANIZATIONS ("403(B)(7) ACCOUNT")....
SIMPLIFIED EMPLOYEE PENSION ("SEP") IRAS...................
SIMPLE PLANS...............................................
REINVESTMENT PRIVILEGE..............................................
RIGHTS OF ACCUMULATION..............................................
SYSTEMATIC WITHDRAWAL PLAN..........................................
GROUP SYSTEMATIC INVESTMENT PROGRAM.................................
REDEMPTIONS..................................................................
CONVERSION OF CLASS B SHARES.................................................
NET ASSET VALUE..............................................................
TAXATION 43
OPTIONS, FUTURES AND FOREIGN CURRENCY FORWARD CONTRACTS.............
CURRENCY FLUCTUATIONS -- "SECTION 988" GAINS OR LOSSES..............
INVESTMENT IN PASSIVE FOREIGN INVESTMENT COMPANIES..................
DEBT SECURITIES ACQUIRED AT A DISCOUNT..............................
DISTRIBUTIONS.......................................................
DISPOSITION OF SHARES...............................................
FOREIGN WITHHOLDING TAXES...........................................
BACKUP WITHHOLDING..................................................
PERFORMANCE INFORMATION......................................................
YIELD......................................................
AVERAGE ANNUAL TOTAL RETURN................................
CUMULATIVE TOTAL RETURN....................................
OTHER QUOTATIONS, COMPARISONS AND GENERAL INFORMATION......
FINANCIAL STATEMENTS.........................................................
APPENDIX A...................................................................
<PAGE>
GENERAL INFORMATION
The Fund is organized as a separate, diversified portfolio of the
Trust, an open-end management investment company organized as a Massachusetts
business trust on December 21, 1983. The Fund commenced operations (Class A
Shares) on April 18, 1991. The inception dates for the Fund's other classes were
as follows: Class B, April 1, 1994; Class C, April 30, 1996; and Advisor Class;
January 1, 1998.
Descriptions in this Statement of a particular investment practice or
technique in which the Fund may engage or a financial instrument which the Fund
may purchase are meant to describe the spectrum of investments that IMI, in its
discretion, might, but is not required to, use in managing the Fund's portfolio
assets. IMI may, in its discretion, at any time employ such practice, technique
or instrument for one or more funds but not for all funds advised by it.
Furthermore, it is possible that certain types of financial instruments or
investment techniques described herein may not be available, permissible,
economically feasible or effective for their intended purposes in all markets.
Certain practices, techniques, or instruments may not be principal activities of
the Fund but, to the extent employed, could from time to time have a material
impact on the Fund's performance.
INVESTMENT OBJECTIVES, STRATEGIES AND RISKS
The Fund has its own investment objectives and policies, which are
described in the Prospectus under the captions "Summary" and "Additional
Information About Strategies and Risks." Additional information regarding the
characteristics and risks associated with the Fund's investment techniques is
set forth below.
The Fund seeks long-term capital growth through a flexible policy of
investing in stocks and debt obligations of companies and governments of any
nation. Any income realized will be incidental. Under normal conditions, the
Fund will invest at least 65% of its total assets in the common stock of
companies throughout the world, with at least three different countries (one of
which may be the United States) represented in the Fund's overall portfolio
holdings. Although the Fund generally invests in common stock, it may also
invest in preferred stock, sponsored or unsponsored ADRs, GDRs, ADSs and GDSs,
and investment-grade debt securities (i.e., those rated Baa or higher by Moody's
or BBB or higher by S&P, or if unrated, considered by IMI to be of comparable
quality), including corporate bonds, notes, debentures, convertible bonds and
zero coupon bonds.
The Fund may invest less than 35% of its net assets in debt securities
rated Ba or below by Moody's or BB or below by S&P, or if unrated, considered by
IMI to be of comparable quality (commonly referred to as "high yield" or "junk"
bonds). The Fund will not invest in debt securities rated less than C by either
Moody's or S&P. As of December 31, 1998, the Fund had [ %] of its total assets
invested in low-rated debt securities.
The Fund may invest in equity real estate investment trusts, warrants,
and securities issued on a "when-issued" or firm commitment basis, and may
engage in foreign currency exchange transactions and enter into forward foreign
currency contracts. The Fund may also invest up to 10% of its total assets in
other investment companies and up to 15% of its net assets in illiquid
securities. The Fund may not, as a matter of fundamental policy, invest more
than 5% of its total assets in restricted securities.
For temporary defensive purposes and during periods when IMI believes
that circumstances warrant, the Fund may invest without limit in U.S. Government
securities, obligations issued by domestic or foreign banks (including
certificates of deposit, time deposits and bankers' acceptances), and domestic
or foreign commercial paper (which, if issued by a corporation, must be rated
Prime-1 by Moody's or A-1 by S&P, or if unrated has been issued by a company
that at the time of investment has an outstanding debt issue rated Aaa or Aa by
Moody's or AAA or AA by S&P). The Fund may also enter into repurchase
agreements, and, for temporary or emergency purposes, may borrow up to 10% of
the value of its total assets from banks.
The Fund may purchase put and call options on stock indices, provided
the premium paid for such options does not exceed 10% of the Fund's net assets.
The Fund may also sell covered put options with respect to up to 50% of the
value of its net assets, and may write covered call options so long as not more
than 20% of the Fund's net assets is subject to being purchased upon the
exercise of the calls. For hedging purposes only, the Fund may engage in
transactions in (and options on) stock index and foreign currency futures
contracts, provided that the Fund's equivalent exposure in such contracts does
not exceed 20% of its total assets.
COMMON STOCKS
Common stock can be issued by companies to raise cash; all common stock
shares represent a proportionate ownership interest in a company. As a result,
the value of common stock rises and falls with a company's success or failure.
The market value of common stock can fluctuate significantly, with smaller
companies being particularly susceptible to price swings. Transaction costs in
smaller company stocks may also be higher than those of larger companies.
CONVERTIBLE SECURITIES
The convertible securities in which the Fund may invest include
corporate bonds, notes, debentures, preferred stock and other securities that
may be converted or exchanged at a stated or determinable exchange ratio into
underlying shares of common stock. Investments in convertible securities can
provide income through interest and dividend payments as well as an opportunity
for capital appreciation by virtue of their conversion or exchange features.
Because convertible securities can be converted into equity securities, their
values will normally vary in some proportion with those of the underlying equity
securities. Convertible securities usually provide a higher yield than the
underlying equity, however, so that the price decline of a convertible security
may sometimes be less substantial than that of the underlying equity security.
The exchange ratio for any particular convertible security may be adjusted from
time to time due to stock splits, dividends, spin-offs, other corporate
distributions or scheduled changes in the exchange ratio. Convertible debt
securities and convertible preferred stocks, until converted, have general
characteristics similar to both debt and equity securities. Although to a lesser
extent than with debt securities generally, the market value of convertible
securities tends to decline as interest rates increase and, conversely, tends to
increase as interest rates decline. In addition, because of the conversion or
exchange feature, the market value of convertible securities typically changes
as the market value of the underlying common stock changes, and, therefore, also
tends to follow movements in the general market for equity securities. When the
market price of the underlying common stock increases, the price of a
convertible security tends to rise as a reflection of the value of the
underlying common stock, although typically not as much as the price of the
underlying common stock. While no securities investments are without risk,
investments in convertible securities generally entail less risk than
investments in common stock of the same issuer.
As debt securities, convertible securities are investments that provide
for a stream of income. Like all debt securities, there can be no assurance of
income or principal payments because the issuers of the convertible securities
may default on their obligations (see following section). Convertible securities
generally offer lower yields than non-convertible securities of similar quality
because of their conversion or exchange features.
Convertible securities generally are subordinated to other similar but
non-convertible securities of the same issuer, although convertible bonds, as
corporate debt obligations, are senior in right of payment to all equity
securities, and convertible preferred stock is senior to common stock, of the
same issuer. However, convertible bonds and convertible preferred stock
typically have lower coupon rates than similar non-convertible securities.
Convertible securities may be issued as fixed income obligations that pay
current income.
DEBT SECURITIES
IN GENERAL. Investment in debt securities involves both interest rate
and credit risk. Generally, the value of debt instruments rises and falls
inversely with fluctuations in interest rates. As interest rates decline, the
value of debt securities generally increases. Conversely, rising interest rates
tend to cause the value of debt securities to decrease. Bonds with longer
maturities generally are more volatile than bonds with shorter maturities. The
market value of debt securities also varies according to the relative financial
condition of the issuer. In general, lower-quality bonds offer higher yields due
to the increased risk that the issuer will be unable to meet its obligations on
interest or principal payments at the time called for by the debt instrument.
INVESTMENT-GRADE DEBT SECURITIES. Bonds rated Aaa by Moody's Investors
Service, Inc. ("Moody's") and AAA by Standard & Poor's Ratings Group ("S&P") are
judged to be of the best quality (i.e., capacity to pay interest and repay
principal is extremely strong). Bonds rated Aa/AA are considered to be of high
quality (i.e., capacity to pay interest and repay principal is very strong and
differs from the highest rated issues only to a small degree). Bonds rated A are
viewed as having many favorable investment attributes, but elements may be
present that suggest a susceptibility to the adverse effects of changes in
circumstances and economic conditions than debt in higher rated categories.
Bonds rated Baa/BBB (considered by Moody's to be "medium grade" obligations) are
considered to have an adequate capacity to pay interest and repay principal, but
certain protective elements may be lacking (i.e., such bonds lack outstanding
investment characteristics and have some speculative characteristics). The Fund
may invest in debt securities that are given an investment-grade rating by
Moody's or S&P, and may also invest in unrated debt securities that are
considered by IMI to be of comparable quality.
LOW-RATED DEBT SECURITIES. Securities rated lower than Baa by Moody's
or BBB by S&P, and comparable unrated securities (commonly referred to as "high
yield" or "junk" bonds), including many emerging markets bonds, are considered
to be predominantly speculative with respect to the issuer's continuing ability
to meet principal and interest payments. The lower the ratings of corporate debt
securities, the more their risks render them like equity securities. Such
securities carry a high degree of risk (including the possibility of default or
bankruptcy of the issuers of such securities), and generally involve greater
volatility of price and risk of principal and income (and may be less liquid)
than securities in the higher rating categories. (See Appendix A for a more
complete description of the ratings assigned by Moody's and S&P and their
respective characteristics.)
Lower rated and unrated securities are especially subject to adverse
changes in general economic conditions and to changes in the financial condition
of their issuers. Economic downturns may disrupt the high yield market and
impair the ability of issuers to repay principal and interest. Also, an increase
in interest rates would likely have an adverse impact on the value of such
obligations. During an economic downturn or period of rising interest rates,
highly leveraged issuers may experience financial stress which could adversely
affect their ability to service their principal and interest payment
obligations. Prices and yields of high yield securities will fluctuate over time
and, during periods of economic uncertainty, volatility of high yield securities
may adversely affect the Fund's net asset value. In addition, investments in
high yield zero coupon or pay-in-kind bonds, rather than income-bearing high
yield securities, may be more speculative and may be subject to greater
fluctuations in value due to changes in interest rates.
Changes in interest rates may have a less direct or dominant impact on
high yield bonds than on higher quality issues of similar maturities. However,
the price of high yield bonds can change significantly or suddenly due to a host
of factors including changes in interest rates, fundamental credit quality,
market psychology, government regulations, U.S. economic growth and, at times,
stock market activity. High yield bonds may contain redemption or call
provisions. If an issuer exercises these provisions in a declining interest rate
market, the Fund may have to replace the security with a lower yielding
security.
The trading market for high yield securities may be thin to the extent
that there is no established retail secondary market or because of a decline in
the value of such securities. A thin trading market may limit the ability of the
Fund to accurately value high yield securities in the Fund's portfolio, could
adversely affect the price at which the Fund could sell such securities, and
cause large fluctuations in the daily net asset value of the Fund's shares.
Adverse publicity and investor perceptions, whether or not based on fundamental
analysis, may decrease the value and liquidity of low-rated debt securities,
especially in a thinly traded market. When secondary markets for high yield
securities become relatively less liquid, it may be more difficult to value the
securities, requiring additional research and elements of judgment. These
securities may also involve special registration responsibilities, liabilities
and costs, and liquidity and valuation difficulties.
Credit quality in the high yield securities market can change suddenly
and unexpectedly, and even recently issued credit ratings may not fully reflect
the actual risks posed by a particular high yield security. For these reasons,
it is the policy of IMI not to rely exclusively on ratings issued by established
credit rating agencies, but to supplement such ratings with its own independent
and on-going review of credit quality. The achievement of the Fund's investment
objectives by investment in such securities may be more dependent on IMI's
credit analysis than is the case for higher quality bonds. Should the rating of
a portfolio security be downgraded, IMI will determine whether it is in the best
interest of the Fund to retain or dispose of such security. However, should any
individual bond held by the Fund be downgraded below a rating of C, IMI
currently intends to dispose of such bond based on then existing market
conditions.
Prices for high yield securities may be affected by legislative and
regulatory developments. For example, Federal rules require savings and loan
institutions to gradually reduce their holdings of this type of security. Also,
Congress has from time to time considered legislation that would restrict or
eliminate the corporate tax deduction for interest payments in these securities
and regulate corporate restructurings. Such legislation may significantly
depress the prices of outstanding securities of this type.
U.S. GOVERNMENT SECURITIES. U.S. Government securities are obligations of,
or guaranteed by, the U.S. Government, its agencies or instrumentalities.
Securities guaranteed by the U.S. Government include: (1) direct
obligations of the U.S. Treasury (such as Treasury bills, notes, and bonds)
and (2) Federal agency obligations guaranteed as to principal and interest
by the U.S. Treasury (such as GNMA certificates, which are mortgage-backed
securities). When such securities are held to maturity, the payment of
principal and interest is unconditionally guaranteed by the U.S.
Government, and thus they are of the highest possible credit quality. U.S.
Government securities that are not held to maturity are subject to
variations in market value due to fluctuations in interest rates.
Mortgage-backed securities are securities representing part ownership
of a pool of mortgage loans. For example, GNMA certificates are such securities
in which the timely payment of principal and interest is guaranteed by the full
faith and credit of the U.S. Government. Although the mortgage loans in the pool
will have maturities of up to 30 years, the actual average life of the loans
typically will be substantially less because the mortgages will be subject to
principal amortization and may be prepaid prior to maturity. Prepayment rates
vary widely and may be affected by changes in market interest rates. In periods
of falling interest rates, the rate of prepayments tends to increase, thereby
shortening the actual average life of the security. Conversely, rising interest
rates tend to decrease the rate of prepayment, thereby lengthening the actual
average life of the security (and increasing the security's price volatility).
Accordingly, it is not possible to predict accurately the average life of a
particular pool. Reinvestment of prepayment may occur at higher or lower rates
than the original yield on the certificates. Due to the prepayment feature and
the need to reinvest prepayments of principal at current rates, mortgage-backed
securities can be less effective than typical bonds of similar maturities at
"locking in" yields during periods of declining interest rates, and may involve
significantly greater price and yield volatility than traditional debt
securities. Such securities may appreciate or decline in market value during
periods of declining or rising interest rates, respectively.
Securities issued by U.S. Government instrumentalities and certain
federal agencies are neither direct obligations of nor guaranteed by the U.S.
Treasury; however, they involve Federal sponsorship in one way or another. Some
are backed by specific types of collateral, some are supported by the issuer's
right to borrow from the Treasury, some are supported by the discretionary
authority of the Treasury to purchase certain obligations of the issuer, others
are supported only by the credit of the issuing government agency or
instrumentality. These agencies and instrumentalities include, but are not
limited to, Federal Land Banks, Farmers Home Administration, Central Bank for
Cooperatives, Federal Intermediate Credit Banks, Federal Home Loan Banks,
Federal National Mortgage Association, Federal Home Loan Mortgage Association
and Student Loan Marketing Association.
ZERO COUPON BONDS. Zero coupon bonds are debt obligations issued
without any requirement for the periodic payment of interest. Zero coupon bonds
are issued at a significant discount from face value. The discount approximates
the total amount of interest the bonds would accrue and compound over the period
until maturity at a rate of interest reflecting the market rate at the time of
issuance. If the Fund holds zero coupon bonds in its portfolio, it would
recognize income currently for Federal income tax purposes in the amount of the
unpaid, accrued interest and generally would be required to distribute dividends
representing such income to shareholders currently, even though funds
representing such income would not have been received by the Fund. Cash to pay
dividends representing unpaid, accrued interest may be obtained from, for
example, sales proceeds of portfolio securities and Fund shares and from loan
proceeds. The potential sale of portfolio securities to pay cash distributions
from income earned on zero coupon bonds may result in the Fund being forced to
sell portfolio securities at a time when it might otherwise choose not to sell
these securities and when the Fund might incur a capital loss on such sales.
Because interest on zero coupon obligations is not distributed to the Fund on a
current basis, but is in effect compounded, the value of the securities of this
type is subject to greater fluctuations in response to changing interest rates
than the value of debt obligations which distribute income regularly.
FIRM COMMITMENT AGREEMENTS AND "WHEN-ISSUED" SECURITIES. New issues of
certain debt securities are often offered on a "when-issued" basis, meaning the
payment obligation and the interest rate are fixed at the time the buyer enters
into the commitment, but delivery and payment for the securities normally take
place after the date of the commitment to purchase. Firm commitment agreements
call for the purchase of securities at an agreed-upon price on a specified
future date. The Fund uses such investment techniques in order to secure what is
considered to be an advantageous price and yield to the Fund and not for
purposes of leveraging the Fund's assets. In either instance, the Fund will
maintain in a segregated account with its Custodian cash or liquid securities
equal (on a daily marked-to-market basis) to the amount of its commitment to
purchase the underlying securities.
ILLIQUID SECURITIES
The Fund may purchase securities other than in the open market. While
such purchases may often offer attractive opportunities for investment not
otherwise available on the open market, the securities so purchased are often
"restricted securities" or "not readily marketable" (i.e., they cannot be sold
to the public without registration under the Securities Act of 1933, as amended
(the "1933 Act"), or the availability of an exemption from registration (such as
Rule 144A) or because they are subject to other legal or contractual delays in
or restrictions on resale). This investment practice, therefore, could have the
effect of increasing the level of illiquidity of the Fund. It is the Fund's
policy that illiquid securities (including repurchase agreements of more than
seven days duration, certain restricted securities, and other securities which
are not readily marketable) may not constitute, at the time of purchase, more
than 15% of the value of the Fund's net assets. The Trust's Board of Trustees
has approved guidelines for use by IMI in determining whether a security is
illiquid.
Generally speaking, restricted securities may be sold (i) only to
qualified institutional buyers; (ii) in a privately negotiated transaction to a
limited number of purchasers; (iii) in limited quantities after they have been
held for a specified period of time and other conditions are met pursuant to an
exemption from registration; or (iv) in a public offering for which a
registration statement is in effect under the 1933 Act. Issuers of restricted
securities may not be subject to the disclosure and other investor protection
requirements that would be applicable if their securities were publicly traded.
If adverse market conditions were to develop during the period between the
Fund's decision to sell a restricted or illiquid security and the point at which
the Fund is permitted or able to sell such security, the Fund might obtain a
price less favorable than the price that prevailed when it decided to sell.
Where a registration statement is required for the resale of restricted
securities, the Fund may be required to bear all or part of the registration
expenses. The Fund may be deemed to be an "underwriter" for purposes of the 1933
Act when selling restricted securities to the public and, in such event, the
Fund may be liable to purchasers of such securities if the registration
statement prepared by the issuer is materially inaccurate or misleading.
Since it is not possible to predict with assurance that the market for
securities eligible for resale under Rule 144A will continue to be liquid, IMI
will monitor such restricted securities subject to the supervision of the Board
of Trustees. Among the factors IMI may consider in reaching liquidity decisions
relating to Rule 144A securities are: (1) the frequency of trades and quotes for
the security; (2) the number of dealers wishing to purchase or sell the security
and the number of other potential purchasers; (3) dealer undertakings to make a
market in the security; and (4) the nature of the security and the nature of the
market for the security (i.e., the time needed to dispose of the security, the
method of soliciting offers, and the mechanics of the transfer).
FOREIGN SECURITIES
The securities of foreign issuers in which the Fund may invest include
non-U.S. dollar-denominated debt securities, Euro dollar securities, sponsored
and unsponsored American Depository Receipts ("ADRs"), Global Depository
Receipts ("GDRs"), American Depository Shares ("ADSs"), Global Depository Shares
("GDSs") and related depository instruments, and debt securities issued, assumed
or guaranteed by foreign governments or political subdivisions or
instrumentalities thereof. Shareholders should consider carefully the
substantial risks involved in investing in securities issued by companies and
governments of foreign nations, which are in addition to the usual risks
inherent in the Fund's domestic investments.
Although IMI intends to invest the Fund's assets only in nations that
are generally considered to have relatively stable and friendly governments,
there is the possibility of expropriation, nationalization, repatriation or
confiscatory taxation, taxation on income earned in a foreign country and other
foreign taxes, foreign exchange controls (which may include suspension of the
ability to transfer currency from a given country), default on foreign
government securities, political or social instability or diplomatic
developments which could affect investments in securities of issuers in those
nations. In addition, in many countries there is less publicly available
information about issuers than is available for U.S. companies. Moreover,
foreign companies are not generally subject to uniform accounting, auditing and
financial reporting standards, and auditing practices and requirements may not
be comparable to those applicable to U.S. companies. In many foreign countries,
there is less governmental supervision and regulation of business and industry
practices, stock exchanges, brokers, and listed companies than in the United
States. Foreign securities transactions may also be subject to higher brokerage
costs than domestic securities transactions. The foreign securities markets of
many of the countries in which the Fund may invest may also be smaller, less
liquid and subject to greater price volatility than those in the United States.
In addition, the Fund may encounter difficulties or be unable to pursue legal
remedies and obtain judgment in foreign courts.
Foreign bond markets have different clearance and settlement procedures
and in certain markets there have been times when settlements have been unable
to keep pace with the volume of securities transactions, making it difficult to
conduct such transactions. Delays in settlement could result in temporary
periods when assets of the Fund are uninvested and no return is earned thereon.
The inability of the Fund to make intended security purchases due to settlement
problems could cause the Fund to miss attractive investment opportunities.
Further, the inability to dispose of portfolio securities due to settlement
problems could result either in losses to the Fund because of subsequent
declines in the value of the portfolio security or, if the Fund has entered into
a contract to sell the security, in possible liability to the purchaser. It may
be more difficult for the Fund's agents to keep currently informed about
corporate actions such as stock dividends or other matters that may affect the
prices of portfolio securities. Communications between the United States and
foreign countries may be less reliable than within the United States, thus
increasing the risk of delayed settlements of portfolio transactions or loss of
certificates for portfolio securities. Moreover, individual foreign economies
may differ favorably or unfavorably from the United States economy in such
respects as growth of gross national product, rate of inflation, capital
reinvestment, resource self-sufficiency and balance of payments position. IMI
seeks to mitigate the risks to the Fund associated with the foregoing
considerations through investment variation and continuous professional
management.
DEPOSITORY RECEIPTS
ADRs, GDRs, ADSs, GDSs and related securities are depository
instruments, the issuance of which is typically administered by a U.S. or
foreign bank or trust company. These instruments evidence ownership of
underlying securities issued by a U.S. or foreign corporation. ADRs are publicly
traded on exchanges or over-the-counter ("OTC") in the United States.
Unsponsored programs are organized independently and without the cooperation of
the issuer of the underlying securities. As a result, information concerning the
issuer may not be as current or as readily available as in the case of sponsored
depository instruments, and their prices may be more volatile than if they were
sponsored by the issuers of the underlying securities.
EMERGING MARKETS
The Fund could have significant investments in securities traded in
emerging markets. Investors should recognize that investing in such countries
involves special considerations, in addition to those set forth above, that are
not typically associated with investing in United States securities and that may
affect the Fund's performance favorably or unfavorably.
In recent years, many emerging market countries around the world have
undergone political changes that have reduced government's role in economic and
personal affairs and have stimulated investment and growth. Historically, there
is a strong direct correlation between economic growth and stock market returns.
While this is no guarantee of future performance, IMI believes that investment
opportunities (particularly in the energy, environmental services, natural
resources, basic materials, power, telecommunications and transportation
industries) may result within the evolving economies of emerging market
countries from which the Fund and its shareholders will benefit.
Investments in companies domiciled in developing countries may be
subject to potentially higher risks than investments in developed countries.
Such risks include (i) less social, political and economic stability; (ii) a
small market for securities and/or a low or nonexistent volume of trading, which
result in a lack of liquidity and in greater price volatility; (iii) certain
national policies that may restrict the Fund's investment opportunities,
including restrictions on investment in issuers or industries deemed sensitive
to national interests; (iv) foreign taxation; (v) the absence of developed
structures governing private or foreign investment or allowing for judicial
redress for injury to private property; (vi) the absence, until relatively
recently in certain Eastern European countries, of a capital market structure or
market-oriented economy; (vii) the possibility that recent favorable economic
developments in Eastern Europe may be slowed or reversed by unanticipated
political or social events in such countries; and (viii) the possibility that
currency devaluations could adversely affect the value of the Fund's
investments. Further, many emerging markets have experienced and continue to
experience high rates of inflation.
Despite the dissolution of the Soviet Union, the Communist Party may
continue to exercise a significant role in certain Eastern European countries.
To the extent of the Communist Party's influence, investments in such countries
will involve risks of nationalization, expropriation and confiscatory taxation.
The communist governments of a number of Eastern European countries expropriated
large amounts of private property in the past, in many cases without adequate
compensation, and there can be no assurance that such expropriation will not
occur in the future. In the event of such expropriation, the Fund could lose a
substantial portion of any investments it has made in the affected countries.
Further, few (if any) accounting standards exist in Eastern European countries.
Finally, even though certain Eastern European currencies may be convertible into
U.S. dollars, the conversion rates may be artificial in relation to the actual
market values and may be adverse to the Fund's net asset value.
Certain Eastern European countries that do not have well-established
trading markets are characterized by an absence of developed legal structures
governing private and foreign investments and private property. In addition,
certain countries require governmental approval prior to investments by foreign
persons, or limit the amount of investment by foreign persons in a particular
company, or limit the investment of foreign persons to only a specific class of
securities of a company that may have less advantageous terms than securities of
the company available for purchase by nationals.
Authoritarian governments in certain Eastern European countries may
require that a governmental or quasi-governmental authority act as custodian of
the Fund's assets invested in such country. To the extent such governmental or
quasi-governmental authorities do not satisfy the requirements of the Investment
Company Act of 1940, as amended (the "1940 Act"), with respect to the custody of
the Fund's cash and securities, the Fund's investment in such countries may be
limited or may be required to be effected through intermediaries. The risk of
loss through governmental confiscation may be increased in such countries.
FOREIGN CURRENCIES
Investment in foreign securities usually will involve currencies of
foreign countries. Moreover, the Fund may temporarily hold funds in bank
deposits in foreign currencies during the completion of investment programs and
may purchase forward foreign currency contracts. Because of these factors, the
value of the assets of the Fund as measured in U.S. dollars may be affected
favorably or unfavorably by changes in foreign currency exchange rates and
exchange control regulations, and the Fund may incur costs in connection with
conversions between various currencies. Although the Fund's custodian values the
Fund's assets daily in terms of U.S. dollars, the Fund does not intend to
convert its holdings of foreign currencies into U.S. dollars on a daily basis.
The Fund will do so from time to time, however, and investors should be aware of
the costs of currency conversion. Although foreign exchange dealers do not
charge a fee for conversion, they do realize a profit based on the difference
(the "spread") between the prices at which they are buying and selling various
currencies. Thus, a dealer may offer to sell a foreign currency to the Fund at
one rate, while offering a lesser rate of exchange should the Fund desire to
resell that currency to the dealer. The Fund will conduct its foreign currency
exchange transactions either on a spot (i.e., cash) basis at the spot rate
prevailing in the foreign currency exchange market, or through entering into
forward contracts to purchase or sell foreign currencies.
Because the Fund normally will be invested in both U.S. and foreign
securities markets, changes in the Fund's share price may have a low correlation
with movements in U.S. markets. The Fund's share price will reflect the
movements of the different stock and bond markets in which it is invested (both
U.S. and foreign), and of the currencies in which the investments are
denominated. Thus, the strength or weakness of the U.S. dollar against foreign
currencies may account for part of the Fund's investment performance. U.S. and
foreign securities markets do not always move in step with each other, and the
total returns from different markets may vary significantly. In addition,
significant uncertainty surrounds the proposed introduction of the euro (a
common currency for the European Union) in January 1999 and its effect on the
value of securities denominated in local European currencies. These and other
currencies in which the Fund's assets are denominated may be devalued against
the U.S. dollar, resulting in a loss to the Fund.
FOREIGN CURRENCY EXCHANGE TRANSACTIONS
The Fund may enter into forward foreign currency contracts in order to
protect against uncertainty in the level of future foreign exchange rates in the
purchase and sale of securities. A forward contract is an obligation to purchase
or sell a specific currency for an agreed price at a future date (usually less
than a year), and typically is individually negotiated and privately traded by
currency traders and their customers. A forward contract generally has no
deposit requirement, and no commissions are charged at any stage for trades.
Although foreign exchange dealers do not charge a fee for commissions, they do
realize a profit based on the difference between the price at which they are
buying and selling various currencies. Although these contracts are intended to
minimize the risk of loss due to a decline in the value of the hedged
currencies, at the same time, they tend to limit any potential gain which might
result should the value of such currencies increase.
While the Fund may enter into forward contracts to reduce currency
exchange risks, changes in currency exchange rates may result in poorer overall
performance for the Fund than if it had not engaged in such transactions.
Moreover, there may be an imperfect correlation between the Fund's portfolio
holdings of securities denominated in a particular currency and forward
contracts entered into by the Fund. An imperfect correlation of this type may
prevent the Fund from achieving the intended hedge or expose the Fund to the
risk of currency exchange loss.
The Fund may purchase currency forwards and combine such purchases with
sufficient cash or short-term securities to create unleveraged substitutes for
investments in foreign markets when deemed advantageous. The Fund may also
combine the foregoing with bond futures or interest rate futures contracts to
create the economic equivalent of an unhedged foreign bond position.
The Fund may also cross-hedge currencies by entering into transactions
to purchase or sell one or more currencies that are expected to decline in value
relative to other currencies to which the Fund has or in which the Fund expects
to have portfolio exposure.
Currency transactions are subject to risks different from those of
other portfolio transactions. Because currency control is of great importance to
the issuing governments and influences economic planning and policy, purchases
and sales of currency and related instruments can be negatively affected by
government exchange controls, blockages, and manipulations or exchange
restrictions imposed by governments. These can result in losses to the Fund if
it is unable to deliver or receive currency or funds in settlement of
obligations and could also cause hedges it has entered into to be rendered
useless, resulting in full currency exposure as well as incurring transactions
costs. Buyers and sellers of currency futures are subject to the same risks that
apply to the use of futures generally. Further, settlement of a currency futures
contract for the purchase of most currencies must occur at a bank based in the
issuing nation. Trading options on currency futures is relatively new, and the
ability to establish and close out positions on such options is subject to the
maintenance of a liquid market which may not always be available. Currency
exchange rates may fluctuate based on factors extrinsic to that country's
economy.
OTHER INVESTMENT COMPANIES
The Fund may invest up to 10% of its total assets in the shares of
other investment companies. As a shareholder of an investment company, the Fund
would bear its ratable shares of the fund's expenses (which often include an
asset-based management fee). The Fund could also lose money by investing in
other investment companies, since the value of their respective investments and
the income they generate will vary daily based on prevailing market conditions.
REPURCHASE AGREEMENTS
Repurchase agreements are contracts under which the Fund buys a money
market instrument and obtains a simultaneous commitment from the seller to
repurchase the instrument at a specified time and at an agreed-upon yield. Under
guidelines approved by the Board, the Fund is permitted to enter into repurchase
agreements only if the repurchase agreements are at least fully collateralized
with U.S. Government securities or other securities that IMI has approved for
use as collateral for repurchase agreements and the collateral must be
marked-to-market daily. The Fund will enter into repurchase agreements only with
banks and broker-dealers deemed to be creditworthy by IMI under the
above-referenced guidelines. In the unlikely event of failure of the executing
bank or broker-dealer, the Fund could experience some delay in obtaining direct
ownership of the underlying collateral and might incur a loss if the value of
the security should decline, as well as costs in disposing of the security.
BANKING INDUSTRY AND SAVINGS AND LOAN OBLIGATIONS
Certificates of deposit are negotiable certificates issued against
funds deposited in a commercial bank for a definite period of time and earning a
specified return. Bankers' acceptances are negotiable drafts or bills of
exchange, normally drawn by an importer or exporter to pay for specific
merchandise, which are "accepted" by a bank (meaning, in effect, that the bank
unconditionally agrees to pay the face value of the instrument at maturity). In
addition to investing in certificates of deposit and bankers' acceptances, the
Fund may invest in time deposits in banks or savings and loan associations. Time
deposits are generally similar to certificates of deposit, but are
uncertificated. The Fund's investments in certificates of deposit, time
deposits, and bankers' acceptance are limited to obligations of (i) banks having
total assets in excess of $1 billion, (ii) U.S. banks which do not meet the $1
billion asset requirement, if the principal amount of such obligation is fully
insured by the Federal Deposit Insurance Corporation (the "FDIC"), (iii) savings
and loan association which have total assets in excess of $1 billion and which
are members of the FDIC, and (iv) foreign banks if the obligation is, in IMI's
opinion, of an investment quality comparable to other debt securities which may
be purchased by the Fund. The Fund's investments in certificates of deposit of
savings associations are limited to obligations of Federal and state-chartered
institutions whose total assets exceed $1 billion and whose deposits are insured
by the FDIC.
COMMERCIAL PAPER
Commercial paper represents short-term unsecured promissory notes
issued in bearer form by bank holding companies, corporations and finance
companies. The Fund may invest in commercial paper that is rated Prime-1 by
Moody's Investors Service, Inc. ("Moody's") or A-1 by Standard & Poor's
Corporation ("S&P") or, if not rated by Moody's or S&P, is issued by companies
having an outstanding debt issue rated Aaa or Aa by Moody's or AAA or AA by S&P.
BORROWING
Borrowing may exaggerate the effect on the Fund's net asset value of
any increase or decrease in the value of the Fund's portfolio securities. Money
borrowed will be subject to interest costs (which may include commitment fees
and/or the cost of maintaining minimum average balances). Although the principal
of the Fund's borrowings will be fixed, the Fund's assets may change in value
during the time a borrowing is outstanding, thus increasing exposure to capital
risk.
WARRANTS
The holder of a warrant has the right, until the warrant expires, to
purchase a given number of shares of a particular issuer at a specified price.
Such investments can provide a greater potential for profit or loss than an
equivalent investment in the underlying security. However, prices of warrants do
not necessarily move in a tandem with the prices of the underlying securities,
and are, therefore, considered speculative investments. Warrants pay no
dividends and confer no rights other than a purchase option. Thus, if a warrant
held by the Fund were not exercised by the date of its expiration, the Fund
would lose the entire purchase price of the warrant.
REAL ESTATE INVESTMENT TRUSTS (REITS)
A REIT is a corporation, trust or association that invests in real
estate mortgages or equities for the benefit of its investors. REITs are
dependent upon management skill, may not be diversified and are subject to the
risks of financing projects. Such entities are also subject to heavy cash flow
dependency, defaults by borrowers, self-liquidation and the possibility of
failing to qualify for tax-free pass-through of income under the Internal
Revenue Code of 1986, as amended (the "Code"), and to maintain exemption from
the Investment Company Act of 1940 (the "1940 Act"). By investing in REITs
indirectly through the Fund, a shareholder will bear not only his or her
proportionate share of the expenses of the Fund, but also, indirectly, similar
expenses of the REITs.
OPTIONS TRANSACTIONS
IN GENERAL. A call option is a short-term contract (having a duration
of less than one year) pursuant to which the purchaser, in return for the
premium paid, has the right to buy the security underlying the option at the
specified exercise price at any time during the term of the option. The writer
of the call option, who receives the premium, has the obligation, upon exercise
of the option, to deliver the underlying security against payment of the
exercise price. A put option is a similar contract pursuant to which the
purchaser, in return for the premium paid, has the right to sell the security
underlying the option at the specified exercise price at any time during the
term of the option. The writer of the put option, who receives the premium, has
the obligation, upon exercise of the option, to buy the underlying security at
the exercise price. The premium paid by the purchaser of an option will reflect,
among other things, the relationship of the exercise price to the market price
and volatility of the underlying security, the time remaining to expiration of
the option, supply and demand, and interest rates.
If the writer of an option wishes to terminate the obligation, the
writer may effect a "closing purchase transaction." This is accomplished by
buying an option of the same series as the option previously written. The effect
of the purchase is that the writer's position will be canceled by the Options
Clearing Corporation. However, a writer may not effect a closing purchase
transaction after it has been notified of the exercise of an option. Likewise,
an investor who is the holder of an option may liquidate his or her position by
effecting a "closing sale transaction." This is accomplished by selling an
option of the same series as the option previously purchased. There is no
guarantee that either a closing purchase or a closing sale transaction can be
effected at any particular time or at any acceptable price. If any call or put
option is not exercised or sold, it will become worthless on its expiration
date.
The Fund will realize a gain (or a loss) on a closing purchase
transaction with respect to a call or a put previously written by the Fund if
the premium, plus commission costs, paid by the Fund to purchase the call or the
put is less (or greater) than the premium, less commission costs, received by
the Fund on the sale of the call or the put. A gain also will be realized if a
call or a put that the Fund has written lapses unexercised, because the Fund
would retain the premium. Any such gains (or losses) are considered short-term
capital gains (or losses) for Federal income tax purposes. Net short-term
capital gains, when distributed by the Fund, are taxable as ordinary income. See
"Taxation."
The Fund will realize a gain (or a loss) on a closing sale transaction
with respect to a call or a put previously purchased by the Fund if the premium,
less commission costs, received by the Fund on the sale of the call or the put
is greater (or less) than the premium, plus commission costs, paid by the Fund
to purchase the call or the put. If a put or a call expires unexercised, it will
become worthless on the expiration date, and the Fund will realize a loss in the
amount of the premium paid, plus commission costs. Any such gain or loss will be
long-term or short-term gain or loss, depending upon the Fund's holding period
for the option.
Exchange-traded options generally have standardized terms and are
issued by a regulated clearing organization (such as the Options Clearing
Corporation), which, in effect, guarantees the completion of every
exchange-traded option transaction. In contrast, the terms of OTC options are
negotiated by the Fund and its counterparty (usually a securities dealer or a
financial institution) with no clearing organization guarantee. When the Fund
purchases an OTC option, it relies on the party from whom it has purchased the
option (the "counterparty") to make delivery of the instrument underlying the
option. If the counterparty fails to do so, the Fund will lose any premium paid
for the option, as well as any expected benefit of the transaction. Accordingly,
IMI will assess the creditworthiness of each counterparty to determine the
likelihood that the terms of the OTC option will be satisfied.
WRITING OPTIONS ON INDIVIDUAL SECURITIES. The Fund may write (sell)
covered call options on the Fund's securities in an attempt to realize a greater
current return than would be realized on the securities alone. The Fund may also
write covered call options to hedge a possible stock or bond market decline
(only to the extent of the premium paid to the Fund for the options). In view of
the investment objectives of the Fund, the Fund generally would write call
options only in circumstances where the investment adviser to the Fund does not
anticipate significant appreciation of the underlying security in the near
future or has otherwise determined to dispose of the security.
A "covered" call option means generally that so long as the Fund is
obligated as the writer of a call option, the Fund will (i) own the underlying
securities subject to the option, or (ii) have the right to acquire the
underlying securities through immediate conversion or exchange of convertible
preferred stocks or convertible debt securities owned by the Fund. Although the
Fund receives premium income from these activities, any appreciation realized on
an underlying security will be limited by the terms of the call option. The Fund
may purchase call options on individual securities only to effect a "closing
purchase transaction."
As the writer of a call option, the Fund receives a premium for
undertaking the obligation to sell the underlying security at a fixed price
during the option period, if the option is exercised. So long as the Fund
remains obligated as a writer of a call option, it forgoes the opportunity to
profit from increases in the market price of the underlying security above the
exercise price of the option, except insofar as the premium represents such a
profit (and retains the risk of loss should the value of the underlying security
decline).
PURCHASING OPTIONS ON INDIVIDUAL SECURITIES. The Fund may purchase a
put option on an underlying security owned by the Fund as a defensive technique
in order to protect against an anticipated decline in the value of the security.
The Fund, as the holder of the put option, may sell the underlying security at
the exercise price regardless of any decline in its market price. In order for a
put option to be profitable, the market price of the underlying security must
decline sufficiently below the exercise price to cover the premium and
transaction costs that the Fund must pay. These costs will reduce any profit the
Fund might have realized had it sold the underlying security instead of buying
the put option. The premium paid for the put option would reduce any capital
gain otherwise available for distribution when the security is eventually sold.
The purchase of put options will not be used by the Fund for leverage purposes.
The Fund may also purchase a put option on an underlying security that
it owns and at the same time write a call option on the same security with the
same exercise price and expiration date. Depending on whether the underlying
security appreciates or depreciates in value, the Fund would sell the underlying
security for the exercise price either upon exercise of the call option written
by it or by exercising the put option held by it. The Fund would enter into such
transactions in order to profit from the difference between the premium received
by the Fund for the writing of the call option and the premium paid by the Fund
for the purchase of the put option, thereby increasing the Fund's current
return. The Fund may write (sell) put options on individual securities only to
effect a "closing sale transaction."
PURCHASING AND WRITING OPTIONS ON SECURITIES INDICES. The Fund may
purchase and sell (write) put and call options on securities indices. An index
assigns relative values to the securities included in the index and the index
fluctuates with changes in the market values of the securities so included.
Options on indices are similar to options on individual securities, except that,
rather than giving the purchaser the right to take delivery of an individual
security at a specified price, they give the purchaser the right to receive
cash. The amount of cash is equal to the difference between the closing price of
the index and the exercise price of the option, expressed in dollars, times a
specified multiple (the "multiplier"). The writer of the option is obligated, in
return for the premium received, to make delivery of this amount.
The multiplier for an index option performs a function similar to the
unit of trading for a stock option. It determines the total dollar value per
contract of each point in the difference between the exercise price of an option
and the current level of the underlying index. A multiplier of 100 means that a
one-point difference will yield $100. Options on different indices have
different multipliers.
When the Fund writes a call or put option on a stock index, the option
is "covered", in the case of a call, or "secured", in the case of a put, if the
Fund maintains in a segregated account with the Custodian cash or liquid
securities equal to the contract value. A call option is also covered if the
Fund holds a call on the same index as the call written where the exercise price
of the call held is (i) equal to or less than the exercise price of the call
written or (ii) greater than the exercise price of the call written, provided
that the Fund maintains in a segregated account with the Custodian the
difference in cash or liquid securities. A put option is also "secured" if the
Fund holds a put on the same index as the put written where the exercise price
of the put held is (i) equal to or greater than the exercise price of the put
written or (ii) less than the exercise price of the put written, provided that
the Fund maintains in a segregated account with the Custodian the difference in
cash or liquid securities.
RISKS OF OPTIONS TRANSACTIONS. The purchase and writing of options
involves certain risks. During the option period, the covered call writer has,
in return for the premium on the option, given up the opportunity to profit from
a price increase in the underlying securities above the exercise price, but, as
long as its obligation as a writer continues, has retained the risk of loss
should the price of the underlying security decline. The writer of a U.S. option
has no control over the time when it may be required to fulfill its obligation
as a writer of the option. Once an option writer has received an exercise
notice, it cannot effect a closing purchase transaction in order to terminate
its obligation under the option and must deliver the underlying securities (or
cash in the case of an index option) at the exercise price. If a put or call
option purchased by the Fund is not sold when it has remaining value, and if the
market price of the underlying security (or index), in the case of a put,
remains equal to or greater than the exercise price or, in the case of a call,
remains less than or equal to the exercise price, the Fund will lose its entire
investment in the option. Also, where a put or call option on a particular
security (or index) is purchased to hedge against price movements in a related
security (or securities), the price of the put or call option may move more or
less than the price of the related security (or securities). In this regard,
there are differences between the securities and options markets that could
result in an imperfect correlation between these markets, causing a given
transaction not to achieve its objective.
There can be no assurance that a liquid market will exist when the Fund
seeks to close out an option position. Furthermore, if trading restrictions or
suspensions are imposed on the options markets, the Fund may be unable to close
out a position. Finally, trading could be interrupted, for example, because of
supply and demand imbalances arising from a lack of either buyers or sellers, or
the options exchange could suspend trading after the price has risen or fallen
more than the maximum amount specified by the exchange. Closing transactions can
be made for OTC options only by negotiating directly with the counterparty or by
a transaction in the secondary market, if any such market exists. There is no
assurance that the Fund will be able to close out an OTC option position at a
favorable price prior to its expiration. In the event of insolvency of the
counterparty, the Fund might be unable to close out an OTC option position at
any time prior to its expiration. Although the Fund may be able to offset to
some extent any adverse effects of being unable to liquidate an option position,
the Fund may experience losses in some cases as a result of such inability.
When conducted outside the U.S., options transactions may not be
regulated as rigorously as in the U.S., may not involve a clearing mechanism and
related guarantees, and are subject to the risk of governmental actions
affecting trading in, or the prices of, foreign securities, currencies and other
instruments. The value of such positions also could be adversely affected by:
(i) other complex foreign political, legal and economic factors, (ii) lesser
availability than in the U.S. of data on which to make trading decisions, (iii)
delays in the Fund's ability to act upon economic events occurring in foreign
markets during non-business hours in the U.S., (iv) the imposition of different
exercise and settlement terms and procedures and margin requirements than in the
U.S., and (v) lower trading volume and liquidity.
The Fund's options activities also may have an impact upon the level of its
portfolio turnover and brokerage commissions. See "Portfolio Turnover."
The Fund's success in using options techniques depends, among other
things, on IMI's ability to predict accurately the direction and volatility of
price movements in the options and securities markets, and to select the proper
type, time and duration of options.
FUTURES CONTRACTS AND OPTIONS ON FUTURES CONTRACTS
IN GENERAL. The Fund may enter into futures contracts and options on
futures contracts for hedging purposes. A futures contract provides for the
future sale by one party and purchase by another party of a specified quantity
of a commodity at a specified price and time. When a purchase or sale of a
futures contract is made by the Fund, the Fund is required to deposit with its
custodian (or broker, if legally permitted) a specified amount of cash or liquid
securities ("initial margin"). The margin required for a futures contract is set
by the exchange on which the contract is traded and may be modified during the
term of the contract. The initial margin is in the nature of a performance bond
or good faith deposit on the futures contract which is returned to the Fund upon
termination of the contract, assuming all contractual obligations have been
satisfied. A futures contract held by the Fund is valued daily at the official
settlement price of the exchange on which it is traded. Each day the Fund pays
or receives cash, called "variation margin," equal to the daily change in value
of the futures contract. This process is known as "marking to market." Variation
margin does not represent a borrowing or loan by the Fund but is instead a
settlement between the Fund and the broker of the amount one would owe the other
if the futures contract expired. In computing daily net asset value, the Fund
will mark-to-market its open futures position.
The Fund is also required to deposit and maintain margin with respect
to put and call options on futures contracts written by it. Such margin deposits
will vary depending on the nature of the underlying futures contract (and the
related initial margin requirements), the current market value of the option,
and other futures positions held by the Fund.
Although some futures contracts call for making or taking delivery of
the underlying securities, generally these obligations are closed out prior to
delivery of offsetting purchases or sales of matching futures contracts (same
exchange, underlying security or index, and delivery month). If an offsetting
purchase price is less than the original sale price, the Fund generally realizes
a capital gain, or if it is more, the Fund generally realizes a capital loss.
Conversely, if an offsetting sale price is more than the original purchase
price, the Fund generally realizes a capital gain, or if it is less, the Fund
generally realizes a capital loss.
The transaction costs must also be included in these calculations.
When purchasing a futures contract, the Fund will maintain with its
Custodian (and mark-to-market on a daily basis) cash or liquid securities that,
when added to the amounts deposited with a futures commission merchant ("FCM")
as margin, are equal to the market value of the futures contract. Alternatively,
the Fund may "cover" its position by purchasing a put option on the same futures
contract with a strike price as high as or higher than the price of the contract
held by the Fund, or, if lower, may cover the difference with cash or short-term
securities.
When selling a futures contract, the Fund will maintain with its
Custodian in a segregated account (and mark-to-market on a daily basis) cash or
liquid securities that, when added to the amounts deposited with an FCM as
margin, are equal to the market value of the instruments underlying the
contract. Alternatively, the Fund may "cover" its position by owning the
instruments underlying the contract (or, in the case of an index futures
contract, a portfolio with a volatility substantially similar to that of the
index on which the futures contract is based), or by holding a call option
permitting the Fund to purchase the same futures contract at a price no higher
than the price of the contract written by the Fund (or at a higher price if the
difference is maintained in liquid assets with the Fund's custodian).
When selling a call option on a futures contract, the Fund will
maintain with its Custodian in a segregated account (and mark-to-market on a
daily basis) cash or liquid securities that, when added to the amounts deposited
with an FCM as margin, equal the total market value of the futures contract
underlying the call option. Alternatively, the Fund may cover its position by
entering into a long position in the same futures contract at a price no higher
than the strike price of the call option, by owning the instruments underlying
the futures contract, or by holding a separate call option permitting the Fund
to purchase the same futures contract at a price not higher than the strike
price of the call option sold by the Fund, or covering the difference if the
price is higher.
When selling a put option on a futures contract, the Fund will maintain
with its Custodian (and mark-to-market on a daily basis) cash or liquid
securities that equal the purchase price of the futures contract less any margin
on deposit. Alternatively, the Fund may cover the position either by entering
into a short position in the same futures contract, or by owning a separate put
option permitting it to sell the same futures contract so long as the strike
price of the purchased put option is the same or higher than the strike price of
the put option sold by the Fund, or, if lower, the Fund may hold securities to
cover the difference.
FOREIGN CURRENCY FUTURES CONTRACTS AND RELATED OPTIONS. The Fund may
engage in foreign currency futures contracts and related options transactions
for hedging purposes. A foreign currency futures contract provides for the
future sale by one party and purchase by another party of a specified quantity
of a foreign currency at a specified price and time.
An option on a foreign currency futures contract gives the holder the
right, in return for the premium paid, to assume a long position (call) or short
position (put) in a futures contract at a specified exercise price at any time
during the period of the option. Upon the exercise of a call option, the holder
acquires a long position in the futures contract and the writer is assigned the
opposite short position. In the case of a put option, the opposite is true.
The Fund may purchase call and put options on foreign currencies as a
hedge against changes in the value of the U.S. dollar (or another currency) in
relation to a foreign currency in which portfolio securities of the Fund may be
denominated. A call option on a foreign currency gives the buyer the right to
buy, and a put option the right to sell, a certain amount of foreign currency at
a specified price during a fixed period of time. The Fund may invest in options
on foreign currency which are either listed on a domestic securities exchange or
traded on a recognized foreign exchange.
In those situations where foreign currency options may not be readily
purchased (or where such options may be deemed illiquid) in the currency in
which the hedge is desired, the hedge may be obtained by purchasing an option on
a "surrogate" currency, i.e., a currency where there is tangible evidence of a
direct correlation in the trading value of the two currencies. A surrogate
currency's exchange rate movements parallel that of the primary currency.
Surrogate currencies are used to hedge an illiquid currency risk, when no liquid
hedge instruments exist in world currency markets for the primary currency.
The Fund will only enter into futures contracts and futures options
which are standardized and traded on a U.S. or foreign exchange, board of trade,
or similar entity or quoted on an automated quotation system. The Fund will not
enter into a futures contract or purchase an option thereon if, immediately
thereafter, the aggregate initial margin deposits for futures contracts held by
the Fund plus premiums paid by it for open futures option positions, less the
amount by which any such positions are "in-the-money," would exceed 5% of the
liquidation value of the Fund's portfolio (or the Fund's net asset value), after
taking into account unrealized profits and unrealized losses on any such
contracts the Fund has entered into. A call option is "in-the-money" if the
value of the futures contract that is the subject of the option exceeds the
exercise price. A put option is "in-the-money" if the exercise price exceeds the
value of the futures contract that is the subject of the option. For additional
information about margin deposits required with respect to futures contracts and
options thereon, see "Futures Contracts and Options on Futures Contracts."
RISKS ASSOCIATED WITH FUTURES AND RELATED OPTIONS. There can be no
guarantee that there will be a correlation between price movements in the
hedging vehicle and in the Fund's portfolio securities being hedged. In
addition, there are significant differences between the securities and futures
markets that could result in an imperfect correlation between the markets,
causing a given hedge not to achieve its objectives. The degree of imperfection
of correlation depends on circumstances such as variations in speculative market
demand for futures and futures options on securities, including technical
influences in futures trading and futures options, and differences between the
financial instruments being hedged and the instruments underlying the standard
contracts available for trading in such respects as interest rate levels,
maturities, and creditworthiness of issuers. A decision as to whether, when and
how to hedge involves the exercise of skill and judgment, and even a
well-conceived hedge may be unsuccessful to some degree because of market
behavior or unexpected interest rate trends.
Futures exchanges may limit the amount of fluctuation permitted in
certain futures contract prices during a single trading day. The daily limit
establishes the maximum amount that the price of a futures contract may vary
either up or down from the previous day's settlement price at the end of the
current trading session. Once the daily limit has been reached in a futures
contract subject to the limit, no more trades may be made on that day at a price
beyond that limit. The daily limit governs only price movements during a
particular trading day and therefore does not limit potential losses because the
limit may work to prevent the liquidation of unfavorable positions. For example,
futures prices have occasionally moved to the daily limit for several
consecutive trading days with little or no trading, thereby preventing prompt
liquidation of positions and subjecting some holders of futures contracts to
substantial losses.
There can be no assurance that a liquid market will exist at a time
when the Fund seeks to close out a futures or a futures option position, and the
Fund would remain obligated to meet margin requirements until the position is
closed. In addition, there can be no assurance that an active secondary market
will continue to exist.
Currency futures contracts and options thereon may be traded on foreign
exchanges. Such transactions may not be regulated as effectively as similar
transactions in the United States; may not involve a clearing mechanism and
related guarantees; and are subject to the risk of governmental actions
affecting trading in, or the prices of, foreign securities. The value of such
position also could be adversely affected by (i) other complex foreign
political, legal and economic factors, (ii) lesser availability than in the
United States of data on which to make trading decisions, (iii) delays in the
Fund's ability to act upon economic events occurring in foreign markets during
non business hours in the United States, (iv) the imposition of different
exercise and settlement terms and procedures and margin requirements than in the
United States, and (v) lesser trading volume.
SECURITIES INDEX FUTURES CONTRACTS
The Fund may enter into securities index futures contracts as an
efficient means of regulating the Fund's exposure to the equity markets. The
Fund will not engage in transactions in futures contracts for speculation, but
only as a hedge against changes resulting from market conditions in the values
of securities held in the Fund's portfolio or which it intends to purchase. An
index futures contract is a contract to buy or sell units of an index at a
specified future date at a price agreed upon when the contract is made. Entering
into a contract to buy units of an index is commonly referred to as purchasing a
contract or holding a long position in the index. Entering into a contract to
sell units of an index is commonly referred to as selling a contract or holding
a short position. The value of a unit is the current value of the stock index.
For example, the S&P 500 Index is composed of 500 selected common stocks, most
of which are listed on the New York Stock Exchange (the "Exchange"). The S&P 500
Index assigns relative weightings to the 500 common stocks included in the
Index, and the Index fluctuates with changes in the market values of the shares
of those common stocks. In the case of the S&P 500 Index, contracts are to buy
or sell 500 units. Thus, if the value of the S&P 500 Index were $150, one
contract would be worth $75,000 (500 units x $150). The index futures contract
specifies that no delivery of the actual securities making up the index will
take place. Instead, settlement in cash must occur upon the termination of the
contract, with the settlement being the difference between the contract price
and the actual level of the stock index at the expiration of the contract. For
example, if the Fund enters into a futures contract to buy 500 units of the S&P
500 Index at a specified future date at a contract price of $150 and the S&P 500
Index is at $154 on that future date, the Fund will gain $2,000 (500 units x
gain of $4). If the Fund enters into a futures contract to sell 500 units of the
stock index at a specified future date at a contract price of $150 and the S&P
500 Index is at $154 on that future date, the Fund will lose $2,000 (500 units x
loss of $4).
RISKS OF SECURITIES INDEX FUTURES. The Fund's success in using hedging
techniques depends, among other things, on IMI's ability to predict correctly
the direction and volatility of price movements in the futures and options
markets as well as in the securities markets and to select the proper type, time
and duration of hedges. The skills necessary for successful use of hedges are
different from those used in the selection of individual stocks.
The Fund's ability to hedge effectively all or a portion of its
securities through transactions in index futures (and therefore the extent of
its gain or loss on such transactions) depends on the degree to which price
movements in the underlying index correlate with price movements in the Fund's
securities. Inasmuch as such securities will not duplicate the components of an
index, the correlation probably will not be perfect. Consequently, the Fund will
bear the risk that the prices of the securities being hedged will not move in
the same amount as the hedging instrument. This risk will increase as the
composition of the Fund's portfolio diverges from the composition of the hedging
instrument.
Although the Fund intends to establish positions in these instruments
only when there appears to be an active market, there is no assurance that a
liquid market will exist at a time when the Fund seeks to close a particular
option or futures position. Trading could be interrupted, for example, because
of supply and demand imbalances arising from a lack of either buyers or sellers.
In addition, the futures exchanges may suspend trading after the price has risen
or fallen more than the maximum amount specified by the exchange. In some cases,
the Fund may experience losses as a result of its inability to close out a
position, and it may have to liquidate other investments to meet its cash needs.
Although some index futures contracts call for making or taking
delivery of the underlying securities, generally these obligations are closed
out prior to delivery by offsetting purchases or sales of matching futures
contracts (same exchange, underlying security or index, and delivery month). If
an offsetting purchase price is less than the original sale price, the Fund
generally realizes a capital gain, or if it is more, the Fund generally realizes
a capital loss. Conversely, if an offsetting sale price is more than the
original purchase price, the Fund generally realizes a capital gain, or if it is
less, the Fund generally realizes a capital loss.
The transaction costs must also be included in these calculations.
The Fund will only enter into index futures contracts or futures
options that are standardized and traded on a U.S. or foreign exchange or board
of trade, or similar entity, or quoted on an automated quotation system. The
Fund will use futures contracts and related options only for "bona fide hedging"
purposes, as such term is defined in applicable regulations of the CFTC.
When purchasing an index futures contract, the Fund will maintain with
its Custodian (and mark-to-market on a daily basis) cash or liquid securities
that, when added to the amounts deposited with a futures commission merchant
("FCM") as margin, are equal to the market value of the futures contract.
Alternatively, the Fund may "cover" its position by purchasing a put option on
the same futures contract with a strike price as high as or higher than the
price of the contract held by the Fund.
When selling an index futures contract, the Fund will maintain with its
Custodian (and mark-to-market on a daily basis) cash or liquid securities that,
when added to the amounts deposited with an FCM as margin, are equal to the
market value of the instruments underlying the contract. Alternatively, the Fund
may "cover" its position by owning the instruments underlying the contract (or,
in the case of an index futures contract, a portfolio with a volatility
substantially similar to that of the index on which the futures contract is
based), or by holding a call option permitting the Fund to purchase the same
futures contract at a price no higher than the price of the contract written by
the Fund (or at a higher price if the difference is maintained in cash or liquid
assets in a segregated account with the Fund's custodian).
COMBINED TRANSACTIONS. The Fund may enter into multiple transactions,
including multiple options transactions, multiple futures transactions and
multiple currency transactions (including forward currency contracts) and some
combination of futures, options and currency transactions ("component"
transactions), instead of a single transaction, as part of a single or combined
strategy when, in the opinion of IMI, it is in the best interests of the Fund to
do so. A combined transaction will usually contain elements of risk that are
present in each of its component transactions. Although combined transactions
are normally entered into based on IMI's judgment that the combined strategies
will reduce risk or otherwise more effectively achieve the desired portfolio
management goal, it is possible that the combination will instead increase such
risks or hinder achievement of the management objective.
INVESTMENT RESTRICTIONS
The Fund's investment objectives as set forth in the "Summary" section
of the Prospectus, together with the investment restrictions set forth below,
are fundamental policies of the Fund and may not be changed without the approval
of a majority of the outstanding voting shares of the Fund. Under these
restrictions, the Fund may not:
(i) Invest in real estate, real estate mortgage loans, commodities
or interests in oil, gas and/or mineral exploration or
development programs, although (a) the Fund may purchase and
sell marketable securities of issuers which are secured by
real estate, (b) the Fund may purchase and sell securities of
issuers which invest or deal in real estate, (c) the Fund may
enter into forward foreign currency contracts as described in
the Fund's prospectus, and (d) the Fund may write or buy puts,
calls, straddles or spreads and may invest in commodity
futures contracts and options on futures contracts.
(ii) Purchase securities on margin, except such short-term credits
as are necessary for the clearance of transactions, but the
Fund may make margin deposits in connection with transactions
in options, futures and options on futures;
(iii) Make loans, except that this restriction shall not prohibit
(a) the purchase and holding of a portion of an issue of
publicly distributed debt securities, (b) the entry into
repurchase agreements with banks or broker-dealers, or (c) the
lending of the Fund's portfolio securities in accordance with
applicable guidelines established by the Securities and
Exchange Commission ("SEC") and any guidelines established by
the Trust's Trustees;
(iv) Purchase securities of any one issuer (except U.S. Government
securities) if as a result more than 5% of the Fund's total
assets would be invested in such issuer or the Fund would own
or hold more than 10% of the outstanding voting securities of
that issuer; provided, however, that up to 25% of the value of
the Fund's total assets may be invested without regard to
these limitations;
(v) Make investments in securities for the purpose of exercising control over or
management of the issuer;
(vi) Participate on a joint or a joint and several basis in any
trading account in securities. The "bunching" of orders of the
Fund and of other accounts under the investment management of
the Manager for the sale or purchase of portfolio securities
shall not be considered participation in a joint securities
trading account;
(vii) Borrow amounts in excess of 10% of its total assets, taken at
the lower of cost or market value, and then only from banks as
a temporary measure for extraordinary or emergency purposes.
All borrowings will be repaid before any additional
investments are made;
(viii) Purchase the securities of issuers conducting their principal
business activities in the same industry if immediately after
such purchase the value of the Fund's investments in such
industry would exceed 25% of the value of the total assets of
the Fund;
(ix) Act as an underwriter of securities, except to the extent
that, in connection with the sale of securities, it may be
deemed to be an underwriter under applicable securities laws;
(x) Purchase any security if, as a result, the Fund would then
have more than 5% of its total assets (taken at current value)
invested in securities restricted as to disposition under the
Federal securities laws;
(xi) Issue senior securities, except insofar as the Fund may be
deemed to have issued a senior security in connection with any
repurchase agreement or any permitted borrowing; or
(xii) Purchase securities of another investment company, except in
connection with a merger, consolidation, reorganization or
acquisition of assets, and except that the Fund may invest in
securities of other investment companies subject to the
restrictions in Section 12(d)(1) of the Investment Company Act
of 1940 (the "1940").
ADDITIONAL RESTRICTIONS
The Fund has adopted the following additional restrictions, which are
not fundamental and which may be changed without shareholder approval, to the
extent permitted by applicable law, regulation or regulatory policy.
Under these restrictions, the Fund may not:
(i)......purchase or sell real estate limited partnership interests; or
(ii).....purchase or sell interest in oil, gal or mineral leases (other
than securities of companies that invest in or sponsor such programs).
Whenever an investment objective, policy or restriction set forth in
the Prospectus or this SAI states a maximum percentage of assets that may be
invested in any security or other asset or describes a policy regarding quality
standards, such percentage limitation or standard shall, unless otherwise
indicated, apply to the Fund only at the time a transaction is entered into.
Accordingly, if a percentage limitation is adhered to at the time of investment,
a later increase or decrease in the percentage which results from circumstances
not involving any affirmative action by the Fund, such as a change in market
conditions or a change in the Fund's asset level or other circumstances beyond
the Fund's control, will not be considered a violation.
PORTFOLIO TURNOVER
The Fund purchases securities that are believed by IMI to have above
average potential for capital appreciation. Common stocks are disposed of in
situations where it is believed that potential for such appreciation has
lessened or that other common stocks have a greater potential. Therefore, the
Fund may purchase and sell securities without regard to the length of time the
security is to be, or has been, held. A change in securities held by the Fund is
known as "portfolio turnover" and may involve the payment by the Fund of dealer
markup or underwriting commission and other transaction costs on the sale of
securities, as well as on the reinvestment of the proceeds in other securities.
The Fund's portfolio turnover rate is calculated by dividing the lesser of
purchases or sales of portfolio securities for the most recently completed
fiscal year by the monthly average of the value of the portfolio securities
owned by the Fund during that year. For purposes of determining the Fund's
portfolio turnover rate, all securities whose maturities at the time of
acquisition were one year or less are excluded.
TRUSTEES AND OFFICERS
The Fund's Board of Trustees (the "Board") is responsible for
the overall management of the Fund, including general supervision and review
of the Fund's investment activities. The Board, in turn, elects the officers
who are responsible for administering the Fund's day-to-day operations.
The Trustees and Executive Officers of the Trust, their business
addresses and principal occupations during the past five years are:
POSITION WITH BUSINESS AFFILIATIONS
NAME, ADDRESS, AGE THE TRUST AND PRINCIPAL OCCUPATIONS
John S. Anderegg, Jr. Trustee Chairman, Dynamics Research
60 Concord Street Corp. (instruments and controls);
Wilmington, MA 01887 Director, Burr-Brown Corp.
Age: 74 (operational amplifiers); Director,
Metritage Incorporated (level
measuring instruments); Trustee of
Mackenzie Series Trust (1992-1998).
Paul H. Broyhill Trustee Chairman, BMC Fund, Inc.
800 Hickory Blvd. (1983-present); Chairman,
Golfview Park-Box 500 Broyhill Family Foundation,
Lenoir, NC 28645 Inc. (1983-Present); Chairman and
Age: 74 President, Broyhill Investments,
Inc. (1983-present); Chairman,
Broyhill Timber Resources (1983-
present); Management of a personal
portfolio of fixed-income and equity
investments (1983-present); Trustee
of Mackenzie Series Trust (1988-
1998); Director of The Mackenzie
Funds Inc. (1988-1995).
Stanley Channick Trustee President and Chief
11 Bala Avenue Executive Officer, The
Bala Cynwyd, PA 19004 Whitestone Corporation
Age: 75 (insurance agency); Chairman, Scott
Management Company (administrative
services for insurance companies);
President, The Channick Group
(consultants to insurance companies
and national trade associations);
Trustee of Mackenzie Series Trust
(1994-1998); Director of The
Mackenzie Funds Inc. (1994-1995).
Frank W. DeFriece, Jr. Trustee Director, Manager and Vice
The Landmark Centre President, Director and
113 Landmark Lane, Fund Manager, Massengill-
Suite B DeFriece Foundation
Bristol, TN 37620-2285 (charitable organization)
Age: 77 (1950-present); Trustee and Vice
Chairman, East Tennessee Public
Communications Corp. (WSJK-TV)
(1984-present); Trustee of Mackenzie
Series Trust (1985-1998); Director
of The Mackenzie Funds Inc. (1987-
1995).
Roy J. Glauber Trustee Mallinckrodt Professor of
Lyman Laboratory Physics, Harvard
of Physics University (1974-present);
Harvard University Trustee of Mackenzie Series
Cambridge, MA 02138 Trust (1994-1997).
Age: 72
Michael G. Landry Trustee President, Chief Executive
700 South Federal Hwy. And Officer and Director of
Suite 300 Chairman Mackenzie Investment
Boca Raton, FL 33432 Management Inc. (1987-
Age: 51 present); President,
[*Deemed to be an Director and Chairman of
"interested person" Ivy Management Inc. (1992-
of the Trust, as present); Chairman and
defined under the Director of Ivy Mackenzie
1940 Act.] Services Corp.(1993-present);
Chairman and Director of Ivy
Mackenzie Distributors, Inc.
(1994-present); Director and
President of Ivy Mackenzie
Distributors, Inc. (1993-1994);
Director and President of The
Mackenzie Funds Inc. (1987-1995);
Trustee of Mackenzie Series Trust
(1987-1998); President of Mackenzie
Series Trust (1987-1996); Chairman
of Mackenzie Series Trust (1996-
1998).
Joseph G. Rosenthal Trustee Chartered Accountant
110 Jardin Drive (1958-present); Trustee of
Unit #12 Mackenzie Series Trust
Concord, Ontario Canada (1985-1998); Director of
L4K 2T7 The Mackenzie Funds Inc.
Age: 63 (1987-1995).
Richard N. Silverman Trustee Director, Newton-Wellesley
18 Bonnybrook Road Hospital; Director, Beth
Waban, MA 02168 Israel Hospital; Director,
Age: 74 Boston Ballet; Director, Boston
Children's Museum; Director, Brimmer
and May School.
J. Brendan Swan Trustee President, Airspray
4701 North Federal Hwy. International, Inc.;
Suite 465 Joint Managing Director,
Pompano Beach, FL 33064 Airspray International
Age: 67 B.V. (an environmentally sensitive
packaging company); Director of
Polyglass LTD.; Director, The
Mackenzie Funds Inc. (1992-1995);
Trustee of Mackenzie Series Trust
(1992-1998).
Keith J. Carlson Trustee Senior Vice President of Mackenzie
700 South Federal Hwy. And Investment Management, Inc. (1996 -
Suite 300 President -present); Senior Vice President and
Boca Raton, FL 33432 Director of Mackenzie Investment
Age: 41 Management, Inc. (1994 - 1996);
[*Deemed to be an Senior Vice President and Treasurer
"interested person" of Mackenzie Investment Management,
of the Trust, Inc. (1989-1994); Senior Vice President
as defined under President and Director of Ivy
the 1940 Act.] Management Inc. (1994-present);
Senior Vice President, Treasurer and
Director of Ivy Management Inc.
(1992-1994); Vice President of The
Mackenzie Funds Inc. (1987-1995);
Senior Vice President and Director,
Ivy Mackenzie Services Corp. (1996-
present); President and Director of
Ivy Mackenzie Services Corp. (1993-
1996); Trustee and President of
Mackenzie Series Trust (1996-1998);
Vice President of Mackenzie Series
Trust (1994-1998); Treasurer of
Mackenzie Series Trust (1985-1994);
President, Chief Executive Officer
and Director of Ivy Mackenzie
Distributors, Inc. (1994-present);
Executive Vice President and
Director of Ivy Mackenzie
Distributors, Inc. (1993-1994);
Trustee of Mackenzie Series Trust
(1996-1998).
C. William Ferris Secretary/ Senior Vice President,
700 South Federal Hwy. Treasurer Chief Financial Officer
Suite 300 and Secretary/Treasurer
Boca Raton, FL 33432 of Mackenzie Investment
Age: 53 Management Inc. (1995-present);
Senior Vice President, Finance and
Administration/Compliance Officer of
Mackenzie Investment Management Inc.
(1989-1994); Senior Vice President,
Secretary/ Treasurer and Clerk of
Ivy Management Inc. (1994-present);
Vice President, Finance/
Administration and Compliance
Officer of Ivy Management Inc.
(1992-1994); Senior Vice President,
Secretary/Treasurer and Director of
Ivy Mackenzie Distributors, Inc.
(1994-present); Secretary/Treasurer
and Director of Ivy Mackenzie
Distributors, Inc. (1993-1994);
President and Director of Ivy
Mackenzie Services Corp.
(1996-present); Secretary/Treasurer
and Director of Ivy Mackenzie
Services Corp. (1993-1996);
Secretary/Treasurer
of The Mackenzie Funds Inc.
(1993-1995); Secretary/Treasurer of
Mackenzie Series Trust (1994-1998).
James W. Broadfoot Vice Executive Vice President,
700 South Federal Hwy. President Ivy Management Inc. (1996-
Suite 300 present); Senior Vice
Boca Raton, FL 33432 President, Ivy Management,
Age: 56 Inc. (1992-1996); Director and
Senior Vice President, Mackenzie
Investment Management Inc. (1995-
present); Senior Vice President,
Mackenzie Investment Management Inc.
(1990-1995).
COMPENSATION TABLE
IVY FUND
(FISCAL YEAR ENDED DECEMBER 31, 1998)
PENSION OR TOTAL COMPENSA-
AGGREGATE RETIREMENT ESTIMATED TION FROM TRUST
NAME, COMPENSATION BENEFITS ACCRUED ANNUAL AND FUND
POSITION FROM TRUST AS PART OF BENEFITS UPON COMPLEX PAID TO
FUND EXPENSES RETIREMENT TRUSTEES
John S. N/A N/A
Anderegg, Jr.
(Trustee)
Paul H. N/A N/A
Broyhill
(Trustee)
Keith J. $0 N/A N/A $0
Carlson
(Trustee and
President)
Stanley N/A N/A
Channick
(Trustee)
Frank W. N/A N/A
DeFriece, Jr.
(Trustee)
Roy J. N/A N/A
Glauber
(Trustee)
Michael G. $0 N/A N/A $0
Landry
(Trustee and
Chairman of
the Board)
Joseph G. N/A N/A
Rosenthal
(Trustee)
Richard N. N/A N/A
Silverman
(Trustee)
J. Brendan N/A N/A
Swan
(Trustee)
C. William $0 N/A N/A $0
Ferris
(Secretary/
Treasurer)
To the knowledge of the Trust, as of [ ], no shareholder owned
beneficially or of record 5% or more of the Fund's outstanding shares of any
class, except that [to be completed by amendment].
As of [ ], the Officers and Trustees of the Trust as a group owned
beneficially or of record less than 1% of the outstanding Class A, Class B,
Class C and Advisor Class shares of the Fund.
PERSONAL INVESTMENTS BY EMPLOYEES OF IMI. Employees of IMI are
permitted to make personal securities transactions, subject to the requirements
and restrictions set forth in IMI's Code of Ethics and Business Conduct Policy
(the "Code of Ethics"). The Code of Ethics is designed to identify and address
certain conflicts of interest between personal investment activities and the
interests of investment advisory clients such as the Fund. Among other things,
the Code of Ethics, which generally complies with standards recommended by the
Investment Company Institute's Advisory Group on Personal Investing, prohibits
certain types of transactions absent prior approval, applies to portfolio
managers, traders, research analysts and others involved in the investment
advisory process, and imposes time periods during which personal transactions
may not be made in certain securities, and requires the submission of duplicate
broker confirmations and monthly reporting of securities transactions.
Exceptions to these and other provisions of the Code of Ethics may be granted in
particular circumstances after review by appropriate personnel.
INVESTMENT ADVISORY AND OTHER SERVICES
BUSINESS MANAGEMENT AND INVESTMENT ADVISORY SERVICES
IMI provides business management and investment advisory services to
the Fund pursuant to a Business Management and Investment Advisory Agreement
(the "Agreement"). The Agreement was approved by the sole shareholder of the
Fund on January 27, 1995. Prior to shareholder approval, the Agreement was
approved with respect to the Fund by the Board, including a majority of the
Trustees who are neither "interested persons" (as defined in the 1940 Act) of
the Trust nor have any direct or indirect financial interest in the operation of
the distribution plan (see "Distribution Services") or in any related agreement
(the "Independent Trustees") at a meeting held on September 29, 1994.
IMI is a wholly owned subsidiary of Mackenzie Investment Management
Inc. ("MIMI"). MIMI, a Delaware corporation, has approximately 10% of its
outstanding common stock listed for trading on the Toronto Stock Exchange
("TSE"). MIMI is a subsidiary of Mackenzie Financial Corporation ("MFC"), 150
Bloor Street West, Toronto, Ontario, Canada, a public corporation organized
under the laws of Ontario whose shares are listed for trading on the TSE. MFC is
registered in Ontario as a mutual fund dealer and advises Ivy Global Natural
Resources Fund. IMI currently acts as manager and investment adviser to the
following additional investment companies registered under the 1940 Act (other
than the Fund): Ivy Asia Pacific Fund, Ivy Bond Fund, Ivy China Region Fund, Ivy
Developing Nations Fund, Ivy European Opportunities Fund, Ivy Global Science &
Technology Fund, Ivy Growth Fund, Ivy Growth with Income Fund, Ivy International
Fund, Ivy International Fund II, Ivy International Small Companies Fund, Ivy
International Strategic Bond Fund, Ivy Money Market Fund, Ivy Pan-Europe Fund,
Ivy South America Fund, Ivy US Blue Chip Fund and Ivy US Emerging Growth Fund.
IMI also provides business management services to Ivy Global Natural Resources
Fund.
The Agreement obligates IMI to make investments for the account of the
Fund in accordance with its best judgment and within the investment objectives
and restrictions set forth in the Prospectus, the 1940 Act and the provisions of
the Code relating to regulated investment companies, subject to policy decisions
adopted by the Board. IMI also determines the securities to be purchased or sold
by the Fund and places orders with brokers or dealers who deal in such
securities.
Under the Agreement, IMI also provides certain business management
services. IMI is obligated to (1) coordinate with the Fund's Custodian and
monitor the services it provides to the Fund; (2) coordinate with and monitor
any other third parties furnishing services to the Fund; (3) provide the Fund
with necessary office space, telephones and other communications facilities as
are adequate for the Fund's needs; (4) provide the services of individuals
competent to perform administrative and clerical functions that are not
performed by employees or other agents engaged by the Fund or by IMI acting in
some other capacity pursuant to a separate agreement or arrangements with the
Fund; (5) maintain or supervise the maintenance by third parties of such books
and records of the Trust as may be required by applicable Federal or state law;
(6) authorize and permit IMI's directors, officers and employees who may be
elected or appointed as trustees or officers of the Trust to serve in such
capacities; and (7) take such other action with respect to the Trust, after
approval by the Trust as may be required by applicable law, including without
limitation the rules and regulations of the SEC and of state securities
commissions and other regulatory agencies.
The Fund pays IMI a monthly fee for providing business management and
investment advisory services at an annual rate of 1.00% of the Fund's average
net assets.
During the fiscal years ended December 31, 1996, 1997 and 1998, the
Fund paid IMI fees of $301,433, $383,981 and [ ], respectively (of which IMI
reimbursed $0, $0 and [ ], respectively, pursuant to expense limitations).
Under the Agreement, the Trust pays the following expenses: (1) the
fees and expenses of the Trust's Independent Trustees; (2) the salaries and
expenses of any of the Trust's officers or employees who are not affiliated with
IMI; (3) interest expenses; (4) taxes and governmental fees, including any
original issue taxes or transfer taxes applicable to the sale or delivery of
shares or certificates therefor; (5) brokerage commissions and other expenses
incurred in acquiring or disposing of portfolio securities; (6) the expenses of
registering and qualifying shares for sale with the SEC and with various state
securities commissions; (7) accounting and legal costs; (8) insurance premiums;
(9) fees and expenses of the Trust's Custodian and Transfer Agent and any
related services; (10) expenses of obtaining quotations of portfolio securities
and of pricing shares; (11) expenses of maintaining the Trust's legal existence
and of shareholders' meetings; (12) expenses of preparation and distribution to
existing shareholders of periodic reports, proxy materials and prospectuses; and
(13) fees and expenses of membership in industry organizations.
IMI currently limits the Fund's total operating expenses (excluding
Rule 12b-1 fees, interest, taxes, brokerage commissions, litigation,
class-specific expenses, indemnification expenses, and extraordinary expenses)
to an annual rate of 1.95% of the Fund's average net assets, which may lower the
Fund's expenses and increase its yield.
The Agreement will continue in effect with respect to the Fund from
year to year, only so long as the continuance is specifically approved at least
annually (i) by the vote of a majority of the Independent Trustees and (ii)
either (a) by the vote of a majority of the outstanding voting securities (as
defined in the 1940 Act) of the Fund or (b) by the vote of a majority of the
entire Board. If the question of continuance of the Agreement (or adoption of
any new agreement) is presented to the shareholders, continuance (or adoption)
shall be effected only if approved by the affirmative vote of a majority of the
outstanding voting securities of the Fund. See "Capitalization and Voting
Rights."
The Agreement may be terminated with respect to the Fund at any time,
without payment of any penalty, by the vote of a majority of the Board, or by a
vote of a majority of the outstanding voting securities of the Fund, on 60 days'
written notice to IMI, or by IMI on 60 days' written notice to the Trust. The
Agreement shall terminate automatically in the event of its assignment.
DISTRIBUTION SERVICES
IMDI, a wholly owned subsidiary of MIMI, serves as the exclusive
distributor of Ivy Fund's shares pursuant to an Amended and Restated
Distribution Agreement with the Trust dated _______________, 1999, as amended
from time to time (the "Distribution Agreement"). The Distribution Agreement was
approved by the Board on September 17, 1998. IMDI distributes shares of the Fund
through broker-dealers who are members of the National Association of Securities
Dealers, Inc. and who have executed dealer agreements with IMDI. IMDI
distributes shares of the Fund on a continuous basis, but reserves the right to
suspend or discontinue distribution on that basis. IMDI is not obligated to sell
any specific amount of Fund shares.
Pursuant to the Distribution Agreement, IMDI is entitled to deduct a
commission on all Class A Fund shares sold equal to the difference, if any,
between the public offering price, as set forth in the Fund's then-current
prospectus, and the net asset value on which such price is based. Out of that
commission, IMDI may reallow to dealers such concession as IMDI may determine
from time to time. In addition, IMDI is entitled to deduct a CDSC on the
redemption of Class A shares sold without an initial sales charge and Class B
and Class C shares, in accordance with, and in the manner set forth in, the
Prospectus.
Under the Distribution Agreement, the Fund bears, among other expenses,
the expenses of registering and qualifying its shares for sale under Federal and
state securities laws and preparing and distributing to existing shareholders
periodic reports, proxy materials and prospectuses.
During the fiscal year ended December 31, 1998, IMDI received from
sales of Class A shares of the Fund [ ] in sales commissions, of which [ ] was
retained after dealer allowances. During the fiscal year ended December 31,
1998, IMDI received [ ] in CDSCs on redemptions of Class B shares of the Fund.
During the fiscal year ended December 31, 1998, IMDI received [ ] in CDSCs on
redemptions of Class C shares of the Fund.
The Distribution Agreement will continue in effect for successive
one-year periods, provided that such continuance is specifically approved at
least annually by the vote of a majority of the Independent Trustees, cast in
person at a meeting called for that purpose and by the vote of either a majority
of the entire Board or a majority of the outstanding voting securities of the
Fund. The Distribution Agreement may be terminated with respect to the Fund at
any time, without payment of any penalty, by IMDI on 60 days' written notice to
the Fund or by the Fund by vote of either a majority of the outstanding voting
securities of the Fund or a majority of the Independent Trustees on 60 days'
written notice to IMDI. The Distribution Agreement shall terminate automatically
in the event of its assignment.
RULE 18F-3 PLAN. On February 23, 1995, the SEC adopted Rule 18f-3 under
the 1940 Act, which permits a registered open-end investment company to issue
multiple classes of shares in accordance with a written plan approved by the
investment company's board of directors/trustees and filed with the SEC. At a
meeting held on December 1-2, 1995, the Board adopted a Rule 18f-3 plan on
behalf of the Fund. The Board last approved the Rule 18f-3 plan at a meeting
held of December 5-6, 1997. The key features of the Rule 18f-3 plan are as
follows: (i) shares of each class of the Fund represent an equal pro rata
interest in the Fund and generally have identical voting, dividend, liquidation,
and other rights, preferences, powers, restrictions, limitations,
qualifications, terms and conditions, except that each class bears certain
class-specific expenses and has separate voting rights on certain matters that
relate solely to that class or in which the interests of shareholders of one
class differ from the interests of shareholders of another class; (ii) subject
to certain limitations described in the Prospectus, shares of a particular class
of the Fund may be exchanged for shares of the same class of another Ivy fund;
and (iii) the Fund's Class B shares will convert automatically into Class A
shares of the Fund after a period of eight years, based on the relative net
asset value of such shares at the time of conversion.
RULE 12B-1 DISTRIBUTION PLANS. The Trust has adopted on behalf of the
Fund, in accordance with Rule 12b-1 under the 1940 Act, separate Rule 12b-1
distribution plans pertaining to the Fund's Class A, Class B and Class C shares
(each, a "Plan"). In adopting each Plan, a majority of the Independent Trustees
have concluded in accordance with the requirements of Rule 12b-1 that there is a
reasonable likelihood that each Plan will benefit the Fund and its shareholders.
The Trustees of the Trust believe that the Plans should result in greater sales
and/or fewer redemptions of the Fund's shares, although it is impossible to know
for certain the level of sales and redemptions of the Fund's shares in the
absence of a Plan or under an alternative distribution arrangement.
Under each Plan, the Fund pays IMDI a service fee, accrued daily and
paid monthly, at the annual rate of up to 0.25% of the average daily net assets
attributable to its Class A, Class B or Class C shares, as the case may be. The
services for which service fees may be paid include, among other things,
advising clients or customers regarding the purchase, sale or retention of
shares of the Fund, answering routine inquiries concerning the Fund and
assisting shareholders in changing options or enrolling in specific plans.
Pursuant to each Plan, service fee payments made out of or charged against the
assets attributable to the Fund's Class A, Class B or Class C shares must be in
reimbursement for services rendered for or on behalf of the affected class. The
expenses not reimbursed in any one month may be reimbursed in a subsequent
month. The Class A Plan does not provide for the payment of interest or carrying
charges as distribution expenses.
Under the Fund's Class B and Class C Plans, the Fund also pays IMDI a
distribution fee, accrued daily and paid monthly, at the annual rate of 0.75% of
the average daily net assets attributable to its Class B or Class C shares. IMDI
may reallow to dealers all or a portion of the service and distribution fees as
IMDI may determine from time to time. The distribution fee compensates IMDI for
expenses incurred in connection with activities primarily intended to result in
the sale of the Fund's Class B or Class C shares, including the printing of
prospectuses and reports for persons other than existing shareholders and the
preparation, printing and distribution of sales literature and advertising
materials. Pursuant to each Class B and Class C Plan, IMDI may include interest,
carrying or other finance charges in its calculation of distribution expenses,
if not prohibited from doing so pursuant to an order of or a regulation adopted
by the SEC.
Among other things, each Plan provides that (1) IMDI will submit to the
Board at least quarterly, and the Trustees will review, written reports
regarding all amounts expended under the Plan and the purposes for which such
expenditures were made; (2) each Plan will continue in effect only so long as
such continuance is approved at least annually, and any material amendment
thereto is approved, by the votes of a majority of the Board, including the
Independent Trustees, cast in person at a meeting called for that purpose; (3)
payments by the Fund under each Plan shall not be materially increased without
the affirmative vote of the holders of a majority of the outstanding shares of
the relevant class; and (4) while each Plan is in effect, the selection and
nomination of Independent Trustees shall be committed to the discretion of the
Trustees who are not "interested persons" of the Trust.
IMDI may make payments for distribution assistance and for
administrative and accounting services from resources that may include the
management fees paid by the Fund. IMDI also may make payments (such as the
service fee payments described above) to unaffiliated broker-dealers for
services rendered in the distribution of the Fund's shares. To qualify for such
payments, shares may be subject to a minimum holding period. However, no such
payments will be made to any dealer or broker if at the end of each year the
amount of shares held does not exceed a minimum amount. The minimum holding
period and minimum level of holdings will be determined from time to time by
IMDI.
A report of the amount expended pursuant to each Plan, and the purposes
for which such expenditures were incurred, must be made to the Board for its
review at least quarterly.
During the fiscal year ended December 31, 1998, the Fund paid IMDI [ ]
pursuant to its Class A plan. During the fiscal year ended December 31, 1998 the
Fund paid IMDI [ ] pursuant to its Class B plan. During the fiscal year ended
December 31, 1998, the Fund paid IMDI [ ] pursuant to its Class C plan.
During the fiscal year ended December 31, 1998, IMDI expended the
following amounts in marketing Class A shares of the Fund: advertising [$ ;]
printing and mailing of prospectuses to persons other than current shareholders,
[$ ;] compensation to dealers, [$ ;] compensation to sales personnel [$ ;]
seminars and meetings, [$ ;] travel and entertainment, [$ ;] general and
administrative, [$ ;] telephone, [$ ;] and occupancy and equipment rental, [$ .]
During the fiscal year ended December 31, 1998, IMDI expended the
following amounts in marketing Class B shares of the Fund: advertising, [$ ;]
printing and mailing of prospectuses to persons other than current shareholders,
[$ ;] compensation to dealers, [$ ;] compensation to sales personnel, [$ ;]
seminars and meetings, [$ ;] travel and entertainment, [$ ;] general and
administrative, [$ ;] telephone, [$ ;] and occupancy and equipment rental [$ .]
During the fiscal year ended December 31, 1998, IMDI expended the
following amounts in marketing Class C shares of the Fund: advertising, [$ ;]
printing and mailing of prospectuses to persons other than current shareholders,
[$ ;] compensation to dealers, [$ ;] compensation to sales personnel, [$ ;]
seminars and meetings, [$ ;] travel and entertainment, [$ ;] general
administrative, [$ ;] telephone, [$ ;] and occupancy and equipment rental, [$ .]
Each Plan may be amended at any time with respect to the class of
shares of the Fund to which the Plan relates by vote of the Trustees, including
a majority of the Independent Trustees, cast in person at a meeting called for
the purpose of considering such amendment. Each Plan may be terminated at any
time with respect to the class of shares of the Fund to which the Plan relates,
without payment of any penalty, by vote of a majority of the Independent
Trustees, or by vote of a majority of the outstanding voting securities of that
class.
If the Distribution Agreement or the Distribution Plans are terminated
(or not renewed) with respect to any of the Ivy funds (or class of shares
thereof), each may continue in effect with respect to any other fund (or Class
of shares thereof) as to which they have not been terminated (or have been
renewed).
CUSTODIAN
Pursuant to a Custodian Agreement with the Trust, Brown Brothers
Harriman & Co. (the "Custodian"), a private bank and member of the principal
securities exchanges, located at 40 Water Street, Boston, Massachusetts 02109
(the "Custodian"), maintains custody of the assets of the Fund held in the
United States. Rules adopted under the 1940 Act permit the Trust to maintain its
foreign securities and cash in the custody of certain eligible foreign banks and
securities depositories. Pursuant to those rules, the Custodian has entered into
subcustodial agreements for the holding of the Fund's foreign securities. With
respect to the Fund, the Custodian may receive, as partial payment for its
services to the Fund, a portion of the Trust's brokerage business, subject to
its ability to provide best price and execution.
FUND ACCOUNTING SERVICES
Pursuant to a Fund Accounting Services Agreement, MIMI provides certain
accounting and pricing services for the Fund. As compensation for those
services, the Fund pays MIMI a monthly fee plus out-of-pocket expenses as
incurred. The monthly fee is based upon the net assets of the Fund at the
preceding month end at the following rates: $1,250 when net assets are $10
million and under; $2,500 when net assets are over $10 million to $40 million;
$5,000 when net assets are over $40 million to $75 million; and $6,500 when net
assets are over $75 million.
During the fiscal year ended December 31, 1998, the Fund paid MIMI
[ ] under the agreement.
TRANSFER AGENT AND DIVIDEND PAYING AGENT
Pursuant to a Transfer Agency and Shareholder Service Agreement, Ivy
Mackenzie Services Corp. ("IMSC"), a wholly owned subsidiary of MIMI, is the
transfer agent for the Fund. Under the Agreement, the Fund pays a monthly fee at
an annual rate of $20.00 for each open Class A, Class B, Class C and Advisor
Class account. In addition, the Fund pays a monthly fee at an annual rate of
$4.58 per account that is closed plus certain out-of-pocket expenses. Such fees
and expenses for the fiscal year ended December 31, 1998 for the Fund totaled [$
]. Certain broker-dealers that maintain shareholder accounts with the Fund
through an omnibus account provide transfer agent and other shareholder-related
services that would otherwise be provided by IMSC if the individual accounts
that comprise the omnibus account were opened by their beneficial owners
directly. IMSC pays such broker-dealers a per account fee for each open account
within the omnibus account, or a fixed rate (e.g., 0.10%) fee, based on the
average daily net asset value of the omnibus account (or a combination thereof).
ADMINISTRATOR
Pursuant to an Administrative Services Agreement, MIMI provides certain
administrative services to the Fund. As compensation for these services, the
Fund pays MIMI a monthly fee at the annual rate of 0.10% of the Fund's average
daily net assets. Such fees for the fiscal year ended December 31, 1998 for the
Fund totaled [$ ].
Outside of providing administrative services to the Trust, as described
above, MIMI may also act on behalf of IMDI in paying commissions to
broker-dealers with respect to sales of Class B and Class C shares of the Fund.
AUDITORS
[ ], independent public accountants, has been selected as auditors for
the Trust. The audit services performed by [ ] include audits of the annual
financial statements of each of the funds of the Trust. Other services provided
principally relate to filings with the SEC and the preparation of the funds' tax
returns.
BROKERAGE ALLOCATION
Subject to the overall supervision of the President and the Board, IMI
places orders for the purchase and sale of the Fund's portfolio securities. All
portfolio transactions are effected at the best price and execution obtainable.
Purchases and sales of debt securities are usually principal transactions and
therefore, brokerage commissions are usually not required to be paid by the Fund
for such purchases and sales (although the price paid generally includes
undisclosed compensation to the dealer). The prices paid to underwriters of
newly-issued securities usually include a concession paid by the issuer to the
underwriter, and purchases of after-market securities from dealers normally
reflect the spread between the bid and asked prices. In connection with OTC
transactions, IMI attempts to deal directly with the principal market makers,
except in those circumstances where IMI believes that a better price and
execution are available elsewhere.
IMI selects broker-dealers to execute transactions and evaluates the
reasonableness of commissions on the basis of quality, quantity, and the nature
of the firms' professional services. Commissions to be charged and the rendering
of investment services, including statistical, research, and counseling services
by brokerage firms, are factors to be considered in the placing of brokerage
business. The types of research services provided by brokers may include general
economic and industry data, and information on securities of specific companies.
Research services furnished by brokers through whom the Trust effects securities
transactions may be used by IMI in servicing all of its accounts. In addition,
not all of these services may be used by IMI in connection with the services it
provides to the Fund or the Trust. IMI may consider sales of shares of Ivy funds
as a factor in the selection of broker-dealers and may select broker-dealers who
provide it with research services. IMI will not, however, execute brokerage
transactions other than at the best price and execution.
During the fiscal years ended December 31, 1996, 1997 and 1998, the
Fund paid brokerage commissions of $90,904, $123,985 and [ ], respectively.
The Fund may, under some circumstances, accept securities in lieu of
cash as payment for Fund shares. The Fund will accept securities only to
increase its holdings in a portfolio security or to take a new portfolio
position in a security that IMI deems to be a desirable investment for the Fund.
While no minimum has been established, it is expected that the Fund will not
accept securities having an aggregate value of less than $1 million. The Trust
may reject in whole or in part any or all offers to pay for the Fund shares with
securities and may discontinue accepting securities as payment for the Fund
shares at any time without notice. The Trust will value accepted securities in
the manner and at the same time provided for valuing portfolio securities of the
Fund, and the Fund shares will be sold for net asset value determined at the
same time the accepted securities are valued. The Trust will only accept
securities delivered in proper form and will not accept securities subject to
legal restrictions on transfer. The acceptance of securities by the Trust must
comply with the applicable laws of certain states.
CAPITALIZATION AND VOTING RIGHTS
The capitalization of the Trust consists of an unlimited number of
shares of beneficial interest (no par value per share). When issued, shares of
each class of the Fund are fully paid, non-assessable, redeemable and fully
transferable. No class of shares of the Fund has preemptive rights or
subscription rights.
The Amended and Restated Declaration of Trust permits the Trustees to
create separate series or portfolios and to divide any series or portfolio into
one or more classes. The Trustees have authorized nineteen series, each of which
represents a fund. The Trustees have further authorized the issuance of Class A,
Class B, and Class C shares for Ivy International Fund and Ivy Money Market Fund
and Class A, Class B, Class C and Advisor Class shares for the Fund, Ivy Asia
Pacific Fund, Ivy Bond Fund, Ivy China Region Fund, Ivy Developing Nations Fund,
Ivy European Opportunities Fund, Ivy Global Natural Resources Fund, Ivy Global
Science & Technology Fund, Ivy Growth Fund, Ivy Growth with Income Fund, Ivy
International Fund II, Ivy International Small Companies Fund, Ivy International
Strategic Bond Fund, Ivy Pan-Europe Fund, Ivy South America Fund, Ivy US Blue
Chip Fund and Ivy US Emerging Growth Fund, as well as Class I shares for Ivy
Bond Fund, Ivy European Opportunities Fund, Ivy Global Science & Technology
Fund, Ivy International Fund, Ivy International Fund II, Ivy International Small
Companies Fund, Ivy International Strategic Bond Fund and Ivy US Blue Chip Fund.
Shareholders have the right to vote for the election of Trustees of the
Trust and on any and all matters on which they may be entitled to vote by law or
by the provisions of the Trust's By-Laws. The Trust is not required to hold a
regular annual meeting of shareholders, and it does not intend to do so. Shares
of each class of the Fund entitle their holders to one vote per share (with
proportionate voting for fractional shares). Shareholders of the Fund are
entitled to vote alone on matters that only affect the Fund. All classes of
shares of the Fund will vote together, except with respect to the distribution
plan applicable to the Fund's Class A, Class B or Class C shares or when a class
vote is required by the 1940 Act. On matters relating to all funds of the Trust,
but affecting the funds differently, separate votes by the shareholders of each
fund are required. Approval of an investment advisory agreement and a change in
fundamental policies would be regarded as matters requiring separate voting by
the shareholders of each fund of the Trust. If the Trustees determine that a
matter does not affect the interests of the Fund, then the shareholders of the
Fund will not be entitled to vote on that matter. Matters that affect the Trust
in general, such as ratification of the selection of independent public
accountants, will be voted upon collectively by the shareholders of all funds of
the Trust.
As used in this SAI and the Prospectus, the phrase "majority vote of
the outstanding shares" of the Fund means the vote of the lesser of: (1) 67% of
the shares of the Fund (or of the Trust) present at a meeting if the holders of
more than 50% of the outstanding shares are present in person or by proxy; or
(2) more than 50% of the outstanding shares of the Fund (or of the Trust).
With respect to the submission to shareholder vote of a matter
requiring separate voting by the Fund, the matter shall have been effectively
acted upon with respect to the Fund if a majority of the outstanding voting
securities of the Fund votes for the approval of the matter, notwithstanding
that: (1) the matter has not been approved by a majority of the outstanding
voting securities of any other fund of the Trust; or (2) the matter has not been
approved by a majority of the outstanding voting securities of the Trust.
The Amended and Restated Declaration of Trust provides that the holders
of not less than two-thirds of the outstanding shares of the Trust may remove a
person serving as trustee either by declaration in writing or at a meeting
called for such purpose. The Trustees are required to call a meeting for the
purpose of considering the removal of a person serving as Trustee if requested
in writing to do so by the holders of not less than 10% of the outstanding
shares of the Trust. Shareholders will be assisted in communicating with other
shareholders in connection with the removal of a Trustee as if Section 26(c) of
the Act were applicable.
The Trust's shares do not have cumulative voting rights and accordingly
the holders of more than 50% of the outstanding shares could elect the entire
Board, in which case the holders of the remaining shares would not be able to
elect any Trustees.
Under Massachusetts law, the Trust's shareholders could, under certain
circumstances, be held personally liable for the obligations of the Trust.
However, the Amended and Restated Declaration of Trust disclaims liability of
the shareholders, Trustees or officers of the Trust for acts or obligations of
the Trust, which are binding only on the assets and property of the Trust, and
requires that notice of the disclaimer be given in each contract or obligation
entered into or executed by the Trust or its Trustees. The Amended and Restated
Declaration of Trust provides for indemnification out of Fund property for all
loss and expense of any shareholder of the Fund held personally liable for the
obligations of the Fund. The risk of a shareholder of the Trust incurring
financial loss on account of shareholder liability is limited to circumstances
in which the Trust itself would be unable to meet its obligations and, thus,
should be considered remote. No series of the Trust is liable for the
obligations of any other series of the Trust.
SPECIAL RIGHTS AND PRIVILEGES
The Trust offers, and (except as noted below) bears the cost of
providing, to investors the following rights and privileges. The Trust reserves
the right to amend or terminate any one or more of these rights and privileges.
Notice of amendments to or terminations of rights and privileges will be
provided to shareholders in accordance with applicable law.
Certain of the rights and privileges described below refer to funds,
other than the Fund, whose shares are also distributed by IMDI. These funds are:
Ivy Asia Pacific Fund, Ivy Bond Fund, Ivy China Region Fund, Ivy Developing
Nations Fund, Ivy European Opportunities Fund, Ivy Global Natural Resources
Fund, Ivy Global Science & Technology Fund, Ivy Growth Fund, Ivy Growth with
Income Fund, Ivy International Fund, Ivy International Fund II, Ivy
International Small Companies Fund, Ivy International Strategic Bond Fund, Ivy
Money Market Fund, Ivy Pan-Europe Fund, Ivy South America Fund, Ivy US Blue Chip
Fund, and Ivy US Emerging Growth Fund (the other eighteen series of the Trust).
(Effective April 18, 1997, Ivy International Fund suspended the offer of its
shares to new investors). Shareholders should obtain a current prospectus before
exercising any right or privilege that may relate to these funds.
AUTOMATIC INVESTMENT METHOD
The Automatic Investment Method, which enables a Fund shareholder to
have specified amounts automatically drawn each month from his or her bank for
investment in Fund shares, is available for all classes of shares. The minimum
initial and subsequent investment under this method is $50 per month ($250 for
Advisor Class shares), (except in the case of a tax qualified retirement plan
for which the minimum initial and subsequent investment is $25 per month). A
shareholder may terminate the Automatic Investment Method at any time upon
delivery to IMSC of telephone instructions or written notice. See "Automatic
Investment Method" in the Prospectus. To begin the plan, complete Sections 6A
and 7B of the Account Application.
EXCHANGE OF SHARES
As described in the Prospectus, shareholders of the Fund have an
exchange privilege with other Ivy funds (except Ivy International Fund unless
they have an existing Ivy International Fund account). Before effecting an
exchange, shareholders of the Fund should obtain and read the currently
effective prospectus for the Ivy fund into which the exchange is to be made.
INITIAL SALES CHARGE SHARES. Class A shareholders may exchange their
Class A shares ("outstanding Class A shares") for Class A shares of another Ivy
fund ("new Class A Shares") on the basis of the relative net asset value per
Class A share, plus an amount equal to the difference, if any, between the sales
charge previously paid on the outstanding Class A shares and the sales charge
payable at the time of the exchange on the new Class A shares. (The additional
sales charge will be waived for Class A shares that have been invested for a
period of 12 months or longer.) Class A shareholders may also exchange their
shares for shares of Ivy Money Market Fund (no initial sales charge will be
assessed at the time of such an exchange).
CONTINGENT DEFERRED SALES CHARGE SHARES CLASS A: Class A shareholders
may exchange their Class A shares that are subject to a contingent deferred
sales charge ("CDSC"), as described in the Prospectus ("outstanding Class A
shares"), for Class A shares of another Ivy fund ("new Class A shares") on the
basis of the relative net asset value per Class A share, without the payment of
any CDSC that would otherwise be due upon the redemption of the outstanding
Class A shares. Class A shareholders of the Fund exercising the exchange
privilege will continue to be subject to that Fund's CDSC period following an
exchange if such period is longer than the CDSC period, if any, applicable to
the new Class A shares.
For purposes of computing the CDSC that may be payable upon the
redemption of the new Class A shares, the holding period of the outstanding
Class A shares is "tacked" onto the holding period of the new Class A shares.
CLASS B: Class B shareholders may exchange their Class B shares
("outstanding Class B shares") for Class B shares of another Ivy fund ("new
Class B shares") on the basis of the relative net asset value per Class B share,
without the payment of any CDSC that would otherwise be due upon the redemption
of the outstanding Class B shares. Class B shareholders of the Fund exercising
the exchange privilege will continue to be subject to that Fund's CDSC schedule
(or period) following an exchange if such schedule is higher (or such period is
longer) than the CDSC schedule (or period) applicable to the new Class B shares.
Class B shares of the Fund acquired through an exchange of Class B
shares of another Ivy fund will be subject to that Fund's CDSC schedule (or
period) if such schedule is higher (or such period is longer) than the CDSC
schedule (or period) applicable to the Ivy fund from which the exchange was
made.
For purposes of both the conversion feature and computing the CDSC that
may be payable upon the redemption of the new Class B shares (prior to
conversion), the holding period of the outstanding Class B shares is "tacked"
onto the holding period of the new Class B shares.
The following CDSC table applies to Class B shares of Ivy Asia Pacific
Fund, Ivy Bond Fund, Ivy China Region Fund, Ivy Developing Nations Fund, Ivy
European Opportunities Fund, Ivy Global Fund, Ivy Global Natural Resources Fund,
Ivy Global Science & Technology Fund, Ivy Growth Fund, Ivy Growth with Income
Fund, Ivy International Fund, Ivy International Fund II, Ivy International Small
Companies Fund, Ivy International Strategic Bond Fund, Ivy Pan-Europe Fund, Ivy
South America Fund, Ivy US Blue Chip Fund, and Ivy US Emerging Growth Fund.
CONTINGENT DEFERRED SALES CHARGE AS A PERCENTAGE OF
DOLLAR AMOUNT SUBJECT TO CHARGE
YEAR SINCE PURCHASE
First 5%
Second 4%
Third 3%
Fourth 3%
Fifth 2%
Sixth 1%
Seventh and thereafter 0%
CLASS C: Class C shareholders may exchange their Class C shares
("outstanding Class C shares") for Class C shares of another Ivy fund ("new
Class C shares") on the basis of the relative net asset value per Class C share,
without the payment of any CDSC that would otherwise be due upon redemption.
(Class C shares are subject to a CDSC of 1.00% if redeemed within one year of
the date of purchase.)
ADVISOR CLASS: Subject to the restrictions set forth in the following
paragraph, Advisor Class shareholders may exchange their outstanding shares for
Advisor Class shares of another Ivy fund on the basis of the relative net asset
value per share.
ALL CLASSES: The minimum value of shares which may be exchanged into an
Ivy fund in which shares are not already held is $1,000 ($10,000 in the case of
Advisor Class shares). No exchange out of the Fund (other than by a complete
exchange of all Fund shares) may be made if it would reduce the shareholder's
interest in the Fund to less than $1,000 ($10,000 in the case of Advisor Class
shares).
Each exchange will be made on the basis of the relative net asset value
per share of the Ivy funds involved in the exchange next computed following
receipt by IMSC of telephone instructions by IMSC or a properly executed
request. Exchanges, whether written or telephonic, must be received by IMSC by
the close of regular trading on the Exchange (normally 4:00 p.m., eastern time)
to receive the price computed on the day of receipt. Exchange requests received
after that time will receive the price next determined following receipt of the
request. The exchange privilege may be modified or terminated at any time, upon
at least 60 days' notice to the extent required by applicable law. See
"Redemptions."
An exchange of shares between any of the Ivy funds will result in a
taxable gain or loss. Generally, this will be a capital gain or loss (long-term
or short-term, depending on the holding period of the shares) in the amount of
the difference between the net asset value of the shares surrendered and the
shareholder's tax basis for those shares. However, in certain circumstances,
shareholders will be ineligible to take sales charges into account in computing
taxable gain or loss on an exchange. See "Taxation."
With limited exceptions, gain realized by a tax-deferred retirement
plan will not be taxable to the plan and will not be taxed to the participant
until distribution. Each investor should consult his or her tax adviser
regarding the tax consequences of an exchange transaction.
LETTER OF INTENT
Reduced sales charges apply to initial investments in Class A shares of
the Fund made pursuant to a non-binding Letter of Intent. A Letter of Intent may
be submitted by an individual, his or her spouse and children under the age of
21, or a trustee or other fiduciary of a single trust estate or single fiduciary
account. See the Account Application in the Prospectus. Any investor may submit
a Letter of Intent stating that he or she will invest, over a period of 13
months, at least $50,000 in Class A shares of the Fund. A Letter of Intent may
be submitted at the time of an initial purchase of Class A shares of the Fund or
within 90 days of the initial purchase, in which case the Letter of Intent will
be back dated. A shareholder may include, as an accumulation credit, the value
(at the applicable offering price) of all Class A shares of Ivy Asia Pacific
Fund, Ivy Bond Fund, Ivy China Region Fund, Ivy Developing Nations Fund, Ivy
European Opportunities Fund, Ivy Global Fund, Ivy Global Natural Resources Fund,
Ivy Global Science & Technology Fund, Ivy Growth Fund, Ivy Growth with Income
Fund, Ivy International Fund, Ivy International Fund II, Ivy International Small
Companies Fund, Ivy International Strategic Bond Fund, Ivy Pan-Europe Fund, Ivy
South America Fund, Ivy US Blue Chip Fund and Ivy US Emerging Growth Fund (and
shares that have been exchanged into Ivy Money Market Fund from any of the other
funds in the Ivy funds) held of record by him or her as of the date of his or
her Letter of Intent. During the term of the Letter of Intent, the Transfer
Agent will hold Class A shares representing 5% of the indicated amount (less any
accumulation credit value) in escrow. The escrowed Class A shares will be
released when the full indicated amount has been purchased. If the full
indicated amount is not purchased during the term of the Letter of Intent, the
investor is required to pay IMDI an amount equal to the difference between the
dollar amount of sales charge that he or she has paid and that which he or she
would have paid on his or her aggregate purchases if the total of such purchases
had been made at a single time. Such payment will be made by an automatic
liquidation of Class A shares in the escrow account. A Letter of Intent does not
obligate the investor to buy or the Trust to sell the indicated amount of Class
A shares, and the investor should read carefully all the provisions of such
letter before signing.
RETIREMENT PLANS
Shares may be purchased in connection with several types of
tax-deferred retirement plans. Shares of more than one fund distributed by IMDI
may be purchased in a single application establishing a single account under the
plan, and shares held in such an account may be exchanged among the Ivy funds in
accordance with the terms of the applicable plan and the exchange privilege
available to all shareholders. Initial and subsequent purchase payments in
connection with tax-deferred retirement plans must be at least $25 per
participant.
The following fees will be charged to individual shareholder accounts
as described in the retirement prototype plan document:
Retirement Plan New Account Fee no fee
Retirement Plan Annual Maintenance Fee $10.00 per fund account
For shareholders whose retirement accounts are diversified across
several Ivy funds, the annual maintenance fee will be limited to not more than
$20.
The following discussion describes the tax treatment of certain
tax-deferred retirement plans under current Federal income tax law. State income
tax consequences may vary. An individual considering the establishment of a
retirement plan should consult with an attorney and/or an accountant with
respect to the terms and tax aspects of the plan.
INDIVIDUAL RETIREMENT ACCOUNTS: Shares of the Fund may be used as a
funding medium for an Individual Retirement Account ("IRA"). Eligible
individuals may establish an IRA by adopting a model custodial account available
from IMSC, who may impose a charge for establishing the account. Individuals
should consult their tax advisers before investing IRA assets in an Ivy fund if
that fund primarily distributes exempt-interest dividends.
An individual who has not reached age 70-1/2 and who receives
compensation or earned income is eligible to contribute to an IRA, whether or
not he or she is an active participant in a retirement plan. An individual who
receives a distribution from another IRA, a qualified retirement plan, a
qualified annuity plan or a tax-sheltered annuity or custodial account ("403(b)
plan") that qualifies for "rollover" treatment is also eligible to establish an
IRA by rolling over the distribution either directly or within 60 days after its
receipt. Tax advice should be obtained in connection with planning a rollover
contribution to an IRA.
In general, an eligible individual may contribute up to the lesser of
$2,000 or 100% of his or her compensation or earned income to an IRA each year.
If a husband and wife are both employed, and both are under age 70-1/2, each may
set up his or her own IRA within these limits. If both earn at least $2,000 per
year, the maximum potential contribution is $4,000 per year for both. For years
after 1996, the result is similar even if one spouse has no earned income; if
the joint earned income of the spouses is at least $4,000, a contribution of up
to $2,000 may be made to each spouse's IRA. Rollover contributions are not
subject to these limits.
An individual may deduct his or her annual contributions to an IRA in
computing his or her Federal income tax within the limits described above,
provided he or she (or his or her spouse, if they file a joint Federal income
tax return) is not an active participant in a qualified retirement plan (such as
a qualified corporate, sole proprietorship, or partnership pension, profit
sharing, 401(k) or stock bonus plan), qualified annuity plan, 403(b) plan,
simplified employee pension, or governmental plan. If he or she (or his or her
spouse) is an active participant, whether the individual's contribution to an
IRA is fully deductible, partially deductible or not deductible depends on (i)
adjusted gross income and (ii) whether it is the individual or the individual's
spouse who is an active participant, in the case of married individuals filing
jointly. Contributions may be made up to the maximum permissible amount even if
they are not deductible. Rollover contributions are not includable in income for
Federal income tax purposes and therefore are not deductible from it.
Generally, earnings on an IRA are not subject to current Federal income
tax until distributed. Distributions attributable to tax-deductible
contributions and to IRA earnings are taxed as ordinary income. Distributions of
non-deductible contributions are not subject to Federal income tax. In general,
distributions from an IRA to an individual before he or she reaches age 59-1/2
are subject to a nondeductible penalty tax equal to 10% of the taxable amount of
the distribution. The 10% penalty tax does not apply to amounts withdrawn from
an IRA after the individual reaches age 59-1/2, becomes disabled or dies, or if
withdrawn in the form of substantially equal payments over the life or life
expectancy of the individual and his or her designated beneficiary, if any, or
rolled over into another IRA, amounts withdrawn and used to pay for deductible
medical expenses and amounts withdrawn by certain unemployed individuals not in
excess of amounts paid for certain health insurance premiums, amounts used to
pay certain qualified higher education expenses, and amounts used within 120
days of the date the distribution is received to pay for certain first-time
homebuyer expenses. Distributions must begin to be withdrawn not later than
April 1 of the calendar year following the calendar year in which the individual
reaches age 70-1/2. Failure to take certain minimum required distributions will
result in the imposition of a 50% non-deductible penalty tax.
ROTH IRAS: Shares of the Fund also may be used as a funding medium for
a Roth Individual Retirement Account ("Roth IRA"). A Roth IRA is similar in
numerous ways to the regular (traditional) IRA, described above.
Some of the primary differences are as follows.
A single individual earning below $95,000 can contribute up to $2,000
per year to a Roth IRA. The maximum contribution amount diminishes and gradually
falls to zero for single filers with adjusted gross incomes ranging from $95,000
to $110,000. Married couples earning less than $150,000 combined, and filing
jointly, can contribute a full $4,000 per year ($2,000 per IRA). The maximum
contribution amount for married couples filing jointly phases out from $150,000
to $160,000. An individual whose adjusted gross income exceeds the maximum
phase-out amount cannot contribute to a Roth IRA.
An eligible individual can contribute money to a traditional IRA and a
Roth IRA as long as the total contribution to all IRAs does not exceed $2,000.
Contributions to a Roth IRA are not deductible. Contributions to a Roth IRA may
be made even after the individual for whom the account is maintained has
attained age 70 1/2.
No distributions are required to be taken prior to the death of the
original account holder. If a Roth IRA has been established for a minimum of
five years, distributions can be taken tax-free after reaching age 59 1/2, for a
first-time home purchase ($10,000 maximum, one time use), or upon death or
disability. All other distributions from a Roth IRA (other than the amount of
nondeductible contributions) are taxable and subject to a 10% tax penalty unless
an exception applies. Exceptions to the 10% penalty include: reaching age 59
1/2, death, disability, deductible medical expenses, the purchase of health
insurance for certain unemployed individual and qualified higher education
expenses.
An individual with an income of less than $100,000 (who is not married
filing separately) can roll his or her existing IRA into a Roth IRA. However,
the individual must pay taxes on the taxable amount in his or her traditional
IRA. After 1998, all taxes on such a rollover will have to be paid in the tax
year in which the rollover is made.
QUALIFIED PLANS: For those self-employed individuals who wish to
purchase shares of one or more Ivy funds through a qualified retirement plan, a
Custodial Agreement and a Retirement Plan are available from IMSC. The
Retirement Plan may be adopted as a profit sharing plan or a money purchase
pension plan. A profit sharing plan permits an annual contribution to be made in
an amount determined each year by the self-employed individual within certain
limits prescribed by law. A money purchase pension plan requires annual
contributions at the level specified in the Custodial Agreement. There is no
set-up fee for qualified plans and the annual maintenance fee is $20.00 per
account.
In general, if a self-employed individual has any common law employees,
employees who have met certain minimum age and service requirements must be
covered by the Retirement Plan. A self-employed individual generally must
contribute the same percentage of income for common law employees as for himself
or herself.
A self-employed individual may contribute up to the lesser of $30,000
or 25% of compensation or earned income to a money purchase pension plan or to a
combination profit sharing and money purchase pension plan arrangement each year
on behalf of each participant. To be deductible, total contributions to a profit
sharing plan generally may not exceed 15% of the total compensation or earned
income of all participants in the plan, and total contributions to a combination
money purchase-profit sharing arrangement generally may not exceed 25% of the
total compensation or earned income of all participants. The amount of
compensation or earned income of any one participant that may be included in
computing the deduction is limited (generally to $150,000 for benefits accruing
in plan years beginning after 1993, with annual inflation adjustments). A
self-employed individual's contributions to a retirement plan on his or her own
behalf must be deducted in computing his or her earned income.
Corporate employers may also adopt the Custodial Agreement and
Retirement Plan for the benefit of their eligible employees. Similar
contribution and deduction rules apply to corporate employers.
Distributions from the Retirement Plan generally are made after a
participant's separation from service. A 10% penalty tax generally applies to
distributions to an individual before he or she reaches age 59-1/2, unless the
individual (1) has reached age 55 and separated from service; (2) dies; (3)
becomes disabled; (4) uses the withdrawal to pay tax-deductible medical
expenses; (5) takes the withdrawal as part of a series of substantially equal
payments over his or her life expectancy or the joint life expectancy of himself
or herself and a designated beneficiary; or (6) rolls over the distribution.
The Transfer Agent will arrange for Investors Bank & Trust to furnish
custodial services to the employer and any participating employees.
DEFERRED COMPENSATION FOR PUBLIC SCHOOLS AND CHARITABLE ORGANIZATIONS
("403(B)(7) ACCOUNT"): Section 403(b)(7) of the Internal Revenue Code of 1986,
as amended (the "Code") permits public school systems and certain charitable
organizations to use mutual fund shares held in a custodial account to fund
deferred compensation arrangements with their employees. A custodial account
agreement is available for those employers whose employees wish to purchase
shares of the Trust in conjunction with such an arrangement. The special
application for a 403(b)(7) Account is available from IMSC.
Distributions from the 403(b)(7) Account may be made only following
death, disability, separation from service, attainment of age 59-1/2, or
incurring a financial hardship. A 10% penalty tax generally applies to
distributions to an individual before he or she reaches age 59-1/2, unless the
individual (1) has reached age 55 and separated from service; (2) dies or
becomes disabled; (3) uses the withdrawal to pay tax-deductible medical
expenses; (4) takes the withdrawal as part of a series of substantially equal
payments over his or her life expectancy or the joint life expectancy of himself
or herself and a designated beneficiary; or (5) rolls over the distribution.
There is no set-up fee for 403(b)(7) Accounts and the annual maintenance fee is
$20.00 per account.
SIMPLIFIED EMPLOYEE PENSION ("SEP") IRAS: An employer may deduct
contributions to a SEP up to the lesser of $30,000 or 15% of compensation. SEP
accounts generally are subject to all rules applicable to IRA accounts, except
the deduction limits, and are subject to certain employee participation
requirements. No new salary reduction SEPs ("SARSEPs") may be established after
1996, but existing SARSEPs may continue to be maintained, and non-salary
reduction SEPs may continue to be established as well as maintained after 1996.
SIMPLE PLANS: An employer may establish a SIMPLE IRA or a SIMPLE 401(k)
for years after 1996. An employee can make pre-tax salary reduction
contributions to a SIMPLE Plan, up to $6,000 a year (as indexed). Subject to
certain limits, the employer will either match a portion of employee
contributions, or will make a contribution equal to 2% of each employee's
compensation without regard to the amount the employee contributes. An employer
cannot maintain a SIMPLE Plan for its employees if the employer maintains or
maintained any other qualified retirement plan with respect to which any
contributions or benefits have been credited.
REINVESTMENT PRIVILEGE
Shareholders who have redeemed Class A shares of the Fund may reinvest
all or a part of the proceeds of the redemption back into Class A shares of the
Fund at net asset value (without a sales charge) within 60 days from the date of
redemption. This privilege may be exercised only once. The reinvestment will be
made at the net asset value next determined after receipt by IMSC of the
reinvestment order accompanied by the funds to be reinvested. No compensation
will be paid to any sales personnel or dealer in connection with the
transaction.
Any redemption is a taxable event. A loss realized on a redemption
generally may be disallowed for tax purposes if the reinvestment privilege
is exercised within 30 days after the redemption. In certain circumstances,
shareholders will be ineligible to take sales charges into account in
computing taxable gain or loss on a redemption if the reinvestment
privilege is exercised. See "Taxation."
RIGHTS OF ACCUMULATION
A scale of reduced sales charges applies to any investment of $50,000
or more in Class A shares of the Fund. See "Initial Sales Charge Alternative --
Class A Shares" in the Prospectus. The reduced sales charge is applicable to
investments made at one time by an individual, his or her spouse and children
under the age of 21, or a trustee or other fiduciary of a single trust estate or
single fiduciary account (including a pension, profit sharing or other employee
benefit trust created pursuant to a plan qualified under Section 401 of the
Code). Rights of Accumulation is also applicable to current purchases of all of
the funds of Ivy Fund (except Ivy Money Market Fund) by any of the persons
enumerated above, where the aggregate quantity of Class A shares of such funds
(and shares that have been exchanged into Ivy Money Market Fund from any of the
other funds in the Ivy funds) and of any other investment company distributed by
IMDI, previously purchased or acquired and currently owned, determined at the
higher of current offering price or amount invested, plus the Class A shares
being purchased, amounts to $50,000 or more for all funds other than Ivy Bond
Fund; or $100,000 or more for Ivy Bond Fund.
At the time an investment takes place, IMSC must be notified by the
investor or his or her dealer that the investment qualifies for the reduced
sales charge on the basis of previous investments. The reduced sales charge is
subject to confirmation of the investor's holdings through a check of the
particular fund's records.
SYSTEMATIC WITHDRAWAL PLAN
A shareholder (except shareholders with accounts in Class I) may
establish a Systematic Withdrawal Plan (a "Withdrawal Plan"), by telephone
instructions or by delivery to IMSC of a written election to have his or her
shares withdrawn periodically (minimum distribution amount $50 for Advisor Class
shares), accompanied by a surrender to IMSC of all share certificates then
outstanding in such shareholder's name, properly endorsed by the shareholder. To
be eligible to elect a Withdrawal Plan, a shareholder must have at least $5,000
in his or her account (except Advisor Class shareholders, who must continually
maintain an account balance of at least $10,000). A Withdrawal Plan may not be
established if the investor is currently participating in the Automatic
Investment Method. A Withdrawal Plan may involve the depletion of a
shareholder's principal, depending on the amount withdrawn.
A redemption under a Withdrawal Plan is a taxable event. Shareholders
contemplating participating in a Withdrawal Plan should consult their tax
advisers.
Additional investments made by investors participating in a Withdrawal
Plan must equal at least $1,000 each ($250 for Advisor Class shareholders) while
the Withdrawal Plan is in effect. Making additional purchases while a Withdrawal
Plan is in effect may be disadvantageous to the investor because of applicable
initial sales charges or CDSCs.
An investor may terminate his or her participation in the Withdrawal
Plan at any time by delivering written notice to IMSC. If all shares held by the
investor are liquidated at any time, participation in the Withdrawal Plan will
terminate automatically. The Trust or IMSC may terminate the Withdrawal Plan
option at any time after reasonable notice to shareholders.
GROUP SYSTEMATIC INVESTMENT PROGRAM
Shares of the Fund may be purchased in connection with investment
programs established by employee or other groups using systematic payroll
deductions or other systematic payment arrangements. The Trust does not itself
organize, offer or administer any such programs. However, it may, depending upon
the size of the program, waive the minimum initial and additional investment
requirements for purchases by individuals in conjunction with programs organized
and offered by others. Unless shares of the Fund are purchased in conjunction
with IRAs (see "How to Buy Shares" in the Prospectus), such group systematic
investment programs are not entitled to special tax benefits under the Code. The
Trust reserves the right to refuse purchases at any time or suspend the offering
of shares in connection with group systematic investment programs, and to
restrict the offering of shareholder privileges, such as check writing,
simplified redemptions and other optional privileges, as described in the
Prospectus, to shareholders using group systematic investment programs.
With respect to each shareholder account established on or after
September 15, 1972 under a group systematic investment program, the Trust and
IMI each currently charge a maintenance fee of $3.00 (or portion thereof) that
for each twelve-month period (or portion thereof) that the account is
maintained. The Trust may collect such fee (and any fees due to IMI) through a
deduction from distributions to the shareholders involved or by causing on the
date the fee is assessed a redemption in each such shareholder account
sufficient to pay such fee. The Trust reserves the right to change these fees
from time to time without advance notice.
Class A shares of the Fund are made available to Merrill Lynch Daily K
Plan (the "Plan") participants at NAV without an initial sales charge if:
(i) the Plan is recordkept on a daily valuation basis by Merrill
Lynch and, on the date the Plan Sponsor signs the Merrill
Lynch Recordkeeping Service Agreement, the Plan has $3 million
or more in assets invested in broker/dealer funds not advised
or managed by Merrill Lynch Asset Management, L.P. ("MLAM")
that are made available pursuant to a Service Agreement
between Merrill Lynch and the fund's principal underwriter or
distributor and in funds advised or managed by MLAM
(collectively, the "Applicable Investments");
(ii) the Plan is recordkept on a daily valuation basis by an
independent recordkeeper whose services are provided through a
contract or alliance arrangement with Merrill Lynch, and on
the date the Plan Sponsor signs the Merrill Lynch
Recordkeeping Service Agreement, the Plan has $3 million or
more in assets, excluding money market funds, invested in
Applicable Investments; or
(iii) the Plan has 500 or more eligible employees, as determined by
Merrill Lynch plan conversion manager, on the date the Plan
Sponsor signs the Merrill Lynch Recordkeeping Service
Agreement.
Alternatively, Class B shares of the Fund are made available to Plan
participants at NAV without a CDSC if the Plan conforms with the requirements
for eligibility set forth in (i) through (iii) above but either does not meet
the $3 million asset threshold or does not have 500 or more eligible employees.
Plans recordkept on a daily basis by Merrill Lynch or an independent
recordkeeper under a contract with Merrill Lynch that are currently investing in
Class B shares of the Fund convert to Class A shares once the Plan has reached
$5 million invested in Applicable Investments, or 10 years after the date of the
initial purchase by a participant under the Plan--the Plan will receive a Plan
level share conversion.
REDEMPTIONS
Shares of the Fund are redeemed at their net asset value next
determined after a proper redemption request has been received by IMSC, less any
applicable CDSC.
Unless a shareholder requests that the proceeds of any redemption be
wired to his or her bank account, payment for shares tendered for redemption is
made by check within seven days after tender in proper form, except that the
Trust reserves the right to suspend the right of redemption or to postpone the
date of payment upon redemption beyond seven days, (i) for any period during
which the Exchange is closed (other than customary weekend and holiday closings)
or during which trading on the Exchange is restricted, (ii) for any period
during which an emergency exists as determined by the SEC as a result of which
disposal of securities owned by the Fund is not reasonably practicable or it is
not reasonably practicable for the Fund to fairly determine the value of its net
assets, or (iii) for such other periods as the SEC may by order permit for the
protection of shareholders of the Fund.
Under unusual circumstances, when the Board deems it in the best
interest of the Fund's shareholders, the Fund may make payment for shares
repurchased or redeemed in whole or in part in securities of the Fund taken at
current values. If any such redemption in kind is to be made, the Fund may make
an election pursuant to Rule 18f-1 under the 1940 Act. This will require the
Fund to redeem with cash at a shareholder's election in any case where the
redemption involves less than $250,000 (or 1% of the Fund's net asset value at
the beginning of each 90-day period during which such redemptions are in effect,
if that amount is less than $250,000). Should payment be made in securities, the
redeeming shareholder may incur brokerage costs in converting such securities to
cash.
The Trust may redeem those accounts of shareholders who have maintained
an investment, including sales charges paid, of less than $1,000 ($10,000 for
Advisor Class shareholders) in the Fund for a period of more than 12 months. All
accounts below that minimum will be redeemed simultaneously when MIMI deems it
advisable. The $1,000 balance ($10,000 for Advisor Class shareholders) will be
determined by actual dollar amounts invested by the shareholder, unaffected by
market fluctuations. The Trust will notify any such shareholder by certified
mail of its intention to redeem such account, and the shareholder shall have 60
days from the date of such letter to invest such additional sums as shall raise
the value of such account above that minimum. Should the shareholder fail to
forward such sum within 60 days of the date of the Trust's letter of
notification, the Trust will redeem the shares held in such account and transmit
the redemption in value thereof to the shareholder. However, those shareholders
who are investing pursuant to the Automatic Investment Method will not be
redeemed automatically unless they have ceased making payments pursuant to the
plan for a period of at least six consecutive months, and these shareholders
will be given six-months' notice by the Trust before such redemption.
Shareholders in a qualified retirement, pension or profit sharing plan who wish
to avoid tax consequences must "rollover" any sum so redeemed into another
qualified plan within 60 days. The Trustees of the Trust may change the minimum
account size.
If a shareholder has given authorization for telephonic redemption
privilege, shares can be redeemed and proceeds sent by Federal wire to a single
previously designated bank account. Delivery of the proceeds of a wire
redemption request of $250,000 or more may be delayed by the Fund for up to
seven days if deemed appropriate under then-current market conditions. The Trust
reserves the right to change this minimum or to terminate the telephonic
redemption privilege without prior notice. The Trust cannot be responsible for
the efficiency of the Federal wire system of the shareholder's dealer of record
or bank. The shareholder is responsible for any charges by the shareholder's
bank.
The Fund employs reasonable procedures that require personal
identification prior to acting on redemption or exchange instructions
communicated by telephone to confirm that such instructions are genuine. In the
absence of such instructions, the Fund may be liable for any losses due to
unauthorized or fraudulent telephone instructions.
CONVERSION OF CLASS B SHARES
As described in the Prospectus, Class B shares of the Fund will
automatically convert to Class A shares of the Fund, based on the relative net
asset values per share of the two classes, no later than the month following the
eighth anniversary of the initial issuance of such Class B shares of the Fund
occurs. For the purpose of calculating the holding period required for
conversion of Class B shares, the date of initial issuance shall mean: (1) the
date on which such Class B shares were issued, or (2) for Class B shares
obtained through an exchange, or a series of exchanges, (subject to the exchange
privileges for Class B shares) the date on which the original Class B shares
were issued. For purposes of conversion of Class B shares, Class B shares
purchased through the reinvestment of dividends and capital gain distributions
paid in respect of Class B shares will be held in a separate sub-account. Each
time any Class B shares in the shareholder's regular account (other than those
shares in the sub-account) convert to Class A shares, a pro rata portion of the
Class B shares in the sub-account will also convert to Class A shares. The
portion will be determined by the ratio that the shareholder's Class B shares
converting to Class A shares bears to the shareholder's total Class B shares not
acquired through the reinvestment of dividends and capital gain distributions.
NET ASSET VALUE
The net asset value per share of the Fund is computed by dividing the
value of the Fund's aggregate net assets (i.e., its total assets less its
liabilities) by the number of the Fund's shares outstanding. For purposes of
determining the Fund's aggregate net assets, receivables are valued at their
realizable amounts. The Fund's liabilities, if not identifiable as belonging to
a particular class of the Fund, are allocated among the Fund's several classes
based on their relative net asset size. Liabilities attributable to a particular
class are charged to that class directly. The total liabilities for a class are
then deducted from the class's proportionate interest in the Fund's assets, and
the resulting amount is divided by the number of shares of the class outstanding
to produce its net asset value per share.
A security listed or traded on a recognized stock exchange or The
Nasdaq Stock Market, Inc. ("Nasdaq") is valued at the security's last sale price
on the exchange on which the security is principally traded. If no sale is
reported at that time, the average between the last bid and asked price (the
"Calculated Mean") is used. Unless otherwise noted herein, the value of a
foreign security is determined in its national currency as of the normal close
of trading on the foreign exchange on which it is traded or as of the close of
regular trading on the Exchange, if that is earlier, and that value is then
converted into its U.S. dollar equivalent at the foreign exchange rate in effect
at noon, eastern time, on the day the value of the foreign security is
determined. All other securities for which OTC market quotations are readily
available are valued at the Calculated Mean.
A debt security normally is valued on the basis of quotes obtained from
at least two dealers (or one dealer who has made a market in the security) or
pricing services that take into account appropriate valuation factors. Interest
is accrued daily. Money market instruments are valued at amortized cost, which
the Board believes approximates market value.
An exchange-traded option is valued at the last sale price on the
exchange on which it is principally traded, if available, and otherwise is
valued at the last sale price on the other exchange(s). If there were no sales
on any exchange, the option shall be valued at the Calculated Mean, if possible,
and otherwise at the last offering price, in the case of a written option, and
the last bid price, in the case of a purchased option. An OTC option is valued
at the last offering price, in the case of a written option, and the last bid
price, in the case of a purchased option. Exchange listed and widely-traded OTC
futures (and options thereon) are valued at the most recent settlement price.
Securities and other assets for which market prices are not readily
available are priced at their "fair value" as determined by IMI in accordance
with procedures approved by the Board. Trading in securities on many foreign
securities exchanges is normally completed before the close of regular trading
on the Exchange. Trading on foreign exchanges may not take place on all days on
which there is regular trading on the Exchange, or may take place on days on
which there is no regular trading on the Exchange (e.g., any of the national
business holidays identified below). If events materially affecting the value of
the Fund's portfolio securities occur between the time when a foreign exchange
closes and the time when the Fund's net asset value is calculated (see following
paragraph), such securities may be valued at fair value as determined by IMI and
approved by the Board.
Portfolio securities are valued (and net asset value per share is
determined) as of the close of regular trading on the Exchange (normally 4:00
p.m., eastern time) on each day the Exchange is open for trading. The Exchange
and the Trust's offices are expected to be closed, and net asset value will not
be calculated, on the following national business holidays: New Year's Day,
Martin Luther King, Jr. Day, Presidents' Day, Good Friday, Memorial Day,
Independence Day, Labor Day, Thanksgiving Day and Christmas Day. On those days
when either or both of the Fund's Custodian or the Exchange close early as a
result of a partial holiday or otherwise, the Trust reserves the right to
advance the time on that day by which purchase and redemption requests must be
received.
The number of shares you receive when you place a purchase order, and
the payment you receive after submitting a redemption request, is based on the
Fund's net asset value next determined after your instructions are received in
proper form by IMSC or by your registered securities dealer. Each purchase and
redemption order is subject to any applicable sales charge. Since the Fund
normally invests in securities that are listed on foreign exchanges that may
trade on weekends or other days when the Fund does not price its shares, the
Fund's net asset value may change on days when shareholders will not be able to
purchase or redeem the Fund's shares. The sale of the Fund's shares will be
suspended during any period when the determination of its net asset value is
suspended pursuant to rules or orders of the SEC and may be suspended by the
Board whenever in its judgment it is in the Fund's best interest to do so.
TAXATION
The following is a general discussion of certain tax rules thought to
be applicable with respect to the Fund. It is merely a summary and is not an
exhaustive discussion of all possible situations or of all potentially
applicable taxes. Accordingly, shareholders and prospective shareholders should
consult a competent tax adviser about the tax consequences to them of investing
in the Fund.
The Fund intends to be taxed as a regulated investment company under
Subchapter M of the Code. Accordingly, the Fund must, among other things, (a)
derive in each taxable year at least 90% of its gross income from dividends,
interest, payments with respect to certain securities loans, and gains from the
sale or other disposition of stock, securities or foreign currencies, or other
income derived with respect to its business of investing in such stock,
securities or currencies; and (b) diversify its holdings so that, at the end of
each fiscal quarter, (i) at least 50% of the market value of the Fund's assets
is represented by cash, U.S. Government securities, the securities of other
regulated investment companies and other securities, with such other securities
limited, in respect of any one issuer, to an amount not greater than 5% of the
value of the Fund's total assets and 10% of the outstanding voting securities of
such issuer, and (ii) not more than 25% of the value of its total assets is
invested in the securities of any one issuer (other than U.S. Government
securities and the securities of other regulated investment companies).
As a regulated investment company, the Fund generally will not be
subject to U.S. Federal income tax on its income and gains that it distributes
to shareholders, if at least 90% of its investment company taxable income (which
includes, among other items, dividends, interest and the excess of any
short-term capital gains over long-term capital losses) for the taxable year is
distributed. The Fund intends to distribute all such income.
Amounts not distributed on a timely basis in accordance with a calendar
year distribution requirement are subject to a nondeductible 4% excise tax at
the Fund level. To avoid the tax, the Fund must distribute during each calendar
year, (1) at least 98% of its ordinary income (not taking into account any
capital gains or losses) for the calendar year (2) at least 98% of its capital
gains in excess of its capital losses (adjusted for certain ordinary losses) for
a one-year period generally ending on October 31 of the calendar year, and (3)
all ordinary income and capital gains for previous years that were not
distributed during such years. To avoid application of the excise tax, the Fund
intends to make distributions in accordance with the calendar year distribution
requirements. A distribution will be treated as paid on December 31 of the
current calendar year if it is declared by the Fund in October, November or
December of the year with a record date in such a month and paid by the Fund
during January of the following year. Such distributions will be taxable to
shareholders in the calendar year the distributions are declared, rather than
the calendar year in which the distributions are received.
OPTIONS, FUTURES AND FOREIGN CURRENCY FORWARD CONTRACTS
The taxation of equity options and OTC options on debt securities is
governed by Code section 1234. Pursuant to Code section 1234, the premium
received by the Fund for selling a put or call option is not included in income
at the time of receipt. If the option expires, the premium is short-term capital
gain to the Fund. If the Fund enters into a closing transaction, the difference
between the amount paid to close out its position and the premium received is
short-term capital gain or loss. If a call option written by the Fund is
exercised, thereby requiring the Fund to sell the underlying security, the
premium will increase the amount realized upon the sale of such security and any
resulting gain or loss will be a capital gain or loss, and will be long-term or
short-term depending upon the holding period of the security. With respect to a
put or call option that is purchased by the Fund, if the option is sold, any
resulting gain or loss will be a capital gain or loss, and will be long-term or
short-term, depending upon the holding period of the option. If the option
expires, the resulting loss is a capital loss and is long-term or short-term,
depending upon the holding period of the option. If the option is exercised, the
cost of the option, in the case of a call option, is added to the basis of the
purchased security and, in the case of a put option, reduces the amount realized
on the underlying security in determining gain or loss.
Some of the options, futures and foreign currency forward contracts in
which the Fund may invest may be "section 1256 contracts." Gains (or losses) on
these contracts generally are considered to be 60% long-term and 40% short-term
capital gains or losses; however, as described below, foreign currency gains or
losses arising from certain section 1256 contracts are ordinary in character.
Also, section 1256 contracts held by the Fund at the end of each taxable year
(and on certain other dates prescribed in the Code) are "marked-to-market" with
the result that unrealized gains or losses are treated as though they were
realized.
The transactions in options, futures and forward contracts undertaken
by the Fund may result in "straddles" for Federal income tax purposes. The
straddle rules may affect the character of gains or losses realized by the Fund.
In addition, losses realized by the Fund on positions that are part of a
straddle may be deferred under the straddle rules, rather than being taken into
account in calculating the taxable income for the taxable year in which such
losses are realized. Because only a few regulations implementing the straddle
rules have been promulgated, the consequences of such transactions to the Fund
are not entirely clear. The straddle rules may increase the amount of short-term
capital gain realized by the Fund, which is taxed as ordinary income when
distributed to shareholders.
The Fund may make one or more of the elections available under the Code
which are applicable to straddles. If the Fund makes any of the elections, the
amount, character and timing of the recognition of gains or losses from the
affected straddle positions will be determined under rules that vary according
to the election(s) made. The rules applicable under certain of the elections may
operate to accelerate the recognition of gains or losses from the affected
straddle positions.
Because application of the straddle rules may affect the character of
gains or losses, defer losses and/or accelerate the recognition of gains or
losses from the affected straddle positions, the amount which must be
distributed to shareholders as ordinary income or long-term capital gain may be
increased or decreased substantially as compared to a fund that did not engage
in such transactions.
Notwithstanding any of the foregoing, the Fund may recognize gain (but
not loss) from a constructive sale of certain "appreciated financial positions"
if the Fund enters into a short sale, offsetting notional principal contract,
futures or forward contract transaction with respect to the appreciated position
or substantially identical property. Appreciated financial positions subject to
this constructive sale treatment are interests (including options, futures and
forward contracts and short sales) in stock, partnership interests, certain
actively traded trust instruments and certain debt instruments. Constructive
sale treatment of appreciated financial positions does not apply to certain
transactions closed in the 90-day period ending with the 30th day after the
close of the Fund's taxable year, if certain conditions are met.
CURRENCY FLUCTUATIONS -- "SECTION 988" GAINS OR LOSSES
Gains or losses attributable to fluctuations in exchange rates which
occur between the time the Fund accrues receivables or liabilities denominated
in a foreign currency and the time the Fund actually collects such receivables
or pays such liabilities generally are treated as ordinary income or ordinary
loss. Similarly, on disposition of some investments, including debt securities
denominated in a foreign currency and certain options, futures and forward
contracts, gains or losses attributable to fluctuations in the value of the
foreign currency between the date of acquisition of the security or contract and
the date of disposition also are treated as ordinary gain or loss. These gains
and losses, referred to under the Code as "section 988" gains or losses,
increase or decrease the amount of the Fund's investment company taxable income
available to be distributed to its shareholders as ordinary income.
INVESTMENT IN PASSIVE FOREIGN INVESTMENT COMPANIES
The Fund may invest in shares of foreign corporations which may be
classified under the Code as passive foreign investment companies ("PFICs"). In
general, a foreign corporation is classified as a PFIC if at least one-half of
its assets constitute investment-type assets, or 75% or more of its gross income
is investment-type income. If the Fund receives a so-called "excess
distribution" with respect to PFIC stock, the Fund itself may be subject to a
tax on a portion of the excess distribution, whether or not the corresponding
income is distributed by the Fund to shareholders. In general, under the PFIC
rules, an excess distribution is treated as having been realized ratably over
the period during which a Fund held the PFIC shares. The Fund itself will be
subject to tax on the portion, if any, of an excess distribution that is so
allocated to prior Fund taxable years and an interest factor will be added to
the tax, as if the tax had been payable in such prior taxable years. Certain
distributions from a PFIC as well as gain from the sale of PFIC shares are
treated as excess distributions. Excess distributions are characterized as
ordinary income even though, absent application of the PFIC rules, certain
excess distributions might have been classified as capital gain.
The Fund may be eligible to elect alternative tax treatment with
respect to PFIC shares. The Fund may elect to mark to market its PFIC shares,
resulting in the shares being treated as sold at fair market value on the last
business day of each taxable year. Any resulting gain would be reported as
ordinary income; any resulting loss and any loss from an actual disposition of
the shares would be reported as ordinary loss to the extent of any net gains
reported in prior years. Under another election that currently is available in
some circumstances, the Fund generally would be required to include in its gross
income its share of the earnings of a PFIC on a current basis, regardless of
whether distributions are received from the PFIC in a given year.
DEBT SECURITIES ACQUIRED AT A DISCOUNT
Some of the debt securities (with a fixed maturity date of more than
one year from the date of issuance) that may be acquired by the Fund may be
treated as debt securities that are issued originally at a discount. Generally,
the amount of the original issue discount ("OID") is treated as interest income
and is included in income over the term of the debt security, even though
payment of that amount is not received until a later time, usually when the debt
security matures.
Some of the debt securities (with a fixed maturity date of more than
one year from the date of issuance) that may be acquired by the Fund in the
secondary market may be treated as having market discount. Generally, gain
recognized on the disposition of, and any partial payment of principal on, a
debt security having market discount is treated as ordinary income to the extent
the gain, or principal payment, does not exceed the "accrued market discount" on
such debt security. In addition, the deduction of any interest expenses
attributable to debt securities having market discount may be deferred. Market
discount generally accrues in equal daily installments. The Fund may make one or
more of the elections applicable to debt securities having market discount,
which could affect the character and timing of recognition of income.
Some debt securities (with a fixed maturity date of one year or less
from the date of issuance) that may be acquired by the Fund may be treated as
having acquisition discount, or OID in the case of certain types of debt
securities. Generally, the Fund will be required to include the acquisition
discount, or OID, in income over the term of the debt security, even though
payment of that amount is not received until a later time, usually when the debt
security matures. The Fund may make one or more of the elections applicable to
debt securities having acquisition discount, or OID, which could affect the
character and timing of recognition of income.
The Fund generally will be required to distribute dividends to
shareholders representing discount on debt securities that is currently
includable in income, even though cash representing such income may not have
been received by the Fund. Cash to pay such dividends may be obtained from sales
proceeds of securities held by the Fund.
DISTRIBUTIONS
Distributions of investment company taxable income are taxable to a
U.S. shareholder as ordinary income, whether paid in cash or shares. Dividends
paid by the Fund to a corporate shareholder, to the extent such dividends are
attributable to dividends received from U.S. corporations by the Fund, may
qualify for the dividends received deduction. However, the revised alternative
minimum tax applicable to corporations may reduce the value of the dividends
received deduction. Distributions of net capital gains (the excess of net
long-term capital gains over net short-term capital losses), if any, designated
by the Fund as capital gain dividends, are taxable to shareholders as long-term
capital gains whether paid in cash or in shares, and regardless of how long the
shareholder has held the Fund's shares; such distributions are not eligible for
the dividends received deduction. Shareholders receiving distributions in the
form of newly issued shares will have a cost basis in each share received equal
to the net asset value of a share of the Fund on the distribution date. A
distribution of an amount in excess of the Fund's current and accumulated
earnings and profits will be treated by a shareholder as a return of capital
which is applied against and reduces the shareholder's basis in his or her
shares. To the extent that the amount of any such distribution exceeds the
shareholder's basis in his or her shares, the excess will be treated by the
shareholder as gain from a sale or exchange of the shares. Shareholders will be
notified annually as to the U.S. Federal tax status of distributions and
shareholders receiving distributions in the form of newly issued shares will
receive a report as to the net asset value of the shares received.
If the net asset value of shares is reduced below a shareholder's cost
as a result of a distribution by the Fund, such distribution generally will be
taxable even though it represents a return of invested capital. Shareholders
should be careful to consider the tax implications of buying shares just prior
to a distribution. The price of shares purchased at this time may reflect the
amount of the forthcoming distribution. Those purchasing just prior to a
distribution will receive a distribution which generally will be taxable to
them.
DISPOSITION OF SHARES
Upon a redemption, sale or exchange of his or her shares, a shareholder
will realize a taxable gain or loss depending upon his or her basis in the
shares. Such gain or loss will be treated as capital gain or loss if the shares
are capital assets in the shareholder's hands and, if so, will be long-term or
short-term, depending upon the shareholder's holding period for the shares. Any
loss realized on a redemption sale or exchange will be disallowed to the extent
the shares disposed of are replaced (including through reinvestment of
dividends) within a period of 61 days beginning 30 days before and ending 30
days after the shares are disposed of. In such a case, the basis of the shares
acquired will be adjusted to reflect the disallowed loss. Any loss realized by a
shareholder on the sale of Fund shares held by the shareholder for six-months or
less will be treated for tax purposes as a long-term capital loss to the extent
of any distributions of capital gain dividends received or treated as having
been received by the shareholder with respect to such shares.
In some cases, shareholders will not be permitted to take all or
portion of their sales loads into account for purposes of determining the amount
of gain or loss realized on the disposition of their shares. This prohibition
generally applies where (1) the shareholder incurs a sales load in acquiring the
shares of the Fund, (2) the shares are disposed of before the 91st day after the
date on which they were acquired, and (3) the shareholder subsequently acquires
shares in the Fund or another regulated investment company and the otherwise
applicable sales charge is reduced under a "reinvestment right" received upon
the initial purchase of Fund shares. The term "reinvestment right" means any
right to acquire shares of one or more regulated investment companies without
the payment of a sales load or with the payment of a reduced sales charge. Sales
charges affected by this rule are treated as if they were incurred with respect
to the shares acquired under the reinvestment right. This provision may be
applied to successive acquisitions of fund shares.
FOREIGN WITHHOLDING TAXES
Income received by the Fund from sources within a foreign country may
be subject to withholding and other taxes imposed by that country.
If more than 50% of the value of the Fund's total assets at the close
of its taxable year consists of securities of foreign corporations, the Fund
will be eligible and may elect to "pass-through" to the Fund's shareholders the
amount of foreign income and similar taxes paid by the Fund. Pursuant to this
election, a shareholder will be required to include in gross income (in addition
to taxable dividends actually received) his or her pro rata share of the foreign
income and similar taxes paid by the Fund, and will be entitled either to deduct
his or her pro rata share of foreign income and similar taxes in computing his
or her taxable income or to use it as a foreign tax credit against his or her
U.S. Federal income taxes, subject to limitations. No deduction for foreign
taxes may be claimed by a shareholder who does not itemize deductions. Foreign
taxes generally may not be deducted by a shareholder that is an individual in
computing the alternative minimum tax. Each shareholder will be notified within
60 days after the close of the Fund's taxable year whether the foreign taxes
paid by the Fund will "pass-through" for that year and, if so, such notification
will designate (1) the shareholder's portion of the foreign taxes paid to each
such country and (2) the portion of the dividend which represents income derived
from sources within each such country.
Generally, except in the case of certain electing individual taxpayers
who have limited creditable foreign taxes and no foreign source income other
than passive investment-type income, a credit for foreign taxes is subject to
the limitation that it may not exceed the shareholder's U.S. tax attributable to
his or her total foreign source taxable income. For this purpose, if the Fund
makes the election described in the preceding paragraph, the source of the
Fund's income flows through to its shareholders. With respect to the Fund, gains
from the sale of securities generally will be treated as derived from U.S.
sources and section 988 gains will be treated as ordinary income derived from
U.S. sources. The limitation on the foreign tax credit is applied separately to
foreign source passive income, including foreign source passive income received
from the Fund. In addition, the foreign tax credit may offset only 90% of the
revised alternative minimum tax imposed on corporations and individuals.
Furthermore, the foreign tax credit is eliminated with respect to foreign taxes
withheld on dividends if the dividend-paying shares or the shares of the Fund
are held by the Fund or the shareholder, as the case may be, for less than 16
days (46 days in the case of preferred shares) during the 30-day period (90-day
period for preferred shares) beginning 15 days (45 days for preferred shares)
before the shares become ex-dividend. In addition, if the Fund fails to satisfy
these holding period requirements, it cannot elect to pass through to
shareholders the ability to claim a deduction for related foreign taxes.
The foregoing is only a general description of the foreign tax credit
under current law. Because application of the credit depends on the particular
circumstances of each shareholder, shareholders are advised to consult their own
tax advisers.
BACKUP WITHHOLDING
The Fund will be required to report to the Internal Revenue Service
("IRS") all taxable distributions as well as gross proceeds from the redemption
of the Fund's shares, except in the case of certain exempt shareholders. All
such distributions and proceeds will be subject to withholding of Federal income
tax at a rate of 31% ("backup withholding") in the case of non-exempt
shareholders if (1) the shareholder fails to furnish the Fund with and to
certify the shareholder's correct taxpayer identification number or social
security number, (2) the IRS notifies the shareholder or the Fund that the
shareholder has failed to report properly certain interest and dividend income
to the IRS and to respond to notices to that effect, or (3) when required to do
so, the shareholder fails to certify that he or she is not subject to backup
withholding. If the withholding provisions are applicable, any such
distributions or proceeds, whether reinvested in additional shares or taken in
cash, will be reduced by the amounts required to be withheld.
Distributions may also be subject to additional state, local and
foreign taxes depending on each shareholder's particular situation. Non-U.S.
shareholders may be subject to U.S. tax rules that differ significantly from
those summarized above. This discussion does not purport to deal with all of the
tax consequences applicable to the Fund or shareholders. Shareholders are
advised to consult their own tax advisers with respect to the particular tax
consequences to them of an investment in the Fund.
PERFORMANCE INFORMATION
Performance information for the classes of shares of the Fund may be
compared, in reports and promotional literature, to: (i) the S&P 500 Index, the
Dow Jones Industrial Average ("DJIA"), or other unmanaged indices so that
investors may compare the Fund's results with those of a group of unmanaged
securities widely regarded by investors as representative of the securities
markets in general; (ii) other groups of mutual funds tracked by Lipper
Analytical Services, a widely used independent research firm that ranks mutual
funds by overall performance, investment objectives and assets, or tracked by
other services, companies, publications or other criteria; and (iii) the
Consumer Price Index (measure for inflation) to assess the real rate of return
from an investment in the Fund. Unmanaged indices may assume the reinvestment of
dividends but generally do not reflect deductions or administrative and
management costs and expenses. Performance rankings are based on historical
information and are not intended to indicate future performance.
YIELD. Quotations of yield for a specific class of shares of the Fund
will be based on all investment income attributable to that class earned during
a particular 30-day (or one month) period (including dividends and interest),
less expenses attributable to that class accrued during the period ("net
investment income"), and will be computed by dividing the net investment income
per share of that class earned during the period by the maximum offering price
per share (in the case of Class A shares) or the net asset value per share (in
the case of Class B and Class C shares) on the last day of the period, according
to the following formula:
YIELD = 2[({(a-b)/cd} + 1){superscript 6}-1]
Where: a = dividends and interest earned during the period
attributable to a specific class of shares,
b = expenses accrued for the period attributable to that
class (net of reimbursements),
c = the average daily number of shares
of that class outstanding during the
period that were entitled to receive
dividends, and
d = the maximum offering price per
share (in the case of Class A
shares) or the net asset value per
share (in the case of Class B and
Class C shares) on the last day of
the period.
AVERAGE ANNUAL TOTAL RETURN. Quotations of standardized average annual
total return ("Standardized Return") for a specific class of shares of the Fund
will be expressed in terms of the average annual compounded rate of return that
would cause a hypothetical investment in that class of the Fund made on the
first day of a designated period to equal the ending redeemable value ("ERV") of
such hypothetical investment on the last day of the designated period, according
to the following formula:
P(1 + T){superscript n} = ERV
Where: P = a hypothetical initial payment of $1,000 to purchase
shares of a specific class
T = the average annual total return of shares of that class
n = the number of years
ERV = the ending redeemable value of a
hypothetical $1,000 payment made at
the beginning of the period.
For purposes of the above computation for the Fund, it is assumed that
all dividends and capital gains distributions made by the Fund are reinvested at
net asset value in additional shares of the same class during the designated
period. In calculating the ending redeemable value for Class A shares and
assuming complete redemption at the end of the applicable period, the maximum
5.75% sales charge is deducted from the initial $1,000 payment and, for Class B
and Class C shares, the applicable CDSC imposed upon redemption of Class B or
Class C shares held for the period is deducted. Standardized Return quotations
for the Fund do not take into account any required payments for federal or state
income taxes. Standardized Return quotations for Class B shares for periods of
over eight years will reflect conversion of the Class B shares to Class A shares
at the end of the eighth year. Standardized Return quotations are determined to
the nearest 1/100 of 1%.
The Fund may, from time to time, include in advertisements, promotional
literature or reports to shareholders or prospective investors total return data
that are not calculated according to the formula set forth above
("Non-Standardized Return"). Neither initial nor CDSCs are taken into account in
calculating Non-Standardized Return; a sales charge, if deducted, would reduce
the return.
The following table summarizes the calculation of Standardized and
Non-Standardized Return for the Class A, Class B, Class C and Advisor Class
shares of the Fund for the periods indicated. In determining the average annual
total return for a specific class of shares of the Fund, recurring fees, if any,
that are charged to all shareholder accounts are taken into consideration. For
any account fees that vary with the size of the account of the Fund, the account
fee used for purposes of the following computations is assumed to be the fee
that would be charged to the mean account size of the Fund.
STANDARDIZED RETURN[*]
<TABLE>
CLASS A[1] CLASS B[2] CLASS C[3] ADVISOR CLASS
<S> <C> <C> <C> <C>
Year ended December 31,
1998
% % % %
Five years ended
December 31, 1998
% % % %
Inception [#] to year
ended December 31,
1998[7]: % % % %
NON-STANDARDIZED RETURN[**]
CLASS A[4] CLASS B[5] CLASS C[6] ADVISOR CLASS
Year ended December 31,
1998
% % % %
Five years ended
December 31, 1998
% % % %
Inception [#] to year
ended December 31,
1998[7]: % % % %
- ------------------------- ----------------- ------------------ -------------------
</TABLE>
[*] The Standardization Return figures for Class A shares reflect the
deduction of the maximum initial sales charge of 5.75%. The Standardized Return
figures for Class B and C shares reflect the deduction of the applicable CDSC
imposed on redemption of Class B or C shares held for the period.
[**] The Non-Standardized Return figures do not reflect the deduction of
any initial sales charge or CDSC.
[#] The inception date for the Fund (Class A shares) was April 18,
1991. The inception dates for the Class B, Class C and Advisor Class shares of
the Fund were April 1, 1994, April 30, 1996, and January 1, 1998, respectively.
Until December 31, 1994, Mackenzie Investment Management Inc. served as
investment adviser to the Fund.
[1] The Standardized Return figures for the Class A shares reflect
expense reimbursement. Without expense reimbursement, the Standardized Return
for Class A shares for the period from inception through and the one and five
year periods ended December 31, 1998 would have been [ %].
[2] The Standardized Return figures for the Class B shares reflect
expense reimbursement. Without expense reimbursement, the Standardized Return
for Class B shares for the period from inception through and the one and five
year periods ended December 31, 1998 would have been [ %].
[3] The Standardized Return figures for the Class C shares reflect
expense reimbursement. Without expense reimbursement, the Standardized Return
for Class C shares for the period from inception through and the one and five
year periods ended December 31, 1998 would have been [ %].
[4] The Non-Standardized Return figures for Class A shares reflect
expense reimbursement. Without expense reimbursement, the Non-Standardized
Return for Class A shares for the period from inception through and the one and
five year periods ended December 31, 1998 would have been [ %].
[5] The Non-Standardized Return figures for Class B shares reflect
expense reimbursement. Without expense reimbursement, the Non-Standardized
Return for Class B shares for the period from inception through and the one and
five year periods ended December 31, 1998 would have been [ %].
[6] The Non-Standardized Return figures for Class C shares reflect
expense reimbursement. Without expense reimbursement, the Non-Standardized
Return for Class C shares for the period from inception through and the one and
five year periods ended December 31, 1998 would have been [ %].
[7] The total return for a period less than a full year is calculated
on an aggregate basis and is not annualized.
CUMULATIVE TOTAL RETURN. Cumulative total return is the cumulative rate
of return on a hypothetical initial investment of $1,000 in a specific class of
shares of the Fund for a specified period. Cumulative total return quotations
reflect changes in the price of the Fund's shares and assume that all dividends
and capital gains distributions during the period were reinvested in the Fund
shares. Cumulative total return is calculated by computing the cumulative rates
of return of a hypothetical investment in a specific class of shares of the Fund
over such periods, according to the following formula (cumulative total return
is then expressed as a percentage):
C = (ERV/P) - 1
Where: C = cumulative total return
P = a hypothetical initial investment of $1,000 to
purchase shares of a specific class
ERV = ending redeemable value: ERV is
the value, at the end of the
applicable period, of a hypothetical
$1,000 investment made at the
beginning of the applicable period.
The following table summarizes the calculation of Cumulative Total
Return for the periods indicated through December 31, 1998, assuming the maximum
5.75% sales charge has been assessed.
ONE YEAR SINCE
INCEPTION[*]
Class A
Class B
Class C
Advisor Class
The following table summarizes the calculation of Cumulative Total
Return for the periods indicated through December 31, 1998, assuming the maximum
5.75% sales charge has not been assessed.
ONE YEAR SINCE
INCEPTION[*]
Class A
Class B
Class C
Advisor Class
- ---------------------------
[*] The inception date for the was (Class A shares of the Fund) was
April 18, 1993; the inception date for Class B shares of the Fund was April 1,
1994; and the inception date for Class C shares of the Fund was April 30, 1996.
The inception date for Advisor Class shares of the Fund was January 1, 1998.
Until December 31, 1994, Mackenzie Investment Management Inc. served as
investment adviser to the Fund.
OTHER QUOTATIONS, COMPARISONS AND GENERAL INFORMATION. The foregoing
computation methods are prescribed for advertising and other communications
subject to SEC Rule 482. Communications not subject to this rule may contain a
number of different measures of performance, computation methods and
assumptions, including but not limited to: historical total returns; results of
actual or hypothetical investments; changes in dividends, distributions or share
values; or any graphic illustration of such data. These data may cover any
period of the Trust's existence and may or may not include the impact of sales
charges, taxes or other factors.
Performance quotations for the Fund will vary from time to time
depending on market conditions, the composition of the Fund's portfolio and
operating expenses of the Fund. These factors and possible differences in the
methods used in calculating performance quotations should be considered when
comparing performance information regarding the Fund's shares with information
published for other investment companies and other investment vehicles.
Performance quotations should also be considered relative to changes in the
value of the Fund's shares and the risks associated with the Fund's investment
objectives and policies. At any time in the future, performance quotations may
be higher or lower than past performance quotations and there can be no
assurance that any historical performance quotation will continue in the future.
The Fund may also cite endorsements or use for comparison its
performance rankings and listings reported in such newspapers or business or
consumer publications as, among others: AAII Journal, Barron's, Boston Business
Journal, Boston Globe, Boston Herald, Business Week, Consumer's Digest, Consumer
Guide Publications, Changing Times, Financial Planning, Financial World, Forbes,
Fortune, Growth Fund Guide, Houston Post, Institutional Investor, International
Fund Monitor, Investor's Daily, Los Angeles Times, Medical Economics, Miami
Herald, Money Mutual Fund Forecaster, Mutual Fund Letter, Mutual Fund Source
Book, Mutual Fund Values, National Underwriter, Nelson's Directory of Investment
Managers, New York Times, Newsweek, No Load Fund Investor, No Load Fund* X,
Oakland Tribune, Pension World, Pensions and Investment Age, Personal Investor,
Rugg and Steele, Time, U.S. News and World Report, USA Today, The Wall Street
Journal, and Washington Post.
FINANCIAL STATEMENTS
The Fund's Portfolio of Investments as of December 31, 1998, Statement
of Assets and Liabilities as of December 31, 1998, Statement of Operations for
the fiscal year ended December 31, 1998, Statement of Changes in Net Assets for
the fiscal year ended December 31, 1998, Financial Highlights, Notes to
Financial Statements, and Report of Independent Accountants, which are included
in the Fund's December 31, 1998 Annual Report to shareholders, are incorporated
by reference into this SAI.
<PAGE>
APPENDIX A
DESCRIPTION OF STANDARD & POOR'S RATINGS GROUP ("S&P") AND MOODY'S
INVESTORS SERVICE, INC. ("MOODY'S") CORPORATE BOND AND COMMERCIAL PAPER
RATINGS
[From "Moody's Bond Record," November 1994 Issue (Moody's Investors
Service, New York, 1994), and "Standard & Poor's Municipal Ratings
Handbook," October 1997 Issue (McGraw Hill, New York, 1997).]
MOODY'S:
(a) CORPORATE BONDS. Bonds rated Aaa by Moody's are judged by Moody's
to be of the best quality, carrying the smallest degree of investment risk.
Interest payments are protected by a large or exceptionally stable margin and
principal is secure. While the various protective elements are likely to change,
such changes as can be visualized are most unlikely to impair the fundamentally
strong position of such issues. Bonds rated Aa are judged by Moody's to be of
high quality by all standards. Aa bonds are rated lower than Aaa bonds because
margins of protection may not be as large as those of Aaa bonds, or fluctuations
of protective elements may be of greater amplitude, or there may be other
elements present which make the long-term risks appear somewhat larger than
those applicable to Aaa securities. Bonds which are rated A by Moody's possess
many favorable investment attributes and are to be considered as upper
medium-grade obligations. Factors giving security to principal and interest are
considered adequate, but elements may be present which suggest a susceptibility
to impairment sometime in the future. Bonds rated Baa by Moody's are considered
medium-grade obligations (i.e., they are neither highly protected nor poorly
secured). Interest payments and principal security appear adequate for the
present, but certain protective elements may be lacking or may be
characteristically unreliable over any great length of time. Such bonds lack
outstanding investment characteristics and in fact have speculative
characteristics as well. Bonds which are rated Ba are judged to have speculative
elements; their future cannot be considered well-assured. Often the protection
of interest and principal payments may be very moderate and thereby not well
safeguarded during both good and bad times over the future. Uncertainty of
position characterizes bonds in this class. Bonds which are rated B generally
lack characteristics of the desirable investment. Assurance of interest and
principal payments of or maintenance of other terms of the contract over any
long period of time may be small. Bonds which are rated Caa are of poor
standing. Such issues may be in default or there may be present elements of
danger with respect to principal or interest. Bonds which are rated Ca represent
obligations which are speculative in a high degree. Such issues are often in
default or have other marked shortcomings. Bonds which are rated C are the
lowest rated class of bonds and issues so rated can be regarded as having
extremely poor prospects of ever attaining any real investment standing.
(b) COMMERCIAL PAPER. The Prime rating is the highest commercial paper
rating assigned by Moody's. Among the factors considered by Moody's in assigning
ratings are the following: (1) evaluation of the management of the issuer; (2)
economic evaluation of the issuer's industry or industries and an appraisal of
speculative-type risks which may be inherent in certain areas; (3) evaluation of
the issuer's products in relation to competition and customer acceptance; (4)
liquidity; (5) amount and quality of long-term debt; (6) trend of earnings over
a period of ten years; (7) financial strength of a parent company and the
relationships which exist with the issuer; and (8) recognition by management of
obligations which may be present or may arise as a result of public interest
questions and preparations to meet such obligations. Issuers within this Prime
category may be given ratings 1, 2 or 3, depending on the relative strengths of
these factors. The designation of Prime-1 indicates the highest quality
repayment capacity of the rated issue. Issuers rated Prime-2 are deemed to have
a strong ability for repayment while issuers voted Prime-3 are deemed to have an
acceptable ability for repayment. Issuers rated Not Prime do not fall within any
of the Prime rating categories.
S&P:
(a) CORPORATE BONDS. An S&P corporate debt rating is a current
assessment of the creditworthiness of an obligor with respect to a specific
obligation. The ratings are based on current information furnished by the issuer
or obtained by S&P from other sources it considers reliable. The ratings
described below may be modified by the addition of a plus or minus sign to show
relative standing within the major rating categories.
Debt rated AAA has the highest rating assigned by S&P. Capacity to pay
interest and repay principal is extremely strong. Debt rated AA is judged by S&P
to have a very strong capacity to pay interest and repay principal and differs
from the highest rated issues only in small degree. Debt rated A by S&P has a
strong capacity to pay interest and repay principal, although it is somewhat
more susceptible to the adverse effects of changes in circumstances and economic
conditions than debt in higher rated categories.
Debt rated BBB by S&P is regarded by S&P as having an adequate capacity
to pay interest and repay principal. Although such bonds normally exhibit
adequate protection parameters, adverse economic conditions or changing
circumstances are more likely to lead to a weakened capacity to pay interest and
repay principal than debt in higher rated categories.
Debt rated BB, B, CCC, CC and C is regarded as having predominately
speculative characteristics with respect to capacity to pay interest and repay
principal. BB indicates the least degree of speculation and C the highest. While
such debt will likely have some quality and protective characteristics, these
are outweighed by large uncertainties or exposures to adverse conditions. Debt
rated BB has less near-term vulnerability to default than other speculative
issues. However, it faces major ongoing uncertainties or exposure to adverse
business, financial or economic conditions which could lead to inadequate
capacity to meet timely interest and principal payments. The BB rating category
is also used for debt subordinated to senior debt that is assigned an actual or
implied BBB- rating. Debt rated B has a greater vulnerability to default but
currently has the capacity to meet interest payments and principal repayments.
Adverse business, financial, or economic conditions will likely impair capacity
or willingness to pay interest and repay principal. The B rating category is
also used for debt subordinated to senior debt that is assigned an actual or
implied BB or BB- rating. Debt rated CCC has a currently identifiable
vulnerability to default, and is dependent upon favorable business, financial,
and economic conditions to meet timely payment of interest and repayment of
principal. In the event of adverse business, financial or economic conditions,
it is not likely to have the capacity to pay interest and repay principal. The
CCC rating category is also used for debt subordinated to senior debt that is
assigned an actual or implied B or B- rating. The rating CC typically is applied
to debt subordinated to senior debt which is assigned an actual or implied CCC
debt rating. The rating C typically is applied to debt subordinated to senior
debt which is assigned an actual or implied CCC- debt rating. The C rating may
be used to cover a situation where a bankruptcy petition has been filed, but
debt service payments are continued.
The rating CI is reserved for income bonds on which no interest is
being paid. Debt rated D is in payment default. The D rating category is used
when interest payments or principal payments are not made on the date due, even
if the applicable grace period has not expired, unless S&P believes that such
payments will be made during such grace period. The D rating also will be used
upon the filing of a bankruptcy petition if debt service payments are
jeopardized.
(b) COMMERCIAL PAPER. An S&P commercial paper rating is a current
assessment of the likelihood of timely payment of debt considered short-term in
the relevant market.
The commercial paper rating A-1 by S&P indicates that the degree of
safety regarding timely payment is strong. Those issues determined to possess
extremely strong safety characteristics are denoted with a plus sign (+)
designation. For commercial paper with an A-2 rating, the capacity for timely
payment on issues is satisfactory, but not as high as for issues designated A-1.
Issues rated A-3 have adequate capacity for timely payment, but are more
vulnerable to the adverse effects of changes in circumstances than obligations
carrying higher designations.
Issues rated B are regarded as having only speculative capacity for
timely payment. The C rating is assigned to short-term debt obligations with a
doubtful capacity for payment. Debt rated D is in payment default. The D rating
category is used when interest payments or principal payments are not made on
the date due, even if the applicable grace period has not expired, unless S&P
believes such payments will be made during such grace period.
<PAGE>
IVY GLOBAL NATURAL RESOURCES FUND
a series of
IVY FUND
Via Mizner Financial Plaza, Suite 300
700 South Federal Highway
Boca Raton, Florida 33432
STATEMENT OF ADDITIONAL INFORMATION
April , 1999
Ivy Fund (the "Trust") is an open-end management investment company
that currently consists of nineteen fully managed portfolios, each of which
(except for Ivy South America Fund and Ivy International Strategic Bond Fund) is
diversified. This Statement of Additional Information ("SAI") relates to the
Class A, B, C and Advisor Class shares of Ivy Global Natural Resources Fund (the
"Fund"). The other eighteen portfolios of the Trust are described in separate
prospectuses and SAIs.
This SAI is not a prospectus and should be read in conjunction with the
prospectus for the Fund dated April , 1999 (the "Prospectus"), which may be
obtained upon request and without charge from the Trust at the Distributor's
address and telephone number printed below.
INVESTMENT MANAGER
Ivy Management, Inc. ("IMI")
Via Mizner Financial Plaza, Suite 300
700 South Federal Highway
Boca Raton, Florida 33432
Telephone: (800) 777-6472
DISTRIBUTOR
Ivy Mackenzie Distributors, Inc. ("IMDI")
Via Mizner Financial Plaza, Suite 300
700 South Federal Highway
Boca Raton, Florida 33432
Telephone: (800) 456-5111
<PAGE>
INVESTMENT ADVISER
Mackenzie Financial Corporation ("MFC")
150 Bloor Street West
Suite 400
Toronto, Ontario
CANADA M5S3B5
Telephone: (416) 922-5322
<PAGE>
iv
TABLE OF CONTENTS
GENERAL INFORMATION.........................................................
INVESTMENT OBJECTIVES, STRATEGIES AND RISKS........................
COMMON STOCKS......................................................
CONVERTIBLE SECURITIES.............................................
NATURAL RESOURCES AND PHYSICIAL COMMODITIES........................
DEBT SECURITIES....................................................
IN GENERAL................................................
INVESTMENT-GRADE DEBT SECURITIES..........................
U.S. GOVERNMENT SECURITIES................................
ILLIQUID SECURITIES................................................
FOREIGN SECURITIES.................................................
DEPOSITORY RECEIPTS................................................
EMERGING MARKETS...................................................
FOREIGN CURRENCIES.................................................
FOREIGN CURRENCY EXCHANGE TRANSACTIONS.............................
OTHER INVESTMENT COMPANIES.........................................
REPURCHASE AGREEMENTS..............................................
BANKING INDUSTRY AND SAVINGS AND LOAN OBLIGATIONS..................
COMMERCIAL PAPER...................................................
BORROWING..........................................................
OPTIONS TRANSACTIONS...............................................
IN GENERAL................................................
WRITING OPTIONS ON INDIVIDUAL SECURITIES..................
PURCHASING OPTIONS ON INDIVIDUAL SECURITIES...............
RISKS OF OPTIONS TRANSACTIONS.............................
FUTURES CONTRACTS AND OPTIONS ON FUTURES CONTRACTS.................
IN GENERAL................................................
FOREIGN CURRENCY FUTURES CONTRACTS AND RELATED OPTIONS....
RISKS ASSOCIATED WITH FUTURES AND RELATED OPTIONS.........
COMBINED TRANSACTIONS.....................................
INVESTMENT RESTRICTIONS.....................................................
ADDITIONAL RESTRICTIONS.....................................................
PORTFOLIO TURNOVER..........................................................
TRUSTEES AND OFFICERS.......................................................
PERSONAL INVESTMENTS BY EMPLOYEES OF IMI...........................
INVESTMENT ADVISORY AND OTHER SERVICES......................................
BUSINESS MANAGEMENT AND INVESTMENT ADVISORY SERVICES...............
DISTRIBUTION SERVICES..............................................
RULE 18F-3 PLAN...........................................
RULE 12B-1 DISTRIBUTION PLANS.............................
CUSTODIAN..........................................................
FUND ACCOUNTING SERVICES...........................................
TRANSFER AGENT AND DIVIDEND PAYING AGENT...........................
ADMINISTRATOR......................................................
AUDITORS...........................................................
BROKERAGE ALLOCATION........................................................
CAPITALIZATION AND VOTING RIGHTS............................................
SPECIAL RIGHTS AND PRIVILEGES...............................................
AUTOMATIC INVESTMENT METHOD........................................
EXCHANGE OF SHARES.................................................
INITIAL SALES CHARGE SHARES...............................
CONTINGENT DEFERRED SALES CHARGE SHARES CLASS A...........
CLASS B...................................................
CLASS C...................................................
ADVISOR CLASS.............................................
ALL CLASSES...............................................
LETTER OF INTENT...................................................
RETIREMENT PLANS...................................................
INDIVIDUAL RETIREMENT ACCOUNTS............................
ROTH IRAS.................................................
QUALIFIED PLANS...........................................
DEFERRED COMPENSATION FOR PUBLIC SCHOOLS AND
CHARITABLE ORGANIZATIONS ("403(B)(7) ACCOUNT")
SIMPLIFIED EMPLOYEE PENSION ("SEP") IRAS..................
SIMPLE PLANS..............................................
REINVESTMENT PRIVILEGE.............................................
RIGHTS OF ACCUMULATION.............................................
SYSTEMATIC WITHDRAWAL PLAN.........................................
GROUP SYSTEMATIC INVESTMENT PROGRAM................................
REDEMPTIONS.................................................................
CONVERSION OF CLASS B SHARES................................................
NET ASSET VALUE.............................................................
TAXATION
OPTIONS, FUTURES AND FOREIGN CURRENCY FORWARD CONTRACTS............
CURRENCY FLUCTUATIONS -- "SECTION 988" GAINS OR LOSSES.............
INVESTMENT IN PASSIVE FOREIGN INVESTMENT COMPANIES.................
DEBT SECURITIES ACQUIRED AT A DISCOUNT.............................
DISTRIBUTIONS......................................................
DISPOSITION OF SHARES..............................................
FOREIGN WITHHOLDING TAXES..........................................
BACKUP WITHHOLDING.................................................
PERFORMANCE INFORMATION.....................................................
YIELD..............................................................
AVERAGE ANNUAL TOTAL RETURN........................................
CUMULATIVE TOTAL RETURN............................................
OTHER QUOTATIONS, COMPARISONS AND GENERAL INFORMATION..............
FINANCIAL STATEMENTS........................................................
APPENDIX A..................................................................
<PAGE>
GENERAL INFORMATION
The Fund is organized as a separate, diversified portfolio of the
Trust, an open-end management investment company organized as a Massachusetts
business trust on December 21, 1983. The Fund's inception date was January 1,
1997. Advisor Class shares were first offered on January 1, 1998.
Descriptions in this Statement of a particular investment practice or
technique in which the Fund may engage or a financial instrument which the Fund
may purchase are meant to describe the spectrum of investments that IMI, in its
discretion, might, but is not required to, use in managing the Fund's portfolio
assets. IMI may, in its discretion, at any time employ such practice, technique
or instrument for one or more funds but not for all funds advised by it.
Furthermore, it is possible that certain types of financial instruments or
investment techniques described herein may not be available, permissible,
economically feasible or effective for their intended purposes in all markets.
Certain practices, techniques, or instruments may not be principal activities of
the Fund but, to the extent employed, could from time to time have a material
impact on the Fund's performance.
INVESTMENT OBJECTIVES, STRATEGIES AND RISKS
The Fund has its own investment objectives and policies, which are
described in the Prospectus under the captions "Summary" and "Additional
Information About Strategies and Risks." Additional information regarding the
characteristics and risks associated with the Fund's investment techniques is
set forth below.
The Fund's investment objective is long-term growth. Any income
realized will be incidental. Under normal conditions, the Fund invests at least
65% of its total assets in the equity securities of companies throughout the
world that own, explore or develop natural resources and other basic
commodities, or supply goods and services to such companies. Under this
investment policy, at least three different countries (one of which may be the
United States) will be represented in the Fund's overall portfolio holdings.
"Natural resources" generally include precious metals (such as gold, silver and
platinum), ferrous and nonferrous metals (such as iron, aluminum and copper),
strategic metals (such as uranium and titanium), coal, oil, natural gases,
timber, undeveloped real property and agricultural commodities. Although the
Fund generally invests in common stock, it may also invest in preferred stock,
securities convertible into common stock and sponsored or unsponsored ADRs,
GDRs, ADSs and GDSs. The Fund may also invest directly in precious metals and
other physical commodities. In selecting the Fund's investments, MFC will seek
to identify securities of companies that, in MFC's opinion, appear to be
undervalued relative to the value of the companies' natural resource holdings.
MFC believes that certain political and economic changes in the global
environment in recent years have had and will continue to have a profound effect
on global supply and demand of natural resources, and that rising demand from
developing markets and new sources of supply should create attractive investment
opportunities. In selecting the Fund's investments, MFC will seek to identify
securities of companies that, in MFC's opinion, appear to be undervalued
relative to the value of the companies' natural resource holdings.
For temporary defensive purposes, the Fund may invest without limit in
cash or cash equivalents, such as bank obligations (including certificates of
deposit and bankers' acceptances), commercial paper, short-term notes and
repurchase agreements. For temporary or emergency purposes, the Fund may borrow
up to one-third of the value of its total assets from banks, but may not
purchase securities at anytime during which the value of the Fund's outstanding
loans exceeds 10% of the value of the Fund's total assets. The Fund may engage
in foreign currency exchange transactions and enter into forward foreign
currency contracts. The Fund may also invest up to 10% of its total assets in
other investment companies and up to 15% of its net assets in illiquid
securities.
For hedging purposes only, the Fund may engage in transactions in (and
options on) foreign currency futures contracts, provided that the Fund's
equivalent exposure in such contracts does not exceed 15% of its total assets.
COMMON STOCKS
Common stock can be issued by companies to raise cash; all common stock
shares represent a proportionate ownership interest in a company. As a result,
the value of common stock rises and falls with a company's success or failure.
The market value of common stock can fluctuate significantly, with smaller
companies being particularly susceptible to price swings. Transaction costs in
smaller company stocks may also be higher than those of larger companies.
CONVERTIBLE SECURITIES
The convertible securities in which the Fund may invest include
corporate bonds, notes, debentures, preferred stock and other securities that
may be converted or exchanged at a stated or determinable exchange ratio into
underlying shares of common stock. Investments in convertible securities can
provide income through interest and dividend payments as well as an opportunity
for capital appreciation by virtue of their conversion or exchange features.
Because convertible securities can be converted into equity securities, their
values will normally vary in some proportion with those of the underlying equity
securities. Convertible securities usually provide a higher yield than the
underlying equity, however, so that the price decline of a convertible security
may sometimes be less substantial than that of the underlying equity security.
The exchange ratio for any particular convertible security may be adjusted from
time to time due to stock splits, dividends, spin-offs, other corporate
distributions or scheduled changes in the exchange ratio. Convertible debt
securities and convertible preferred stocks, until converted, have general
characteristics similar to both debt and equity securities. Although to a lesser
extent than with debt securities generally, the market value of convertible
securities tends to decline as interest rates increase and, conversely, tends to
increase as interest rates decline. In addition, because of the conversion or
exchange feature, the market value of convertible securities typically changes
as the market value of the underlying common stock changes, and, therefore, also
tends to follow movements in the general market for equity securities. When the
market price of the underlying common stock increases, the price of a
convertible security tends to rise as a reflection of the value of the
underlying common stock, although typically not as much as the price of the
underlying common stock. While no securities investments are without risk,
investments in convertible securities generally entail less risk than
investments in common stock of the same issuer.
As debt securities, convertible securities are investments that provide
for a stream of income. Like all debt securities, there can be no assurance of
income or principal payments because the issuers of the convertible securities
may default on their obligations. Convertible securities generally offer lower
yields than non-convertible securities of similar quality because of their
conversion or exchange features.
Convertible securities generally are subordinated to other similar but
non-convertible securities of the same issuer, although convertible bonds, as
corporate debt obligations, are senior in right of payment to all equity
securities, and convertible preferred stock is senior to common stock, of the
same issuer. However, convertible bonds and convertible preferred stock
typically have lower coupon rates than similar non-convertible securities.
Convertible securities may be issued as fixed income obligations that pay
current income.
NATURAL RESOURCES AND PHYSICAL COMMODITIES
Since the Fund normally invests a substantial portion of its assets in
securities of companies engaged in natural resources activities, the Fund may be
subject to greater risks and market fluctuations than funds with more
diversified portfolios. The value of the Fund's securities will fluctuate in
response to market conditions generally, and will be particularly sensitive to
the markets for those natural resources in which a particular issuer is
involved. The values of natural resources may also fluctuate directly with
respect to real and perceived inflationary trends and various political
developments. In selecting the Fund's portfolio of investments, MFC will
consider each company's ability to create new products, secure any necessary
regulatory approvals, and generate sufficient customer demand. A company's
failure to perform well in any one of these areas, however, could cause its
stock to decline sharply.
Natural resource industries throughout the world may be subject to
greater political, environmental and other governmental regulation than many
other industries. Changes in governmental policies and the need for regulatory
approvals may have an adverse effect on the products and services of natural
resources companies. For example, the exploration, development and distribution
of coal, oil and gas in the United States are subject to significant Federal and
state regulation, which may affect rates of return on such investments and the
kinds of services that may be offered to companies in those industries. In
addition, many natural resource companies have been subject to significant costs
associated with compliance with environmental and other safety regulations. Such
regulations may also hamper the development of new technologies. The direction,
type or effect of any future regulations affecting natural resource industries
are virtually impossible to predict.
The Fund's investments in precious metals (such as gold) and other
physical commodities are considered speculative and subject to special risk
considerations, including substantial price fluctuations over short periods of
time. On the other hand, investments in precious metals coins or bullion could
help to moderate fluctuations in the value of the Fund's portfolio, since the
prices of precious metals have at times tended not to fluctuate as widely as
shares of issuers engaged in the mining of precious metals. Because precious
metals and other commodities do not generate investment income, however, the
return on such investments will be derived solely from the appreciation and
depreciation on such investments. The Fund may also incur storage and other
costs relating to its investments in precious metals and other commodities,
which may, under certain circumstances, exceed custodial and brokerage costs
associated with investments in other types of securities. When the Fund
purchases a precious metal, MFC currently intends that it will only be in a form
that is readily marketable. Under current U.S. tax law, the Fund may not receive
more than 10% of its yearly income from gains resulting from selling precious
metals or any other physical commodity. Accordingly, the Fund may be required to
hold its precious metals or sell them at a loss, or to sell its portfolio
securities at a gain, when for investment reasons it would not otherwise do so.
DEBT SECURITIES
IN GENERAL Investment in debt securities involves both interest rate
and credit risk. Generally, the value of debt instruments rises and falls
inversely with fluctuations in interest rates. As interest rates decline, the
value of debt securities generally increases. Conversely, rising interest rates
tend to cause the value of debt securities to decrease. Bonds with longer
maturities generally are more volatile than bonds with shorter maturities. The
market value of debt securities also varies according to the relative financial
condition of the issuer. In general, lower-quality bonds offer higher yields due
to the increased risk that the issuer will be unable to meet its obligations on
interest or principal payments at the time called for by the debt instrument.
INVESTMENT-GRADE DEBT SECURITIES. Bonds rated Aaa by Moody's Investors
Service, Inc. ("Moody's") and AAA by Standard & Poor's Ratings Group ("S&P") are
judged to be of the best quality (i.e., capacity to pay interest and repay
principal is extremely strong). Bonds rated Aa/AA are considered to be of high
quality (i.e., capacity to pay interest and repay principal is very strong and
differs from the highest rated issues only to a small degree). Bonds rated A are
viewed as having many favorable investment attributes, but elements may be
present that suggest a susceptibility to the adverse effects of changes in
circumstances and economic conditions than debt in higher rated categories.
Bonds rated Baa/BBB (considered by Moody's to be "medium grade" obligations) are
considered to have an adequate capacity to pay interest and repay principal, but
certain protective elements may be lacking (i.e., such bonds lack outstanding
investment characteristics and have some speculative characteristics). The Fund
may invest in debt securities that are given an investment-grade rating by
Moody's or S&P, and may also invest in unrated debt securities that are
considered by IMI to be of comparable quality.
U.S. GOVERNMENT SECURITIES. U.S. Government securities are obligations of,
or guaranteed by, the U.S. Government, its agencies or instrumentalities.
Securities guaranteed by the U.S. Government include: (1) direct obligations of
the U.S. Treasury (such as Treasury bills, notes, and bonds) and (2) Federal
agency obligations guaranteed as to principal and interest by the U.S. Treasury
(such as GNMA certificates, which are mortgage-backed securities). When such
securities are held to maturity, the payment of principal and interest is
unconditionally guaranteed by the U.S. Government, and thus they are of the
highest possible credit quality. U.S. Government securities that are not held to
maturity are subject to variations in market value due to fluctuations in
interest rates.
Mortgage-backed securities are securities representing part ownership
of a pool of mortgage loans. For example, GNMA certificates are such securities
in which the timely payment of principal and interest is guaranteed by the full
faith and credit of the U.S. Government. Although the mortgage loans in the pool
will have maturities of up to 30 years, the actual average life of the loans
typically will be substantially less because the mortgages will be subject to
principal amortization and may be prepaid prior to maturity. Prepayment rates
vary widely and may be affected by changes in market interest rates. In periods
of falling interest rates, the rate of prepayment tends to increase, thereby
shortening the actual average life of the security. Conversely, rising interest
rates tend to decrease the rate of prepayments, thereby lengthening the actual
average life of the security (and increasing the security's price volatility).
Accordingly, it is not possible to predict accurately the average life of a
particular pool. Reinvestment of prepayment may occur at higher or lower rates
than the original yield on the certificates. Due to the prepayment feature and
the need to reinvest prepayments of principal at current rates, mortgage-backed
securities can be less effective than typical bonds of similar maturities at
"locking in" yields during periods of declining interest rates, and may involve
significantly greater price and yield volatility than traditional debt
securities. Such securities may appreciate or decline in market value during
periods of declining or rising interest rates, respectively.
Securities issued by U.S. Government instrumentalities and certain
Federal agencies are neither direct obligations of nor guaranteed by the U.S.
Treasury; however, they involve Federal sponsorship in one way or another. Some
are backed by specific types of collateral, some are supported by the issuer's
right to borrow from the Treasury, some are supported by the discretionary
authority of the Treasury to purchase certain obligations of the issuer, others
are supported only by the credit of the issuing government agency or
instrumentality. These agencies and instrumentalities include, but are not
limited to, Federal Land Banks, Farmers Home Administration, Central Bank for
Cooperatives, Federal Intermediate Credit Banks, Federal Home Loan Banks,
Federal National Mortgage Association, Federal Home Loan Mortgage Association,
and Student Loan Marketing Association.
ILLIQUID SECURITIES
The Fund may purchase securities other than in the open market. While
such purchases may often offer attractive opportunities for investment not
otherwise available on the open market, the securities so purchased are often
"restricted securities" or "not readily marketable" (i.e., they cannot be sold
to the public without registration under the Securities Act of 1933, as amended
(the "1933 Act"), or the availability of an exemption from registration (such as
Rule 144A) or because they are subject to other legal or contractual delays in
or restrictions on resale). This investment practice, therefore, could have the
effect of increasing the level of illiquidity of the Fund. It is the Fund's
policy that illiquid securities (including repurchase agreements of more than
seven days duration, certain restricted securities, and other securities which
are not readily marketable) may not constitute, at the time of purchase, more
than 15% of the value of the Fund's net assets. The Trust's Board of Trustees
has approved guidelines for use by IMI in determining whether a security is
illiquid.
Generally speaking, restricted securities may be sold (i) only to
qualified institutional buyers; (ii) in a privately negotiated transaction to a
limited number of purchasers; (iii) in limited quantities after they have been
held for a specified period of time and other conditions are met pursuant to an
exemption from registration; or (iv) in a public offering for which a
registration statement is in effect under the 1933 Act. Issuers of restricted
securities may not be subject to the disclosure and other investor protection
requirements that would be applicable if their securities were publicly traded.
If adverse market conditions were to develop during the period between the
Fund's decision to sell a restricted or illiquid security and the point at which
the Fund is permitted or able to sell such security, the Fund might obtain a
price less favorable than the price that prevailed when it decided to sell.
Where a registration statement is required for the resale of restricted
securities, the Fund may be required to bear all or part of the registration
expenses. The Fund may be deemed to be an "underwriter" for purposes of the 1933
Act when selling restricted securities to the public and, in such event, the
Fund may be liable to purchasers of such securities if the registration
statement prepared by the issuer is materially inaccurate or misleading.
Since it is not possible to predict with assurance that the market for
securities eligible for resale under Rule 144A will continue to be liquid, IMI
will monitor such restricted securities subject to the supervision of the Board
of Trustees. Among the factors IMI may consider in reaching liquidity decisions
relating to Rule 144A securities are: (1) the frequency of trades and quotes for
the security; (2) the number of dealers wishing to purchase or sell the security
and the number of other potential purchasers; (3) dealer undertakings to make a
market in the security; and (4) the nature of the security and the nature of the
market for the security (i.e., the time needed to dispose of the security, the
method of soliciting offers, and the mechanics of the transfer).
FOREIGN SECURITIES
The securities of foreign issuers in which the Fund may invest include
non-U.S. dollar-denominated debt securities, Euro dollar securities, sponsored
and unsponsored American Depository Receipts ("ADRs"), Global Depository
Receipts ("GDRs") and related depository instruments, American Depository Shares
("ADSs"), Global Depository Shares ("GDSs"), and debt securities issued, assumed
or guaranteed by foreign governments or political subdivisions or
instrumentalities thereof. Shareholders should consider carefully the
substantial risks involved in investing in securities issued by companies and
governments of foreign nations, which are in addition to the usual risks
inherent in the Fund's domestic investments.
Although IMI intends to invest the Fund's assets only in nations that
are generally considered to have relatively stable and friendly governments,
there is the possibility of expropriation, nationalization, repatriation or
confiscatory taxation, taxation on income earned in a foreign country and other
foreign taxes, foreign exchange controls (which may include suspension of the
ability to transfer currency from a given country), default on foreign
government securities, political or social instability or diplomatic
developments which could affect investments in securities of issuers in those
nations. In addition, in many countries there is less publicly available
information about issuers than is available for U.S. companies. Moreover,
foreign companies are not generally subject to uniform accounting, auditing and
financial reporting standards, and auditing practices and requirements may not
be comparable to those applicable to U.S. companies. In many foreign countries,
there is less governmental supervision and regulation of business and industry
practices, stock exchanges, brokers, and listed companies than in the United
States. Foreign securities transactions may also be subject to higher brokerage
costs than domestic securities transactions. The foreign securities markets of
many of the countries in which the Fund may invest may also be smaller, less
liquid and subject to greater price volatility than those in the United States.
In addition, the Fund may encounter difficulties or be unable to pursue legal
remedies and obtain judgment in foreign courts.
Foreign bond markets have different clearance and settlement procedures
and in certain markets there have been times when settlements have been unable
to keep pace with the volume of securities transactions, making it difficult to
conduct such transactions. Delays in settlement could result in temporary
periods when assets of the Fund are uninvested and no return is earned thereon.
The inability of the Fund to make intended security purchases due to settlement
problems could cause the Fund to miss attractive investment opportunities.
Further, the inability to dispose of portfolio securities due to settlement
problems could result either in losses to the Fund because of subsequent
declines in the value of the portfolio security or, if the Fund has entered into
a contract to sell the security, in possible liability to the purchaser. It may
be more difficult for the Fund's agents to keep currently informed about
corporate actions such as stock dividends or other matters that may affect the
prices of portfolio securities. Communications between the United States and
foreign countries may be less reliable than within the United States, thus
increasing the risk of delayed settlements of portfolio transactions or loss of
certificates for portfolio securities. Moreover, individual foreign economies
may differ favorably or unfavorably from the United States economy in such
respects as growth of gross national product, rate of inflation, capital
reinvestment, resource self-sufficiency and balance of payments position. IMI
seeks to mitigate the risks to the Fund associated with the foregoing
considerations through investment variation and continuous professional
management.
DEPOSITORY RECEIPTS
ADRs, GDRs, ADSs, GDSs and related securities are depository
instruments, the issuance of which is typically administered by a U.S. or
foreign bank or trust company. These instruments evidence ownership of
underlying securities issued by a U.S. or foreign corporation. ADRs are publicly
traded on exchanges or over-the-counter ("OTC") in the United States.
Unsponsored programs are organized independently and without the cooperation of
the issuer of the underlying securities. As a result, information concerning the
issuer may not be as current or as readily available as in the case of sponsored
depository instruments, and their prices may be more volatile than if they were
sponsored by the issuers of the underlying securities.
EMERGING MARKETS
The Fund could have significant investments in securities traded in
emerging markets. Investors should recognize that investing in such countries
involves special considerations, in addition to those set forth above, that are
not typically associated with investing in United States securities and that may
affect the Fund's performance favorably or unfavorably.
In recent years, many emerging market countries around the world have
undergone political changes that have reduced government's role in economic and
personal affairs and have stimulated investment and growth. Historically, there
is a strong direct correlation between economic growth and stock market returns.
While this is no guarantee of future performance, IMI believes that investment
opportunities (particularly in the energy, environmental services, natural
resources, basic materials, power, telecommunications and transportation
industries) may result within the evolving economies of emerging market
countries from which the Fund and its shareholders will benefit.
Investments in companies domiciled in developing countries may be
subject to potentially higher risks than investments in developed countries.
Such risks include (i) less social, political and economic stability; (ii) a
small market for securities and/or a low or nonexistent volume of trading, which
result in a lack of liquidity and in greater price volatility; (iii) certain
national policies that may restrict the Fund's investment opportunities,
including restrictions on investment in issuers or industries deemed sensitive
to national interests; (iv) foreign taxation; (v) the absence of developed
structures governing private or foreign investment or allowing for judicial
redress for injury to private property; (vi) the absence, until relatively
recently in certain Eastern European countries, of a capital market structure or
market-oriented economy; (vii) the possibility that recent favorable economic
developments in Eastern Europe may be slowed or reversed by unanticipated
political or social events in such countries; and (viii) the possibility that
currency devaluations could adversely affect the value of the Fund's
investments. Further, many emerging markets have experienced and continue to
experience high rates of inflation.
Despite the dissolution of the Soviet Union, the Communist Party may
continue to exercise a significant role in certain Eastern European countries.
To the extent of the Communist Party's influence, investments in such countries
will involve risks of nationalization, expropriation and confiscatory taxation.
The communist governments of a number of Eastern European countries expropriated
large amounts of private property in the past, in many cases without adequate
compensation, and there can be no assurance that such expropriation will not
occur in the future. In the event of such expropriation, the Fund could lose a
substantial portion of any investments it has made in the affected countries.
Further, few (if any) accounting standards exist in Eastern European countries.
Finally, even though certain Eastern European currencies may be convertible into
U.S. dollars, the conversion rates may be artificial in relation to the actual
market values and may be adverse to the Fund's net asset value.
Certain Eastern European countries that do not have well-established
trading markets are characterized by an absence of developed legal structures
governing private and foreign investments and private property. In addition,
certain countries require governmental approval prior to investments by foreign
persons, or limit the amount of investment by foreign persons in a particular
company, or limit the investment of foreign persons to only a specific class of
securities of a company that may have less advantageous terms than securities of
the company available for purchase by nationals.
Authoritarian governments in certain Eastern European countries may
require that a governmental or quasi-governmental authority act as custodian of
the Fund's assets invested in such country. To the extent such governmental or
quasi-governmental authorities do not satisfy the requirements of the Investment
Company Act of 1940, as amended (the "1940 Act"), with respect to the custody of
the Fund's cash and securities, the Fund's investment in such countries may be
limited or may be required to be effected through intermediaries. The risk of
loss through governmental confiscation may be increased in such countries.
FOREIGN CURRENCIES
Investment in foreign securities usually will involve currencies of
foreign countries. Moreover, the Fund may temporarily hold funds in bank
deposits in foreign currencies during the completion of investment programs and
may purchase forward foreign currency contracts. Because of these factors, the
value of the assets of the Fund as measured in U.S. dollars may be affected
favorably or unfavorably by changes in foreign currency exchange rates and
exchange control regulations, and the Fund may incur costs in connection with
conversions between various currencies. Although the Fund's custodian values the
Fund's assets daily in terms of U.S. dollars, the Fund does not intend to
convert its holdings of foreign currencies into U.S. dollars on a daily basis.
The Fund will do so from time to time, however, and investors should be aware of
the costs of currency conversion. Although foreign exchange dealers do not
charge a fee for conversion, they do realize a profit based on the difference
(the "spread") between the prices at which they are buying and selling various
currencies. Thus, a dealer may offer to sell a foreign currency to the Fund at
one rate, while offering a lesser rate of exchange should the Fund desire to
resell that currency to the dealer. The Fund will conduct its foreign currency
exchange transactions either on a spot (i.e., cash) basis at the spot rate
prevailing in the foreign currency exchange market, or through entering into
forward contracts to purchase or sell foreign currencies.
Because the Fund normally will be invested in both U.S. and foreign
securities markets, changes in the Fund's share price may have a low correlation
with movements in U.S. markets. The Fund's share price will reflect the
movements of the different stock and bond markets in which it is invested (both
U.S. and foreign), and of the currencies in which the investments are
denominated. Thus, the strength or weakness of the U.S. dollar against foreign
currencies may account for part of the Fund's investment performance. U.S. and
foreign securities markets do not always move in step with each other, and the
total returns from different markets may vary significantly. In addition,
significant uncertainty surrounds the proposed introduction of the euro (a
common currency for the European Union) in January 1999 and its effect on the
value of securities denominated in local European currencies. These and other
currencies in which the Fund's assets are denominated may be devalued against
the U.S. dollar, resulting in a loss to the Fund.
FOREIGN CURRENCY EXCHANGE TRANSACTIONS
The Fund may enter into forward foreign currency contracts in order to
protect against uncertainty in the level of future foreign exchange rates in the
purchase and sale of securities. A forward contract is an obligation to purchase
or sell a specific currency for an agreed price at a future date (usually less
than a year), and typically is individually negotiated and privately traded by
currency traders and their customers. A forward contract generally has no
deposit requirement, and no commissions are charged at any stage for trades.
Although foreign exchange dealers do not charge a fee for commissions, they do
realize a profit based on the difference between the price at which they are
buying and selling various currencies. Although these contracts are intended to
minimize the risk of loss due to a decline in the value of the hedged
currencies, at the same time, they tend to limit any potential gain which might
result should the value of such currencies increase.
While the Fund may enter into forward contracts to reduce currency
exchange risks, changes in currency exchange rates may result in poorer overall
performance for the Fund than if it had not engaged in such transactions.
Moreover, there may be an imperfect correlation between the Fund's portfolio
holdings of securities denominated in a particular currency and forward
contracts entered into by the Fund. An imperfect correlation of this type may
prevent the Fund from achieving the intended hedge or expose the Fund to the
risk of currency exchange loss.
The Fund may purchase currency forwards and combine such purchases with
sufficient cash or short-term securities to create unleveraged substitutes for
investments in foreign markets when deemed advantageous. The Fund may also
combine the foregoing with bond futures or interest rate futures contracts to
create the economic equivalent of an unhedged foreign bond position.
The Fund may also cross-hedge currencies by entering into transactions
to purchase or sell one or more currencies that are expected to decline in value
relative to other currencies to which the Fund has or in which the Fund expects
to have portfolio exposure.
Currency transactions are subject to risks different from those of
other portfolio transactions. Because currency control is of great importance to
the issuing governments and influences economic planning and policy, purchases
and sales of currency and related instruments can be negatively affected by
government exchange controls, blockages, and manipulations or exchange
restrictions imposed by governments. These can result in losses to the Fund if
it is unable to deliver or receive currency or funds in settlement of
obligations and could also cause hedges it has entered into to be rendered
useless, resulting in full currency exposure as well as incurring transactions
costs. Buyers and sellers of currency futures are subject to the same risks that
apply to the use of futures generally. Further, settlement of a currency futures
contract for the purchase of most currencies must occur at a bank based in the
issuing nation. Trading options on currency futures is relatively new, and the
ability to establish and close out positions on such options is subject to the
maintenance of a liquid market which may not always be available. Currency
exchange rates may fluctuate based on factors extrinsic to that country's
economy.
OTHER INVESTMENT COMPANIES
The Fund may invest up to 10% of its total assets in the shares of
other investment companies. As a shareholder of an investment company, the Fund
would bear its ratable shares of the fund's expenses (which often include an
asset-based management fee). The Fund could also lose money by investing in
other investment companies, since the value of their respective investments and
the income they generate will vary daily based on prevailing market conditions.
REPURCHASE AGREEMENTS
Repurchase agreements are contracts under which the Fund buys a money
market instrument and obtains a simultaneous commitment from the seller to
repurchase the instrument at a specified time and at an agreed-upon yield. Under
guidelines approved by the Board, the Fund is permitted to enter into repurchase
agreements only if the repurchase agreements are at least fully collateralized
with U.S. Government securities or other securities that IMI has approved for
use as collateral for repurchase agreements and the collateral must be
marked-to-market daily. The Fund will enter into repurchase agreements only with
banks and broker-dealers deemed to be creditworthy by IMI under the
above-referenced guidelines. In the unlikely event of failure of the executing
bank or broker-dealer, the Fund could experience some delay in obtaining direct
ownership of the underlying collateral and might incur a loss if the value of
the security should decline, as well as costs in disposing of the security.
BANKING INDUSTRY AND SAVINGS AND LOAN OBLIGATIONS
Certificates of deposit are negotiable certificates issued against
funds deposited in a commercial bank for a definite period of time and earning a
specified return. Bankers' acceptances are negotiable drafts or bills of
exchange, normally drawn by an importer or exporter to pay for specific
merchandise, which are "accepted" by a bank (meaning, in effect, that the bank
unconditionally agrees to pay the face value of the instrument at maturity). In
addition to investing in certificates of deposit and bankers' acceptances, the
Fund may invest in time deposits in banks or savings and loan associations. Time
deposits are generally similar to certificates of deposit, but are
uncertificated. The Fund's investments in certificates of deposit, time
deposits, and bankers' acceptance are limited to obligations of (i) banks having
total assets in excess of $1 billion, (ii) U.S. banks which do not meet the $1
billion asset requirement, if the principal amount of such obligation is fully
insured by the Federal Deposit Insurance Corporation (the "FDIC"), (iii) savings
and loan association which have total assets in excess of $1 billion and which
are members of the FDIC, and (iv) foreign banks if the obligation is, in IMI's
opinion, of an investment quality comparable to other debt securities which may
be purchased by the Fund. The Fund's investments in certificates of deposit of
savings associations are limited to obligations of Federal and state-chartered
institutions whose total assets exceed $1 billion and whose deposits are insured
by the FDIC.
COMMERCIAL PAPER
Commercial paper represents short-term unsecured promissory notes
issued in bearer form by bank holding companies, corporations and finance
companies. The Fund may invest in commercial paper that is rated Prime-1 by
Moody's Investors Service, Inc. ("Moody's") or A-1 by Standard & Poor's
Corporation ("S&P") or, if not rated by Moody's or S&P, is issued by companies
having an outstanding debt issue rated Aaa or Aa by Moody's or AAA or AA by S&P.
BORROWING
Borrowing may exaggerate the effect on the Fund's net asset value of
any increase or decrease in the value of the Fund's portfolio securities. Money
borrowed will be subject to interest costs (which may include commitment fees
and/or the cost of maintaining minimum average balances). Although the principal
of the Fund's borrowings will be fixed, the Fund's assets may change in value
during the time a borrowing is outstanding, thus increasing exposure to capital
risk.
OPTIONS TRANSACTIONS
IN GENERAL. A call option is a short-term contract (having a duration
of less than one year) pursuant to which the purchaser, in return for the
premium paid, has the right to buy the security underlying the option at the
specified exercise price at any time during the term of the option. The writer
of the call option, who receives the premium, has the obligation, upon exercise
of the option, to deliver the underlying security against payment of the
exercise price. A put option is a similar contract pursuant to which the
purchaser, in return for the premium paid, has the right to sell the security
underlying the option at the specified exercise price at any time during the
term of the option. The writer of the put option, who receives the premium, has
the obligation, upon exercise of the option, to buy the underlying security at
the exercise price. The premium paid by the purchaser of an option will reflect,
among other things, the relationship of the exercise price to the market price
and volatility of the underlying security, the time remaining to expiration of
the option, supply and demand, and interest rates.
If the writer of an option wishes to terminate the obligation, the
writer may effect a "closing purchase transaction." This is accomplished by
buying an option of the same series as the option previously written. The effect
of the purchase is that the writer's position will be canceled by the Options
Clearing Corporation. However, a writer may not effect a closing purchase
transaction after it has been notified of the exercise of an option. Likewise,
an investor who is the holder of an option may liquidate his or her position by
effecting a "closing sale transaction." This is accomplished by selling an
option of the same series as the option previously purchased. There is no
guarantee that either a closing purchase or a closing sale transaction can be
effected at any particular time or at any acceptable price. If any call or put
option is not exercised or sold, it will become worthless on its expiration
date.
The Fund will realize a gain (or a loss) on a closing purchase
transaction with respect to a call or a put previously written by the Fund if
the premium, plus commission costs, paid by the Fund to purchase the call or the
put is less (or greater) than the premium, less commission costs, received by
the Fund on the sale of the call or the put. A gain also will be realized if a
call or a put that the Fund has written lapses unexercised, because the Fund
would retain the premium. Any such gains (or losses) are considered short-term
capital gains (or losses) for Federal income tax purposes. Net short-term
capital gains, when distributed by the Fund, are taxable as ordinary income. See
"Taxation."
The Fund will realize a gain (or a loss) on a closing sale transaction
with respect to a call or a put previously purchased by the Fund if the premium,
less commission costs, received by the Fund on the sale of the call or the put
is greater (or less) than the premium, plus commission costs, paid by the Fund
to purchase the call or the put. If a put or a call expires unexercised, it will
become worthless on the expiration date, and the Fund will realize a loss in the
amount of the premium paid, plus commission costs. Any such gain or loss will be
long-term or short-term gain or loss, depending upon the Fund's holding period
for the option.
Exchange-traded options generally have standardized terms and are
issued by a regulated clearing organization (such as the Options Clearing
Corporation), which, in effect, guarantees the completion of every
exchange-traded option transaction. In contrast, the terms of OTC options are
negotiated by the Fund and its counterparty (usually a securities dealer or a
financial institution) with no clearing organization guarantee. When the Fund
purchases an OTC option, it relies on the party from whom it has purchased the
option (the "counterparty") to make delivery of the instrument underlying the
option. If the counterparty fails to do so, the Fund will lose any premium paid
for the option, as well as any expected benefit of the transaction. Accordingly,
IMI will assess the creditworthiness of each counterparty to determine the
likelihood that the terms of the OTC option will be satisfied.
WRITING OPTIONS ON INDIVIDUAL SECURITIES. The Fund may write (sell)
covered call options on the Fund's securities in an attempt to realize a greater
current return than would be realized on the securities alone. The Fund may also
write covered call options to hedge a possible stock or bond market decline
(only to the extent of the premium paid to the Fund for the options). In view of
the investment objectives of the Fund, the Fund generally would write call
options only in circumstances where the investment adviser to the Fund does not
anticipate significant appreciation of the underlying security in the near
future or has otherwise determined to dispose of the security.
A "covered" call option means generally that so long as the Fund is
obligated as the writer of a call option, the Fund will (i) own the underlying
securities subject to the option, or (ii) have the right to acquire the
underlying securities through immediate conversion or exchange of convertible
preferred stocks or convertible debt securities owned by the Fund. Although the
Fund receives premium income from these activities, any appreciation realized on
an underlying security will be limited by the terms of the call option. The Fund
may purchase call options on individual securities only to effect a "closing
purchase transaction."
As the writer of a call option, the Fund receives a premium for
undertaking the obligation to sell the underlying security at a fixed price
during the option period, if the option is exercised. So long as the Fund
remains obligated as a writer of a call option, it forgoes the opportunity to
profit from increases in the market price of the underlying security above the
exercise price of the option, except insofar as the premium represents such a
profit (and retains the risk of loss should the value of the underlying security
decline).
PURCHASING OPTIONS ON INDIVIDUAL SECURITIES. The Fund may purchase a
put option on an underlying security owned by the Fund as a defensive technique
in order to protect against an anticipated decline in the value of the security.
The Fund, as the holder of the put option, may sell the underlying security at
the exercise price regardless of any decline in its market price. In order for a
put option to be profitable, the market price of the underlying security must
decline sufficiently below the exercise price to cover the premium and
transaction costs that the Fund must pay. These costs will reduce any profit the
Fund might have realized had it sold the underlying security instead of buying
the put option. The premium paid for the put option would reduce any capital
gain otherwise available for distribution when the security is eventually sold.
The purchase of put options will not be used by the Fund for leverage purposes.
The Fund may also purchase a put option on an underlying security that
it owns and at the same time write a call option on the same security with the
same exercise price and expiration date. Depending on whether the underlying
security appreciates or depreciates in value, the Fund would sell the underlying
security for the exercise price either upon exercise of the call option written
by it or by exercising the put option held by it. The Fund would enter into such
transactions in order to profit from the difference between the premium received
by the Fund for the writing of the call option and the premium paid by the Fund
for the purchase of the put option, thereby increasing the Fund's current
return. The Fund may write (sell) put options on individual securities only to
effect a "closing sale transaction."
RISKS OF OPTIONS TRANSACTIONS. The purchase and writing of options
involves certain risks. During the option period, the covered call writer has,
in return for the premium on the option, given up the opportunity to profit from
a price increase in the underlying securities above the exercise price, but, as
long as its obligation as a writer continues, has retained the risk of loss
should the price of the underlying security decline. The writer of a U.S. option
has no control over the time when it may be required to fulfill its obligation
as a writer of the option. Once an option writer has received an exercise
notice, it cannot effect a closing purchase transaction in order to terminate
its obligation under the option and must deliver the underlying securities (or
cash in the case of an index option) at the exercise price. If a put or call
option purchased by the Fund is not sold when it has remaining value, and if the
market price of the underlying security (or index), in the case of a put,
remains equal to or greater than the exercise price or, in the case of a call,
remains less than or equal to the exercise price, the Fund will lose its entire
investment in the option. Also, where a put or call option on a particular
security (or index) is purchased to hedge against price movements in a related
security (or securities), the price of the put or call option may move more or
less than the price of the related security (or securities). In this regard,
there are differences between the securities and options markets that could
result in an imperfect correlation between these markets, causing a given
transaction not to achieve its objective.
There can be no assurance that a liquid market will exist when the Fund
seeks to close out an option position. Furthermore, if trading restrictions or
suspensions are imposed on the options markets, the Fund may be unable to close
out a position. Finally, trading could be interrupted, for example, because of
supply and demand imbalances arising from a lack of either buyers or sellers, or
the options exchange could suspend trading after the price has risen or fallen
more than the maximum amount specified by the exchange. Closing transactions can
be made for OTC options only by negotiating directly with the counterparty or by
a transaction in the secondary market, if any such market exists. There is no
assurance that the Fund will be able to close out an OTC option position at a
favorable price prior to its expiration. In the event of insolvency of the
counterparty, the Fund might be unable to close out an OTC option position at
any time prior to its expiration. Although the Fund may be able to offset to
some extent any adverse effects of being unable to liquidate an option position,
the Fund may experience losses in some cases as a result of such inability.
When conducted outside the U.S., options transactions may not be
regulated as rigorously as in the U.S., may not involve a clearing mechanism and
related guarantees, and are subject to the risk of governmental actions
affecting trading in, or the prices of, foreign securities, currencies and other
instruments. The value of such positions also could be adversely affected by:
(i) other complex foreign political, legal and economic factors, (ii) lesser
availability than in the U.S. of data on which to make trading decisions, (iii)
delays in the Fund's ability to act upon economic events occurring in foreign
markets during non-business hours in the U.S., (iv) the imposition of different
exercise and settlement terms and procedures and margin requirements than in the
U.S., and (v) lower trading volume and liquidity.
The Fund's options activities also may have an impact upon the level of its
portfolio turnover and brokerage commissions. See "Portfolio Turnover."
The Fund's success in using options techniques depends, among other
things, on IMI's ability to predict accurately the direction and volatility of
price movements in the options and securities markets, and to select the proper
type, time and duration of options.
FUTURES CONTRACTS AND OPTIONS ON FUTURES CONTRACTS
IN GENERAL. The Fund may enter into futures contracts and options on
futures contracts for hedging purposes. A futures contract provides for the
future sale by one party and purchase by another party of a specified quantity
of a commodity at a specified price and time. When a purchase or sale of a
futures contract is made by the Fund, the Fund is required to deposit with its
custodian (or broker, if legally permitted) a specified amount of cash or liquid
securities ("initial margin"). The margin required for a futures contract is set
by the exchange on which the contract is traded and may be modified during the
term of the contract. The initial margin is in the nature of a performance bond
or good faith deposit on the futures contract which is returned to the Fund upon
termination of the contract, assuming all contractual obligations have been
satisfied. A futures contract held by the Fund is valued daily at the official
settlement price of the exchange on which it is traded. Each day the Fund pays
or receives cash, called "variation margin," equal to the daily change in value
of the futures contract. This process is known as "marking to market." Variation
margin does not represent a borrowing or loan by the Fund but is instead a
settlement between the Fund and the broker of the amount one would owe the other
if the futures contract expired. In computing daily net asset value, the Fund
will mark-to-market its open futures position.
The Fund is also required to deposit and maintain margin with respect
to put and call options on futures contracts written by it. Such margin deposits
will vary depending on the nature of the underlying futures contract (and the
related initial margin requirements), the current market value of the option,
and other futures positions held by the Fund.
Although some futures contracts call for making or taking delivery of
the underlying securities, generally these obligations are closed out prior to
delivery of offsetting purchases or sales of matching futures contracts (same
exchange, underlying security or index, and delivery month). If an offsetting
purchase price is less than the original sale price, the Fund generally realizes
a capital gain, or if it is more, the Fund generally realizes a capital loss.
Conversely, if an offsetting sale price is more than the original purchase
price, the Fund generally realizes a capital gain, or if it is less, the Fund
generally realizes a capital loss.
The transaction costs must also be included in these calculations.
When purchasing a futures contract, the Fund will maintain with its
Custodian (and mark-to-market on a daily basis) cash or liquid securities that,
when added to the amounts deposited with a futures commission merchant ("FCM")
as margin, are equal to the market value of the futures contract. Alternatively,
the Fund may "cover" its position by purchasing a put option on the same futures
contract with a strike price as high as or higher than the price of the contract
held by the Fund, or, if lower, may cover the difference with cash or short-term
securities.
When selling a futures contract, the Fund will maintain with its
Custodian in a segregated account (and mark-to-market on a daily basis) cash or
liquid securities that, when added to the amounts deposited with an FCM as
margin, are equal to the market value of the instruments underlying the
contract. Alternatively, the Fund may "cover" its position by owning the
instruments underlying the contract (or, in the case of an index futures
contract, a portfolio with a volatility substantially similar to that of the
index on which the futures contract is based), or by holding a call option
permitting the Fund to purchase the same futures contract at a price no higher
than the price of the contract written by the Fund (or at a higher price if the
difference is maintained in liquid assets with the Fund's custodian).
When selling a call option on a futures contract, the Fund will
maintain with its Custodian in a segregated account (and mark-to-market on a
daily basis) cash or liquid securities that, when added to the amounts deposited
with an FCM as margin, equal the total market value of the futures contract
underlying the call option. Alternatively, the Fund may cover its position by
entering into a long position in the same futures contract at a price no higher
than the strike price of the call option, by owning the instruments underlying
the futures contract, or by holding a separate call option permitting the Fund
to purchase the same futures contract at a price not higher than the strike
price of the call option sold by the Fund, or covering the difference if the
price is higher.
When selling a put option on a futures contract, the Fund will maintain
with its Custodian (and mark-to-market on a daily basis) cash or liquid
securities that equal the purchase price of the futures contract less any margin
on deposit. Alternatively, the Fund may cover the position either by entering
into a short position in the same futures contract, or by owning a separate put
option permitting it to sell the same futures contract so long as the strike
price of the purchased put option is the same or higher than the strike price of
the put option sold by the Fund, or, if lower, the Fund may hold securities to
cover the difference.
FOREIGN CURRENCY FUTURES CONTRACTS AND RELATED OPTIONS. The Fund may
engage in foreign currency futures contracts and related options transactions
for hedging purposes. A foreign currency futures contract provides for the
future sale by one party and purchase by another party of a specified quantity
of a foreign currency at a specified price and time.
An option on a foreign currency futures contract gives the holder the
right, in return for the premium paid, to assume a long position (call) or short
position (put) in a futures contract at a specified exercise price at any time
during the period of the option. Upon the exercise of a call option, the holder
acquires a long position in the futures contract and the writer is assigned the
opposite short position. In the case of a put option, the opposite is true.
The Fund may purchase call and put options on foreign currencies as a
hedge against changes in the value of the U.S. dollar (or another currency) in
relation to a foreign currency in which portfolio securities of the Fund may be
denominated. A call option on a foreign currency gives the buyer the right to
buy, and a put option the right to sell, a certain amount of foreign currency at
a specified price during a fixed period of time. The Fund may invest in options
on foreign currency which are either listed on a domestic securities exchange or
traded on a recognized foreign exchange.
In those situations where foreign currency options may not be readily
purchased (or where such options may be deemed illiquid) in the currency in
which the hedge is desired, the hedge may be obtained by purchasing an option on
a "surrogate" currency, i.e., a currency where there is tangible evidence of a
direct correlation in the trading value of the two currencies. A surrogate
currency's exchange rate movements parallel that of the primary currency.
Surrogate currencies are used to hedge an illiquid currency risk, when no liquid
hedge instruments exist in world currency markets for the primary currency.
The Fund will only enter into futures contracts and futures options
which are standardized and traded on a U.S. or foreign exchange, board of trade,
or similar entity or quoted on an automated quotation system. The Fund will not
enter into a futures contract or purchase an option thereon if, immediately
thereafter, the aggregate initial margin deposits for futures contracts held by
the Fund plus premiums paid by it for open futures option positions, less the
amount by which any such positions are "in-the-money," would exceed 5% of the
liquidation value of the Fund's portfolio (or the Fund's net asset value), after
taking into account unrealized profits and unrealized losses on any such
contracts the Fund has entered into. A call option is "in-the-money" if the
value of the futures contract that is the subject of the option exceeds the
exercise price. A put option is "in-the-money" if the exercise price exceeds the
value of the futures contract that is the subject of the option. For additional
information about margin deposits required with respect to futures contracts and
options thereon, see "Futures Contracts and Options on Futures Contracts."
RISKS ASSOCIATED WITH FUTURES AND RELATED OPTIONS. There can be no
guarantee that there will be a correlation between price movements in the
hedging vehicle and in the Fund's portfolio securities being hedged. In
addition, there are significant differences between the securities and futures
markets that could result in an imperfect correlation between the markets,
causing a given hedge not to achieve its objectives. The degree of imperfection
of correlation depends on circumstances such as variations in speculative market
demand for futures and futures options on securities, including technical
influences in futures trading and futures options, and differences between the
financial instruments being hedged and the instruments underlying the standard
contracts available for trading in such respects as interest rate levels,
maturities, and creditworthiness of issuers. A decision as to whether, when and
how to hedge involves the exercise of skill and judgment, and even a
well-conceived hedge may be unsuccessful to some degree because of market
behavior or unexpected interest rate trends.
Futures exchanges may limit the amount of fluctuation permitted in
certain futures contract prices during a single trading day. The daily limit
establishes the maximum amount that the price of a futures contract may vary
either up or down from the previous day's settlement price at the end of the
current trading session. Once the daily limit has been reached in a futures
contract subject to the limit, no more trades may be made on that day at a price
beyond that limit. The daily limit governs only price movements during a
particular trading day and therefore does not limit potential losses because the
limit may work to prevent the liquidation of unfavorable positions. For example,
futures prices have occasionally moved to the daily limit for several
consecutive trading days with little or no trading, thereby preventing prompt
liquidation of positions and subjecting some holders of futures contracts to
substantial losses.
There can be no assurance that a liquid market will exist at a time
when the Fund seeks to close out a futures or a futures option position, and the
Fund would remain obligated to meet margin requirements until the position is
closed. In addition, there can be no assurance that an active secondary market
will continue to exist.
Currency futures contracts and options thereon may be traded on foreign
exchanges. Such transactions may not be regulated as effectively as similar
transactions in the United States; may not involve a clearing mechanism and
related guarantees; and are subject to the risk of governmental actions
affecting trading in, or the prices of, foreign securities. The value of such
position also could be adversely affected by (i) other complex foreign
political, legal and economic factors, (ii) lesser availability than in the
United States of data on which to make trading decisions, (iii) delays in the
Fund's ability to act upon economic events occurring in foreign markets during
non business hours in the United States, (iv) the imposition of different
exercise and settlement terms and procedures and margin requirements than in the
United States, and (v) lesser trading volume.
COMBINED TRANSACTIONS. The Fund may enter into multiple transactions,
including multiple options transactions, multiple futures transactions and
multiple currency transactions (including forward currency contracts) and some
combination of futures, options, and currency transactions ("component"
transactions), instead of a single transaction, as part of a single or combined
strategy when, in the opinion of IMI, it is in the best interests of the Fund to
do so. A combined transaction will usually contain elements of risk that are
present in each of its component transactions. Although combined transactions
are normally entered into based on IMI's judgment that the combined strategies
will reduce risk or otherwise more effectively achieve the desired portfolio
management goal, it is possible that the combination will instead increase such
risks or hinder achievement of the management objective.
INVESTMENT RESTRICTIONS
The Fund's investment objectives as set forth in the "Summary" section
of the Prospectus, together with the investment restrictions set forth below,
are fundamental policies of the Fund and may not be changed without the approval
of a majority of the outstanding voting shares of the Fund. Under these
restrictions, the Fund may not:
(i) make an investment in securities of companies in any
one industry (except obligations of domestic banks or
the U.S. Government, its agencies, authorities, or
instrumentalities) if such investment would cause
investments in such industry to exceed 25% of the
market value of the Fund's total assets at the time
of such investment;
(ii) issue senior securities, except as appropriate to
evidence indebtedness which it is permitted to incur,
and except to the extent that shares of the separate
classes or series of the Trust may be deemed to be
senior securities; provided that collateral
arrangements with respect to currency-related
contracts, futures contracts, options or other
permitted investments, including deposits of initial
and variation margin, are not considered to be the
issuance of senior securities for purposes of this
restriction;
(iii) purchase securities of any one issuer (except U.S.
Government securities) if as a result more than 5% of
the Fund's total assets would be invested in such
issuer or the Fund would own or hold more than 10% of
the outstanding voting securities of that issuer;
provided, however, that up to 25% of the value of the
Fund's total assets may be invested without regard to
these limitations;
(iv) purchase securities on margin, except such short-term
credits as are necessary for the clearance of
transactions, but the Fund may make margin deposits
in connection with transactions in options, futures
and options on futures;
(v) make loans, except this restriction shall not
prohibit (a) the purchase and holding of a portion of
an issue of publicly distributed debt securities, (b)
the entry into repurchase agreements with banks or
broker-dealers, or (c) the lending of the Fund's
portfolio securities in accordance with applicable
guidelines established by the Securities and Exchange
Commission (the "SEC") and any guidelines established
by the Trust's Trustees;
(vi) make investments in securities for the purpose of exercising control over
or management of the issuer;
(vii) act as an underwriter of securities, except to the
extent that, in connection with the sale of
securities, it may be deemed to be an underwriter
under applicable securities laws;
(viii) borrow money, except as a temporary measure for
extraordinary or emergency purposes, and provided
that the Fund maintains asset coverage of 300% for
all borrowings;
(ix) lend any funds or other assets, except that this
restriction shall not prohibit (a) the entry into
repurchase agreements, (b) the purchase of publicly
distributed bonds, debentures and other securities of
a similar type, or privately placed municipal or
corporate bonds, debentures and other securities of a
type customarily purchased by institutional investors
or publicly traded in the securities markets, or (c)
the lending of portfolio securities (provided that
the loan is secured continuously by collateral
consisting of U.S. Government securities or cash or
cash equivalents maintained on a daily market-to
market basis in an amount at least equal to the
market value of the securities loaned); or
(x) invest in real estate, real estate mortgage loans,
commodities or interests in oil, gas and/ mineral
exploration or development programs, although (a) the
Fund may purchase and sell marketable securities of
issuers which are secured by real estate, (b) the
Fund may purchase and sell securities of issuers
which invest or deal in real estate, (c) the Fund may
enter into forward foreign currency contracts as
described in the Fund's prospectus, and (d) the Fund
may write or buy puts, calls, straddles or spreads
and may invest in commodity futures contracts and
options on futures contracts.
Under the 1940 Act, the Fund is permitted, subject to its investment
restrictions, to borrow money only from banks. The Trust have no current
intention of borrowing amounts in excess of 5% of the Fund's assets. The Fund
will continue to interpret fundamental investment restriction (x) above to
prohibit investment in real estate limited partnership interests; this
restriction shall not, however, prohibit investment in readily marketable
securities of companies that invest in real estate or interests therein,
including real estate investment trusts.
<PAGE>
ADDITIONAL RESTRICTIONS
The Fund has adopted the following additional restrictions, which are
not fundamental and which may be changed without shareholder approval, to the
extent permitted by applicable law, regulation or regulatory policy. Under these
restrictions, the Fund may not:
(i) invest more than 15% of its net assets taken at market value at the time of
investment in "illiquid securities." Illiquid securities may include
securities subject to legal or contractual restrictions on resale
(including private placements), repurchase agreements maturing in more than
seven days, certain options traded over the counter that the Fund has
purchased, securities being used to cover certain options that a fund has
written, securities for which market quotations are not readily available,
or other securities which legally or in IMI's opinion, subject to the
Board's supervision, may be deemed illiquid, but shall not include any
instrument that, due to the existence of a trading market, to the Fund's
compliance with certain conditions intended to provide liquidity, or to
other factors, is liquid;
(ii) purchase securities of other investment companies, except in connection
with a merger, consolidation or sale of assets, and except that it may
purchase shares of other investment companies subject to such restrictions
as my be imposed by the Investment Company Act of 1940 and rules
thereunder;
(iii)purchase or sell interests in oil, gas or mineral leases (other than
securities of companies that invest in or sponsor such programs);
(iv) sell securities short, except for short sales "against the box;" or
(v) participate on a joint or a joint and several basis in any trading account
in securities. The "bunching" of orders of the Fund and of other accounts
under the investment management of the Fund's investment adviser, for the
sale or purchase of portfolio securities shall not be considered
participation in a joint securities trading account.
Whenever an investment objective, policy or restriction set forth in
the Prospectus or this SAI states a maximum percentage of assets that may be
invested in any security or other asset or describes a policy regarding quality
standards, such percentage limitation or standard shall, unless otherwise
indicated, apply to the Fund only at the time a transaction is entered into.
Accordingly, if a percentage limitation is adhered to at the time of investment,
a later increase or decrease in the percentage which results from circumstances
not involving any affirmative action by the Fund, such as a change in market
conditions or a change in the Fund's asset level or other circumstances beyond
the Fund's control, will not be considered a violation.
PORTFOLIO TURNOVER
The Fund purchases securities that are believed by IMI to have above
average potential for capital appreciation. Common stocks are disposed of in
situations where it is believed that potential for such appreciation has
lessened or that other common stocks have a greater potential. Therefore, the
Fund may purchase and sell securities without regard to the length of time the
security is to be, or has been, held. A change in securities held by the Fund is
known as "portfolio turnover" and may involve the payment by the Fund of dealer
markup or underwriting commission and other transaction costs on the sale of
securities, as well as on the reinvestment of the proceeds in other securities.
The Fund's portfolio turnover rate is calculated by dividing the lesser of
purchases or sales of portfolio securities for the most recently completed
fiscal year by the monthly average of the value of the portfolio securities
owned by the Fund during that year. For purposes of determining the Fund's
portfolio turnover rate, all securities whose maturities at the time of
acquisition were one year or less are excluded.
TRUSTEES AND OFFICERS
The Fund's Board of Trustees (the "Board") is responsible for the
overall management of the Fund, including general supervision and review of the
Fund's investment activities. The Board, in turn, elects the officers who are
responsible for administering the Fund's day-to-day operations.
The Trustees and Executive Officers of the Trust, their business
addresses and principal occupations during the past five years are:
POSITION WITH BUSINESS AFFILIATIONS
NAME, ADDRESS, AGE THE TRUST AND PRINCIPAL OCCUPATIONS
John S. Anderegg, Jr. Trustee Chairman, Dynamics Research
60 Concord Street Corp. (instruments and controls);
Wilmington, MA 01887 Director, Burr-Brown Corp.
Age: 74 (operational amplifiers); Director,
Metritage Incorporated (level
measuring instruments); Trustee of
Mackenzie Series Trust (1992-1998).
Paul H. Broyhill Trustee Chairman, BMC Fund, Inc.
800 Hickory Blvd. (1983-present); Chairman,
Golfview Park-Box 500 Broyhill Family Foundation,
Lenoir, NC 28645 Inc. (1983-Present); Chairman and
Age: 74 President, Broyhill Investments,
Inc. (1983-present); Chairman,
Broyhill Timber Resources (1983-
present); Management of a personal
portfolio of fixed-income and equity
investments (1983-present); Trustee
of Mackenzie Series Trust (1988-
1998); Director of The Mackenzie
Funds Inc. (1988-1995).
Stanley Channick Trustee President and Chief
11 Bala Avenue Executive Officer, The
Bala Cynwyd, PA 19004 Whitestone Corporation
Age: 75 (insurance agency); Chairman, Scott
Management Company (administrative
services for insurance companies);
President, The Channick Group
(consultants to insurance companies
and national trade associations);
Trustee of Mackenzie Series Trust
(1994-1998); Director of The
Mackenzie Funds Inc. (1994-1995).
Frank W. DeFriece, Jr. Trustee Director, Manager and Vice
The Landmark Centre President, Director and
113 Landmark Lane, Fund Manager, Massengill-
Suite B DeFriece Foundation
Bristol, TN 37620-2285 (charitable organization)
Age: 77 (1950-present); Trustee and Vice
Chairman, East Tennessee Public
Communications Corp. (WSJK-TV)
(1984-present); Trustee of Mackenzie
Series Trust (1985-1998); Director
of The Mackenzie Funds Inc. (1987-
1995).
Roy J. Glauber Trustee Mallinckrodt Professor of
Lyman Laboratory Physics, Harvard
of Physics University (1974-present);
Harvard University Trustee of Mackenzie Series
Cambridge, MA 02138 Trust (1994-1997).
Age: 72
Michael G. Landry Trustee President, Chief Executive
700 South Federal Hwy. And Officer and Director of
Suite 300 Chairman Mackenzie Investment
Boca Raton, FL 33432 Management Inc. (1987-
Age: 51 present); President,
[*Deemed to be an Director and Chairman of
"interested person" Ivy Management Inc. (1992-
of the Trust, as present); Chairman and
defined under the Director of Ivy Mackenzie
1940 Act.] Services Corp.(1993-present);
Chairman and Director of Ivy
Mackenzie Distributors, Inc.
(1994-present); Director and
President of Ivy Mackenzie
Distributors, Inc. (1993-1994);
Director and President of The
Mackenzie Funds Inc. (1987-1995);
Trustee of Mackenzie Series Trust
(1987-1998); President of Mackenzie
Series Trust (1987-1996); Chairman
of Mackenzie Series Trust (1996-
1998).
Joseph G. Rosenthal Trustee Chartered Accountant
110 Jardin Drive (1958-present); Trustee of
Unit #12 Mackenzie Series Trust
Concord, Ontario Canada (1985-1998); Director of
L4K 2T7 The Mackenzie Funds Inc.
Age: 63 (1987-1995).
Richard N. Silverman Trustee Director, Newton-Wellesley
18 Bonnybrook Road Hospital; Director, Beth
Waban, MA 02168 Israel Hospital; Director,
Age: 74 Boston Ballet; Director, Boston
Children's Museum; Director, Brimmer
and May School.
J. Brendan Swan Trustee President, Airspray
4701 North Federal Hwy. International, Inc.;
Suite 465 Joint Managing Director,
Pompano Beach, FL 33064 Airspray International
Age: 67 B.V. (an environmentally sensitive
packaging company); Director of
Polyglass LTD.; Director, The
Mackenzie Funds Inc. (1992-1995);
Trustee of Mackenzie Series Trust
(1992-1998).
Keith J. Carlson Trustee Senior Vice President of Mackenzie
700 South Federal Hwy. And Investment Management, Inc. (1996 -
Suite 300 President -present); Senior Vice President and
Boca Raton, FL 33432 Director of Mackenzie Investment
Age: 41 Management, Inc. (1994 - 1996);
[*Deemed to be an Senior Vice President and Treasurer
"interested person" of Mackenzie Investment Management,
of the Trust, Inc. (1989-1994); Senior Vice President
as defined under President and Director of Ivy
the 1940 Act.] Management Inc. (1994-present);
Senior Vice President, Treasurer and
Director of Ivy Management Inc.
(1992-1994); Vice President of The
Mackenzie Funds Inc. (1987-1995);
Senior Vice President and Director,
Ivy Mackenzie Services Corp. (1996-
present); President and Director of
Ivy Mackenzie Services Corp. (1993-
1996); Trustee and President of
Mackenzie Series Trust (1996-1998);
Vice President of Mackenzie Series
Trust (1994-1998); Treasurer of
Mackenzie Series Trust (1985-1994);
President, Chief Executive Officer
and Director of Ivy Mackenzie
Distributors, Inc. (1994-present);
Executive Vice President and
Director of Ivy Mackenzie
Distributors, Inc. (1993-1994);
Trustee of Mackenzie Series Trust
(1996-1998).
C. William Ferris Secretary/ Senior Vice President,
700 South Federal Hwy. Treasurer Chief Financial Officer
Suite 300 and Secretary/Treasurer
Boca Raton, FL 33432 of Mackenzie Investment
Age: 53 Management Inc. (1995-present);
Senior Vice President, Finance and
Administration/Compliance Officer of
Mackenzie Investment Management Inc.
(1989-1994); Senior Vice President,
Secretary/ Treasurer and Clerk of
Ivy Management Inc. (1994-present);
Vice President, Finance/
Administration and Compliance
Officer of Ivy Management Inc.
(1992-1994); Senior Vice President,
Secretary/Treasurer and Director of
Ivy Mackenzie Distributors, Inc.
(1994-present); Secretary/Treasurer
and Director of Ivy Mackenzie
Distributors, Inc. (1993-1994);
President and Director of Ivy
Mackenzie Services Corp.
(1996-present); Secretary/Treasurer
and Director of Ivy Mackenzie
Services Corp. (1993-1996);
Secretary/Treasurer
of The Mackenzie Funds Inc.
(1993-1995); Secretary/Treasurer of
Mackenzie Series Trust (1994-1998).
James W. Broadfoot Vice Executive Vice President,
700 South Federal Hwy. President Ivy Management Inc. (1996-
Suite 300 present); Senior Vice
Boca Raton, FL 33432 President, Ivy Management,
Age: 56 Inc. (1992-1996); Director and
Senior Vice President, Mackenzie
Investment Management Inc. (1995-
present); Senior Vice President,
Mackenzie Investment Management Inc.
(1990-1995).
COMPENSATION TABLE
IVY FUND
(FISCAL YEAR ENDED DECEMBER 31, 1998)
PENSION OR TOTAL COMPENSA-
AGGREGATE RETIREMENT ESTIMATED TION FROM TRUST
NAME, COMPENSATION BENEFITS ACCRUED ANNUAL AND FUND
POSITION FROM TRUST AS PART OF BENEFITS UPON COMPLEX PAID TO
FUND EXPENSES RETIREMENT TRUSTEES
John S. N/A N/A
Anderegg, Jr.
(Trustee)
Paul H. N/A N/A
Broyhill
(Trustee)
Keith J. $0 N/A N/A $0
Carlson
(Trustee and
President)
Stanley N/A N/A
Channick
(Trustee)
Frank W. N/A N/A
DeFriece, Jr.
(Trustee)
Roy J. N/A N/A
Glauber
(Trustee)
Michael G. $0 N/A N/A $0
Landry
(Trustee and
Chairman of
the Board)
Joseph G. N/A N/A
Rosenthal
(Trustee)
Richard N. N/A N/A
Silverman
(Trustee)
J. Brendan N/A N/A
Swan
(Trustee)
C. William $0 N/A N/A $0
Ferris
(Secretary/
Treasurer)
To the knowledge of the Trust, as of [ ], no shareholder owned
beneficially or of record 5% or more of the Fund's outstanding shares of any
class, except that [to be completed by amendment]
As of [.. ], the Officers and Trustees of the Trust as a group owned
beneficially or of record less than 1% of the outstanding Class A, Class B,
Class C and Advisor Class shares of the Fund.
PERSONAL INVESTMENTS BY EMPLOYEES OF IMI. Employees of IMI are
permitted to make personal securities transactions, subject to the requirements
and restrictions set forth in IMI's Code of Ethics and Business Conduct Policy
(the "Code of Ethics"). The Code of Ethics is designed to identify and address
certain conflicts of interest between personal investment activities and the
interests of investment advisory clients such as the Fund. Among other things,
the Code of Ethics, which generally complies with standards recommended by the
Investment Company Institute's Advisory Group on Personal Investing, prohibits
certain types of transactions absent prior approval, applies to portfolio
managers, traders, research analysts and others involved in the investment
advisory process, and imposes time periods during which personal transactions
may not be made in certain securities, and requires the submission of duplicate
broker confirmations and monthly reporting of securities transactions.
Exceptions to these and other provisions of the Code of Ethics may be granted in
particular circumstances after review by appropriate personnel.
INVESTMENT ADVISORY AND OTHER SERVICES
BUSINESS MANAGEMENT AND INVESTMENT ADVISORY SERVICES
IMI provides business management services to the Fund pursuant to a
Business Management Agreement (the "Management Agreement"). The Management
Agreement was approved by the sole shareholder of the Fund on December 13, 1996.
Prior to shareholder approval, the Agreement was approved with respect to the
Fund by the Board, including a majority of the Trustees who are neither
"interested persons" (as defined in the 1940 Act) of the Trust nor have any
direct or indirect financial interest in the operation of the distribution plan
(see "Distribution Services") or in any related agreement (the "Independent
Trustees") at a meeting held on December 7, 1996.
IMI is a wholly owned subsidiary of Mackenzie Investment Management
Inc. ("MIMI"). MIMI, a Delaware corporation, has approximately 10% of its
outstanding common stock listed for trading on the Toronto Stock Exchange
("TSE"). MIMI is a subsidiary of Mackenzie Financial Corporation ("MFC"), 150
Bloor Street West, Toronto, Ontario, Canada, a public corporation organized
under the laws of Ontario and whose shares are listed for trading on the TSE.
MFC provides investment advisory services to the Fund pursuant to an Investment
Advisory Agreement (the "Agreement"). The MFC Agreement was approved by the sole
shareholder of the Fund on December 13, 1996. Prior to shareholder approval, the
MFC Agreement was approved by the Board (including a majority of Independent
Trustees). IMI currently acts as manager and investment adviser to the following
additional investment companies registered under the 1940 Act: Ivy Asia Pacific
Fund, Ivy Bond Fund, Ivy China Region Fund, Ivy Developing Nations Fund, Ivy
European Opportunities Fund, Ivy Global Fund, Ivy Global Science & Technology
Fund, Ivy Growth Fund, Ivy Growth with Income Fund, Ivy International Fund II,
Ivy International Fund, Ivy International Small Companies Fund, Ivy
International Strategic Bond Fund, Ivy Money Market Fund, Ivy Pan-Europe Fund,
Ivy South America Fund, Ivy US Blue Chip Fund and Ivy US Emerging Growth Fund.
The Agreement obligates MFC to make investments for the account of the
Fund in accordance with its best judgment and within the investment objectives
and restrictions set forth in the Prospectus, the 1940 Act and the provisions of
the Code relating to regulated investment companies, subject to policy decisions
adopted by the Board. MFC also determines the securities to be purchased or sold
by the Fund and places orders with brokers or dealers who deal in such
securities.
Under the Management Agreement, IMI also provides certain business
management services. IMI is obligated to (1) coordinate with the Fund's
Custodian and monitor the services it provides to the Fund; (2) coordinate with
and monitor any other third parties furnishing services to the Fund; (3) provide
the Fund with necessary office space, telephones and other communications
facilities as are adequate for the Fund's needs; (4) provide the services of
individuals competent to perform administrative and clerical functions that are
not performed by employees or other agents engaged by the Fund or by IMI acting
in some other capacity pursuant to a separate agreement or arrangements with the
Fund; (5) maintain or supervise the maintenance by third parties of such books
and records of the Trust as may be required by applicable Federal or state law;
(6) authorize and permit IMI's directors, officers and employees who may be
elected or appointed as trustees or officers of the Trust to serve in such
capacities; and (7) take such other action with respect to the Trust, after
approval by the Trust as may be required by applicable law, including without
limitation the rules and regulations of the SEC and of state securities
commissions and other regulatory agencies. IMI is also responsible for reviewing
the activities of MFC to ensure that the Fund is operated in compliance with its
investment objectives and policies and with the 1940 Act.
The Fund pays IMI a monthly fee for providing business management
services at an annual rate of 0.50% of the Fund's average net assets. For
investment advisory services, the Fund pays MFC a monthly fee at an annual rate
of 0.50% of its average net assets.
During the fiscal years ended December 31, 1997 and 1998, the Fund paid
IMI fees of $32,056 and [
], respectively (of which IMI reimbursed $25,180 and [ ], respectively, pursuant
to expense limitations). During the fiscal years ended December 31, 1997 and
1998, the Fund paid MFC fees of [ ] and [ ], respectively.
Under the Agreements, the Trust pays the following expenses: (1) the
fees and expenses of the Trust's Independent Trustees; (2) the salaries and
expenses of any of the Trust's officers or employees who are not affiliated with
IMI; (3) interest expenses; (4) taxes and governmental fees, including any
original issue taxes or transfer taxes applicable to the sale or delivery of
shares or certificates therefor; (5) brokerage commissions and other expenses
incurred in acquiring or disposing of portfolio securities; (6) the expenses of
registering and qualifying shares for sale with the SEC and with various state
securities commissions; (7) accounting and legal costs; (8) insurance premiums;
(9) fees and expenses of the Trust's Custodian and Transfer Agent and any
related services; (10) expenses of obtaining quotations of portfolio securities
and of pricing shares; (11) expenses of maintaining the Trust's legal existence
and of shareholders' meetings; (12) expenses of preparation and distribution to
existing shareholders of periodic reports, proxy materials and prospectuses; and
(13) fees and expenses of membership in industry organizations.
IMI currently limits the Fund's total operating expenses (excluding
Rule 12b-1 fees, interest, taxes, brokerage commissions, litigation,
class-specific expenses, indemnification expenses, and extraordinary expenses)
to an annual rate of 1.95% of the Fund's average net assets, which may lower the
Fund's expenses and increase its yield.
The Agreement will continue in effect with respect to the Fund from
year to year, only so long as the continuance is specifically approved at least
annually (i) by the vote of a majority of the Independent Trustees and (ii)
either (a) by the vote of a majority of the outstanding voting securities (as
defined in the 1940 Act) of the Fund or (b) by the vote of a majority of the
entire Board. If the question of continuance of the Agreement (or adoption of
any new agreement) is presented to the shareholders, continuance (or adoption)
shall be effected only if approved by the affirmative vote of a majority of the
outstanding voting securities of the Fund. See "Capitalization and Voting
Rights."
The Agreement may be terminated with respect to the Fund at any time,
without payment of any penalty, by the vote of a majority of the Board, or by a
vote of a majority of the outstanding voting securities of the Fund, on 60 days'
written notice to IMI, or by IMI on 60 days' written notice to the Trust. The
Agreement shall terminate automatically in the event of its assignment.
DISTRIBUTION SERVICES
IMDI, a wholly owned subsidiary of MIMI, serves as the exclusive
distributor of the Fund's shares pursuant to an Amended and Restated
Distribution Agreement with the Trust dated , 1999, as amended from time to time
(the "Distribution Agreement"). The Distribution Agreement was last approved by
the Board on September 17, 1998. IMDI distributes shares of the Fund through
broker-dealers who are members of the National Association of Securities
Dealers, Inc. and who have executed dealer agreements with IMDI. IMDI
distributes shares of the Fund on a continuous basis, but reserves the right to
suspend or discontinue distribution on that basis. IMDI is not obligated to sell
any specific amount of Fund shares.
Pursuant to the Distribution Agreement, IMDI is entitled to deduct a
commission on all Class A Fund shares sold equal to the difference, if any,
between the public offering price, as set forth in the Fund's then-current
prospectus, and the net asset value on which such price is based. Out of that
commission, IMDI may reallow to dealers such concession as IMDI may determine
from time to time. In addition, IMDI is entitled to deduct a CDSC on the
redemption of Class A shares sold without an initial sales charge and Class B
and Class C shares, in accordance with, and in the manner set forth in, the
Prospectus.
Under the Distribution Agreement, the Fund bears, among other expenses,
the expenses of registering and qualifying its shares for sale under Federal and
state securities laws and preparing and distributing to existing shareholders
periodic reports, proxy materials and prospectuses.
During the fiscal year ended December 31, 1998, IMDI received from
sales of Class A shares of the Fund [ ] in sales commissions, of which [ ] was
retained after dealer allowances. During the fiscal year ended December 31,
1998, IMDI received [ ] in CDSCs on redemptions of Class B shares of the Fund.
During the fiscal year ended December 31, 1998, IMDI received [ ] in CDSCs on
redemptions of Class C shares of the Fund.
The Distribution Agreement will continue in effect for successive
one-year periods, provided that such continuance is specifically approved at
least annually by the vote of a majority of the Independent Trustees, cast in
person at a meeting called for that purpose and by the vote of either a majority
of the entire Board or a majority of the outstanding voting securities of the
Fund. The Distribution Agreement may be terminated with respect to the Fund at
any time, without payment of any penalty, by IMDI on 60 days' written notice to
the Fund or by the Fund by vote of either a majority of the outstanding voting
securities of the Fund or a majority of the Independent Trustees on 60 days'
written notice to IMDI. The Distribution Agreement shall terminate automatically
in the event of its assignment.
RULE 18F-3 PLAN. On February 23, 1995, the SEC adopted Rule 18f-3 under
the 1940 Act, which permits a registered open-end investment company to issue
multiple classes of shares in accordance with a written plan approved by the
investment company's board of directors/trustees and filed with the SEC. At a
meeting held on December 7, 1996, the Board adopted a Rule 18f-3 plan on behalf
of the Fund. The Board last approved the Rule 18f-3 plan at a meeting held of
December 5-6, 1997. The key features of the Rule 18f-3 plan are as follows: (i)
shares of each class of the Fund represent an equal pro rata interest in the
Fund and generally have identical voting, dividend, liquidation, and other
rights, preferences, powers, restrictions, limitations, qualifications, terms
and conditions, except that each class bears certain class-specific expenses and
has separate voting rights on certain matters that relate solely to that class
or in which the interests of shareholders of one class differ from the interests
of shareholders of another class; (ii) subject to certain limitations described
in the Prospectus, shares of a particular class of the Fund may be exchanged for
shares of the same class of another Ivy fund; and (iii) the Fund's Class B
shares will convert automatically into Class A shares of the Fund after a period
of eight years, based on the relative net asset value of such shares at the time
of conversion.
RULE 12B-1 DISTRIBUTION PLANS. The Trust has adopted on behalf of the
Fund, in accordance with Rule 12b-1 under the 1940 Act, separate Rule 12b-1
distribution plans pertaining to the Fund's Class A, Class B and Class C shares
(each, a "Plan"). In adopting each Plan, a majority of the Independent Trustees
have concluded in accordance with the requirements of Rule 12b-1 that there is a
reasonable likelihood that each Plan will benefit the Fund and its shareholders.
The Trustees of the Trust believe that the Plans should result in greater sales
and/or fewer redemptions of the Fund's shares, although it is impossible to know
for certain the level of sales and redemptions of the Fund's shares in the
absence of a Plan or under an alternative distribution arrangement.
Under each Plan, the Fund pays IMDI a service fee, accrued daily and
paid monthly, at the annual rate of up to 0.25% of the average daily net assets
attributable to its Class A, Class B or Class C shares, as the case may be. The
services for which service fees may be paid include, among other things,
advising clients or customers regarding the purchase, sale or retention of
shares of the Fund, answering routine inquiries concerning the Fund and
assisting shareholders in changing options or enrolling in specific plans.
Pursuant to each Plan, service fee payments made out of or charged against the
assets attributable to the Fund's Class A, Class B or Class C shares must be in
reimbursement for services rendered for or on behalf of the affected class. The
expenses not reimbursed in any one month may be reimbursed in a subsequent
month. The Class A Plan does not provide for the payment of interest or carrying
charges as distribution expenses.
Under the Fund's Class B and Class C Plans, the Fund also pays IMDI a
distribution fee, accrued daily and paid monthly, at the annual rate of 0.75% of
the average daily net assets attributable to its Class B or Class C shares. IMDI
may reallow to dealers all or a portion of the service and distribution fees as
IMDI may determine from time to time. The distribution fee compensates IMDI for
expenses incurred in connection with activities primarily intended to result in
the sale of the Fund's Class B or Class C shares, including the printing of
prospectuses and reports for persons other than existing shareholders and the
preparation, printing and distribution of sales literature and advertising
materials. Pursuant to each Class B and Class C Plan, IMDI may include interest,
carrying or other finance charges in its calculation of distribution expenses,
if not prohibited from doing so pursuant to an order of or a regulation adopted
by the SEC.
Among other things, each Plan provides that (1) IMDI will submit to the
Board at least quarterly, and the Trustees will review, written reports
regarding all amounts expended under the Plan and the purposes for which such
expenditures were made; (2) each Plan will continue in effect only so long as
such continuance is approved at least annually, and any material amendment
thereto is approved, by the votes of a majority of the Board, including the
Independent Trustees, cast in person at a meeting called for that purpose; (3)
payments by the Fund under each Plan shall not be materially increased without
the affirmative vote of the holders of a majority of the outstanding shares of
the relevant class; and (4) while each Plan is in effect, the selection and
nomination of Independent Trustees shall be committed to the discretion of the
Trustees who are not "interested persons" of the Trust.
IMDI may make payments for distribution assistance and for
administrative and accounting services from resources that may include the
management fees paid by the Fund. IMDI also may make payments (such as the
service fee payments described above) to unaffiliated broker-dealers for
services rendered in the distribution of the Fund's shares. To qualify for such
payments, shares may be subject to a minimum holding period. However, no such
payments will be made to any dealer or broker if at the end of each year the
amount of shares held does not exceed a minimum amount. The minimum holding
period and minimum level of holdings will be determined from time to time by
IMDI.
A report of the amount expended pursuant to each Plan, and the purposes
for which such expenditures were incurred, must be made to the Board for its
review at least quarterly.
During the fiscal year ended December 31, 1998, the Fund paid IMDI [ ]
pursuant to its Class A plan. During the fiscal year ended December 31, 1998 the
Fund paid IMDI [ ] pursuant to its Class B plan. During the fiscal year ended
December 31, 1998, the Fund paid IMDI [ ] pursuant to its Class C plan.
During the fiscal year ended December 31, 1998, IMDI expended the following
amounts in marketing Class A shares of the Fund: advertising [$....;] printing
and mailing of prospectuses to persons other than current shareholders, [$ ;]
compensation to dealers, [$....... ;] compensation to sales personnel [$ ;]
seminars and meetings, [$ ;] travel and entertainment, [$. ;] general and
administrative, [$ ;] telephone, [$ ;] and occupancy and equipment rental,
[$........]
During the fiscal year ended December 31, 1998, IMDI expended the
following amounts in marketing Class B shares of the Fund: advertising, [$ ;]
printing and mailing of prospectuses to persons other than current shareholders,
[$ ;] compensation to dealers, [$ ;] compensation to sales personnel, [$ ;]
seminars and meetings, [$ ;] travel and entertainment, [$ ;] general and
administrative, [$ ;] telephone, [$ ;] and occupancy and equipment rental [$ .]
During the fiscal year ended December 31, 1998, IMDI expended the
following amounts in marketing Class C shares of the Fund: advertising, [$ ;]
printing and mailing of prospectuses to persons other than current shareholders,
[$ ;] compensation to dealers, [$.......] compensation to sales personnel, [$ ;]
seminars and meetings, [$ ;] travel and entertainment, [$. ;] general
administrative, [$ ;] telephone, [$ ;] and occupancy and equipment rental,
[$.........]
Each Plan may be amended at any time with respect to the class of
shares of the Fund to which the Plan relates by vote of the Trustees, including
a majority of the Independent Trustees, cast in person at a meeting called for
the purpose of considering such amendment. Each Plan may be terminated at any
time with respect to the class of shares of the Fund to which the Plan relates,
without payment of any penalty, by vote of a majority of the Independent
Trustees, or by vote of a majority of the outstanding voting securities of that
class.
If the Distribution Agreement or the Distribution Plans are terminated
(or not renewed) with respect to any of the Ivy funds (or class of shares
thereof), each may continue in effect with respect to any other fund (or Class
of shares thereof) as to which they have not been terminated (or have been
renewed).
CUSTODIAN
Pursuant to a Custodian Agreement with the Trust, Brown Brothers
Harriman & Co. (the "Custodian"), a private bank and member of the principal
securities exchanges, located at 40 Water Street, Boston, Massachusetts 02109
(the "Custodian"), maintains custody of the assets of the Fund held in the
United States. Rules adopted under the 1940 Act permit the Trust to maintain its
foreign securities and cash in the custody of certain eligible foreign banks and
securities depositories. Pursuant to those rules, the Custodian has entered into
subcustodial agreements for the holding of the Fund's foreign securities. With
respect to the Fund, the Custodian may receive, as partial payment for its
services to the Fund, a portion of the Trust's brokerage business, subject to
its ability to provide best price and execution.
FUND ACCOUNTING SERVICES
Pursuant to a Fund Accounting Services Agreement, MIMI provides certain
accounting and pricing services for the Fund. As compensation for those
services, the Fund pays MIMI a monthly fee plus out-of-pocket expenses as
incurred. The monthly fee is based upon the net assets of the Fund at the
preceding month end at the following rates: $1,250 when net assets are $10
million and under; $2,500 when net assets are over $10 million to $40 million;
$5,000 when net assets are over $40 million to $75 million; and $6,500 when net
assets are over $75 million.
During the fiscal year ended December 31, 1998, the Fund paid MIMI
[ ] under the agreement.
TRANSFER AGENT AND DIVIDEND PAYING AGENT
Pursuant to a Transfer Agency and Shareholder Service Agreement, IMSC,
a wholly owned subsidiary of MIMI, is the transfer agent for the Fund. Under the
Agreement, the Fund pays a monthly fee at an annual rate of $20.00 for each open
Class A, Class B, Class C and Advisor Class account. In addition, the Fund pays
a monthly fee at an annual rate of $4.58 per account that is closed plus certain
out-of-pocket expenses. Such fees and expenses for the fiscal year ended
December 31, 1998 for the Fund totaled [$ ]. Certain broker-dealers that
maintain shareholder accounts with the Fund through an omnibus account provide
transfer agent and other shareholder-related services that would otherwise be
provided by IMSC if the individual accounts that comprise the omnibus account
were opened by their beneficial owners directly. IMSC pays such broker-dealers a
per account fee for each open account within the omnibus account, or a fixed
rate (e.g., 0.10%) fee, based on the average daily net asset value of the
omnibus account (or a combination thereof).
ADMINISTRATOR
Pursuant to an Administrative Services Agreement, MIMI provides certain
administrative services to the Fund. As compensation for these services, the
Fund pays MIMI a monthly fee at the annual rate of 0.10% of the Fund's average
daily net assets. Such fees for the fiscal year ended December 31, 1998 for the
Fund totaled [$ ].
Outside of providing administrative services to the Trust, as described
above, MIMI may also act on behalf of IMDI in paying commissions to
broker-dealers with respect to sales of Class B and Class C shares of the Fund.
AUDITORS
[........ ], independent public accountants, has been selected as
auditors for the Trust. The audit services performed by [ ] include audits of
the annual financial statements of each of the funds of the Trust. Other
services provided principally relate to filings with the SEC and the preparation
of the funds' tax returns.
BROKERAGE ALLOCATION
Subject to the overall supervision of the President and the Board, MFC
places orders for the purchase and sale of the Fund's portfolio securities. All
portfolio transactions are effected at the best price and execution obtainable.
Purchases and sales of debt securities are usually principal transactions and
therefore, brokerage commissions are usually not required to be paid by the Fund
for such purchases and sales (although the price paid generally includes
undisclosed compensation to the dealer). The prices paid to underwriters of
newly-issued securities usually include a concession paid by the issuer to the
underwriter, and purchases of after-market securities from dealers normally
reflect the spread between the bid and asked prices. In connection with OTC
transactions, MFC attempts to deal directly with the principal market makers,
except in those circumstances where MFC believes that a better price and
execution are available elsewhere.
MFC selects broker-dealers to execute transactions and evaluates the
reasonableness of commissions on the basis of quality, quantity, and the nature
of the firms' professional services. Commissions to be charged and the rendering
of investment services, including statistical, research, and counseling services
by brokerage firms, are factors to be considered in the placing of brokerage
business. The types of research services provided by brokers may include general
economic and industry data, and information on securities of specific companies.
Research services furnished by brokers through whom the Trust effects securities
transactions may be used by MFC in servicing all of its accounts. In addition,
not all of these services may be used by MFC in connection with the services it
provides to the Fund or the Trust. MFC may consider sales of shares of Ivy funds
as a factor in the selection of broker-dealers and may select broker-dealers who
provide it with research services. MFC will not, however, execute brokerage
transactions other than at the best price and execution.
During the fiscal years ended December 31, 1997 and 1998, the Fund paid
brokerage commissions of $133,788 and [ ], respectively.
The Fund may, under some circumstances, accept securities in lieu of
cash as payment for Fund shares. The Fund will accept securities only to
increase its holdings in a portfolio security or to take a new portfolio
position in a security that MFC deems to be a desirable investment for the Fund.
While no minimum has been established, it is expected that the Fund will not
accept securities having an aggregate value of less than $1 million. The Trust
may reject in whole or in part any or all offers to pay for the Fund shares with
securities and may discontinue accepting securities as payment for the Fund
shares at any time without notice. The Trust will value accepted securities in
the manner and at the same time provided for valuing portfolio securities of the
Fund, and the Fund shares will be sold for net asset value determined at the
same time the accepted securities are valued. The Trust will only accept
securities delivered in proper form and will not accept securities subject to
legal restrictions on transfer. The acceptance of securities by the Trust must
comply with the applicable laws of certain states.
CAPITALIZATION AND VOTING RIGHTS
The capitalization of the Trust consists of an unlimited number of
shares of beneficial interest (no par value per share). When issued, shares of
each class of the Fund are fully paid, non-assessable, redeemable and fully
transferable. No class of shares of the Fund has preemptive rights or
subscription rights.
The Amended and Restated Declaration of Trust permits the Trustees to
create separate series or portfolios and to divide any series or portfolio into
one or more classes. The Trustees have authorized nineteen series, each of which
represents a fund. The Trustees have further authorized the issuance of Class A,
Class B, and Class C shares for Ivy International Fund and Ivy Money Market Fund
and Class A, Class B, Class C and Advisor Class shares for the Fund, Ivy Asia
Pacific Fund, Ivy Bond Fund, Ivy China Region Fund, Ivy Developing Nations Fund,
Ivy European Opportunities Fund, Ivy Global Fund, Ivy Global Science &
Technology Fund, Ivy Growth Fund, Ivy Growth with Income Fund, Ivy International
Fund II, Ivy International Small Companies Fund, Ivy International Strategic
Bond Fund, Ivy Pan-Europe Fund, Ivy South America Fund, Ivy US Blue Chip Fund,
and Ivy US Emerging Growth Fund, as well as Class I shares for Ivy Bond Fund,
Ivy European Opportunities Fund, Ivy Global Science & Technology Fund, Ivy
International Fund II, Ivy International Fund, Ivy International Small Companies
Fund, Ivy International Strategic Bond Fund, and Ivy US Blue Chip Fund.
Shareholders have the right to vote for the election of Trustees of the
Trust and on any and all matters on which they may be entitled to vote by law or
by the provisions of the Trust's By-Laws. The Trust is not required to hold a
regular annual meeting of shareholders, and it does not intend to do so. Shares
of each class of the Fund entitle their holders to one vote per share (with
proportionate voting for fractional shares). Shareholders of the Fund are
entitled to vote alone on matters that only affect the Fund. All classes of
shares of the Fund will vote together, except with respect to the distribution
plan applicable to the Fund's Class A, Class B or Class C shares or when a class
vote is required by the 1940 Act. On matters relating to all funds of the Trust,
but affecting the funds differently, separate votes by the shareholders of each
fund are required. Approval of an investment advisory agreement and a change in
fundamental policies would be regarded as matters requiring separate voting by
the shareholders of each fund of the Trust. If the Trustees determine that a
matter does not affect the interests of the Fund, then the shareholders of the
Fund will not be entitled to vote on that matter. Matters that affect the Trust
in general, such as ratification of the selection of independent public
accountants, will be voted upon collectively by the shareholders of all funds of
the Trust.
As used in this SAI and the Prospectus, the phrase "majority vote of
the outstanding shares" of the Fund means the vote of the lesser of: (1) 67% of
the shares of the Fund (or of the Trust) present at a meeting if the holders of
more than 50% of the outstanding shares are present in person or by proxy; or
(2) more than 50% of the outstanding shares of the Fund (or of the Trust).
With respect to the submission to shareholder vote of a matter
requiring separate voting by the Fund, the matter shall have been effectively
acted upon with respect to the Fund if a majority of the outstanding voting
securities of the Fund votes for the approval of the matter, notwithstanding
that: (1) the matter has not been approved by a majority of the outstanding
voting securities of any other fund of the Trust; or (2) the matter has not been
approved by a majority of the outstanding voting securities of the Trust.
The Amended and Restated Declaration of Trust provides that the holders
of not less than two-thirds of the outstanding shares of the Trust may remove a
person serving as trustee either by declaration in writing or at a meeting
called for such purpose. The Trustees are required to call a meeting for the
purpose of considering the removal of a person serving as Trustee if requested
in writing to do so by the holders of not less than 10% of the outstanding
shares of the Trust. Shareholders will be assisted in communicating with other
shareholders in connection with the removal of a Trustee as if Section 26(c) of
the Act were applicable.
The Trust's shares do not have cumulative voting rights and accordingly
the holders of more than 50% of the outstanding shares could elect the entire
Board, in which case the holders of the remaining shares would not be able to
elect any Trustees.
Under Massachusetts law, the Trust's shareholders could, under certain
circumstances, be held personally liable for the obligations of the Trust.
However, the Amended and Restated Declaration of Trust disclaims liability of
the shareholders, Trustees or officers of the Trust for acts or obligations of
the Trust, which are binding only on the assets and property of the Trust, and
requires that notice of the disclaimer be given in each contract or obligation
entered into or executed by the Trust or its Trustees. The Amended and Restated
Declaration of Trust provides for indemnification out of Fund property for all
loss and expense of any shareholder of the Fund held personally liable for the
obligations of the Fund. The risk of a shareholder of the Trust incurring
financial loss on account of shareholder liability is limited to circumstances
in which the Trust itself would be unable to meet its obligations and, thus,
should be considered remote. No series of the Trust is liable for the
obligations of any other series of the Trust.
SPECIAL RIGHTS AND PRIVILEGES
The Trust offers, and (except as noted below) bears the cost of
providing, to investors the following rights and privileges. The Trust reserves
the right to amend or terminate any one or more of these rights and privileges.
Notice of amendments to or terminations of rights and privileges will be
provided to shareholders in accordance with applicable law.
Certain of the rights and privileges described below refer to funds,
other than the Fund, whose shares are also distributed by IMDI. These funds are:
Ivy Asia Pacific Fund, Ivy Bond Fund, Ivy China Region Fund, Ivy Developing
Nations Fund, Ivy European Opportunities Fund, Ivy Global Fund, Ivy Global
Science & Technology Fund, Ivy Growth Fund, Ivy Growth with Income Fund, Ivy
International Fund, Ivy International Fund II, Ivy International Small Companies
Fund, Ivy International Strategic Bond Fund, Ivy Money Market Fund, Ivy
Pan-Europe Fund, Ivy South America Fund, Ivy US Blue Chip Fund, and Ivy US
Emerging Growth Fund (the other eighteen series of the Trust). (Effective April
18, 1997, Ivy International Fund suspended the offer of its shares to new
investors). Shareholders should obtain a current prospectus before exercising
any right or privilege that may relate to these funds.
AUTOMATIC INVESTMENT METHOD
The Automatic Investment Method, which enables a Fund shareholder to
have specified amounts automatically drawn each month from his or her bank for
investment in Fund shares, is available for all classes of shares. The minimum
initial and subsequent investment under this method is $50 per month ($250 for
Advisor Class shares), (except in the case of a tax qualified retirement plan
for which the minimum initial and subsequent investment is $25 per month). A
shareholder may terminate the Automatic Investment Method at any time upon
delivery to Ivy Mackenzie Services Corp. ("IMSC") of telephone instructions or
written notice. See "Automatic Investment Method" in the Prospectus. To begin
the plan, complete Sections 6A and 7B of the Account Application.
EXCHANGE OF SHARES
As described in the Prospectus, shareholders of the Fund have an
exchange privilege with other Ivy funds (except Ivy International Fund unless
they have an existing Ivy International Fund account). Before effecting an
exchange, shareholders of the Fund should obtain and read the currently
effective prospectus for the Ivy fund into which the exchange is to be made.
INITIAL SALES CHARGE SHARES. Class A shareholders may exchange their
Class A shares ("outstanding Class A shares") for Class A shares of another Ivy
fund ("new Class A Shares") on the basis of the relative net asset value per
Class A share, plus an amount equal to the difference, if any, between the sales
charge previously paid on the outstanding Class A shares and the sales charge
payable at the time of the exchange on the new Class A shares. (The additional
sales charge will be waived for Class A shares that have been invested for a
period of 12 months or longer.) Class A shareholders may also exchange their
shares for shares of Ivy Money Market Fund (no initial sales charge will be
assessed at the time of such an exchange).
CONTINGENT DEFERRED SALES CHARGE SHARES CLASS A: Class A shareholders
may exchange their Class A shares that are subject to a contingent deferred
sales charge ("CDSC"), as described in the Prospectus ("outstanding Class A
shares"), for Class A shares of another Ivy fund ("new Class A shares") on the
basis of the relative net asset value per Class A share, without the payment of
any CDSC that would otherwise be due upon the redemption of the outstanding
Class A shares. Class A shareholders of the Fund exercising the exchange
privilege will continue to be subject to that Fund's CDSC period following an
exchange if such period is longer than the CDSC period, if any, applicable to
the new Class A shares.
For purposes of computing the CDSC that may be payable upon the
redemption of the new Class A shares, the holding period of the outstanding
Class A shares is "tacked" onto the holding period of the new Class A shares.
CLASS B: Class B shareholders may exchange their Class B shares
("outstanding Class B shares") for Class B shares of another Ivy fund ("new
Class B shares") on the basis of the relative net asset value per Class B share,
without the payment of any CDSC that would otherwise be due upon the redemption
of the outstanding Class B shares. Class B shareholders of the Fund exercising
the exchange privilege will continue to be subject to that Fund's CDSC schedule
(or period) following an exchange if such schedule is higher (or such period is
longer) than the CDSC schedule (or period) applicable to the new Class B shares.
Class B shares of the Fund acquired through an exchange of Class B
shares of another Ivy fund will be subject to that Fund's CDSC schedule (or
period) if such schedule is higher (or such period is longer) than the CDSC
schedule (or period) applicable to the Ivy fund from which the exchange was
made.
For purposes of both the conversion feature and computing the CDSC that
may be payable upon the redemption of the new Class B shares (prior to
conversion), the holding period of the outstanding Class B shares is "tacked"
onto the holding period of the new Class B shares.
The following CDSC table applies to Class B shares of Ivy Asia Pacific
Fund, Ivy Bond Fund, Ivy China Region Fund, Ivy Developing Nations Fund, Ivy
European Opportunities Fund, Ivy Global Fund, Ivy Global Natural Resources Fund,
Ivy Global Science & Technology Fund, Ivy Growth Fund, Ivy Growth with Income
Fund, Ivy International Fund II, Ivy International Fund, Ivy International Small
Companies Fund, Ivy International Strategic Bond Fund, Ivy Pan-Europe Fund, Ivy
South America Fund, Ivy US Blue Chip Fund, and Ivy US Emerging Growth Fund.
CONTINGENT DEFERRED SALES CHARGE AS A PERCENTAGE OF
DOLLAR AMOUNT SUBJECT TO CHARGE
YEAR SINCE PURCHASE
First 5%
Second 4%
Third 3%
Fourth 3%
Fifth 2%
Sixth 1%
Seventh and thereafter 0%
CLASS C: Class C shareholders may exchange their Class C shares
("outstanding Class C shares") for Class C shares of another Ivy fund ("new
Class C shares") on the basis of the relative net asset value per Class C share,
without the payment of any CDSC that would otherwise be due upon redemption.
(Class C shares are subject to a CDSC of 1.00% if redeemed within one year of
the date of purchase.)
ADVISOR CLASS: Subject to the restrictions set forth in the following
paragraph, Advisor Class shareholders may exchange their outstanding Advisor
Class shares for Advisor Class shares of another Ivy Fund on the basis of the
relative net asset value per share.
ALL CLASSES: The minimum value of shares which may be exchanged into an
Ivy fund in which shares are not already held is $1,000 ($10,000 in the case of
Advisor Class shares). No exchange out of the Fund (other than by a complete
exchange of all Fund shares) may be made if it would reduce the shareholder's
interest in the Fund to less than $1,000 ($10,000 in the case of Advisor Class
shares).
Each exchange will be made on the basis of the relative net asset value
per share of the Ivy funds involved in the exchange next computed following
receipt by IMSC of telephone instructions by IMSC or a properly executed
request. Exchanges, whether written or telephonic, must be received by IMSC by
the close of regular trading on the Exchange (normally 4:00 p.m., eastern time)
to receive the price computed on the day of receipt. Exchange requests received
after that time will receive the price next determined following receipt of the
request. The exchange privilege may be modified or terminated at any time, upon
at least 60 days' notice to the extent required by applicable law. See
"Redemptions."
An exchange of shares between any of the Ivy funds will result in a
taxable gain or loss. Generally, this will be a capital gain or loss (long-term
or short-term, depending on the holding period of the shares) in the amount of
the difference between the net asset value of the shares surrendered and the
shareholder's tax basis for those shares. However, in certain circumstances,
shareholders will be ineligible to take sales charges into account in computing
taxable gain or loss on an exchange. See "Taxation."
With limited exceptions, gain realized by a tax-deferred retirement
plan will not be taxable to the plan and will not be taxed to the participant
until distribution. Each investor should consult his or her tax adviser
regarding the tax consequences of an exchange transaction.
LETTER OF INTENT
Reduced sales charges apply to initial investments in Class A shares of
the Fund made pursuant to a non-binding Letter of Intent. A Letter of Intent may
be submitted by an individual, his or her spouse and children under the age of
21, or a trustee or other fiduciary of a single trust estate or single fiduciary
account. See the Account Application in the Prospectus. Any investor may submit
a Letter of Intent stating that he or she will invest, over a period of 13
months, at least $50,000 in Class A shares of the Fund. A Letter of Intent may
be submitted at the time of an initial purchase of Class A shares of the Fund or
within 90 days of the initial purchase, in which case the Letter of Intent will
be back dated. A shareholder may include, as an accumulation credit, the value
(at the applicable offering price) of all Class A shares of Ivy Asia Pacific
Fund, Ivy Bond Fund, Ivy China Region Fund, Ivy Developing Nations Fund, Ivy
European Opportunities Fund, Ivy Global Fund, Ivy Global Natural Resources Fund,
Ivy Global Science & Technology Fund, Ivy Growth Fund, Ivy Growth with Income
Fund, Ivy International Fund II, Ivy International Fund, Ivy International Small
Companies Fund, Ivy International Strategic Bond Fund, Ivy Pan-Europe Fund, Ivy
South America Fund, Ivy US Blue Chip Fund and Ivy US Emerging Growth Fund (and
shares that have been exchanged into Ivy Money Market Fund from any of the other
funds in the Ivy Funds) held of record by him or her as of the date of his or
her Letter of Intent. During the term of the Letter of Intent, the Transfer
Agent will hold Class A shares representing 5% of the indicated amount (less any
accumulation credit value) in escrow. The escrowed Class A shares will be
released when the full indicated amount has been purchased. If the full
indicated amount is not purchased during the term of the Letter of Intent, the
investor is required to pay IMDI an amount equal to the difference between the
dollar amount of sales charge that he or she has paid and that which he or she
would have paid on his or her aggregate purchases if the total of such purchases
had been made at a single time. Such payment will be made by an automatic
liquidation of Class A shares in the escrow account. A Letter of Intent does not
obligate the investor to buy or the Trust to sell the indicated amount of Class
A shares, and the investor should read carefully all the provisions of such
letter before signing.
RETIREMENT PLANS
Shares may be purchased in connection with several types of
tax-deferred retirement plans. Shares of more than one fund distributed by IMDI
may be purchased in a single application establishing a single account under the
plan, and shares held in such an account may be exchanged among the Ivy funds in
accordance with the terms of the applicable plan and the exchange privilege
available to all shareholders. Initial and subsequent purchase payments in
connection with tax-deferred retirement plans must be at least $25 per
participant.
The following fees will be charged to individual shareholder accounts
as described in the retirement prototype plan document:
Retirement Plan New Account Fee no fee
Retirement Plan Annual Maintenance Fee $10.00 per fund account
For shareholders whose retirement accounts are diversified across
several Ivy funds, the annual maintenance fee will be limited to not more than
$20.
The following discussion describes the tax treatment of certain
tax-deferred retirement plans under current Federal income tax law. State income
tax consequences may vary. An individual considering the establishment of a
retirement plan should consult with an attorney and/or an accountant with
respect to the terms and tax aspects of the plan.
INDIVIDUAL RETIREMENT ACCOUNTS: Shares of the Fund may be used as a
funding medium for an Individual Retirement Account ("IRA"). Eligible
individuals may establish an IRA by adopting a model custodial account available
from IMSC, who may impose a charge for establishing the account. Individuals
should consult their tax advisers before investing IRA assets in an Ivy fund if
that fund primarily distributes exempt-interest dividends.
An individual who has not reached age 70-1/2 and who receives
compensation or earned income is eligible to contribute to an IRA, whether or
not he or she is an active participant in a retirement plan. An individual who
receives a distribution from another IRA, a qualified retirement plan, a
qualified annuity plan or a tax-sheltered annuity or custodial account ("403(b)
plan") that qualifies for "rollover" treatment is also eligible to establish an
IRA by rolling over the distribution either directly or within 60 days after its
receipt. Tax advice should be obtained in connection with planning a rollover
contribution to an IRA.
In general, an eligible individual may contribute up to the lesser of
$2,000 or 100% of his or her compensation or earned income to an IRA each year.
If a husband and wife are both employed, and both are under age 70-1/2, each may
set up his or her own IRA within these limits. If both earn at least $2,000 per
year, the maximum potential contribution is $4,000 per year for both. For years
after 1996, the result is similar even if one spouse has no earned income; if
the joint earned income of the spouses is at least $4,000, a contribution of up
to $2,000 may be made to each spouse's IRA. Rollover contributions are not
subject to these limits.
An individual may deduct his or her annual contributions to an IRA in
computing his or her Federal income tax within the limits described above,
provided he or she (or his or her spouse, if they file a joint Federal income
tax return) is not an active participant in a qualified retirement plan (such as
a qualified corporate, sole proprietorship, or partnership pension, profit
sharing, 401(k) or stock bonus plan), qualified annuity plan, 403(b) plan,
simplified employee pension, or governmental plan. If he or she (or his or her
spouse) is an active participant, whether the individual's contribution to an
IRA is fully deductible, partially deductible or not deductible depends on (i)
adjusted gross income and (ii) whether it is the individual or the individual's
spouse who is an active participant, in the case of married individuals filing
jointly. Contributions may be made up to the maximum permissible amount even if
they are not deductible. Rollover contributions are not includable in income for
Federal income tax purposes and therefore are not deductible from it.
Generally, earnings on an IRA are not subject to current Federal income
tax until distributed. Distributions attributable to tax-deductible
contributions and to IRA earnings are taxed as ordinary income. Distributions of
non-deductible contributions are not subject to Federal income tax. In general,
distributions from an IRA to an individual before he or she reaches age 59-1/2
are subject to a nondeductible penalty tax equal to 10% of the taxable amount of
the distribution. The 10% penalty tax does not apply to amounts withdrawn from
an IRA after the individual reaches age 59-1/2, becomes disabled or dies, or if
withdrawn in the form of substantially equal payments over the life or life
expectancy of the individual and his or her designated beneficiary, if any, or
rolled over into another IRA, amounts withdrawn and used to pay for deductible
medical expenses and amounts withdrawn by certain unemployed individuals not in
excess of amounts paid for certain health insurance premiums, amounts used to
pay certain qualified higher education expenses, and amounts used within 120
days of the date the distribution is received to pay for certain first-time
homebuyer expenses. Distributions must begin to be withdrawn not later than
April 1 of the calendar year following the calendar year in which the individual
reaches age 70-1/2. Failure to take certain minimum required distributions will
result in the imposition of a 50% non-deductible penalty tax.
ROTH IRAS: Shares of the Fund also may be used as a funding medium for
a Roth Individual Retirement Account ("Roth IRA"). A Roth IRA is similar in
numerous ways to the regular (traditional) IRA, described above. Some of the
primary differences are as follows.
A single individual earning below $95,000 can contribute up to $2,000
per year to a Roth IRA. The maximum contribution amount diminishes and gradually
falls to zero for single filers with adjusted gross incomes ranging from $95,000
to $110,000. Married couples earning less than $150,000 combined, and filing
jointly, can contribute a full $4,000 per year ($2,000 per IRA). The maximum
contribution amount for married couples filing jointly phases out from $150,000
to $160,000. An individual whose adjusted gross income exceeds the maximum
phase-out amount cannot contribute to a Roth IRA.
An eligible individual can contribute money to a traditional IRA and a
Roth IRA as long as the total contribution to all IRAs does not exceed $2,000.
Contributions to a Roth IRA are not deductible. Contributions to a Roth IRA may
be made even after the individual for whom the account is maintained has
attained age 70 1/2.
No distributions are required to be taken prior to the death of the
original account holder. If a Roth IRA has been established for a minimum of
five years, distributions can be taken tax-free after reaching age 59 1/2, for a
first-time home purchase ($10,000 maximum, one time use), or upon death or
disability. All other distributions from a Roth IRA (other than the amount of
nondeductible contributions) are taxable and subject to a 10% tax penalty unless
an exception applies. Exceptions to the 10% penalty include: reaching age 59
1/2, death, disability, deductible medical expenses, the purchase of health
insurance for certain unemployed individual and qualified higher education
expenses.
An individual with an income of less than $100,000 (who is not married
filing separately) can roll his or her existing IRA into a Roth IRA. However,
the individual must pay taxes on the taxable amount in his or her traditional
IRA. After 1998, all taxes on such a rollover will have to be paid in the tax
year in which the rollover is made.
QUALIFIED PLANS: For those self-employed individuals who wish to
purchase shares of one or more Ivy funds through a qualified retirement plan, a
Custodial Agreement and a Retirement Plan are available from IMSC. The
Retirement Plan may be adopted as a profit sharing plan or a money purchase
pension plan. A profit sharing plan permits an annual contribution to be made in
an amount determined each year by the self-employed individual within certain
limits prescribed by law. A money purchase pension plan requires annual
contributions at the level specified in the Custodial Agreement. There is no
set-up fee for qualified plans and the annual maintenance fee is $20.00 per
account.
In general, if a self-employed individual has any common law employees,
employees who have met certain minimum age and service requirements must be
covered by the Retirement Plan. A self-employed individual generally must
contribute the same percentage of income for common law employees as for himself
or herself.
A self-employed individual may contribute up to the lesser of $30,000
or 25% of compensation or earned income to a money purchase pension plan or to a
combination profit sharing and money purchase pension plan arrangement each year
on behalf of each participant. To be deductible, total contributions to a profit
sharing plan generally may not exceed 15% of the total compensation or earned
income of all participants in the plan, and total contributions to a combination
money purchase-profit sharing arrangement generally may not exceed 25% of the
total compensation or earned income of all participants. The amount of
compensation or earned income of any one participant that may be included in
computing the deduction is limited (generally to $150,000 for benefits accruing
in plan years beginning after 1993, with annual inflation adjustments). A
self-employed individual's contributions to a retirement plan on his or her own
behalf must be deducted in computing his or her earned income.
Corporate employers may also adopt the Custodial Agreement and
Retirement Plan for the benefit of their eligible employees. Similar
contribution and deduction rules apply to corporate employers.
Distributions from the Retirement Plan generally are made after a
participant's separation from service. A 10% penalty tax generally applies to
distributions to an individual before he or she reaches age 59-1/2, unless the
individual (1) has reached age 55 and separated from service; (2) dies; (3)
becomes disabled; (4) uses the withdrawal to pay tax-deductible medical
expenses; (5) takes the withdrawal as part of a series of substantially equal
payments over his or her life expectancy or the joint life expectancy of himself
or herself and a designated beneficiary; or (6) rolls over the distribution.
The Transfer Agent will arrange for Investors Bank & Trust to furnish
custodial services to the employer and any participating employees.
DEFERRED COMPENSATION FOR PUBLIC SCHOOLS AND CHARITABLE ORGANIZATIONS
("403(B)(7) ACCOUNT"): Section 403(b)(7) of the Internal Revenue Code of 1986,
as amended (the "Code") permits public school systems and certain charitable
organizations to use mutual fund shares held in a custodial account to fund
deferred compensation arrangements with their employees. A custodial account
agreement is available for those employers whose employees wish to purchase
shares of the Trust in conjunction with such an arrangement. The special
application for a 403(b)(7) Account is available from IMSC.
Distributions from the 403(b)(7) Account may be made only following
death, disability, separation from service, attainment of age 59-1/2, or
incurring a financial hardship. A 10% penalty tax generally applies to
distributions to an individual before he or she reaches age 59-1/2, unless the
individual (1) has reached age 55 and separated from service; (2) dies or
becomes disabled; (3) uses the withdrawal to pay tax-deductible medical
expenses; (4) takes the withdrawal as part of a series of substantially equal
payments over his or her life expectancy or the joint life expectancy of himself
or herself and a designated beneficiary; or (5) rolls over the distribution.
There is no set-up fee for 403(b)(7) Accounts and the annual maintenance fee is
$20.00 per account.
SIMPLIFIED EMPLOYEE PENSION ("SEP") IRAS: An employer may deduct
contributions to a SEP up to the lesser of $30,000 or 15% of compensation. SEP
accounts generally are subject to all rules applicable to IRA accounts, except
the deduction limits, and are subject to certain employee participation
requirements. No new salary reduction SEPs ("SARSEPs") may be established after
1996, but existing SARSEPs may continue to be maintained, and non-salary
reduction SEPs may continue to be established as well as maintained after 1996.
SIMPLE PLANS: An employer may establish a SIMPLE IRA or a SIMPLE 401(k)
for years after 1996. An employee can make pre-tax salary reduction
contributions to a SIMPLE Plan, up to $6,000 a year (as indexed). Subject to
certain limits, the employer will either match a portion of employee
contributions, or will make a contribution equal to 2% of each employee's
compensation without regard to the amount the employee contributes. An employer
cannot maintain a SIMPLE Plan for its employees if the employer maintains or
maintained any other qualified retirement plan with respect to which any
contributions or benefits have been credited.
REINVESTMENT PRIVILEGE
Shareholders who have redeemed Class A shares of the Fund may reinvest
all or a part of the proceeds of the redemption back into Class A shares of the
Fund at net asset value (without a sales charge) within 60 days from the date of
redemption. This privilege may be exercised only once. The reinvestment will be
made at the net asset value next determined after receipt by IMSC of the
reinvestment order accompanied by the funds to be reinvested. No compensation
will be paid to any sales personnel or dealer in connection with the
transaction.
Any redemption is a taxable event. A loss realized on a redemption
generally may be disallowed for tax purposes if the reinvestment privilege is
exercised within 30 days after the redemption. In certain circumstances,
shareholders will be ineligible to take sales charges into account in computing
taxable gain or loss on a redemption if the reinvestment privilege is exercised.
See "Taxation."
RIGHTS OF ACCUMULATION
A scale of reduced sales charges applies to any investment of $50,000
or more in Class A shares of the Fund. See "Initial Sales Charge Alternative --
Class A Shares" in the Prospectus. The reduced sales charge is applicable to
investments made at one time by an individual, his or her spouse and children
under the age of 21, or a trustee or other fiduciary of a single trust estate or
single fiduciary account (including a pension, profit sharing or other employee
benefit trust created pursuant to a plan qualified under Section 401 of the
Code). Rights of Accumulation is also applicable to current purchases of all of
the funds of Ivy Fund (except Ivy Money Market Fund) by any of the persons
enumerated above, where the aggregate quantity of Class A shares of such funds
(and shares that have been exchanged into Ivy Money Market Fund from any of the
other funds in the Ivy funds) and of any other investment company distributed by
IMDI, previously purchased or acquired and currently owned, determined at the
higher of current offering price or amount invested, plus the Class A shares
being purchased, amounts to $50,000 or more for all funds other than Ivy Bond;
or $100,000 or more for Ivy Bond Fund.
At the time an investment takes place, IMSC must be notified by the
investor or his or her dealer that the investment qualifies for the reduced
sales charge on the basis of previous investments. The reduced sales charge is
subject to confirmation of the investor's holdings through a check of the
particular fund's records.
SYSTEMATIC WITHDRAWAL PLAN
A shareholder may establish a Systematic Withdrawal Plan (a "Withdrawal
Plan"), by telephone instructions or by delivery to IMSC of a written election
to have his or her shares withdrawn periodically (minimum distribution amount
$50 for Advisor Class shares), accompanied by a surrender to IMSC of all share
certificates then outstanding in such shareholder's name, properly endorsed by
the shareholder. To be eligible to elect a Withdrawal Plan, a shareholder must
have at least $5,000 in his or her account (except Advisor Class shareholders,
who must continually maintain an account balance of at least $10,000). A
Withdrawal Plan may not be established if the investor is currently
participating in the Automatic Investment Method. A Withdrawal Plan may involve
the depletion of a shareholder's principal, depending on the amount withdrawn.
A redemption under a Withdrawal Plan is a taxable event. Shareholders
contemplating participating in a Withdrawal Plan should consult their tax
advisers.
Additional investments made by investors participating in a Withdrawal
Plan must equal at least $1,000 each ($250 for Advisor Class shareholders) while
the Withdrawal Plan is in effect. Making additional purchases while a Withdrawal
Plan is in effect may be disadvantageous to the investor because of applicable
initial sales charges or CDSCs.
An investor may terminate his or her participation in the Withdrawal
Plan at any time by delivering written notice to IMSC. If all shares held by the
investor are liquidated at any time, participation in the Withdrawal Plan will
terminate automatically. The Trust or IMSC may terminate the Withdrawal Plan
option at any time after reasonable notice to shareholders.
GROUP SYSTEMATIC INVESTMENT PROGRAM
Shares of the Fund may be purchased in connection with investment
programs established by employee or other groups using systematic payroll
deductions or other systematic payment arrangements. The Trust does not itself
organize, offer or administer any such programs. However, it may, depending upon
the size of the program, waive the minimum initial and additional investment
requirements for purchases by individuals in conjunction with programs organized
and offered by others. Unless shares of the Fund are purchased in conjunction
with IRAs (see "How to Buy Shares" in the Prospectus), such group systematic
investment programs are not entitled to special tax benefits under the Code. The
Trust reserves the right to refuse purchases at any time or suspend the offering
of shares in connection with group systematic investment programs, and to
restrict the offering of shareholder privileges, such as check writing,
simplified redemptions and other optional privileges, as described in the
Prospectus, to shareholders using group systematic investment programs.
With respect to each shareholder account established on or after
September 15, 1972 under a group systematic investment program, the Trust and
IMI each currently charge a maintenance fee of $3.00 (or portion thereof) that
for each twelve-month period (or portion thereof) that the account is
maintained. The Trust may collect such fee (and any fees due to IMI) through a
deduction from distributions to the shareholders involved or by causing on the
date the fee is assessed a redemption in each such shareholder account
sufficient to pay such fee. The Trust reserves the right to change these fees
from time to time without advance notice.
<PAGE>
Class A shares of the Fund are made available to Merrill Lynch Daily K
Plan (the "Plan") participants at NAV without an initial sales charge if:
(i) the Plan is recordkept on a daily valuation basis by
Merrill Lynch and, on the date the Plan Sponsor signs
the Merrill Lynch Recordkeeping Service Agreement,
the Plan has $3 million or more in assets invested in
broker/dealer funds not advised or managed by Merrill
Lynch Asset Management, L.P. ("MLAM") that are made
available pursuant to a Service Agreement between
Merrill Lynch and the fund's principal underwriter or
distributor and in funds advised or managed by MLAM
(collectively, the "Applicable Investments");
(ii) the Plan is recordkept on a daily valuation basis by
an independent recordkeeper whose services are
provided through a contract or alliance arrangement
with Merrill Lynch, and on the date the Plan Sponsor
signs the Merrill Lynch Recordkeeping Service
Agreement, the Plan has $3 million or more in assets,
excluding money market funds, invested in Applicable
Investments; or
(iii) the Plan has 500 or more eligible employees, as
determined by Merrill Lynch plan conversion manager,
on the date the Plan Sponsor signs the Merrill Lynch
Recordkeeping Service Agreement.
Alternatively, Class B shares of the Fund are made available to Plan
participants at NAV without a CDSC if the Plan conforms with the requirements
for eligibility set forth in (i) through (iii) above but either does not meet
the $3 million asset threshold or does not have 500 or more eligible employees.
Plans recordkept on a daily basis by Merrill Lynch or an independent
recordkeeper under a contract with Merrill Lynch that are currently investing in
Class B shares of the Fund convert to Class A shares once the Plan has reached
$5 million invested in Applicable Investments, or 10 years after the date of the
initial purchase by a participant under the Plan--the Plan will receive a Plan
level share conversion.
REDEMPTIONS
Shares of the Fund are redeemed at their net asset value next
determined after a proper redemption request has been received by IMSC, less any
applicable CDSC.
Unless a shareholder requests that the proceeds of any redemption be
wired to his or her bank account, payment for shares tendered for redemption is
made by check within seven days after tender in proper form, except that the
Trust reserves the right to suspend the right of redemption or to postpone the
date of payment upon redemption beyond seven days, (i) for any period during
which the Exchange is closed (other than customary weekend and holiday closings)
or during which trading on the Exchange is restricted, (ii) for any period
during which an emergency exists as determined by the SEC as a result of which
disposal of securities owned by the Fund is not reasonably practicable or it is
not reasonably practicable for the Fund to fairly determine the value of its net
assets, or (iii) for such other periods as the SEC may by order permit for the
protection of shareholders of the Fund.
Under unusual circumstances, when the Board deems it in the best
interest of the Fund's shareholders, the Fund may make payment for shares
repurchased or redeemed in whole or in part in securities of the Fund taken at
current values. If any such redemption in kind is to be made, the Fund may make
an election pursuant to Rule 18f-1 under the 1940 Act. This will require the
Fund to redeem with cash at a shareholder's election in any case where the
redemption involves less than $250,000 (or 1% of the Fund's net asset value at
the beginning of each 90-day period during which such redemptions are in effect,
if that amount is less than $250,000). Should payment be made in securities, the
redeeming shareholder may incur brokerage costs in converting such securities to
cash.
The Trust may redeem those accounts of shareholders who have maintained
an investment, including sales charges paid, of less than $1,000 ($10,000 for
Advisor Class shareholders) in the Fund for a period of more than 12 months. All
accounts below that minimum will be redeemed simultaneously when MIMI deems it
advisable. The $1,000 balance ($10,000 for Advisor Class shareholders) will be
determined by actual dollar amounts invested by the shareholder, unaffected by
market fluctuations. The Trust will notify any such shareholder by certified
mail of its intention to redeem such account, and the shareholder shall have 60
days from the date of such letter to invest such additional sums as shall raise
the value of such account above that minimum. Should the shareholder fail to
forward such sum within 60 days of the date of the Trust's letter of
notification, the Trust will redeem the shares held in such account and transmit
the redemption in value thereof to the shareholder. However, those shareholders
who are investing pursuant to the Automatic Investment Method will not be
redeemed automatically unless they have ceased making payments pursuant to the
plan for a period of at least six consecutive months, and these shareholders
will be given six-months' notice by the Trust before such redemption.
Shareholders in a qualified retirement, pension or profit sharing plan who wish
to avoid tax consequences must "rollover" any sum so redeemed into another
qualified plan within 60 days. The Trustees of the Trust may change the minimum
account size.
If a shareholder has given authorization for telephonic redemption
privilege, shares can be redeemed and proceeds sent by Federal wire to a single
previously designated bank account. Delivery of the proceeds of a wire
redemption request of $250,000 or more may be delayed by the Fund for up to
seven days if deemed appropriate under then-current market conditions. The Trust
reserves the right to change this minimum or to terminate the telephonic
redemption privilege without prior notice. The Trust cannot be responsible for
the efficiency of the Federal wire system of the shareholder's dealer of record
or bank. The shareholder is responsible for any charges by the shareholder's
bank.
The Fund employs reasonable procedures that require personal
identification prior to acting on redemption or exchange instructions
communicated by telephone to confirm that such instructions are genuine. In the
absence of such instructions, the Fund may be liable for any losses due to
unauthorized or fraudulent telephone instructions.
CONVERSION OF CLASS B SHARES
As described in the Prospectus, Class B shares of the Fund will
automatically convert to Class A shares of the Fund, based on the relative net
asset values per share of the two classes, no later than the month following the
eighth anniversary of the initial issuance of such Class B shares of the Fund
occurs. For the purpose of calculating the holding period required for
conversion of Class B shares, the date of initial issuance shall mean: (1) the
date on which such Class B shares were issued, or (2) for Class B shares
obtained through an exchange, or a series of exchanges, (subject to the exchange
privileges for Class B shares) the date on which the original Class B shares
were issued. For purposes of conversion of Class B shares, Class B shares
purchased through the reinvestment of dividends and capital gain distributions
paid in respect of Class B shares will be held in a separate sub-account. Each
time any Class B shares in the shareholder's regular account (other than those
shares in the sub-account) convert to Class A shares, a pro rata portion of the
Class B shares in the sub-account will also convert to Class A shares. The
portion will be determined by the ratio that the shareholder's Class B shares
converting to Class A shares bears to the shareholder's total Class B shares not
acquired through the reinvestment of dividends and capital gain distributions.
NET ASSET VALUE
The net asset value per share of the Fund is computed by dividing the
value of the Fund's aggregate net assets (i.e., its total assets less its
liabilities) by the number of the Fund's shares outstanding. For purposes of
determining the Fund's aggregate net assets, receivables are valued at their
realizable amounts. The Fund's liabilities, if not identifiable as belonging to
a particular class of the Fund, are allocated among the Fund's several classes
based on their relative net asset size. Liabilities attributable to a particular
class are charged to that class directly. The total liabilities for a class are
then deducted from the class's proportionate interest in the Fund's assets, and
the resulting amount is divided by the number of shares of the class outstanding
to produce its net asset value per share.
A security listed or traded on a recognized stock exchange or The
Nasdaq Stock Market, Inc. ("Nasdaq") is valued at the security's last sale price
on the exchange on which the security is principally traded. If no sale is
reported at that time, the average between the last bid and asked price (the
"Calculated Mean") is used. Unless otherwise noted herein, the value of a
foreign security is determined in its national currency as of the normal close
of trading on the foreign exchange on which it is traded or as of the close of
regular trading on the Exchange, if that is earlier, and that value is then
converted into its U.S. dollar equivalent at the foreign exchange rate in effect
at noon, eastern time, on the day the value of the foreign security is
determined. All other securities for which OTC market quotations are readily
available are valued at the Calculated Mean.
A debt security normally is valued on the basis of quotes obtained from
at least two dealers (or one dealer who has made a market in the security) or
pricing services that take into account appropriate valuation factors. Interest
is accrued daily. Money market instruments are valued at amortized cost, which
the Board believes approximates market value.
An exchange-traded option is valued at the last sale price on the
exchange on which it is principally traded, if available, and otherwise is
valued at the last sale price on the other exchange(s). If there were no sales
on any exchange, the option shall be valued at the Calculated Mean, if possible,
and otherwise at the last offering price, in the case of a written option, and
the last bid price, in the case of a purchased option. An OTC option is valued
at the last offering price, in the case of a written option, and the last bid
price, in the case of a purchased option. Exchange listed and widely-traded OTC
futures (and options thereon) are valued at the most recent settlement price.
Securities and other assets for which market prices are not readily
available are priced at their "fair value" as determined by IMI in accordance
with procedures approved by the Board. Trading in securities on many foreign
securities exchanges is normally completed before the close of regular trading
on the Exchange. Trading on foreign exchanges may not take place on all days on
which there is regular trading on the Exchange, or may take place on days on
which there is no regular trading on the Exchange (e.g., any of the national
business holidays identified below). If events materially affecting the value of
the Fund's portfolio securities occur between the time when a foreign exchange
closes and the time when the Fund's net asset value is calculated (see following
paragraph), such securities may be valued at fair value as determined by IMI and
approved by the Board.
Portfolio securities are valued (and net asset value per share is
determined) as of the close of regular trading on the Exchange (normally 4:00
p.m., eastern time) on each day the Exchange is open for trading. The Exchange
and the Trust's offices are expected to be closed, and net asset value will not
be calculated, on the following national business holidays: New Year's Day,
Martin Luther King, Jr. Day, Presidents' Day, Good Friday, Memorial Day,
Independence Day, Labor Day, Thanksgiving Day and Christmas Day. On those days
when either or both of the Fund's Custodian or the Exchange close early as a
result of a partial holiday or otherwise, the Trust reserves the right to
advance the time on that day by which purchase and redemption requests must be
received.
The number of shares you receive when you place a purchase order, and
the payment you receive after submitting a redemption request, is based on the
Fund's net asset value next determined after your instructions are received in
proper form by IMSC or by your registered securities dealer. Each purchase and
redemption order is subject to any applicable sales charge. Since the Fund
invests in securities that are listed on foreign exchanges that may trade on
weekends or other days when the Fund does not price its shares, the Fund's net
asset value may change on days when shareholders will not be able to purchase or
redeem the Fund's shares. The sale of the Fund's shares will be suspended during
any period when the determination of its net asset value is suspended pursuant
to rules or orders of the SEC and may be suspended by the Board whenever in its
judgment it is in the Fund's best interest to do so.
TAXATION
The following is a general discussion of certain tax rules thought to
be applicable with respect to the Fund. It is merely a summary and is not an
exhaustive discussion of all possible situations or of all potentially
applicable taxes. Accordingly, shareholders and prospective shareholders should
consult a competent tax adviser about the tax consequences to them of investing
in the Fund.
The Fund intends to be taxed as a regulated investment company under
Subchapter M of the Code. Accordingly, the Fund must, among other things, (a)
derive in each taxable year at least 90% of its gross income from dividends,
interest, payments with respect to certain securities loans, and gains from the
sale or other disposition of stock, securities or foreign currencies, or other
income derived with respect to its business of investing in such stock,
securities or currencies; and (b) diversify its holdings so that, at the end of
each fiscal quarter, (i) at least 50% of the market value of the Fund's assets
is represented by cash, U.S. Government securities, the securities of other
regulated investment companies and other securities, with such other securities
limited, in respect of any one issuer, to an amount not greater than 5% of the
value of the Fund's total assets and 10% of the outstanding voting securities of
such issuer, and (ii) not more than 25% of the value of its total assets is
invested in the securities of any one issuer (other than U.S. Government
securities and the securities of other regulated investment companies).
As a regulated investment company, the Fund generally will not be
subject to U.S. Federal income tax on its income and gains that it distributes
to shareholders, if at least 90% of its investment company taxable income (which
includes, among other items, dividends, interest and the excess of any
short-term capital gains over long-term capital losses) for the taxable year is
distributed. The Fund intends to distribute all such income.
Amounts not distributed on a timely basis in accordance with a calendar
year distribution requirement are subject to a nondeductible 4% excise tax at
the Fund level. To avoid the tax, the Fund must distribute during each calendar
year, (1) at least 98% of its ordinary income (not taking into account any
capital gains or losses) for the calendar year (2) at least 98% of its capital
gains in excess of its capital losses (adjusted for certain ordinary losses) for
a one-year period generally ending on October 31 of the calendar year, and (3)
all ordinary income and capital gains for previous years that were not
distributed during such years. To avoid application of the excise tax, the Fund
intends to make distributions in accordance with the calendar year distribution
requirements. A distribution will be treated as paid on December 31 of the
current calendar year if it is declared by the Fund in October, November or
December of the year with a record date in such a month and paid by the Fund
during January of the following year. Such distributions will be taxable to
shareholders in the calendar year the distributions are declared, rather than
the calendar year in which the distributions are received.
OPTIONS, FUTURES AND FOREIGN CURRENCY FORWARD CONTRACTS
The taxation of equity options and OTC options on debt securities is
governed by Code section 1234. Pursuant to Code section 1234, the premium
received by the Fund for selling a put or call option is not included in income
at the time of receipt. If the option expires, the premium is short-term capital
gain to the Fund. If the Fund enters into a closing transaction, the difference
between the amount paid to close out its position and the premium received is
short-term capital gain or loss. If a call option written by the Fund is
exercised, thereby requiring the Fund to sell the underlying security, the
premium will increase the amount realized upon the sale of such security and any
resulting gain or loss will be a capital gain or loss, and will be long-term or
short-term depending upon the holding period of the security. With respect to a
put or call option that is purchased by the Fund, if the option is sold, any
resulting gain or loss will be a capital gain or loss, and will be long-term or
short-term, depending upon the holding period of the option. If the option
expires, the resulting loss is a capital loss and is long-term or short-term,
depending upon the holding period of the option. If the option is exercised, the
cost of the option, in the case of a call option, is added to the basis of the
purchased security and, in the case of a put option, reduces the amount realized
on the underlying security in determining gain or loss.
Some of the options, futures and foreign currency forward contracts in
which the Fund may invest may be "section 1256 contracts." Gains (or losses) on
these contracts generally are considered to be 60% long-term and 40% short-term
capital gains or losses; however, as described below, foreign currency gains or
losses arising from certain section 1256 contracts are ordinary in character.
Also, section 1256 contracts held by the Fund at the end of each taxable year
(and on certain other dates prescribed in the Code) are "marked-to-market" with
the result that unrealized gains or losses are treated as though they were
realized.
The transactions in options, futures and forward contracts undertaken
by the Fund may result in "straddles" for Federal income tax purposes. The
straddle rules may affect the character of gains or losses realized by the Fund.
In addition, losses realized by the Fund on positions that are part of a
straddle may be deferred under the straddle rules, rather than being taken into
account in calculating the taxable income for the taxable year in which such
losses are realized. Because only a few regulations implementing the straddle
rules have been promulgated, the consequences of such transactions to the Fund
are not entirely clear. The straddle rules may increase the amount of short-term
capital gain realized by the Fund, which is taxed as ordinary income when
distributed to shareholders.
The Fund may make one or more of the elections available under the Code
which are applicable to straddles. If the Fund makes any of the elections, the
amount, character and timing of the recognition of gains or losses from the
affected straddle positions will be determined under rules that vary according
to the election(s) made. The rules applicable under certain of the elections may
operate to accelerate the recognition of gains or losses from the affected
straddle positions.
Because application of the straddle rules may affect the character of
gains or losses, defer losses and/or accelerate the recognition of gains or
losses from the affected straddle positions, the amount which must be
distributed to shareholders as ordinary income or long-term capital gain may be
increased or decreased substantially as compared to a fund that did not engage
in such transactions.
Notwithstanding any of the foregoing, the Fund may recognize gain (but
not loss) from a constructive sale of certain "appreciated financial positions"
if the Fund enters into a short sale, offsetting notional principal contract,
futures or forward contract transaction with respect to the appreciated position
or substantially identical property. Appreciated financial positions subject to
this constructive sale treatment are interests (including options, futures and
forward contracts and short sales) in stock, partnership interests, certain
actively traded trust instruments and certain debt instruments. Constructive
sale treatment of appreciated financial positions does not apply to certain
transactions closed in the 90-day period ending with the 30th day after the
close of the Fund's taxable year, if certain conditions are met.
CURRENCY FLUCTUATIONS -- "SECTION 988" GAINS OR LOSSES
Gains or losses attributable to fluctuations in exchange rates which
occur between the time the Fund accrues receivables or liabilities denominated
in a foreign currency and the time the Fund actually collects such receivables
or pays such liabilities generally are treated as ordinary income or ordinary
loss. Similarly, on disposition of some investments, including debt securities
denominated in a foreign currency and certain options, futures and forward
contracts, gains or losses attributable to fluctuations in the value of the
foreign currency between the date of acquisition of the security or contract and
the date of disposition also are treated as ordinary gain or loss. These gains
and losses, referred to under the Code as "section 988" gains or losses,
increase or decrease the amount of the Fund's investment company taxable income
available to be distributed to its shareholders as ordinary income.
INVESTMENT IN PASSIVE FOREIGN INVESTMENT COMPANIES
The Fund may invest in shares of foreign corporations which may be
classified under the Code as passive foreign investment companies ("PFICs"). In
general, a foreign corporation is classified as a PFIC if at least one-half of
its assets constitute investment-type assets, or 75% or more of its gross income
is investment-type income. If the Fund receives a so-called "excess
distribution" with respect to PFIC stock, the Fund itself may be subject to a
tax on a portion of the excess distribution, whether or not the corresponding
income is distributed by the Fund to shareholders. In general, under the PFIC
rules, an excess distribution is treated as having been realized ratably over
the period during which a Fund held the PFIC shares. The Fund itself will be
subject to tax on the portion, if any, of an excess distribution that is so
allocated to prior Fund taxable years and an interest factor will be added to
the tax, as if the tax had been payable in such prior taxable years. Certain
distributions from a PFIC as well as gain from the sale of PFIC shares are
treated as excess distributions. Excess distributions are characterized as
ordinary income even though, absent application of the PFIC rules, certain
excess distributions might have been classified as capital gain.
The Fund may be eligible to elect alternative tax treatment with
respect to PFIC shares. The Fund may elect to mark to market its PFIC shares,
resulting in the shares being treated as sold at fair market value on the last
business day of each taxable year. Any resulting gain would be reported as
ordinary income; any resulting loss and any loss from an actual disposition of
the shares would be reported as ordinary loss to the extent of any net gains
reported in prior years. Under another election that currently is available in
some circumstances, the Fund generally would be required to include in its gross
income its share of the earnings of a PFIC on a current basis, regardless of
whether distributions are received from the PFIC in a given year.
DEBT SECURITIES ACQUIRED AT A DISCOUNT
Some of the debt securities (with a fixed maturity date of more than
one year from the date of issuance) that may be acquired by the Fund may be
treated as debt securities that are issued originally at a discount. Generally,
the amount of the original issue discount ("OID") is treated as interest income
and is included in income over the term of the debt security, even though
payment of that amount is not received until a later time, usually when the debt
security matures.
Some of the debt securities (with a fixed maturity date of more than
one year from the date of issuance) that may be acquired by the Fund in the
secondary market may be treated as having market discount. Generally, gain
recognized on the disposition of, and any partial payment of principal on, a
debt security having market discount is treated as ordinary income to the extent
the gain, or principal payment, does not exceed the "accrued market discount" on
such debt security. In addition, the deduction of any interest expenses
attributable to debt securities having market discount may be deferred. Market
discount generally accrues in equal daily installments. The Fund may make one or
more of the elections applicable to debt securities having market discount,
which could affect the character and timing of recognition of income.
Some debt securities (with a fixed maturity date of one year or less
from the date of issuance) that may be acquired by the Fund may be treated as
having acquisition discount, or OID in the case of certain types of debt
securities. Generally, the Fund will be required to include the acquisition
discount, or OID, in income over the term of the debt security, even though
payment of that amount is not received until a later time, usually when the debt
security matures. The Fund may make one or more of the elections applicable to
debt securities having acquisition discount, or OID, which could affect the
character and timing of recognition of income.
The Fund generally will be required to distribute dividends to
shareholders representing discount on debt securities that is currently
includable in income, even though cash representing such income may not have
been received by the Fund. Cash to pay such dividends may be obtained from sales
proceeds of securities held by the Fund.
DISTRIBUTIONS
Distributions of investment company taxable income are taxable to a
U.S. shareholder as ordinary income, whether paid in cash or shares. Dividends
paid by the Fund to a corporate shareholder, to the extent such dividends are
attributable to dividends received from U.S. corporations by the Fund, may
qualify for the dividends received deduction. However, the revised alternative
minimum tax applicable to corporations may reduce the value of the dividends
received deduction. Distributions of net capital gains (the excess of net
long-term capital gains over net short-term capital losses), if any, designated
by the Fund as capital gain dividends, are taxable to shareholders as long-term
capital gains whether paid in cash or in shares, and regardless of how long the
shareholder has held the Fund's shares; such distributions are not eligible for
the dividends received deduction. Shareholders receiving distributions in the
form of newly issued shares will have a cost basis in each share received equal
to the net asset value of a share of the Fund on the distribution date. A
distribution of an amount in excess of the Fund's current and accumulated
earnings and profits will be treated by a shareholder as a return of capital
which is applied against and reduces the shareholder's basis in his or her
shares. To the extent that the amount of any such distribution exceeds the
shareholder's basis in his or her shares, the excess will be treated by the
shareholder as gain from a sale or exchange of the shares. Shareholders will be
notified annually as to the U.S. Federal tax status of distributions and
shareholders receiving distributions in the form of newly issued shares will
receive a report as to the net asset value of the shares received.
If the net asset value of shares is reduced below a shareholder's cost
as a result of a distribution by the Fund, such distribution generally will be
taxable even though it represents a return of invested capital. Shareholders
should be careful to consider the tax implications of buying shares just prior
to a distribution. The price of shares purchased at this time may reflect the
amount of the forthcoming distribution. Those purchasing just prior to a
distribution will receive a distribution which generally will be taxable to
them.
DISPOSITION OF SHARES
Upon a redemption, sale or exchange of his or her shares, a shareholder
will realize a taxable gain or loss depending upon his or her basis in the
shares. Such gain or loss will be treated as capital gain or loss if the shares
are capital assets in the shareholder's hands and, if so, will be long-term or
short-term, depending upon the shareholder's holding period for the shares. Any
loss realized on a redemption sale or exchange will be disallowed to the extent
the shares disposed of are replaced (including through reinvestment of
dividends) within a period of 61 days beginning 30 days before and ending 30
days after the shares are disposed of. In such a case, the basis of the shares
acquired will be adjusted to reflect the disallowed loss. Any loss realized by a
shareholder on the sale of Fund shares held by the shareholder for six-months or
less will be treated for tax purposes as a long-term capital loss to the extent
of any distributions of capital gain dividends received or treated as having
been received by the shareholder with respect to such shares.
In some cases, shareholders will not be permitted to take all or
portion of their sales loads into account for purposes of determining the amount
of gain or loss realized on the disposition of their shares. This prohibition
generally applies where (1) the shareholder incurs a sales load in acquiring the
shares of the Fund, (2) the shares are disposed of before the 91st day after the
date on which they were acquired, and (3) the shareholder subsequently acquires
shares in the Fund or another regulated investment company and the otherwise
applicable sales charge is reduced under a "reinvestment right" received upon
the initial purchase of Fund shares. The term "reinvestment right" means any
right to acquire shares of one or more regulated investment companies without
the payment of a sales load or with the payment of a reduced sales charge. Sales
charges affected by this rule are treated as if they were incurred with respect
to the shares acquired under the reinvestment right. This provision may be
applied to successive acquisitions of fund shares.
FOREIGN WITHHOLDING TAXES
Income received by the Fund from sources within a foreign country may
be subject to withholding and other taxes imposed by that country.
If more than 50% of the value of the Fund's total assets at the close
of its taxable year consists of securities of foreign corporations, the Fund
will be eligible and may elect to "pass-through" to the Fund's shareholders the
amount of foreign income and similar taxes paid by the Fund. Pursuant to this
election, a shareholder will be required to include in gross income (in addition
to taxable dividends actually received) his or her pro rata share of the foreign
income and similar taxes paid by the Fund, and will be entitled either to deduct
his or her pro rata share of foreign income and similar taxes in computing his
or her taxable income or to use it as a foreign tax credit against his or her
U.S. Federal income taxes, subject to limitations. No deduction for foreign
taxes may be claimed by a shareholder who does not itemize deductions. Foreign
taxes generally may not be deducted by a shareholder that is an individual in
computing the alternative minimum tax. Each shareholder will be notified within
60 days after the close of the Fund's taxable year whether the foreign taxes
paid by the Fund will "pass-through" for that year and, if so, such notification
will designate (1) the shareholder's portion of the foreign taxes paid to each
such country and (2) the portion of the dividend which represents income derived
from sources within each such country.
Generally, except in the case of certain electing individual taxpayers
who have limited creditable foreign taxes and no foreign source income other
than passive investment-type income, a credit for foreign taxes is subject to
the limitation that it may not exceed the shareholder's U.S. tax attributable to
his or her total foreign source taxable income. For this purpose, if the Fund
makes the election described in the preceding paragraph, the source of the
Fund's income flows through to its shareholders. With respect to the Fund, gains
from the sale of securities generally will be treated as derived from U.S.
sources and section 988 gains will be treated as ordinary income derived from
U.S. sources. The limitation on the foreign tax credit is applied separately to
foreign source passive income, including foreign source passive income received
from the Fund. In addition, the foreign tax credit may offset only 90% of the
revised alternative minimum tax imposed on corporations and individuals.
Furthermore, the foreign tax credit is eliminated with respect to foreign taxes
withheld on dividends if the dividend-paying shares or the shares of the Fund
are held by the Fund or the shareholder, as the case may be, for less than 16
days (46 days in the case of preferred shares) during the 30-day period (90-day
period for preferred shares) beginning 15 days (45 days for preferred shares)
before the shares become ex-dividend. In addition, if the Fund fails to satisfy
these holding period requirements, it cannot elect to pass through to
shareholders the ability to claim a deduction for related foreign taxes.
The foregoing is only a general description of the foreign tax credit
under current law. Because application of the credit depends on the particular
circumstances of each shareholder, shareholders are advised to consult their own
tax advisers.
BACKUP WITHHOLDING
The Fund will be required to report to the Internal Revenue Service
("IRS") all taxable distributions as well as gross proceeds from the redemption
of the Fund's shares, except in the case of certain exempt shareholders. All
such distributions and proceeds will be subject to withholding of Federal income
tax at a rate of 31% ("backup withholding") in the case of non-exempt
shareholders if (1) the shareholder fails to furnish the Fund with and to
certify the shareholder's correct taxpayer identification number or social
security number, (2) the IRS notifies the shareholder or the Fund that the
shareholder has failed to report properly certain interest and dividend income
to the IRS and to respond to notices to that effect, or (3) when required to do
so, the shareholder fails to certify that he or she is not subject to backup
withholding. If the withholding provisions are applicable, any such
distributions or proceeds, whether reinvested in additional shares or taken in
cash, will be reduced by the amounts required to be withheld.
Distributions may also be subject to additional state, local and
foreign taxes depending on each shareholder's particular situation. Non-U.S.
shareholders may be subject to U.S. tax rules that differ significantly from
those summarized above. This discussion does not purport to deal with all of the
tax consequences applicable to the Fund or shareholders. Shareholders are
advised to consult their own tax advisers with respect to the particular tax
consequences to them of an investment in the Fund.
PERFORMANCE INFORMATION
Performance information for the classes of shares of the Fund may be
compared, in reports and promotional literature, to: (i) the S&P 500 Index, the
Dow Jones Industrial Average ("DJIA"), or other unmanaged indices so that
investors may compare the Fund's results with those of a group of unmanaged
securities widely regarded by investors as representative of the securities
markets in general; (ii) other groups of mutual funds tracked by Lipper
Analytical Services, a widely used independent research firm that ranks mutual
funds by overall performance, investment objectives and assets, or tracked by
other services, companies, publications or other criteria; and (iii) the
Consumer Price Index (measure for inflation) to assess the real rate of return
from an investment in the Fund. Unmanaged indices may assume the reinvestment of
dividends but generally do not reflect deductions or administrative and
management costs and expenses. Performance rankings are based on historical
information and are not intended to indicate future performance.
YIELD. Quotations of yield for a specific class of shares of the Fund
will be based on all investment income attributable to that class earned during
a particular 30-day (or one month) period (including dividends and interest),
less expenses attributable to that class accrued during the period ("net
investment income"), and will be computed by dividing the net investment income
per share of that class earned during the period by the maximum offering price
per share (in the case of Class A shares) or the net asset value per share (in
the case of Class B and Class C shares) on the last day of the period, according
to the following formula:
YIELD = 2[({(a-b)/cd} + 1){superscript 6}-1]
Where: a = dividends and interest earned during the period
attributable to a specific class of shares,
b = expenses accrued for the period attributable to that
class (net of reimbursements),
c = the average daily number of shares
of that class outstanding during the
period that were entitled to receive
dividends, and
d = the maximum offering price per
share (in the case of Class A
shares) or the net asset value per
share (in the case of Class B shares
and Class C shares) on the last day
of the period.
AVERAGE ANNUAL TOTAL RETURN. Quotations of standardized average annual
total return ("Standardized Return") for a specific class of shares of the Fund
will be expressed in terms of the average annual compounded rate of return that
would cause a hypothetical investment in that class of the Fund made on the
first day of a designated period to equal the ending redeemable value ("ERV") of
such hypothetical investment on the last day of the designated period, according
to the following formula:
P(1 + T){superscript n} = ERV
Where: P = a hypothetical initial payment of $1,000 to purchase shares
of a specific class
T = the average annual total return of shares of that class
n = the number of years
ERV = the ending redeemable value of a hypothetical $1,000
payment made at the beginning of the period.
For purposes of the above computation for the Fund, it is assumed that
all dividends and capital gains distributions made by the Fund are reinvested at
net asset value in additional shares of the same class during the designated
period. In calculating the ending redeemable value for Class A shares and
assuming complete redemption at the end of the applicable period, the maximum
5.75% sales charge is deducted from the initial $1,000 payment and, for Class B
and Class C shares, the applicable CDSC imposed upon redemption of Class B or
Class C shares held for the period is deducted. Standardized Return quotations
for the Fund do not take into account any required payments for federal or state
income taxes. Standardized Return quotations for Class B shares for periods of
over eight years will reflect conversion of the Class B shares to Class A shares
at the end of the eighth year. Standardized Return quotations are determined to
the nearest 1/100 of 1%.
The Fund may, from time to time, include in advertisements, promotional
literature or reports to shareholders or prospective investors total return data
that are not calculated according to the formula set forth above
("Non-Standardized Return"). Neither initial nor CDSCs are taken into account in
calculating Non-Standardized Return; a sales charge, if deducted, would reduce
the return.
The following table summarizes the calculation of Standardized and
Non-Standardized Return for the Class A, Class B, Class C and Advisor Class
shares of the Fund for the periods indicated. In determining the average annual
total return for a specific class of shares of the Fund, recurring fees, if any,
that are charged to all shareholder accounts are taken into consideration. For
any account fees that vary with the size of the account of the Fund, the account
fee used for purposes of the following computations is assumed to be the fee
that would be charged to the mean account size of the Fund.
STANDARDIZED RETURN[*]
CLASS A[1] CLASS B[2] CLASS C[3] ADVISOR CLASS
Year ended December 31, 1998:
Inception [#] to year
ended December 31,
1998[7]:
NON-STANDARDIZED RETURN[**]
CLASS A[4] CLASS B[5] CLASS C[6] ADVISOR CLASS
Year ended December 31,
1998:
Inception [#] to year
ended December 31,
1998[7]:
- --------------------- ----------------- ------------------ -------------------
[*] The Standardized Return figures for Class A shares reflect the
deduction of the maximum initial sales charge of 5.75%. The Standardized Return
figures for Class B and C shares reflect the deduction of the applicable CDSC
imposed on redemption of Class B or C shares held for the period.
[**] The Non-Standardized Return figures do not reflect the deduction of
any initial sales charge or CDSC.
[#] The inception date for the Fund was January 1, 1997. The inception date
for Advisor Class shares was January 1, 1998.
[1] The Standardized Return figures for the Class A shares reflect
expense reimbursement. Without expense reimbursement, the Standardized Return
for Class A shares for the period from inception through and the one year ended
December 31, 1998 would have been [ ].
[2] The Standardized Return figures for the Class B shares reflect
expense reimbursement. Without expense reimbursement, the Standardized Return
for Class B shares for the period from inception through and the one year ended
December 31, 1998 would have been [ ].
[3] The Standardized Return figures for the Class C shares reflect
expense reimbursement. Without expense reimbursement, the Standardized Return
for Class C shares for the period from inception through and the one year ended
December 31, 1998 would have been [ ].
[4] The Non-Standardized Return figures for Class A shares reflect
expense reimbursement. Without expense reimbursement, the Non-Standardized
Return for Class A shares for the period from inception through and the one year
ended December 31, 1998 would have been [ ].
[5] The Non-Standardized Return figures for Class B shares reflect
expense reimbursement. Without expense reimbursement, the Non-Standardized
Return for Class B shares for the period from inception through and the one year
ended December 31, 1998 would have been [ ].
[6] The Non-Standardized Return figures for Class C shares reflect
expense reimbursement. Without expense reimbursement, the Non-Standardized
Return for Class C shares for the period from inception through and the one year
ended December 31, 1998 would have been [ ].
[7] The total return for a period less than a full year is calculated
on an aggregate basis and is not annualized.
CUMULATIVE TOTAL RETURN. Cumulative total return is the cumulative rate
of return on a hypothetical initial investment of $1,000 in a specific class of
shares of the Fund for a specified period. Cumulative total return quotations
reflect changes in the price of the Fund's shares and assume that all dividends
and capital gains distributions during the period were reinvested in the Fund
shares. Cumulative total return is calculated by computing the cumulative rates
of return of a hypothetical investment in a specific class of shares of the Fund
over such periods, according to the following formula (cumulative total return
is then expressed as a percentage):
C = (ERV/P) - 1
Where: C = cumulative total return
P = a hypothetical initial investment of $1,000 to purchase
shares of a specific class
ERV = ending redeemable value: ERV is
the value, at the end of the
applicable period, of a hypothetical
$1,000 investment made at the
beginning of the applicable period.
The following table summarizes the calculation of Cumulative Total
Return for the periods indicated through December 31, 1998, assuming the maximum
5.75% sales charge has been assessed.
ONE YEAR SINCE
INCEPTION[*]
Class A
Class B
Class C
Advisor Class
The following table summarizes the calculation of Cumulative Total
Return for the periods indicated through December 31, 1998, assuming the maximum
5.75% sales charge has not been assessed.
ONE YEAR SINCE
INCEPTION[*]
Class A
Class B
Class C
Advisor Class
- ---------------------------
[*] The inception date for the Fund was January 1, 1997. The
inception date for Advisor Class shares was January 1, 1998.
OTHER QUOTATIONS, COMPARISONS AND GENERAL INFORMATION. The foregoing
computation methods are prescribed for advertising and other communications
subject to SEC Rule 482. Communications not subject to this rule may contain a
number of different measures of performance, computation methods and
assumptions, including but not limited to: historical total returns; results of
actual or hypothetical investments; changes in dividends, distributions or share
values; or any graphic illustration of such data. These data may cover any
period of the Trust's existence and may or may not include the impact of sales
charges, taxes or other factors.
Performance quotations for the Fund will vary from time to time
depending on market conditions, the composition of the Fund's portfolio and
operating expenses of the Fund. These factors and possible differences in the
methods used in calculating performance quotations should be considered when
comparing performance information regarding the Fund's shares with information
published for other investment companies and other investment vehicles.
Performance quotations should also be considered relative to changes in the
value of the Fund's shares and the risks associated with the Fund's investment
objectives and policies. At any time in the future, performance quotations may
be higher or lower than past performance quotations and there can be no
assurance that any historical performance quotation will continue in the future.
The Fund may also cite endorsements or use for comparison its
performance rankings and listings reported in such newspapers or business or
consumer publications as, among others: AAII Journal, Barron's, Boston Business
Journal, Boston Globe, Boston Herald, Business Week, Consumer's Digest, Consumer
Guide Publications, Changing Times, Financial Planning, Financial World, Forbes,
Fortune, Growth Fund Guide, Houston Post, Institutional Investor, International
Fund Monitor, Investor's Daily, Los Angeles Times, Medical Economics, Miami
Herald, Money Mutual Fund Forecaster, Mutual Fund Letter, Mutual Fund Source
Book, Mutual Fund Values, National Underwriter, Nelson's Directory of Investment
Managers, New York Times, Newsweek, No Load Fund Investor, No Load Fund* X,
Oakland Tribune, Pension World, Pensions and Investment Age, Personal Investor,
Rugg and Steele, Time, U.S. News and World Report, USA Today, The Wall Street
Journal, and Washington Post.
FINANCIAL STATEMENTS
The Fund's Portfolio of Investments as of December 31, 1998, Statement
of Assets and Liabilities as of December 31, 1998, Statement of Operations for
the fiscal year ended December 31, 1998, Statement of Changes in Net Assets for
the fiscal year ended December 31, 1998, Financial Highlights, Notes to
Financial Statements, and Report of Independent Accountants, which are included
in the Fund's December 31, 1998 Annual Report to shareholders, are incorporated
by reference into this SAI.
<PAGE>
APPENDIX A
DESCRIPTION OF STANDARD & POOR'S RATINGS GROUP ("S&P") AND
MOODY'S INVESTORS SERVICE, INC. ("MOODY'S") CORPORATE
BOND AND COMMERCIAL PAPER RATINGS
[From "Moody's Bond Record," November 1994 Issue (Moody's Investors Service, New
York, 1994), and "Standard & Poor's Municipal Ratings Handbook," October 1997
Issue (McGraw Hill, New York, 1997).]
MOODY'S:
(a) CORPORATE BONDS. Bonds rated Aaa by Moody's are judged by Moody's
to be of the best quality, carrying the smallest degree of investment risk.
Interest payments are protected by a large or exceptionally stable margin and
principal is secure. While the various protective elements are likely to change,
such changes as can be visualized are most unlikely to impair the fundamentally
strong position of such issues. Bonds rated Aa are judged by Moody's to be of
high quality by all standards. Aa bonds are rated lower than Aaa bonds because
margins of protection may not be as large as those of Aaa bonds, or fluctuations
of protective elements may be of greater amplitude, or there may be other
elements present which make the long-term risks appear somewhat larger than
those applicable to Aaa securities. Bonds which are rated A by Moody's possess
many favorable investment attributes and are to be considered as upper
medium-grade obligations. Factors giving security to principal and interest are
considered adequate, but elements may be present which suggest a susceptibility
to impairment sometime in the future. Bonds rated Baa by Moody's are considered
medium-grade obligations (i.e., they are neither highly protected nor poorly
secured). Interest payments and principal security appear adequate for the
present, but certain protective elements may be lacking or may be
characteristically unreliable over any great length of time. Such bonds lack
outstanding investment characteristics and in fact have speculative
characteristics as well. Bonds which are rated Ba are judged to have speculative
elements; their future cannot be considered well-assured. Often the protection
of interest and principal payments may be very moderate and thereby not well
safeguarded during both good and bad times over the future. Uncertainty of
position characterizes bonds in this class. Bonds which are rated B generally
lack characteristics of the desirable investment. Assurance of interest and
principal payments of or maintenance of other terms of the contract over any
long period of time may be small. Bonds which are rated Caa are of poor
standing. Such issues may be in default or there may be present elements of
danger with respect to principal or interest. Bonds which are rated Ca represent
obligations which are speculative in a high degree. Such issues are often in
default or have other marked shortcomings. Bonds which are rated C are the
lowest rated class of bonds and issues so rated can be regarded as having
extremely poor prospects of ever attaining any real investment standing.
(b) COMMERCIAL PAPER. The Prime rating is the highest commercial paper
rating assigned by Moody's. Among the factors considered by Moody's in assigning
ratings are the following: (1) evaluation of the management of the issuer; (2)
economic evaluation of the issuer's industry or industries and an appraisal of
speculative-type risks which may be inherent in certain areas; (3) evaluation of
the issuer's products in relation to competition and customer acceptance; (4)
liquidity; (5) amount and quality of long-term debt; (6) trend of earnings over
a period of ten years; (7) financial strength of a parent company and the
relationships which exist with the issuer; and (8) recognition by management of
obligations which may be present or may arise as a result of public interest
questions and preparations to meet such obligations. Issuers within this Prime
category may be given ratings 1, 2 or 3, depending on the relative strengths of
these factors. The designation of Prime-1 indicates the highest quality
repayment capacity of the rated issue. Issuers rated Prime-2 are deemed to have
a strong ability for repayment while issuers voted Prime-3 are deemed to have an
acceptable ability for repayment. Issuers rated Not Prime do not fall within any
of the Prime rating categories.
S&P:
(a) CORPORATE BONDS. An S&P corporate debt rating is a current
assessment of the creditworthiness of an obligor with respect to a specific
obligation. The ratings are based on current information furnished by the issuer
or obtained by S&P from other sources it considers reliable. The ratings
described below may be modified by the addition of a plus or minus sign to show
relative standing within the major rating categories.
Debt rated AAA has the highest rating assigned by S&P. Capacity to pay
interest and repay principal is extremely strong. Debt rated AA is judged by S&P
to have a very strong capacity to pay interest and repay principal and differs
from the highest rated issues only in small degree. Debt rated A by S&P has a
strong capacity to pay interest and repay principal, although it is somewhat
more susceptible to the adverse effects of changes in circumstances and economic
conditions than debt in higher rated categories.
Debt rated BBB by S&P is regarded by S&P as having an adequate capacity
to pay interest and repay principal. Although such bonds normally exhibit
adequate protection parameters, adverse economic conditions or changing
circumstances are more likely to lead to a weakened capacity to pay interest and
repay principal than debt in higher rated categories.
Debt rated BB, B, CCC, CC and C is regarded as having predominately
speculative characteristics with respect to capacity to pay interest and repay
principal. BB indicates the least degree of speculation and C the highest. While
such debt will likely have some quality and protective characteristics, these
are outweighed by large uncertainties or exposures to adverse conditions. Debt
rated BB has less near-term vulnerability to default than other speculative
issues. However, it faces major ongoing uncertainties or exposure to adverse
business, financial or economic conditions which could lead to inadequate
capacity to meet timely interest and principal payments. The BB rating category
is also used for debt subordinated to senior debt that is assigned an actual or
implied BBB- rating. Debt rated B has a greater vulnerability to default but
currently has the capacity to meet interest payments and principal repayments.
Adverse business, financial, or economic conditions will likely impair capacity
or willingness to pay interest and repay principal. The B rating category is
also used for debt subordinated to senior debt that is assigned an actual or
implied BB or BB- rating. Debt rated CCC has a currently identifiable
vulnerability to default, and is dependent upon favorable business, financial,
and economic conditions to meet timely payment of interest and repayment of
principal. In the event of adverse business, financial or economic conditions,
it is not likely to have the capacity to pay interest and repay principal. The
CCC rating category is also used for debt subordinated to senior debt that is
assigned an actual or implied B or B- rating. The rating CC typically is applied
to debt subordinated to senior debt which is assigned an actual or implied CCC
debt rating. The rating C typically is applied to debt subordinated to senior
debt which is assigned an actual or implied CCC- debt rating. The C rating may
be used to cover a situation where a bankruptcy petition has been filed, but
debt service payments are continued.
The rating CI is reserved for income bonds on which no interest is
being paid. Debt rated D is in payment default. The D rating category is used
when interest payments or principal payments are not made on the date due, even
if the applicable grace period has not expired, unless S&P believes that such
payments will be made during such grace period. The D rating also will be used
upon the filing of a bankruptcy petition if debt service payments are
jeopardized.
(b) COMMERCIAL PAPER. An S&P commercial paper rating is a current
assessment of the likelihood of timely payment of debt considered short-term in
the relevant market.
The commercial paper rating A-1 by S&P indicates that the degree of
safety regarding timely payment is strong. Those issues determined to possess
extremely strong safety characteristics are denoted with a plus sign (+)
designation. For commercial paper with an A-2 rating, the capacity for timely
payment on issues is satisfactory, but not as high as for issues designated A-1.
Issues rated A-3 have adequate capacity for timely payment, but are more
vulnerable to the adverse effects of changes in circumstances than obligations
carrying higher designations.
Issues rated B are regarded as having only speculative capacity for
timely payment. The C rating is assigned to short-term debt obligations with a
doubtful capacity for payment. Debt rated D is in payment default. The D rating
category is used when interest payments or principal payments are not made on
the date due, even if the applicable grace period has not expired, unless S&P
believes such payments will be made during such grace period.
<PAGE>
IVY GLOBAL SCIENCE & TECHNOLOGY FUND
a series of
IVY FUND
Via Mizner Financial Plaza, Suite 300
700 South Federal Highway
Boca Raton, Florida 33432
STATEMENT OF ADDITIONAL INFORMATION
April , 1999
Ivy Fund (the "Trust") is an open-end management investment company
that currently consists of nineteen fully managed portfolios, each of which
(except for Ivy South America Fund and Ivy International Strategic Bond Fund) is
diversified. This Statement of Additional Information ("SAI") relates to the
Class A, B, C and I and Advisor Class shares of Ivy Global Science & Technology
Fund (the "Fund"). The other eighteen portfolios of the Trust are described in
separate prospectuses and SAIs.
This SAI is not a prospectus and should be read in conjunction with the
prospectus for the Fund dated April , 1999 (the "Prospectus"), which may be
obtained upon request and without charge from the Trust at the Distributor's
address and telephone number printed below.
INVESTMENT MANAGER
Ivy Management, Inc. ("IMI")
Via Mizner Financial Plaza, Suite 300
700 South Federal Highway
Boca Raton, Florida 33432
Telephone: (800) 777-6472
DISTRIBUTOR
Ivy Mackenzie Distributors, Inc. ("IMDI")
Via Mizner Financial Plaza, Suite 300
700 South Federal Highway
Boca Raton, Florida 33432
Telephone: (800) 456-5111
<PAGE>
iii
TABLE OF CONTENTS
GENERAL INFORMATION..........................................................
INVESTMENT OBJECTIVES, STRATEGIES AND RISKS..................................
COMMON STOCKS.......................................................
CONVERTIBLE SECURITIES..............................................
SMALL COMPANIES.....................................................
DEBT SECURITIES.....................................................
IN GENERAL.................................................
INVESTMENT-GRADE DEBT SECURITIES...........................
LOW-RATED DEBT SECURITIES..................................
U.S. GOVERNMENT SECURITIES.................................
ZERO COUPON BONDS..........................................
FIRM COMMITMENT AGREEMENTS AND "WHEN-ISSUED"SECURITIES.....
ILLIQUID SECURITIES.................................................
FOREIGN SECURITIES..................................................
DEPOSITORY RECEIPTS.................................................
EMERGING MARKETS SECURITIES.........................................
FOREIGN CURRENCIES..................................................
FOREIGN CURRENCY EXCHANGE TRANSACTIONS..............................
OTHER INVESTMENT COMPANIES..........................................
REPURCHASE AGREEMENTS...............................................
BANKING INDUSTRY AND SAVINGS AND LOAN OBLIGATIONS...................
COMMERCIAL PAPER....................................................
BORROWING...........................................................
WARRANTS............................................................
OPTIONS TRANSACTIONS................................................
IN GENERAL.................................................
WRITING OPTIONS ON INDIVIDUAL SECURITIES...................
PURCHASING OPTIONS ON INDIVIDUAL SECURITIES................
PURCHASING AND WRITING OPTIONS ON SECURITIES INDICES.......
RISKS OF OPTIONS TRANSACTIONS..............................
FUTURES CONTRACTS AND OPTIONS ON FUTURES CONTRACTS..................
IN GENERAL.................................................
FOREIGN CURRENCY FUTURES CONTRACTS AND RELATED OPTIONS.....
RISKS ASSOCIATED WITH FUTURES AND RELATED OPTIONS..........
SECURITIES INDEX FUTURES CONTRACTS..................................
RISKS OF SECURITIES INDEX FUTURES..........................
COMBINED TRANSACTIONS......................................
INVESTMENT RESTRICTIONS......................................................
PORTFOLIO TURNOVER...........................................................
TRUSTEES AND OFFICERS........................................................
PERSONAL INVESTMENTS BY EMPLOYEES OF IMI...................
INVESTMENT ADVISORY AND OTHER SERVICES.......................................
BUSINESS MANAGEMENT AND INVESTMENT ADVISORY SERVICES................
DISTRIBUTION SERVICES...............................................
RULE 18F-3 PLAN............................................
RULE 12B-1 DISTRIBUTION PLANS..............................
CUSTODIAN...........................................................
FUND ACCOUNTING SERVICES............................................
TRANSFER AGENT AND DIVIDEND PAYING AGENT............................
ADMINISTRATOR.......................................................
AUDITORS............................................................
BROKERAGE ALLOCATION.........................................................
CAPITALIZATION AND VOTING RIGHTS.............................................
SPECIAL RIGHTS AND PRIVILEGES................................................
AUTOMATIC INVESTMENT METHOD.........................................
EXCHANGE OF SHARES..................................................
INITIAL SALES CHARGE SHARES................................
CONTINGENT DEFERRED SALES CHARGE SHARES CLASS A............
CLASS B....................................................
CLASS C....................................................
CLASS I AND ADVISOR CLASS..................................
ALL CLASSES................................................
LETTER OF INTENT....................................................
RETIREMENT PLANS....................................................
INDIVIDUAL RETIREMENT ACCOUNTS.............................
ROTH IRAS..................................................
QUALIFIED PLANS............................................
DEFERRED COMPENSATION FOR PUBLIC SCHOOLS AND CHARITABLE
ORGANIZATIONS ("403(B)(7) ACCOUNT")....
SIMPLIFIED EMPLOYEE PENSION ("SEP") IRAS...................
SIMPLE PLANS...............................................
REINVESTMENT PRIVILEGE..............................................
RIGHTS OF ACCUMULATION..............................................
SYSTEMATIC WITHDRAWAL PLAN..........................................
GROUP SYSTEMATIC INVESTMENT PROGRAM.................................
REDEMPTIONS..................................................................
CONVERSION OF CLASS B SHARES.................................................
NET ASSET VALUE..............................................................
TAXATION 43
OPTIONS, FUTURES AND FOREIGN CURRENCY FORWARD CONTRACTS.............
CURRENCY FLUCTUATIONS -- "SECTION 988" GAINS OR LOSSES..............
INVESTMENT IN PASSIVE FOREIGN INVESTMENT COMPANIES..................
DEBT SECURITIES ACQUIRED AT A DISCOUNT..............................
DISTRIBUTIONS.......................................................
DISPOSITION OF SHARES...............................................
FOREIGN WITHHOLDING TAXES...........................................
BACKUP WITHHOLDING..................................................
PERFORMANCE INFORMATION......................................................
YIELD......................................................
AVERAGE ANNUAL TOTAL RETURN................................
CUMULATIVE TOTAL RETURN....................................
OTHER QUOTATIONS, COMPARISONS AND GENERAL INFORMATION......
FINANCIAL STATEMENTS.........................................................
APPENDIX A...................................................................
<PAGE>
GENERAL INFORMATION
The Fund is organized as a separate, diversified portfolio of the
Trust, an open-end management investment company organized as a Massachusetts
business trust on December 21, 1983. The Fund commenced operations on July 22,
1996. Advisor class shares were first offered on January 1, 1998.
Descriptions in this Statement of a particular investment practice or
technique in which the Fund may engage or a financial instrument which the Fund
may purchase are meant to describe the spectrum of investments that IMI, in its
discretion, might, but is not required to, use in managing the Fund's portfolio
assets. IMI may, in its discretion, at any time employ such practice, technique
or instrument for one or more funds but not for all funds advised by it.
Furthermore, it is possible that certain types of financial instruments or
investment techniques described herein may not be available, permissible,
economically feasible or effective for their intended purposes in all markets.
Certain practices, techniques, or instruments may not be principal activities of
the Fund but, to the extent employed, could from time to time have a material
impact on the Fund's performance.
INVESTMENT OBJECTIVES, STRATEGIES AND RISKS
The Fund has its own investment objectives and policies, which are
described in the Prospectus under the captions "Summary" and "Additional
Information About Strategies and Risks." Additional information regarding the
characteristics and risks associated with the Fund's investment techniques is
set forth below.
The Fund's principal investment objective is long-term capital growth.
Any income realized will be incidental. Under normal conditions, the Fund will
invest at least 65% of its total assets in the common stock of companies that
are expected to benefit from the development, advancement and use of science and
technology. Under this investment policy, at least three different countries
(one of which may be the United States) will be represented in the Fund's
overall portfolio holdings. Industries likely to be represented in the Fund's
portfolio include computers and peripheral products, software, electronic
components and systems, telecommunications, media and information services,
pharmaceuticals, hospital supply and medical devices, biotechnology,
environmental services, chemicals and synthetic materials, and defense and
aerospace. The Fund may also invest in companies that are expected to benefit
indirectly from the commercialization of technological and scientific advances.
In recent years, rapid advances in these industries have stimulated
unprecedented growth. While this is no guarantee of future performance, IMI
believes that these industries offer substantial opportunities for long-term
capital appreciation.
Although the Fund generally invests in common stock, it may also invest
in preferred stock, securities convertible into common stock, sponsored or
unsponsored ADRs, GDRs, ADSs and GDSs and investment-grade debt securities
(i.e., those rated Baa or higher by Moody's or BBB or higher by S&P, or if
unrated, considered by IMI to be of comparable quality), including corporate
bonds, notes, debentures, convertible bonds and zero coupon bonds. The fund may
also invest up to 5% of its net assets in debt securities that are rated Ba or
below by Moody's or BB or below by S&P, or if unrated, are considered by IMI to
be of comparable quality (commonly referred to as "high yield" or "junk" bonds).
The Fund will not invest in debt securities rated less than C by either Moody's
or S&P. [As of December 31, 1998, the Fund held no low-rated debt securities.]
The Fund may invest in warrants, purchase securities on a "when-issued"
or firm commitment basis, engage in foreign currency exchange transactions and
enter into forward foreign currency contracts. The Fund may also invest (i) up
to 10% of its total assets in other investment companies and (ii) up to 15% of
its net assets in illiquid securities.
For temporary defensive purposes and during periods when IMI believes
that circumstances warrant, the Fund may invest without limit in U.S. Government
securities, obligations issued by domestic or foreign banks (including
certificates of deposit, time deposits and bankers' acceptances), and domestic
or foreign commercial paper (which, if issued by a corporation, must be rated
Prime-1 by Moody's or A-1 by S&P, or if unrated has been issued by a company
that at the time of investment has an outstanding debt issue rated Aaa or Aa by
Moody's or AAA or AA by S&P). The Fund may also enter into repurchase
agreements, and, for temporary or emergency purposes, may borrow up to 10% of
the value of its total assets from banks.
The Fund may purchase put and call options on stock indices and on
individual securities, provided the premium paid for such options does not
exceed 10% of the value of the Fund's net assets. The Fund may also sell covered
put options with respect to up to 50% of the value of its net assets, and may
write covered call options so long as not more than 20% of the Fund's net assets
is subject to being purchased upon the exercise of the calls. For hedging
purposes only, the Fund may engage in transactions in (and options on) stock
index and foreign currency futures contracts, provided that the Fund's
equivalent exposure in such contracts does not exceed 20% of the value of its
total assets.
COMMON STOCKS
Common stock can be issued by companies to raise cash; all common stock
shares represent a proportionate ownership interest in a company. As a result,
the value of common stock rises and falls with a company's success or failure.
The market value of common stock can fluctuate significantly, with smaller
companies being particularly susceptible to price swings. Transaction costs in
smaller company stocks may also be higher than those of larger companies.
CONVERTIBLE SECURITIES
The convertible securities in which the Fund may invest include
corporate bonds, notes, debentures, preferred stock and other securities that
may be converted or exchanged at a stated or determinable exchange ratio into
underlying shares of common stock. Investments in convertible securities can
provide income through interest and dividend payments as well as an opportunity
for capital appreciation by virtue of their conversion or exchange features.
Because convertible securities can be converted into equity securities, their
values will normally vary in some proportion with those of the underlying equity
securities. Convertible securities usually provide a higher yield than the
underlying equity, however, so that the price decline of a convertible security
may sometimes be less substantial than that of the underlying equity security.
The exchange ratio for any particular convertible security may be adjusted from
time to time due to stock splits, dividends, spin-offs, other corporate
distributions or scheduled changes in the exchange ratio. Convertible debt
securities and convertible preferred stocks, until converted, have general
characteristics similar to both debt and equity securities. Although to a lesser
extent than with debt securities generally, the market value of convertible
securities tends to decline as interest rates increase and, conversely, tends to
increase as interest rates decline. In addition, because of the conversion or
exchange feature, the market value of convertible securities typically changes
as the market value of the underlying common stock changes, and, therefore, also
tends to follow movements in the general market for equity securities. When the
market price of the underlying common stock increases, the price of a
convertible security tends to rise as a reflection of the value of the
underlying common stock, although typically not as much as the price of the
underlying common stock. While no securities investments are without risk,
investments in convertible securities generally entail less risk than
investments in common stock of the same issuer.
As debt securities, convertible securities are investments that provide
for a stream of income. Like all debt securities, there can be no assurance of
income or principal payments because the issuers of the convertible securities
may default on their obligations. Convertible securities generally offer lower
yields than non-convertible securities of similar quality because of their
conversion or exchange features.
Convertible securities generally are subordinated to other similar but
non-convertible securities of the same issuer, although convertible bonds, as
corporate debt obligations, are senior in right of payment to all equity
securities, and convertible preferred stock is senior to common stock, of the
same issuer. However, convertible bonds and convertible preferred stock
typically have lower coupon rates than similar non-convertible securities.
Convertible securities may be issued as fixed income obligations that pay
current income.
SMALL COMPANIES
Investing in smaller company stocks involves certain special
considerations and risks that are not usually associated with investing in
larger, more established companies. For example, the securities of small or new
companies may be subject to more abrupt or erratic market movements because they
tend to be thinly traded and are subject to a greater degree to changes in the
issuer's earnings and prospects. Small companies also tent to have limited
product lines, markets or financial resources. Transaction costs in smaller
company stocks also may be higher than those of larger companies.
DEBT SECURITIES
IN GENERAL. Investment in debt securities involves both interest rate
and credit risk. Generally, the value of debt instruments rises and falls
inversely with fluctuations in interest rates. As interest rates decline, the
value of debt securities generally increases. Conversely, rising interest rates
tend to cause the value of debt securities to decrease. Bonds with longer
maturities generally are more volatile than bonds with shorter maturities. The
market value of debt securities also varies according to the relative financial
condition of the issuer. In general, lower-quality bonds offer higher yields due
to the increased risk that the issuer will be unable to meet its obligations on
interest or principal payments at the time called for by the debt instrument.
INVESTMENT-GRADE DEBT SECURITIES. Bonds rated Aaa by Moody's Investors
Service, Inc. ("Moody's") and AAA by Standard & Poor's Ratings Group ("S&P") are
judged to be of the best quality (i.e., capacity to pay interest and repay
principal is extremely strong). Bonds rated Aa/AA are considered to be of high
quality (i.e., capacity to pay interest and repay principal is very strong and
differs from the highest rated issues only to a small degree). Bonds rated A are
viewed as having many favorable investment attributes, but elements may be
present that suggest a susceptibility to the adverse effects of changes in
circumstances and economic conditions than debt in higher rated categories.
Bonds rated Baa/BBB (considered by Moody's to be "medium grade" obligations) are
considered to have an adequate capacity to pay interest and repay principal, but
certain protective elements may be lacking (i.e., such bonds lack outstanding
investment characteristics and have some speculative characteristics). The Fund
may invest in debt securities that are given an investment-grade rating by
Moody's or S&P, and may also invest in unrated debt securities that are
considered by IMI to be of comparable quality.
LOW-RATED DEBT SECURITIES. Securities rated lower than Baa by Moody's
or BBB by S&P, and comparable unrated securities (commonly referred to as "high
yield" or "junk" bonds), including many emerging markets bonds, are considered
to be predominantly speculative with respect to the issuer's continuing ability
to meet principal and interest payments. The lower the ratings of corporate debt
securities, the more their risks render them like equity securities. Such
securities carry a high degree of risk (including the possibility of default or
bankruptcy of the issuers of such securities), and generally involve greater
volatility of price and risk of principal and income (and may be less liquid)
than securities in the higher rating categories. (See Appendix A for a more
complete description of the ratings assigned by Moody's and S&P and their
respective characteristics.)
Lower rated and unrated securities are especially subject to adverse
changes in general economic conditions and to changes in the financial condition
of their issuers. Economic downturns may disrupt the high yield market and
impair the ability of issuers to repay principal and interest. Also, an increase
in interest rates would likely have an adverse impact on the value of such
obligations. During an economic downturn or period of rising interest rates,
highly leveraged issuers may experience financial stress which could adversely
affect their ability to service their principal and interest payment
obligations. Prices and yields of high yield securities will fluctuate over time
and, during periods of economic uncertainty, volatility of high yield securities
may adversely affect the Fund's net asset value. In addition, investments in
high yield zero coupon or pay-in-kind bonds, rather than income-bearing high
yield securities, may be more speculative and may be subject to greater
fluctuations in value due to changes in interest rates.
Changes in interest rates may have a less direct or dominant impact on
high yield bonds than on higher quality issues of similar maturities. However,
the price of high yield bonds can change significantly or suddenly due to a host
of factors including changes in interest rates, fundamental credit quality,
market psychology, government regulations, U.S. economic growth and, at times,
stock market activity. High yield bonds may contain redemption or call
provisions. If an issuer exercises these provisions in a declining interest rate
market, the Fund may have to replace the security with a lower yielding
security.
The trading market for high yield securities may be thin to the extent
that there is no established retail secondary market or because of a decline in
the value of such securities. A thin trading market may limit the ability of the
Fund to accurately value high yield securities in the Fund's portfolio, could
adversely affect the price at which the Fund could sell such securities, and
cause large fluctuations in the daily net asset value of the Fund's shares.
Adverse publicity and investor perceptions, whether or not based on fundamental
analysis, may decrease the value and liquidity of low-rated debt securities,
especially in a thinly traded market. When secondary markets for high yield
securities become relatively less liquid, it may be more difficult to value the
securities, requiring additional research and elements of judgment. These
securities may also involve special registration responsibilities, liabilities
and costs, and liquidity and valuation difficulties.
Credit quality in the high yield securities market can change suddenly
and unexpectedly, and even recently issued credit ratings may not fully reflect
the actual risks posed by a particular high yield security. For these reasons,
it is the policy of IMI not to rely exclusively on ratings issued by established
credit rating agencies, but to supplement such ratings with its own independent
and on-going review of credit quality. The achievement of the Fund's investment
objectives by investment in such securities may be more dependent on IMI's
credit analysis than is the case for higher quality bonds. Should the rating of
a portfolio security be downgraded, IMI will determine whether it is in the best
interest of the Fund to retain or dispose of such security. However, should any
individual bond held by the Fund be downgraded below a rating of C, IMI
currently intends to dispose of such bond based on then existing market
conditions.
Prices for high yield securities may be affected by legislative and
regulatory developments. For example, Federal rules require savings and loan
institutions to gradually reduce their holdings of this type of security. Also,
Congress has from time to time considered legislation that would restrict or
eliminate the corporate tax deduction for interest payments in these securities
and regulate corporate restructurings. Such legislation may significantly
depress the prices of outstanding securities of this type.
U.S. GOVERNMENT SECURITIES. U.S. Government securities are obligations of,
or guaranteed by, the U.S. Government, its agencies or instrumentalities.
Securities guaranteed by the U.S. Government include: (1) direct obligations of
the U.S. Treasury (such as Treasury bills, notes, and bonds) and (2) Federal
agency obligations guaranteed as to principal and interest by the U.S. Treasury
(such as GNMA certificates, which are mortgage-backed securities). When such
securities are held to maturity, the payment of principal and interest is
unconditionally guaranteed by the U.S. Government, and thus they are of the
highest possible credit quality. U.S. Government securities that are not held to
maturity are subject to variations in market value due to fluctuations in
interest rates.
Mortgage-backed securities are securities representing part ownership
of a pool of mortgage loans. For example, GNMA certificates are such securities
in which the timely payment of principal and interest is guaranteed by the full
faith and credit of the U.S. Government. Although the mortgage loans in the pool
will have maturities of up to 30 years, the actual average life of the loans
typically will be substantially less because the mortgages will be subject to
principal amortization and may be prepaid prior to maturity. Prepayment rates
vary widely and may be affected by changes in market interest rates. In periods
of falling interest rates, the rate of prepayment tends to increase, thereby
shortening the actual average life of the security. Conversely, rising interest
rates tend to decrease the rate of prepayments, thereby lengthening the actual
average life of the security (and increasing the security's price volatility).
Accordingly, it is not possible to predict accurately the average life of a
particular pool. Reinvestment of prepayment may occur at higher or lower rates
than the original yield on the certificates. Due to the prepayment feature and
the need to reinvest prepayments of principal at current rates, mortgage-backed
securities can be less effective than typical bonds of similar maturities at
"locking in" yields during periods of declining interest rates, and may involve
significantly greater price and yield volatility than traditional debt
securities. Such securities may appreciate or decline in market value during
periods of declining or rising interest rates, respectively.
Securities issued by U.S. Government instrumentalities and certain
Federal agencies are neither direct obligations of nor guaranteed by the U.S.
Treasury; however, they involve Federal sponsorship in one way or another. Some
are backed by specific types of collateral, some are supported by the issuer's
right to borrow from the Treasury, some are supported by the discretionary
authority of the Treasury to purchase certain obligations of the issuer, others
are supported only by the credit of the issuing government agency or
instrumentality. These agencies and instrumentalities include, but are not
limited to, Federal Land Banks, Farmers Home Administration, Central Bank for
Cooperatives, Federal Intermediate Credit Banks, Federal Home Loan Banks,
Federal National Mortgage Association, Federal Home Loan Mortgage Association,
and Student Loan Marketing Association.
ZERO COUPON BONDS. Zero coupon bonds are debt obligations issued
without any requirement for the periodic payment of interest. Zero coupon bonds
are issued at a significant discount from face value. The discount approximates
the total amount of interest the bonds would accrue and compound over the period
until maturity at a rate of interest reflecting the market rate at the time of
issuance. If the Fund holds zero coupon bonds in its portfolio, it would
recognize income currently for Federal income tax purposes in the amount of the
unpaid, accrued interest and generally would be required to distribute dividends
representing such income to shareholders currently, even though funds
representing such income would not have been received by the Fund. Cash to pay
dividends representing unpaid, accrued interest may be obtained from, for
example, sales proceeds of portfolio securities and Fund shares and from loan
proceeds. The potential sale of portfolio securities to pay cash distributions
from income earned on zero coupon bonds may result in the Fund being forced to
sell portfolio securities at a time when it might otherwise choose not to sell
these securities and when the Fund might incur a capital loss on such sales.
Because interest on zero coupon obligations is not distributed to the Fund on a
current basis, but is in effect compounded, the value of the securities of this
type is subject to greater fluctuations in response to changing interest rates
than the value of debt obligations which distribute income regularly.
FIRM COMMITMENT AGREEMENTS AND "WHEN-ISSUED" SECURITIES. New issues of
certain debt securities are often offered on a "when-issued" basis, meaning the
payment obligation and the interest rate are fixed at the time the buyer enter
into the commitment, bur delivery and payment for the securities normally take
place after the date of the commitment to purchase. Firm commitment agreements
call for the purchase of securities at an agreed-upon price on a specified
future date. The Fund uses such investment techniques in order to secure what is
considered to be an advantageous price an yield to the Fund and not for purposes
of leveraging the Fund's assets. In either instance, the Fund will maintain in a
segregated account with its Custodian cash or liquid securities equal (on a
daily marked-to-market basis) to the amount of its commitment to purchase the
underlying securities.
ILLIQUID SECURITIES
The Fund may purchase securities other than in the open market. While
such purchases may often offer attractive opportunities for investment not
otherwise available on the open market, the securities so purchased are often
"restricted securities" or "not readily marketable" (i.e., they cannot be sold
to the public without registration under the Securities Act of 1933, as amended
(the "1933 Act"), or the availability of an exemption from registration (such as
Rule 144A) or because they are subject to other legal or contractual delays in
or restrictions on resale). This investment practice, therefore, could have the
effect of increasing the level of illiquidity of the Fund. It is the Fund's
policy that illiquid securities (including repurchase agreements of more than
seven days duration, certain restricted securities, and other securities which
are not readily marketable) may not constitute, at the time of purchase, more
than 15% of the value of the Fund's net assets. The Trust's Board of Trustees
has approved guidelines for use by IMI in determining whether a security is
illiquid.
Generally speaking, restricted securities may be sold (i) only to
qualified institutional buyers; (ii) in a privately negotiated transaction to a
limited number of purchasers; (iii) in limited quantities after they have been
held for a specified period of time and other conditions are met pursuant to an
exemption from registration; or (iv) in a public offering for which a
registration statement is in effect under the 1933 Act. Issuers of restricted
securities may not be subject to the disclosure and other investor protection
requirements that would be applicable if their securities were publicly traded.
If adverse market conditions were to develop during the period between the
Fund's decision to sell a restricted or illiquid security and the point at which
the Fund is permitted or able to sell such security, the Fund might obtain a
price less favorable than the price that prevailed when it decided to sell.
Where a registration statement is required for the resale of restricted
securities, the Fund may be required to bear all or part of the registration
expenses. The Fund may be deemed to be an "underwriter" for purposes of the 1933
Act when selling restricted securities to the public and, in such event, the
Fund may be liable to purchasers of such securities if the registration
statement prepared by the issuer is materially inaccurate or misleading.
Since it is not possible to predict with assurance that the market for
securities eligible for resale under Rule 144A will continue to be liquid, IMI
will monitor such restricted securities subject to the supervision of the Board
of Trustees. Among the factors IMI may consider in reaching liquidity decisions
relating to Rule 144A securities are: (1) the frequency of trades and quotes for
the security; (2) the number of dealers wishing to purchase or sell the security
and the number of other potential purchasers; (3) dealer undertakings to make a
market in the security; and (4) the nature of the security and the nature of the
market for the security (i.e., the time needed to dispose of the security, the
method of soliciting offers, and the mechanics of the transfer).
FOREIGN SECURITIES
The securities of foreign issuers in which the Fund may invest include
non-U.S. dollar-denominated debt securities, Euro dollar securities, sponsored
and unsponsored American Depository Receipts ("ADRs"), Global Depository
Receipts ("GDRs"), American Depository Shares ("ADSs"), Global Depository Shares
("GDSs") and related depository instruments, and debt securities issued, assumed
or guaranteed by foreign governments or political subdivisions or
instrumentalities thereof. Shareholders should consider carefully the
substantial risks involved in investing in securities issued by companies and
governments of foreign nations, which are in addition to the usual risks
inherent in the Fund's domestic investments.
Although IMI intends to invest the Fund's assets only in nations that
are generally considered to have relatively stable and friendly governments,
there is the possibility of expropriation, nationalization, repatriation or
confiscatory taxation, taxation on income earned in a foreign country and other
foreign taxes, foreign exchange controls (which may include suspension of the
ability to transfer currency from a given country), default on foreign
government securities, political or social instability or diplomatic
developments which could affect investments in securities of issuers in those
nations. In addition, in many countries there is less publicly available
information about issuers than is available for U.S. companies. Moreover,
foreign companies are not generally subject to uniform accounting, auditing and
financial reporting standards, and auditing practices and requirements may not
be comparable to those applicable to U.S. companies. In many foreign countries,
there is less governmental supervision and regulation of business and industry
practices, stock exchanges, brokers, and listed companies than in the United
States. Foreign securities transactions may also be subject to higher brokerage
costs than domestic securities transactions. The foreign securities markets of
many of the countries in which the Fund may invest may also be smaller, less
liquid and subject to greater price volatility than those in the United States.
In addition, the Fund may encounter difficulties or be unable to pursue legal
remedies and obtain judgment in foreign courts.
Foreign bond markets have different clearance and settlement procedures
and in certain markets there have been times when settlements have been unable
to keep pace with the volume of securities transactions, making it difficult to
conduct such transactions. Delays in settlement could result in temporary
periods when assets of the Fund are uninvested and no return is earned thereon.
The inability of the Fund to make intended security purchases due to settlement
problems could cause the Fund to miss attractive investment opportunities.
Further, the inability to dispose of portfolio securities due to settlement
problems could result either in losses to the Fund because of subsequent
declines in the value of the portfolio security or, if the Fund has entered into
a contract to sell the security, in possible liability to the purchaser. It may
be more difficult for the Fund's agents to keep currently informed about
corporate actions such as stock dividends or other matters that may affect the
prices of portfolio securities. Communications between the United States and
foreign countries may be less reliable than within the United States, thus
increasing the risk of delayed settlements of portfolio transactions or loss of
certificates for portfolio securities. Moreover, individual foreign economies
may differ favorably or unfavorably from the United States economy in such
respects as growth of gross national product, rate of inflation, capital
reinvestment, resource self-sufficiency and balance of payments position. IMI
seeks to mitigate the risks to the Fund associated with the foregoing
considerations through investment variation and continuous professional
management.
DEPOSITORY RECEIPTS
ADRs, GDRs, ADSs, GDSs and related securities are depository
instruments, the issuance of which is typically administered by a U.S. or
foreign bank or trust company. These instruments evidence ownership of
underlying securities issued by a U.S. or foreign corporation. ADRs are publicly
traded on exchanges or over-the-counter ("OTC") in the United States.
Unsponsored programs are organized independently and without the cooperation of
the issuer of the underlying securities. As a result, information concerning the
issuer may not be as current or as readily available as in the case of sponsored
depository instruments, and their prices may be more volatile than if they were
sponsored by the issuers of the underlying securities.
EMERGING MARKETS SECURITIES
The Fund could have significant investments in securities traded in
emerging markets. Investors should recognize that investing in such countries
involves special considerations, in addition to those set forth above, that are
not typically associated with investing in United States securities and that may
affect the Fund's performance favorably or unfavorably.
In recent years, many emerging market countries around the world have
undergone political changes that have reduced government's role in economic and
personal affairs and have stimulated investment and growth. Historically, there
is a strong direct correlation between economic growth and stock market returns.
While this is no guarantee of future performance, IMI believes that investment
opportunities (particularly in the energy, environmental services, natural
resources, basic materials, power, telecommunications and transportation
industries) may result within the evolving economies of emerging market
countries from which the Fund and its shareholders will benefit.
Investments in companies domiciled in developing countries may be
subject to potentially higher risks than investments in developed countries.
Such risks include (i) less social, political and economic stability; (ii) a
small market for securities and/or a low or nonexistent volume of trading, which
result in a lack of liquidity and in greater price volatility; (iii) certain
national policies that may restrict the Fund's investment opportunities,
including restrictions on investment in issuers or industries deemed sensitive
to national interests; (iv) foreign taxation; (v) the absence of developed
structures governing private or foreign investment or allowing for judicial
redress for injury to private property; (vi) the absence, until relatively
recently in certain Eastern European countries, of a capital market structure or
market-oriented economy; (vii) the possibility that recent favorable economic
developments in Eastern Europe may be slowed or reversed by unanticipated
political or social events in such countries; and (viii) the possibility that
currency devaluations could adversely affect the value of the Fund's
investments. Further, many emerging markets have experienced and continue to
experience high rates of inflation.
Despite the dissolution of the Soviet Union, the Communist Party may
continue to exercise a significant role in certain Eastern European countries.
To the extent of the Communist Party's influence, investments in such countries
will involve risks of nationalization, expropriation and confiscatory taxation.
The communist governments of a number of Eastern European countries expropriated
large amounts of private property in the past, in many cases without adequate
compensation, and there can be no assurance that such expropriation will not
occur in the future. In the event of such expropriation, the Fund could lose a
substantial portion of any investments it has made in the affected countries.
Further, few (if any) accounting standards exist in Eastern European countries.
Finally, even though certain Eastern European currencies may be convertible into
U.S. dollars, the conversion rates may be artificial in relation to the actual
market values and may be adverse to the Fund's net asset value.
Certain Eastern European countries that do not have well-established
trading markets are characterized by an absence of developed legal structures
governing private and foreign investments and private property. In addition,
certain countries require governmental approval prior to investments by foreign
persons, or limit the amount of investment by foreign persons in a particular
company, or limit the investment of foreign persons to only a specific class of
securities of a company that may have less advantageous terms than securities of
the company available for purchase by nationals.
Authoritarian governments in certain Eastern European countries may
require that a governmental or quasi-governmental authority act as custodian of
the Fund's assets invested in such country. To the extent such governmental or
quasi-governmental authorities do not satisfy the requirements of the Investment
Company Act of 1940, as amended (the "1940 Act"), with respect to the custody of
the Fund's cash and securities, the Fund's investment in such countries may be
limited or may be required to be effected through intermediaries. The risk of
loss through governmental confiscation may be increased in such countries.
FOREIGN CURRENCIES
Investment in foreign securities usually will involve currencies of
foreign countries. Moreover, the Fund may temporarily hold funds in bank
deposits in foreign currencies during the completion of investment programs and
may purchase forward foreign currency contracts. Because of these factors, the
value of the assets of the Fund as measured in U.S. dollars may be affected
favorably or unfavorably by changes in foreign currency exchange rates and
exchange control regulations, and the Fund may incur costs in connection with
conversions between various currencies. Although the Fund's custodian values the
Fund's assets daily in terms of U.S. dollars, the Fund does not intend to
convert its holdings of foreign currencies into U.S. dollars on a daily basis.
The Fund will do so from time to time, however, and investors should be aware of
the costs of currency conversion. Although foreign exchange dealers do not
charge a fee for conversion, they do realize a profit based on the difference
(the "spread") between the prices at which they are buying and selling various
currencies. Thus, a dealer may offer to sell a foreign currency to the Fund at
one rate, while offering a lesser rate of exchange should the Fund desire to
resell that currency to the dealer. The Fund will conduct its foreign currency
exchange transactions either on a spot (i.e., cash) basis at the spot rate
prevailing in the foreign currency exchange market, or through entering into
forward contracts to purchase or sell foreign currencies.
Because the Fund normally will be invested in both U.S. and foreign
securities markets, changes in the Fund's share price may have a low correlation
with movements in U.S. markets. The Fund's share price will reflect the
movements of the different stock and bond markets in which it is invested (both
U.S. and foreign), and of the currencies in which the investments are
denominated. Thus, the strength or weakness of the U.S. dollar against foreign
currencies may account for part of the Fund's investment performance. U.S. and
foreign securities markets do not always move in step with each other, and the
total returns from different markets may vary significantly. In addition,
significant uncertainty surrounds the proposed introduction of the euro (a
common currency for the European Union) in January 1999 and its effect on the
value of securities denominated in local European currencies. These and other
currencies in which the Fund's assets are denominated may be devalued against
the U.S. dollar, resulting in a loss to the Fund.
FOREIGN CURRENCY EXCHANGE TRANSACTIONS
The Fund may enter into forward foreign currency contracts in order to
protect against uncertainty in the level of future foreign exchange rates in the
purchase and sale of securities. A forward contract is an obligation to purchase
or sell a specific currency for an agreed price at a future date (usually less
than a year), and typically is individually negotiated and privately traded by
currency traders and their customers. A forward contract generally has no
deposit requirement, and no commissions are charged at any stage for trades.
Although foreign exchange dealers do not charge a fee for commissions, they do
realize a profit based on the difference between the price at which they are
buying and selling various currencies. Although these contracts are intended to
minimize the risk of loss due to a decline in the value of the hedged
currencies, at the same time, they tend to limit any potential gain which might
result should the value of such currencies increase.
While the Fund may enter into forward contracts to reduce currency
exchange risks, changes in currency exchange rates may result in poorer overall
performance for the Fund than if it had not engaged in such transactions.
Moreover, there may be an imperfect correlation between the Fund's portfolio
holdings of securities denominated in a particular currency and forward
contracts entered into by the Fund. An imperfect correlation of this type may
prevent the Fund from achieving the intended hedge or expose the Fund to the
risk of currency exchange loss.
The Fund may purchase currency forwards and combine such purchases with
sufficient cash or short-term securities to create unleveraged substitutes for
investments in foreign markets when deemed advantageous. The Fund may also
combine the foregoing with bond futures or interest rate futures contracts to
create the economic equivalent of an unhedged foreign bond position.
The Fund may also cross-hedge currencies by entering into transactions
to purchase or sell one or more currencies that are expected to decline in value
relative to other currencies to which the Fund has or in which the Fund expects
to have portfolio exposure.
Currency transactions are subject to risks different from those of
other portfolio transactions. Because currency control is of great importance to
the issuing governments and influences economic planning and policy, purchases
and sales of currency and related instruments can be negatively affected by
government exchange controls, blockages, and manipulations or exchange
restrictions imposed by governments. These can result in losses to the Fund if
it is unable to deliver or receive currency or funds in settlement of
obligations and could also cause hedges it has entered into to be rendered
useless, resulting in full currency exposure as well as incurring transactions
costs. Buyers and sellers of currency futures are subject to the same risks that
apply to the use of futures generally. Further, settlement of a currency futures
contract for the purchase of most currencies must occur at a bank based in the
issuing nation. Trading options on currency futures is relatively new, and the
ability to establish and close out positions on such options is subject to the
maintenance of a liquid market which may not always be available. Currency
exchange rates may fluctuate based on factors extrinsic to that country's
economy.
OTHER INVESTMENT COMPANIES
The Fund may invest up to 10% of its total assets in the shares of
other investment companies. As a shareholder of an investment company, the Fund
would bear its ratable shares of the fund's expenses (which often include an
asset-based management fee). The Fund could also lose money by investing in
other investment companies, since the value of their respective investments and
the income they generate will vary daily based on prevailing market conditions.
REPURCHASE AGREEMENTS
Repurchase agreements are contracts under which the Fund buys a money
market instrument and obtains a simultaneous commitment from the seller to
repurchase the instrument at a specified time and at an agreed-upon yield. Under
guidelines approved by the Board, the Fund is permitted to enter into repurchase
agreements only if the repurchase agreements are at least fully collateralized
with U.S. Government securities or other securities that IMI has approved for
use as collateral for repurchase agreements and the collateral must be
marked-to-market daily. The Fund will enter into repurchase agreements only with
banks and broker-dealers deemed to be creditworthy by IMI under the
above-referenced guidelines. In the unlikely event of failure of the executing
bank or broker-dealer, the Fund could experience some delay in obtaining direct
ownership of the underlying collateral and might incur a loss if the value of
the security should decline, as well as costs in disposing of the security.
BANKING INDUSTRY AND SAVINGS AND LOAN OBLIGATIONS
Certificates of deposit are negotiable certificates issued against
funds deposited in a commercial bank for a definite period of time and earning a
specified return. Bankers' acceptances are negotiable drafts or bills of
exchange, normally drawn by an importer or exporter to pay for specific
merchandise, which are "accepted" by a bank (meaning, in effect, that the bank
unconditionally agrees to pay the face value of the instrument at maturity). In
addition to investing in certificates of deposit and bankers' acceptances, the
Fund may invest in time deposits in banks or savings and loan associations. Time
deposits are generally similar to certificates of deposit, but are
uncertificated. The Fund's investments in certificates of deposit, time
deposits, and bankers' acceptance are limited to obligations of (i) banks having
total assets in excess of $1 billion, (ii) U.S. banks which do not meet the $1
billion asset requirement, if the principal amount of such obligation is fully
insured by the Federal Deposit Insurance Corporation (the "FDIC"), (iii) savings
and loan association which have total assets in excess of $1 billion and which
are members of the FDIC, and (iv) foreign banks if the obligation is, in IMI's
opinion, of an investment quality comparable to other debt securities which may
be purchased by the Fund. The Fund's investments in certificates of deposit of
savings associations are limited to obligations of Federal and state-chartered
institutions whose total assets exceed $1 billion and whose deposits are insured
by the FDIC.
COMMERCIAL PAPER.
Commercial paper represents short-term unsecured promissory notes
issued in bearer form by bank holding companies, corporations and finance
companies. The Fund may invest in commercial paper that is rated Prime-1 by
Moody's Investors Service, Inc. ("Moody's") or A-1 by Standard & Poor's
Corporation ("S&P") or, if not rated by Moody's or S&P, is issued by companies
having an outstanding debt issue rated Aaa or Aa by Moody's or AAA or AA by S&P.
BORROWING
Borrowing may exaggerate the effect on the Fund's net asset value of
any increase or decrease in the value of the Fund's portfolio securities. Money
borrowed will be subject to interest costs (which may include commitment fees
and/or the cost of maintaining minimum average balances). Although the principal
of the Fund's borrowings will be fixed, the Fund's assets may change in value
during the time a borrowing is outstanding, thus increasing exposure to capital
risk.
WARRANTS
The holder of a warrant has the right, until the warrant expires, to
purchase a given number of shares of a particular issuer at a specified price.
Such investments can provide a greater potential for profit or loss than an
equivalent investment in the underlying security. However, prices of warrants do
not necessarily move in a tandem with the prices of the underlying securities,
and are, therefore, considered speculative investments. Warrants pay no
dividends and confer no rights other than a purchase option. Thus, if a warrant
held by the Fund were not exercised by the date of its expiration, the Fund
would lose the entire purchase price of the warrant.
OPTIONS TRANSACTIONS
IN GENERAL. A call option is a short-term contract (having a duration
of less than one year) pursuant to which the purchaser, in return for the
premium paid, has the right to buy the security underlying the option at the
specified exercise price at any time during the term of the option. The writer
of the call option, who receives the premium, has the obligation, upon exercise
of the option, to deliver the underlying security against payment of the
exercise price. A put option is a similar contract pursuant to which the
purchaser, in return for the premium paid, has the right to sell the security
underlying the option at the specified exercise price at any time during the
term of the option. The writer of the put option, who receives the premium, has
the obligation, upon exercise of the option, to buy the underlying security at
the exercise price. The premium paid by the purchaser of an option will reflect,
among other things, the relationship of the exercise price to the market price
and volatility of the underlying security, the time remaining to expiration of
the option, supply and demand, and interest rates.
If the writer of an option wishes to terminate the obligation, the
writer may effect a "closing purchase transaction." This is accomplished by
buying an option of the same series as the option previously written. The effect
of the purchase is that the writer's position will be canceled by the Options
Clearing Corporation. However, a writer may not effect a closing purchase
transaction after it has been notified of the exercise of an option. Likewise,
an investor who is the holder of an option may liquidate his or her position by
effecting a "closing sale transaction." This is accomplished by selling an
option of the same series as the option previously purchased. There is no
guarantee that either a closing purchase or a closing sale transaction can be
effected at any particular time or at any acceptable price. If any call or put
option is not exercised or sold, it will become worthless on its expiration
date.
The Fund will realize a gain (or a loss) on a closing purchase
transaction with respect to a call or a put previously written by the Fund if
the premium, plus commission costs, paid by the Fund to purchase the call or the
put is less (or greater) than the premium, less commission costs, received by
the Fund on the sale of the call or the put. A gain also will be realized if a
call or a put that the Fund has written lapses unexercised, because the Fund
would retain the premium. Any such gains (or losses) are considered short-term
capital gains (or losses) for Federal income tax purposes. Net short-term
capital gains, when distributed by the Fund, are taxable as ordinary income. See
"Taxation."
The Fund will realize a gain (or a loss) on a closing sale transaction
with respect to a call or a put previously purchased by the Fund if the premium,
less commission costs, received by the Fund on the sale of the call or the put
is greater (or less) than the premium, plus commission costs, paid by the Fund
to purchase the call or the put. If a put or a call expires unexercised, it will
become worthless on the expiration date, and the Fund will realize a loss in the
amount of the premium paid, plus commission costs. Any such gain or loss will be
long-term or short-term gain or loss, depending upon the Fund's holding period
for the option.
Exchange-traded options generally have standardized terms and are
issued by a regulated clearing organization (such as the Options Clearing
Corporation), which, in effect, guarantees the completion of every
exchange-traded option transaction. In contrast, the terms of OTC options are
negotiated by the Fund and its counterparty (usually a securities dealer or a
financial institution) with no clearing organization guarantee. When the Fund
purchases an OTC option, it relies on the party from whom it has purchased the
option (the "counterparty") to make delivery of the instrument underlying the
option. If the counterparty fails to do so, the Fund will lose any premium paid
for the option, as well as any expected benefit of the transaction. Accordingly,
IMI will assess the creditworthiness of each counterparty to determine the
likelihood that the terms of the OTC option will be satisfied.
WRITING OPTIONS ON INDIVIDUAL SECURITIES. The Fund may write (sell)
covered call options on the Fund's securities in an attempt to realize a greater
current return than would be realized on the securities alone. The Fund may also
write covered call options to hedge a possible stock or bond market decline
(only to the extent of the premium paid to the Fund for the options). In view of
the investment objectives of the Fund, the Fund generally would write call
options only in circumstances where the investment adviser to the Fund does not
anticipate significant appreciation of the underlying security in the near
future or has otherwise determined to dispose of the security.
A "covered" call option means generally that so long as the Fund is
obligated as the writer of a call option, the Fund will (i) own the underlying
securities subject to the option, or (ii) have the right to acquire the
underlying securities through immediate conversion or exchange of convertible
preferred stocks or convertible debt securities owned by the Fund. Although the
Fund receives premium income from these activities, any appreciation realized on
an underlying security will be limited by the terms of the call option. The Fund
may purchase call options on individual securities only to effect a "closing
purchase transaction."
As the writer of a call option, the Fund receives a premium for
undertaking the obligation to sell the underlying security at a fixed price
during the option period, if the option is exercised. So long as the Fund
remains obligated as a writer of a call option, it forgoes the opportunity to
profit from increases in the market price of the underlying security above the
exercise price of the option, except insofar as the premium represents such a
profit (and retains the risk of loss should the value of the underlying security
decline).
PURCHASING OPTIONS ON INDIVIDUAL SECURITIES. The Fund may purchase a
put option on an underlying security owned by the Fund as a defensive technique
in order to protect against an anticipated decline in the value of the security.
The Fund, as the holder of the put option, may sell the underlying security at
the exercise price regardless of any decline in its market price. In order for a
put option to be profitable, the market price of the underlying security must
decline sufficiently below the exercise price to cover the premium and
transaction costs that the Fund must pay. These costs will reduce any profit the
Fund might have realized had it sold the underlying security instead of buying
the put option. The premium paid for the put option would reduce any capital
gain otherwise available for distribution when the security is eventually sold.
The purchase of put options will not be used by the Fund for leverage purposes.
The Fund may also purchase a put option on an underlying security that
it owns and at the same time write a call option on the same security with the
same exercise price and expiration date. Depending on whether the underlying
security appreciates or depreciates in value, the Fund would sell the underlying
security for the exercise price either upon exercise of the call option written
by it or by exercising the put option held by it. The Fund would enter into such
transactions in order to profit from the difference between the premium received
by the Fund for the writing of the call option and the premium paid by the Fund
for the purchase of the put option, thereby increasing the Fund's current
return. The Fund may write (sell) put options on individual securities only to
effect a "closing sale transaction."
PURCHASING AND WRITING OPTIONS ON SECURITIES INDICES. The Fund may
purchase and sell (write) put and call options on securities indices. An index
assigns relative values to the securities included in the index and the index
fluctuates with changes in the market values of the securities so included.
Options on indices are similar to options on individual securities, except that,
rather than giving the purchaser the right to take delivery of an individual
security at a specified price, they give the purchaser the right to receive
cash. The amount of cash is equal to the difference between the closing price of
the index and the exercise price of the option, expressed in dollars, times a
specified multiple (the "multiplier"). The writer of the option is obligated, in
return for the premium received, to make delivery of this amount.
The multiplier for an index option performs a function similar to the
unit of trading for a stock option. It determines the total dollar value per
contract of each point in the difference between the exercise price of an option
and the current level of the underlying index. A multiplier of 100 means that a
one-point difference will yield $100. Options on different indices have
different multipliers.
When the Fund writes a call or put option on a stock index, the option
is "covered", in the case of a call, or "secured", in the case of a put, if the
Fund maintains in a segregated account with the Custodian cash or liquid
securities equal to the contract value. A call option is also covered if the
Fund holds a call on the same index as the call written where the exercise price
of the call held is (i) equal to or less than the exercise price of the call
written or (ii) greater than the exercise price of the call written, provided
that the Fund maintains in a segregated account with the Custodian the
difference in cash or liquid securities. A put option is also "secured" if the
Fund holds a put on the same index as the put written where the exercise price
of the put held is (i) equal to or greater than the exercise price of the put
written or (ii) less than the exercise price of the put written, provided that
the Fund maintains in a segregated account with the Custodian the difference in
cash or liquid securities.
RISKS OF OPTIONS TRANSACTIONS. The purchase and writing of options
involves certain risks. During the option period, the covered call writer has,
in return for the premium on the option, given up the opportunity to profit from
a price increase in the underlying securities above the exercise price, but, as
long as its obligation as a writer continues, has retained the risk of loss
should the price of the underlying security decline. The writer of a U.S. option
has no control over the time when it may be required to fulfill its obligation
as a writer of the option. Once an option writer has received an exercise
notice, it cannot effect a closing purchase transaction in order to terminate
its obligation under the option and must deliver the underlying securities (or
cash in the case of an index option) at the exercise price. If a put or call
option purchased by the Fund is not sold when it has remaining value, and if the
market price of the underlying security (or index), in the case of a put,
remains equal to or greater than the exercise price or, in the case of a call,
remains less than or equal to the exercise price, the Fund will lose its entire
investment in the option. Also, where a put or call option on a particular
security (or index) is purchased to hedge against price movements in a related
security (or securities), the price of the put or call option may move more or
less than the price of the related security (or securities). In this regard,
there are differences between the securities and options markets that could
result in an imperfect correlation between these markets, causing a given
transaction not to achieve its objective.
There can be no assurance that a liquid market will exist when the Fund
seeks to close out an option position. Furthermore, if trading restrictions or
suspensions are imposed on the options markets, the Fund may be unable to close
out a position. Finally, trading could be interrupted, for example, because of
supply and demand imbalances arising from a lack of either buyers or sellers, or
the options exchange could suspend trading after the price has risen or fallen
more than the maximum amount specified by the exchange. Closing transactions can
be made for OTC options only by negotiating directly with the counterparty or by
a transaction in the secondary market, if any such market exists. There is no
assurance that the Fund will be able to close out an OTC option position at a
favorable price prior to its expiration. In the event of insolvency of the
counterparty, the Fund might be unable to close out an OTC option position at
any time prior to its expiration. Although the Fund may be able to offset to
some extent any adverse effects of being unable to liquidate an option position,
the Fund may experience losses in some cases as a result of such inability.
When conducted outside the U.S., options transactions may not be
regulated as rigorously as in the U.S., may not involve a clearing mechanism and
related guarantees, and are subject to the risk of governmental actions
affecting trading in, or the prices of, foreign securities, currencies and other
instruments. The value of such positions also could be adversely affected by:
(i) other complex foreign political, legal and economic factors, (ii) lesser
availability than in the U.S. of data on which to make trading decisions, (iii)
delays in the Fund's ability to act upon economic events occurring in foreign
markets during non-business hours in the U.S., (iv) the imposition of different
exercise and settlement terms and procedures and margin requirements than in the
U.S., and (v) lower trading volume and liquidity.
The Fund's options activities also may have an impact upon the level of its
portfolio turnover and brokerage commissions. See "Portfolio Turnover."
The Fund's success in using options techniques depends, among other
things, on IMI's ability to predict accurately the direction and volatility of
price movements in the options and securities markets, and to select the proper
type, time and duration of options.
FUTURES CONTRACTS AND OPTIONS ON FUTURES CONTRACTS
IN GENERAL. The Fund may enter into futures contracts and options on
futures contracts for hedging purposes. A futures contract provides for the
future sale by one party and purchase by another party of a specified quantity
of a commodity at a specified price and time. When a purchase or sale of a
futures contract is made by the Fund, the Fund is required to deposit with its
custodian (or broker, if legally permitted) a specified amount of cash or liquid
securities ("initial margin"). The margin required for a futures contract is set
by the exchange on which the contract is traded and may be modified during the
term of the contract. The initial margin is in the nature of a performance bond
or good faith deposit on the futures contract which is returned to the Fund upon
termination of the contract, assuming all contractual obligations have been
satisfied. A futures contract held by the Fund is valued daily at the official
settlement price of the exchange on which it is traded. Each day the Fund pays
or receives cash, called "variation margin," equal to the daily change in value
of the futures contract. This process is known as "marking to market." Variation
margin does not represent a borrowing or loan by the Fund but is instead a
settlement between the Fund and the broker of the amount one would owe the other
if the futures contract expired. In computing daily net asset value, the Fund
will mark-to-market its open futures position.
The Fund is also required to deposit and maintain margin with respect
to put and call options on futures contracts written by it. Such margin deposits
will vary depending on the nature of the underlying futures contract (and the
related initial margin requirements), the current market value of the option,
and other futures positions held by the Fund.
Although some futures contracts call for making or taking delivery of
the underlying securities, generally these obligations are closed out prior to
delivery of offsetting purchases or sales of matching futures contracts (same
exchange, underlying security or index, and delivery month). If an offsetting
purchase price is less than the original sale price, the Fund generally realizes
a capital gain, or if it is more, the Fund generally realizes a capital loss.
Conversely, if an offsetting sale price is more than the original purchase
price, the Fund generally realizes a capital gain, or if it is less, the Fund
generally realizes a capital loss.
The transaction costs must also be included in these calculations.
When purchasing a futures contract, the Fund will maintain with its
Custodian (and mark-to-market on a daily basis) cash or liquid securities that,
when added to the amounts deposited with a futures commission merchant ("FCM")
as margin, are equal to the market value of the futures contract. Alternatively,
the Fund may "cover" its position by purchasing a put option on the same futures
contract with a strike price as high as or higher than the price of the contract
held by the Fund, or, if lower, may cover the difference with cash or short-term
securities.
When selling a futures contract, the Fund will maintain with its
Custodian in a segregated account (and mark-to-market on a daily basis) cash or
liquid securities that, when added to the amounts deposited with an FCM as
margin, are equal to the market value of the instruments underlying the
contract. Alternatively, the Fund may "cover" its position by owning the
instruments underlying the contract (or, in the case of an index futures
contract, a portfolio with a volatility substantially similar to that of the
index on which the futures contract is based), or by holding a call option
permitting the Fund to purchase the same futures contract at a price no higher
than the price of the contract written by the Fund (or at a higher price if the
difference is maintained in liquid assets with the Fund's custodian).
When selling a call option on a futures contract, the Fund will
maintain with its Custodian in a segregated account (and mark-to-market on a
daily basis) cash or liquid securities that, when added to the amounts deposited
with an FCM as margin, equal the total market value of the futures contract
underlying the call option. Alternatively, the Fund may cover its position by
entering into a long position in the same futures contract at a price no higher
than the strike price of the call option, by owning the instruments underlying
the futures contract, or by holding a separate call option permitting the Fund
to purchase the same futures contract at a price not higher than the strike
price of the call option sold by the Fund, or covering the difference if the
price is higher.
When selling a put option on a futures contract, the Fund will maintain
with its Custodian (and mark-to-market on a daily basis) cash or liquid
securities that equal the purchase price of the futures contract less any margin
on deposit. Alternatively, the Fund may cover the position either by entering
into a short position in the same futures contract, or by owning a separate put
option permitting it to sell the same futures contract so long as the strike
price of the purchased put option is the same or higher than the strike price of
the put option sold by the Fund, or, if lower, the Fund may hold securities to
cover the difference.
FOREIGN CURRENCY FUTURES CONTRACTS AND RELATED OPTIONS. The Fund may
engage in foreign currency futures contracts and related options transactions
for hedging purposes. A foreign currency futures contract provides for the
future sale by one party and purchase by another party of a specified quantity
of a foreign currency at a specified price and time.
An option on a foreign currency futures contract gives the holder the
right, in return for the premium paid, to assume a long position (call) or short
position (put) in a futures contract at a specified exercise price at any time
during the period of the option. Upon the exercise of a call option, the holder
acquires a long position in the futures contract and the writer is assigned the
opposite short position. In the case of a put option, the opposite is true.
The Fund may purchase call and put options on foreign currencies as a
hedge against changes in the value of the U.S. dollar (or another currency) in
relation to a foreign currency in which portfolio securities of the Fund may be
denominated. A call option on a foreign currency gives the buyer the right to
buy, and a put option the right to sell, a certain amount of foreign currency at
a specified price during a fixed period of time. The Fund may invest in options
on foreign currency which are either listed on a domestic securities exchange or
traded on a recognized foreign exchange.
In those situations where foreign currency options may not be readily
purchased (or where such options may be deemed illiquid) in the currency in
which the hedge is desired, the hedge may be obtained by purchasing an option on
a "surrogate" currency, i.e., a currency where there is tangible evidence of a
direct correlation in the trading value of the two currencies. A surrogate
currency's exchange rate movements parallel that of the primary currency.
Surrogate currencies are used to hedge an illiquid currency risk, when no liquid
hedge instruments exist in world currency markets for the primary currency.
The Fund will only enter into futures contracts and futures options
which are standardized and traded on a U.S. or foreign exchange, board of trade,
or similar entity or quoted on an automated quotation system. The Fund will not
enter into a futures contract or purchase an option thereon if, immediately
thereafter, the aggregate initial margin deposits for futures contracts held by
the Fund plus premiums paid by it for open futures option positions, less the
amount by which any such positions are "in-the-money," would exceed 5% of the
liquidation value of the Fund's portfolio (or the Fund's net asset value), after
taking into account unrealized profits and unrealized losses on any such
contracts the Fund has entered into. A call option is "in-the-money" if the
value of the futures contract that is the subject of the option exceeds the
exercise price. A put option is "in-the-money" if the exercise price exceeds the
value of the futures contract that is the subject of the option. For additional
information about margin deposits required with respect to futures contracts and
options thereon, see "Futures Contracts and Options on Futures Contracts."
RISKS ASSOCIATED WITH FUTURES AND RELATED OPTIONS. There can be no
guarantee that there will be a correlation between price movements in the
hedging vehicle and in the Fund's portfolio securities being hedged. In
addition, there are significant differences between the securities and futures
markets that could result in an imperfect correlation between the markets,
causing a given hedge not to achieve its objectives. The degree of imperfection
of correlation depends on circumstances such as variations in speculative market
demand for futures and futures options on securities, including technical
influences in futures trading and futures options, and differences between the
financial instruments being hedged and the instruments underlying the standard
contracts available for trading in such respects as interest rate levels,
maturities, and creditworthiness of issuers. A decision as to whether, when and
how to hedge involves the exercise of skill and judgment, and even a
well-conceived hedge may be unsuccessful to some degree because of market
behavior or unexpected interest rate trends.
Futures exchanges may limit the amount of fluctuation permitted in
certain futures contract prices during a single trading day. The daily limit
establishes the maximum amount that the price of a futures contract may vary
either up or down from the previous day's settlement price at the end of the
current trading session. Once the daily limit has been reached in a futures
contract subject to the limit, no more trades may be made on that day at a price
beyond that limit. The daily limit governs only price movements during a
particular trading day and therefore does not limit potential losses because the
limit may work to prevent the liquidation of unfavorable positions. For example,
futures prices have occasionally moved to the daily limit for several
consecutive trading days with little or no trading, thereby preventing prompt
liquidation of positions and subjecting some holders of futures contracts to
substantial losses.
There can be no assurance that a liquid market will exist at a time
when the Fund seeks to close out a futures or a futures option position, and the
Fund would remain obligated to meet margin requirements until the position is
closed. In addition, there can be no assurance that an active secondary market
will continue to exist.
Currency futures contracts and options thereon may be traded on foreign
exchanges. Such transactions may not be regulated as effectively as similar
transactions in the United States; may not involve a clearing mechanism and
related guarantees; and are subject to the risk of governmental actions
affecting trading in, or the prices of, foreign securities. The value of such
position also could be adversely affected by (i) other complex foreign
political, legal and economic factors, (ii) lesser availability than in the
United States of data on which to make trading decisions, (iii) delays in the
Fund's ability to act upon economic events occurring in foreign markets during
non business hours in the United States, (iv) the imposition of different
exercise and settlement terms and procedures and margin requirements than in the
United States, and (v) lesser trading volume.
SECURITIES INDEX FUTURES CONTRACTS
The Fund may enter into securities index futures contracts as an
efficient means of regulating the Fund's exposure to the equity markets. The
Fund will not engage in transactions in futures contracts for speculation, but
only as a hedge against changes resulting from market conditions in the values
of securities held in the Fund's portfolio or which it intends to purchase. An
index futures contract is a contract to buy or sell units of an index at a
specified future date at a price agreed upon when the contract is made. Entering
into a contract to buy units of an index is commonly referred to as purchasing a
contract or holding a long position in the index. Entering into a contract to
sell units of an index is commonly referred to as selling a contract or holding
a short position. The value of a unit is the current value of the stock index.
For example, the S&P 500 Index is composed of 500 selected common stocks, most
of which are listed on the New York Stock Exchange (the "Exchange"). The S&P 500
Index assigns relative weightings to the 500 common stocks included in the
Index, and the Index fluctuates with changes in the market values of the shares
of those common stocks. In the case of the S&P 500 Index, contracts are to buy
or sell 500 units. Thus, if the value of the S&P 500 Index were $150, one
contract would be worth $75,000 (500 units x $150). The index futures contract
specifies that no delivery of the actual securities making up the index will
take place. Instead, settlement in cash must occur upon the termination of the
contract, with the settlement being the difference between the contract price
and the actual level of the stock index at the expiration of the contract. For
example, if the Fund enters into a futures contract to buy 500 units of the S&P
500 Index at a specified future date at a contract price of $150 and the S&P 500
Index is at $154 on that future date, the Fund will gain $2,000 (500 units x
gain of $4). If the Fund enters into a futures contract to sell 500 units of the
stock index at a specified future date at a contract price of $150 and the S&P
500 Index is at $154 on that future date, the Fund will lose $2,000 (500 units x
loss of $4).
RISKS OF SECURITIES INDEX FUTURES. The Fund's success in using hedging
techniques depends, among other things, on IMI's ability to predict correctly
the direction and volatility of price movements in the futures and options
markets as well as in the securities markets and to select the proper type, time
and duration of hedges. The skills necessary for successful use of hedges are
different from those used in the selection of individual stocks.
The Fund's ability to hedge effectively all or a portion of its
securities through transactions in index futures (and therefore the extent of
its gain or loss on such transactions) depends on the degree to which price
movements in the underlying index correlate with price movements in the Fund's
securities. Inasmuch as such securities will not duplicate the components of an
index, the correlation probably will not be perfect. Consequently, the Fund will
bear the risk that the prices of the securities being hedged will not move in
the same amount as the hedging instrument. This risk will increase as the
composition of the Fund's portfolio diverges from the composition of the hedging
instrument.
Although the Fund intends to establish positions in these instruments
only when there appears to be an active market, there is no assurance that a
liquid market will exist at a time when the Fund seeks to close a particular
option or futures position. Trading could be interrupted, for example, because
of supply and demand imbalances arising from a lack of either buyers or sellers.
In addition, the futures exchanges may suspend trading after the price has risen
or fallen more than the maximum amount specified by the exchange. In some cases,
the Fund may experience losses as a result of its inability to close out a
position, and it may have to liquidate other investments to meet its cash needs.
Although some index futures contracts call for making or taking
delivery of the underlying securities, generally these obligations are closed
out prior to delivery by offsetting purchases or sales of matching futures
contracts (same exchange, underlying security or index, and delivery month). If
an offsetting purchase price is less than the original sale price, the Fund
generally realizes a capital gain, or if it is more, the Fund generally realizes
a capital loss. Conversely, if an offsetting sale price is more than the
original purchase price, the Fund generally realizes a capital gain, or if it is
less, the Fund generally realizes a capital loss.
The transaction costs must also be included in these calculations.
The Fund will only enter into index futures contracts or futures
options that are standardized and traded on a U.S. or foreign exchange or board
of trade, or similar entity, or quoted on an automated quotation system. The
Fund will use futures contracts and related options only for "bona fide hedging"
purposes, as such term is defined in applicable regulations of the CFTC.
When purchasing an index futures contract, the Fund will maintain with
its Custodian (and mark-to-market on a daily basis) cash or liquid securities
that, when added to the amounts deposited with a futures commission merchant
("FCM") as margin, are equal to the market value of the futures contract.
Alternatively, the Fund may "cover" its position by purchasing a put option on
the same futures contract with a strike price as high as or higher than the
price of the contract held by the Fund.
When selling an index futures contract, the Fund will maintain with its
Custodian (and mark-to-market on a daily basis) cash or liquid securities that,
when added to the amounts deposited with an FCM as margin, are equal to the
market value of the instruments underlying the contract. Alternatively, the Fund
may "cover" its position by owning the instruments underlying the contract (or,
in the case of an index futures contract, a portfolio with a volatility
substantially similar to that of the index on which the futures contract is
based), or by holding a call option permitting the Fund to purchase the same
futures contract at a price no higher than the price of the contract written by
the Fund (or at a higher price if the difference is maintained in cash or liquid
assets in a segregated account with the Fund's custodian).
COMBINED TRANSACTIONS. The Fund may enter into multiple transactions,
including multiple options transactions, multiple futures transactions and
multiple currency transactions (including forward currency contracts) and some
combination of futures, options and currency transactions ("component"
transactions), instead of a single transaction, as part of a single or combined
strategy when, in the opinion of IMI, it is in the best interests of the Fund to
do so. A combined transaction will usually contain elements of risk that are
present in each of its component transactions. Although combined transactions
are normally entered into based on IMI's judgment that the combined strategies
will reduce risk or otherwise more effectively achieve the desired portfolio
management goal, it is possible that the combination will instead increase such
risks or hinder achievement of the management objective.
INVESTMENT RESTRICTIONS
The Fund's investment objective, as set forth in the "Summary" section
of the Prospectus, and the investment restrictions set forth below are
fundamental policies of the Fund and may not be changed without the approval of
a majority (as defined in the 1940 Act) of the Fund's outstanding voting shares.
Under these restrictions, the Fund may not:
(i) borrow money, except as a temporary measure for extraordinary
or emergency purposes, and provided that the Fund maintains
asset coverage of 300% for all borrowings;
(ii) purchase securities on margin;
(iii) sell securities short, except for short sales "against the box";
(iv) lend any funds or other assets, except that this restriction
shall not prohibit (a) the entry into repurchase agreements, (b)
the purchase of publicly distributed bonds, debentures and other
securities of a similar type, or privately placed municipal or
corporate bonds, debentures and other securities of a type
customarily purchased by institutional investors or publicly
traded in the securities markets, or (c) the lending of portfolio
securities (provided that the loan is secured continuously by
collateral consisting of U.S. Government securities or cash or
cash equivalents maintained on a daily marked-to-market basis in
an amount at least equal to the market value of the securities
loaned;
(v) participate in an underwriting or selling group in connection
with the public distribution of securities, except for its own
capital stock, and except to the extent that, in connection
with the disposition of portfolio securities, it may be deemed
to be an underwriter under the Federal securities laws;
(vi) purchase from or sell to any of its officers or trustees, or
firms of which any of them are members or which they control,
any securities (other than capital stock of the Fund), but
such persons or firms may act as brokers for the Fund for
customary commissions to the extent permitted by the 1940 Act;
(vii) purchase or sell real estate or commodities and commodity
contracts, provided however, that the Fund may purchase
securities secured by real estate or interests therein, or
securities issued by companies that invest in real estate or
interests therein, and except that, subject to the policies
and restrictions set forth in the Prospectus and elsewhere in
this SAI, (i) the Fund may enter into futures contracts, and
options thereon, and (ii) the Fund may enter into forward
foreign currency contracts and currency futures contracts, and
options thereon;
(viii) make an investment in securities of companies in any one
industry (except obligations of domestic banks or the U.S.
Government, its agencies, authorities, or instrumentalities)
if such investment would cause investments in such industry to
exceed 25% of the market value of the Fund's total assets at
the time of such investment;
(ix) issue senior securities, except as appropriate to evidence
indebtedness which it is permitted to incur, and except to the
extent that shares of the separate classes or series of the
Trust may be deemed to be senior securities; provided that
collateral arrangements with respect to currency-related
contracts, futures contracts, options or other permitted
investments, including deposits of initial and variation
margin, are not considered to be the issuance of senior
securities for purposes of this restriction; or
(x) purchase securities of any one issuer (except U.S. Government
securities) if as a result more than 5% of the Fund's total
assets would be invested in such issuer or the Fund would
owner hold more than 10% of the outstanding voting securities
of that issuer; provided, however, that up to 25% of the value
of the Fund's total assets may be invested without regard to
these limitations.
Under the 1940 Act, the Fund is permitted, subject to the above
investment restrictions, to borrow money only from banks. The Trust has no
current intention of borrowing amounts in excess of 5% of the Fund's assets. The
Fund will continue to interpret fundamental investment restriction (vii) to
prohibit investment in real estate limited partnership interests; this
restriction shall not, however, prohibit investment readily marketable
securities of companies that invest in real estate or interests therein,
including real estate investment trusts.
ADDITIONAL RESTRICTIONS
Unless otherwise indicated, the Fund has adopted the following
additional restrictions, which are not fundamental and which may be changed
without shareholder approval to the extent permitted by applicable law,
regulation or regulatory policy. Under these restrictions, the Fund may not:
(i) invest in oil, gas or other mineral leases or exploration or
development programs;
(ii) invest in companies for the purpose of exercising control management;
(iii) invest more than 5% of its total assets in warrants, valued at
the lower of cost or market, or more than 2% of its total
assets in warrants, so valued, which are not listed on either
the New York or American Stock Exchanges;
(iv) invest more than 15% of its net assets taken at market value at the
time of investment in "illiquid securities." Illiquid securities may include
securities subject to legal or contractual restrictions on resale (including
private placements), repurchase agreements maturing in more than seven days,
certain options traded over the counter that the Fund has purchased, securities
being used to cover certain options that a Fund has written, securities for
which market quotations are not readily available, or other securities which
legally or in IMI's opinion, subject to the Board's supervision, may be deemed
illiquid, but shall not include any instrument that, due to the existence of a
trading market, to the Fund's compliance with certain conditions intended to
provide liquidity, or to other factors, is liquid.
Whenever an investment objective, policy or restriction set forth in
the Prospectus or this SAI states a maximum percentage of assets that may be
invested in any security or other asset or describes a policy regarding quality
standards, such percentage limitation or standard shall, unless otherwise
indicated, apply to the Fund only at the time a transaction is entered into.
Accordingly, if a percentage limitation is adhered to at the time of investment,
a later increase or decrease in the percentage which results from circumstances
not involving any affirmative action by the Fund, such as a change in market
conditions or a change in the Fund's asset level or other circumstances beyond
the Fund's control, will not be considered a violation.
PORTFOLIO TURNOVER
The Fund purchases securities that are believed by IMI to have above
average potential for capital appreciation. Common stocks are disposed of in
situations where it is believed that potential for such appreciation has
lessened or that other common stocks have a greater potential. Therefore, the
Fund may purchase and sell securities without regard to the length of time the
security is to be, or has been, held. A change in securities held by the Fund is
known as "portfolio turnover" and may involve the payment by the Fund of dealer
markup or underwriting commission and other transaction costs on the sale of
securities, as well as on the reinvestment of the proceeds in other securities.
The Fund's portfolio turnover rate is calculated by dividing the lesser of
purchases or sales of portfolio securities for the most recently completed
fiscal year by the monthly average of the value of the portfolio securities
owned by the Fund during that year. For purposes of determining the Fund's
portfolio turnover rate, all securities whose maturities at the time of
acquisition were one year or less are excluded.
TRUSTEES AND OFFICERS
The Fund's Board of Trustees (the "Board") is responsible for the
overall management of the Fund, including general supervision and review of the
Fund's investment activities. The Board, in turn, elects the officers who are
responsible for administering the Fund's day-to-day operations.
The Trustees and Executive Officers of the Trust, their business
addresses and principal occupations during the past five years are:
POSITION WITH BUSINESS AFFILIATIONS
NAME, ADDRESS, AGE THE TRUST AND PRINCIPAL OCCUPATIONS
John S. Anderegg, Jr. Trustee Chairman, Dynamics Research
60 Concord Street Corp. (instruments and controls);
Wilmington, MA 01887 Director, Burr-Brown Corp.
Age: 74 (operational amplifiers); Director,
Metritage Incorporated (level
measuring instruments); Trustee of
Mackenzie Series Trust (1992-1998).
Paul H. Broyhill Trustee Chairman, BMC Fund, Inc.
800 Hickory Blvd. (1983-present); Chairman,
Golfview Park-Box 500 Broyhill Family Foundation,
Lenoir, NC 28645 Inc. (1983-Present); Chairman and
Age: 74 President, Broyhill Investments,
Inc. (1983-present); Chairman,
Broyhill Timber Resources (1983-
present); Management of a personal
portfolio of fixed-income and equity
investments (1983-present); Trustee
of Mackenzie Series Trust (1988-
1998); Director of The Mackenzie
Funds Inc. (1988-1995).
Stanley Channick Trustee President and Chief
11 Bala Avenue Executive Officer, The
Bala Cynwyd, PA 19004 Whitestone Corporation
Age: 75 (insurance agency); Chairman, Scott
Management Company (administrative
services for insurance companies);
President, The Channick Group
(consultants to insurance companies
and national trade associations);
Trustee of Mackenzie Series Trust
(1994-1998); Director of The
Mackenzie Funds Inc. (1994-1995).
Frank W. DeFriece, Jr. Trustee Director, Manager and Vice
The Landmark Centre President, Director and
113 Landmark Lane, Fund Manager, Massengill-
Suite B DeFriece Foundation
Bristol, TN 37620-2285 (charitable organization)
Age: 77 (1950-present); Trustee and Vice
Chairman, East Tennessee Public
Communications Corp. (WSJK-TV)
(1984-present); Trustee of Mackenzie
Series Trust (1985-1998); Director
of The Mackenzie Funds Inc. (1987-
1995).
Roy J. Glauber Trustee Mallinckrodt Professor of
Lyman Laboratory Physics, Harvard
of Physics University (1974-present);
Harvard University Trustee of Mackenzie Series
Cambridge, MA 02138 Trust (1994-1997).
Age: 72
Michael G. Landry Trustee President, Chief Executive
700 South Federal Hwy. And Officer and Director of
Suite 300 Chairman Mackenzie Investment
Boca Raton, FL 33432 Management Inc. (1987-
Age: 51 present); President,
[*Deemed to be an Director and Chairman of
"interested person" Ivy Management Inc. (1992-
of the Trust, as present); Chairman and
defined under the Director of Ivy Mackenzie
1940 Act.] Services Corp.(1993-present);
Chairman and Director of Ivy
Mackenzie Distributors, Inc.
(1994-present); Director and
President of Ivy Mackenzie
Distributors, Inc. (1993-1994);
Director and President of The
Mackenzie Funds Inc. (1987-1995);
Trustee of Mackenzie Series Trust
(1987-1998); President of Mackenzie
Series Trust (1987-1996); Chairman
of Mackenzie Series Trust (1996-
1998).
Joseph G. Rosenthal Trustee Chartered Accountant
110 Jardin Drive (1958-present); Trustee of
Unit #12 Mackenzie Series Trust
Concord, Ontario Canada (1985-1998); Director of
L4K 2T7 The Mackenzie Funds Inc.
Age: 63 (1987-1995).
Richard N. Silverman Trustee Director, Newton-Wellesley
18 Bonnybrook Road Hospital; Director, Beth
Waban, MA 02168 Israel Hospital; Director,
Age: 74 Boston Ballet; Director, Boston
Children's Museum; Director, Brimmer
and May School.
J. Brendan Swan Trustee President, Airspray
4701 North Federal Hwy. International, Inc.;
Suite 465 Joint Managing Director,
Pompano Beach, FL 33064 Airspray International
Age: 67 B.V. (an environmentally sensitive
packaging company); Director of
Polyglass LTD.; Director, The
Mackenzie Funds Inc. (1992-1995);
Trustee of Mackenzie Series Trust
(1992-1998).
Keith J. Carlson Trustee Senior Vice President of Mackenzie
700 South Federal Hwy. And Investment Management, Inc. (1996 -
Suite 300 President -present); Senior Vice President and
Boca Raton, FL 33432 Director of Mackenzie Investment
Age: 41 Management, Inc. (1994 - 1996);
[*Deemed to be an Senior Vice President and Treasurer
"interested person" of Mackenzie Investment Management,
of the Trust, Inc. (1989-1994); Senior Vice President
as defined under President and Director of Ivy
the 1940 Act.] Management Inc. (1994-present);
Senior Vice President, Treasurer and
Director of Ivy Management Inc.
(1992-1994); Vice President of The
Mackenzie Funds Inc. (1987-1995);
Senior Vice President and Director,
Ivy Mackenzie Services Corp. (1996-
present); President and Director of
Ivy Mackenzie Services Corp. (1993-
1996); Trustee and President of
Mackenzie Series Trust (1996-1998);
Vice President of Mackenzie Series
Trust (1994-1998); Treasurer of
Mackenzie Series Trust (1985-1994);
President, Chief Executive Officer
and Director of Ivy Mackenzie
Distributors, Inc. (1994-present);
Executive Vice President and
Director of Ivy Mackenzie
Distributors, Inc. (1993-1994);
Trustee of Mackenzie Series Trust
(1996-1998).
C. William Ferris Secretary/ Senior Vice President,
700 South Federal Hwy. Treasurer Chief Financial Officer
Suite 300 and Secretary/Treasurer
Boca Raton, FL 33432 of Mackenzie Investment
Age: 53 Management Inc. (1995-present);
Senior Vice President, Finance and
Administration/Compliance Officer of
Mackenzie Investment Management Inc.
(1989-1994); Senior Vice President,
Secretary/ Treasurer and Clerk of
Ivy Management Inc. (1994-present);
Vice President, Finance/
Administration and Compliance
Officer of Ivy Management Inc.
(1992-1994); Senior Vice President,
Secretary/Treasurer and Director of
Ivy Mackenzie Distributors, Inc.
(1994-present); Secretary/Treasurer
and Director of Ivy Mackenzie
Distributors, Inc. (1993-1994);
President and Director of Ivy
Mackenzie Services Corp.
(1996-present); Secretary/Treasurer
and Director of Ivy Mackenzie
Services Corp. (1993-1996);
Secretary/Treasurer
of The Mackenzie Funds Inc.
(1993-1995); Secretary/Treasurer of
Mackenzie Series Trust (1994-1998).
James W. Broadfoot Vice Executive Vice President,
700 South Federal Hwy. President Ivy Management Inc. (1996-
Suite 300 present); Senior Vice
Boca Raton, FL 33432 President, Ivy Management,
Age: 56 Inc. (1992-1996); Director and
Senior Vice President, Mackenzie
Investment Management Inc. (1995-
present); Senior Vice President,
Mackenzie Investment Management Inc.
(1990-1995).
COMPENSATION TABLE
IVY FUND
(FISCAL YEAR ENDED DECEMBER 31, 1998)
PENSION OR TOTAL COMPENSA-
AGGREGATE RETIREMENT ESTIMATED TION FROM TRUST
NAME, COMPENSATION BENEFITS ACCRUED ANNUAL AND FUND
POSITION FROM TRUST AS PART OF BENEFITS UPON COMPLEX PAID TO
FUND EXPENSES RETIREMENT TRUSTEES
John S. N/A N/A
Anderegg, Jr.
(Trustee)
Paul H. N/A N/A
Broyhill
(Trustee)
Keith J. $0 N/A N/A $0
Carlson
(Trustee and
President)
Stanley N/A N/A
Channick
(Trustee)
Frank W. N/A N/A
DeFriece, Jr.
(Trustee)
Roy J. N/A N/A
Glauber
(Trustee)
Michael G. $0 N/A N/A $0
Landry
(Trustee and
Chairman of
the Board)
Joseph G. N/A N/A
Rosenthal
(Trustee)
Richard N. N/A N/A
Silverman
(Trustee)
J. Brendan N/A N/A
Swan
(Trustee)
C. William $0 N/A N/A $0
Ferris
(Secretary/
Treasurer)
To the knowledge of the Trust, as of [ ], no shareholder owned
beneficially or of record 5% or more of the Fund's outstanding shares of any
class, except that [to be completed by amendment].
As of [ ], the Officers and Trustees of the Trust as a group owned
beneficially or of record less than 1% of the outstanding Class A, Class B,
Class C, Class I and Advisor Class shares of the Fund.
PERSONAL INVESTMENTS BY EMPLOYEES OF IMI. Employees of IMI are
permitted to make personal securities transactions, subject to the requirements
and restrictions set forth in IMI's Code of Ethics and Business Conduct Policy
(the "Code of Ethics"). The Code of Ethics is designed to identify and address
certain conflicts of interest between personal investment activities and the
interests of investment advisory clients such as the Fund. Among other things,
the Code of Ethics, which generally complies with standards recommended by the
Investment Company Institute's Advisory Group on Personal Investing, prohibits
certain types of transactions absent prior approval, applies to portfolio
managers, traders, research analysts and others involved in the investment
advisory process, and imposes time periods during which personal transactions
may not be made in certain securities, and requires the submission of duplicate
broker confirmations and monthly reporting of securities transactions.
Exceptions to these and other provisions of the Code of Ethics may be granted in
particular circumstances after review by appropriate personnel.
INVESTMENT ADVISORY AND OTHER SERVICES
BUSINESS MANAGEMENT AND INVESTMENT ADVISORY SERVICES
IMI provides business management and investment advisory services to
the Fund pursuant to a Business Management and Investment Advisory Agreement
(the "Agreement"). The Agreement was approved by the sole shareholder of the
Fund on July 16, 1996. Prior to shareholder approval, the Agreement was approved
with respect to the Fund by the Board, including a majority of the Trustees who
are neither "interested persons" (as defined in the 1940 Act) of the Trust nor
have any direct or indirect financial interest in the operation of the
distribution plan (see "Distribution Services") or in any related agreement (the
"Independent Trustees") at a meeting held on June 8, 1996.
IMI is a wholly owned subsidiary of Mackenzie Investment Management
Inc. ("MIMI"). MIMI, a Delaware corporation, has approximately 10% of its
outstanding common stock listed for trading on the Toronto Stock Exchange
("TSE"). MIMI is a subsidiary of Mackenzie Financial Corporation ("MFC"), 150
Bloor Street West, Toronto, Ontario, Canada, a public corporation organized
under the laws of Ontario whose shares are listed for trading on the TSE. MFC is
registered in Ontario as a mutual fund dealer and advises Ivy Global Natural
Resources Fund. IMI currently acts as manager and investment adviser to the
following additional investment companies registered under the 1940 Act (other
than the Fund): Ivy Asia Pacific Fund, Ivy Bond Fund, Ivy China Region Fund, Ivy
Developing Nations Fund, Ivy European Opportunities Fund, Ivy Global Fund, Ivy
Growth Fund, Ivy Growth with Income Fund, Ivy International Fund II, Ivy
International Fund, Ivy International Small Companies Fund, Ivy International
Strategic Bond Fund, Ivy Money Market Fund, Ivy Pan-Europe Fund, Ivy South
America Fund, Ivy US Blue Chip Fund, and Ivy US Emerging Growth Fund. IMI also
provides business management services to Ivy Global Natural Resources Fund.
The Agreement obligates IMI to make investments for the account of the
Fund in accordance with its best judgment and within the investment objectives
and restrictions set forth in the Prospectus, the 1940 Act and the provisions of
the Code relating to regulated investment companies, subject to policy decisions
adopted by the Board. IMI also determines the securities to be purchased or sold
by the Fund and places orders with brokers or dealers who deal in such
securities.
Under the Agreement, IMI also provides certain business management
services. IMI is obligated to (1) coordinate with the Fund's Custodian and
monitor the services it provides to the Fund; (2) coordinate with and monitor
any other third parties furnishing services to the Fund; (3) provide the Fund
with necessary office space, telephones and other communications facilities as
are adequate for the Fund's needs; (4) provide the services of individuals
competent to perform administrative and clerical functions that are not
performed by employees or other agents engaged by the Fund or by IMI acting in
some other capacity pursuant to a separate agreement or arrangements with the
Fund; (5) maintain or supervise the maintenance by third parties of such books
and records of the Trust as may be required by applicable Federal or state law;
(6) authorize and permit IMI's directors, officers and employees who may be
elected or appointed as trustees or officers of the Trust to serve in such
capacities; and (7) take such other action with respect to the Trust, after
approval by the Trust as may be required by applicable law, including without
limitation the rules and regulations of the SEC and of state securities
commissions and other regulatory agencies.
The Fund pays IMI a monthly fee for providing business management and
investment advisory services at an annual rate of 1.00% of the Fund's average
net assets.
During the period from July 22, 1996 (commencement of operations) to
December 31, 1996, and during the fiscal years ended December 31, 1997 and 1998,
the Fund paid IMI fees of $20,965, $229,616 and [ ], respectively (of which IMI
reimbursed $14,813, $0 and [ ], respectively, pursuant to expense limitations).
Under the Agreement, the Trust pays the following expenses: (1) the
fees and expenses of the Trust's Independent Trustees; (2) the salaries and
expenses of any of the Trust's officers or employees who are not affiliated with
IMI; (3) interest expenses; (4) taxes and governmental fees, including any
original issue taxes or transfer taxes applicable to the sale or delivery of
shares or certificates therefor; (5) brokerage commissions and other expenses
incurred in acquiring or disposing of portfolio securities; (6) the expenses of
registering and qualifying shares for sale with the SEC and with various state
securities commissions; (7) accounting and legal costs; (8) insurance premiums;
(9) fees and expenses of the Trust's Custodian and Transfer Agent and any
related services; (10) expenses of obtaining quotations of portfolio securities
and of pricing shares; (11) expenses of maintaining the Trust's legal existence
and of shareholders' meetings; (12) expenses of preparation and distribution to
existing shareholders of periodic reports, proxy materials and prospectuses; and
(13) fees and expenses of membership in industry organizations.
IMI currently limits the Fund's total operating expenses (excluding
Rule 12b-1 fees, interest, taxes, brokerage commissions, litigation,
class-specific expenses, indemnification expenses, and extraordinary expenses)
to an annual rate of 1.95% of the Fund's average net assets, which may lower the
Fund's expenses and increase its yield.
The Agreement will continue in effect with respect to the Fund from
year to year, only so long as the continuance is specifically approved at least
annually (i) by the vote of a majority of the Independent Trustees and (ii)
either (a) by the vote of a majority of the outstanding voting securities (as
defined in the 1940 Act) of the Fund or (b) by the vote of a majority of the
entire Board. If the question of continuance of the Agreement (or adoption of
any new agreement) is presented to the shareholders, continuance (or adoption)
shall be effected only if approved by the affirmative vote of a majority of the
outstanding voting securities of the Fund. See "Capitalization and Voting
Rights."
The Agreement may be terminated with respect to the Fund at any time,
without payment of any penalty, by the vote of a majority of the Board, or by a
vote of a majority of the outstanding voting securities of the Fund, on 60 days'
written notice to IMI, or by IMI on 60 days' written notice to the Trust. The
Agreement shall terminate automatically in the event of its assignment.
DISTRIBUTION SERVICES
IMDI, a wholly owned subsidiary of MIMI, serves as the exclusive
distributor of Ivy Fund's shares pursuant to an Amended and Restated
Distribution Agreement with the Trust dated , 1999, as amended from time to time
(the "Distribution Agreement"). The Distribution Agreement was approved by the
Board on September 17, 1998. IMDI distributes shares of the Fund through
broker-dealers who are members of the National Association of Securities
Dealers, Inc. and who have executed dealer agreements with IMDI. IMDI
distributes shares of the Fund on a continuous basis, but reserves the right to
suspend or discontinue distribution on that basis. IMDI is not obligated to sell
any specific amount of Fund shares.
Pursuant to the Distribution Agreement, IMDI is entitled to deduct a
commission on all Class A Fund shares sold equal to the difference, if any,
between the public offering price, as set forth in the Fund's then-current
prospectus, and the net asset value on which such price is based. Out of that
commission, IMDI may reallow to dealers such concession as IMDI may determine
from time to time. In addition, IMDI is entitled to deduct a CDSC on the
redemption of Class A shares sold without an initial sales charge and Class B
and Class C shares, in accordance with, and in the manner set forth in, the
Prospectus.
Under the Distribution Agreement, the Fund bears, among other expenses,
the expenses of registering and qualifying its shares for sale under Federal and
state securities laws and preparing and distributing to existing shareholders
periodic reports, proxy materials and prospectuses.
During the fiscal year ended December 31, 1998, IMDI received from
sales of Class A shares of the Fund [ ] in sales commissions, of which [ ] was
retained after dealer allowances. During the fiscal year ended December 31,
1998, IMDI received [ ] in CDSCs on redemptions of Class B shares of the Fund.
During the fiscal year ended December 31, 1998, IMDI received [ ] in CDSCs on
redemptions of Class C shares of the Fund.
The Distribution Agreement will continue in effect for successive
one-year periods, provided that such continuance is specifically approved at
least annually by the vote of a majority of the Independent Trustees, cast in
person at a meeting called for that purpose and by the vote of either a majority
of the entire Board or a majority of the outstanding voting securities of the
Fund. The Distribution Agreement may be terminated with respect to the Fund at
any time, without payment of any penalty, by IMDI on 60 days' written notice to
the Fund or by the Fund by vote of either a majority of the outstanding voting
securities of the Fund or a majority of the Independent Trustees on 60 days'
written notice to IMDI. The Distribution Agreement shall terminate automatically
in the event of its assignment.
RULE 18F-3 PLAN. On February 23, 1995, the SEC adopted Rule 18f-3 under
the 1940 Act, which permits a registered open-end investment company to issue
multiple classes of shares in accordance with a written plan approved by the
investment company's board of directors/trustees and filed with the SEC. At a
meeting held on June 8, 1996, the Board adopted a Rule 18f-3 plan on behalf of
the Fund. The Board last approved the Rule 18f-3 plan at a meeting held of
December 5-6, 1997. The key features of the Rule 18f-3 plan are as follows: (i)
shares of each class of the Fund represent an equal pro rata interest in the
Fund and generally have identical voting, dividend, liquidation, and other
rights, preferences, powers, restrictions, limitations, qualifications, terms
and conditions, except that each class bears certain class-specific expenses and
has separate voting rights on certain matters that relate solely to that class
or in which the interests of shareholders of one class differ from the interests
of shareholders of another class; (ii) subject to certain limitations described
in the Prospectus, shares of a particular class of the Fund may be exchanged for
shares of the same class of another Ivy fund; and (iii) the Fund's Class B
shares will convert automatically into Class A shares of the Fund after a period
of eight years, based on the relative net asset value of such shares at the time
of conversion.
RULE 12B-1 DISTRIBUTION PLANS. The Trust has adopted on behalf of the
Fund, in accordance with Rule 12b-1 under the 1940 Act, separate Rule 12b-1
distribution plans pertaining to the Fund's Class A, Class B and Class C shares
(each, a "Plan"). In adopting each Plan, a majority of the Independent Trustees
have concluded in accordance with the requirements of Rule 12b-1 that there is a
reasonable likelihood that each Plan will benefit the Fund and its shareholders.
The Trustees of the Trust believe that the Plans should result in greater sales
and/or fewer redemptions of the Fund's shares, although it is impossible to know
for certain the level of sales and redemptions of the Fund's shares in the
absence of a Plan or under an alternative distribution arrangement.
Under each Plan, the Fund pays IMDI a service fee, accrued daily and
paid monthly, at the annual rate of up to 0.25% of the average daily net assets
attributable to its Class A, Class B or Class C shares, as the case may be. The
services for which service fees may be paid include, among other things,
advising clients or customers regarding the purchase, sale or retention of
shares of the Fund, answering routine inquiries concerning the Fund and
assisting shareholders in changing options or enrolling in specific plans.
Pursuant to each Plan, service fee payments made out of or charged against the
assets attributable to the Fund's Class A, Class B or Class C shares must be in
reimbursement for services rendered for or on behalf of the affected class. The
expenses not reimbursed in any one month may be reimbursed in a subsequent
month. The Class A Plan does not provide for the payment of interest or carrying
charges as distribution expenses.
Under the Fund's Class B and Class C Plans, the Fund also pays IMDI a
distribution fee, accrued daily and paid monthly, at the annual rate of 0.75% of
the average daily net assets attributable to its Class B or Class C shares. IMDI
may reallow to dealers all or a portion of the service and distribution fees as
IMDI may determine from time to time. The distribution fee compensates IMDI for
expenses incurred in connection with activities primarily intended to result in
the sale of the Fund's Class B or Class C shares, including the printing of
prospectuses and reports for persons other than existing shareholders and the
preparation, printing and distribution of sales literature and advertising
materials. Pursuant to each Class B and Class C Plan, IMDI may include interest,
carrying or other finance charges in its calculation of distribution expenses,
if not prohibited from doing so pursuant to an order of or a regulation adopted
by the SEC.
Among other things, each Plan provides that (1) IMDI will submit to the
Board at least quarterly, and the Trustees will review, written reports
regarding all amounts expended under the Plan and the purposes for which such
expenditures were made; (2) each Plan will continue in effect only so long as
such continuance is approved at least annually, and any material amendment
thereto is approved, by the votes of a majority of the Board, including the
Independent Trustees, cast in person at a meeting called for that purpose; (3)
payments by the Fund under each Plan shall not be materially increased without
the affirmative vote of the holders of a majority of the outstanding shares of
the relevant class; and (4) while each Plan is in effect, the selection and
nomination of Independent Trustees shall be committed to the discretion of the
Trustees who are not "interested persons" of the Trust.
IMDI may make payments for distribution assistance and for
administrative and accounting services from resources that may include the
management fees paid by the Fund. IMDI also may make payments (such as the
service fee payments described above) to unaffiliated broker-dealers for
services rendered in the distribution of the Fund's shares. To qualify for such
payments, shares may be subject to a minimum holding period. However, no such
payments will be made to any dealer or broker if at the end of each year the
amount of shares held does not exceed a minimum amount. The minimum holding
period and minimum level of holdings will be determined from time to time by
IMDI.
A report of the amount expended pursuant to each Plan, and the purposes
for which such expenditures were incurred, must be made to the Board for its
review at least quarterly.
During the fiscal year ended December 31, 1998, the Fund paid IMDI [ ]
pursuant to its Class A plan. During the fiscal year ended December 31, 1998 the
Fund paid IMDI [ ] pursuant to its Class B plan. During the fiscal year ended
December 31, 1998, the Fund paid IMDI [ ] pursuant to its Class C plan.
During the fiscal year ended December 31, 1998, IMDI expended the
following amounts in marketing Class A shares of the Fund: advertising [$ ;]
printing and mailing of prospectuses to persons other than current shareholders,
[$ ;] compensation to dealers, [$ ;] compensation to sales personnel [$ ;]
seminars and meetings, [$ ;] travel and entertainment, [$ ;] general and
administrative, [$ ;] telephone, [$ ;] and occupancy and equipment rental, [$ ].
During the fiscal year ended December 31, 1998, IMDI expended the
following amounts in marketing Class B shares of the Fund: advertising, [$ ;]
printing and mailing of prospectuses to persons other than current shareholders,
[$ ;] compensation to dealers, [$ ;] compensation to sales personnel, [$ ;]
seminars and meetings, [$ ;] travel and entertainment, [$ ;] general and
administrative, [$ ;] telephone, [$ ;] and occupancy and equipment rental [$ .]
During the fiscal year ended December 31, 1998, IMDI expended the
following amounts in marketing Class C shares of the Fund: advertising, [$ ;]
printing and mailing of prospectuses to persons other than current shareholders,
[$ ;] compensation to dealers, [$ ] compensation to sales personnel, [$ ;]
seminars and meetings, [$ ;] travel and entertainment, [$ ;] general
administrative, [$ ;] telephone, [$ ;] and occupancy and equipment rental, [$ .]
Each Plan may be amended at any time with respect to the class of
shares of the Fund to which the Plan relates by vote of the Trustees, including
a majority of the Independent Trustees, cast in person at a meeting called for
the purpose of considering such amendment. Each Plan may be terminated at any
time with respect to the class of shares of the Fund to which the Plan relates,
without payment of any penalty, by vote of a majority of the Independent
Trustees, or by vote of a majority of the outstanding voting securities of that
class.
If the Distribution Agreement or the Distribution Plans are terminated
(or not renewed) with respect to any of the Ivy funds (or class of shares
thereof), each may continue in effect with respect to any other fund (or Class
of shares thereof) as to which they have not been terminated (or have been
renewed).
CUSTODIAN
Pursuant to a Custodian Agreement with the Trust, Brown Brothers
Harriman & Co. (the "Custodian"), a private bank and member of the principal
securities exchanges, located at 40 Water Street, Boston, Massachusetts 02109
(the "Custodian"), maintains custody of the assets of the Fund held in the
United States. Rules adopted under the 1940 Act permit the Trust to maintain its
foreign securities and cash in the custody of certain eligible foreign banks and
securities depositories. Pursuant to those rules, the Custodian has entered into
subcustodial agreements for the holding of the Fund's foreign securities. With
respect to the Fund, the Custodian may receive, as partial payment for its
services to the Fund, a portion of the Trust's brokerage business, subject to
its ability to provide best price and execution.
FUND ACCOUNTING SERVICES
Pursuant to a Fund Accounting Services Agreement, MIMI provides certain
accounting and pricing services for the Fund. As compensation for those
services, the Fund pays MIMI a monthly fee plus out-of-pocket expenses as
incurred. The monthly fee is based upon the net assets of the Fund at the
preceding month end at the following rates: $1,250 when net assets are $10
million and under; $2,500 when net assets are over $10 million to $40 million;
$5,000 when net assets are over $40 million to $75 million; and $6,500 when net
assets are over $75 million.
During the fiscal year ended December 31, 1998, the Fund paid MIMI
[ ] under the agreement.
TRANSFER AGENT AND DIVIDEND PAYING AGENT
Pursuant to a Transfer Agency and Shareholder Service Agreement, Ivy
Mackenzie Services Corp. ("IMSC"), a wholly owned subsidiary of MIMI, is the
transfer agent for the Fund. Under the Agreement, the Fund pays a monthly fee at
an annual rate of $20.00 for each open Class A, Class B, Class C and Advisor
Class account. The Fund pays $10.25 per open Class I account. In addition, the
Fund pays a monthly fee at an annual rate of $4.58 per account that is closed
plus certain out-of-pocket expenses. Such fees and expenses for the fiscal year
ended December 31, 1998 for the Fund totaled [$ ]. Certain broker-dealers that
maintain shareholder accounts with the Fund through an omnibus account provide
transfer agent and other shareholder-related services that would otherwise be
provided by IMSC if the individual accounts that comprise the omnibus account
were opened by their beneficial owners directly. IMSC pays such broker-dealers a
per account fee for each open account within the omnibus account, or a fixed
rate (e.g., 0.10%) fee, based on the average daily net asset value of the
omnibus account (or a combination thereof).
ADMINISTRATOR
Pursuant to an Administrative Services Agreement, MIMI provides certain
administrative services to the Fund. As compensation for these services, the
Fund (except with respect to its Class I shares) pays MIMI a monthly fee at the
annual rate of 0.10% of the Fund's average daily net assets. The Fund pays MIMI
a monthly fee at the annual rate of 0.01% of its average daily net assets for
Class I. Such fees for the fiscal year ended December 31, 1998 for the Fund
totaled [$ ].
Outside of providing administrative services to the Trust, as described
above, MIMI may also act on behalf of IMDI in paying commissions to
broker-dealers with respect to sales of Class B and Class C shares of the Fund.
AUDITORS
[ ], independent public accountants, has been selected as auditors for
the Trust. The audit services performed by [ ] include audits of the annual
financial statements of each of the funds of the Trust. Other services provided
principally relate to filings with the SEC and the preparation of the funds' tax
returns.
BROKERAGE ALLOCATION
Subject to the overall supervision of the President and the Board, IMI
places orders for the purchase and sale of the Fund's portfolio securities. All
portfolio transactions are effected at the best price and execution obtainable.
Purchases and sales of debt securities are usually principal transactions and
therefore, brokerage commissions are usually not required to be paid by the Fund
for such purchases and sales (although the price paid generally includes
undisclosed compensation to the dealer). The prices paid to underwriters of
newly-issued securities usually include a concession paid by the issuer to the
underwriter, and purchases of after-market securities from dealers normally
reflect the spread between the bid and asked prices. In connection with OTC
transactions, IMI attempts to deal directly with the principal market makers,
except in those circumstances where IMI believes that a better price and
execution are available elsewhere.
IMI selects broker-dealers to execute transactions and evaluates the
reasonableness of commissions on the basis of quality, quantity, and the nature
of the firms' professional services. Commissions to be charged and the rendering
of investment services, including statistical, research, and counseling services
by brokerage firms, are factors to be considered in the placing of brokerage
business. The types of research services provided by brokers may include general
economic and industry data, and information on securities of specific companies.
Research services furnished by brokers through whom the Trust effects securities
transactions may be used by IMI in servicing all of its accounts. In addition,
not all of these services may be used by IMI in connection with the services it
provides to the Fund or the Trust. IMI may consider sales of shares of Ivy funds
as a factor in the selection of broker-dealers and may select broker-dealers who
provide it with research services. IMI will not, however, execute brokerage
transactions other than at the best price and execution.
During the period from July 22, 1996 (commencement of operations) to
December 31, 1996, and during the fiscal years ended December 31, 1997 and 1998,
the Fund paid brokerage commissions of $37,065, $99,546 and [ ], respectively.
The Fund may, under some circumstances, accept securities in lieu of
cash as payment for Fund shares. The Fund will accept securities only to
increase its holdings in a portfolio security or to take a new portfolio
position in a security that IMI deems to be a desirable investment for the Fund.
While no minimum has been established, it is expected that the Fund will not
accept securities having an aggregate value of less than $1 million. The Trust
may reject in whole or in part any or all offers to pay for the Fund shares with
securities and may discontinue accepting securities as payment for the Fund
shares at any time without notice. The Trust will value accepted securities in
the manner and at the same time provided for valuing portfolio securities of the
Fund, and the Fund shares will be sold for net asset value determined at the
same time the accepted securities are valued. The Trust will only accept
securities delivered in proper form and will not accept securities subject to
legal restrictions on transfer. The acceptance of securities by the Trust must
comply with the applicable laws of certain states.
CAPITALIZATION AND VOTING RIGHTS
The capitalization of the Trust consists of an unlimited number of
shares of beneficial interest (no par value per share). When issued, shares of
each class of the Fund are fully paid, non-assessable, redeemable and fully
transferable. No class of shares of the Fund has preemptive rights or
subscription rights.
The Amended and Restated Declaration of Trust permits the Trustees to
create separate series or portfolios and to divide any series or portfolio into
one or more classes. The Trustees have authorized nineteen series, each of which
represents a fund. The Trustees have further authorized the issuance of Class A,
Class B, and Class C shares for Ivy International Fund and Ivy Money Market Fund
and Class A, Class B, Class C and Advisor Class shares for the Fund, Ivy Asia
Pacific Fund, Ivy Bond Fund, Ivy China Region Fund, Ivy Developing Nations Fund,
Ivy European Opportunities Fund Ivy Global Fund, Ivy Global Natural Resources
Fund, Ivy Growth Fund, Ivy Growth with Income Fund, Ivy International Fund II,
Ivy International Small Companies Fund, Ivy International Strategic Bond Fund,
Ivy Pan-Europe Fund, Ivy South America Fund, Ivy US Blue Chip Fund and Ivy US
Emerging Growth Fund, as well as Class I shares for the Fund, Ivy Bond Fund, Ivy
European Opportunities Fund, Ivy International Fund II, Ivy International Fund,
Ivy International Small Companies Fund, Ivy International Strategic Bond Fund
and Ivy US Blue Chip Fund.
Shareholders have the right to vote for the election of Trustees of the
Trust and on any and all matters on which they may be entitled to vote by law or
by the provisions of the Trust's By-Laws. The Trust is not required to hold a
regular annual meeting of shareholders, and it does not intend to do so. Shares
of each class of the Fund entitle their holders to one vote per share (with
proportionate voting for fractional shares). Shareholders of the Fund are
entitled to vote alone on matters that only affect the Fund. All classes of
shares of the Fund will vote together, except with respect to the distribution
plan applicable to the Fund's Class A, Class B or Class C shares or when a class
vote is required by the 1940 Act. On matters relating to all funds of the Trust,
but affecting the funds differently, separate votes by the shareholders of each
fund are required. Approval of an investment advisory agreement and a change in
fundamental policies would be regarded as matters requiring separate voting by
the shareholders of each fund of the Trust. If the Trustees determine that a
matter does not affect the interests of the Fund, then the shareholders of the
Fund will not be entitled to vote on that matter. Matters that affect the Trust
in general, such as ratification of the selection of independent public
accountants, will be voted upon collectively by the shareholders of all funds of
the Trust.
As used in this SAI and the Prospectus, the phrase "majority vote of
the outstanding shares" of the Fund means the vote of the lesser of: (1) 67% of
the shares of the Fund (or of the Trust) present at a meeting if the holders of
more than 50% of the outstanding shares are present in person or by proxy; or
(2) more than 50% of the outstanding shares of the Fund (or of the Trust).
With respect to the submission to shareholder vote of a matter
requiring separate voting by the Fund, the matter shall have been effectively
acted upon with respect to the Fund if a majority of the outstanding voting
securities of the Fund votes for the approval of the matter, notwithstanding
that: (1) the matter has not been approved by a majority of the outstanding
voting securities of any other fund of the Trust; or (2) the matter has not been
approved by a majority of the outstanding voting securities of the Trust.
The Amended and Restated Declaration of Trust provides that the holders
of not less than two-thirds of the outstanding shares of the Trust may remove a
person serving as trustee either by declaration in writing or at a meeting
called for such purpose. The Trustees are required to call a meeting for the
purpose of considering the removal of a person serving as Trustee if requested
in writing to do so by the holders of not less than 10% of the outstanding
shares of the Trust. Shareholders will be assisted in communicating with other
shareholders in connection with the removal of a Trustee as if Section 26(c) of
the Act were applicable.
The Trust's shares do not have cumulative voting rights and accordingly
the holders of more than 50% of the outstanding shares could elect the entire
Board, in which case the holders of the remaining shares would not be able to
elect any Trustees.
Under Massachusetts law, the Trust's shareholders could, under certain
circumstances, be held personally liable for the obligations of the Trust.
However, the Amended and Restated Declaration of Trust disclaims liability of
the shareholders, Trustees or officers of the Trust for acts or obligations of
the Trust, which are binding only on the assets and property of the Trust, and
requires that notice of the disclaimer be given in each contract or obligation
entered into or executed by the Trust or its Trustees. The Amended and Restated
Declaration of Trust provides for indemnification out of Fund property for all
loss and expense of any shareholder of the Fund held personally liable for the
obligations of the Fund. The risk of a shareholder of the Trust incurring
financial loss on account of shareholder liability is limited to circumstances
in which the Trust itself would be unable to meet its obligations and, thus,
should be considered remote. No series of the Trust is liable for the
obligations of any other series of the Trust.
SPECIAL RIGHTS AND PRIVILEGES
The Trust offers, and (except as noted below) bears the cost of
providing, to investors the following rights and privileges. The Trust reserves
the right to amend or terminate any one or more of these rights and privileges.
Notice of amendments to or terminations of rights and privileges will be
provided to shareholders in accordance with applicable law.
Certain of the rights and privileges described below refer to funds,
other than the Fund, whose shares are also distributed by IMDI. These funds are:
Ivy Asia Pacific Fund, Ivy Bond Fund, Ivy China Region Fund, Ivy Developing
Nations Fund, Ivy European Opportunities Fund, Ivy Global Fund, Ivy Global
Natural Resources Fund, Ivy Growth Fund, Ivy Growth with Income Fund, Ivy
International Fund II, Ivy International Fund, Ivy International Small Companies
Fund, Ivy International Strategic Bond Fund, Ivy Money Market Fund, Ivy
Pan-Europe Fund, Ivy South America Fund, Ivy US Blue Chip Fund and Ivy US
Emerging Growth Fund, (the other eighteen series of the Trust). (Effective April
18, 1997, Ivy International Fund suspended the offer of its shares to new
investors). Shareholders should obtain a current prospectus before exercising
any right or privilege that may relate to these funds.
AUTOMATIC INVESTMENT METHOD
The Automatic Investment Method, which enables a Fund shareholder to
have specified amounts automatically drawn each month from his or her bank for
investment in Fund shares, is available for all classes of shares, except Class
I. The minimum initial and subsequent investment under this method is $50 per
month ($250 for Advisor Class shares), (except in the case of a tax qualified
retirement plan for which the minimum initial and subsequent investment is $25
per month). A shareholder may terminate the Automatic Investment Method at any
time upon delivery to IMSC of telephone instructions or written notice. See
"Automatic Investment Method" in the Prospectus. To begin the plan, complete
Sections 6A and 7B of the Account Application.
EXCHANGE OF SHARES
As described in the Prospectus, shareholders of the Fund have an
exchange privilege with other Ivy funds (except Ivy International Fund unless
they have an existing Ivy International Fund account). Before effecting an
exchange, shareholders of the Fund should obtain and read the currently
effective prospectus for the Ivy fund into which the exchange is to be made.
INITIAL SALES CHARGE SHARES. Class A shareholders may exchange their
Class A shares ("outstanding Class A shares") for Class A shares of another Ivy
fund ("new Class A Shares") on the basis of the relative net asset value per
Class A share, plus an amount equal to the difference, if any, between the sales
charge previously paid on the outstanding Class A shares and the sales charge
payable at the time of the exchange on the new Class A shares. (The additional
sales charge will be waived for Class A shares that have been invested for a
period of 12 months or longer.) Class A shareholders may also exchange their
shares for shares of Ivy Money Market Fund (no initial sales charge will be
assessed at the time of such an exchange).
CONTINGENT DEFERRED SALES CHARGE SHARES CLASS A: Class A shareholders
may exchange their Class A shares that are subject to a contingent deferred
sales charge ("CDSC"), as described in the Prospectus ("outstanding Class A
shares"), for Class A shares of another Ivy fund ("new Class A shares") on the
basis of the relative net asset value per Class A share, without the payment of
any CDSC that would otherwise be due upon the redemption of the outstanding
Class A shares. Class A shareholders of the Fund exercising the exchange
privilege will continue to be subject to that Fund's CDSC period following an
exchange if such period is longer than the CDSC period, if any, applicable to
the new Class A shares.
For purposes of computing the CDSC that may be payable upon the
redemption of the new Class A shares, the holding period of the outstanding
Class A shares is "tacked" onto the holding period of the new Class A shares.
CLASS B: Class B shareholders may exchange their Class B shares
("outstanding Class B shares") for Class B shares of another Ivy fund ("new
Class B shares") on the basis of the relative net asset value per Class B share,
without the payment of any CDSC that would otherwise be due upon the redemption
of the outstanding Class B shares. Class B shareholders of the Fund exercising
the exchange privilege will continue to be subject to that Fund's CDSC schedule
(or period) following an exchange if such schedule is higher (or such period is
longer) than the CDSC schedule (or period) applicable to the new Class B shares.
Class B shares of the Fund acquired through an exchange of Class B
shares of another Ivy fund will be subject to that Fund's CDSC schedule (or
period) if such schedule is higher (or such period is longer) than the CDSC
schedule (or period) applicable to the Ivy fund from which the exchange was
made.
For purposes of both the conversion feature and computing the CDSC that
may be payable upon the redemption of the new Class B shares (prior to
conversion), the holding period of the outstanding Class B shares is "tacked"
onto the holding period of the new Class B shares.
The following CDSC table applies to Class B shares of Ivy Asia Pacific
Fund, Ivy Bond Fund, Ivy China Region Fund, Ivy Developing Nations Fund, Ivy
European Opportunities Fund, Ivy Global Fund, Ivy Global Natural Resources Fund,
Ivy Global Science & Technology Fund, Ivy Growth Fund, Ivy Growth with Income
Fund, Ivy International Fund II, Ivy International Fund, Ivy International Small
Companies Fund, Ivy International Strategic Bond Fund, Ivy Pan-Europe Fund, Ivy
South America Fund, Ivy US Blue Chip Fund, and Ivy US Emerging Growth Fund:
CONTINGENT DEFERRED SALES CHARGE AS A PERCENTAGE OF
DOLLAR AMOUNT SUBJECT TO CHARGE
YEAR SINCE PURCHASE
First 5%
Second 4%
Third 3%
Fourth 3%
Fifth 2%
Sixth 1%
Seventh and thereafter 0%
CLASS C: Class C shareholders may exchange their Class C shares
("outstanding Class C shares") for Class C shares of another Ivy fund ("new
Class C shares") on the basis of the relative net asset value per Class C share,
without the payment of any CDSC that would otherwise be due upon redemption.
(Class C shares are subject to a CDSC of 1.00% if redeemed within one year of
the date of purchase.)
CLASS I AND ADVISOR CLASS: Subject to the restrictions set forth in the
following paragraph, Class I and Advisor Class shareholders may exchange their
outstanding Class I (or Advisor Class) shares for Class I (or Advisor Class)
shares of another Ivy fund on the basis of the relative net asset value per
share.
ALL CLASSES: The minimum value of shares which may be exchanged into an
Ivy fund in which shares are not already held is $1,000 ($5,000,000 in the case
of Class I shares and $10,000 in the case of Advisor Class shares). No exchange
out of the Fund (other than by a complete exchange of all Fund shares) may be
made if it would reduce the shareholder's interest in the Fund to less than
$1,000 ($250,000 in the case of Class I shares and $10,000 in the case of
Advisor Class shares).
Each exchange will be made on the basis of the relative net asset value
per share of the Ivy funds involved in the exchange next computed following
receipt by IMSC of telephone instructions by IMSC or a properly executed
request. Exchanges, whether written or telephonic, must be received by IMSC by
the close of regular trading on the Exchange (normally 4:00 p.m., eastern time)
to receive the price computed on the day of receipt. Exchange requests received
after that time will receive the price next determined following receipt of the
request. The exchange privilege may be modified or terminated at any time, upon
at least 60 days' notice to the extent required by applicable law. See
"Redemptions."
An exchange of shares between any of the Ivy funds will result in a
taxable gain or loss. Generally, this will be a capital gain or loss (long-term
or short-term, depending on the holding period of the shares) in the amount of
the difference between the net asset value of the shares surrendered and the
shareholder's tax basis for those shares. However, in certain circumstances,
shareholders will be ineligible to take sales charges into account in computing
taxable gain or loss on an exchange. See "Taxation."
With limited exceptions, gain realized by a tax-deferred retirement
plan will not be taxable to the plan and will not be taxed to the participant
until distribution. Each investor should consult his or her tax adviser
regarding the tax consequences of an exchange transaction.
LETTER OF INTENT
Reduced sales charges apply to initial investments in Class A shares of
the Fund made pursuant to a non-binding Letter of Intent. A Letter of Intent may
be submitted by an individual, his or her spouse and children under the age of
21, or a trustee or other fiduciary of a single trust estate or single fiduciary
account. See the Account Application in the Prospectus. Any investor may submit
a Letter of Intent stating that he or she will invest, over a period of 13
months, at least $50,000 in Class A shares of the Fund. A Letter of Intent may
be submitted at the time of an initial purchase of Class A shares of the Fund or
within 90 days of the initial purchase, in which case the Letter of Intent will
be back dated. A shareholder may include, as an accumulation credit, the value
(at the applicable offering price) of all Class A shares of Ivy Asia Pacific
Fund, Ivy Bond Fund, Ivy China Region Fund, Ivy Developing Nations Fund, Ivy
European Opportunities Fund, Ivy Global Fund, Ivy Global Natural Resources Fund,
Ivy Global Science & Technology Fund, Ivy Growth Fund, Ivy Growth with Income
Fund, Ivy International Fund II, Ivy International Fund, Ivy International Small
Companies Fund, Ivy International Strategic Bond Fund, Ivy Pan-Europe Fund, Ivy
South America Fund, Ivy US Blue Chip Fund, and Ivy US Emerging Growth Fund, (and
shares that have been exchanged into Ivy Money Market Fund from any of the other
funds in the Ivy funds) held of record by him or her as of the date of his or
her Letter of Intent. During the term of the Letter of Intent, the Transfer
Agent will hold Class A shares representing 5% of the indicated amount (less any
accumulation credit value) in escrow. The escrowed Class A shares will be
released when the full indicated amount has been purchased. If the full
indicated amount is not purchased during the term of the Letter of Intent, the
investor is required to pay IMDI an amount equal to the difference between the
dollar amount of sales charge that he or she has paid and that which he or she
would have paid on his or her aggregate purchases if the total of such purchases
had been made at a single time. Such payment will be made by an automatic
liquidation of Class A shares in the escrow account. A Letter of Intent does not
obligate the investor to buy or the Trust to sell the indicated amount of Class
A shares, and the investor should read carefully all the provisions of such
letter before signing.
RETIREMENT PLANS
Shares may be purchased in connection with several types of
tax-deferred retirement plans. Shares of more than one fund distributed by IMDI
may be purchased in a single application establishing a single account under the
plan, and shares held in such an account may be exchanged among the Ivy funds in
accordance with the terms of the applicable plan and the exchange privilege
available to all shareholders. Initial and subsequent purchase payments in
connection with tax-deferred retirement plans must be at least $25 per
participant.
The following fees will be charged to individual shareholder accounts
as described in the retirement prototype plan document:
Retirement Plan New Account Fee no fee
Retirement Plan Annual Maintenance Fee $10.00 per fund account
For shareholders whose retirement accounts are diversified across
several Ivy funds, the annual maintenance fee will be limited to not more than
$20.
The following discussion describes the tax treatment of certain
tax-deferred retirement plans under current Federal income tax law. State income
tax consequences may vary. An individual considering the establishment of a
retirement plan should consult with an attorney and/or an accountant with
respect to the terms and tax aspects of the plan.
INDIVIDUAL RETIREMENT ACCOUNTS: Shares of the Fund may be used as a
funding medium for an Individual Retirement Account ("IRA"). Eligible
individuals may establish an IRA by adopting a model custodial account available
from IMSC, who may impose a charge for establishing the account. Individuals
should consult their tax advisers before investing IRA assets in an Ivy fund if
that fund primarily distributes exempt-interest dividends.
An individual who has not reached age 70-1/2 and who receives
compensation or earned income is eligible to contribute to an IRA, whether or
not he or she is an active participant in a retirement plan. An individual who
receives a distribution from another IRA, a qualified retirement plan, a
qualified annuity plan or a tax-sheltered annuity or custodial account ("403(b)
plan") that qualifies for "rollover" treatment is also eligible to establish an
IRA by rolling over the distribution either directly or within 60 days after its
receipt. Tax advice should be obtained in connection with planning a rollover
contribution to an IRA.
In general, an eligible individual may contribute up to the lesser of
$2,000 or 100% of his or her compensation or earned income to an IRA each year.
If a husband and wife are both employed, and both are under age 70-1/2, each may
set up his or her own IRA within these limits. If both earn at least $2,000 per
year, the maximum potential contribution is $4,000 per year for both. For years
after 1996, the result is similar even if one spouse has no earned income; if
the joint earned income of the spouses is at least $4,000, a contribution of up
to $2,000 may be made to each spouse's IRA. Rollover contributions are not
subject to these limits.
An individual may deduct his or her annual contributions to an IRA in
computing his or her Federal income tax within the limits described above,
provided he or she (or his or her spouse, if they file a joint Federal income
tax return) is not an active participant in a qualified retirement plan (such as
a qualified corporate, sole proprietorship, or partnership pension, profit
sharing, 401(k) or stock bonus plan), qualified annuity plan, 403(b) plan,
simplified employee pension, or governmental plan. If he or she (or his or her
spouse) is an active participant, whether the individual's contribution to an
IRA is fully deductible, partially deductible or not deductible depends on (i)
adjusted gross income and (ii) whether it is the individual or the individual's
spouse who is an active participant, in the case of married individuals filing
jointly. Contributions may be made up to the maximum permissible amount even if
they are not deductible. Rollover contributions are not includable in income for
Federal income tax purposes and therefore are not deductible from it.
Generally, earnings on an IRA are not subject to current Federal income
tax until distributed. Distributions attributable to tax-deductible
contributions and to IRA earnings are taxed as ordinary income. Distributions of
non-deductible contributions are not subject to Federal income tax. In general,
distributions from an IRA to an individual before he or she reaches age 59-1/2
are subject to a nondeductible penalty tax equal to 10% of the taxable amount of
the distribution. The 10% penalty tax does not apply to amounts withdrawn from
an IRA after the individual reaches age 59-1/2, becomes disabled or dies, or if
withdrawn in the form of substantially equal payments over the life or life
expectancy of the individual and his or her designated beneficiary, if any, or
rolled over into another IRA, amounts withdrawn and used to pay for deductible
medical expenses and amounts withdrawn by certain unemployed individuals not in
excess of amounts paid for certain health insurance premiums, amounts used to
pay certain qualified higher education expenses, and amounts used within 120
days of the date the distribution is received to pay for certain first-time
homebuyer expenses. Distributions must begin to be withdrawn not later than
April 1 of the calendar year following the calendar year in which the individual
reaches age 70-1/2. Failure to take certain minimum required distributions will
result in the imposition of a 50% non-deductible penalty tax.
ROTH IRAS: Shares of the Fund also may be used as a funding medium for
a Roth Individual Retirement Account ("Roth IRA"). A Roth IRA is similar in
numerous ways to the regular (traditional) IRA, described above.
Some of the primary differences are as follows.
A single individual earning below $95,000 can contribute up to $2,000
per year to a Roth IRA. The maximum contribution amount diminishes and gradually
falls to zero for single filers with adjusted gross incomes ranging from $95,000
to $110,000. Married couples earning less than $150,000 combined, and filing
jointly, can contribute a full $4,000 per year ($2,000 per IRA). The maximum
contribution amount for married couples filing jointly phases out from $150,000
to $160,000. An individual whose adjusted gross income exceeds the maximum
phase-out amount cannot contribute to a Roth IRA.
An eligible individual can contribute money to a traditional IRA and a
Roth IRA as long as the total contribution to all IRAs does not exceed $2,000.
Contributions to a Roth IRA are not deductible. Contributions to a Roth IRA may
be made even after the individual for whom the account is maintained has
attained age 70 1/2.
No distributions are required to be taken prior to the death of the
original account holder. If a Roth IRA has been established for a minimum of
five years, distributions can be taken tax-free after reaching age 59 1/2, for a
first-time home purchase ($10,000 maximum, one time use), or upon death or
disability. All other distributions from a Roth IRA (other than the amount of
nondeductible contributions) are taxable and subject to a 10% tax penalty unless
an exception applies. Exceptions to the 10% penalty include: reaching age 59
1/2, death, disability, deductible medical expenses, the purchase of health
insurance for certain unemployed individual and qualified higher education
expenses.
An individual with an income of less than $100,000 (who is not married
filing separately) can roll his or her existing IRA into a Roth IRA. However,
the individual must pay taxes on the taxable amount in his or her traditional
IRA. After 1998, all taxes on such a rollover will have to be paid in the tax
year in which the rollover is made.
QUALIFIED PLANS: For those self-employed individuals who wish to
purchase shares of one or more Ivy funds through a qualified retirement plan, a
Custodial Agreement and a Retirement Plan are available from IMSC. The
Retirement Plan may be adopted as a profit sharing plan or a money purchase
pension plan. A profit sharing plan permits an annual contribution to be made in
an amount determined each year by the self-employed individual within certain
limits prescribed by law. A money purchase pension plan requires annual
contributions at the level specified in the Custodial Agreement. There is no
set-up fee for qualified plans and the annual maintenance fee is $20.00 per
account.
In general, if a self-employed individual has any common law employees,
employees who have met certain minimum age and service requirements must be
covered by the Retirement Plan. A self-employed individual generally must
contribute the same percentage of income for common law employees as for himself
or herself.
A self-employed individual may contribute up to the lesser of $30,000
or 25% of compensation or earned income to a money purchase pension plan or to a
combination profit sharing and money purchase pension plan arrangement each year
on behalf of each participant. To be deductible, total contributions to a profit
sharing plan generally may not exceed 15% of the total compensation or earned
income of all participants in the plan, and total contributions to a combination
money purchase-profit sharing arrangement generally may not exceed 25% of the
total compensation or earned income of all participants. The amount of
compensation or earned income of any one participant that may be included in
computing the deduction is limited (generally to $150,000 for benefits accruing
in plan years beginning after 1993, with annual inflation adjustments). A
self-employed individual's contributions to a retirement plan on his or her own
behalf must be deducted in computing his or her earned income.
Corporate employers may also adopt the Custodial Agreement and
Retirement Plan for the benefit of their eligible employees. Similar
contribution and deduction rules apply to corporate employers.
Distributions from the Retirement Plan generally are made after a
participant's separation from service. A 10% penalty tax generally applies to
distributions to an individual before he or she reaches age 59-1/2, unless the
individual (1) has reached age 55 and separated from service; (2) dies; (3)
becomes disabled; (4) uses the withdrawal to pay tax-deductible medical
expenses; (5) takes the withdrawal as part of a series of substantially equal
payments over his or her life expectancy or the joint life expectancy of himself
or herself and a designated beneficiary; or (6) rolls over the distribution.
The Transfer Agent will arrange for Investors Bank & Trust to furnish
custodial services to the employer and any participating employees.
DEFERRED COMPENSATION FOR PUBLIC SCHOOLS AND CHARITABLE ORGANIZATIONS
("403(B)(7) ACCOUNT"): Section 403(b)(7) of the Internal Revenue Code of 1986,
as amended (the "Code") permits public school systems and certain charitable
organizations to use mutual fund shares held in a custodial account to fund
deferred compensation arrangements with their employees. A custodial account
agreement is available for those employers whose employees wish to purchase
shares of the Trust in conjunction with such an arrangement. The special
application for a 403(b)(7) Account is available from IMSC.
Distributions from the 403(b)(7) Account may be made only following
death, disability, separation from service, attainment of age 59-1/2, or
incurring a financial hardship. A 10% penalty tax generally applies to
distributions to an individual before he or she reaches age 59-1/2, unless the
individual (1) has reached age 55 and separated from service; (2) dies or
becomes disabled; (3) uses the withdrawal to pay tax-deductible medical
expenses; (4) takes the withdrawal as part of a series of substantially equal
payments over his or her life expectancy or the joint life expectancy of himself
or herself and a designated beneficiary; or (5) rolls over the distribution.
There is no set-up fee for 403(b)(7) Accounts and the annual maintenance fee is
$20.00 per account.
SIMPLIFIED EMPLOYEE PENSION ("SEP") IRAS: An employer may deduct
contributions to a SEP up to the lesser of $30,000 or 15% of compensation. SEP
accounts generally are subject to all rules applicable to IRA accounts, except
the deduction limits, and are subject to certain employee participation
requirements. No new salary reduction SEPs ("SARSEPs") may be established after
1996, but existing SARSEPs may continue to be maintained, and non-salary
reduction SEPs may continue to be established as well as maintained after 1996.
SIMPLE PLANS: An employer may establish a SIMPLE IRA or a SIMPLE 401(k)
for years after 1996. An employee can make pre-tax salary reduction
contributions to a SIMPLE Plan, up to $6,000 a year (as indexed). Subject to
certain limits, the employer will either match a portion of employee
contributions, or will make a contribution equal to 2% of each employee's
compensation without regard to the amount the employee contributes. An employer
cannot maintain a SIMPLE Plan for its employees if the employer maintains or
maintained any other qualified retirement plan with respect to which any
contributions or benefits have been credited.
REINVESTMENT PRIVILEGE
Shareholders who have redeemed Class A shares of the Fund may reinvest
all or a part of the proceeds of the redemption back into Class A shares of the
Fund at net asset value (without a sales charge) within 60 days from the date of
redemption. This privilege may be exercised only once. The reinvestment will be
made at the net asset value next determined after receipt by IMSC of the
reinvestment order accompanied by the funds to be reinvested. No compensation
will be paid to any sales personnel or dealer in connection with the
transaction.
Any redemption is a taxable event. A loss realized on a redemption
generally may be disallowed for tax purposes if the reinvestment privilege is
exercised within 30 days after the redemption. In certain circumstances,
shareholders will be ineligible to take sales charges into account in computing
taxable gain or loss on a redemption if the reinvestment privilege is exercised.
See "Taxation."
RIGHTS OF ACCUMULATION
A scale of reduced sales charges applies to any investment of $50,000
or more in Class A shares of the Fund. See "Initial Sales Charge Alternative --
Class A Shares" in the Prospectus. The reduced sales charge is applicable to
investments made at one time by an individual, his or her spouse and children
under the age of 21, or a trustee or other fiduciary of a single trust estate or
single fiduciary account (including a pension, profit sharing or other employee
benefit trust created pursuant to a plan qualified under Section 401 of the
Code). Rights of Accumulation is also applicable to current purchases of all of
the funds of Ivy Fund (except Ivy Money Market Fund) by any of the persons
enumerated above, where the aggregate quantity of Class A shares of such funds
(and shares that have been exchanged into Ivy Money Market Fund from any of the
other funds in the Ivy funds) and of any other investment company distributed by
IMDI, previously purchased or acquired and currently owned, determined at the
higher of current offering price or amount invested, plus the Class A shares
being purchased, amounts to $50,000 or more for all funds other than Ivy Bond
Funds; or $100,000 or more for Ivy Bond Fund.
At the time an investment takes place, IMSC must be notified by the
investor or his or her dealer that the investment qualifies for the reduced
sales charge on the basis of previous investments. The reduced sales charge is
subject to confirmation of the investor's holdings through a check of the
particular fund's records.
SYSTEMATIC WITHDRAWAL PLAN
A shareholder (except shareholders with accounts in Class I) may
establish a Systematic Withdrawal Plan (a "Withdrawal Plan"), by telephone
instructions or by delivery to IMSC of a written election to have his or her
shares withdrawn periodically (minimum distribution amount $50 for Advisor Class
shares), accompanied by a surrender to IMSC of all share certificates then
outstanding in such shareholder's name, properly endorsed by the shareholder. To
be eligible to elect a Withdrawal Plan, a shareholder must have at least $5,000
in his or her account (except Advisor Class shareholders, who must continually
maintain an account balance of at least $10,000). A Withdrawal Plan may not be
established if the investor is currently participating in the Automatic
Investment Method. A Withdrawal Plan may involve the depletion of a
shareholder's principal, depending on the amount withdrawn.
A redemption under a Withdrawal Plan is a taxable event. Shareholders
contemplating participating in a Withdrawal Plan should consult their tax
advisers.
Additional investments made by investors participating in a Withdrawal
Plan must equal at least $1,000 each ($250 for Advisor Class shareholders) while
the Withdrawal Plan is in effect. Making additional purchases while a Withdrawal
Plan is in effect may be disadvantageous to the investor because of applicable
initial sales charges or CDSCs.
An investor may terminate his or her participation in the Withdrawal
Plan at any time by delivering written notice to IMSC. If all shares held by the
investor are liquidated at any time, participation in the Withdrawal Plan will
terminate automatically. The Trust or IMSC may terminate the Withdrawal Plan
option at any time after reasonable notice to shareholders.
GROUP SYSTEMATIC INVESTMENT PROGRAM
Shares of the Fund may be purchased in connection with investment
programs established by employee or other groups using systematic payroll
deductions or other systematic payment arrangements. The Trust does not itself
organize, offer or administer any such programs. However, it may, depending upon
the size of the program, waive the minimum initial and additional investment
requirements for purchases by individuals in conjunction with programs organized
and offered by others. Unless shares of the Fund are purchased in conjunction
with IRAs (see "How to Buy Shares" in the Prospectus), such group systematic
investment programs are not entitled to special tax benefits under the Code. The
Trust reserves the right to refuse purchases at any time or suspend the offering
of shares in connection with group systematic investment programs, and to
restrict the offering of shareholder privileges, such as check writing,
simplified redemptions and other optional privileges, as described in the
Prospectus, to shareholders using group systematic investment programs.
With respect to each shareholder account established on or after
September 15, 1972 under a group systematic investment program, the Trust and
IMI each currently charge a maintenance fee of $3.00 (or portion thereof) that
for each twelve-month period (or portion thereof) that the account is
maintained. The Trust may collect such fee (and any fees due to IMI) through a
deduction from distributions to the shareholders involved or by causing on the
date the fee is assessed a redemption in each such shareholder account
sufficient to pay such fee. The Trust reserves the right to change these fees
from time to time without advance notice.
Class A shares of the Fund are made available to Merrill Lynch Daily K
Plan (the "Plan") participants at NAV without an initial sales charge if:
(i) the Plan is recordkept on a daily valuation basis by Merrill
Lynch and, on the date the Plan Sponsor signs the Merrill
Lynch Recordkeeping Service Agreement, the Plan has $3 million
or more in assets invested in broker/dealer funds not advised
or managed by Merrill Lynch Asset Management, L.P. ("MLAM")
that are made available pursuant to a Service Agreement
between Merrill Lynch and the fund's principal underwriter or
distributor and in funds advised or managed by MLAM
(collectively, the "Applicable Investments");
(ii) the Plan is recordkept on a daily valuation basis by an
independent recordkeeper whose services are provided through a
contract or alliance arrangement with Merrill Lynch, and on
the date the Plan Sponsor signs the Merrill Lynch
Recordkeeping Service Agreement, the Plan has $3 million or
more in assets, excluding money market funds, invested in
Applicable Investments; or
(iii) the Plan has 500 or more eligible employees, as determined by
Merrill Lynch plan conversion manager, on the date the Plan
Sponsor signs the Merrill Lynch Recordkeeping Service
Agreement.
Alternatively, Class B shares of the Fund are made available to Plan
participants at NAV without a CDSC if the Plan conforms with the requirements
for eligibility set forth in (i) through (iii) above but either does not meet
the $3 million asset threshold or does not have 500 or more eligible employees.
Plans recordkept on a daily basis by Merrill Lynch or an independent
recordkeeper under a contract with Merrill Lynch that are currently investing in
Class B shares of the Fund convert to Class A shares once the Plan has reached
$5 million invested in Applicable Investments, or 10 years after the date of the
initial purchase by a participant under the Plan--the Plan will receive a Plan
level share conversion.
REDEMPTIONS
Shares of the Fund are redeemed at their net asset value next
determined after a proper redemption request has been received by IMSC, less any
applicable CDSC.
Unless a shareholder requests that the proceeds of any redemption be
wired to his or her bank account, payment for shares tendered for redemption is
made by check within seven days after tender in proper form, except that the
Trust reserves the right to suspend the right of redemption or to postpone the
date of payment upon redemption beyond seven days, (i) for any period during
which the Exchange is closed (other than customary weekend and holiday closings)
or during which trading on the Exchange is restricted, (ii) for any period
during which an emergency exists as determined by the SEC as a result of which
disposal of securities owned by the Fund is not reasonably practicable or it is
not reasonably practicable for the Fund to fairly determine the value of its net
assets, or (iii) for such other periods as the SEC may by order permit for the
protection of shareholders of the Fund.
Under unusual circumstances, when the Board deems it in the best
interest of the Fund's shareholders, the Fund may make payment for shares
repurchased or redeemed in whole or in part in securities of the Fund taken at
current values. If any such redemption in kind is to be made, the Fund may make
an election pursuant to Rule 18f-1 under the 1940 Act. This will require the
Fund to redeem with cash at a shareholder's election in any case where the
redemption involves less than $250,000 (or 1% of the Fund's net asset value at
the beginning of each 90-day period during which such redemptions are in effect,
if that amount is less than $250,000). Should payment be made in securities, the
redeeming shareholder may incur brokerage costs in converting such securities to
cash.
The Trust may redeem those accounts of shareholders who have maintained
an investment, including sales charges paid, of less than $1,000 ($10,000 for
Advisor Class shareholders) in the Fund for a period of more than 12 months. All
accounts below that minimum will be redeemed simultaneously when MIMI deems it
advisable. The $1,000 balance ($10,000 for Advisor Class shareholders) will be
determined by actual dollar amounts invested by the shareholder, unaffected by
market fluctuations. The Trust will notify any such shareholder by certified
mail of its intention to redeem such account, and the shareholder shall have 60
days from the date of such letter to invest such additional sums as shall raise
the value of such account above that minimum. Should the shareholder fail to
forward such sum within 60 days of the date of the Trust's letter of
notification, the Trust will redeem the shares held in such account and transmit
the redemption in value thereof to the shareholder. However, those shareholders
who are investing pursuant to the Automatic Investment Method will not be
redeemed automatically unless they have ceased making payments pursuant to the
plan for a period of at least six consecutive months, and these shareholders
will be given six-months' notice by the Trust before such redemption.
Shareholders in a qualified retirement, pension or profit sharing plan who wish
to avoid tax consequences must "rollover" any sum so redeemed into another
qualified plan within 60 days. The Trustees of the Trust may change the minimum
account size.
If a shareholder has given authorization for telephonic redemption
privilege, shares can be redeemed and proceeds sent by Federal wire to a single
previously designated bank account. Delivery of the proceeds of a wire
redemption request of $250,000 or more may be delayed by the Fund for up to
seven days if deemed appropriate under then-current market conditions. The Trust
reserves the right to change this minimum or to terminate the telephonic
redemption privilege without prior notice. The Trust cannot be responsible for
the efficiency of the Federal wire system of the shareholder's dealer of record
or bank. The shareholder is responsible for any charges by the shareholder's
bank.
The Fund employs reasonable procedures that require personal
identification prior to acting on redemption or exchange instructions
communicated by telephone to confirm that such instructions are genuine. In the
absence of such instructions, the Fund may be liable for any losses due to
unauthorized or fraudulent telephone instructions.
CONVERSION OF CLASS B SHARES
As described in the Prospectus, Class B shares of the Fund will
automatically convert to Class A shares of the Fund, based on the relative net
asset values per share of the two classes, no later than the month following the
eighth anniversary of the initial issuance of such Class B shares of the Fund
occurs. For the purpose of calculating the holding period required for
conversion of Class B shares, the date of initial issuance shall mean: (1) the
date on which such Class B shares were issued, or (2) for Class B shares
obtained through an exchange, or a series of exchanges, (subject to the exchange
privileges for Class B shares) the date on which the original Class B shares
were issued. For purposes of conversion of Class B shares, Class B shares
purchased through the reinvestment of dividends and capital gain distributions
paid in respect of Class B shares will be held in a separate sub-account. Each
time any Class B shares in the shareholder's regular account (other than those
shares in the sub-account) convert to Class A shares, a pro rata portion of the
Class B shares in the sub-account will also convert to Class A shares. The
portion will be determined by the ratio that the shareholder's Class B shares
converting to Class A shares bears to the shareholder's total Class B shares not
acquired through the reinvestment of dividends and capital gain distributions.
NET ASSET VALUE
The net asset value per share of the Fund is computed by dividing the
value of the Fund's aggregate net assets (i.e., its total assets less its
liabilities) by the number of the Fund's shares outstanding. For purposes of
determining the Fund's aggregate net assets, receivables are valued at their
realizable amounts. The Fund's liabilities, if not identifiable as belonging to
a particular class of the Fund, are allocated among the Fund's several classes
based on their relative net asset size. Liabilities attributable to a particular
class are charged to that class directly. The total liabilities for a class are
then deducted from the class's proportionate interest in the Fund's assets, and
the resulting amount is divided by the number of shares of the class outstanding
to produce its net asset value per share.
A security listed or traded on a recognized stock exchange or The
Nasdaq Stock Market, Inc. ("Nasdaq") is valued at the security's last sale price
on the exchange on which the security is principally traded. If no sale is
reported at that time, the average between the last bid and asked price (the
"Calculated Mean") is used. Unless otherwise noted herein, the value of a
foreign security is determined in its national currency as of the normal close
of trading on the foreign exchange on which it is traded or as of the close of
regular trading on the Exchange, if that is earlier, and that value is then
converted into its U.S. dollar equivalent at the foreign exchange rate in effect
at noon, eastern time, on the day the value of the foreign security is
determined. All other securities for which OTC market quotations are readily
available are valued at the Calculated Mean.
A debt security normally is valued on the basis of quotes obtained from
at least two dealers (or one dealer who has made a market in the security) or
pricing services that take into account appropriate valuation factors. Interest
is accrued daily. Money market instruments are valued at amortized cost, which
the Board believes approximates market value.
An exchange-traded option is valued at the last sale price on the
exchange on which it is principally traded, if available, and otherwise is
valued at the last sale price on the other exchange(s). If there were no sales
on any exchange, the option shall be valued at the Calculated Mean, if possible,
and otherwise at the last offering price, in the case of a written option, and
the last bid price, in the case of a purchased option. An OTC option is valued
at the last offering price, in the case of a written option, and the last bid
price, in the case of a purchased option. Exchange listed and widely-traded OTC
futures (and options thereon) are valued at the most recent settlement price.
Securities and other assets for which market prices are not readily
available are priced at their "fair value" as determined by IMI in accordance
with procedures approved by the Board. Trading in securities on many foreign
securities exchanges is normally completed before the close of regular trading
on the Exchange. Trading on foreign exchanges may not take place on all days on
which there is regular trading on the Exchange, or may take place on days on
which there is no regular trading on the Exchange (e.g., any of the national
business holidays identified below). If events materially affecting the value of
the Fund's portfolio securities occur between the time when a foreign exchange
closes and the time when the Fund's net asset value is calculated (see following
paragraph), such securities may be valued at fair value as determined by IMI and
approved by the Board.
Portfolio securities are valued (and net asset value per share is
determined) as of the close of regular trading on the Exchange (normally 4:00
p.m., eastern time) on each day the Exchange is open for trading. The Exchange
and the Trust's offices are expected to be closed, and net asset value will not
be calculated, on the following national business holidays: New Year's Day,
Martin Luther King, Jr. Day, Presidents' Day, Good Friday, Memorial Day,
Independence Day, Labor Day, Thanksgiving Day and Christmas Day. On those days
when either or both of the Fund's Custodian or the Exchange close early as a
result of a partial holiday or otherwise, the Trust reserves the right to
advance the time on that day by which purchase and redemption requests must be
received.
The number of shares you receive when you place a purchase order, and
the payment you receive after submitting a redemption request, is based on the
Fund's net asset value next determined after your instructions are received in
proper form by IMSC or by your registered securities dealer. Each purchase and
redemption order subject to any applicable sales charge. Since the Fund normally
invests in securities that are listed on foreign exchanges that may trade on
weekends or other days when the Fund does not price its shares, the Fund's net
asset value may change on days when shareholders will not be able to purchase or
redeem the Fund's shares. The sale of the Fund's shares will be suspended during
any period when the determination of its net asset value is suspended pursuant
to rules or orders of the SEC and may be suspended by the Board whenever in its
judgment it is in the Fund's best interest to do so.
TAXATION
The following is a general discussion of certain tax rules thought to
be applicable with respect to the Fund. It is merely a summary and is not an
exhaustive discussion of all possible situations or of all potentially
applicable taxes. Accordingly, shareholders and prospective shareholders should
consult a competent tax adviser about the tax consequences to them of investing
in the Fund.
The Fund intends to be taxed as a regulated investment company under
Subchapter M of the Code. Accordingly, the Fund must, among other things, (a)
derive in each taxable year at least 90% of its gross income from dividends,
interest, payments with respect to certain securities loans, and gains from the
sale or other disposition of stock, securities or foreign currencies, or other
income derived with respect to its business of investing in such stock,
securities or currencies; and (b) diversify its holdings so that, at the end of
each fiscal quarter, (i) at least 50% of the market value of the Fund's assets
is represented by cash, U.S. Government securities, the securities of other
regulated investment companies and other securities, with such other securities
limited, in respect of any one issuer, to an amount not greater than 5% of the
value of the Fund's total assets and 10% of the outstanding voting securities of
such issuer, and (ii) not more than 25% of the value of its total assets is
invested in the securities of any one issuer (other than U.S. Government
securities and the securities of other regulated investment companies).
As a regulated investment company, the Fund generally will not be
subject to U.S. Federal income tax on its income and gains that it distributes
to shareholders, if at least 90% of its investment company taxable income (which
includes, among other items, dividends, interest and the excess of any
short-term capital gains over long-term capital losses) for the taxable year is
distributed. The Fund intends to distribute all such income.
Amounts not distributed on a timely basis in accordance with a calendar
year distribution requirement are subject to a nondeductible 4% excise tax at
the Fund level. To avoid the tax, the Fund must distribute during each calendar
year, (1) at least 98% of its ordinary income (not taking into account any
capital gains or losses) for the calendar year (2) at least 98% of its capital
gains in excess of its capital losses (adjusted for certain ordinary losses) for
a one-year period generally ending on October 31 of the calendar year, and (3)
all ordinary income and capital gains for previous years that were not
distributed during such years. To avoid application of the excise tax, the Fund
intends to make distributions in accordance with the calendar year distribution
requirements. A distribution will be treated as paid on December 31 of the
current calendar year if it is declared by the Fund in October, November or
December of the year with a record date in such a month and paid by the Fund
during January of the following year. Such distributions will be taxable to
shareholders in the calendar year the distributions are declared, rather than
the calendar year in which the distributions are received.
OPTIONS, FUTURES AND FOREIGN CURRENCY FORWARD CONTRACTS
The taxation of equity options and OTC options on debt securities is
governed by Code section 1234. Pursuant to Code section 1234, the premium
received by the Fund for selling a put or call option is not included in income
at the time of receipt. If the option expires, the premium is short-term capital
gain to the Fund. If the Fund enters into a closing transaction, the difference
between the amount paid to close out its position and the premium received is
short-term capital gain or loss. If a call option written by the Fund is
exercised, thereby requiring the Fund to sell the underlying security, the
premium will increase the amount realized upon the sale of such security and any
resulting gain or loss will be a capital gain or loss, and will be long-term or
short-term depending upon the holding period of the security. With respect to a
put or call option that is purchased by the Fund, if the option is sold, any
resulting gain or loss will be a capital gain or loss, and will be long-term or
short-term, depending upon the holding period of the option. If the option
expires, the resulting loss is a capital loss and is long-term or short-term,
depending upon the holding period of the option. If the option is exercised, the
cost of the option, in the case of a call option, is added to the basis of the
purchased security and, in the case of a put option, reduces the amount realized
on the underlying security in determining gain or loss.
Some of the options, futures and foreign currency forward contracts in
which the Fund may invest may be "section 1256 contracts." Gains (or losses) on
these contracts generally are considered to be 60% long-term and 40% short-term
capital gains or losses; however, as described below, foreign currency gains or
losses arising from certain section 1256 contracts are ordinary in character.
Also, section 1256 contracts held by the Fund at the end of each taxable year
(and on certain other dates prescribed in the Code) are "marked-to-market" with
the result that unrealized gains or losses are treated as though they were
realized.
The transactions in options, futures and forward contracts undertaken
by the Fund may result in "straddles" for Federal income tax purposes. The
straddle rules may affect the character of gains or losses realized by the Fund.
In addition, losses realized by the Fund on positions that are part of a
straddle may be deferred under the straddle rules, rather than being taken into
account in calculating the taxable income for the taxable year in which such
losses are realized. Because only a few regulations implementing the straddle
rules have been promulgated, the consequences of such transactions to the Fund
are not entirely clear. The straddle rules may increase the amount of short-term
capital gain realized by the Fund, which is taxed as ordinary income when
distributed to shareholders.
The Fund may make one or more of the elections available under the Code
which are applicable to straddles. If the Fund makes any of the elections, the
amount, character and timing of the recognition of gains or losses from the
affected straddle positions will be determined under rules that vary according
to the election(s) made. The rules applicable under certain of the elections may
operate to accelerate the recognition of gains or losses from the affected
straddle positions.
Because application of the straddle rules may affect the character of
gains or losses, defer losses and/or accelerate the recognition of gains or
losses from the affected straddle positions, the amount which must be
distributed to shareholders as ordinary income or long-term capital gain may be
increased or decreased substantially as compared to a fund that did not engage
in such transactions.
Notwithstanding any of the foregoing, the Fund may recognize gain (but
not loss) from a constructive sale of certain "appreciated financial positions"
if the Fund enters into a short sale, offsetting notional principal contract,
futures or forward contract transaction with respect to the appreciated position
or substantially identical property. Appreciated financial positions subject to
this constructive sale treatment are interests (including options, futures and
forward contracts and short sales) in stock, partnership interests, certain
actively traded trust instruments and certain debt instruments. Constructive
sale treatment of appreciated financial positions does not apply to certain
transactions closed in the 90-day period ending with the 30th day after the
close of the Fund's taxable year, if certain conditions are met.
CURRENCY FLUCTUATIONS -- "SECTION 988" GAINS OR LOSSES
Gains or losses attributable to fluctuations in exchange rates which
occur between the time the Fund accrues receivables or liabilities denominated
in a foreign currency and the time the Fund actually collects such receivables
or pays such liabilities generally are treated as ordinary income or ordinary
loss. Similarly, on disposition of some investments, including debt securities
denominated in a foreign currency and certain options, futures and forward
contracts, gains or losses attributable to fluctuations in the value of the
foreign currency between the date of acquisition of the security or contract and
the date of disposition also are treated as ordinary gain or loss. These gains
and losses, referred to under the Code as "section 988" gains or losses,
increase or decrease the amount of the Fund's investment company taxable income
available to be distributed to its shareholders as ordinary income.
INVESTMENT IN PASSIVE FOREIGN INVESTMENT COMPANIES
The Fund may invest in shares of foreign corporations which may be
classified under the Code as passive foreign investment companies ("PFICs"). In
general, a foreign corporation is classified as a PFIC if at least one-half of
its assets constitute investment-type assets, or 75% or more of its gross income
is investment-type income. If the Fund receives a so-called "excess
distribution" with respect to PFIC stock, the Fund itself may be subject to a
tax on a portion of the excess distribution, whether or not the corresponding
income is distributed by the Fund to shareholders. In general, under the PFIC
rules, an excess distribution is treated as having been realized ratably over
the period during which a Fund held the PFIC shares. The Fund itself will be
subject to tax on the portion, if any, of an excess distribution that is so
allocated to prior Fund taxable years and an interest factor will be added to
the tax, as if the tax had been payable in such prior taxable years. Certain
distributions from a PFIC as well as gain from the sale of PFIC shares are
treated as excess distributions. Excess distributions are characterized as
ordinary income even though, absent application of the PFIC rules, certain
excess distributions might have been classified as capital gain.
The Fund may be eligible to elect alternative tax treatment with
respect to PFIC shares. The Fund may elect to mark to market its PFIC shares,
resulting in the shares being treated as sold at fair market value on the last
business day of each taxable year. Any resulting gain would be reported as
ordinary income; any resulting loss and any loss from an actual disposition of
the shares would be reported as ordinary loss to the extent of any net gains
reported in prior years. Under another election that currently is available in
some circumstances, the Fund generally would be required to include in its gross
income its share of the earnings of a PFIC on a current basis, regardless of
whether distributions are received from the PFIC in a given year.
DEBT SECURITIES ACQUIRED AT A DISCOUNT
Some of the debt securities (with a fixed maturity date of more than
one year from the date of issuance) that may be acquired by the Fund may be
treated as debt securities that are issued originally at a discount. Generally,
the amount of the original issue discount ("OID") is treated as interest income
and is included in income over the term of the debt security, even though
payment of that amount is not received until a later time, usually when the debt
security matures.
Some of the debt securities (with a fixed maturity date of more than
one year from the date of issuance) that may be acquired by the Fund in the
secondary market may be treated as having market discount. Generally, gain
recognized on the disposition of, and any partial payment of principal on, a
debt security having market discount is treated as ordinary income to the extent
the gain, or principal payment, does not exceed the "accrued market discount" on
such debt security. In addition, the deduction of any interest expenses
attributable to debt securities having market discount may be deferred. Market
discount generally accrues in equal daily installments. The Fund may make one or
more of the elections applicable to debt securities having market discount,
which could affect the character and timing of recognition of income.
Some debt securities (with a fixed maturity date of one year or less
from the date of issuance) that may be acquired by the Fund may be treated as
having acquisition discount, or OID in the case of certain types of debt
securities. Generally, the Fund will be required to include the acquisition
discount, or OID, in income over the term of the debt security, even though
payment of that amount is not received until a later time, usually when the debt
security matures. The Fund may make one or more of the elections applicable to
debt securities having acquisition discount, or OID, which could affect the
character and timing of recognition of income.
The Fund generally will be required to distribute dividends to
shareholders representing discount on debt securities that is currently
includable in income, even though cash representing such income may not have
been received by the Fund. Cash to pay such dividends may be obtained from sales
proceeds of securities held by the Fund.
DISTRIBUTIONS
Distributions of investment company taxable income are taxable to a
U.S. shareholder as ordinary income, whether paid in cash or shares. Dividends
paid by the Fund to a corporate shareholder, to the extent such dividends are
attributable to dividends received from U.S. corporations by the Fund, may
qualify for the dividends received deduction. However, the revised alternative
minimum tax applicable to corporations may reduce the value of the dividends
received deduction. Distributions of net capital gains (the excess of net
long-term capital gains over net short-term capital losses), if any, designated
by the Fund as capital gain dividends, are taxable to shareholders as long-term
capital gains whether paid in cash or in shares, and regardless of how long the
shareholder has held the Fund's shares; such distributions are not eligible for
the dividends received deduction. Shareholders receiving distributions in the
form of newly issued shares will have a cost basis in each share received equal
to the net asset value of a share of the Fund on the distribution date. A
distribution of an amount in excess of the Fund's current and accumulated
earnings and profits will be treated by a shareholder as a return of capital
which is applied against and reduces the shareholder's basis in his or her
shares. To the extent that the amount of any such distribution exceeds the
shareholder's basis in his or her shares, the excess will be treated by the
shareholder as gain from a sale or exchange of the shares. Shareholders will be
notified annually as to the U.S. Federal tax status of distributions and
shareholders receiving distributions in the form of newly issued shares will
receive a report as to the net asset value of the shares received.
If the net asset value of shares is reduced below a shareholder's cost
as a result of a distribution by the Fund, such distribution generally will be
taxable even though it represents a return of invested capital. Shareholders
should be careful to consider the tax implications of buying shares just prior
to a distribution. The price of shares purchased at this time may reflect the
amount of the forthcoming distribution. Those purchasing just prior to a
distribution will receive a distribution which generally will be taxable to
them.
DISPOSITION OF SHARES
Upon a redemption, sale or exchange of his or her shares, a shareholder
will realize a taxable gain or loss depending upon his or her basis in the
shares. Such gain or loss will be treated as capital gain or loss if the shares
are capital assets in the shareholder's hands and, if so, will be long-term or
short-term, depending upon the shareholder's holding period for the shares. Any
loss realized on a redemption sale or exchange will be disallowed to the extent
the shares disposed of are replaced (including through reinvestment of
dividends) within a period of 61 days beginning 30 days before and ending 30
days after the shares are disposed of. In such a case, the basis of the shares
acquired will be adjusted to reflect the disallowed loss. Any loss realized by a
shareholder on the sale of Fund shares held by the shareholder for six-months or
less will be treated for tax purposes as a long-term capital loss to the extent
of any distributions of capital gain dividends received or treated as having
been received by the shareholder with respect to such shares.
In some cases, shareholders will not be permitted to take all or
portion of their sales loads into account for purposes of determining the amount
of gain or loss realized on the disposition of their shares. This prohibition
generally applies where (1) the shareholder incurs a sales load in acquiring the
shares of the Fund, (2) the shares are disposed of before the 91st day after the
date on which they were acquired, and (3) the shareholder subsequently acquires
shares in the Fund or another regulated investment company and the otherwise
applicable sales charge is reduced under a "reinvestment right" received upon
the initial purchase of Fund shares. The term "reinvestment right" means any
right to acquire shares of one or more regulated investment companies without
the payment of a sales load or with the payment of a reduced sales charge. Sales
charges affected by this rule are treated as if they were incurred with respect
to the shares acquired under the reinvestment right. This provision may be
applied to successive acquisitions of fund shares.
FOREIGN WITHHOLDING TAXES
Income received by the Fund from sources within a foreign country may
be subject to withholding and other taxes imposed by that country.
If more than 50% of the value of the Fund's total assets at the close
of its taxable year consists of securities of foreign corporations, the Fund
will be eligible and may elect to "pass-through" to the Fund's shareholders the
amount of foreign income and similar taxes paid by the Fund. Pursuant to this
election, a shareholder will be required to include in gross income (in addition
to taxable dividends actually received) his or her pro rata share of the foreign
income and similar taxes paid by the Fund, and will be entitled either to deduct
his or her pro rata share of foreign income and similar taxes in computing his
or her taxable income or to use it as a foreign tax credit against his or her
U.S. Federal income taxes, subject to limitations. No deduction for foreign
taxes may be claimed by a shareholder who does not itemize deductions. Foreign
taxes generally may not be deducted by a shareholder that is an individual in
computing the alternative minimum tax. Each shareholder will be notified within
60 days after the close of the Fund's taxable year whether the foreign taxes
paid by the Fund will "pass-through" for that year and, if so, such notification
will designate (1) the shareholder's portion of the foreign taxes paid to each
such country and (2) the portion of the dividend which represents income derived
from sources within each such country.
Generally, except in the case of certain electing individual taxpayers
who have limited creditable foreign taxes and no foreign source income other
than passive investment-type income, a credit for foreign taxes is subject to
the limitation that it may not exceed the shareholder's U.S. tax attributable to
his or her total foreign source taxable income. For this purpose, if the Fund
makes the election described in the preceding paragraph, the source of the
Fund's income flows through to its shareholders. With respect to the Fund, gains
from the sale of securities generally will be treated as derived from U.S.
sources and section 988 gains will be treated as ordinary income derived from
U.S. sources. The limitation on the foreign tax credit is applied separately to
foreign source passive income, including foreign source passive income received
from the Fund. In addition, the foreign tax credit may offset only 90% of the
revised alternative minimum tax imposed on corporations and individuals.
Furthermore, the foreign tax credit is eliminated with respect to foreign taxes
withheld on dividends if the dividend-paying shares or the shares of the Fund
are held by the Fund or the shareholder, as the case may be, for less than 16
days (46 days in the case of preferred shares) during the 30-day period (90-day
period for preferred shares) beginning 15 days (45 days for preferred shares)
before the shares become ex-dividend. In addition, if the Fund fails to satisfy
these holding period requirements, it cannot elect to pass through to
shareholders the ability to claim a deduction for related foreign taxes.
The foregoing is only a general description of the foreign tax credit
under current law. Because application of the credit depends on the particular
circumstances of each shareholder, shareholders are advised to consult their own
tax advisers.
BACKUP WITHHOLDING
The Fund will be required to report to the Internal Revenue Service
("IRS") all taxable distributions as well as gross proceeds from the redemption
of the Fund's shares, except in the case of certain exempt shareholders. All
such distributions and proceeds will be subject to withholding of Federal income
tax at a rate of 31% ("backup withholding") in the case of non-exempt
shareholders if (1) the shareholder fails to furnish the Fund with and to
certify the shareholder's correct taxpayer identification number or social
security number, (2) the IRS notifies the shareholder or the Fund that the
shareholder has failed to report properly certain interest and dividend income
to the IRS and to respond to notices to that effect, or (3) when required to do
so, the shareholder fails to certify that he or she is not subject to backup
withholding. If the withholding provisions are applicable, any such
distributions or proceeds, whether reinvested in additional shares or taken in
cash, will be reduced by the amounts required to be withheld.
Distributions may also be subject to additional state, local and
foreign taxes depending on each shareholder's particular situation. Non-U.S.
shareholders may be subject to U.S. tax rules that differ significantly from
those summarized above. This discussion does not purport to deal with all of the
tax consequences applicable to the Fund or shareholders. Shareholders are
advised to consult their own tax advisers with respect to the particular tax
consequences to them of an investment in the Fund.
PERFORMANCE INFORMATION
Performance information for the classes of shares of the Fund may be
compared, in reports and promotional literature, to: (i) the S&P 500 Index, the
Dow Jones Industrial Average ("DJIA"), or other unmanaged indices so that
investors may compare the Fund's results with those of a group of unmanaged
securities widely regarded by investors as representative of the securities
markets in general; (ii) other groups of mutual funds tracked by Lipper
Analytical Services, a widely used independent research firm that ranks mutual
funds by overall performance, investment objectives and assets, or tracked by
other services, companies, publications or other criteria; and (iii) the
Consumer Price Index (measure for inflation) to assess the real rate of return
from an investment in the Fund. Unmanaged indices may assume the reinvestment of
dividends but generally do not reflect deductions or administrative and
management costs and expenses. Performance rankings are based on historical
information and are not intended to indicate future performance.
YIELD. Quotations of yield for a specific class of shares of the Fund
will be based on all investment income attributable to that class earned during
a particular 30-day (or one month) period (including dividends and interest),
less expenses attributable to that class accrued during the period ("net
investment income"), and will be computed by dividing the net investment income
per share of that class earned during the period by the maximum offering price
per share (in the case of Class A shares) or the net asset value per share (in
the case of Class B and Class C shares) on the last day of the period, according
to the following formula:
YIELD = 2[({(a-b)/cd} + 1){superscript 6}-1]
Where: a = dividends and interest earned
during the period attributable to a
specific class of shares,
b = expenses accrued for the period
attributable to that class (net of
reimbursements),
c = the average daily number of shares
of that class outstanding during the
period that were entitled to receive
dividends, and
d = the maximum offering price per
share (in the case of Class A
shares) or the net asset value per
share (in the case of Class B
shares, Class C shares and Class I
shares) on the last day of the
period.
AVERAGE ANNUAL TOTAL RETURN. Quotations of standardized average annual
total return ("Standardized Return") for a specific class of shares of the Fund
will be expressed in terms of the average annual compounded rate of return that
would cause a hypothetical investment in that class of the Fund made on the
first day of a designated period to equal the ending redeemable value ("ERV") of
such hypothetical investment on the last day of the designated period, according
to the following formula:
P(1 + T){superscript n} = ERV
Where: P = a hypothetical initial payment of
$1,000 to purchase shares of a
specific class
T = the average annual total return of
shares of that class
n = the number of years
ERV = the ending redeemable value of a
hypothetical $1,000 payment made at
the beginning of the period.
For purposes of the above computation for the Fund, it is assumed that
all dividends and capital gains distributions made by the Fund are reinvested at
net asset value in additional shares of the same class during the designated
period. In calculating the ending redeemable value for Class A shares and
assuming complete redemption at the end of the applicable period, the maximum
5.75% sales charge is deducted from the initial $1,000 payment and, for Class B
and Class C shares, the applicable CDSC imposed upon redemption of Class B or
Class C shares held for the period is deducted. Standardized Return quotations
for the Fund do not take into account any required payments for federal or state
income taxes. Standardized Return quotations for Class B shares for periods of
over eight years will reflect conversion of the Class B shares to Class A shares
at the end of the eighth year. Standardized Return quotations are determined to
the nearest 1/100 of 1%.
The Fund may, from time to time, include in advertisements, promotional
literature or reports to shareholders or prospective investors total return data
that are not calculated according to the formula set forth above
("Non-Standardized Return"). Neither initial nor CDSCs are taken into account in
calculating Non-Standardized Return; a sales charge, if deducted, would reduce
the return.
The following table summarizes the calculation of Standardized and
Non-Standardized Return for the Class A, Class B, Class, C, Class I and Advisor
Class shares of the Fund for the periods indicated. In determining the average
annual total return for a specific class of shares of the Fund, recurring fees,
if any, that are charged to all shareholder accounts are taken into
consideration. For any account fees that vary with the size of the account of
the Fund, the account fee used for purposes of the following computations is
assumed to be the fee that would be charged to the mean account size of the
Fund.
STANDARDIZED RETURN[*]
<TABLE>
CLASS A[1] CLASS B[2] CLASS C[3] CLASS I[4] ADVISOR CLASS
<S> <C> <C> <C> <C>
Year ended December 31,
1998
% % % % %
Inception [#] to year
ended December 31,
1998: [8]
% % % % %
NON-STANDARDIZED RETURN[**]
CLASS A[5] CLASS B[6] CLASS C[7] CLASS I[4] ADVISOR CLASS
Year ended December 31,
1998
% % % % %
Inception [#] to year
ended December 31,
1998: [8]
% % % % %
- ------------------------- ----------------- ------------------ -------------------
</TABLE>
[*] The Standardization Return figures for Class A shares reflect the
deduction of the maximum initial sales charge of 5.75%. The Standardized Return
figures for Class B and C shares reflect the deduction of the applicable CDSC
imposed on redemption of Class B or C shares held for the period. Class I shares
are not subject to an initial sales charge or a CDSC; therefore, the
Non-Standardized Return Figures would be identical to the Standardized Return
Figures.
[**] The Non-Standardized Return figures do not reflect the deduction of
any initial sales charge or CDSC.
[#] The inception date for the Fund (and Class A, Class B, Class C and
Class I shares of the Fund) was July 22, 1996. Advisor Class shares were first
offered on January 1, 1998.
[1] The Standardized Return figures for the Class A shares reflect
expense reimbursement. Without expense reimbursement, the Standardized Return
for Class A shares for the period from inception through and the one year ended
December 31, 1998 would have been [ ]%
[2] The Standardized Return figures for the Class B shares reflect
expense reimbursement. Without expense reimbursement, the Standardized Return
for Class B shares for the period from inception through and the one year ended
December 31, 1998 would have been [ ]%
[3] The Standardized Return figures for the Class C shares reflect
expense reimbursement. Without expense reimbursement, the Standardized Return
for Class C shares for the period from inception through and the one year ended
December 31, 1998 would have been [ ]%
[4] Class I shares are not subject to an initial sales charge or a
CDSC; therefore the Non-Standardized and Standardized Return figures are
identical.
[5] The Non-Standardized Return figures for Class A shares reflect
expense reimbursement. Without expense reimbursement, the Non-Standardized
Return for Class A shares for the period from inception through and the one year
ended December 31, 1998 would have been [ ]%
[6] The Non-Standardized Return figures for Class B shares reflect
expense reimbursement. Without expense reimbursement, the Non-Standardized
Return for Class B shares for the period from inception through and the one year
ended December 31, 1998 would have been [ ]%
[7] The Non-Standardized Return figures for Class C shares reflect
expense reimbursement. Without expense reimbursement, the Non-Standardized
Return for Class C shares for the period from inception through and the one year
ended December 31, 1998 would have been [ ]%
[8] The total return for a period less than a full year is calculated
on an aggregate basis and is not annualized.
CUMULATIVE TOTAL RETURN. Cumulative total return is the cumulative rate
of return on a hypothetical initial investment of $1,000 in a specific class of
shares of the Fund for a specified period. Cumulative total return quotations
reflect changes in the price of the Fund's shares and assume that all dividends
and capital gains distributions during the period were reinvested in the Fund
shares. Cumulative total return is calculated by computing the cumulative rates
of return of a hypothetical investment in a specific class of shares of the Fund
over such periods, according to the following formula (cumulative total return
is then expressed as a percentage):
C = (ERV/P) - 1
Where: C = cumulative total return
P = a hypothetical initial investment
of $1,000 to purchase shares of a
specific class
ERV = ending redeemable value: ERV is
the value, at the end of the
applicable period, of a hypothetical
$1,000 investment made at the
beginning of the applicable period.
The following table summarizes the calculation of Cumulative Total
Return for the periods indicated through December 31, 1998, assuming the maximum
5.75% sales charge has been assessed.
ONE YEAR SINCE
INCEPTION[*]
Class A
Class B
Class C
Class I
Advisor Class
The following table summarizes the calculation of Cumulative Total
Return for the periods indicated through December 31, 1998, assuming the maximum
5.75% sales charge has not been assessed.
ONE YEAR SINCE
INCEPTION[*]
Class A
Class B
Class C
Class I
Advisor Class
- ---------------------------
[*] The inception date for the Fund (Class A, Class B, Class C and I
shares) was July 22, 1996. Advisor Class shares were first offered on January 1,
1998.
OTHER QUOTATIONS, COMPARISONS AND GENERAL INFORMATION. The foregoing
computation methods are prescribed for advertising and other communications
subject to SEC Rule 482. Communications not subject to this rule may contain a
number of different measures of performance, computation methods and
assumptions, including but not limited to: historical total returns; results of
actual or hypothetical investments; changes in dividends, distributions or share
values; or any graphic illustration of such data. These data may cover any
period of the Trust's existence and may or may not include the impact of sales
charges, taxes or other factors.
Performance quotations for the Fund will vary from time to time
depending on market conditions, the composition of the Fund's portfolio and
operating expenses of the Fund. These factors and possible differences in the
methods used in calculating performance quotations should be considered when
comparing performance information regarding the Fund's shares with information
published for other investment companies and other investment vehicles.
Performance quotations should also be considered relative to changes in the
value of the Fund's shares and the risks associated with the Fund's investment
objectives and policies. At any time in the future, performance quotations may
be higher or lower than past performance quotations and there can be no
assurance that any historical performance quotation will continue in the future.
The Fund may also cite endorsements or use for comparison its
performance rankings and listings reported in such newspapers or business or
consumer publications as, among others: AAII Journal, Barron's, Boston Business
Journal, Boston Globe, Boston Herald, Business Week, Consumer's Digest, Consumer
Guide Publications, Changing Times, Financial Planning, Financial World, Forbes,
Fortune, Growth Fund Guide, Houston Post, Institutional Investor, International
Fund Monitor, Investor's Daily, Los Angeles Times, Medical Economics, Miami
Herald, Money Mutual Fund Forecaster, Mutual Fund Letter, Mutual Fund Source
Book, Mutual Fund Values, National Underwriter, Nelson's Directory of Investment
Managers, New York Times, Newsweek, No Load Fund Investor, No Load Fund* X,
Oakland Tribune, Pension World, Pensions and Investment Age, Personal Investor,
Rugg and Steele, Time, U.S. News and World Report, USA Today, The Wall Street
Journal, and Washington Post.
FINANCIAL STATEMENTS
The Fund's Portfolio of Investments as of December 31, 1998, Statement
of Assets and Liabilities as of December 31, 1998, Statement of Operations for
the fiscal year ended December 31, 1998, Statement of Changes in Net Assets for
the fiscal year ended December 31, 1998, Financial Highlights, Notes to
Financial Statements, and Report of Independent Accountants, which are included
in the Fund's December 31, 1998 Annual Report to shareholders, are incorporated
by reference into this SAI.
<PAGE>
APPENDIX A
DESCRIPTION OF STANDARD & POOR'S RATINGS GROUP ("S&P") AND MOODY'S
INVESTORS SERVICE, INC. ("MOODY'S") CORPORATE BOND AND COMMERCIAL PAPER RATINGS
[From "Moody's Bond Record," November 1994 Issue (Moody's Investors
Service, New York, 1994), and "Standard & Poor's Municipal Ratings Handbook,"
October 1997 Issue (McGraw Hill, New York, 1997).]
MOODY'S:
(a) CORPORATE BONDS. Bonds rated Aaa by Moody's are judged by Moody's
to be of the best quality, carrying the smallest degree of investment risk.
Interest payments are protected by a large or exceptionally stable margin and
principal is secure. While the various protective elements are likely to change,
such changes as can be visualized are most unlikely to impair the fundamentally
strong position of such issues. Bonds rated Aa are judged by Moody's to be of
high quality by all standards. Aa bonds are rated lower than Aaa bonds because
margins of protection may not be as large as those of Aaa bonds, or fluctuations
of protective elements may be of greater amplitude, or there may be other
elements present which make the long-term risks appear somewhat larger than
those applicable to Aaa securities. Bonds which are rated A by Moody's possess
many favorable investment attributes and are to be considered as upper
medium-grade obligations. Factors giving security to principal and interest are
considered adequate, but elements may be present which suggest a susceptibility
to impairment sometime in the future. Bonds rated Baa by Moody's are considered
medium-grade obligations (i.e., they are neither highly protected nor poorly
secured). Interest payments and principal security appear adequate for the
present, but certain protective elements may be lacking or may be
characteristically unreliable over any great length of time. Such bonds lack
outstanding investment characteristics and in fact have speculative
characteristics as well. Bonds which are rated Ba are judged to have speculative
elements; their future cannot be considered well-assured. Often the protection
of interest and principal payments may be very moderate and thereby not well
safeguarded during both good and bad times over the future. Uncertainty of
position characterizes bonds in this class. Bonds which are rated B generally
lack characteristics of the desirable investment. Assurance of interest and
principal payments of or maintenance of other terms of the contract over any
long period of time may be small. Bonds which are rated Caa are of poor
standing. Such issues may be in default or there may be present elements of
danger with respect to principal or interest. Bonds which are rated Ca represent
obligations which are speculative in a high degree. Such issues are often in
default or have other marked shortcomings. Bonds which are rated C are the
lowest rated class of bonds and issues so rated can be regarded as having
extremely poor prospects of ever attaining any real investment standing.
(b) COMMERCIAL PAPER. The Prime rating is the highest commercial paper
rating assigned by Moody's. Among the factors considered by Moody's in assigning
ratings are the following: (1) evaluation of the management of the issuer; (2)
economic evaluation of the issuer's industry or industries and an appraisal of
speculative-type risks which may be inherent in certain areas; (3) evaluation of
the issuer's products in relation to competition and customer acceptance; (4)
liquidity; (5) amount and quality of long-term debt; (6) trend of earnings over
a period of ten years; (7) financial strength of a parent company and the
relationships which exist with the issuer; and (8) recognition by management of
obligations which may be present or may arise as a result of public interest
questions and preparations to meet such obligations. Issuers within this Prime
category may be given ratings 1, 2 or 3, depending on the relative strengths of
these factors. The designation of Prime-1 indicates the highest quality
repayment capacity of the rated issue. Issuers rated Prime-2 are deemed to have
a strong ability for repayment while issuers voted Prime-3 are deemed to have an
acceptable ability for repayment. Issuers rated Not Prime do not fall within any
of the Prime rating categories.
S&P:
(a) CORPORATE BONDS. An S&P corporate debt rating is a current
assessment of the creditworthiness of an obligor with respect to a specific
obligation. The ratings are based on current information furnished by the issuer
or obtained by S&P from other sources it considers reliable. The ratings
described below may be modified by the addition of a plus or minus sign to show
relative standing within the major rating categories.
Debt rated AAA has the highest rating assigned by S&P. Capacity to pay
interest and repay principal is extremely strong. Debt rated AA is judged by S&P
to have a very strong capacity to pay interest and repay principal and differs
from the highest rated issues only in small degree. Debt rated A by S&P has a
strong capacity to pay interest and repay principal, although it is somewhat
more susceptible to the adverse effects of changes in circumstances and economic
conditions than debt in higher rated categories.
Debt rated BBB by S&P is regarded by S&P as having an adequate capacity
to pay interest and repay principal. Although such bonds normally exhibit
adequate protection parameters, adverse economic conditions or changing
circumstances are more likely to lead to a weakened capacity to pay interest and
repay principal than debt in higher rated categories.
Debt rated BB, B, CCC, CC and C is regarded as having predominately
speculative characteristics with respect to capacity to pay interest and repay
principal. BB indicates the least degree of speculation and C the highest. While
such debt will likely have some quality and protective characteristics, these
are outweighed by large uncertainties or exposures to adverse conditions. Debt
rated BB has less near-term vulnerability to default than other speculative
issues. However, it faces major ongoing uncertainties or exposure to adverse
business, financial or economic conditions which could lead to inadequate
capacity to meet timely interest and principal payments. The BB rating category
is also used for debt subordinated to senior debt that is assigned an actual or
implied BBB- rating. Debt rated B has a greater vulnerability to default but
currently has the capacity to meet interest payments and principal repayments.
Adverse business, financial, or economic conditions will likely impair capacity
or willingness to pay interest and repay principal. The B rating category is
also used for debt subordinated to senior debt that is assigned an actual or
implied BB or BB- rating. Debt rated CCC has a currently identifiable
vulnerability to default, and is dependent upon favorable business, financial,
and economic conditions to meet timely payment of interest and repayment of
principal. In the event of adverse business, financial or economic conditions,
it is not likely to have the capacity to pay interest and repay principal. The
CCC rating category is also used for debt subordinated to senior debt that is
assigned an actual or implied B or B- rating. The rating CC typically is applied
to debt subordinated to senior debt which is assigned an actual or implied CCC
debt rating. The rating C typically is applied to debt subordinated to senior
debt which is assigned an actual or implied CCC- debt rating. The C rating may
be used to cover a situation where a bankruptcy petition has been filed, but
debt service payments are continued.
The rating CI is reserved for income bonds on which no interest is
being paid. Debt rated D is in payment default. The D rating category is used
when interest payments or principal payments are not made on the date due, even
if the applicable grace period has not expired, unless S&P believes that such
payments will be made during such grace period. The D rating also will be used
upon the filing of a bankruptcy petition if debt service payments are
jeopardized.
(b) COMMERCIAL PAPER. An S&P commercial paper rating is a current
assessment of the likelihood of timely payment of debt considered short-term in
the relevant market.
The commercial paper rating A-1 by S&P indicates that the degree of
safety regarding timely payment is strong. Those issues determined to possess
extremely strong safety characteristics are denoted with a plus sign (+)
designation. For commercial paper with an A-2 rating, the capacity for timely
payment on issues is satisfactory, but not as high as for issues designated A-1.
Issues rated A-3 have adequate capacity for timely payment, but are more
vulnerable to the adverse effects of changes in circumstances than obligations
carrying higher designations.
Issues rated B are regarded as having only speculative capacity for
timely payment. The C rating is assigned to short-term debt obligations with a
doubtful capacity for payment. Debt rated D is in payment default. The D rating
category is used when interest payments or principal payments are not made on
the date due, even if the applicable grace period has not expired, unless S&P
believes such payments will be made during such grace period.
<PAGE>
IVY GROWTH FUND
a series of
IVY FUND
Via Mizner Financial Plaza, Suite 300
700 South Federal Highway
Boca Raton, Florida 33432
STATEMENT OF ADDITIONAL INFORMATION
April , 1999
Ivy Fund (the "Trust") is an open-end management investment company
that currently consists of nineteen fully managed portfolios, each of which
(except for Ivy South America Fund and Ivy International Strategic Bond Fund) is
diversified. This Statement of Additional Information ("SAI") relates to the
Class A, B, C and Advisor Class shares of Ivy Asia Pacific Fund (the "Fund").
The other eighteen portfolios of the Trust are described in separate
prospectuses and SAIs.
This SAI is not a prospectus and should be read in conjunction with the
prospectus for the Fund dated April , 1999 (the "Prospectus"), which may be
obtained upon request and without charge from the Trust at the Distributor's
address and telephone number printed below.
INVESTMENT MANAGER
Ivy Management, Inc. ("IMI")
Via Mizner Financial Plaza, Suite 300
700 South Federal Highway
Boca Raton, Florida 33432
Telephone: (800) 777-6472
DISTRIBUTOR
Ivy Mackenzie Distributors, Inc. ("IMDI")
Via Mizner Financial Plaza, Suite 300
700 South Federal Highway
Boca Raton, Florida 33432
Telephone: (800) 456-5111
<PAGE>
iii
TABLE OF CONTENTS
GENERAL INFORMATION..........................................................
INVESTMENT OBJECTIVES, STRATEGIES AND RISKS..................................
COMMON STOCKS.......................................................
CONVERTIBLE SECURITIES..............................................
DEBT SECURITIES.....................................................
IN GENERAL.................................................
INVESTMENT-GRADE DEBT SECURITIES...........................
LOW-RATED DEBT SECURITIES..................................
ILLIQUID SECURITIES.................................................
FOREIGN SECURITIES..................................................
EMERGING MARKETS....................................................
FOREIGN CURRENCIES..................................................
FOREIGN CURRENCY EXCHANGE TRANSACTIONS..............................
REPURCHASE AGREEMENTS...............................................
BANKING INDUSTRY AND SAVINGS AND LOAN OBLIGATIONS...................
COMMERCIAL PAPER....................................................
BORROWING...........................................................
WARRANTS............................................................
REAL ESTATE INVESTMENT TRUSTS (REITS)...............................
OPTIONS TRANSACTIONS................................................
IN GENERAL.................................................
WRITING OPTIONS ON INDIVIDUAL SECURITIES...................
PURCHASING OPTIONS ON INDIVIDUAL SECURITIES................
PURCHASING AND WRITING OPTIONS ON SECURITIES INDICES.......
RISKS OF OPTIONS TRANSACTIONS..............................
FUTURES CONTRACTS AND OPTIONS ON FUTURES CONTRACTS..................
IN GENERAL.................................................
RISKS ASSOCIATED WITH FUTURES AND RELATED OPTIONS..........
SECURITIES INDEX FUTURES CONTRACTS..................................
RISKS OF SECURITIES INDEX FUTURES..........................
COMBINED TRANSACTIONS......................................
INVESTMENT RESTRICTIONS......................................................
PORTFOLIO TURNOVER...........................................................
TRUSTEES AND OFFICERS........................................................
PERSONAL INVESTMENTS BY EMPLOYEES OF IMI...................
INVESTMENT ADVISORY AND OTHER SERVICES.......................................
BUSINESS MANAGEMENT AND INVESTMENT ADVISORY SERVICES................
DISTRIBUTION SERVICES...............................................
RULE 18F-3 PLAN............................................
RULE 12B-1 DISTRIBUTION PLANS..............................
CUSTODIAN...........................................................
FUND ACCOUNTING SERVICES............................................
TRANSFER AGENT AND DIVIDEND PAYING AGENT............................
ADMINISTRATOR.......................................................
AUDITORS............................................................
BROKERAGE ALLOCATION.........................................................
CAPITALIZATION AND VOTING RIGHTS.............................................
SPECIAL RIGHTS AND PRIVILEGES................................................
AUTOMATIC INVESTMENT METHOD.........................................
EXCHANGE OF SHARES..................................................
INITIAL SALES CHARGE SHARES................................
CONTINGENT DEFERRED SALES CHARGE SHARES CLASS A............
CLASS B....................................................
CLASS C....................................................
ADVISOR CLASS..............................................
ALL CLASSES................................................
LETTER OF INTENT....................................................
RETIREMENT PLANS....................................................
INDIVIDUAL RETIREMENT ACCOUNTS.............................
ROTH IRAS..................................................
QUALIFIED PLANS............................................
DEFERRED COMPENSATION FOR PUBLIC SCHOOLS AND
CHARITABLE ORGANIZATIONS ("403(B)(7) ACCOUNT")....
SIMPLIFIED EMPLOYEE PENSION ("SEP") IRAS...................
SIMPLE PLANS...............................................
REINVESTMENT PRIVILEGE..............................................
RIGHTS OF ACCUMULATION..............................................
SYSTEMATIC WITHDRAWAL PLAN..........................................
GROUP SYSTEMATIC INVESTMENT PROGRAM.................................
REDEMPTIONS..................................................................
CONVERSION OF CLASS B SHARES.................................................
NET ASSET VALUE..............................................................
TAXATION 40
OPTIONS, FUTURES AND FOREIGN CURRENCY FORWARD CONTRACTS.............
CURRENCY FLUCTUATIONS -- "SECTION 988" GAINS OR LOSSES..............
INVESTMENT IN PASSIVE FOREIGN INVESTMENT COMPANIES..................
DEBT SECURITIES ACQUIRED AT A DISCOUNT..............................
DISTRIBUTIONS.......................................................
DISPOSITION OF SHARES...............................................
FOREIGN WITHHOLDING TAXES...........................................
BACKUP WITHHOLDING..................................................
PERFORMANCE INFORMATION......................................................
YIELD......................................................
AVERAGE ANNUAL TOTAL RETURN................................
CUMULATIVE TOTAL RETURN....................................
OTHER QUOTATIONS, COMPARISONS AND GENERAL INFORMATION......
FINANCIAL STATEMENTS.........................................................
APPENDIX A...................................................................
<PAGE>
55
GENERAL INFORMATION
The Fund is organized as a separate, diversified portfolio of the
Trust, an open-end management investment company organized as a Massachusetts
business trust on December 21, 1983. The Fund commenced operations (with Class A
shares) on March 1, 1984. The inception dates for the Fund's Class B, Class C
and Advisor Class shares were October 23, 1993, April 30, 1996 and January 1,
1998, respectively.
Descriptions in this Statement of a particular investment practice or
technique in which the Fund may engage or a financial instrument which the Fund
may purchase are meant to describe the spectrum of investments that IMI, in its
discretion, might, but is not required to, use in managing the Fund's portfolio
assets. IMI may, in its discretion, at any time employ such practice, technique
or instrument for one or more funds but not for all funds advised by it.
Furthermore, it is possible that certain types of financial instruments or
investment techniques described herein may not be available, permissible,
economically feasible or effective for their intended purposes in all markets.
Certain practices, techniques, or instruments may not be principal activities of
the Fund but, to the extent employed, could from time to time have a material
impact on the Fund's performance.
INVESTMENT OBJECTIVES, STRATEGIES AND RISKS
The Fund has its own investment objectives and policies, which are
described in the Prospectus under the captions "Summary" and "Additional
Information About Strategies and Risks." Additional information regarding the
characteristics and risks associated with the Fund's investment techniques is
set forth below.
The Fund's principal investment objective is long-term capital growth
primarily through investment in equity securities, with current income being a
secondary consideration. Under normal conditions, the Fund invests at least 65%
of its total assets in common stocks and securities convertible into common
stocks. The Fund invests primarily in common stocks of domestic corporations
with low price-earnings ratios and rising earnings, focusing on established,
financially secure firms with capitalizations over $100 million and more than
three years of operating history.
The Fund may invest up to 25% of its net assets in foreign equity
securities, primarily those traded in European, Pacific Basin and Latin American
markets, some of which may be emerging markets involving special risks, as
described below. Individual foreign securities are selected based on value
indicators, such as a low price-earnings ratio, and are reviewed for fundamental
financial strength.
When circumstances warrant, the Fund may invest without limit in
investment grade debt securities (e.g., U.S. Government securities or other
corporate debt securities rated at least Baa by Moody's or BBB by S&P, or, if
unrated, considered by IMI to be of comparable quality), preferred stocks, or
cash or cash equivalents such as bank obligations (including certificates of
deposit and bankers' acceptances), commercial paper, short-term notes and
repurchase agreements.
The Fund may invest up to 5% of its net assets in debt securities rated
Ba or below by Moody's or BB or below by S&P, or if unrated, considered by IMI
to be of comparable quality (commonly referred to as "high yield" or "junk"
bonds). The Fund will not invest in debt securities rated less than C by either
Moody's or S&P. [As of December 31, 1998, the Fund did not invest in low-rated
debt securities.]
As a fundamental policy, the Fund may borrow up to 10% of the value of
its total assets, but only for temporary purposes when it would be advantageous
to do so from an investment standpoint. The Fund may invest up to 5% of its net
assets in warrants. The Fund may not invest more than 15% of its net assets in
illiquid securities. The Fund may enter into forward foreign currency contracts
and may also invest in equity real estate investment trusts.
The Fund may write put options, with respect to not more than 10% of
the value of its net assets, on securities and stock indices, and may write
covered call options with respect to not more than 25% of the value of its net
assets. The Fund may purchase options, provided the aggregate premium paid for
all options held does not exceed 5% of its net assets. For hedging purposes
only, the Fund may enter into stock index futures contracts as a means of
regulating its exposure to equity markets. The Fund's equivalent exposure in
stock index futures contracts will not exceed 15% of its total assets.
COMMON STOCKS
Common stock can be issued by companies to raise cash; all common stock
shares represent a proportionate ownership interest in a company. As a result,
the value of common stock rises and falls with a company's success or failure.
The market value of common stock can fluctuate significantly, with smaller
companies being particularly susceptible to price swings. Transaction costs in
smaller company stocks may also be higher than those of larger companies.
CONVERTIBLE SECURITIES
The convertible securities in which the Fund may invest include
corporate bonds, notes, debentures, preferred stock and other securities that
may be converted or exchanged at a stated or determinable exchange ratio into
underlying shares of common stock. Investments in convertible securities can
provide income through interest and dividend payments as well as an opportunity
for capital appreciation by virtue of their conversion or exchange features.
Because convertible securities can be converted into equity securities, their
values will normally vary in some proportion with those of the underlying equity
securities. Convertible securities usually provide a higher yield than the
underlying equity, however, so that the price decline of a convertible security
may sometimes be less substantial than that of the underlying equity security.
The exchange ratio for any particular convertible security may be adjusted from
time to time due to stock splits, dividends, spin-offs, other corporate
distributions or scheduled changes in the exchange ratio. Convertible debt
securities and convertible preferred stocks, until converted, have general
characteristics similar to both debt and equity securities. Although to a lesser
extent than with debt securities generally, the market value of convertible
securities tends to decline as interest rates increase and, conversely, tends to
increase as interest rates decline. In addition, because of the conversion or
exchange feature, the market value of convertible securities typically changes
as the market value of the underlying common stock changes, and, therefore, also
tends to follow movements in the general market for equity securities. When the
market price of the underlying common stock increases, the price of a
convertible security tends to rise as a reflection of the value of the
underlying common stock, although typically not as much as the price of the
underlying common stock. While no securities investments are without risk,
investments in convertible securities generally entail less risk than
investments in common stock of the same issuer.
As debt securities, convertible securities are investments that provide
for a stream of income. Like all debt securities, there can be no assurance of
income or principal payments because the issuers of the convertible securities
may default on their obligations. Convertible securities generally offer lower
yields than non-convertible securities of similar quality because of their
conversion or exchange features.
Convertible securities generally are subordinated to other similar but
non-convertible securities of the same issuer, although convertible bonds, as
corporate debt obligations, are senior in right of payment to all equity
securities, and convertible preferred stock is senior to common stock, of the
same issuer. However, convertible bonds and convertible preferred stock
typically have lower coupon rates than similar non-convertible securities.
Convertible securities may be issued as fixed income obligations that pay
current income.
DEBT SECURITIES
IN GENERAL. Investment in debt securities involves both interest rate
and credit risk. Generally, the value of debt instruments rises and falls
inversely with fluctuations in interest rates. As interest rates decline, the
value of debt securities generally increases. Conversely, rising interest rates
tend to cause the value of debt securities to decrease. Bonds with longer
maturities generally are more volatile than bonds with shorter maturities. The
market value of debt securities also varies according to the relative financial
condition of the issuer. In general, lower-quality bonds offer higher yields due
to the increased risk that the issuer will be unable to meet its obligations on
interest or principal payments at the time called for by the debt instrument.
INVESTMENT-GRADE DEBT SECURITIES. Bonds rated Aaa by Moody's Investors
Service, Inc. ("Moody's") and AAA by Standard & Poor's Ratings Group ("S&P") are
judged to be of the best quality (i.e., capacity to pay interest and repay
principal is extremely strong). Bonds rated Aa/AA are considered to be of high
quality (i.e., capacity to pay interest and repay principal is very strong and
differs from the highest rated issues only to a small degree). Bonds rated A are
viewed as having many favorable investment attributes, but elements may be
present that suggest a susceptibility to the adverse effects of changes in
circumstances and economic conditions than debt in higher rated categories.
Bonds rated Baa/BBB (considered by Moody's to be "medium grade" obligations) are
considered to have an adequate capacity to pay interest and repay principal, but
certain protective elements may be lacking (i.e., such bonds lack outstanding
investment characteristics and have some speculative characteristics). The Fund
may invest in debt securities that are given an investment-grade rating by
Moody's or S&P, and may also invest in unrated debt securities that are
considered by IMI to be of comparable quality.
LOW-RATED DEBT SECURITIES. Securities rated lower than Baa by Moody's
or BBB by S&P, and comparable unrated securities (commonly referred to as "high
yield" or "junk" bonds), including many emerging markets bonds, are considered
to be predominantly speculative with respect to the issuer's continuing ability
to meet principal and interest payments. The lower the ratings of corporate debt
securities, the more their risks render them like equity securities. Such
securities carry a high degree of risk (including the possibility of default or
bankruptcy of the issuers of such securities), and generally involve greater
volatility of price and risk of principal and income (and may be less liquid)
than securities in the higher rating categories. (See Appendix A for a more
complete description of the ratings assigned by Moody's and S&P and their
respective characteristics.)
Lower rated and unrated securities are especially subject to adverse
changes in general economic conditions and to changes in the financial condition
of their issuers. Economic downturns may disrupt the high yield market and
impair the ability of issuers to repay principal and interest. Also, an increase
in interest rates would likely have an adverse impact on the value of such
obligations. During an economic downturn or period of rising interest rates,
highly leveraged issuers may experience financial stress which could adversely
affect their ability to service their principal and interest payment
obligations. Prices and yields of high yield securities will fluctuate over time
and, during periods of economic uncertainty, volatility of high yield securities
may adversely affect the Fund's net asset value. In addition, investments in
high yield zero coupon or pay-in-kind bonds, rather than income-bearing high
yield securities, may be more speculative and may be subject to greater
fluctuations in value due to changes in interest rates.
Changes in interest rates may have a less direct or dominant impact on
high yield bonds than on higher quality issues of similar maturities. However,
the price of high yield bonds can change significantly or suddenly due to a host
of factors including changes in interest rates, fundamental credit quality,
market psychology, government regulations, U.S. economic growth and, at times,
stock market activity. High yield bonds may contain redemption or call
provisions. If an issuer exercises these provisions in a declining interest rate
market, the Fund may have to replace the security with a lower yielding
security.
The trading market for high yield securities may be thin to the extent
that there is no established retail secondary market or because of a decline in
the value of such securities. A thin trading market may limit the ability of the
Fund to accurately value high yield securities in the Fund's portfolio, could
adversely affect the price at which the Fund could sell such securities, and
cause large fluctuations in the daily net asset value of the Fund's shares.
Adverse publicity and investor perceptions, whether or not based on fundamental
analysis, may decrease the value and liquidity of low-rated debt securities,
especially in a thinly traded market. When secondary markets for high yield
securities become relatively less liquid, it may be more difficult to value the
securities, requiring additional research and elements of judgment. These
securities may also involve special registration responsibilities, liabilities
and costs, and liquidity and valuation difficulties.
Credit quality in the high yield securities market can change suddenly
and unexpectedly, and even recently issued credit ratings may not fully reflect
the actual risks posed by a particular high yield security. For these reasons,
it is the policy of IMI not to rely exclusively on ratings issued by established
credit rating agencies, but to supplement such ratings with its own independent
and on-going review of credit quality. The achievement of the Fund's investment
objectives by investment in such securities may be more dependent on IMI's
credit analysis than is the case for higher quality bonds. Should the rating of
a portfolio security be downgraded, IMI will determine whether it is in the best
interest of the Fund to retain or dispose of such security. However, should any
individual bond held by the Fund be downgraded below a rating of C, IMI
currently intends to dispose of such bond based on then existing market
conditions.
Prices for high yield securities may be affected by legislative and
regulatory developments. For example, Federal rules require savings and loan
institutions to gradually reduce their holdings of this type of security. Also,
Congress has from time to time considered legislation that would restrict or
eliminate the corporate tax deduction for interest payments in these securities
and regulate corporate restructurings. Such legislation may significantly
depress the prices of outstanding securities of this type.
ILLIQUID SECURITIES
The Fund may purchase securities other than in the open market. While
such purchases may often offer attractive opportunities for investment not
otherwise available on the open market, the securities so purchased are often
"restricted securities" or "not readily marketable" (i.e., they cannot be sold
to the public without registration under the Securities Act of 1933, as amended
(the "1933 Act"), or the availability of an exemption from registration (such as
Rule 144A) or because they are subject to other legal or contractual delays in
or restrictions on resale). This investment practice, therefore, could have the
effect of increasing the level of illiquidity of the Fund. It is the Fund's
policy that illiquid securities (including repurchase agreements of more than
seven days duration, certain restricted securities, and other securities which
are not readily marketable) may not constitute, at the time of purchase, more
than 15% of the value of the Fund's net assets. The Trust's Board of Trustees
has approved guidelines for use by IMI in determining whether a security is
illiquid.
Generally speaking, restricted securities may be sold (i) only to
qualified institutional buyers; (ii) in a privately negotiated transaction to a
limited number of purchasers; (iii) in limited quantities after they have been
held for a specified period of time and other conditions are met pursuant to an
exemption from registration; or (iv) in a public offering for which a
registration statement is in effect under the 1933 Act. Issuers of restricted
securities may not be subject to the disclosure and other investor protection
requirements that would be applicable if their securities were publicly traded.
If adverse market conditions were to develop during the period between the
Fund's decision to sell a restricted or illiquid security and the point at which
the Fund is permitted or able to sell such security, the Fund might obtain a
price less favorable than the price that prevailed when it decided to sell.
Where a registration statement is required for the resale of restricted
securities, the Fund may be required to bear all or part of the registration
expenses. The Fund may be deemed to be an "underwriter" for purposes of the 1933
Act when selling restricted securities to the public and, in such event, the
Fund may be liable to purchasers of such securities if the registration
statement prepared by the issuer is materially inaccurate or misleading.
Since it is not possible to predict with assurance that the market for
securities eligible for resale under Rule 144A will continue to be liquid, IMI
will monitor such restricted securities subject to the supervision of the Board
of Trustees. Among the factors IMI may consider in reaching liquidity decisions
relating to Rule 144A securities are: (1) the frequency of trades and quotes for
the security; (2) the number of dealers wishing to purchase or sell the security
and the number of other potential purchasers; (3) dealer undertakings to make a
market in the security; and (4) the nature of the security and the nature of the
market for the security (i.e., the time needed to dispose of the security, the
method of soliciting offers, and the mechanics of the transfer).
FOREIGN SECURITIES
The securities of foreign issuers in which the Fund may invest include
non-U.S. dollar-denominated debt securities, Euro dollar securities, sponsored
and unsponsored American Depository Receipts ("ADRs"), Global Depository
Receipts ("GDRs"), American Depository Shares ("ADSs"), Global Depository Shares
("GDSs") and related depository instruments, and debt securities issued, assumed
or guaranteed by foreign governments or political subdivisions or
instrumentalities thereof. Shareholders should consider carefully the
substantial risks involved in investing in securities issued by companies and
governments of foreign nations, which are in addition to the usual risks
inherent in the Fund's domestic investments.
Although IMI intends to invest the Fund's assets only in nations that
are generally considered to have relatively stable and friendly governments,
there is the possibility of expropriation, nationalization, repatriation or
confiscatory taxation, taxation on income earned in a foreign country and other
foreign taxes, foreign exchange controls (which may include suspension of the
ability to transfer currency from a given country), default on foreign
government securities, political or social instability or diplomatic
developments which could affect investments in securities of issuers in those
nations. In addition, in many countries there is less publicly available
information about issuers than is available for U.S. companies. Moreover,
foreign companies are not generally subject to uniform accounting, auditing and
financial reporting standards, and auditing practices and requirements may not
be comparable to those applicable to U.S. companies. In many foreign countries,
there is less governmental supervision and regulation of business and industry
practices, stock exchanges, brokers, and listed companies than in the United
States. Foreign securities transactions may also be subject to higher brokerage
costs than domestic securities transactions. The foreign securities markets of
many of the countries in which the Fund may invest may also be smaller, less
liquid and subject to greater price volatility than those in the United States.
In addition, the Fund may encounter difficulties or be unable to pursue legal
remedies and obtain judgment in foreign courts.
Foreign bond markets have different clearance and settlement procedures
and in certain markets there have been times when settlements have been unable
to keep pace with the volume of securities transactions, making it difficult to
conduct such transactions. Delays in settlement could result in temporary
periods when assets of the Fund are uninvested and no return is earned thereon.
The inability of the Fund to make intended security purchases due to settlement
problems could cause the Fund to miss attractive investment opportunities.
Further, the inability to dispose of portfolio securities due to settlement
problems could result either in losses to the Fund because of subsequent
declines in the value of the portfolio security or, if the Fund has entered into
a contract to sell the security, in possible liability to the purchaser. It may
be more difficult for the Fund's agents to keep currently informed about
corporate actions such as stock dividends or other matters that may affect the
prices of portfolio securities. Communications between the United States and
foreign countries may be less reliable than within the United States, thus
increasing the risk of delayed settlements of portfolio transactions or loss of
certificates for portfolio securities. Moreover, individual foreign economies
may differ favorably or unfavorably from the United States economy in such
respects as growth of gross national product, rate of inflation, capital
reinvestment, resource self-sufficiency and balance of payments position. IMI
seeks to mitigate the risks to the Fund associated with the foregoing
considerations through investment variation and continuous professional
management.
EMERGING MARKETS
The Fund could have significant investments in securities traded in
emerging markets. Investors should recognize that investing in such countries
involves special considerations, in addition to those set forth above, that are
not typically associated with investing in United States securities and that may
affect the Fund's performance favorably or unfavorably.
In recent years, many emerging market countries around the world have
undergone political changes that have reduced government's role in economic and
personal affairs and have stimulated investment and growth. Historically, there
is a strong direct correlation between economic growth and stock market returns.
While this is no guarantee of future performance, IMI believes that investment
opportunities (particularly in the energy, environmental services, natural
resources, basic materials, power, telecommunications and transportation
industries) may result within the evolving economies of emerging market
countries from which the Fund and its shareholders will benefit.
Investments in companies domiciled in developing countries may be
subject to potentially higher risks than investments in developed countries.
Such risks include (i) less social, political and economic stability; (ii) a
small market for securities and/or a low or nonexistent volume of trading, which
result in a lack of liquidity and in greater price volatility; (iii) certain
national policies that may restrict the Fund's investment opportunities,
including restrictions on investment in issuers or industries deemed sensitive
to national interests; (iv) foreign taxation; (v) the absence of developed
structures governing private or foreign investment or allowing for judicial
redress for injury to private property; (vi) the absence, until relatively
recently in certain Eastern European countries, of a capital market structure or
market-oriented economy; (vii) the possibility that recent favorable economic
developments in Eastern Europe may be slowed or reversed by unanticipated
political or social events in such countries; and (viii) the possibility that
currency devaluations could adversely affect the value of the Fund's
investments. Further, many emerging markets have experienced and continue to
experience high rates of inflation.
Despite the dissolution of the Soviet Union, the Communist Party may
continue to exercise a significant role in certain Eastern European countries.
To the extent of the Communist Party's influence, investments in such countries
will involve risks of nationalization, expropriation and confiscatory taxation.
The communist governments of a number of Eastern European countries expropriated
large amounts of private property in the past, in many cases without adequate
compensation, and there can be no assurance that such expropriation will not
occur in the future. In the event of such expropriation, the Fund could lose a
substantial portion of any investments it has made in the affected countries.
Further, few (if any) accounting standards exist in Eastern European countries.
Finally, even though certain Eastern European currencies may be convertible into
U.S. dollars, the conversion rates may be artificial in relation to the actual
market values and may be adverse to the Fund's net asset value.
Certain Eastern European countries that do not have well-established
trading markets are characterized by an absence of developed legal structures
governing private and foreign investments and private property. In addition,
certain countries require governmental approval prior to investments by foreign
persons, or limit the amount of investment by foreign persons in a particular
company, or limit the investment of foreign persons to only a specific class of
securities of a company that may have less advantageous terms than securities of
the company available for purchase by nationals.
Authoritarian governments in certain Eastern European countries may
require that a governmental or quasi-governmental authority act as custodian of
the Fund's assets invested in such country. To the extent such governmental or
quasi-governmental authorities do not satisfy the requirements of the Investment
Company Act of 1940, as amended (the "1940 Act"), with respect to the custody of
the Fund's cash and securities, the Fund's investment in such countries may be
limited or may be required to be effected through intermediaries. The risk of
loss through governmental confiscation may be increased in such countries.
FOREIGN CURRENCIES
Investment in foreign securities usually will involve currencies of
foreign countries. Moreover, the Fund may temporarily hold funds in bank
deposits in foreign currencies during the completion of investment programs and
may purchase forward foreign currency contracts. Because of these factors, the
value of the assets of the Fund as measured in U.S. dollars may be affected
favorably or unfavorably by changes in foreign currency exchange rates and
exchange control regulations, and the Fund may incur costs in connection with
conversions between various currencies. Although the Fund's custodian values the
Fund's assets daily in terms of U.S. dollars, the Fund does not intend to
convert its holdings of foreign currencies into U.S. dollars on a daily basis.
The Fund will do so from time to time, however, and investors should be aware of
the costs of currency conversion. Although foreign exchange dealers do not
charge a fee for conversion, they do realize a profit based on the difference
(the "spread") between the prices at which they are buying and selling various
currencies. Thus, a dealer may offer to sell a foreign currency to the Fund at
one rate, while offering a lesser rate of exchange should the Fund desire to
resell that currency to the dealer. The Fund will conduct its foreign currency
exchange transactions either on a spot (i.e., cash) basis at the spot rate
prevailing in the foreign currency exchange market, or through entering into
forward contracts to purchase or sell foreign currencies.
Because the Fund normally will be invested in both U.S. and foreign
securities markets, changes in the Fund's share price may have a low correlation
with movements in U.S. markets. The Fund's share price will reflect the
movements of the different stock and bond markets in which it is invested (both
U.S. and foreign), and of the currencies in which the investments are
denominated. Thus, the strength or weakness of the U.S. dollar against foreign
currencies may account for part of the Fund's investment performance. U.S. and
foreign securities markets do not always move in step with each other, and the
total returns from different markets may vary significantly. In addition,
significant uncertainty surrounds the proposed introduction of the euro (a
common currency for the European Union) in January 1999 and its effect on the
value of securities denominated in local European currencies. These and other
currencies in which the Fund's assets are denominated may be devalued against
the U.S. dollar, resulting in a loss to the Fund.
FOREIGN CURRENCY EXCHANGE TRANSACTIONS
The Fund may enter into forward foreign currency contracts in order to
protect against uncertainty in the level of future foreign exchange rates in the
purchase and sale of securities. A forward contract is an obligation to purchase
or sell a specific currency for an agreed price at a future date (usually less
than a year), and typically is individually negotiated and privately traded by
currency traders and their customers. A forward contract generally has no
deposit requirement, and no commissions are charged at any stage for trades.
Although foreign exchange dealers do not charge a fee for commissions, they do
realize a profit based on the difference between the price at which they are
buying and selling various currencies. Although these contracts are intended to
minimize the risk of loss due to a decline in the value of the hedged
currencies, at the same time, they tend to limit any potential gain which might
result should the value of such currencies increase.
While the Fund may enter into forward contracts to reduce currency
exchange risks, changes in currency exchange rates may result in poorer overall
performance for the Fund than if it had not engaged in such transactions.
Moreover, there may be an imperfect correlation between the Fund's portfolio
holdings of securities denominated in a particular currency and forward
contracts entered into by the Fund. An imperfect correlation of this type may
prevent the Fund from achieving the intended hedge or expose the Fund to the
risk of currency exchange loss.
The Fund may purchase currency forwards and combine such purchases with
sufficient cash or short-term securities to create unleveraged substitutes for
investments in foreign markets when deemed advantageous. The Fund may also
combine the foregoing with bond futures or interest rate futures contracts to
create the economic equivalent of an unhedged foreign bond position.
The Fund may also cross-hedge currencies by entering into transactions
to purchase or sell one or more currencies that are expected to decline in value
relative to other currencies to which the Fund has or in which the Fund expects
to have portfolio exposure.
Currency transactions are subject to risks different from those of
other portfolio transactions. Because currency control is of great importance to
the issuing governments and influences economic planning and policy, purchases
and sales of currency and related instruments can be negatively affected by
government exchange controls, blockages, and manipulations or exchange
restrictions imposed by governments. These can result in losses to the Fund if
it is unable to deliver or receive currency or funds in settlement of
obligations and could also cause hedges it has entered into to be rendered
useless, resulting in full currency exposure as well as incurring transactions
costs. Buyers and sellers of currency futures are subject to the same risks that
apply to the use of futures generally. Further, settlement of a currency futures
contract for the purchase of most currencies must occur at a bank based in the
issuing nation. Trading options on currency futures is relatively new, and the
ability to establish and close out positions on such options is subject to the
maintenance of a liquid market which may not always be available. Currency
exchange rates may fluctuate based on factors extrinsic to that country's
economy.
REPURCHASE AGREEMENTS
Repurchase agreements are contracts under which the Fund buys a money
market instrument and obtains a simultaneous commitment from the seller to
repurchase the instrument at a specified time and at an agreed-upon yield. Under
guidelines approved by the Board, the Fund is permitted to enter into repurchase
agreements only if the repurchase agreements are at least fully collateralized
with U.S. Government securities or other securities that IMI has approved for
use as collateral for repurchase agreements and the collateral must be
marked-to-market daily. The Fund will enter into repurchase agreements only with
banks and broker-dealers deemed to be creditworthy by IMI under the
above-referenced guidelines. In the unlikely event of failure of the executing
bank or broker-dealer, the Fund could experience some delay in obtaining direct
ownership of the underlying collateral and might incur a loss if the value of
the security should decline, as well as costs in disposing of the security.
BANKING INDUSTRY AND SAVINGS AND LOAN OBLIGATIONS
Certificates of deposit are negotiable certificates issued against
funds deposited in a commercial bank for a definite period of time and earning a
specified return. Bankers' acceptances are negotiable drafts or bills of
exchange, normally drawn by an importer or exporter to pay for specific
merchandise, which are "accepted" by a bank (meaning, in effect, that the bank
unconditionally agrees to pay the face value of the instrument at maturity). In
addition to investing in certificates of deposit and bankers' acceptances, the
Fund may invest in time deposits in banks or savings and loan associations. Time
deposits are generally similar to certificates of deposit, but are
uncertificated. The Fund's investments in certificates of deposit, time
deposits, and bankers' acceptance are limited to obligations of (i) banks having
total assets in excess of $1 billion, (ii) U.S. banks which do not meet the $1
billion asset requirement, if the principal amount of such obligation is fully
insured by the Federal Deposit Insurance Corporation (the "FDIC"), (iii) savings
and loan association which have total assets in excess of $1 billion and which
are members of the FDIC, and (iv) foreign banks if the obligation is, in IMI's
opinion, of an investment quality comparable to other debt securities which may
be purchased by the Fund. The Fund's investments in certificates of deposit of
savings associations are limited to obligations of Federal and state-chartered
institutions whose total assets exceed $1 billion and whose deposits are insured
by the FDIC.
COMMERCIAL PAPER
Commercial paper represents short-term unsecured promissory notes
issued in bearer form by bank holding companies, corporations and finance
companies. The Fund may invest in commercial paper that is rated Prime-1 by
Moody's Investors Service, Inc. ("Moody's") or A-1 by Standard & Poor's
Corporation ("S&P") or, if not rated by Moody's or S&P, is issued by companies
having an outstanding debt issue rated Aaa or Aa by Moody's or AAA or AA by S&P.
BORROWING
Borrowing may exaggerate the effect on the Fund's net asset value of
any increase or decrease in the value of the Fund's portfolio securities. Money
borrowed will be subject to interest costs (which may include commitment fees
and/or the cost of maintaining minimum average balances). Although the principal
of the Fund's borrowings will be fixed, the Fund's assets may change in value
during the time a borrowing is outstanding, thus increasing exposure to capital
risk.
WARRANTS
The holder of a warrant has the right, until the warrant expires, to
purchase a given number of shares of a particular issuer at a specified price.
Such investments can provide a greater potential for profit or loss than an
equivalent investment in the underlying security. However, prices of warrants do
not necessarily move in a tandem with the prices of the underlying securities,
and are, therefore, considered speculative investments. Warrants pay no
dividends and confer no rights other than a purchase option. Thus, if a warrant
held by the Fund were not exercised by the date of its expiration, the Fund
would lose the entire purchase price of the warrant.
REAL ESTATE INVESTMENT TRUSTS (REITS)
A REIT is a corporation, trust or association that invests in real
estate mortgages or equities for the benefit of its investors. REITs are
dependent upon management skill, may not be diversified and are subject to the
risks of financing projects. Such entities are also subject to heavy cash flow
dependency, defaults by borrowers, self-liquidation and the possibility of
failing to qualify for tax-free pass-through of income under the Internal
Revenue Code of 1986, as amended (the "Code"), and to maintain exemption from
the Investment Company Act of 1940 (the "1940 Act"). By investing in REITs
indirectly through the Fund, a shareholder will bear not only his or her
proportionate share of the expenses of the Fund, but also, indirectly, similar
expenses of the REITs.
OPTIONS TRANSACTIONS
IN GENERAL. A call option is a short-term contract (having a duration
of less than one year) pursuant to which the purchaser, in return for the
premium paid, has the right to buy the security underlying the option at the
specified exercise price at any time during the term of the option. The writer
of the call option, who receives the premium, has the obligation, upon exercise
of the option, to deliver the underlying security against payment of the
exercise price. A put option is a similar contract pursuant to which the
purchaser, in return for the premium paid, has the right to sell the security
underlying the option at the specified exercise price at any time during the
term of the option. The writer of the put option, who receives the premium, has
the obligation, upon exercise of the option, to buy the underlying security at
the exercise price. The premium paid by the purchaser of an option will reflect,
among other things, the relationship of the exercise price to the market price
and volatility of the underlying security, the time remaining to expiration of
the option, supply and demand, and interest rates.
If the writer of an option wishes to terminate the obligation, the
writer may effect a "closing purchase transaction." This is accomplished by
buying an option of the same series as the option previously written. The effect
of the purchase is that the writer's position will be canceled by the Options
Clearing Corporation. However, a writer may not effect a closing purchase
transaction after it has been notified of the exercise of an option. Likewise,
an investor who is the holder of an option may liquidate his or her position by
effecting a "closing sale transaction." This is accomplished by selling an
option of the same series as the option previously purchased. There is no
guarantee that either a closing purchase or a closing sale transaction can be
effected at any particular time or at any acceptable price. If any call or put
option is not exercised or sold, it will become worthless on its expiration
date.
The Fund will realize a gain (or a loss) on a closing purchase
transaction with respect to a call or a put previously written by the Fund if
the premium, plus commission costs, paid by the Fund to purchase the call or the
put is less (or greater) than the premium, less commission costs, received by
the Fund on the sale of the call or the put. A gain also will be realized if a
call or a put that the Fund has written lapses unexercised, because the Fund
would retain the premium. Any such gains (or losses) are considered short-term
capital gains (or losses) for Federal income tax purposes. Net short-term
capital gains, when distributed by the Fund, are taxable as ordinary income. See
"Taxation."
The Fund will realize a gain (or a loss) on a closing sale transaction
with respect to a call or a put previously purchased by the Fund if the premium,
less commission costs, received by the Fund on the sale of the call or the put
is greater (or less) than the premium, plus commission costs, paid by the Fund
to purchase the call or the put. If a put or a call expires unexercised, it will
become worthless on the expiration date, and the Fund will realize a loss in the
amount of the premium paid, plus commission costs. Any such gain or loss will be
long-term or short-term gain or loss, depending upon the Fund's holding period
for the option.
Exchange-traded options generally have standardized terms and are
issued by a regulated clearing organization (such as the Options Clearing
Corporation), which, in effect, guarantees the completion of every
exchange-traded option transaction. In contrast, the terms of OTC options are
negotiated by the Fund and its counterparty (usually a securities dealer or a
financial institution) with no clearing organization guarantee. When the Fund
purchases an OTC option, it relies on the party from whom it has purchased the
option (the "counterparty") to make delivery of the instrument underlying the
option. If the counterparty fails to do so, the Fund will lose any premium paid
for the option, as well as any expected benefit of the transaction. Accordingly,
IMI will assess the creditworthiness of each counterparty to determine the
likelihood that the terms of the OTC option will be satisfied.
WRITING OPTIONS ON INDIVIDUAL SECURITIES. The Fund may write (sell)
covered call options on the Fund's securities in an attempt to realize a greater
current return than would be realized on the securities alone. The Fund may also
write covered call options to hedge a possible stock or bond market decline
(only to the extent of the premium paid to the Fund for the options). In view of
the investment objectives of the Fund, the Fund generally would write call
options only in circumstances where the investment adviser to the Fund does not
anticipate significant appreciation of the underlying security in the near
future or has otherwise determined to dispose of the security.
A "covered" call option means generally that so long as the Fund is
obligated as the writer of a call option, the Fund will (i) own the underlying
securities subject to the option, or (ii) have the right to acquire the
underlying securities through immediate conversion or exchange of convertible
preferred stocks or convertible debt securities owned by the Fund. Although the
Fund receives premium income from these activities, any appreciation realized on
an underlying security will be limited by the terms of the call option. The Fund
may purchase call options on individual securities only to effect a "closing
purchase transaction."
As the writer of a call option, the Fund receives a premium for
undertaking the obligation to sell the underlying security at a fixed price
during the option period, if the option is exercised. So long as the Fund
remains obligated as a writer of a call option, it forgoes the opportunity to
profit from increases in the market price of the underlying security above the
exercise price of the option, except insofar as the premium represents such a
profit (and retains the risk of loss should the value of the underlying security
decline).
PURCHASING OPTIONS ON INDIVIDUAL SECURITIES. The Fund may purchase a
put option on an underlying security owned by the Fund as a defensive technique
in order to protect against an anticipated decline in the value of the security.
The Fund, as the holder of the put option, may sell the underlying security at
the exercise price regardless of any decline in its market price. In order for a
put option to be profitable, the market price of the underlying security must
decline sufficiently below the exercise price to cover the premium and
transaction costs that the Fund must pay. These costs will reduce any profit the
Fund might have realized had it sold the underlying security instead of buying
the put option. The premium paid for the put option would reduce any capital
gain otherwise available for distribution when the security is eventually sold.
The purchase of put options will not be used by the Fund for leverage purposes.
The Fund may also purchase a put option on an underlying security that
it owns and at the same time write a call option on the same security with the
same exercise price and expiration date. Depending on whether the underlying
security appreciates or depreciates in value, the Fund would sell the underlying
security for the exercise price either upon exercise of the call option written
by it or by exercising the put option held by it. The Fund would enter into such
transactions in order to profit from the difference between the premium received
by the Fund for the writing of the call option and the premium paid by the Fund
for the purchase of the put option, thereby increasing the Fund's current
return. The Fund may write (sell) put options on individual securities only to
effect a "closing sale transaction."
PURCHASING AND WRITING OPTIONS ON SECURITIES INDICES. The Fund may
purchase and sell (write) put and call options on securities indices. An index
assigns relative values to the securities included in the index and the index
fluctuates with changes in the market values of the securities so included.
Options on indices are similar to options on individual securities, except that,
rather than giving the purchaser the right to take delivery of an individual
security at a specified price, they give the purchaser the right to receive
cash. The amount of cash is equal to the difference between the closing price of
the index and the exercise price of the option, expressed in dollars, times a
specified multiple (the "multiplier"). The writer of the option is obligated, in
return for the premium received, to make delivery of this amount.
The multiplier for an index option performs a function similar to the
unit of trading for a stock option. It determines the total dollar value per
contract of each point in the difference between the exercise price of an option
and the current level of the underlying index. A multiplier of 100 means that a
one-point difference will yield $100. Options on different indices have
different multipliers.
When the Fund writes a call or put option on a stock index, the option
is "covered", in the case of a call, or "secured", in the case of a put, if the
Fund maintains in a segregated account with the Custodian cash or liquid
securities equal to the contract value. A call option is also covered if the
Fund holds a call on the same index as the call written where the exercise price
of the call held is (i) equal to or less than the exercise price of the call
written or (ii) greater than the exercise price of the call written, provided
that the Fund maintains in a segregated account with the Custodian the
difference in cash or liquid securities. A put option is also "secured" if the
Fund holds a put on the same index as the put written where the exercise price
of the put held is (i) equal to or greater than the exercise price of the put
written or (ii) less than the exercise price of the put written, provided that
the Fund maintains in a segregated account with the Custodian the difference in
cash or liquid securities.
RISKS OF OPTIONS TRANSACTIONS. The purchase and writing of options
involves certain risks. During the option period, the covered call writer has,
in return for the premium on the option, given up the opportunity to profit from
a price increase in the underlying securities above the exercise price, but, as
long as its obligation as a writer continues, has retained the risk of loss
should the price of the underlying security decline. The writer of a U.S. option
has no control over the time when it may be required to fulfill its obligation
as a writer of the option. Once an option writer has received an exercise
notice, it cannot effect a closing purchase transaction in order to terminate
its obligation under the option and must deliver the underlying securities (or
cash in the case of an index option) at the exercise price. If a put or call
option purchased by the Fund is not sold when it has remaining value, and if the
market price of the underlying security (or index), in the case of a put,
remains equal to or greater than the exercise price or, in the case of a call,
remains less than or equal to the exercise price, the Fund will lose its entire
investment in the option. Also, where a put or call option on a particular
security (or index) is purchased to hedge against price movements in a related
security (or securities), the price of the put or call option may move more or
less than the price of the related security (or securities). In this regard,
there are differences between the securities and options markets that could
result in an imperfect correlation between these markets, causing a given
transaction not to achieve its objective.
There can be no assurance that a liquid market will exist when the Fund
seeks to close out an option position. Furthermore, if trading restrictions or
suspensions are imposed on the options markets, the Fund may be unable to close
out a position. Finally, trading could be interrupted, for example, because of
supply and demand imbalances arising from a lack of either buyers or sellers, or
the options exchange could suspend trading after the price has risen or fallen
more than the maximum amount specified by the exchange. Closing transactions can
be made for OTC options only by negotiating directly with the counterparty or by
a transaction in the secondary market, if any such market exists. There is no
assurance that the Fund will be able to close out an OTC option position at a
favorable price prior to its expiration. In the event of insolvency of the
counterparty, the Fund might be unable to close out an OTC option position at
any time prior to its expiration. Although the Fund may be able to offset to
some extent any adverse effects of being unable to liquidate an option position,
the Fund may experience losses in some cases as a result of such inability.
When conducted outside the U.S., options transactions may not be
regulated as rigorously as in the U.S., may not involve a clearing mechanism and
related guarantees, and are subject to the risk of governmental actions
affecting trading in, or the prices of, foreign securities, currencies and other
instruments. The value of such positions also could be adversely affected by:
(i) other complex foreign political, legal and economic factors, (ii) lesser
availability than in the U.S. of data on which to make trading decisions, (iii)
delays in the Fund's ability to act upon economic events occurring in foreign
markets during non-business hours in the U.S., (iv) the imposition of different
exercise and settlement terms and procedures and margin requirements than in the
U.S., and (v) lower trading volume and liquidity.
The Fund's options activities also may have an impact upon the level of its
portfolio turnover and brokerage commissions. See "Portfolio Turnover."
The Fund's success in using options techniques depends, among other
things, on IMI's ability to predict accurately the direction and volatility of
price movements in the options and securities markets, and to select the proper
type, time and duration of options.
FUTURES CONTRACTS AND OPTIONS ON FUTURES CONTRACTS
IN GENERAL. The Fund may enter into futures contracts and options on
futures contracts for hedging purposes. A futures contract provides for the
future sale by one party and purchase by another party of a specified quantity
of a commodity at a specified price and time. When a purchase or sale of a
futures contract is made by the Fund, the Fund is required to deposit with its
custodian (or broker, if legally permitted) a specified amount of cash or liquid
securities ("initial margin"). The margin required for a futures contract is set
by the exchange on which the contract is traded and may be modified during the
term of the contract. The initial margin is in the nature of a performance bond
or good faith deposit on the futures contract which is returned to the Fund upon
termination of the contract, assuming all contractual obligations have been
satisfied. A futures contract held by the Fund is valued daily at the official
settlement price of the exchange on which it is traded. Each day the Fund pays
or receives cash, called "variation margin," equal to the daily change in value
of the futures contract. This process is known as "marking to market." Variation
margin does not represent a borrowing or loan by the Fund but is instead a
settlement between the Fund and the broker of the amount one would owe the other
if the futures contract expired. In computing daily net asset value, the Fund
will mark-to-market its open futures position.
The Fund is also required to deposit and maintain margin with respect
to put and call options on futures contracts written by it. Such margin deposits
will vary depending on the nature of the underlying futures contract (and the
related initial margin requirements), the current market value of the option,
and other futures positions held by the Fund.
Although some futures contracts call for making or taking delivery of
the underlying securities, generally these obligations are closed out prior to
delivery of offsetting purchases or sales of matching futures contracts (same
exchange, underlying security or index, and delivery month). If an offsetting
purchase price is less than the original sale price, the Fund generally realizes
a capital gain, or if it is more, the Fund generally realizes a capital loss.
Conversely, if an offsetting sale price is more than the original purchase
price, the Fund generally realizes a capital gain, or if it is less, the Fund
generally realizes a capital loss.
The transaction costs must also be included in these calculations.
When purchasing a futures contract, the Fund will maintain with its
Custodian (and mark-to-market on a daily basis) cash or liquid securities that,
when added to the amounts deposited with a futures commission merchant ("FCM")
as margin, are equal to the market value of the futures contract. Alternatively,
the Fund may "cover" its position by purchasing a put option on the same futures
contract with a strike price as high as or higher than the price of the contract
held by the Fund, or, if lower, may cover the difference with cash or short-term
securities.
When selling a futures contract, the Fund will maintain with its
Custodian in a segregated account (and mark-to-market on a daily basis) cash or
liquid securities that, when added to the amounts deposited with an FCM as
margin, are equal to the market value of the instruments underlying the
contract. Alternatively, the Fund may "cover" its position by owning the
instruments underlying the contract (or, in the case of an index futures
contract, a portfolio with a volatility substantially similar to that of the
index on which the futures contract is based), or by holding a call option
permitting the Fund to purchase the same futures contract at a price no higher
than the price of the contract written by the Fund (or at a higher price if the
difference is maintained in liquid assets with the Fund's custodian).
When selling a call option on a futures contract, the Fund will
maintain with its Custodian in a segregated account (and mark-to-market on a
daily basis) cash or liquid securities that, when added to the amounts deposited
with an FCM as margin, equal the total market value of the futures contract
underlying the call option. Alternatively, the Fund may cover its position by
entering into a long position in the same futures contract at a price no higher
than the strike price of the call option, by owning the instruments underlying
the futures contract, or by holding a separate call option permitting the Fund
to purchase the same futures contract at a price not higher than the strike
price of the call option sold by the Fund, or covering the difference if the
price is higher.
When selling a put option on a futures contract, the Fund will maintain
with its Custodian (and mark-to-market on a daily basis) cash or liquid
securities that equal the purchase price of the futures contract less any margin
on deposit. Alternatively, the Fund may cover the position either by entering
into a short position in the same futures contract, or by owning a separate put
option permitting it to sell the same futures contract so long as the strike
price of the purchased put option is the same or higher than the strike price of
the put option sold by the Fund, or, if lower, the Fund may hold securities to
cover the difference.
RISKS ASSOCIATED WITH FUTURES AND RELATED OPTIONS. There can be no
guarantee that there will be a correlation between price movements in the
hedging vehicle and in the Fund's portfolio securities being hedged. In
addition, there are significant differences between the securities and futures
markets that could result in an imperfect correlation between the markets,
causing a given hedge not to achieve its objectives. The degree of imperfection
of correlation depends on circumstances such as variations in speculative market
demand for futures and futures options on securities, including technical
influences in futures trading and futures options, and differences between the
financial instruments being hedged and the instruments underlying the standard
contracts available for trading in such respects as interest rate levels,
maturities, and creditworthiness of issuers. A decision as to whether, when and
how to hedge involves the exercise of skill and judgment, and even a
well-conceived hedge may be unsuccessful to some degree because of market
behavior or unexpected interest rate trends.
Futures exchanges may limit the amount of fluctuation permitted in
certain futures contract prices during a single trading day. The daily limit
establishes the maximum amount that the price of a futures contract may vary
either up or down from the previous day's settlement price at the end of the
current trading session. Once the daily limit has been reached in a futures
contract subject to the limit, no more trades may be made on that day at a price
beyond that limit. The daily limit governs only price movements during a
particular trading day and therefore does not limit potential losses because the
limit may work to prevent the liquidation of unfavorable positions. For example,
futures prices have occasionally moved to the daily limit for several
consecutive trading days with little or no trading, thereby preventing prompt
liquidation of positions and subjecting some holders of futures contracts to
substantial losses.
There can be no assurance that a liquid market will exist at a time
when the Fund seeks to close out a futures or a futures option position, and the
Fund would remain obligated to meet margin requirements until the position is
closed. In addition, there can be no assurance that an active secondary market
will continue to exist.
Currency futures contracts and options thereon may be traded on foreign
exchanges. Such transactions may not be regulated as effectively as similar
transactions in the United States; may not involve a clearing mechanism and
related guarantees; and are subject to the risk of governmental actions
affecting trading in, or the prices of, foreign securities. The value of such
position also could be adversely affected by (i) other complex foreign
political, legal and economic factors, (ii) lesser availability than in the
United States of data on which to make trading decisions, (iii) delays in the
Fund's ability to act upon economic events occurring in foreign markets during
non business hours in the United States, (iv) the imposition of different
exercise and settlement terms and procedures and margin requirements than in the
United States, and (v) lesser trading volume.
SECURITIES INDEX FUTURES CONTRACTS
The Fund may enter into securities index futures contracts as an
efficient means of regulating the Fund's exposure to the equity markets. The
Fund will not engage in transactions in futures contracts for speculation, but
only as a hedge against changes resulting from market conditions in the values
of securities held in the Fund's portfolio or which it intends to purchase. An
index futures contract is a contract to buy or sell units of an index at a
specified future date at a price agreed upon when the contract is made. Entering
into a contract to buy units of an index is commonly referred to as purchasing a
contract or holding a long position in the index. Entering into a contract to
sell units of an index is commonly referred to as selling a contract or holding
a short position. The value of a unit is the current value of the stock index.
For example, the S&P 500 Index is composed of 500 selected common stocks, most
of which are listed on the New York Stock Exchange (the "Exchange"). The S&P 500
Index assigns relative weightings to the 500 common stocks included in the
Index, and the Index fluctuates with changes in the market values of the shares
of those common stocks. In the case of the S&P 500 Index, contracts are to buy
or sell 500 units. Thus, if the value of the S&P 500 Index were $150, one
contract would be worth $75,000 (500 units x $150). The index futures contract
specifies that no delivery of the actual securities making up the index will
take place. Instead, settlement in cash must occur upon the termination of the
contract, with the settlement being the difference between the contract price
and the actual level of the stock index at the expiration of the contract. For
example, if the Fund enters into a futures contract to buy 500 units of the S&P
500 Index at a specified future date at a contract price of $150 and the S&P 500
Index is at $154 on that future date, the Fund will gain $2,000 (500 units x
gain of $4). If the Fund enters into a futures contract to sell 500 units of the
stock index at a specified future date at a contract price of $150 and the S&P
500 Index is at $154 on that future date, the Fund will lose $2,000 (500 units x
loss of $4).
RISKS OF SECURITIES INDEX FUTURES. The Fund's success in using hedging
techniques depends, among other things, on IMI's ability to predict correctly
the direction and volatility of price movements in the futures and options
markets as well as in the securities markets and to select the proper type, time
and duration of hedges. The skills necessary for successful use of hedges are
different from those used in the selection of individual stocks.
The Fund's ability to hedge effectively all or a portion of its
securities through transactions in index futures (and therefore the extent of
its gain or loss on such transactions) depends on the degree to which price
movements in the underlying index correlate with price movements in the Fund's
securities. Inasmuch as such securities will not duplicate the components of an
index, the correlation probably will not be perfect. Consequently, the Fund will
bear the risk that the prices of the securities being hedged will not move in
the same amount as the hedging instrument. This risk will increase as the
composition of the Fund's portfolio diverges from the composition of the hedging
instrument.
Although the Fund intends to establish positions in these instruments
only when there appears to be an active market, there is no assurance that a
liquid market will exist at a time when the Fund seeks to close a particular
option or futures position. Trading could be interrupted, for example, because
of supply and demand imbalances arising from a lack of either buyers or sellers.
In addition, the futures exchanges may suspend trading after the price has risen
or fallen more than the maximum amount specified by the exchange. In some cases,
the Fund may experience losses as a result of its inability to close out a
position, and it may have to liquidate other investments to meet its cash needs.
Although some index futures contracts call for making or taking
delivery of the underlying securities, generally these obligations are closed
out prior to delivery by offsetting purchases or sales of matching futures
contracts (same exchange, underlying security or index, and delivery month). If
an offsetting purchase price is less than the original sale price, the Fund
generally realizes a capital gain, or if it is more, the Fund generally realizes
a capital loss. Conversely, if an offsetting sale price is more than the
original purchase price, the Fund generally realizes a capital gain, or if it is
less, the Fund generally realizes a capital loss.
The transaction costs must also be included in these calculations.
The Fund will only enter into index futures contracts or futures
options that are standardized and traded on a U.S. or foreign exchange or board
of trade, or similar entity, or quoted on an automated quotation system. The
Fund will use futures contracts and related options only for "bona fide hedging"
purposes, as such term is defined in applicable regulations of the CFTC.
When purchasing an index futures contract, the Fund will maintain with
its Custodian (and mark-to-market on a daily basis) cash or liquid securities
that, when added to the amounts deposited with a futures commission merchant
("FCM") as margin, are equal to the market value of the futures contract.
Alternatively, the Fund may "cover" its position by purchasing a put option on
the same futures contract with a strike price as high as or higher than the
price of the contract held by the Fund.
When selling an index futures contract, the Fund will maintain with its
Custodian (and mark-to-market on a daily basis) cash or liquid securities that,
when added to the amounts deposited with an FCM as margin, are equal to the
market value of the instruments underlying the contract. Alternatively, the Fund
may "cover" its position by owning the instruments underlying the contract (or,
in the case of an index futures contract, a portfolio with a volatility
substantially similar to that of the index on which the futures contract is
based), or by holding a call option permitting the Fund to purchase the same
futures contract at a price no higher than the price of the contract written by
the Fund (or at a higher price if the difference is maintained in cash or liquid
assets in a segregated account with the Fund's custodian).
COMBINED TRANSACTIONS. The Fund may enter into multiple transactions,
including multiple options transactions, multiple futures transactions and
multiple currency transactions (including forward currency contracts) and some
combination of futures, options and currency transactions ("component"
transactions), instead of a single transaction, as part of a single or combined
strategy when, in the opinion of IMI, it is in the best interests of the Fund to
do so. A combined transaction will usually contain elements of risk that are
present in each of its component transactions. Although combined transactions
are normally entered into based on IMI's judgment that the combined strategies
will reduce risk or otherwise more effectively achieve the desired portfolio
management goal, it is possible that the combination will instead increase such
risks or hinder achievement of the management objective.
INVESTMENT RESTRICTIONS
The Fund's investment objectives as set forth in the "Summary" section
of the Prospectus, together with the investment restrictions set forth below,
are fundamental policies of the Fund and may not be changed without the approval
of a majority of the outstanding voting shares of the Fund. Under these
restrictions, the Fund may not:
(i) borrow money, except for temporary purposes where investment
transactions might advantageously require it. Any such loan
may not be for a period in excess of 60 days, and the
aggregate amount of all outstanding loans may not at any time
exceed 10% of the value of the total assets of the Fund at the
time any such loan is made;
(ii) purchase securities on margin;
(iii) sell securities short;
(iv) lend any funds or other assets, except that this restriction
shall not prohibit (a) the entry into repurchase agreements or
(b) the purchase of publicly distributed bonds, debentures and
other securities of a similar type, or privately placed
municipal or corporate bonds, debentures and other securities
of a type customarily purchased by institutional investors or
publicly traded in the securities markets;
(v) participate in an underwriting or selling group in connection
with the public distribution of securities except for its own
capital stock;
(vi) purchase from or sell to any of its officers or trustees, or
firms of which any of them are members or which they control,
any securities (other than capital stock of the Fund), but
such persons or firms may act as brokers for the Fund for
customary commissions to the extent permitted by the
Investment Company Act of 1940;
(vii) purchase or sell real estate or commodities and commodity contracts;
(viii) make an investment in securities of companies in any one
industry (except obligations of domestic banks or the U.S.
Government, its agencies, authorities, or instrumentalities)
if such investment would cause investments in such industry to
exceed 25% of the market value of the Fund's total assets at
the time of such investment;
(ix) issue senior securities, except as appropriate to evidence
indebtedness which it is permitted to incur, and except to the
extent that shares of the separate classes or series of the
Trust may be deemed to be senior securities; provided that
collateral arrangements with respect to currency-related
contracts, futures contracts, options or other permitted
investments, including deposits of initial and variation
margin, are not considered to be the issuance of senior
securities for purposes of this restriction;
(x) invest more than 5% of the value of its total assets in the
securities of any one issuer (except obligations of domestic
banks or the U.S. Government, its agencies, authorities and
instrumentalities);
(xi) hold ore than 10% of the voting securities of any one issuer
(except obligations of domestic banks or the U.S. Government,
its agencies, authorities and instrumentalities); or
(xii) purchase the securities of any other open-end investment
company, except as part of a plan of merger or consolidation;
Under the 1940 Act, the Fund is permitted, subject to its investment
restrictions, to borrow money only from banks. The Trust has no current
intention of borrowing amounts in excess of 5% of the Fund's assets. The Fund
will continue to interpret fundamental investment restriction (vii) to prohibit
investment in real estate limited partnership interests; this restriction shall
not, however, prohibit investment in readily marketable securities of companies
that invest in real estate or interests therein, including real estate
investment trusts.
ADDITIONAL RESTRICTIONS
Unless otherwise indicated, the Fund has adopted the following
additional restrictions which are not fundamental and which may be changed
without shareholder approval to the extent permitted by applicable law,
regulation or regulatory policy.
Under these restrictions, the Fund may not:
(i) invest in oil, gas or other mineral leases or exploration or
development programs;
(ii) engage in the purchase and sale of puts, calls, straddles or
spreads (except to the extent described in the Prospectus and
in this SAI);
(iii) invest in companies for the purpose of exercising control of
management;
(iv) invest more than 5% of its total assets in warrants, valued at
the lower of cost or market, or more than 2% of its total
assets in warrants, so valued, which are not listed on either
the New York or American Stock Exchanges;
(v) purchase any security if, as a result, the Fund would then
have more than 5% of its total assets (taken at current value)
invested in securities of companies (included predecessors)
less than three years old; or
(vi) invest more than 5% of the value of its total assets in the
securities of issuers which are not readily marketable.
Whenever an investment objective, policy or restriction set forth in
the Prospectus or this SAI states a maximum percentage of assets that may be
invested in any security or other asset or describes a policy regarding quality
standards, such percentage limitation or standard shall, unless otherwise
indicated, apply to the Fund only at the time a transaction is entered into.
Accordingly, if a percentage limitation is adhered to at the time of investment,
a later increase or decrease in the percentage which results from circumstances
not involving any affirmative action by the Fund, such as a change in market
conditions or a change in the Fund's asset level or other circumstances beyond
the Fund's control, will not be considered a violation.
PORTFOLIO TURNOVER
The Fund purchases securities that are believed by IMI to have above
average potential for capital appreciation. Common stocks are disposed of in
situations where it is believed that potential for such appreciation has
lessened or that other common stocks have a greater potential. Therefore, the
Fund may purchase and sell securities without regard to the length of time the
security is to be, or has been, held. A change in securities held by the Fund is
known as "portfolio turnover" and may involve the payment by the Fund of dealer
markup or underwriting commission and other transaction costs on the sale of
securities, as well as on the reinvestment of the proceeds in other securities.
The Fund's portfolio turnover rate is calculated by dividing the lesser of
purchases or sales of portfolio securities for the most recently completed
fiscal year by the monthly average of the value of the portfolio securities
owned by the Fund during that year. For purposes of determining the Fund's
portfolio turnover rate, all securities whose maturities at the time of
acquisition were one year or less are excluded.
TRUSTEES AND OFFICERS
The Fund's Board of Trustees (the "Board") is responsible for the
overall management of the Fund, including general supervision and review of the
Fund's investment activities. The Board, in turn, elects the officers who are
responsible for administering the Fund's day-to-day operations.
The Trustees and Executive Officers of the Trust, their business
addresses and principal occupations during the past five years are:
POSITION WITH BUSINESS AFFILIATIONS
NAME, ADDRESS, AGE THE TRUST AND PRINCIPAL OCCUPATIONS
John S. Anderegg, Jr. Trustee Chairman, Dynamics Research
60 Concord Street Corp. (instruments and controls);
Wilmington, MA 01887 Director, Burr-Brown Corp.
Age: 74 (operational amplifiers); Director,
Metritage Incorporated (level
measuring instruments); Trustee of
Mackenzie Series Trust (1992-1998).
Paul H. Broyhill Trustee Chairman, BMC Fund, Inc.
800 Hickory Blvd. (1983-present); Chairman,
Golfview Park-Box 500 Broyhill Family Foundation,
Lenoir, NC 28645 Inc. (1983-Present); Chairman and
Age: 74 President, Broyhill Investments,
Inc. (1983-present); Chairman,
Broyhill Timber Resources (1983-
present); Management of a personal
portfolio of fixed-income and equity
investments (1983-present); Trustee
of Mackenzie Series Trust (1988-
1998); Director of The Mackenzie
Funds Inc. (1988-1995).
Stanley Channick Trustee President and Chief
11 Bala Avenue Executive Officer, The
Bala Cynwyd, PA 19004 Whitestone Corporation
Age: 75 (insurance agency); Chairman, Scott
Management Company (administrative
services for insurance companies);
President, The Channick Group
(consultants to insurance companies
and national trade associations);
Trustee of Mackenzie Series Trust
(1994-1998); Director of The
Mackenzie Funds Inc. (1994-1995).
Frank W. DeFriece, Jr. Trustee Director, Manager and Vice
The Landmark Centre President, Director and
113 Landmark Lane, Fund Manager, Massengill-
Suite B DeFriece Foundation
Bristol, TN 37620-2285 (charitable organization)
Age: 77 (1950-present); Trustee and Vice
Chairman, East Tennessee Public
Communications Corp. (WSJK-TV)
(1984-present); Trustee of Mackenzie
Series Trust (1985-1998); Director
of The Mackenzie Funds Inc. (1987-
1995).
Roy J. Glauber Trustee Mallinckrodt Professor of
Lyman Laboratory Physics, Harvard
of Physics University (1974-present);
Harvard University Trustee of Mackenzie Series
Cambridge, MA 02138 Trust (1994-1997).
Age: 72
Michael G. Landry Trustee President, Chief Executive
700 South Federal Hwy. And Officer and Director of
Suite 300 Chairman Mackenzie Investment
Boca Raton, FL 33432 Management Inc. (1987-
Age: 51 present); President,
[*Deemed to be an Director and Chairman of
"interested person" Ivy Management Inc. (1992-
of the Trust, as present); Chairman and
defined under the Director of Ivy Mackenzie
1940 Act.] Services Corp.(1993-present);
Chairman and Director of Ivy
Mackenzie Distributors, Inc.
(1994-present); Director and
President of Ivy Mackenzie
Distributors, Inc. (1993-1994);
Director and President of The
Mackenzie Funds Inc. (1987-1995);
Trustee of Mackenzie Series Trust
(1987-1998); President of Mackenzie
Series Trust (1987-1996); Chairman
of Mackenzie Series Trust (1996-
1998).
Joseph G. Rosenthal Trustee Chartered Accountant
110 Jardin Drive (1958-present); Trustee of
Unit #12 Mackenzie Series Trust
Concord, Ontario Canada (1985-1998); Director of
L4K 2T7 The Mackenzie Funds Inc.
Age: 63 (1987-1995).
Richard N. Silverman Trustee Director, Newton-Wellesley
18 Bonnybrook Road Hospital; Director, Beth
Waban, MA 02168 Israel Hospital; Director,
Age: 74 Boston Ballet; Director, Boston
Children's Museum; Director, Brimmer
and May School.
J. Brendan Swan Trustee President, Airspray
4701 North Federal Hwy. International, Inc.;
Suite 465 Joint Managing Director,
Pompano Beach, FL 33064 Airspray International
Age: 67 B.V. (an environmentally sensitive
packaging company); Director of
Polyglass LTD.; Director, The
Mackenzie Funds Inc. (1992-1995);
Trustee of Mackenzie Series Trust
(1992-1998).
Keith J. Carlson Trustee Senior Vice President of Mackenzie
700 South Federal Hwy. And Investment Management, Inc. (1996 -
Suite 300 President -present); Senior Vice President and
Boca Raton, FL 33432 Director of Mackenzie Investment
Age: 41 Management, Inc. (1994 - 1996);
[*Deemed to be an Senior Vice President and Treasurer
"interested person" of Mackenzie Investment Management,
of the Trust, Inc. (1989-1994); Senior Vice President
as defined under President and Director of Ivy
the 1940 Act.] Management Inc. (1994-present);
Senior Vice President, Treasurer and
Director of Ivy Management Inc.
(1992-1994); Vice President of The
Mackenzie Funds Inc. (1987-1995);
Senior Vice President and Director,
Ivy Mackenzie Services Corp. (1996-
present); President and Director of
Ivy Mackenzie Services Corp. (1993-
1996); Trustee and President of
Mackenzie Series Trust (1996-1998);
Vice President of Mackenzie Series
Trust (1994-1998); Treasurer of
Mackenzie Series Trust (1985-1994);
President, Chief Executive Officer
and Director of Ivy Mackenzie
Distributors, Inc. (1994-present);
Executive Vice President and
Director of Ivy Mackenzie
Distributors, Inc. (1993-1994);
Trustee of Mackenzie Series Trust
(1996-1998).
C. William Ferris Secretary/ Senior Vice President,
700 South Federal Hwy. Treasurer Chief Financial Officer
Suite 300 and Secretary/Treasurer
Boca Raton, FL 33432 of Mackenzie Investment
Age: 53 Management Inc. (1995-present);
Senior Vice President, Finance and
Administration/Compliance Officer of
Mackenzie Investment Management Inc.
(1989-1994); Senior Vice President,
Secretary/ Treasurer and Clerk of
Ivy Management Inc. (1994-present);
Vice President, Finance/
Administration and Compliance
Officer of Ivy Management Inc.
(1992-1994); Senior Vice President,
Secretary/Treasurer and Director of
Ivy Mackenzie Distributors, Inc.
(1994-present); Secretary/Treasurer
and Director of Ivy Mackenzie
Distributors, Inc. (1993-1994);
President and Director of Ivy
Mackenzie Services Corp.
(1996-present); Secretary/Treasurer
and Director of Ivy Mackenzie
Services Corp. (1993-1996);
Secretary/Treasurer
of The Mackenzie Funds Inc.
(1993-1995); Secretary/Treasurer of
Mackenzie Series Trust (1994-1998).
James W. Broadfoot Vice Executive Vice President,
700 South Federal Hwy. President Ivy Management Inc. (1996-
Suite 300 present); Senior Vice
Boca Raton, FL 33432 President, Ivy Management,
Age: 56 Inc. (1992-1996); Director and
Senior Vice President, Mackenzie
Investment Management Inc. (1995-
present); Senior Vice President,
Mackenzie Investment Management Inc.
(1990-1995).
COMPENSATION TABLE
IVY FUND
(FISCAL YEAR ENDED DECEMBER 31, 1998)
PENSION OR TOTAL COMPENSA-
AGGREGATE RETIREMENT ESTIMATED TION FROM TRUST
NAME, COMPENSATION BENEFITS ACCRUED ANNUAL AND FUND
POSITION FROM TRUST AS PART OF BENEFITS UPON COMPLEX PAID TO
FUND EXPENSES RETIREMENT TRUSTEES
John S. N/A N/A
Anderegg, Jr.
(Trustee)
Paul H. N/A N/A
Broyhill
(Trustee)
Keith J. $0 N/A N/A $0
Carlson
(Trustee and
President)
Stanley N/A N/A
Channick
(Trustee)
Frank W. N/A N/A
DeFriece, Jr.
(Trustee)
Roy J. N/A N/A
Glauber
(Trustee)
Michael G. $0 N/A N/A $0
Landry
(Trustee and
Chairman of
the Board)
Joseph G. N/A N/A
Rosenthal
(Trustee)
Richard N. N/A N/A
Silverman
(Trustee)
J. Brendan N/A N/A
Swan
(Trustee)
C. William $0 N/A N/A $0
Ferris
(Secretary/
Treasurer)
To the knowledge of the Trust, as of [ ], no shareholder owned
beneficially or of record 5% or more of the Fund's outstanding shares of any
class, except that [to be completed by amendment].
As of [ ], the Officers and Trustees of the Trust as a group owned
beneficially or of record less than 1% of the outstanding Class A, Class B,
Class C and Advisor Class shares of the Fund.
PERSONAL INVESTMENTS BY EMPLOYEES OF IMI. Employees of IMI are
permitted to make personal securities transactions, subject to the requirements
and restrictions set forth in IMI's Code of Ethics and Business Conduct Policy
(the "Code of Ethics"). The Code of Ethics is designed to identify and address
certain conflicts of interest between personal investment activities and the
interests of investment advisory clients such as the Fund. Among other things,
the Code of Ethics, which generally complies with standards recommended by the
Investment Company Institute's Advisory Group on Personal Investing, prohibits
certain types of transactions absent prior approval, applies to portfolio
managers, traders, research analysts and others involved in the investment
advisory process, and imposes time periods during which personal transactions
may not be made in certain securities, and requires the submission of duplicate
broker confirmations and monthly reporting of securities transactions.
Exceptions to these and other provisions of the Code of Ethics may be granted in
particular circumstances after review by appropriate personnel.
INVESTMENT ADVISORY AND OTHER SERVICES
BUSINESS MANAGEMENT AND INVESTMENT ADVISORY SERVICES
IMI provides business management and investment advisory services to
the Fund pursuant to a Business Management and Investment Advisory Agreement
(the "Agreement"). The Agreement was approved by the sole shareholder of the
Fund on December 30, 1991. Prior to shareholder approval, the Agreement was
approved with respect to the Fund by the Board, including a majority of the
Trustees who are neither "interested persons" (as defined in the 1940 Act) of
the Trust nor have any direct or indirect financial interest in the operation of
the distribution plan (see "Distribution Services") or in any related agreement
(the "Independent Trustees") at a meeting held on October 28, 1991.
IMI is a wholly owned subsidiary of Mackenzie Investment Management
Inc. ("MIMI"). MIMI, a Delaware corporation, has approximately 10% of its
outstanding common stock listed for trading on the Toronto Stock Exchange
("TSE"). MIMI is a subsidiary of Mackenzie Financial Corporation ("MFC"), 150
Bloor Street West, Toronto, Ontario, Canada, a public corporation organized
under the laws of Ontario whose shares are listed for trading on the TSE. MFC is
registered in Ontario as a mutual fund dealer and advises Ivy Global Natural
Resources Fund. IMI currently acts as manager and investment adviser to the
following additional investment companies registered under the 1940 Act (other
than the Fund): Ivy Asia Pacific Fund, Ivy Bond Fund, Ivy China Region Fund, Ivy
Developing Nations Fund, Ivy European Opportunities Fund, Ivy Global Fund, Ivy
Global Science & Technology Fund, Ivy Growth with Income Fund, Ivy International
Fund, Ivy International Fund II, Ivy International Small Companies Fund, Ivy
International Strategic Bond Fund, Ivy Money Market Fund, Ivy Pan-Europe Fund,
Ivy South America Fund, Ivy US Blue Chip Fund and Ivy US Emerging Growth Fund.
IMI also provides business management services to Ivy Global Natural Resources
Fund.
The Agreement obligates IMI to make investments for the account of the
Fund in accordance with its best judgment and within the investment objectives
and restrictions set forth in the Prospectus, the 1940 Act and the provisions of
the Code relating to regulated investment companies, subject to policy decisions
adopted by the Board. IMI also determines the securities to be purchased or sold
by the Fund and places orders with brokers or dealers who deal in such
securities.
Under the Agreement, IMI also provides certain business management
services. IMI is obligated to (1) coordinate with the Fund's Custodian and
monitor the services it provides to the Fund; (2) coordinate with and monitor
any other third parties furnishing services to the Fund; (3) provide the Fund
with necessary office space, telephones and other communications facilities as
are adequate for the Fund's needs; (4) provide the services of individuals
competent to perform administrative and clerical functions that are not
performed by employees or other agents engaged by the Fund or by IMI acting in
some other capacity pursuant to a separate agreement or arrangements with the
Fund; (5) maintain or supervise the maintenance by third parties of such books
and records of the Trust as may be required by applicable Federal or state law;
(6) authorize and permit IMI's directors, officers and employees who may be
elected or appointed as trustees or officers of the Trust to serve in such
capacities; and (7) take such other action with respect to the Trust, after
approval by the Trust as may be required by applicable law, including without
limitation the rules and regulations of the SEC and of state securities
commissions and other regulatory agencies.
The Fund pays IMI a monthly fee for providing business management and
investment advisory services that is equal, on an annual basis, to 0.85% of the
first $350 million of the Fund's average net assets reduced to 0.75% on its
average net assets in excess of $350 million.
During the fiscal years ended December 31, 1996, 1997 and 1998, the
Fund paid IMI fees of $2,608,378, $2,794,304 and [ ], respectively (of which IMI
reimbursed $12,486, $0 and [ ], respectively, pursuant to expense limitations).
Under the Agreement, the Trust pays the following expenses: (1) the
fees and expenses of the Trust's Independent Trustees; (2) the salaries and
expenses of any of the Trust's officers or employees who are not affiliated with
IMI; (3) interest expenses; (4) taxes and governmental fees, including any
original issue taxes or transfer taxes applicable to the sale or delivery of
shares or certificates therefor; (5) brokerage commissions and other expenses
incurred in acquiring or disposing of portfolio securities; (6) the expenses of
registering and qualifying shares for sale with the SEC and with various state
securities commissions; (7) accounting and legal costs; (8) insurance premiums;
(9) fees and expenses of the Trust's Custodian and Transfer Agent and any
related services; (10) expenses of obtaining quotations of portfolio securities
and of pricing shares; (11) expenses of maintaining the Trust's legal existence
and of shareholders' meetings; (12) expenses of preparation and distribution to
existing shareholders of periodic reports, proxy materials and prospectuses; and
(13) fees and expenses of membership in industry organizations.
IMI currently limits the Fund's total operating expenses (excluding
Rule 12b-1 fees, interest, taxes, brokerage commissions, litigation,
class-specific expenses, indemnification expenses, and extraordinary expenses)
to an annual rate of 1.95% of the Fund's average net assets, which may lower the
Fund's expenses and increase its yield.
The Agreement will continue in effect with respect to the Fund from
year to year, only so long as the continuance is specifically approved at least
annually (i) by the vote of a majority of the Independent Trustees and (ii)
either (a) by the vote of a majority of the outstanding voting securities (as
defined in the 1940 Act) of the Fund or (b) by the vote of a majority of the
entire Board. If the question of continuance of the Agreement (or adoption of
any new agreement) is presented to the shareholders, continuance (or adoption)
shall be effected only if approved by the affirmative vote of a majority of the
outstanding voting securities of the Fund. See "Capitalization and Voting
Rights."
The Agreement may be terminated with respect to the Fund at any time,
without payment of any penalty, by the vote of a majority of the Board, or by a
vote of a majority of the outstanding voting securities of the Fund, on 60 days'
written notice to IMI, or by IMI on 60 days' written notice to the Trust. The
Agreement shall terminate automatically in the event of its assignment.
DISTRIBUTION SERVICES
IMDI, a wholly owned subsidiary of MIMI, serves as the exclusive
distributor of Ivy Fund's shares pursuant to an Amended and Restated
Distribution Agreement with the Trust dated _______________, 1999, as amended
from time to time (the "Distribution Agreement"). The Distribution Agreement was
approved by the Board on September 17, 1998. IMDI distributes shares of the Fund
through broker-dealers who are members of the National Association of Securities
Dealers, Inc. and who have executed dealer agreements with IMDI. IMDI
distributes shares of the Fund on a continuous basis, but reserves the right to
suspend or discontinue distribution on that basis. IMDI is not obligated to sell
any specific amount of Fund shares.
Pursuant to the Distribution Agreement, IMDI is entitled to deduct a
commission on all Class A Fund shares sold equal to the difference, if any,
between the public offering price, as set forth in the Fund's then-current
prospectus, and the net asset value on which such price is based. Out of that
commission, IMDI may reallow to dealers such concession as IMDI may determine
from time to time. In addition, IMDI is entitled to deduct a CDSC on the
redemption of Class A shares sold without an initial sales charge and Class B
and Class C shares, in accordance with, and in the manner set forth in, the
Prospectus.
Under the Distribution Agreement, the Fund bears, among other expenses,
the expenses of registering and qualifying its shares for sale under Federal and
state securities laws and preparing and distributing to existing shareholders
periodic reports, proxy materials and prospectuses.
During the fiscal year ended December 31, 1998, IMDI received from
sales of Class A shares of the Fund [ ] in sales commissions, of which [ ] was
retained after dealer allowances. During the fiscal year ended December 31,
1998, IMDI received [ ] in CDSCs on redemptions of Class B shares of the Fund.
During the fiscal year ended December 31, 1998, IMDI received [ ] in CDSCs on
redemptions of Class C shares of the Fund.
The Distribution Agreement will continue in effect for successive
one-year periods, provided that such continuance is specifically approved at
least annually by the vote of a majority of the Independent Trustees, cast in
person at a meeting called for that purpose and by the vote of either a majority
of the entire Board or a majority of the outstanding voting securities of the
Fund. The Distribution Agreement may be terminated with respect to the Fund at
any time, without payment of any penalty, by IMDI on 60 days' written notice to
the Fund or by the Fund by vote of either a majority of the outstanding voting
securities of the Fund or a majority of the Independent Trustees on 60 days'
written notice to IMDI. The Distribution Agreement shall terminate automatically
in the event of its assignment.
RULE 18F-3 PLAN. On February 23, 1995, the SEC adopted Rule 18f-3 under
the 1940 Act, which permits a registered open-end investment company to issue
multiple classes of shares in accordance with a written plan approved by the
investment company's board of directors/trustees and filed with the SEC. At a
meeting held on December 7, 1996, the Board adopted a Rule 18f-3 plan on behalf
of the Fund. The Board last approved the Rule 18f-3 plan at a meeting held of
December 5-6, 1997. The key features of the Rule 18f-3 plan are as follows: (i)
shares of each class of the Fund represent an equal pro rata interest in the
Fund and generally have identical voting, dividend, liquidation, and other
rights, preferences, powers, restrictions, limitations, qualifications, terms
and conditions, except that each class bears certain class-specific expenses and
has separate voting rights on certain matters that relate solely to that class
or in which the interests of shareholders of one class differ from the interests
of shareholders of another class; (ii) subject to certain limitations described
in the Prospectus, shares of a particular class of the Fund may be exchanged for
shares of the same class of another Ivy fund; and (iii) the Fund's Class B
shares will convert automatically into Class A shares of the Fund after a period
of eight years, based on the relative net asset value of such shares at the time
of conversion.
RULE 12B-1 DISTRIBUTION PLANS. The Trust has adopted on behalf of the
Fund, in accordance with Rule 12b-1 under the 1940 Act, separate Rule 12b-1
distribution plans pertaining to the Fund's Class A, Class B and Class C shares
(each, a "Plan"). In adopting each Plan, a majority of the Independent Trustees
have concluded in accordance with the requirements of Rule 12b-1 that there is a
reasonable likelihood that each Plan will benefit the Fund and its shareholders.
The Trustees of the Trust believe that the Plans should result in greater sales
and/or fewer redemptions of the Fund's shares, although it is impossible to know
for certain the level of sales and redemptions of the Fund's shares in the
absence of a Plan or under an alternative distribution arrangement.
Under each Plan, the Fund pays IMDI a service fee, accrued daily and
paid monthly, at the annual rate of up to 0.25% of the average daily net assets
attributable to its Class A, Class B or Class C shares, as the case may be. The
services for which service fees may be paid include, among other things,
advising clients or customers regarding the purchase, sale or retention of
shares of the Fund, answering routine inquiries concerning the Fund and
assisting shareholders in changing options or enrolling in specific plans.
Pursuant to each Plan, service fee payments made out of or charged against the
assets attributable to the Fund's Class A, Class B or Class C shares must be in
reimbursement for services rendered for or on behalf of the affected class. The
expenses not reimbursed in any one month may be reimbursed in a subsequent
month. The Class A Plan does not provide for the payment of interest or carrying
charges as distribution expenses.
Under the Fund's Class B and Class C Plans, the Fund also pays IMDI a
distribution fee, accrued daily and paid monthly, at the annual rate of 0.75% of
the average daily net assets attributable to its Class B or Class C shares. IMDI
may reallow to dealers all or a portion of the service and distribution fees as
IMDI may determine from time to time. The distribution fee compensates IMDI for
expenses incurred in connection with activities primarily intended to result in
the sale of the Fund's Class B or Class C shares, including the printing of
prospectuses and reports for persons other than existing shareholders and the
preparation, printing and distribution of sales literature and advertising
materials. Pursuant to each Class B and Class C Plan, IMDI may include interest,
carrying or other finance charges in its calculation of distribution expenses,
if not prohibited from doing so pursuant to an order of or a regulation adopted
by the SEC.
Among other things, each Plan provides that (1) IMDI will submit to the
Board at least quarterly, and the Trustees will review, written reports
regarding all amounts expended under the Plan and the purposes for which such
expenditures were made; (2) each Plan will continue in effect only so long as
such continuance is approved at least annually, and any material amendment
thereto is approved, by the votes of a majority of the Board, including the
Independent Trustees, cast in person at a meeting called for that purpose; (3)
payments by the Fund under each Plan shall not be materially increased without
the affirmative vote of the holders of a majority of the outstanding shares of
the relevant class; and (4) while each Plan is in effect, the selection and
nomination of Independent Trustees shall be committed to the discretion of the
Trustees who are not "interested persons" of the Trust.
IMDI may make payments for distribution assistance and for
administrative and accounting services from resources that may include the
management fees paid by the Fund. IMDI also may make payments (such as the
service fee payments described above) to unaffiliated broker-dealers for
services rendered in the distribution of the Fund's shares. To qualify for such
payments, shares may be subject to a minimum holding period. However, no such
payments will be made to any dealer or broker if at the end of each year the
amount of shares held does not exceed a minimum amount. The minimum holding
period and minimum level of holdings will be determined from time to time by
IMDI.
A report of the amount expended pursuant to each Plan, and the purposes
for which such expenditures were incurred, must be made to the Board for its
review at least quarterly.
During the fiscal year ended December 31, 1998, the Fund paid IMDI [ ]
pursuant to its Class A plan. During the fiscal year ended December 31, 1998 the
Fund paid IMDI [ ] pursuant to its Class B plan. During the fiscal year ended
December 31, 1998, the Fund paid IMDI [ ] pursuant to its Class C plan.
During the fiscal year ended December 31, 1998, IMDI expended the
following amounts in marketing Class A shares of the Fund: advertising [$ ;]
printing and mailing of prospectuses to persons other than current shareholders,
[$ ;] compensation to dealers, [$ ;] compensation to sales personnel [$ ;]
seminars and meetings, [$ ;] travel and entertainment, [$ ;] general and
administrative, [$ ;] telephone, [$ ;] and occupancy and equipment rental, [$ .]
During the fiscal year ended December 31, 1998, IMDI expended the
following amounts in marketing Class B shares of the Fund: advertising, [$ ;]
printing and mailing of prospectuses to persons other than current shareholders,
[$ ;] compensation to dealers, [$ ;] compensation to sales personnel, [$ ;]
seminars and meetings, [$ ;] travel and entertainment, [$ ;] general and
administrative, [$ ;] telephone, [$ ;] and occupancy and equipment rental [$ .]
During the fiscal year ended December 31, 1998, IMDI expended the
following amounts in marketing Class C shares of the Fund: advertising, [$ ;]
printing and mailing of prospectuses to persons other than current shareholders,
[$ ;] compensation to dealers, [$ ;] compensation to sales personnel, [$ ;]
seminars and meetings, [$ ;] travel and entertainment, [$ ;] general
administrative, [$ ;] telephone, [$ ;] and occupancy and equipment rental, [$ .]
Each Plan may be amended at any time with respect to the class of
shares of the Fund to which the Plan relates by vote of the Trustees, including
a majority of the Independent Trustees, cast in person at a meeting called for
the purpose of considering such amendment. Each Plan may be terminated at any
time with respect to the class of shares of the Fund to which the Plan relates,
without payment of any penalty, by vote of a majority of the Independent
Trustees, or by vote of a majority of the outstanding voting securities of that
class.
If the Distribution Agreement or the Distribution Plans are terminated
(or not renewed) with respect to any of the Ivy funds (or class of shares
thereof), each may continue in effect with respect to any other fund (or Class
of shares thereof) as to which they have not been terminated (or have been
renewed).
CUSTODIAN
Pursuant to a Custodian Agreement with the Trust, Brown Brothers
Harriman & Co. (the "Custodian"), a private bank and member of the principal
securities exchanges, located at 40 Water Street, Boston, Massachusetts 02109
(the "Custodian"), maintains custody of the assets of the Fund held in the
United States. Rules adopted under the 1940 Act permit the Trust to maintain its
foreign securities and cash in the custody of certain eligible foreign banks and
securities depositories. Pursuant to those rules, the Custodian has entered into
subcustodial agreements for the holding of the Fund's foreign securities. With
respect to the Fund, the Custodian may receive, as partial payment for its
services to the Fund, a portion of the Trust's brokerage business, subject to
its ability to provide best price and execution.
FUND ACCOUNTING SERVICES
Pursuant to a Fund Accounting Services Agreement, MIMI provides certain
accounting and pricing services for the Fund. As compensation for those
services, the Fund pays MIMI a monthly fee plus out-of-pocket expenses as
incurred. The monthly fee is based upon the net assets of the Fund at the
preceding month end at the following rates: $1,250 when net assets are $10
million and under; $2,500 when net assets are over $10 million to $40 million;
$5,000 when net assets are over $40 million to $75 million; and $6,500 when net
assets are over $75 million.
During the fiscal year ended December 31, 1998, the Fund paid MIMI
[ ] under the agreement.
TRANSFER AGENT AND DIVIDEND PAYING AGENT
Pursuant to a Transfer Agency and Shareholder Service Agreement, Ivy
Mackenzie Services Corp. ("IMSC"), a wholly owned subsidiary of MIMI, is the
transfer agent for the Fund. Under the Agreement, the Fund pays a monthly fee at
an annual rate of $20.00 for each open Class A, Class B, Class C and Advisor
Class account. In addition, the Fund pays a monthly fee at an annual rate of
$4.58 per account that is closed plus certain out-of-pocket expenses. Such fees
and expenses for the fiscal year ended December 31, 1998 for the Fund totaled [$
]. Certain broker-dealers that maintain shareholder accounts with the Fund
through an omnibus account provide transfer agent and other shareholder-related
services that would otherwise be provided by IMSC if the individual accounts
that comprise the omnibus account were opened by their beneficial owners
directly. IMSC pays such broker-dealers a per account fee for each open account
within the omnibus account, or a fixed rate (e.g., 0.10%) fee, based on the
average daily net asset value of the omnibus account (or a combination thereof).
ADMINISTRATOR
Pursuant to an Administrative Services Agreement, MIMI provides certain
administrative services to the Fund. As compensation for these services, the
Fund pays MIMI a monthly fee at the annual rate of 0.10% of the Fund's average
daily net assets. Such fees for the fiscal year ended December 31, 1998 for the
Fund totaled [$ ].
Outside of providing administrative services to the Trust, as described
above, MIMI may also act on behalf of IMDI in paying commissions to
broker-dealers with respect to sales of Class B and Class C shares of the Fund.
AUDITORS
[ ], independent public accountants, has been selected as auditors for
the Trust. The audit services performed by [ ] include audits of the annual
financial statements of each of the funds of the Trust. Other services provided
principally relate to filings with the SEC and the preparation of the funds' tax
returns.
BROKERAGE ALLOCATION
Subject to the overall supervision of the President and the Board, IMI
places orders for the purchase and sale of the Fund's portfolio securities. All
portfolio transactions are effected at the best price and execution obtainable.
Purchases and sales of debt securities are usually principal transactions and
therefore, brokerage commissions are usually not required to be paid by the Fund
for such purchases and sales (although the price paid generally includes
undisclosed compensation to the dealer). The prices paid to underwriters of
newly-issued securities usually include a concession paid by the issuer to the
underwriter, and purchases of after-market securities from dealers normally
reflect the spread between the bid and asked prices. In connection with OTC
transactions, IMI attempts to deal directly with the principal market makers,
except in those circumstances where IMI believes that a better price and
execution are available elsewhere.
IMI selects broker-dealers to execute transactions and evaluates the
reasonableness of commissions on the basis of quality, quantity, and the nature
of the firms' professional services. Commissions to be charged and the rendering
of investment services, including statistical, research, and counseling services
by brokerage firms, are factors to be considered in the placing of brokerage
business. The types of research services provided by brokers may include general
economic and industry data, and information on securities of specific companies.
Research services furnished by brokers through whom the Trust effects securities
transactions may be used by IMI in servicing all of its accounts. In addition,
not all of these services may be used by IMI in connection with the services it
provides to the Fund or the Trust. IMI may consider sales of shares of Ivy funds
as a factor in the selection of broker-dealers and may select broker-dealers who
provide it with research services. IMI will not, however, execute brokerage
transactions other than at the best price and execution.
During the fiscal years ended December 31, 1996, 1997 and 1998, the
Fund paid brokerage commissions of $883,583, $683,881 and [ ], respectively.
The Fund may, under some circumstances, accept securities in lieu of
cash as payment for Fund shares. The Fund will accept securities only to
increase its holdings in a portfolio security or to take a new portfolio
position in a security that IMI deems to be a desirable investment for the Fund.
While no minimum has been established, it is expected that the Fund will not
accept securities having an aggregate value of less than $1 million. The Trust
may reject in whole or in part any or all offers to pay for the Fund shares with
securities and may discontinue accepting securities as payment for the Fund
shares at any time without notice. The Trust will value accepted securities in
the manner and at the same time provided for valuing portfolio securities of the
Fund, and the Fund shares will be sold for net asset value determined at the
same time the accepted securities are valued. The Trust will only accept
securities delivered in proper form and will not accept securities subject to
legal restrictions on transfer. The acceptance of securities by the Trust must
comply with the applicable laws of certain states.
CAPITALIZATION AND VOTING RIGHTS
The capitalization of the Trust consists of an unlimited number of
shares of beneficial interest (no par value per share). When issued, shares of
each class of the Fund are fully paid, non-assessable, redeemable and fully
transferable. No class of shares of the Fund has preemptive rights or
subscription rights.
The Amended and Restated Declaration of Trust permits the Trustees to
create separate series or portfolios and to divide any series or portfolio into
one or more classes. The Trustees have authorized nineteen series, each of which
represents a fund. The Trustees have further authorized the issuance of Class A,
Class B, and Class C shares for Ivy International Fund and Ivy Money Market Fund
and Class A, Class B, Class C and Advisor Class shares for the Fund, Ivy Asia
Pacific Bond Fund, Ivy Bond Fund, Ivy China Region Fund, Ivy Developing Nations
Fund, Ivy European Opportunities Fund, Ivy Global Natural Resources Fund, Ivy
Global Science & Technology Fund, Ivy Growth Fund, Ivy Growth with Income Fund,
Ivy International Fund II, Ivy International Small Companies Fund, Ivy
International Strategic Bond Fund, Ivy Pan-Europe Fund, Ivy South America Fund,
Ivy US Blue Chip Fund and Ivy US Emerging Growth Fund, as well as Class I shares
for Ivy Bond Fund, Ivy European Opportunities Fund, Ivy Global Science &
Technology Fund, Ivy International Fund, Ivy International Fund II, Ivy
International Small Companies Fund, Ivy International Strategic Bond Fund and
Ivy US Blue Chip Fund.
Shareholders have the right to vote for the election of Trustees of the
Trust and on any and all matters on which they may be entitled to vote by law or
by the provisions of the Trust's By-Laws. The Trust is not required to hold a
regular annual meeting of shareholders, and it does not intend to do so. Shares
of each class of the Fund entitle their holders to one vote per share (with
proportionate voting for fractional shares). Shareholders of the Fund are
entitled to vote alone on matters that only affect the Fund. All classes of
shares of the Fund will vote together, except with respect to the distribution
plan applicable to the Fund's Class A, Class B or Class C shares or when a class
vote is required by the 1940 Act. On matters relating to all funds of the Trust,
but affecting the funds differently, separate votes by the shareholders of each
fund are required. Approval of an investment advisory agreement and a change in
fundamental policies would be regarded as matters requiring separate voting by
the shareholders of each fund of the Trust. If the Trustees determine that a
matter does not affect the interests of the Fund, then the shareholders of the
Fund will not be entitled to vote on that matter. Matters that affect the Trust
in general, such as ratification of the selection of independent public
accountants, will be voted upon collectively by the shareholders of all funds of
the Trust.
As used in this SAI and the Prospectus, the phrase "majority vote of
the outstanding shares" of the Fund means the vote of the lesser of: (1) 67% of
the shares of the Fund (or of the Trust) present at a meeting if the holders of
more than 50% of the outstanding shares are present in person or by proxy; or
(2) more than 50% of the outstanding shares of the Fund (or of the Trust).
With respect to the submission to shareholder vote of a matter
requiring separate voting by the Fund, the matter shall have been effectively
acted upon with respect to the Fund if a majority of the outstanding voting
securities of the Fund votes for the approval of the matter, notwithstanding
that: (1) the matter has not been approved by a majority of the outstanding
voting securities of any other fund of the Trust; or (2) the matter has not been
approved by a majority of the outstanding voting securities of the Trust.
The Amended and Restated Declaration of Trust provides that the holders
of not less than two-thirds of the outstanding shares of the Trust may remove a
person serving as trustee either by declaration in writing or at a meeting
called for such purpose. The Trustees are required to call a meeting for the
purpose of considering the removal of a person serving as Trustee if requested
in writing to do so by the holders of not less than 10% of the outstanding
shares of the Trust. Shareholders will be assisted in communicating with other
shareholders in connection with the removal of a Trustee as if Section 26(c) of
the Act were applicable.
The Trust's shares do not have cumulative voting rights and accordingly
the holders of more than 50% of the outstanding shares could elect the entire
Board, in which case the holders of the remaining shares would not be able to
elect any Trustees.
Under Massachusetts law, the Trust's shareholders could, under certain
circumstances, be held personally liable for the obligations of the Trust.
However, the Amended and Restated Declaration of Trust disclaims liability of
the shareholders, Trustees or officers of the Trust for acts or obligations of
the Trust, which are binding only on the assets and property of the Trust, and
requires that notice of the disclaimer be given in each contract or obligation
entered into or executed by the Trust or its Trustees. The Amended and Restated
Declaration of Trust provides for indemnification out of Fund property for all
loss and expense of any shareholder of the Fund held personally liable for the
obligations of the Fund. The risk of a shareholder of the Trust incurring
financial loss on account of shareholder liability is limited to circumstances
in which the Trust itself would be unable to meet its obligations and, thus,
should be considered remote. No series of the Trust is liable for the
obligations of any other series of the Trust.
SPECIAL RIGHTS AND PRIVILEGES
The Trust offers, and (except as noted below) bears the cost of
providing, to investors the following rights and privileges. The Trust reserves
the right to amend or terminate any one or more of these rights and privileges.
Notice of amendments to or terminations of rights and privileges will be
provided to shareholders in accordance with applicable law.
Certain of the rights and privileges described below refer to funds,
other than the Fund, whose shares are also distributed by IMDI. These funds are:
Ivy Asia Pacific Fund, Ivy Bond Fund, Ivy China Region Fund, Ivy Developing
Nations Fund, Ivy European Opportunities Fund, Ivy Global Fund, Ivy Global
Natural Resources Fund, Ivy Global Science & Technology Fund, Ivy Growth with
Income Fund, Ivy International Fund, Ivy International Fund II, Ivy
International Small Companies Fund, Ivy International Strategic Bond Fund, Ivy
Money Market Fund, Ivy Pan-Europe Fund, Ivy South America Fund, Ivy US Blue Chip
Fund, and Ivy US Emerging Growth Fund (the other eighteen series of the Trust).
(Effective April 18, 1997, Ivy International Fund suspended the offer of its
shares to new investors). Shareholders should obtain a current prospectus before
exercising any right or privilege that may relate to these funds.
AUTOMATIC INVESTMENT METHOD
The Automatic Investment Method, which enables a Fund shareholder to
have specified amounts automatically drawn each month from his or her bank for
investment in Fund shares, is available for all classes of shares. The minimum
initial and subsequent investment under this method is $50 per month ($250 for
Advisor Class shares), (except in the case of a tax qualified retirement plan
for which the minimum initial and subsequent investment is $25 per month). A
shareholder may terminate the Automatic Investment Method at any time upon
delivery to IMSC of telephone instructions or written notice. See "Automatic
Investment Method" in the Prospectus. To begin the plan, complete Sections 6A
and 7B of the Account Application.
EXCHANGE OF SHARES
As described in the Prospectus, shareholders of the Fund have an
exchange privilege with other Ivy funds (except Ivy International Fund unless
they have an existing Ivy International Fund account). Before effecting an
exchange, shareholders of the Fund should obtain and read the currently
effective prospectus for the Ivy fund into which the exchange is to be made.
INITIAL SALES CHARGE SHARES. Class A shareholders may exchange their
Class A shares ("outstanding Class A shares") for Class A shares of another Ivy
fund ("new Class A Shares") on the basis of the relative net asset value per
Class A share, plus an amount equal to the difference, if any, between the sales
charge previously paid on the outstanding Class A shares and the sales charge
payable at the time of the exchange on the new Class A shares. (The additional
sales charge will be waived for Class A shares that have been invested for a
period of 12 months or longer.) Class A shareholders may also exchange their
shares for shares of Ivy Money Market Fund (no initial sales charge will be
assessed at the time of such an exchange).
CONTINGENT DEFERRED SALES CHARGE SHARES CLASS A: Class A shareholders
may exchange their Class A shares that are subject to a contingent deferred
sales charge ("CDSC"), as described in the Prospectus ("outstanding Class A
shares"), for Class A shares of another Ivy fund ("new Class A shares") on the
basis of the relative net asset value per Class A share, without the payment of
any CDSC that would otherwise be due upon the redemption of the outstanding
Class A shares. Class A shareholders of the Fund exercising the exchange
privilege will continue to be subject to that Fund's CDSC period following an
exchange if such period is longer than the CDSC period, if any, applicable to
the new Class A shares.
For purposes of computing the CDSC that may be payable upon the
redemption of the new Class A shares, the holding period of the outstanding
Class A shares is "tacked" onto the holding period of the new Class A shares.
CLASS B: Class B shareholders may exchange their Class B shares
("outstanding Class B shares") for Class B shares of another Ivy fund ("new
Class B shares") on the basis of the relative net asset value per Class B share,
without the payment of any CDSC that would otherwise be due upon the redemption
of the outstanding Class B shares. Class B shareholders of the Fund exercising
the exchange privilege will continue to be subject to that Fund's CDSC schedule
(or period) following an exchange if such schedule is higher (or such period is
longer) than the CDSC schedule (or period) applicable to the new Class B shares.
Class B shares of the Fund acquired through an exchange of Class B
shares of another Ivy fund will be subject to that Fund's CDSC schedule (or
period) if such schedule is higher (or such period is longer) than the CDSC
schedule (or period) applicable to the Ivy fund from which the exchange was
made.
For purposes of both the conversion feature and computing the CDSC that
may be payable upon the redemption of the new Class B shares (prior to
conversion), the holding period of the outstanding Class B shares is "tacked"
onto the holding period of the new Class B shares.
The following CDSC table applies to Class B shares of Ivy Asia Pacific
Fund, Ivy Bond Fund, Ivy China Region Fund, Ivy Developing Nations Fund, Ivy
European Opportunities Fund, Ivy Global Fund, Ivy Global Natural Resources Fund,
Ivy Global Science & Technology Fund, Ivy Growth Fund, Ivy Growth with Income
Fund, Ivy International Fund, Ivy International Fund II, Ivy International Small
Companies Fund, Ivy International Strategic Bond Fund, Ivy Pan-Europe Fund, Ivy
South America Fund, Ivy US Blue Chip Fund, and Ivy US Emerging Growth Fund.
CONTINGENT DEFERRED SALES CHARGE AS A PERCENTAGE OF
DOLLAR AMOUNT SUBJECT TO CHARGE
YEAR SINCE PURCHASE
First 5%
Second 4%
Third 3%
Fourth 3%
Fifth 2%
Sixth 1%
Seventh and thereafter 0%
CLASS C: Class C shareholders may exchange their Class C shares
("outstanding Class C shares") for Class C shares of another Ivy fund ("new
Class C shares") on the basis of the relative net asset value per Class C share,
without the payment of any CDSC that would otherwise be due upon redemption.
(Class C shares are subject to a CDSC of 1.00% if redeemed within one year of
the date of purchase.)
ADVISOR CLASS: Subject to the restrictions set forth in the following
paragraph, Advisor Class shareholders may exchange their outstanding Advisor
Class shares for Advisor Class shares of another Ivy fund on the basis of the
relative net asset value per share.
ALL CLASSES: The minimum value of shares which may be exchanged into an
Ivy fund in which shares are not already held is $1,000 ($10,000 in the case of
Advisor Class shares). No exchange out of the Fund (other than by a complete
exchange of all Fund shares) may be made if it would reduce the shareholder's
interest in the Fund to less than $1,000 ($10,000 in the case of Advisor Class
shares).
Each exchange will be made on the basis of the relative net asset value
per share of the Ivy funds involved in the exchange next computed following
receipt by IMSC of telephone instructions by IMSC or a properly executed
request. Exchanges, whether written or telephonic, must be received by IMSC by
the close of regular trading on the Exchange (normally 4:00 p.m., eastern time)
to receive the price computed on the day of receipt. Exchange requests received
after that time will receive the price next determined following receipt of the
request. The exchange privilege may be modified or terminated at any time, upon
at least 60 days' notice to the extent required by applicable law. See
"Redemptions."
An exchange of shares between any of the Ivy funds will result in a
taxable gain or loss. Generally, this will be a capital gain or loss (long-term
or short-term, depending on the holding period of the shares) in the amount of
the difference between the net asset value of the shares surrendered and the
shareholder's tax basis for those shares. However, in certain circumstances,
shareholders will be ineligible to take sales charges into account in computing
taxable gain or loss on an exchange. See "Taxation."
With limited exceptions, gain realized by a tax-deferred retirement
plan will not be taxable to the plan and will not be taxed to the participant
until distribution. Each investor should consult his or her tax adviser
regarding the tax consequences of an exchange transaction.
LETTER OF INTENT
Reduced sales charges apply to initial investments in Class A shares of
the Fund made pursuant to a non-binding Letter of Intent. A Letter of Intent may
be submitted by an individual, his or her spouse and children under the age of
21, or a trustee or other fiduciary of a single trust estate or single fiduciary
account. See the Account Application in the Prospectus. Any investor may submit
a Letter of Intent stating that he or she will invest, over a period of 13
months, at least $50,000 in Class A shares of the Fund. A Letter of Intent may
be submitted at the time of an initial purchase of Class A shares of the Fund or
within 90 days of the initial purchase, in which case the Letter of Intent will
be back dated. A shareholder may include, as an accumulation credit, the value
(at the applicable offering price) of all Class A shares of Ivy Asia Pacific
Fund, Ivy Bond Fund, Ivy China Region Fund, Ivy Developing Nations Fund, Ivy
European Opportunities Fund, Ivy Global Fund, Ivy Global Natural Resources Fund,
Ivy Global Science & Technology Fund, Ivy Growth Fund, Ivy Growth with Income
Fund, Ivy International Fund, Ivy International Fund II, Ivy International Small
Companies Fund, Ivy International Strategic Bond Fund, Ivy Pan-Europe Fund, Ivy
South America Fund, Ivy US Blue Chip Fund and Ivy US Emerging Growth Fund (and
shares that have been exchanged into Ivy Money Market Fund from any of the other
funds in the Ivy funds) held of record by him or her as of the date of his or
her Letter of Intent. During the term of the Letter of Intent, the Transfer
Agent will hold Class A shares representing 5% of the indicated amount (less any
accumulation credit value) in escrow. The escrowed Class A shares will be
released when the full indicated amount has been purchased. If the full
indicated amount is not purchased during the term of the Letter of Intent, the
investor is required to pay IMDI an amount equal to the difference between the
dollar amount of sales charge that he or she has paid and that which he or she
would have paid on his or her aggregate purchases if the total of such purchases
had been made at a single time. Such payment will be made by an automatic
liquidation of Class A shares in the escrow account. A Letter of Intent does not
obligate the investor to buy or the Trust to sell the indicated amount of Class
A shares, and the investor should read carefully all the provisions of such
letter before signing.
RETIREMENT PLANS
Shares may be purchased in connection with several types of
tax-deferred retirement plans. Shares of more than one fund distributed by IMDI
may be purchased in a single application establishing a single account under the
plan, and shares held in such an account may be exchanged among the Ivy funds in
accordance with the terms of the applicable plan and the exchange privilege
available to all shareholders. Initial and subsequent purchase payments in
connection with tax-deferred retirement plans must be at least $25 per
participant.
The following fees will be charged to individual shareholder accounts
as described in the retirement prototype plan document:
Retirement Plan New Account Fee no fee
Retirement Plan Annual Maintenance Fee $10.00 per fund account
For shareholders whose retirement accounts are diversified across
several Ivy funds, the annual maintenance fee will be limited to not more than
$20.
The following discussion describes the tax treatment of certain
tax-deferred retirement plans under current Federal income tax law. State income
tax consequences may vary. An individual considering the establishment of a
retirement plan should consult with an attorney and/or an accountant with
respect to the terms and tax aspects of the plan.
INDIVIDUAL RETIREMENT ACCOUNTS: Shares of the Fund may be used as a
funding medium for an Individual Retirement Account ("IRA"). Eligible
individuals may establish an IRA by adopting a model custodial account available
from IMSC, who may impose a charge for establishing the account. Individuals
should consult their tax advisers before investing IRA assets in an Ivy fund if
that fund primarily distributes exempt-interest dividends.
An individual who has not reached age 70-1/2 and who receives
compensation or earned income is eligible to contribute to an IRA, whether or
not he or she is an active participant in a retirement plan. An individual who
receives a distribution from another IRA, a qualified retirement plan, a
qualified annuity plan or a tax-sheltered annuity or custodial account ("403(b)
plan") that qualifies for "rollover" treatment is also eligible to establish an
IRA by rolling over the distribution either directly or within 60 days after its
receipt. Tax advice should be obtained in connection with planning a rollover
contribution to an IRA.
In general, an eligible individual may contribute up to the lesser of
$2,000 or 100% of his or her compensation or earned income to an IRA each year.
If a husband and wife are both employed, and both are under age 70-1/2, each may
set up his or her own IRA within these limits. If both earn at least $2,000 per
year, the maximum potential contribution is $4,000 per year for both. For years
after 1996, the result is similar even if one spouse has no earned income; if
the joint earned income of the spouses is at least $4,000, a contribution of up
to $2,000 may be made to each spouse's IRA. Rollover contributions are not
subject to these limits.
An individual may deduct his or her annual contributions to an IRA in
computing his or her Federal income tax within the limits described above,
provided he or she (or his or her spouse, if they file a joint Federal income
tax return) is not an active participant in a qualified retirement plan (such as
a qualified corporate, sole proprietorship, or partnership pension, profit
sharing, 401(k) or stock bonus plan), qualified annuity plan, 403(b) plan,
simplified employee pension, or governmental plan. If he or she (or his or her
spouse) is an active participant, whether the individual's contribution to an
IRA is fully deductible, partially deductible or not deductible depends on (i)
adjusted gross income and (ii) whether it is the individual or the individual's
spouse who is an active participant, in the case of married individuals filing
jointly. Contributions may be made up to the maximum permissible amount even if
they are not deductible. Rollover contributions are not includable in income for
Federal income tax purposes and therefore are not deductible from it.
Generally, earnings on an IRA are not subject to current Federal income
tax until distributed. Distributions attributable to tax-deductible
contributions and to IRA earnings are taxed as ordinary income. Distributions of
non-deductible contributions are not subject to Federal income tax. In general,
distributions from an IRA to an individual before he or she reaches age 59-1/2
are subject to a nondeductible penalty tax equal to 10% of the taxable amount of
the distribution. The 10% penalty tax does not apply to amounts withdrawn from
an IRA after the individual reaches age 59-1/2, becomes disabled or dies, or if
withdrawn in the form of substantially equal payments over the life or life
expectancy of the individual and his or her designated beneficiary, if any, or
rolled over into another IRA, amounts withdrawn and used to pay for deductible
medical expenses and amounts withdrawn by certain unemployed individuals not in
excess of amounts paid for certain health insurance premiums, amounts used to
pay certain qualified higher education expenses, and amounts used within 120
days of the date the distribution is received to pay for certain first-time
homebuyer expenses. Distributions must begin to be withdrawn not later than
April 1 of the calendar year following the calendar year in which the individual
reaches age 70-1/2. Failure to take certain minimum required distributions will
result in the imposition of a 50% non-deductible penalty tax.
ROTH IRAS: Shares of the Fund also may be used as a funding medium for
a Roth Individual Retirement Account ("Roth IRA"). A Roth IRA is similar in
numerous ways to the regular (traditional) IRA, described above.
Some of the primary differences are as follows.
A single individual earning below $95,000 can contribute up to $2,000
per year to a Roth IRA. The maximum contribution amount diminishes and gradually
falls to zero for single filers with adjusted gross incomes ranging from $95,000
to $110,000. Married couples earning less than $150,000 combined, and filing
jointly, can contribute a full $4,000 per year ($2,000 per IRA). The maximum
contribution amount for married couples filing jointly phases out from $150,000
to $160,000. An individual whose adjusted gross income exceeds the maximum
phase-out amount cannot contribute to a Roth IRA.
An eligible individual can contribute money to a traditional IRA and a
Roth IRA as long as the total contribution to all IRAs does not exceed $2,000.
Contributions to a Roth IRA are not deductible. Contributions to a Roth IRA may
be made even after the individual for whom the account is maintained has
attained age 70 1/2.
No distributions are required to be taken prior to the death of the
original account holder. If a Roth IRA has been established for a minimum of
five years, distributions can be taken tax-free after reaching age 59 1/2, for a
first-time home purchase ($10,000 maximum, one time use), or upon death or
disability. All other distributions from a Roth IRA (other than the amount of
nondeductible contributions) are taxable and subject to a 10% tax penalty unless
an exception applies. Exceptions to the 10% penalty include: reaching age 59
1/2, death, disability, deductible medical expenses, the purchase of health
insurance for certain unemployed individual and qualified higher education
expenses.
An individual with an income of less than $100,000 (who is not married
filing separately) can roll his or her existing IRA into a Roth IRA. However,
the individual must pay taxes on the taxable amount in his or her traditional
IRA. After 1998, all taxes on such a rollover will have to be paid in the tax
year in which the rollover is made.
QUALIFIED PLANS: For those self-employed individuals who wish to
purchase shares of one or more Ivy funds through a qualified retirement plan, a
Custodial Agreement and a Retirement Plan are available from IMSC. The
Retirement Plan may be adopted as a profit sharing plan or a money purchase
pension plan. A profit sharing plan permits an annual contribution to be made in
an amount determined each year by the self-employed individual within certain
limits prescribed by law. A money purchase pension plan requires annual
contributions at the level specified in the Custodial Agreement. There is no
set-up fee for qualified plans and the annual maintenance fee is $20.00 per
account.
In general, if a self-employed individual has any common law employees,
employees who have met certain minimum age and service requirements must be
covered by the Retirement Plan. A self-employed individual generally must
contribute the same percentage of income for common law employees as for himself
or herself.
A self-employed individual may contribute up to the lesser of $30,000
or 25% of compensation or earned income to a money purchase pension plan or to a
combination profit sharing and money purchase pension plan arrangement each year
on behalf of each participant. To be deductible, total contributions to a profit
sharing plan generally may not exceed 15% of the total compensation or earned
income of all participants in the plan, and total contributions to a combination
money purchase-profit sharing arrangement generally may not exceed 25% of the
total compensation or earned income of all participants. The amount of
compensation or earned income of any one participant that may be included in
computing the deduction is limited (generally to $150,000 for benefits accruing
in plan years beginning after 1993, with annual inflation adjustments). A
self-employed individual's contributions to a retirement plan on his or her own
behalf must be deducted in computing his or her earned income.
Corporate employers may also adopt the Custodial Agreement and
Retirement Plan for the benefit of their eligible employees. Similar
contribution and deduction rules apply to corporate employers.
Distributions from the Retirement Plan generally are made after a
participant's separation from service. A 10% penalty tax generally applies to
distributions to an individual before he or she reaches age 59-1/2, unless the
individual (1) has reached age 55 and separated from service; (2) dies; (3)
becomes disabled; (4) uses the withdrawal to pay tax-deductible medical
expenses; (5) takes the withdrawal as part of a series of substantially equal
payments over his or her life expectancy or the joint life expectancy of himself
or herself and a designated beneficiary; or (6) rolls over the distribution.
The Transfer Agent will arrange for Investors Bank & Trust to furnish
custodial services to the employer and any participating employees.
DEFERRED COMPENSATION FOR PUBLIC SCHOOLS AND CHARITABLE ORGANIZATIONS
("403(B)(7) ACCOUNT"): Section 403(b)(7) of the Internal Revenue Code of 1986,
as amended (the "Code") permits public school systems and certain charitable
organizations to use mutual fund shares held in a custodial account to fund
deferred compensation arrangements with their employees. A custodial account
agreement is available for those employers whose employees wish to purchase
shares of the Trust in conjunction with such an arrangement. The special
application for a 403(b)(7) Account is available from IMSC.
Distributions from the 403(b)(7) Account may be made only following
death, disability, separation from service, attainment of age 59-1/2, or
incurring a financial hardship. A 10% penalty tax generally applies to
distributions to an individual before he or she reaches age 59-1/2, unless the
individual (1) has reached age 55 and separated from service; (2) dies or
becomes disabled; (3) uses the withdrawal to pay tax-deductible medical
expenses; (4) takes the withdrawal as part of a series of substantially equal
payments over his or her life expectancy or the joint life expectancy of himself
or herself and a designated beneficiary; or (5) rolls over the distribution.
There is no set-up fee for 403(b)(7) Accounts and the annual maintenance fee is
$20.00 per account.
SIMPLIFIED EMPLOYEE PENSION ("SEP") IRAS: An employer may deduct
contributions to a SEP up to the lesser of $30,000 or 15% of compensation. SEP
accounts generally are subject to all rules applicable to IRA accounts, except
the deduction limits, and are subject to certain employee participation
requirements. No new salary reduction SEPs ("SARSEPs") may be established after
1996, but existing SARSEPs may continue to be maintained, and non-salary
reduction SEPs may continue to be established as well as maintained after 1996.
SIMPLE PLANS: An employer may establish a SIMPLE IRA or a SIMPLE 401(k)
for years after 1996. An employee can make pre-tax salary reduction
contributions to a SIMPLE Plan, up to $6,000 a year (as indexed). Subject to
certain limits, the employer will either match a portion of employee
contributions, or will make a contribution equal to 2% of each employee's
compensation without regard to the amount the employee contributes. An employer
cannot maintain a SIMPLE Plan for its employees if the employer maintains or
maintained any other qualified retirement plan with respect to which any
contributions or benefits have been credited.
REINVESTMENT PRIVILEGE
Shareholders who have redeemed Class A shares of the Fund may reinvest
all or a part of the proceeds of the redemption back into Class A shares of the
Fund at net asset value (without a sales charge) within 60 days from the date of
redemption. This privilege may be exercised only once. The reinvestment will be
made at the net asset value next determined after receipt by IMSC of the
reinvestment order accompanied by the funds to be reinvested. No compensation
will be paid to any sales personnel or dealer in connection with the
transaction.
Any redemption is a taxable event. A loss realized on a redemption
generally may be disallowed for tax purposes if the reinvestment privilege is
exercised within 30 days after the redemption. In certain circumstances,
shareholders will be ineligible to take sales charges into account in computing
taxable gain or loss on a redemption if the reinvestment privilege is exercised.
See "Taxation."
RIGHTS OF ACCUMULATION
A scale of reduced sales charges applies to any investment of $50,000
or more in Class A shares of the Fund. See "Initial Sales Charge Alternative --
Class A Shares" in the Prospectus. The reduced sales charge is applicable to
investments made at one time by an individual, his or her spouse and children
under the age of 21, or a trustee or other fiduciary of a single trust estate or
single fiduciary account (including a pension, profit sharing or other employee
benefit trust created pursuant to a plan qualified under Section 401 of the
Code). Rights of Accumulation is also applicable to current purchases of all of
the funds of Ivy Fund (except Ivy Money Market Fund) by any of the persons
enumerated above, where the aggregate quantity of Class A shares of such funds
(and shares that have been exchanged into Ivy Money Market Fund from any of the
other funds in the Ivy funds) and of any other investment company distributed by
IMDI, previously purchased or acquired and currently owned, determined at the
higher of current offering price or amount invested, plus the Class A shares
being purchased, amounts to $50,000 or more for all funds other than Ivy Bond
Fund; or $100,000 or more for Ivy Bond Fund.
At the time an investment takes place, IMSC must be notified by the
investor or his or her dealer that the investment qualifies for the reduced
sales charge on the basis of previous investments. The reduced sales charge is
subject to confirmation of the investor's holdings through a check of the
particular fund's records.
SYSTEMATIC WITHDRAWAL PLAN
A shareholder (except shareholders with accounts in Class I) may
establish a Systematic Withdrawal Plan (a "Withdrawal Plan"), by telephone
instructions or by delivery to IMSC of a written election to have his or her
shares withdrawn periodically (minimum distribution amount $50 for Advisor Class
shares), accompanied by a surrender to IMSC of all share certificates then
outstanding in such shareholder's name, properly endorsed by the shareholder. To
be eligible to elect a Withdrawal Plan, a shareholder must have at least $5,000
in his or her account (except Advisor Class shareholders, who must continually
maintain an account balance of at least $10,000). A Withdrawal Plan may not be
established if the investor is currently participating in the Automatic
Investment Method. A Withdrawal Plan may involve the depletion of a
shareholder's principal, depending on the amount withdrawn.
A redemption under a Withdrawal Plan is a taxable event. Shareholders
contemplating participating in a Withdrawal Plan should consult their tax
advisers.
Additional investments made by investors participating in a Withdrawal
Plan must equal at least $1,000 each ($250 for Advisor Class shareholders) while
the Withdrawal Plan is in effect. Making additional purchases while a Withdrawal
Plan is in effect may be disadvantageous to the investor because of applicable
initial sales charges or CDSCs.
An investor may terminate his or her participation in the Withdrawal
Plan at any time by delivering written notice to IMSC. If all shares held by the
investor are liquidated at any time, participation in the Withdrawal Plan will
terminate automatically. The Trust or IMSC may terminate the Withdrawal Plan
option at any time after reasonable notice to shareholders.
GROUP SYSTEMATIC INVESTMENT PROGRAM
Shares of the Fund may be purchased in connection with investment
programs established by employee or other groups using systematic payroll
deductions or other systematic payment arrangements. The Trust does not itself
organize, offer or administer any such programs. However, it may, depending upon
the size of the program, waive the minimum initial and additional investment
requirements for purchases by individuals in conjunction with programs organized
and offered by others. Unless shares of the Fund are purchased in conjunction
with IRAs (see "How to Buy Shares" in the Prospectus), such group systematic
investment programs are not entitled to special tax benefits under the Code. The
Trust reserves the right to refuse purchases at any time or suspend the offering
of shares in connection with group systematic investment programs, and to
restrict the offering of shareholder privileges, such as check writing,
simplified redemptions and other optional privileges, as described in the
Prospectus, to shareholders using group systematic investment programs.
With respect to each shareholder account established on or after
September 15, 1972 under a group systematic investment program, the Trust and
IMI each currently charge a maintenance fee of $3.00 (or portion thereof) that
for each twelve-month period (or portion thereof) that the account is
maintained. The Trust may collect such fee (and any fees due to IMI) through a
deduction from distributions to the shareholders involved or by causing on the
date the fee is assessed a redemption in each such shareholder account
sufficient to pay such fee. The Trust reserves the right to change these fees
from time to time without advance notice.
Class A shares of the Fund are made available to Merrill Lynch Daily K
Plan (the "Plan") participants at NAV without an initial sales charge if:
(i) the Plan is recordkept on a daily valuation basis by Merrill
Lynch and, on the date the Plan Sponsor signs the Merrill
Lynch Recordkeeping Service Agreement, the Plan has $3 million
or more in assets invested in broker/dealer funds not advised
or managed by Merrill Lynch Asset Management, L.P. ("MLAM")
that are made available pursuant to a Service Agreement
between Merrill Lynch and the fund's principal underwriter or
distributor and in funds advised or managed by MLAM
(collectively, the "Applicable Investments");
(ii) the Plan is recordkept on a daily valuation basis by an
independent recordkeeper whose services are provided through a
contract or alliance arrangement with Merrill Lynch, and on
the date the Plan Sponsor signs the Merrill Lynch
Recordkeeping Service Agreement, the Plan has $3 million or
more in assets, excluding money market funds, invested in
Applicable Investments; or
(iii) the Plan has 500 or more eligible employees, as determined by
Merrill Lynch plan conversion manager, on the date the Plan
Sponsor signs the Merrill Lynch Recordkeeping Service
Agreement.
Alternatively, Class B shares of the Fund are made available to Plan
participants at NAV without a CDSC if the Plan conforms with the requirements
for eligibility set forth in (i) through (iii) above but either does not meet
the $3 million asset threshold or does not have 500 or more eligible employees.
Plans recordkept on a daily basis by Merrill Lynch or an independent
recordkeeper under a contract with Merrill Lynch that are currently investing in
Class B shares of the Fund convert to Class A shares once the Plan has reached
$5 million invested in Applicable Investments, or 10 years after the date of the
initial purchase by a participant under the Plan--the Plan will receive a Plan
level share conversion.
REDEMPTIONS
Shares of the Fund are redeemed at their net asset value next
determined after a proper redemption request has been received by IMSC, less any
applicable CDSC.
Unless a shareholder requests that the proceeds of any redemption be
wired to his or her bank account, payment for shares tendered for redemption is
made by check within seven days after tender in proper form, except that the
Trust reserves the right to suspend the right of redemption or to postpone the
date of payment upon redemption beyond seven days, (i) for any period during
which the Exchange is closed (other than customary weekend and holiday closings)
or during which trading on the Exchange is restricted, (ii) for any period
during which an emergency exists as determined by the SEC as a result of which
disposal of securities owned by the Fund is not reasonably practicable or it is
not reasonably practicable for the Fund to fairly determine the value of its net
assets, or (iii) for such other periods as the SEC may by order permit for the
protection of shareholders of the Fund.
Under unusual circumstances, when the Board deems it in the best
interest of the Fund's shareholders, the Fund may make payment for shares
repurchased or redeemed in whole or in part in securities of the Fund taken at
current values. If any such redemption in kind is to be made, the Fund may make
an election pursuant to Rule 18f-1 under the 1940 Act. This will require the
Fund to redeem with cash at a shareholder's election in any case where the
redemption involves less than $250,000 (or 1% of the Fund's net asset value at
the beginning of each 90-day period during which such redemptions are in effect,
if that amount is less than $250,000). Should payment be made in securities, the
redeeming shareholder may incur brokerage costs in converting such securities to
cash.
The Trust may redeem those accounts of shareholders who have maintained
an investment, including sales charges paid, of less than $1,000 ($10,000 for
Advisor Class shareholders) in the Fund for a period of more than 12 months. All
accounts below that minimum will be redeemed simultaneously when MIMI deems it
advisable. The $1,000 balance ($10,000 for Advisor Class shareholders) will be
determined by actual dollar amounts invested by the shareholder, unaffected by
market fluctuations. The Trust will notify any such shareholder by certified
mail of its intention to redeem such account, and the shareholder shall have 60
days from the date of such letter to invest such additional sums as shall raise
the value of such account above that minimum. Should the shareholder fail to
forward such sum within 60 days of the date of the Trust's letter of
notification, the Trust will redeem the shares held in such account and transmit
the redemption in value thereof to the shareholder. However, those shareholders
who are investing pursuant to the Automatic Investment Method will not be
redeemed automatically unless they have ceased making payments pursuant to the
plan for a period of at least six consecutive months, and these shareholders
will be given six-months' notice by the Trust before such redemption.
Shareholders in a qualified retirement, pension or profit sharing plan who wish
to avoid tax consequences must "rollover" any sum so redeemed into another
qualified plan within 60 days. The Trustees of the Trust may change the minimum
account size.
If a shareholder has given authorization for telephonic redemption
privilege, shares can be redeemed and proceeds sent by Federal wire to a single
previously designated bank account. Delivery of the proceeds of a wire
redemption request of $250,000 or more may be delayed by the Fund for up to
seven days if deemed appropriate under then-current market conditions. The Trust
reserves the right to change this minimum or to terminate the telephonic
redemption privilege without prior notice. The Trust cannot be responsible for
the efficiency of the Federal wire system of the shareholder's dealer of record
or bank. The shareholder is responsible for any charges by the shareholder's
bank.
The Fund employs reasonable procedures that require personal
identification prior to acting on redemption or exchange instructions
communicated by telephone to confirm that such instructions are genuine. In the
absence of such instructions, the Fund may be liable for any losses due to
unauthorized or fraudulent telephone instructions.
CONVERSION OF CLASS B SHARES
As described in the Prospectus, Class B shares of the Fund will
automatically convert to Class A shares of the Fund, based on the relative net
asset values per share of the two classes, no later than the month following the
eighth anniversary of the initial issuance of such Class B shares of the Fund
occurs. For the purpose of calculating the holding period required for
conversion of Class B shares, the date of initial issuance shall mean: (1) the
date on which such Class B shares were issued, or (2) for Class B shares
obtained through an exchange, or a series of exchanges, (subject to the exchange
privileges for Class B shares) the date on which the original Class B shares
were issued. For purposes of conversion of Class B shares, Class B shares
purchased through the reinvestment of dividends and capital gain distributions
paid in respect of Class B shares will be held in a separate sub-account. Each
time any Class B shares in the shareholder's regular account (other than those
shares in the sub-account) convert to Class A shares, a pro rata portion of the
Class B shares in the sub-account will also convert to Class A shares. The
portion will be determined by the ratio that the shareholder's Class B shares
converting to Class A shares bears to the shareholder's total Class B shares not
acquired through the reinvestment of dividends and capital gain distributions.
NET ASSET VALUE
The net asset value per share of the Fund is computed by dividing the
value of the Fund's aggregate net assets (i.e., its total assets less its
liabilities) by the number of the Fund's shares outstanding. For purposes of
determining the Fund's aggregate net assets, receivables are valued at their
realizable amounts. The Fund's liabilities, if not identifiable as belonging to
a particular class of the Fund, are allocated among the Fund's several classes
based on their relative net asset size. Liabilities attributable to a particular
class are charged to that class directly. The total liabilities for a class are
then deducted from the class's proportionate interest in the Fund's assets, and
the resulting amount is divided by the number of shares of the class outstanding
to produce its net asset value per share.
A security listed or traded on a recognized stock exchange or The
Nasdaq Stock Market, Inc. ("Nasdaq") is valued at the security's last sale price
on the exchange on which the security is principally traded. If no sale is
reported at that time, the average between the last bid and asked price (the
"Calculated Mean") is used. Unless otherwise noted herein, the value of a
foreign security is determined in its national currency as of the normal close
of trading on the foreign exchange on which it is traded or as of the close of
regular trading on the Exchange, if that is earlier, and that value is then
converted into its U.S. dollar equivalent at the foreign exchange rate in effect
at noon, eastern time, on the day the value of the foreign security is
determined. All other securities for which OTC market quotations are readily
available are valued at the Calculated Mean.
A debt security normally is valued on the basis of quotes obtained from
at least two dealers (or one dealer who has made a market in the security) or
pricing services that take into account appropriate valuation factors. Interest
is accrued daily. Money market instruments are valued at amortized cost, which
the Board believes approximates market value.
An exchange-traded option is valued at the last sale price on the
exchange on which it is principally traded, if available, and otherwise is
valued at the last sale price on the other exchange(s). If there were no sales
on any exchange, the option shall be valued at the Calculated Mean, if possible,
and otherwise at the last offering price, in the case of a written option, and
the last bid price, in the case of a purchased option. An OTC option is valued
at the last offering price, in the case of a written option, and the last bid
price, in the case of a purchased option. Exchange listed and widely-traded OTC
futures (and options thereon) are valued at the most recent settlement price.
Securities and other assets for which market prices are not readily
available are priced at their "fair value" as determined by IMI in accordance
with procedures approved by the Board. Trading in securities on many foreign
securities exchanges is normally completed before the close of regular trading
on the Exchange. Trading on foreign exchanges may not take place on all days on
which there is regular trading on the Exchange, or may take place on days on
which there is no regular trading on the Exchange (e.g., any of the national
business holidays identified below). If events materially affecting the value of
the Fund's portfolio securities occur between the time when a foreign exchange
closes and the time when the Fund's net asset value is calculated (see following
paragraph), such securities may be valued at fair value as determined by IMI and
approved by the Board.
Portfolio securities are valued (and net asset value per share is
determined) as of the close of regular trading on the Exchange (normally 4:00
p.m., eastern time) on each day the Exchange is open for trading. The Exchange
and the Trust's offices are expected to be closed, and net asset value will not
be calculated, on the following national business holidays: New Year's Day,
Martin Luther King, Jr. Day, Presidents' Day, Good Friday, Memorial Day,
Independence Day, Labor Day, Thanksgiving Day and Christmas Day. On those days
when either or both of the Fund's Custodian or the Exchange close early as a
result of a partial holiday or otherwise, the Trust reserves the right to
advance the time on that day by which purchase and redemption requests must be
received.
The number of shares you receive when you place a purchase order, and
the payment you receive after submitting a redemption request, is based on the
Fund's net asset value next determined after your instructions are received in
proper form by IMSC or by your registered securities dealer. Each purchase and
redemption order is subject to any applicable sales charge. Since the Fund
normally invests in securities that are listed on foreign exchanges that may
trade on weekends or other days when the Fund does not price its shares, the
Fund's net asset value may change on days when shareholders will not be able to
purchase or redeem the Fund's shares. The sale of the Fund's shares will be
suspended during any period when the determination of its net asset value is
suspended pursuant to rules or orders of the SEC and may be suspended by the
Board whenever in its judgment it is in the Fund's best interest to do so.
TAXATION
The following is a general discussion of certain tax rules thought to
be applicable with respect to the Fund. It is merely a summary and is not an
exhaustive discussion of all possible situations or of all potentially
applicable taxes. Accordingly, shareholders and prospective shareholders should
consult a competent tax adviser about the tax consequences to them of investing
in the Fund.
The Fund intends to be taxed as a regulated investment company under
Subchapter M of the Code. Accordingly, the Fund must, among other things, (a)
derive in each taxable year at least 90% of its gross income from dividends,
interest, payments with respect to certain securities loans, and gains from the
sale or other disposition of stock, securities or foreign currencies, or other
income derived with respect to its business of investing in such stock,
securities or currencies; and (b) diversify its holdings so that, at the end of
each fiscal quarter, (i) at least 50% of the market value of the Fund's assets
is represented by cash, U.S. Government securities, the securities of other
regulated investment companies and other securities, with such other securities
limited, in respect of any one issuer, to an amount not greater than 5% of the
value of the Fund's total assets and 10% of the outstanding voting securities of
such issuer, and (ii) not more than 25% of the value of its total assets is
invested in the securities of any one issuer (other than U.S. Government
securities and the securities of other regulated investment companies).
As a regulated investment company, the Fund generally will not be
subject to U.S. Federal income tax on its income and gains that it distributes
to shareholders, if at least 90% of its investment company taxable income (which
includes, among other items, dividends, interest and the excess of any
short-term capital gains over long-term capital losses) for the taxable year is
distributed. The Fund intends to distribute all such income.
Amounts not distributed on a timely basis in accordance with a calendar
year distribution requirement are subject to a nondeductible 4% excise tax at
the Fund level. To avoid the tax, the Fund must distribute during each calendar
year, (1) at least 98% of its ordinary income (not taking into account any
capital gains or losses) for the calendar year (2) at least 98% of its capital
gains in excess of its capital losses (adjusted for certain ordinary losses) for
a one-year period generally ending on October 31 of the calendar year, and (3)
all ordinary income and capital gains for previous years that were not
distributed during such years. To avoid application of the excise tax, the Fund
intends to make distributions in accordance with the calendar year distribution
requirements. A distribution will be treated as paid on December 31 of the
current calendar year if it is declared by the Fund in October, November or
December of the year with a record date in such a month and paid by the Fund
during January of the following year. Such distributions will be taxable to
shareholders in the calendar year the distributions are declared, rather than
the calendar year in which the distributions are received.
OPTIONS, FUTURES AND FOREIGN CURRENCY FORWARD CONTRACTS
The taxation of equity options and OTC options on debt securities is
governed by Code section 1234. Pursuant to Code section 1234, the premium
received by the Fund for selling a put or call option is not included in income
at the time of receipt. If the option expires, the premium is short-term capital
gain to the Fund. If the Fund enters into a closing transaction, the difference
between the amount paid to close out its position and the premium received is
short-term capital gain or loss. If a call option written by the Fund is
exercised, thereby requiring the Fund to sell the underlying security, the
premium will increase the amount realized upon the sale of such security and any
resulting gain or loss will be a capital gain or loss, and will be long-term or
short-term depending upon the holding period of the security. With respect to a
put or call option that is purchased by the Fund, if the option is sold, any
resulting gain or loss will be a capital gain or loss, and will be long-term or
short-term, depending upon the holding period of the option. If the option
expires, the resulting loss is a capital loss and is long-term or short-term,
depending upon the holding period of the option. If the option is exercised, the
cost of the option, in the case of a call option, is added to the basis of the
purchased security and, in the case of a put option, reduces the amount realized
on the underlying security in determining gain or loss.
Some of the options, futures and foreign currency forward contracts in
which the Fund may invest may be "section 1256 contracts." Gains (or losses) on
these contracts generally are considered to be 60% long-term and 40% short-term
capital gains or losses; however, as described below, foreign currency gains or
losses arising from certain section 1256 contracts are ordinary in character.
Also, section 1256 contracts held by the Fund at the end of each taxable year
(and on certain other dates prescribed in the Code) are "marked-to-market" with
the result that unrealized gains or losses are treated as though they were
realized.
The transactions in options, futures and forward contracts undertaken
by the Fund may result in "straddles" for Federal income tax purposes. The
straddle rules may affect the character of gains or losses realized by the Fund.
In addition, losses realized by the Fund on positions that are part of a
straddle may be deferred under the straddle rules, rather than being taken into
account in calculating the taxable income for the taxable year in which such
losses are realized. Because only a few regulations implementing the straddle
rules have been promulgated, the consequences of such transactions to the Fund
are not entirely clear. The straddle rules may increase the amount of short-term
capital gain realized by the Fund, which is taxed as ordinary income when
distributed to shareholders.
The Fund may make one or more of the elections available under the Code
which are applicable to straddles. If the Fund makes any of the elections, the
amount, character and timing of the recognition of gains or losses from the
affected straddle positions will be determined under rules that vary according
to the election(s) made. The rules applicable under certain of the elections may
operate to accelerate the recognition of gains or losses from the affected
straddle positions.
Because application of the straddle rules may affect the character of
gains or losses, defer losses and/or accelerate the recognition of gains or
losses from the affected straddle positions, the amount which must be
distributed to shareholders as ordinary income or long-term capital gain may be
increased or decreased substantially as compared to a fund that did not engage
in such transactions.
Notwithstanding any of the foregoing, the Fund may recognize gain (but
not loss) from a constructive sale of certain "appreciated financial positions"
if the Fund enters into a short sale, offsetting notional principal contract,
futures or forward contract transaction with respect to the appreciated position
or substantially identical property. Appreciated financial positions subject to
this constructive sale treatment are interests (including options, futures and
forward contracts and short sales) in stock, partnership interests, certain
actively traded trust instruments and certain debt instruments. Constructive
sale treatment of appreciated financial positions does not apply to certain
transactions closed in the 90-day period ending with the 30th day after the
close of the Fund's taxable year, if certain conditions are met.
CURRENCY FLUCTUATIONS -- "SECTION 988" GAINS OR LOSSES
Gains or losses attributable to fluctuations in exchange rates which
occur between the time the Fund accrues receivables or liabilities denominated
in a foreign currency and the time the Fund actually collects such receivables
or pays such liabilities generally are treated as ordinary income or ordinary
loss. Similarly, on disposition of some investments, including debt securities
denominated in a foreign currency and certain options, futures and forward
contracts, gains or losses attributable to fluctuations in the value of the
foreign currency between the date of acquisition of the security or contract and
the date of disposition also are treated as ordinary gain or loss. These gains
and losses, referred to under the Code as "section 988" gains or losses,
increase or decrease the amount of the Fund's investment company taxable income
available to be distributed to its shareholders as ordinary income.
INVESTMENT IN PASSIVE FOREIGN INVESTMENT COMPANIES
The Fund may invest in shares of foreign corporations which may be
classified under the Code as passive foreign investment companies ("PFICs"). In
general, a foreign corporation is classified as a PFIC if at least one-half of
its assets constitute investment-type assets, or 75% or more of its gross income
is investment-type income. If the Fund receives a so-called "excess
distribution" with respect to PFIC stock, the Fund itself may be subject to a
tax on a portion of the excess distribution, whether or not the corresponding
income is distributed by the Fund to shareholders. In general, under the PFIC
rules, an excess distribution is treated as having been realized ratably over
the period during which a Fund held the PFIC shares. The Fund itself will be
subject to tax on the portion, if any, of an excess distribution that is so
allocated to prior Fund taxable years and an interest factor will be added to
the tax, as if the tax had been payable in such prior taxable years. Certain
distributions from a PFIC as well as gain from the sale of PFIC shares are
treated as excess distributions. Excess distributions are characterized as
ordinary income even though, absent application of the PFIC rules, certain
excess distributions might have been classified as capital gain.
The Fund may be eligible to elect alternative tax treatment with
respect to PFIC shares. The Fund may elect to mark to market its PFIC shares,
resulting in the shares being treated as sold at fair market value on the last
business day of each taxable year. Any resulting gain would be reported as
ordinary income; any resulting loss and any loss from an actual disposition of
the shares would be reported as ordinary loss to the extent of any net gains
reported in prior years. Under another election that currently is available in
some circumstances, the Fund generally would be required to include in its gross
income its share of the earnings of a PFIC on a current basis, regardless of
whether distributions are received from the PFIC in a given year.
DEBT SECURITIES ACQUIRED AT A DISCOUNT
Some of the debt securities (with a fixed maturity date of more than
one year from the date of issuance) that may be acquired by the Fund may be
treated as debt securities that are issued originally at a discount. Generally,
the amount of the original issue discount ("OID") is treated as interest income
and is included in income over the term of the debt security, even though
payment of that amount is not received until a later time, usually when the debt
security matures.
Some of the debt securities (with a fixed maturity date of more than
one year from the date of issuance) that may be acquired by the Fund in the
secondary market may be treated as having market discount. Generally, gain
recognized on the disposition of, and any partial payment of principal on, a
debt security having market discount is treated as ordinary income to the extent
the gain, or principal payment, does not exceed the "accrued market discount" on
such debt security. In addition, the deduction of any interest expenses
attributable to debt securities having market discount may be deferred. Market
discount generally accrues in equal daily installments. The Fund may make one or
more of the elections applicable to debt securities having market discount,
which could affect the character and timing of recognition of income.
Some debt securities (with a fixed maturity date of one year or less
from the date of issuance) that may be acquired by the Fund may be treated as
having acquisition discount, or OID in the case of certain types of debt
securities. Generally, the Fund will be required to include the acquisition
discount, or OID, in income over the term of the debt security, even though
payment of that amount is not received until a later time, usually when the debt
security matures. The Fund may make one or more of the elections applicable to
debt securities having acquisition discount, or OID, which could affect the
character and timing of recognition of income.
The Fund generally will be required to distribute dividends to
shareholders representing discount on debt securities that is currently
includable in income, even though cash representing such income may not have
been received by the Fund. Cash to pay such dividends may be obtained from sales
proceeds of securities held by the Fund.
DISTRIBUTIONS
Distributions of investment company taxable income are taxable to a
U.S. shareholder as ordinary income, whether paid in cash or shares. Dividends
paid by the Fund to a corporate shareholder, to the extent such dividends are
attributable to dividends received from U.S. corporations by the Fund, may
qualify for the dividends received deduction. However, the revised alternative
minimum tax applicable to corporations may reduce the value of the dividends
received deduction. Distributions of net capital gains (the excess of net
long-term capital gains over net short-term capital losses), if any, designated
by the Fund as capital gain dividends, are taxable to shareholders as long-term
capital gains whether paid in cash or in shares, and regardless of how long the
shareholder has held the Fund's shares; such distributions are not eligible for
the dividends received deduction. Shareholders receiving distributions in the
form of newly issued shares will have a cost basis in each share received equal
to the net asset value of a share of the Fund on the distribution date. A
distribution of an amount in excess of the Fund's current and accumulated
earnings and profits will be treated by a shareholder as a return of capital
which is applied against and reduces the shareholder's basis in his or her
shares. To the extent that the amount of any such distribution exceeds the
shareholder's basis in his or her shares, the excess will be treated by the
shareholder as gain from a sale or exchange of the shares. Shareholders will be
notified annually as to the U.S. Federal tax status of distributions and
shareholders receiving distributions in the form of newly issued shares will
receive a report as to the net asset value of the shares received.
If the net asset value of shares is reduced below a shareholder's cost
as a result of a distribution by the Fund, such distribution generally will be
taxable even though it represents a return of invested capital. Shareholders
should be careful to consider the tax implications of buying shares just prior
to a distribution. The price of shares purchased at this time may reflect the
amount of the forthcoming distribution. Those purchasing just prior to a
distribution will receive a distribution which generally will be taxable to
them.
DISPOSITION OF SHARES
Upon a redemption, sale or exchange of his or her shares, a shareholder
will realize a taxable gain or loss depending upon his or her basis in the
shares. Such gain or loss will be treated as capital gain or loss if the shares
are capital assets in the shareholder's hands and, if so, will be long-term or
short-term, depending upon the shareholder's holding period for the shares. Any
loss realized on a redemption sale or exchange will be disallowed to the extent
the shares disposed of are replaced (including through reinvestment of
dividends) within a period of 61 days beginning 30 days before and ending 30
days after the shares are disposed of. In such a case, the basis of the shares
acquired will be adjusted to reflect the disallowed loss. Any loss realized by a
shareholder on the sale of Fund shares held by the shareholder for six-months or
less will be treated for tax purposes as a long-term capital loss to the extent
of any distributions of capital gain dividends received or treated as having
been received by the shareholder with respect to such shares.
In some cases, shareholders will not be permitted to take all or
portion of their sales loads into account for purposes of determining the amount
of gain or loss realized on the disposition of their shares. This prohibition
generally applies where (1) the shareholder incurs a sales load in acquiring the
shares of the Fund, (2) the shares are disposed of before the 91st day after the
date on which they were acquired, and (3) the shareholder subsequently acquires
shares in the Fund or another regulated investment company and the otherwise
applicable sales charge is reduced under a "reinvestment right" received upon
the initial purchase of Fund shares. The term "reinvestment right" means any
right to acquire shares of one or more regulated investment companies without
the payment of a sales load or with the payment of a reduced sales charge. Sales
charges affected by this rule are treated as if they were incurred with respect
to the shares acquired under the reinvestment right. This provision may be
applied to successive acquisitions of fund shares.
FOREIGN WITHHOLDING TAXES
Income received by the Fund from sources within a foreign country may
be subject to withholding and other taxes imposed by that country.
If more than 50% of the value of the Fund's total assets at the close
of its taxable year consists of securities of foreign corporations, the Fund
will be eligible and may elect to "pass-through" to the Fund's shareholders the
amount of foreign income and similar taxes paid by the Fund. Pursuant to this
election, a shareholder will be required to include in gross income (in addition
to taxable dividends actually received) his or her pro rata share of the foreign
income and similar taxes paid by the Fund, and will be entitled either to deduct
his or her pro rata share of foreign income and similar taxes in computing his
or her taxable income or to use it as a foreign tax credit against his or her
U.S. Federal income taxes, subject to limitations. No deduction for foreign
taxes may be claimed by a shareholder who does not itemize deductions. Foreign
taxes generally may not be deducted by a shareholder that is an individual in
computing the alternative minimum tax. Each shareholder will be notified within
60 days after the close of the Fund's taxable year whether the foreign taxes
paid by the Fund will "pass-through" for that year and, if so, such notification
will designate (1) the shareholder's portion of the foreign taxes paid to each
such country and (2) the portion of the dividend which represents income derived
from sources within each such country.
Generally, except in the case of certain electing individual taxpayers
who have limited creditable foreign taxes and no foreign source income other
than passive investment-type income, a credit for foreign taxes is subject to
the limitation that it may not exceed the shareholder's U.S. tax attributable to
his or her total foreign source taxable income. For this purpose, if the Fund
makes the election described in the preceding paragraph, the source of the
Fund's income flows through to its shareholders. With respect to the Fund, gains
from the sale of securities generally will be treated as derived from U.S.
sources and section 988 gains will be treated as ordinary income derived from
U.S. sources. The limitation on the foreign tax credit is applied separately to
foreign source passive income, including foreign source passive income received
from the Fund. In addition, the foreign tax credit may offset only 90% of the
revised alternative minimum tax imposed on corporations and individuals.
Furthermore, the foreign tax credit is eliminated with respect to foreign taxes
withheld on dividends if the dividend-paying shares or the shares of the Fund
are held by the Fund or the shareholder, as the case may be, for less than 16
days (46 days in the case of preferred shares) during the 30-day period (90-day
period for preferred shares) beginning 15 days (45 days for preferred shares)
before the shares become ex-dividend. In addition, if the Fund fails to satisfy
these holding period requirements, it cannot elect to pass through to
shareholders the ability to claim a deduction for related foreign taxes.
The foregoing is only a general description of the foreign tax credit
under current law. Because application of the credit depends on the particular
circumstances of each shareholder, shareholders are advised to consult their own
tax advisers.
BACKUP WITHHOLDING
The Fund will be required to report to the Internal Revenue Service
("IRS") all taxable distributions as well as gross proceeds from the redemption
of the Fund's shares, except in the case of certain exempt shareholders. All
such distributions and proceeds will be subject to withholding of Federal income
tax at a rate of 31% ("backup withholding") in the case of non-exempt
shareholders if (1) the shareholder fails to furnish the Fund with and to
certify the shareholder's correct taxpayer identification number or social
security number, (2) the IRS notifies the shareholder or the Fund that the
shareholder has failed to report properly certain interest and dividend income
to the IRS and to respond to notices to that effect, or (3) when required to do
so, the shareholder fails to certify that he or she is not subject to backup
withholding. If the withholding provisions are applicable, any such
distributions or proceeds, whether reinvested in additional shares or taken in
cash, will be reduced by the amounts required to be withheld.
Distributions may also be subject to additional state, local and
foreign taxes depending on each shareholder's particular situation. Non-U.S.
shareholders may be subject to U.S. tax rules that differ significantly from
those summarized above. This discussion does not purport to deal with all of the
tax consequences applicable to the Fund or shareholders. Shareholders are
advised to consult their own tax advisers with respect to the particular tax
consequences to them of an investment in the Fund.
PERFORMANCE INFORMATION
Performance information for the classes of shares of the Fund may be
compared, in reports and promotional literature, to: (i) the S&P 500 Index, the
Dow Jones Industrial Average ("DJIA"), or other unmanaged indices so that
investors may compare the Fund's results with those of a group of unmanaged
securities widely regarded by investors as representative of the securities
markets in general; (ii) other groups of mutual funds tracked by Lipper
Analytical Services, a widely used independent research firm that ranks mutual
funds by overall performance, investment objectives and assets, or tracked by
other services, companies, publications or other criteria; and (iii) the
Consumer Price Index (measure for inflation) to assess the real rate of return
from an investment in the Fund. Unmanaged indices may assume the reinvestment of
dividends but generally do not reflect deductions or administrative and
management costs and expenses. Performance rankings are based on historical
information and are not intended to indicate future performance.
YIELD. Quotations of yield for a specific class of shares of the Fund
will be based on all investment income attributable to that class earned during
a particular 30-day (or one month) period (including dividends and interest),
less expenses attributable to that class accrued during the period ("net
investment income"), and will be computed by dividing the net investment income
per share of that class earned during the period by the maximum offering price
per share (in the case of Class A shares) or the net asset value per share (in
the case of Class B and Class C shares) on the last day of the period, according
to the following formula:
YIELD = 2[({(a-b)/cd} + 1){superscript 6}-1]
Where: a = dividends and interest earned
during the period attributable to a
specific class of shares,
b = expenses accrued for the period
attributable to that class (net of
reimbursements),
c = the average daily number of shares
of that class outstanding during the
period that were entitled to receive
dividends, and
d = the maximum offering price per
share (in the case of Class A
shares) or the net asset value per
share (in the case of Class B and
Class C shares) on the last day of
the period.
AVERAGE ANNUAL TOTAL RETURN. Quotations of standardized average annual
total return ("Standardized Return") for a specific class of shares of the Fund
will be expressed in terms of the average annual compounded rate of return that
would cause a hypothetical investment in that class of the Fund made on the
first day of a designated period to equal the ending redeemable value ("ERV") of
such hypothetical investment on the last day of the designated period, according
to the following formula:
P(1 + T){superscript n} = ERV
Where: P = a hypothetical initial payment of
$1,000 to purchase shares of a
specific class
T = the average annual total return of
shares of that class
n = the number of years
ERV = the ending redeemable value of a
hypothetical $1,000 payment made at
the beginning of the period.
For purposes of the above computation for the Fund, it is assumed that
all dividends and capital gains distributions made by the Fund are reinvested at
net asset value in additional shares of the same class during the designated
period. In calculating the ending redeemable value for Class A shares and
assuming complete redemption at the end of the applicable period, the maximum
5.75% sales charge is deducted from the initial $1,000 payment and, for Class B
and Class C shares, the applicable CDSC imposed upon redemption of Class B or
Class C shares held for the period is deducted. Standardized Return quotations
for the Fund do not take into account any required payments for federal or state
income taxes. Standardized Return quotations for Class B shares for periods of
over eight years will reflect conversion of the Class B shares to Class A shares
at the end of the eighth year. Standardized Return quotations are determined to
the nearest 1/100 of 1%.
The Fund may, from time to time, include in advertisements, promotional
literature or reports to shareholders or prospective investors total return data
that are not calculated according to the formula set forth above
("Non-Standardized Return"). Neither initial nor CDSCs are taken into account in
calculating Non-Standardized Return; a sales charge, if deducted, would reduce
the return.
The following table summarizes the calculation of Standardized and
Non-Standardized Return for the Class A, Class B, Class C and Advisor Class
shares of the Fund for the periods indicated. In determining the average annual
total return for a specific class of shares of the Fund, recurring fees, if any,
that are charged to all shareholder accounts are taken into consideration. For
any account fees that vary with the size of the account of the Fund, the account
fee used for purposes of the following computations is assumed to be the fee
that would be charged to the mean account size of the Fund.
STANDARDIZED RETURN[*]
<TABLE>
CLASS A[1] CLASS B[2] CLASS C[3] ADVISOR CLASS
<S> <C> <C> <C> <C>
Year ended December 31,
1998
% % % %
Five Years ended
December 31, 1998
% % % %
Ten Years ended
December 31, 1998
% % % %
Inception [#] to year
ended December 31, 1998
[7]: % % % %
NON-STANDARDIZED RETURN[**]
CLASS A[4] CLASS B[5] CLASS C[6] ADVISOR CLASS
Year ended December 31,
1998
% % % %
Five Years ended
December 31, 1998
% % % %
Ten Years ended
December 31, 1998
% % % %
Inception [#] to year
ended December 31, 1998
[7]: % % % %
- ------------------------- ----------------- ------------------ -------------------
</TABLE>
[*] The Standardized Return figures for Class A shares reflect the
deduction of the maximum initial sales charge of 5.75%. The Standardized Return
figures for Class B and C shares reflect the deduction of the applicable CDSC
imposed on redemption of Class B or C shares held for the period.
[**] The Non-Standardized Return figures do not reflect the deduction of
any initial sales charge or CDSC.
[#] The inception date for Class A shares of the Fund was March 1,
1984. The inception dates for Class B, Class C and Advisor Class shares of the
Fund were October 23, 1993, April 30, 1996 and January 1, 1998, respectively.
[1] The Standardized Return figures for the Class A shares reflect
expense reimbursement. Without expense reimbursement, the Standardized Return
for Class A shares for the period from inception through and the one, five and
ten year periods ended December 31, 1998 would have been [ %].
[2] The Standardized Return figures for the Class B shares reflect
expense reimbursement. Without expense reimbursement, the Standardized Return
for Class B shares for the period from inception through and the one, five and
ten year periods ended December 31, 1998 would have been [ %].
[3] The Standardized Return figures for the Class C shares reflect
expense reimbursement. Without expense reimbursement, the Standardized Return
for Class C shares for the period from inception through and the one, five and
ten year periods ended December 31, 1998 would have been [ %].
[4] The Non-Standardized Return figures for Class A shares reflect
expense reimbursement. Without expense reimbursement, the Non-Standardized
Return for Class A shares for the period from inception through and the one,
five and ten year periods ended December 31, 1998 would have been [ %].
[5] The Non-Standardized Return figures for Class B shares reflect
expense reimbursement. Without expense reimbursement, the Non-Standardized
Return for Class B shares for the period from inception through and the one,
five and ten year periods ended December 31, 1998 would have been [ %].
[6] The Non-Standardized Return figures for Class C shares reflect
expense reimbursement. Without expense reimbursement, the Non-Standardized
Return for Class C shares for the period from inception through and the one,
five and ten year periods ended December 31, 1998 would have been [ %].
[7] The total return for a period less than a full year is calculated
on an aggregate basis and is not annualized.
CUMULATIVE TOTAL RETURN. Cumulative total return is the cumulative rate
of return on a hypothetical initial investment of $1,000 in a specific class of
shares of the Fund for a specified period. Cumulative total return quotations
reflect changes in the price of the Fund's shares and assume that all dividends
and capital gains distributions during the period were reinvested in the Fund
shares. Cumulative total return is calculated by computing the cumulative rates
of return of a hypothetical investment in a specific class of shares of the Fund
over such periods, according to the following formula (cumulative total return
is then expressed as a percentage):
C = (ERV/P) - 1
Where: C = cumulative total return
P = a hypothetical initial investment
of $1,000 to purchase shares of a
specific class
ERV = ending redeemable value: ERV is
the value, at the end of the
applicable period, of a hypothetical
$1,000 investment made at the
beginning of the applicable period.
The following table summarizes the calculation of Cumulative Total
Return for the periods indicated through December 31, 1998, assuming the maximum
5.75% sales charge has been assessed.
ONE YEAR FIVE YEARS TEN YEARS SINCE INCEPTION[*]
Class A
Class B
Class C
Advisor Class
The following table summarizes the calculation of Cumulative Total
Return for the periods indicated through December 31, 1998, assuming the maximum
5.75% sales charge has not been assessed.
ONE YEAR FIVE YEARS TEN YEARS SINCE INCEPTION[*]
Class A
Class B
Class C
Advisor Class
- ---------------------------
[*] The inception date for the Fund (Class A shares) was March 1, 1984. The
inception date for the Class B shares of the Fund was October 23, 1993.
The inception date for Class C shares of the Fund was April 30, 1996.
The inception date for Advisor Class shares was January 1, 1998.
OTHER QUOTATIONS, COMPARISONS AND GENERAL INFORMATION. The foregoing
computation methods are prescribed for advertising and other communications
subject to SEC Rule 482. Communications not subject to this rule may contain a
number of different measures of performance, computation methods and
assumptions, including but not limited to: historical total returns; results of
actual or hypothetical investments; changes in dividends, distributions or share
values; or any graphic illustration of such data. These data may cover any
period of the Trust's existence and may or may not include the impact of sales
charges, taxes or other factors.
Performance quotations for the Fund will vary from time to time
depending on market conditions, the composition of the Fund's portfolio and
operating expenses of the Fund. These factors and possible differences in the
methods used in calculating performance quotations should be considered when
comparing performance information regarding the Fund's shares with information
published for other investment companies and other investment vehicles.
Performance quotations should also be considered relative to changes in the
value of the Fund's shares and the risks associated with the Fund's investment
objectives and policies. At any time in the future, performance quotations may
be higher or lower than past performance quotations and there can be no
assurance that any historical performance quotation will continue in the future.
The Fund may also cite endorsements or use for comparison its
performance rankings and listings reported in such newspapers or business or
consumer publications as, among others: AAII Journal, Barron's, Boston Business
Journal, Boston Globe, Boston Herald, Business Week, Consumer's Digest, Consumer
Guide Publications, Changing Times, Financial Planning, Financial World, Forbes,
Fortune, Growth Fund Guide, Houston Post, Institutional Investor, International
Fund Monitor, Investor's Daily, Los Angeles Times, Medical Economics, Miami
Herald, Money Mutual Fund Forecaster, Mutual Fund Letter, Mutual Fund Source
Book, Mutual Fund Values, National Underwriter, Nelson's Directory of Investment
Managers, New York Times, Newsweek, No Load Fund Investor, No Load Fund* X,
Oakland Tribune, Pension World, Pensions and Investment Age, Personal Investor,
Rugg and Steele, Time, U.S. News and World Report, USA Today, The Wall Street
Journal, and Washington Post.
FINANCIAL STATEMENTS
The Fund's Portfolio of Investments as of December 31, 1998, Statement
of Assets and Liabilities as of December 31, 1998, Statement of Operations for
the fiscal year ended December 31, 1998, Statement of Changes in Net Assets for
the fiscal year ended December 31, 1998, Financial Highlights, Notes to
Financial Statements, and Report of Independent Accountants, which are included
in the Fund's December 31, 1998 Annual Report to shareholders, are incorporated
by reference into this SAI.
<PAGE>
APPENDIX A
DESCRIPTION OF STANDARD & POOR'S RATINGS GROUP ("S&P") AND MOODY'S
INVESTORS SERVICE, INC. ("MOODY'S") CORPORATE BOND AND COMMERCIAL PAPER RATINGS
[From "Moody's Bond Record," November 1994 Issue (Moody's Investors
Service, New York, 1994), and "Standard & Poor's Municipal Ratings Handbook,"
October 1997 Issue (McGraw Hill, New York, 1997).]
MOODY'S:
(a) CORPORATE BONDS. Bonds rated Aaa by Moody's are judged by Moody's
to be of the best quality, carrying the smallest degree of investment risk.
Interest payments are protected by a large or exceptionally stable margin and
principal is secure. While the various protective elements are likely to change,
such changes as can be visualized are most unlikely to impair the fundamentally
strong position of such issues. Bonds rated Aa are judged by Moody's to be of
high quality by all standards. Aa bonds are rated lower than Aaa bonds because
margins of protection may not be as large as those of Aaa bonds, or fluctuations
of protective elements may be of greater amplitude, or there may be other
elements present which make the long-term risks appear somewhat larger than
those applicable to Aaa securities. Bonds which are rated A by Moody's possess
many favorable investment attributes and are to be considered as upper
medium-grade obligations. Factors giving security to principal and interest are
considered adequate, but elements may be present which suggest a susceptibility
to impairment sometime in the future. Bonds rated Baa by Moody's are considered
medium-grade obligations (i.e., they are neither highly protected nor poorly
secured). Interest payments and principal security appear adequate for the
present, but certain protective elements may be lacking or may be
characteristically unreliable over any great length of time. Such bonds lack
outstanding investment characteristics and in fact have speculative
characteristics as well. Bonds which are rated Ba are judged to have speculative
elements; their future cannot be considered well-assured. Often the protection
of interest and principal payments may be very moderate and thereby not well
safeguarded during both good and bad times over the future. Uncertainty of
position characterizes bonds in this class. Bonds which are rated B generally
lack characteristics of the desirable investment. Assurance of interest and
principal payments of or maintenance of other terms of the contract over any
long period of time may be small. Bonds which are rated Caa are of poor
standing. Such issues may be in default or there may be present elements of
danger with respect to principal or interest. Bonds which are rated Ca represent
obligations which are speculative in a high degree. Such issues are often in
default or have other marked shortcomings. Bonds which are rated C are the
lowest rated class of bonds and issues so rated can be regarded as having
extremely poor prospects of ever attaining any real investment standing.
(b) COMMERCIAL PAPER. The Prime rating is the highest commercial paper
rating assigned by Moody's. Among the factors considered by Moody's in assigning
ratings are the following: (1) evaluation of the management of the issuer; (2)
economic evaluation of the issuer's industry or industries and an appraisal of
speculative-type risks which may be inherent in certain areas; (3) evaluation of
the issuer's products in relation to competition and customer acceptance; (4)
liquidity; (5) amount and quality of long-term debt; (6) trend of earnings over
a period of ten years; (7) financial strength of a parent company and the
relationships which exist with the issuer; and (8) recognition by management of
obligations which may be present or may arise as a result of public interest
questions and preparations to meet such obligations. Issuers within this Prime
category may be given ratings 1, 2 or 3, depending on the relative strengths of
these factors. The designation of Prime-1 indicates the highest quality
repayment capacity of the rated issue. Issuers rated Prime-2 are deemed to have
a strong ability for repayment while issuers voted Prime-3 are deemed to have an
acceptable ability for repayment. Issuers rated Not Prime do not fall within any
of the Prime rating categories.
S&P:
(a) CORPORATE BONDS. An S&P corporate debt rating is a current
assessment of the creditworthiness of an obligor with respect to a specific
obligation. The ratings are based on current information furnished by the issuer
or obtained by S&P from other sources it considers reliable. The ratings
described below may be modified by the addition of a plus or minus sign to show
relative standing within the major rating categories.
Debt rated AAA has the highest rating assigned by S&P. Capacity to pay
interest and repay principal is extremely strong. Debt rated AA is judged by S&P
to have a very strong capacity to pay interest and repay principal and differs
from the highest rated issues only in small degree. Debt rated A by S&P has a
strong capacity to pay interest and repay principal, although it is somewhat
more susceptible to the adverse effects of changes in circumstances and economic
conditions than debt in higher rated categories.
Debt rated BBB by S&P is regarded by S&P as having an adequate capacity
to pay interest and repay principal. Although such bonds normally exhibit
adequate protection parameters, adverse economic conditions or changing
circumstances are more likely to lead to a weakened capacity to pay interest and
repay principal than debt in higher rated categories.
Debt rated BB, B, CCC, CC and C is regarded as having predominately
speculative characteristics with respect to capacity to pay interest and repay
principal. BB indicates the least degree of speculation and C the highest. While
such debt will likely have some quality and protective characteristics, these
are outweighed by large uncertainties or exposures to adverse conditions. Debt
rated BB has less near-term vulnerability to default than other speculative
issues. However, it faces major ongoing uncertainties or exposure to adverse
business, financial or economic conditions which could lead to inadequate
capacity to meet timely interest and principal payments. The BB rating category
is also used for debt subordinated to senior debt that is assigned an actual or
implied BBB- rating. Debt rated B has a greater vulnerability to default but
currently has the capacity to meet interest payments and principal repayments.
Adverse business, financial, or economic conditions will likely impair capacity
or willingness to pay interest and repay principal. The B rating category is
also used for debt subordinated to senior debt that is assigned an actual or
implied BB or BB- rating. Debt rated CCC has a currently identifiable
vulnerability to default, and is dependent upon favorable business, financial,
and economic conditions to meet timely payment of interest and repayment of
principal. In the event of adverse business, financial or economic conditions,
it is not likely to have the capacity to pay interest and repay principal. The
CCC rating category is also used for debt subordinated to senior debt that is
assigned an actual or implied B or B- rating. The rating CC typically is applied
to debt subordinated to senior debt which is assigned an actual or implied CCC
debt rating. The rating C typically is applied to debt subordinated to senior
debt which is assigned an actual or implied CCC- debt rating. The C rating may
be used to cover a situation where a bankruptcy petition has been filed, but
debt service payments are continued.
The rating CI is reserved for income bonds on which no interest is
being paid. Debt rated D is in payment default. The D rating category is used
when interest payments or principal payments are not made on the date due, even
if the applicable grace period has not expired, unless S&P believes that such
payments will be made during such grace period. The D rating also will be used
upon the filing of a bankruptcy petition if debt service payments are
jeopardized.
(b) COMMERCIAL PAPER. An S&P commercial paper rating is a current
assessment of the likelihood of timely payment of debt considered short-term in
the relevant market.
The commercial paper rating A-1 by S&P indicates that the degree of
safety regarding timely payment is strong. Those issues determined to possess
extremely strong safety characteristics are denoted with a plus sign (+)
designation. For commercial paper with an A-2 rating, the capacity for timely
payment on issues is satisfactory, but not as high as for issues designated A-1.
Issues rated A-3 have adequate capacity for timely payment, but are more
vulnerable to the adverse effects of changes in circumstances than obligations
carrying higher designations.
Issues rated B are regarded as having only speculative capacity for
timely payment. The C rating is assigned to short-term debt obligations with a
doubtful capacity for payment. Debt rated D is in payment default. The D rating
category is used when interest payments or principal payments are not made on
the date due, even if the applicable grace period has not expired, unless S&P
believes such payments will be made during such grace period.
<PAGE>
IVY GROWTH WITH INCOME FUND
a series of
IVY FUND
Via Mizner Financial Plaza, Suite 300
700 South Federal Highway
Boca Raton, Florida 33432
STATEMENT OF ADDITIONAL INFORMATION
April , 1999
Ivy Fund (the "Trust") is an open-end management investment company
that currently consists of nineteen fully managed portfolios, each of which
(except for Ivy South America Fund and Ivy International Strategic Bond Fund) is
diversified. This Statement of Additional Information ("SAI") relates to the
Class A, B, C and Advisor Class shares of Ivy Growth with Income Fund (the
"Fund"). The other eighteen portfolios of the Trust are described in separate
prospectuses and SAIs.
This SAI is not a prospectus and should be read in conjunction with the
prospectus for the Fund dated April , 1999 (the "Prospectus"), which may be
obtained upon request and without charge from the Trust at the Distributor's
address and telephone number printed below.
INVESTMENT MANAGER
Ivy Management, Inc. ("IMI")
Via Mizner Financial Plaza, Suite 300
700 South Federal Highway
Boca Raton, Florida 33432
Telephone: (800) 777-6472
DISTRIBUTOR
Ivy Mackenzie Distributors, Inc. ("IMDI")
Via Mizner Financial Plaza, Suite 300
700 South Federal Highway
Boca Raton, Florida 33432
Telephone: (800) 456-5111
<PAGE>
i
TABLE OF CONTENTS
GENERAL INFORMATION............................................................
INVESTMENT OBJECTIVES, STRATEGIES AND RISKS....................................
COMMON STOCKS.........................................................
CONVERTIBLE SECURITIES................................................
DEBT SECURITIES.......................................................
IN GENERAL...................................................
INVESTMENT-GRADE DEBT SECURITIES.............................
LOW-RATED DEBT SECURITIES....................................
ILLIQUID SECURITIES...................................................
FOREIGN SECURITIES....................................................
EMERGING MARKETS......................................................
FOREIGN CURRENCIES....................................................
FOREIGN CURRENCY EXCHANGE TRANSACTIONS................................
REPURCHASE AGREEMENTS.................................................
BANKING INDUSTRY AND SAVINGS AND LOAN OBLIGATIONS.....................
COMMERCIAL PAPER......................................................
BORROWING.............................................................
WARRANTS..............................................................
REAL ESTATE INVESTMENT TRUSTS (REITS).................................
OPTIONS TRANSACTIONS..................................................
IN GENERAL...................................................
WRITING OPTIONS ON INDIVIDUAL SECURITIES.....................
PURCHASING OPTIONS ON INDIVIDUAL SECURITIES..................
PURCHASING AND WRITING OPTIONS ON SECURITIES INDICES.........
RISKS OF OPTIONS TRANSACTIONS................................
FUTURES CONTRACTS AND OPTIONS ON FUTURES CONTRACTS....................
IN GENERAL...................................................
RISKS ASSOCIATED WITH FUTURES AND RELATED OPTIONS............
SECURITIES INDEX FUTURES CONTRACTS....................................
RISKS OF SECURITIES INDEX FUTURES............................
COMBINED TRANSACTIONS........................................
INVESTMENT RESTRICTIONS........................................................
PORTFOLIO TURNOVER.............................................................
TRUSTEES AND OFFICERS..........................................................
PERSONAL INVESTMENTS BY EMPLOYEES OF IMI.....................
INVESTMENT ADVISORY AND OTHER SERVICES.........................................
BUSINESS MANAGEMENT AND INVESTMENT ADVISORY SERVICES..................
DISTRIBUTION SERVICES.................................................
RULE 18F-3 PLAN..............................................
RULE 12B-1 DISTRIBUTION PLANS................................
CUSTODIAN.............................................................
FUND ACCOUNTING SERVICES..............................................
TRANSFER AGENT AND DIVIDEND PAYING AGENT..............................
ADMINISTRATOR.........................................................
AUDITORS..............................................................
BROKERAGE ALLOCATION...........................................................
CAPITALIZATION AND VOTING RIGHTS...............................................
SPECIAL RIGHTS AND PRIVILEGES..................................................
AUTOMATIC INVESTMENT METHOD...........................................
EXCHANGE OF SHARES....................................................
INITIAL SALES CHARGE SHARES..................................
CONTINGENT DEFERRED SALES CHARGE SHARES CLASS A..............
CLASS B......................................................
CLASS C......................................................
ADVISOR CLASS................................................
ALL CLASSES..................................................
LETTER OF INTENT......................................................
RETIREMENT PLANS......................................................
INDIVIDUAL RETIREMENT ACCOUNTS...............................
ROTH IRAS....................................................
QUALIFIED PLANS..............................................
DEFERRED COMPENSATION FOR PUBLIC SCHOOLS AND CHARITABLE
ORGANIZATIONS ("403(B)(7) ACCOUNT")..
SIMPLIFIED EMPLOYEE PENSION ("SEP") IRAS....................
SIMPLE PLANS................................................
REINVESTMENT PRIVILEGE...............................................
RIGHTS OF ACCUMULATION...............................................
SYSTEMATIC WITHDRAWAL PLAN...........................................
GROUP SYSTEMATIC INVESTMENT PROGRAM..................................
REDEMPTIONS...................................................................
CONVERSION OF CLASS B SHARES..................................................
NET ASSET VALUE...............................................................
TAXATION 40
OPTIONS, FUTURES AND FOREIGN CURRENCY FORWARD CONTRACTS..............
CURRENCY FLUCTUATIONS -- "SECTION 988" GAINS OR LOSSES...............
INVESTMENT IN PASSIVE FOREIGN INVESTMENT COMPANIES...................
DEBT SECURITIES ACQUIRED AT A DISCOUNT...............................
DISTRIBUTIONS........................................................
DISPOSITION OF SHARES................................................
FOREIGN WITHHOLDING TAXES............................................
BACKUP WITHHOLDING...................................................
PERFORMANCE INFORMATION.......................................................
YIELD.......................................................
AVERAGE ANNUAL TOTAL RETURN.................................
CUMULATIVE TOTAL RETURN.....................................
OTHER QUOTATIONS, COMPARISONS AND GENERAL INFORMATION.......
FINANCIAL STATEMENTS..........................................................
APPENDIX A....................................................................
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GENERAL INFORMATION
The Fund is organized as a separate, diversified portfolio of the
Trust, an open-end management investment company organized as a Massachusetts
business trust on December 21, 1983. The Fund commenced operations (Class A
shares) on April 1, 1984. The inception dates for the Fund's Class B, Class C
and Advisor Class shares were October 23, 1993, April 30, 1996 and January 1,
1998, respectively.
Descriptions in this Statement of a particular investment practice or
technique in which the Fund may engage or a financial instrument which the Fund
may purchase are meant to describe the spectrum of investments that IMI, in its
discretion, might, but is not required to, use in managing the Fund's portfolio
assets. IMI may, in its discretion, at any time employ such practice, technique
or instrument for one or more funds but not for all funds advised by it.
Furthermore, it is possible that certain types of financial instruments or
investment techniques described herein may not be available, permissible,
economically feasible or effective for their intended purposes in all markets.
Certain practices, techniques, or instruments may not be principal activities of
the Fund but, to the extent employed, could from time to time have a material
impact on the Fund's performance.
INVESTMENT OBJECTIVES, STRATEGIES AND RISKS
The Fund has its own investment objectives and policies, which are
described in the Prospectus under the captions "Summary" and "Additional
Information About Strategies and Risks." Additional information regarding the
characteristics and risks associated with the Fund's investment techniques is
set forth below.
The Fund's principal investment objective is long-term capital growth
primarily through investment in equity securities, with current income being a
secondary consideration. The Fund has some emphasis on dividend-paying stocks.
Under normal conditions, the Fund invests at least 65% of its total assets in
common stocks and securities convertible into common stocks. The Fund invests
primarily in common stocks of domestic corporations with low price-earnings
ratios and rising earnings, focusing on established, financially secure firms
with capitalizations over $100 million and more than three years of operating
history.
The Fund may invest up to 25% of its net assets in foreign equity
securities, primarily those traded in European, Pacific Basin and Latin American
markets, some of which may be emerging markets involving special risks, as
described below. Individual foreign securities are selected based on value
indicators, such as a low price-earnings ratio, and are reviewed for fundamental
financial strength.
When circumstances warrant, the Fund may invest without limit in
investment grade debt securities (e.g., U.S. Government securities or other
corporate debt securities rated at least Baa by Moody's or BBB by S&P, or, if
unrated, considered by IMI to be of comparable quality), preferred stocks, or
cash or cash equivalents such as bank obligations (including certificates of
deposit and bankers' acceptances), commercial paper, short-term notes and
repurchase agreements.
The Fund may invest less than 35% of its net assets in debt securities
rated Ba or below by Moody's or BB or below by S&P, or if unrated, considered by
IMI to be of comparable quality (commonly referred to as "high yield" or "junk"
bonds). The Fund will not invest in debt securities rated less than C by either
Moody's or S&P. [As of December 31, 1998, the Fund did not invest in low-rated
debt securities.]
As a fundamental policy, the Fund may borrow up to 10% of the value of
its total assets, but only for temporary purposes when it would be advantageous
to do so from an investment standpoint. The Fund may invest up to 5% of its net
assets in warrants. The Fund may not invest more than 15% of its net assets in
illiquid securities. The Fund may enter into forward foreign currency contracts.
The Fund may also invest in equity real estate investment trusts.
The Fund may write put options, with respect to not more than 10% of
the value of its net assets, on securities and stock indices, and may write
covered call options with respect to not more than 25% of the value of its net
assets. The Fund may purchase options, provided the aggregate premium paid for
all options held does not exceed 5% of its net assets. For hedging purposes
only, the Fund may enter into stock index futures contracts as a means of
regulating its exposure to equity markets. The Fund's equivalent exposure in
stock index futures contracts will not exceed 15% of its total assets.
COMMON STOCKS
Common stock can be issued by companies to raise cash; all common stock
shares represent a proportionate ownership interest in a company. As a result,
the value of common stock rises and falls with a company's success or failure.
The market value of common stock can fluctuate significantly, with smaller
companies being particularly susceptible to price swings. Transaction costs in
smaller company stocks may also be higher than those of larger companies.
CONVERTIBLE SECURITIES
The convertible securities in which the Fund may invest include
corporate bonds, notes, debentures, preferred stock and other securities that
may be converted or exchanged at a stated or determinable exchange ratio into
underlying shares of common stock. Investments in convertible securities can
provide income through interest and dividend payments as well as an opportunity
for capital appreciation by virtue of their conversion or exchange features.
Because convertible securities can be converted into equity securities, their
values will normally vary in some proportion with those of the underlying equity
securities. Convertible securities usually provide a higher yield than the
underlying equity, however, so that the price decline of a convertible security
may sometimes be less substantial than that of the underlying equity security.
The exchange ratio for any particular convertible security may be adjusted from
time to time due to stock splits, dividends, spin-offs, other corporate
distributions or scheduled changes in the exchange ratio. Convertible debt
securities and convertible preferred stocks, until converted, have general
characteristics similar to both debt and equity securities. Although to a lesser
extent than with debt securities generally, the market value of convertible
securities tends to decline as interest rates increase and, conversely, tends to
increase as interest rates decline. In addition, because of the conversion or
exchange feature, the market value of convertible securities typically changes
as the market value of the underlying common stock changes, and, therefore, also
tends to follow movements in the general market for equity securities. When the
market price of the underlying common stock increases, the price of a
convertible security tends to rise as a reflection of the value of the
underlying common stock, although typically not as much as the price of the
underlying common stock. While no securities investments are without risk,
investments in convertible securities generally entail less risk than
investments in common stock of the same issuer.
As debt securities, convertible securities are investments that provide
for a stream of income. Like all debt securities, there can be no assurance of
income or principal payments because the issuers of the convertible securities
may default on their obligations. Convertible securities generally offer lower
yields than non-convertible securities of similar quality because of their
conversion or exchange features.
Convertible securities generally are subordinated to other similar but
non-convertible securities of the same issuer, although convertible bonds, as
corporate debt obligations, are senior in right of payment to all equity
securities, and convertible preferred stock is senior to common stock, of the
same issuer. However, convertible bonds and convertible preferred stock
typically have lower coupon rates than similar non-convertible securities.
Convertible securities may be issued as fixed income obligations that pay
current income.
DEBT SECURITIES
IN GENERAL. Investment in debt securities involves both interest rate
and credit risk. Generally, the value of debt instruments rises and falls
inversely with fluctuations in interest rates. As interest rates decline, the
value of debt securities generally increases. Conversely, rising interest rates
tend to cause the value of debt securities to decrease. Bonds with longer
maturities generally are more volatile than bonds with shorter maturities. The
market value of debt securities also varies according to the relative financial
condition of the issuer. In general, lower-quality bonds offer higher yields due
to the increased risk that the issuer will be unable to meet its obligations on
interest or principal payments at the time called for by the debt instrument.
INVESTMENT-GRADE DEBT SECURITIES. Bonds rated Aaa by Moody's Investors
Service, Inc. ("Moody's") and AAA by Standard & Poor's Ratings Group ("S&P") are
judged to be of the best quality (i.e., capacity to pay interest and repay
principal is extremely strong). Bonds rated Aa/AA are considered to be of high
quality (i.e., capacity to pay interest and repay principal is very strong and
differs from the highest rated issues only to a small degree). Bonds rated A are
viewed as having many favorable investment attributes, but elements may be
present that suggest a susceptibility to the adverse effects of changes in
circumstances and economic conditions than debt in higher rated categories.
Bonds rated Baa/BBB (considered by Moody's to be "medium grade" obligations) are
considered to have an adequate capacity to pay interest and repay principal, but
certain protective elements may be lacking (i.e., such bonds lack outstanding
investment characteristics and have some speculative characteristics). The Fund
may invest in debt securities that are given an investment-grade rating by
Moody's or S&P, and may also invest in unrated debt securities that are
considered by IMI to be of comparable quality.
LOW-RATED DEBT SECURITIES. Securities rated lower than Baa by Moody's
or BBB by S&P, and comparable unrated securities (commonly referred to as "high
yield" or "junk" bonds), including many emerging markets bonds, are considered
to be predominantly speculative with respect to the issuer's continuing ability
to meet principal and interest payments. The lower the ratings of corporate debt
securities, the more their risks render them like equity securities. Such
securities carry a high degree of risk (including the possibility of default or
bankruptcy of the issuers of such securities), and generally involve greater
volatility of price and risk of principal and income (and may be less liquid)
than securities in the higher rating categories. (See Appendix A for a more
complete description of the ratings assigned by Moody's and S&P and their
respective characteristics.)
Lower rated and unrated securities are especially subject to adverse
changes in general economic conditions and to changes in the financial condition
of their issuers. Economic downturns may disrupt the high yield market and
impair the ability of issuers to repay principal and interest. Also, an increase
in interest rates would likely have an adverse impact on the value of such
obligations. During an economic downturn or period of rising interest rates,
highly leveraged issuers may experience financial stress which could adversely
affect their ability to service their principal and interest payment
obligations. Prices and yields of high yield securities will fluctuate over time
and, during periods of economic uncertainty, volatility of high yield securities
may adversely affect the Fund's net asset value. In addition, investments in
high yield zero coupon or pay-in-kind bonds, rather than income-bearing high
yield securities, may be more speculative and may be subject to greater
fluctuations in value due to changes in interest rates.
Changes in interest rates may have a less direct or dominant impact on
high yield bonds than on higher quality issues of similar maturities. However,
the price of high yield bonds can change significantly or suddenly due to a host
of factors including changes in interest rates, fundamental credit quality,
market psychology, government regulations, U.S. economic growth and, at times,
stock market activity. High yield bonds may contain redemption or call
provisions. If an issuer exercises these provisions in a declining interest rate
market, the Fund may have to replace the security with a lower yielding
security.
The trading market for high yield securities may be thin to the extent
that there is no established retail secondary market or because of a decline in
the value of such securities. A thin trading market may limit the ability of the
Fund to accurately value high yield securities in the Fund's portfolio, could
adversely affect the price at which the Fund could sell such securities, and
cause large fluctuations in the daily net asset value of the Fund's shares.
Adverse publicity and investor perceptions, whether or not based on fundamental
analysis, may decrease the value and liquidity of low-rated debt securities,
especially in a thinly traded market. When secondary markets for high yield
securities become relatively less liquid, it may be more difficult to value the
securities, requiring additional research and elements of judgment. These
securities may also involve special registration responsibilities, liabilities
and costs, and liquidity and valuation difficulties.
Credit quality in the high yield securities market can change suddenly
and unexpectedly, and even recently issued credit ratings may not fully reflect
the actual risks posed by a particular high yield security. For these reasons,
it is the policy of IMI not to rely exclusively on ratings issued by established
credit rating agencies, but to supplement such ratings with its own independent
and on-going review of credit quality. The achievement of the Fund's investment
objectives by investment in such securities may be more dependent on IMI's
credit analysis than is the case for higher quality bonds. Should the rating of
a portfolio security be downgraded, IMI will determine whether it is in the best
interest of the Fund to retain or dispose of such security. However, should any
individual bond held by the Fund be downgraded below a rating of C, IMI
currently intends to dispose of such bond based on then existing market
conditions.
Prices for high yield securities may be affected by legislative and
regulatory developments. For example, Federal rules require savings and loan
institutions to gradually reduce their holdings of this type of security. Also,
Congress has from time to time considered legislation that would restrict or
eliminate the corporate tax deduction for interest payments in these securities
and regulate corporate restructurings. Such legislation may significantly
depress the prices of outstanding securities of this type.
ILLIQUID SECURITIES
The Fund may purchase securities other than in the open market. While
such purchases may often offer attractive opportunities for investment not
otherwise available on the open market, the securities so purchased are often
"restricted securities" or "not readily marketable" (i.e., they cannot be sold
to the public without registration under the Securities Act of 1933, as amended
(the "1933 Act"), or the availability of an exemption from registration (such as
Rule 144A) or because they are subject to other legal or contractual delays in
or restrictions on resale). This investment practice, therefore, could have the
effect of increasing the level of illiquidity of the Fund. It is the Fund's
policy that illiquid securities (including repurchase agreements of more than
seven days duration, certain restricted securities, and other securities which
are not readily marketable) may not constitute, at the time of purchase, more
than 15% of the value of the Fund's net assets. The Trust's Board of Trustees
has approved guidelines for use by IMI in determining whether a security is
illiquid.
Generally speaking, restricted securities may be sold (i) only to
qualified institutional buyers; (ii) in a privately negotiated transaction to a
limited number of purchasers; (iii) in limited quantities after they have been
held for a specified period of time and other conditions are met pursuant to an
exemption from registration; or (iv) in a public offering for which a
registration statement is in effect under the 1933 Act. Issuers of restricted
securities may not be subject to the disclosure and other investor protection
requirements that would be applicable if their securities were publicly traded.
If adverse market conditions were to develop during the period between the
Fund's decision to sell a restricted or illiquid security and the point at which
the Fund is permitted or able to sell such security, the Fund might obtain a
price less favorable than the price that prevailed when it decided to sell.
Where a registration statement is required for the resale of restricted
securities, the Fund may be required to bear all or part of the registration
expenses. The Fund may be deemed to be an "underwriter" for purposes of the 1933
Act when selling restricted securities to the public and, in such event, the
Fund may be liable to purchasers of such securities if the registration
statement prepared by the issuer is materially inaccurate or misleading.
Since it is not possible to predict with assurance that the market for
securities eligible for resale under Rule 144A will continue to be liquid, IMI
will monitor such restricted securities subject to the supervision of the Board
of Trustees. Among the factors IMI may consider in reaching liquidity decisions
relating to Rule 144A securities are: (1) the frequency of trades and quotes for
the security; (2) the number of dealers wishing to purchase or sell the security
and the number of other potential purchasers; (3) dealer undertakings to make a
market in the security; and (4) the nature of the security and the nature of the
market for the security (i.e., the time needed to dispose of the security, the
method of soliciting offers, and the mechanics of the transfer).
FOREIGN SECURITIES
The securities of foreign issuers in which the Fund may invest include
non-U.S. dollar-denominated debt securities, Euro dollar securities, sponsored
and unsponsored American Depository Receipts ("ADRs"), Global Depository
Receipts ("GDRs"), American Depository Shares ("ADSs"), Global Depository Shares
("GDSs") and related depository instruments, and debt securities issued, assumed
or guaranteed by foreign governments or political subdivisions or
instrumentalities thereof. Shareholders should consider carefully the
substantial risks involved in investing in securities issued by companies and
governments of foreign nations, which are in addition to the usual risks
inherent in the Fund's domestic investments.
Although IMI intends to invest the Fund's assets only in nations that
are generally considered to have relatively stable and friendly governments,
there is the possibility of expropriation, nationalization, repatriation or
confiscatory taxation, taxation on income earned in a foreign country and other
foreign taxes, foreign exchange controls (which may include suspension of the
ability to transfer currency from a given country), default on foreign
government securities, political or social instability or diplomatic
developments which could affect investments in securities of issuers in those
nations. In addition, in many countries there is less publicly available
information about issuers than is available for U.S. companies. Moreover,
foreign companies are not generally subject to uniform accounting, auditing and
financial reporting standards, and auditing practices and requirements may not
be comparable to those applicable to U.S. companies. In many foreign countries,
there is less governmental supervision and regulation of business and industry
practices, stock exchanges, brokers, and listed companies than in the United
States. Foreign securities transactions may also be subject to higher brokerage
costs than domestic securities transactions. The foreign securities markets of
many of the countries in which the Fund may invest may also be smaller, less
liquid and subject to greater price volatility than those in the United States.
In addition, the Fund may encounter difficulties or be unable to pursue legal
remedies and obtain judgment in foreign courts.
Foreign bond markets have different clearance and settlement procedures
and in certain markets there have been times when settlements have been unable
to keep pace with the volume of securities transactions, making it difficult to
conduct such transactions. Delays in settlement could result in temporary
periods when assets of the Fund are uninvested and no return is earned thereon.
The inability of the Fund to make intended security purchases due to settlement
problems could cause the Fund to miss attractive investment opportunities.
Further, the inability to dispose of portfolio securities due to settlement
problems could result either in losses to the Fund because of subsequent
declines in the value of the portfolio security or, if the Fund has entered into
a contract to sell the security, in possible liability to the purchaser. It may
be more difficult for the Fund's agents to keep currently informed about
corporate actions such as stock dividends or other matters that may affect the
prices of portfolio securities. Communications between the United States and
foreign countries may be less reliable than within the United States, thus
increasing the risk of delayed settlements of portfolio transactions or loss of
certificates for portfolio securities. Moreover, individual foreign economies
may differ favorably or unfavorably from the United States economy in such
respects as growth of gross national product, rate of inflation, capital
reinvestment, resource self-sufficiency and balance of payments position. IMI
seeks to mitigate the risks to the Fund associated with the foregoing
considerations through investment variation and continuous professional
management.
EMERGING MARKETS
The Fund could have significant investments in securities traded in
emerging markets. Investors should recognize that investing in such countries
involves special considerations, in addition to those set forth above, that are
not typically associated with investing in United States securities and that may
affect the Fund's performance favorably or unfavorably.
In recent years, many emerging market countries around the world have
undergone political changes that have reduced government's role in economic and
personal affairs and have stimulated investment and growth. Historically, there
is a strong direct correlation between economic growth and stock market returns.
While this is no guarantee of future performance, IMI believes that investment
opportunities (particularly in the energy, environmental services, natural
resources, basic materials, power, telecommunications and transportation
industries) may result within the evolving economies of emerging market
countries from which the Fund and its shareholders will benefit.
Investments in companies domiciled in developing countries may be
subject to potentially higher risks than investments in developed countries.
Such risks include (i) less social, political and economic stability; (ii) a
small market for securities and/or a low or nonexistent volume of trading, which
result in a lack of liquidity and in greater price volatility; (iii) certain
national policies that may restrict the Fund's investment opportunities,
including restrictions on investment in issuers or industries deemed sensitive
to national interests; (iv) foreign taxation; (v) the absence of developed
structures governing private or foreign investment or allowing for judicial
redress for injury to private property; (vi) the absence, until relatively
recently in certain Eastern European countries, of a capital market structure or
market-oriented economy; (vii) the possibility that recent favorable economic
developments in Eastern Europe may be slowed or reversed by unanticipated
political or social events in such countries; and (viii) the possibility that
currency devaluations could adversely affect the value of the Fund's
investments. Further, many emerging markets have experienced and continue to
experience high rates of inflation.
Despite the dissolution of the Soviet Union, the Communist Party may
continue to exercise a significant role in certain Eastern European countries.
To the extent of the Communist Party's influence, investments in such countries
will involve risks of nationalization, expropriation and confiscatory taxation.
The communist governments of a number of Eastern European countries expropriated
large amounts of private property in the past, in many cases without adequate
compensation, and there can be no assurance that such expropriation will not
occur in the future. In the event of such expropriation, the Fund could lose a
substantial portion of any investments it has made in the affected countries.
Further, few (if any) accounting standards exist in Eastern European countries.
Finally, even though certain Eastern European currencies may be convertible into
U.S. dollars, the conversion rates may be artificial in relation to the actual
market values and may be adverse to the Fund's net asset value.
Certain Eastern European countries that do not have well-established
trading markets are characterized by an absence of developed legal structures
governing private and foreign investments and private property. In addition,
certain countries require governmental approval prior to investments by foreign
persons, or limit the amount of investment by foreign persons in a particular
company, or limit the investment of foreign persons to only a specific class of
securities of a company that may have less advantageous terms than securities of
the company available for purchase by nationals.
Authoritarian governments in certain Eastern European countries may
require that a governmental or quasi-governmental authority act as custodian of
the Fund's assets invested in such country. To the extent such governmental or
quasi-governmental authorities do not satisfy the requirements of the Investment
Company Act of 1940, as amended (the "1940 Act"), with respect to the custody of
the Fund's cash and securities, the Fund's investment in such countries may be
limited or may be required to be effected through intermediaries. The risk of
loss through governmental confiscation may be increased in such countries.
FOREIGN CURRENCIES
Investment in foreign securities usually will involve currencies of
foreign countries. Moreover, the Fund may temporarily hold funds in bank
deposits in foreign currencies during the completion of investment programs and
may purchase forward foreign currency contracts. Because of these factors, the
value of the assets of the Fund as measured in U.S. dollars may be affected
favorably or unfavorably by changes in foreign currency exchange rates and
exchange control regulations, and the Fund may incur costs in connection with
conversions between various currencies. Although the Fund's custodian values the
Fund's assets daily in terms of U.S. dollars, the Fund does not intend to
convert its holdings of foreign currencies into U.S. dollars on a daily basis.
The Fund will do so from time to time, however, and investors should be aware of
the costs of currency conversion. Although foreign exchange dealers do not
charge a fee for conversion, they do realize a profit based on the difference
(the "spread") between the prices at which they are buying and selling various
currencies. Thus, a dealer may offer to sell a foreign currency to the Fund at
one rate, while offering a lesser rate of exchange should the Fund desire to
resell that currency to the dealer. The Fund will conduct its foreign currency
exchange transactions either on a spot (i.e., cash) basis at the spot rate
prevailing in the foreign currency exchange market, or through entering into
forward contracts to purchase or sell foreign currencies.
Because the Fund normally will be invested in both U.S. and foreign
securities markets, changes in the Fund's share price may have a low correlation
with movements in U.S. markets. The Fund's share price will reflect the
movements of the different stock and bond markets in which it is invested (both
U.S. and foreign), and of the currencies in which the investments are
denominated. Thus, the strength or weakness of the U.S. dollar against foreign
currencies may account for part of the Fund's investment performance. U.S. and
foreign securities markets do not always move in step with each other, and the
total returns from different markets may vary significantly. In addition,
significant uncertainty surrounds the proposed introduction of the euro (a
common currency for the European Union) in January 1999 and its effect on the
value of securities denominated in local European currencies. These and other
currencies in which the Fund's assets are denominated may be devalued against
the U.S. dollar, resulting in a loss to the Fund.
FOREIGN CURRENCY EXCHANGE TRANSACTIONS
The Fund may enter into forward foreign currency contracts in order to
protect against uncertainty in the level of future foreign exchange rates in the
purchase and sale of securities. A forward contract is an obligation to purchase
or sell a specific currency for an agreed price at a future date (usually less
than a year), and typically is individually negotiated and privately traded by
currency traders and their customers. A forward contract generally has no
deposit requirement, and no commissions are charged at any stage for trades.
Although foreign exchange dealers do not charge a fee for commissions, they do
realize a profit based on the difference between the price at which they are
buying and selling various currencies. Although these contracts are intended to
minimize the risk of loss due to a decline in the value of the hedged
currencies, at the same time, they tend to limit any potential gain which might
result should the value of such currencies increase.
While the Fund may enter into forward contracts to reduce currency
exchange risks, changes in currency exchange rates may result in poorer overall
performance for the Fund than if it had not engaged in such transactions.
Moreover, there may be an imperfect correlation between the Fund's portfolio
holdings of securities denominated in a particular currency and forward
contracts entered into by the Fund. An imperfect correlation of this type may
prevent the Fund from achieving the intended hedge or expose the Fund to the
risk of currency exchange loss.
The Fund may purchase currency forwards and combine such purchases with
sufficient cash or short-term securities to create unleveraged substitutes for
investments in foreign markets when deemed advantageous. The Fund may also
combine the foregoing with bond futures or interest rate futures contracts to
create the economic equivalent of an unhedged foreign bond position.
The Fund may also cross-hedge currencies by entering into transactions
to purchase or sell one or more currencies that are expected to decline in value
relative to other currencies to which the Fund has or in which the Fund expects
to have portfolio exposure.
Currency transactions are subject to risks different from those of
other portfolio transactions. Because currency control is of great importance to
the issuing governments and influences economic planning and policy, purchases
and sales of currency and related instruments can be negatively affected by
government exchange controls, blockages, and manipulations or exchange
restrictions imposed by governments. These can result in losses to the Fund if
it is unable to deliver or receive currency or funds in settlement of
obligations and could also cause hedges it has entered into to be rendered
useless, resulting in full currency exposure as well as incurring transactions
costs. Buyers and sellers of currency futures are subject to the same risks that
apply to the use of futures generally. Further, settlement of a currency futures
contract for the purchase of most currencies must occur at a bank based in the
issuing nation. Trading options on currency futures is relatively new, and the
ability to establish and close out positions on such options is subject to the
maintenance of a liquid market which may not always be available. Currency
exchange rates may fluctuate based on factors extrinsic to that country's
economy.
REPURCHASE AGREEMENTS
Repurchase agreements are contracts under which the Fund buys a money
market instrument and obtains a simultaneous commitment from the seller to
repurchase the instrument at a specified time and at an agreed-upon yield. Under
guidelines approved by the Board, the Fund is permitted to enter into repurchase
agreements only if the repurchase agreements are at least fully collateralized
with U.S. Government securities or other securities that IMI has approved for
use as collateral for repurchase agreements and the collateral must be
marked-to-market daily. The Fund will enter into repurchase agreements only with
banks and broker-dealers deemed to be creditworthy by IMI under the
above-referenced guidelines. In the unlikely event of failure of the executing
bank or broker-dealer, the Fund could experience some delay in obtaining direct
ownership of the underlying collateral and might incur a loss if the value of
the security should decline, as well as costs in disposing of the security.
BANKING INDUSTRY AND SAVINGS AND LOAN OBLIGATIONS
Certificates of deposit are negotiable certificates issued against
funds deposited in a commercial bank for a definite period of time and earning a
specified return. Bankers' acceptances are negotiable drafts or bills of
exchange, normally drawn by an importer or exporter to pay for specific
merchandise, which are "accepted" by a bank (meaning, in effect, that the bank
unconditionally agrees to pay the face value of the instrument at maturity). In
addition to investing in certificates of deposit and bankers' acceptances, the
Fund may invest in time deposits in banks or savings and loan associations. Time
deposits are generally similar to certificates of deposit, but are
uncertificated. The Fund's investments in certificates of deposit, time
deposits, and bankers' acceptance are limited to obligations of (i) banks having
total assets in excess of $1 billion, (ii) U.S. banks which do not meet the $1
billion asset requirement, if the principal amount of such obligation is fully
insured by the Federal Deposit Insurance Corporation (the "FDIC"), (iii) savings
and loan association which have total assets in excess of $1 billion and which
are members of the FDIC, and (iv) foreign banks if the obligation is, in IMI's
opinion, of an investment quality comparable to other debt securities which may
be purchased by the Fund. The Fund's investments in certificates of deposit of
savings associations are limited to obligations of Federal and state-chartered
institutions whose total assets exceed $1 billion and whose deposits are insured
by the FDIC.
COMMERCIAL PAPER
Commercial paper represents short-term unsecured promissory notes
issued in bearer form by bank holding companies, corporations and finance
companies. The Fund may invest in commercial paper that is rated Prime-1 by
Moody's Investors Service, Inc. ("Moody's") or A-1 by Standard & Poor's
Corporation ("S&P") or, if not rated by Moody's or S&P, is issued by companies
having an outstanding debt issue rated Aaa or Aa by Moody's or AAA or AA by S&P.
BORROWING
Borrowing may exaggerate the effect on the Fund's net asset value of
any increase or decrease in the value of the Fund's portfolio securities. Money
borrowed will be subject to interest costs (which may include commitment fees
and/or the cost of maintaining minimum average balances). Although the principal
of the Fund's borrowings will be fixed, the Fund's assets may change in value
during the time a borrowing is outstanding, thus increasing exposure to capital
risk.
WARRANTS
The holder of a warrant has the right, until the warrant expires, to
purchase a given number of shares of a particular issuer at a specified price.
Such investments can provide a greater potential for profit or loss than an
equivalent investment in the underlying security. However, prices of warrants do
not necessarily move in a tandem with the prices of the underlying securities,
and are, therefore, considered speculative investments. Warrants pay no
dividends and confer no rights other than a purchase option. Thus, if a warrant
held by the Fund were not exercised by the date of its expiration, the Fund
would lose the entire purchase price of the warrant.
REAL ESTATE INVESTMENT TRUSTS (REITS)
A REIT is a corporation, trust or association that invests in real
estate mortgages or equities for the benefit of its investors. REITs are
dependent upon management skill, may not be diversified and are subject to the
risks of financing projects. Such entities are also subject to heavy cash flow
dependency, defaults by borrowers, self-liquidation and the possibility of
failing to qualify for tax-free pass-through of income under the Internal
Revenue Code of 1986, as amended (the "Code"), and to maintain exemption from
the Investment Company Act of 1940 (the "1940 Act"). By investing in REITs
indirectly through the Fund, a shareholder will bear not only his or her
proportionate share of the expenses of the Fund, but also, indirectly, similar
expenses of the REITs.
OPTIONS TRANSACTIONS
IN GENERAL. A call option is a short-term contract (having a duration
of less than one year) pursuant to which the purchaser, in return for the
premium paid, has the right to buy the security underlying the option at the
specified exercise price at any time during the term of the option. The writer
of the call option, who receives the premium, has the obligation, upon exercise
of the option, to deliver the underlying security against payment of the
exercise price. A put option is a similar contract pursuant to which the
purchaser, in return for the premium paid, has the right to sell the security
underlying the option at the specified exercise price at any time during the
term of the option. The writer of the put option, who receives the premium, has
the obligation, upon exercise of the option, to buy the underlying security at
the exercise price. The premium paid by the purchaser of an option will reflect,
among other things, the relationship of the exercise price to the market price
and volatility of the underlying security, the time remaining to expiration of
the option, supply and demand, and interest rates.
If the writer of an option wishes to terminate the obligation, the
writer may effect a "closing purchase transaction." This is accomplished by
buying an option of the same series as the option previously written. The effect
of the purchase is that the writer's position will be canceled by the Options
Clearing Corporation. However, a writer may not effect a closing purchase
transaction after it has been notified of the exercise of an option. Likewise,
an investor who is the holder of an option may liquidate his or her position by
effecting a "closing sale transaction." This is accomplished by selling an
option of the same series as the option previously purchased. There is no
guarantee that either a closing purchase or a closing sale transaction can be
effected at any particular time or at any acceptable price. If any call or put
option is not exercised or sold, it will become worthless on its expiration
date.
The Fund will realize a gain (or a loss) on a closing purchase
transaction with respect to a call or a put previously written by the Fund if
the premium, plus commission costs, paid by the Fund to purchase the call or the
put is less (or greater) than the premium, less commission costs, received by
the Fund on the sale of the call or the put. A gain also will be realized if a
call or a put that the Fund has written lapses unexercised, because the Fund
would retain the premium. Any such gains (or losses) are considered short-term
capital gains (or losses) for Federal income tax purposes. Net short-term
capital gains, when distributed by the Fund, are taxable as ordinary income. See
"Taxation."
The Fund will realize a gain (or a loss) on a closing sale transaction
with respect to a call or a put previously purchased by the Fund if the premium,
less commission costs, received by the Fund on the sale of the call or the put
is greater (or less) than the premium, plus commission costs, paid by the Fund
to purchase the call or the put. If a put or a call expires unexercised, it will
become worthless on the expiration date, and the Fund will realize a loss in the
amount of the premium paid, plus commission costs. Any such gain or loss will be
long-term or short-term gain or loss, depending upon the Fund's holding period
for the option.
Exchange-traded options generally have standardized terms and are
issued by a regulated clearing organization (such as the Options Clearing
Corporation), which, in effect, guarantees the completion of every
exchange-traded option transaction. In contrast, the terms of OTC options are
negotiated by the Fund and its counterparty (usually a securities dealer or a
financial institution) with no clearing organization guarantee. When the Fund
purchases an OTC option, it relies on the party from whom it has purchased the
option (the "counterparty") to make delivery of the instrument underlying the
option. If the counterparty fails to do so, the Fund will lose any premium paid
for the option, as well as any expected benefit of the transaction. Accordingly,
IMI will assess the creditworthiness of each counterparty to determine the
likelihood that the terms of the OTC option will be satisfied.
WRITING OPTIONS ON INDIVIDUAL SECURITIES. The Fund may write (sell)
covered call options on the Fund's securities in an attempt to realize a greater
current return than would be realized on the securities alone. The Fund may also
write covered call options to hedge a possible stock or bond market decline
(only to the extent of the premium paid to the Fund for the options). In view of
the investment objectives of the Fund, the Fund generally would write call
options only in circumstances where the investment adviser to the Fund does not
anticipate significant appreciation of the underlying security in the near
future or has otherwise determined to dispose of the security.
A "covered" call option means generally that so long as the Fund is
obligated as the writer of a call option, the Fund will (i) own the underlying
securities subject to the option, or (ii) have the right to acquire the
underlying securities through immediate conversion or exchange of convertible
preferred stocks or convertible debt securities owned by the Fund. Although the
Fund receives premium income from these activities, any appreciation realized on
an underlying security will be limited by the terms of the call option. The Fund
may purchase call options on individual securities only to effect a "closing
purchase transaction."
As the writer of a call option, the Fund receives a premium for
undertaking the obligation to sell the underlying security at a fixed price
during the option period, if the option is exercised. So long as the Fund
remains obligated as a writer of a call option, it forgoes the opportunity to
profit from increases in the market price of the underlying security above the
exercise price of the option, except insofar as the premium represents such a
profit (and retains the risk of loss should the value of the underlying security
decline).
PURCHASING OPTIONS ON INDIVIDUAL SECURITIES. The Fund may purchase a
put option on an underlying security owned by the Fund as a defensive technique
in order to protect against an anticipated decline in the value of the security.
The Fund, as the holder of the put option, may sell the underlying security at
the exercise price regardless of any decline in its market price. In order for a
put option to be profitable, the market price of the underlying security must
decline sufficiently below the exercise price to cover the premium and
transaction costs that the Fund must pay. These costs will reduce any profit the
Fund might have realized had it sold the underlying security instead of buying
the put option. The premium paid for the put option would reduce any capital
gain otherwise available for distribution when the security is eventually sold.
The purchase of put options will not be used by the Fund for leverage purposes.
The Fund may also purchase a put option on an underlying security that
it owns and at the same time write a call option on the same security with the
same exercise price and expiration date. Depending on whether the underlying
security appreciates or depreciates in value, the Fund would sell the underlying
security for the exercise price either upon exercise of the call option written
by it or by exercising the put option held by it. The Fund would enter into such
transactions in order to profit from the difference between the premium received
by the Fund for the writing of the call option and the premium paid by the Fund
for the purchase of the put option, thereby increasing the Fund's current
return. The Fund may write (sell) put options on individual securities only to
effect a "closing sale transaction."
PURCHASING AND WRITING OPTIONS ON SECURITIES INDICES. The Fund may
purchase and sell (write) put and call options on securities indices. An index
assigns relative values to the securities included in the index and the index
fluctuates with changes in the market values of the securities so included.
Options on indices are similar to options on individual securities, except that,
rather than giving the purchaser the right to take delivery of an individual
security at a specified price, they give the purchaser the right to receive
cash. The amount of cash is equal to the difference between the closing price of
the index and the exercise price of the option, expressed in dollars, times a
specified multiple (the "multiplier"). The writer of the option is obligated, in
return for the premium received, to make delivery of this amount.
The multiplier for an index option performs a function similar to the
unit of trading for a stock option. It determines the total dollar value per
contract of each point in the difference between the exercise price of an option
and the current level of the underlying index. A multiplier of 100 means that a
one-point difference will yield $100. Options on different indices have
different multipliers.
When the Fund writes a call or put option on a stock index, the option
is "covered", in the case of a call, or "secured", in the case of a put, if the
Fund maintains in a segregated account with the Custodian cash or liquid
securities equal to the contract value. A call option is also covered if the
Fund holds a call on the same index as the call written where the exercise price
of the call held is (i) equal to or less than the exercise price of the call
written or (ii) greater than the exercise price of the call written, provided
that the Fund maintains in a segregated account with the Custodian the
difference in cash or liquid securities. A put option is also "secured" if the
Fund holds a put on the same index as the put written where the exercise price
of the put held is (i) equal to or greater than the exercise price of the put
written or (ii) less than the exercise price of the put written, provided that
the Fund maintains in a segregated account with the Custodian the difference in
cash or liquid securities.
RISKS OF OPTIONS TRANSACTIONS. The purchase and writing of options
involves certain risks. During the option period, the covered call writer has,
in return for the premium on the option, given up the opportunity to profit from
a price increase in the underlying securities above the exercise price, but, as
long as its obligation as a writer continues, has retained the risk of loss
should the price of the underlying security decline. The writer of a U.S. option
has no control over the time when it may be required to fulfill its obligation
as a writer of the option. Once an option writer has received an exercise
notice, it cannot effect a closing purchase transaction in order to terminate
its obligation under the option and must deliver the underlying securities (or
cash in the case of an index option) at the exercise price. If a put or call
option purchased by the Fund is not sold when it has remaining value, and if the
market price of the underlying security (or index), in the case of a put,
remains equal to or greater than the exercise price or, in the case of a call,
remains less than or equal to the exercise price, the Fund will lose its entire
investment in the option. Also, where a put or call option on a particular
security (or index) is purchased to hedge against price movements in a related
security (or securities), the price of the put or call option may move more or
less than the price of the related security (or securities). In this regard,
there are differences between the securities and options markets that could
result in an imperfect correlation between these markets, causing a given
transaction not to achieve its objective.
There can be no assurance that a liquid market will exist when the Fund
seeks to close out an option position. Furthermore, if trading restrictions or
suspensions are imposed on the options markets, the Fund may be unable to close
out a position. Finally, trading could be interrupted, for example, because of
supply and demand imbalances arising from a lack of either buyers or sellers, or
the options exchange could suspend trading after the price has risen or fallen
more than the maximum amount specified by the exchange. Closing transactions can
be made for OTC options only by negotiating directly with the counterparty or by
a transaction in the secondary market, if any such market exists. There is no
assurance that the Fund will be able to close out an OTC option position at a
favorable price prior to its expiration. In the event of insolvency of the
counterparty, the Fund might be unable to close out an OTC option position at
any time prior to its expiration. Although the Fund may be able to offset to
some extent any adverse effects of being unable to liquidate an option position,
the Fund may experience losses in some cases as a result of such inability.
When conducted outside the U.S., options transactions may not be
regulated as rigorously as in the U.S., may not involve a clearing mechanism and
related guarantees, and are subject to the risk of governmental actions
affecting trading in, or the prices of, foreign securities, currencies and other
instruments. The value of such positions also could be adversely affected by:
(i) other complex foreign political, legal and economic factors, (ii) lesser
availability than in the U.S. of data on which to make trading decisions, (iii)
delays in the Fund's ability to act upon economic events occurring in foreign
markets during non-business hours in the U.S., (iv) the imposition of different
exercise and settlement terms and procedures and margin requirements than in the
U.S., and (v) lower trading volume and liquidity.
The Fund's options activities also may have an impact upon the level
of its portfolio turnover and brokerage commissions. See "Portfolio Turnover."
The Fund's success in using options techniques depends, among other
things, on IMI's ability to predict accurately the direction and volatility of
price movements in the options and securities markets, and to select the proper
type, time and duration of options.
FUTURES CONTRACTS AND OPTIONS ON FUTURES CONTRACTS
IN GENERAL. The Fund may enter into futures contracts and options on
futures contracts for hedging purposes. A futures contract provides for the
future sale by one party and purchase by another party of a specified quantity
of a commodity at a specified price and time. When a purchase or sale of a
futures contract is made by the Fund, the Fund is required to deposit with its
custodian (or broker, if legally permitted) a specified amount of cash or liquid
securities ("initial margin"). The margin required for a futures contract is set
by the exchange on which the contract is traded and may be modified during the
term of the contract. The initial margin is in the nature of a performance bond
or good faith deposit on the futures contract which is returned to the Fund upon
termination of the contract, assuming all contractual obligations have been
satisfied. A futures contract held by the Fund is valued daily at the official
settlement price of the exchange on which it is traded. Each day the Fund pays
or receives cash, called "variation margin," equal to the daily change in value
of the futures contract. This process is known as "marking to market." Variation
margin does not represent a borrowing or loan by the Fund but is instead a
settlement between the Fund and the broker of the amount one would owe the other
if the futures contract expired. In computing daily net asset value, the Fund
will mark-to-market its open futures position.
The Fund is also required to deposit and maintain margin with respect
to put and call options on futures contracts written by it. Such margin deposits
will vary depending on the nature of the underlying futures contract (and the
related initial margin requirements), the current market value of the option,
and other futures positions held by the Fund.
Although some futures contracts call for making or taking delivery of
the underlying securities, generally these obligations are closed out prior to
delivery of offsetting purchases or sales of matching futures contracts (same
exchange, underlying security or index, and delivery month). If an offsetting
purchase price is less than the original sale price, the Fund generally realizes
a capital gain, or if it is more, the Fund generally realizes a capital loss.
Conversely, if an offsetting sale price is more than the original purchase
price, the Fund generally realizes a capital gain, or if it is less, the Fund
generally realizes a capital loss.
The transaction costs must also be included in these calculations.
When purchasing a futures contract, the Fund will maintain with its
Custodian (and mark-to-market on a daily basis) cash or liquid securities that,
when added to the amounts deposited with a futures commission merchant ("FCM")
as margin, are equal to the market value of the futures contract. Alternatively,
the Fund may "cover" its position by purchasing a put option on the same futures
contract with a strike price as high as or higher than the price of the contract
held by the Fund, or, if lower, may cover the difference with cash or short-term
securities.
When selling a futures contract, the Fund will maintain with its
Custodian in a segregated account (and mark-to-market on a daily basis) cash or
liquid securities that, when added to the amounts deposited with an FCM as
margin, are equal to the market value of the instruments underlying the
contract. Alternatively, the Fund may "cover" its position by owning the
instruments underlying the contract (or, in the case of an index futures
contract, a portfolio with a volatility substantially similar to that of the
index on which the futures contract is based), or by holding a call option
permitting the Fund to purchase the same futures contract at a price no higher
than the price of the contract written by the Fund (or at a higher price if the
difference is maintained in liquid assets with the Fund's custodian).
When selling a call option on a futures contract, the Fund will
maintain with its Custodian in a segregated account (and mark-to-market on a
daily basis) cash or liquid securities that, when added to the amounts deposited
with an FCM as margin, equal the total market value of the futures contract
underlying the call option. Alternatively, the Fund may cover its position by
entering into a long position in the same futures contract at a price no higher
than the strike price of the call option, by owning the instruments underlying
the futures contract, or by holding a separate call option permitting the Fund
to purchase the same futures contract at a price not higher than the strike
price of the call option sold by the Fund, or covering the difference if the
price is higher.
When selling a put option on a futures contract, the Fund will maintain
with its Custodian (and mark-to-market on a daily basis) cash or liquid
securities that equal the purchase price of the futures contract less any margin
on deposit. Alternatively, the Fund may cover the position either by entering
into a short position in the same futures contract, or by owning a separate put
option permitting it to sell the same futures contract so long as the strike
price of the purchased put option is the same or higher than the strike price of
the put option sold by the Fund, or, if lower, the Fund may hold securities to
cover the difference.
RISKS ASSOCIATED WITH FUTURES AND RELATED OPTIONS. There can be no
guarantee that there will be a correlation between price movements in the
hedging vehicle and in the Fund's portfolio securities being hedged. In
addition, there are significant differences between the securities and futures
markets that could result in an imperfect correlation between the markets,
causing a given hedge not to achieve its objectives. The degree of imperfection
of correlation depends on circumstances such as variations in speculative market
demand for futures and futures options on securities, including technical
influences in futures trading and futures options, and differences between the
financial instruments being hedged and the instruments underlying the standard
contracts available for trading in such respects as interest rate levels,
maturities, and creditworthiness of issuers. A decision as to whether, when and
how to hedge involves the exercise of skill and judgment, and even a
well-conceived hedge may be unsuccessful to some degree because of market
behavior or unexpected interest rate trends.
Futures exchanges may limit the amount of fluctuation permitted in
certain futures contract prices during a single trading day. The daily limit
establishes the maximum amount that the price of a futures contract may vary
either up or down from the previous day's settlement price at the end of the
current trading session. Once the daily limit has been reached in a futures
contract subject to the limit, no more trades may be made on that day at a price
beyond that limit. The daily limit governs only price movements during a
particular trading day and therefore does not limit potential losses because the
limit may work to prevent the liquidation of unfavorable positions. For example,
futures prices have occasionally moved to the daily limit for several
consecutive trading days with little or no trading, thereby preventing prompt
liquidation of positions and subjecting some holders of futures contracts to
substantial losses.
There can be no assurance that a liquid market will exist at a time
when the Fund seeks to close out a futures or a futures option position, and the
Fund would remain obligated to meet margin requirements until the position is
closed. In addition, there can be no assurance that an active secondary market
will continue to exist.
Currency futures contracts and options thereon may be traded on foreign
exchanges. Such transactions may not be regulated as effectively as similar
transactions in the United States; may not involve a clearing mechanism and
related guarantees; and are subject to the risk of governmental actions
affecting trading in, or the prices of, foreign securities. The value of such
position also could be adversely affected by (i) other complex foreign
political, legal and economic factors, (ii) lesser availability than in the
United States of data on which to make trading decisions, (iii) delays in the
Fund's ability to act upon economic events occurring in foreign markets during
non business hours in the United States, (iv) the imposition of different
exercise and settlement terms and procedures and margin requirements than in the
United States, and (v) lesser trading volume.
SECURITIES INDEX FUTURES CONTRACTS
The Fund may enter into securities index futures contracts as an
efficient means of regulating the Fund's exposure to the equity markets. The
Fund will not engage in transactions in futures contracts for speculation, but
only as a hedge against changes resulting from market conditions in the values
of securities held in the Fund's portfolio or which it intends to purchase. An
index futures contract is a contract to buy or sell units of an index at a
specified future date at a price agreed upon when the contract is made. Entering
into a contract to buy units of an index is commonly referred to as purchasing a
contract or holding a long position in the index. Entering into a contract to
sell units of an index is commonly referred to as selling a contract or holding
a short position. The value of a unit is the current value of the stock index.
For example, the S&P 500 Index is composed of 500 selected common stocks, most
of which are listed on the New York Stock Exchange (the "Exchange"). The S&P 500
Index assigns relative weightings to the 500 common stocks included in the
Index, and the Index fluctuates with changes in the market values of the shares
of those common stocks. In the case of the S&P 500 Index, contracts are to buy
or sell 500 units. Thus, if the value of the S&P 500 Index were $150, one
contract would be worth $75,000 (500 units x $150). The index futures contract
specifies that no delivery of the actual securities making up the index will
take place. Instead, settlement in cash must occur upon the termination of the
contract, with the settlement being the difference between the contract price
and the actual level of the stock index at the expiration of the contract. For
example, if the Fund enters into a futures contract to buy 500 units of the S&P
500 Index at a specified future date at a contract price of $150 and the S&P 500
Index is at $154 on that future date, the Fund will gain $2,000 (500 units x
gain of $4). If the Fund enters into a futures contract to sell 500 units of the
stock index at a specified future date at a contract price of $150 and the S&P
500 Index is at $154 on that future date, the Fund will lose $2,000 (500 units x
loss of $4).
RISKS OF SECURITIES INDEX FUTURES. The Fund's success in using hedging
techniques depends, among other things, on IMI's ability to predict correctly
the direction and volatility of price movements in the futures and options
markets as well as in the securities markets and to select the proper type, time
and duration of hedges. The skills necessary for successful use of hedges are
different from those used in the selection of individual stocks.
The Fund's ability to hedge effectively all or a portion of its
securities through transactions in index futures (and therefore the extent of
its gain or loss on such transactions) depends on the degree to which price
movements in the underlying index correlate with price movements in the Fund's
securities. Inasmuch as such securities will not duplicate the components of an
index, the correlation probably will not be perfect. Consequently, the Fund will
bear the risk that the prices of the securities being hedged will not move in
the same amount as the hedging instrument. This risk will increase as the
composition of the Fund's portfolio diverges from the composition of the hedging
instrument.
Although the Fund intends to establish positions in these instruments
only when there appears to be an active market, there is no assurance that a
liquid market will exist at a time when the Fund seeks to close a particular
option or futures position. Trading could be interrupted, for example, because
of supply and demand imbalances arising from a lack of either buyers or sellers.
In addition, the futures exchanges may suspend trading after the price has risen
or fallen more than the maximum amount specified by the exchange. In some cases,
the Fund may experience losses as a result of its inability to close out a
position, and it may have to liquidate other investments to meet its cash needs.
Although some index futures contracts call for making or taking
delivery of the underlying securities, generally these obligations are closed
out prior to delivery by offsetting purchases or sales of matching futures
contracts (same exchange, underlying security or index, and delivery month). If
an offsetting purchase price is less than the original sale price, the Fund
generally realizes a capital gain, or if it is more, the Fund generally realizes
a capital loss. Conversely, if an offsetting sale price is more than the
original purchase price, the Fund generally realizes a capital gain, or if it is
less, the Fund generally realizes a capital loss.
The transaction costs must also be included in these calculations.
The Fund will only enter into index futures contracts or futures
options that are standardized and traded on a U.S. or foreign exchange or board
of trade, or similar entity, or quoted on an automated quotation system. The
Fund will use futures contracts and related options only for "bona fide hedging"
purposes, as such term is defined in applicable regulations of the CFTC.
When purchasing an index futures contract, the Fund will maintain with
its Custodian (and mark-to-market on a daily basis) cash or liquid securities
that, when added to the amounts deposited with a futures commission merchant
("FCM") as margin, are equal to the market value of the futures contract.
Alternatively, the Fund may "cover" its position by purchasing a put option on
the same futures contract with a strike price as high as or higher than the
price of the contract held by the Fund.
When selling an index futures contract, the Fund will maintain with its
Custodian (and mark-to-market on a daily basis) cash or liquid securities that,
when added to the amounts deposited with an FCM as margin, are equal to the
market value of the instruments underlying the contract. Alternatively, the Fund
may "cover" its position by owning the instruments underlying the contract (or,
in the case of an index futures contract, a portfolio with a volatility
substantially similar to that of the index on which the futures contract is
based), or by holding a call option permitting the Fund to purchase the same
futures contract at a price no higher than the price of the contract written by
the Fund (or at a higher price if the difference is maintained in cash or liquid
assets in a segregated account with the Fund's custodian).
COMBINED TRANSACTIONS. The Fund may enter into multiple transactions,
including multiple options transactions, multiple futures transactions and
multiple currency transactions (including forward currency contracts) and some
combination of futures, options and currency transactions ("component"
transactions), instead of a single transaction, as part of a single or combined
strategy when, in the opinion of IMI, it is in the best interests of the Fund to
do so. A combined transaction will usually contain elements of risk that are
present in each of its component transactions. Although combined transactions
are normally entered into based on IMI's judgment that the combined strategies
will reduce risk or otherwise more effectively achieve the desired portfolio
management goal, it is possible that the combination will instead increase such
risks or hinder achievement of the management objective.
INVESTMENT RESTRICTIONS
The Fund's investment objectives as set forth in the "Summary" section
of the Prospectus, together with the investment restrictions set forth below,
are fundamental policies of the Fund and may not be changed without the approval
of a majority of the outstanding voting shares of the Fund. Under these
restrictions, the Fund may not:
(i) borrow money, except for temporary purposes where investment
transactions might advantageously require it. Any such loan
may not be for a period in excess of 60 days, and the
aggregate amount of all outstanding loans may not at any time
exceed 10% of the value of the total assets of the Fund at the
time any such loan is made;
(ii) purchase securities on margin;
(iii) sell securities short;
(iv) lend any funds or other assets, except that this restriction
shall not prohibit (a) the entry into repurchase agreements or
(b) the purchase of publicly distributed bonds, debentures and
other securities of a similar type, or privately placed
municipal or corporate bonds, debentures and other securities
of a type customarily purchased by institutional investors or
publicly traded in the securities markets;
(v) participate in an underwriting or selling group in connection
with the public distribution of securities except for its own
capital stock;
(vi) purchase from or sell to any of its officers or trustees, or
firms of which any of them are members or which they control,
any securities (other than capital stock of the Fund), but
such persons or firms may act as brokers for the Fund for
customary commissions to the extent permitted by the 1940 Act;
(vii) purchase or sell real estate or commodities and commodity contracts;
(viii) make an investment in securities of companies in any one
industry (except obligations of domestic banks or the U.S.
Government, its agencies, authorities, or instrumentalities)
if such investment would cause investments in such industry to
exceed 25% of the market value of the Fund's total assets at
the time of such investment;
(ix) issue senior securities, except as appropriate to evidence
indebtedness which it is permitted to incur, and except to the
extent that shares of the separate classes or series of the
Trust may be deemed to be senior securities; provided that
collateral arrangements with respect to currency-related
contracts, futures contracts, options or other permitted
investments, including deposits of initial and variation
margin, are not considered to be the issuance of senior
securities for purposes of this restriction;
(x) invest more than 5% of the value of its total assets in the
securities of any one issuer (except obligations of domestic
banks or the U.S. Government, its agencies, authorities and
instrumentalities);
(xi) hold more than 10% of the voting securities of an one issuer
(except obligations of domestic banks or the U.S. Government,
it agencies, authorities and instrumentalities); or
(xii) purchase the securities of any other open-end investment
company, except as part of a plan of merger or consolidation.
Under the 1940 Act, the Fund is permitted, subject to the above
investment restrictions, to borrow money only from banks. The Trust has not
current intention of borrowing amounts in excess of 5% of the Fund's assets. The
Fund will continue to interpret fundamental investment restriction (vii) to
prohibit investment in real estate limited partnership interests; this
restriction shall not, however, prohibit investment in readily marketable
securities of companies that invest in real estate or interests therein,
including real estate investment trusts.
ADDITIONAL RESTRICTIONS
The Fund has adopted the following additional restrictions, which are
not fundamental and which may be changed without shareholder approval to the
extent permitted by applicable law, regulation or regulatory policy.
Under these restrictions, the Fund may not:
(i) invest in oil, gas or other mineral leases or exploration or
development programs;
(ii) engage in the purchase and sale of puts, calls, straddles or
spreads (except of the extent described in the Prospectus and
in this SAI);
(iii) invest in companies for the purpose of exercising control of
management;
(iv) invest more than 5% of its total assets in warrants, valued at
the lower of cost or market, or more than 2% of its total
assets in warrants, so valued, which are not listed on either
the New York or American Stock Exchanges;
(v) purchase any security if, as a result, the Fund would then
have more than 5% of its total assets (taken at current value)
invested in securities of companies (including predecessors)
less than three years old; or
(vi) invest more than 5% of the value of its total assets in the
securities of issuers which are not readily marketable.
Whenever an investment objective, policy or restriction set forth in
the Prospectus or this SAI states a maximum percentage of assets that may be
invested in any security or other asset or describes a policy regarding quality
standards, such percentage limitation or standard shall, unless otherwise
indicated, apply to the Fund only at the time a transaction is entered into.
Accordingly, if a percentage limitation is adhered to at the time of investment,
a later increase or decrease in the percentage which results from circumstances
not involving any affirmative action by the Fund, such as a change in market
conditions or a change in the Fund's asset level or other circumstances beyond
the Fund's control, will not be considered a violation.
PORTFOLIO TURNOVER
The Fund purchases securities that are believed by IMI to have above
average potential for capital appreciation. Common stocks are disposed of in
situations where it is believed that potential for such appreciation has
lessened or that other common stocks have a greater potential. Therefore, the
Fund may purchase and sell securities without regard to the length of time the
security is to be, or has been, held. A change in securities held by the Fund is
known as "portfolio turnover" and may involve the payment by the Fund of dealer
markup or underwriting commission and other transaction costs on the sale of
securities, as well as on the reinvestment of the proceeds in other securities.
The Fund's portfolio turnover rate is calculated by dividing the lesser of
purchases or sales of portfolio securities for the most recently completed
fiscal year by the monthly average of the value of the portfolio securities
owned by the Fund during that year. For purposes of determining the Fund's
portfolio turnover rate, all securities whose maturities at the time of
acquisition were one year or less are excluded.
TRUSTEES AND OFFICERS
The Fund's Board of Trustees (the "Board") is responsible for the
overall management of the Fund, including general supervision and review of the
Fund's investment activities. The Board, in turn, elects the officers who are
responsible for administering the Fund's day-to-day operations.
The Trustees and Executive Officers of the Trust, their business
addresses and principal occupations during the past five years are:
POSITION WITH BUSINESS AFFILIATIONS
NAME, ADDRESS, AGE THE TRUST AND PRINCIPAL OCCUPATIONS
John S. Anderegg, Jr. Trustee Chairman, Dynamics Research
60 Concord Street Corp. (instruments and controls);
Wilmington, MA 01887 Director, Burr-Brown Corp.
Age: 74 (operational amplifiers); Director,
Metritage Incorporated (level
measuring instruments); Trustee of
Mackenzie Series Trust (1992-1998).
Paul H. Broyhill Trustee Chairman, BMC Fund, Inc.
800 Hickory Blvd. (1983-present); Chairman,
Golfview Park-Box 500 Broyhill Family Foundation,
Lenoir, NC 28645 Inc. (1983-Present); Chairman and
Age: 74 President, Broyhill Investments,
Inc. (1983-present); Chairman,
Broyhill Timber Resources (1983-
present); Management of a personal
portfolio of fixed-income and equity
investments (1983-present); Trustee
of Mackenzie Series Trust (1988-
1998); Director of The Mackenzie
Funds Inc. (1988-1995).
Stanley Channick Trustee President and Chief
11 Bala Avenue Executive Officer, The
Bala Cynwyd, PA 19004 Whitestone Corporation
Age: 75 (insurance agency); Chairman, Scott
Management Company (administrative
services for insurance companies);
President, The Channick Group
(consultants to insurance companies
and national trade associations);
Trustee of Mackenzie Series Trust
(1994-1998); Director of The
Mackenzie Funds Inc. (1994-1995).
Frank W. DeFriece, Jr. Trustee Director, Manager and Vice
The Landmark Centre President, Director and
113 Landmark Lane, Fund Manager, Massengill-
Suite B DeFriece Foundation
Bristol, TN 37620-2285 (charitable organization)
Age: 77 (1950-present); Trustee and Vice
Chairman, East Tennessee Public
Communications Corp. (WSJK-TV)
(1984-present); Trustee of Mackenzie
Series Trust (1985-1998); Director
of The Mackenzie Funds Inc. (1987-
1995).
Roy J. Glauber Trustee Mallinckrodt Professor of
Lyman Laboratory Physics, Harvard
of Physics University (1974-present);
Harvard University Trustee of Mackenzie Series
Cambridge, MA 02138 Trust (1994-1997).
Age: 72
Michael G. Landry Trustee President, Chief Executive
700 South Federal Hwy. And Officer and Director of
Suite 300 Chairman Mackenzie Investment
Boca Raton, FL 33432 Management Inc. (1987-
Age: 51 present); President,
[*Deemed to be an Director and Chairman of
"interested person" Ivy Management Inc. (1992-
of the Trust, as present); Chairman and
defined under the Director of Ivy Mackenzie
1940 Act.] Services Corp.(1993-present);
Chairman and Director of Ivy
Mackenzie Distributors, Inc.
(1994-present); Director and
President of Ivy Mackenzie
Distributors, Inc. (1993-1994);
Director and President of The
Mackenzie Funds Inc. (1987-1995);
Trustee of Mackenzie Series Trust
(1987-1998); President of Mackenzie
Series Trust (1987-1996); Chairman
of Mackenzie Series Trust (1996-
1998).
Joseph G. Rosenthal Trustee Chartered Accountant
110 Jardin Drive (1958-present); Trustee of
Unit #12 Mackenzie Series Trust
Concord, Ontario Canada (1985-1998); Director of
L4K 2T7 The Mackenzie Funds Inc.
Age: 63 (1987-1995).
Richard N. Silverman Trustee Director, Newton-Wellesley
18 Bonnybrook Road Hospital; Director, Beth
Waban, MA 02168 Israel Hospital; Director,
Age: 74 Boston Ballet; Director, Boston
Children's Museum; Director, Brimmer
and May School.
J. Brendan Swan Trustee President, Airspray
4701 North Federal Hwy. International, Inc.;
Suite 465 Joint Managing Director,
Pompano Beach, FL 33064 Airspray International
Age: 67 B.V. (an environmentally sensitive
packaging company); Director of
Polyglass LTD.; Director, The
Mackenzie Funds Inc. (1992-1995);
Trustee of Mackenzie Series Trust
(1992-1998).
Keith J. Carlson Trustee Senior Vice President of Mackenzie
700 South Federal Hwy. And Investment Management, Inc. (1996 -
Suite 300 President -present); Senior Vice President and
Boca Raton, FL 33432 Director of Mackenzie Investment
Age: 41 Management, Inc. (1994 - 1996);
[*Deemed to be an Senior Vice President and Treasurer
"interested person" of Mackenzie Investment Management,
of the Trust, Inc. (1989-1994); Senior Vice President
as defined under President and Director of Ivy
the 1940 Act.] Management Inc. (1994-present);
Senior Vice President, Treasurer and
Director of Ivy Management Inc.
(1992-1994); Vice President of The
Mackenzie Funds Inc. (1987-1995);
Senior Vice President and Director,
Ivy Mackenzie Services Corp. (1996-
present); President and Director of
Ivy Mackenzie Services Corp. (1993-
1996); Trustee and President of
Mackenzie Series Trust (1996-1998);
Vice President of Mackenzie Series
Trust (1994-1998); Treasurer of
Mackenzie Series Trust (1985-1994);
President, Chief Executive Officer
and Director of Ivy Mackenzie
Distributors, Inc. (1994-present);
Executive Vice President and
Director of Ivy Mackenzie
Distributors, Inc. (1993-1994);
Trustee of Mackenzie Series Trust
(1996-1998).
C. William Ferris Secretary/ Senior Vice President,
700 South Federal Hwy. Treasurer Chief Financial Officer
Suite 300 and Secretary/Treasurer
Boca Raton, FL 33432 of Mackenzie Investment
Age: 53 Management Inc. (1995-present);
Senior Vice President, Finance and
Administration/Compliance Officer of
Mackenzie Investment Management Inc.
(1989-1994); Senior Vice President,
Secretary/ Treasurer and Clerk of
Ivy Management Inc. (1994-present);
Vice President, Finance/
Administration and Compliance
Officer of Ivy Management Inc.
(1992-1994); Senior Vice President,
Secretary/Treasurer and Director of
Ivy Mackenzie Distributors, Inc.
(1994-present); Secretary/Treasurer
and Director of Ivy Mackenzie
Distributors, Inc. (1993-1994);
President and Director of Ivy
Mackenzie Services Corp.
(1996-present); Secretary/Treasurer
and Director of Ivy Mackenzie
Services Corp. (1993-1996);
Secretary/Treasurer
of The Mackenzie Funds Inc.
(1993-1995); Secretary/Treasurer of
Mackenzie Series Trust (1994-1998).
James W. Broadfoot Vice Executive Vice President,
700 South Federal Hwy. President Ivy Management Inc. (1996-
Suite 300 present); Senior Vice
Boca Raton, FL 33432 President, Ivy Management,
Age: 56 Inc. (1992-1996); Director and
Senior Vice President, Mackenzie
Investment Management Inc. (1995-
present); Senior Vice President,
Mackenzie Investment Management Inc.
(1990-1995).
COMPENSATION TABLE
IVY FUND
(FISCAL YEAR ENDED DECEMBER 31, 1998)
PENSION OR TOTAL COMPENSA-
AGGREGATE RETIREMENT ESTIMATED TION FROM TRUST
NAME, COMPENSATION BENEFITS ACCRUED ANNUAL AND FUND
POSITION FROM TRUST AS PART OF BENEFITS UPON COMPLEX PAID TO
FUND EXPENSES RETIREMENT TRUSTEES
John S. N/A N/A
Anderegg, Jr.
(Trustee)
Paul H. N/A N/A
Broyhill
(Trustee)
Keith J. $0 N/A N/A $0
Carlson
(Trustee and
President)
Stanley N/A N/A
Channick
(Trustee)
Frank W. N/A N/A
DeFriece, Jr.
(Trustee)
Roy J. N/A N/A
Glauber
(Trustee)
Michael G. $0 N/A N/A $0
Landry
(Trustee and
Chairman of
the Board)
Joseph G. N/A N/A
Rosenthal
(Trustee)
Richard N. N/A N/A
Silverman
(Trustee)
J. Brendan N/A N/A
Swan
(Trustee)
C. William $0 N/A N/A $0
Ferris
(Secretary/
Treasurer)
To the knowledge of the Trust, as of [ ], no shareholder owned
beneficially or of record 5% or more of the Fund's outstanding shares of any
class, except that [to be completed by amendment].
As of [ ], the Officers and Trustees of the Trust as a group owned
beneficially or of record less than 1% of the outstanding Class A, Class B,
Class C and Advisor Class shares of the Fund.
PERSONAL INVESTMENTS BY EMPLOYEES OF IMI. Employees of IMI are
permitted to make personal securities transactions, subject to the requirements
and restrictions set forth in IMI's Code of Ethics and Business Conduct Policy
(the "Code of Ethics"). The Code of Ethics is designed to identify and address
certain conflicts of interest between personal investment activities and the
interests of investment advisory clients such as the Fund. Among other things,
the Code of Ethics, which generally complies with standards recommended by the
Investment Company Institute's Advisory Group on Personal Investing, prohibits
certain types of transactions absent prior approval, applies to portfolio
managers, traders, research analysts and others involved in the investment
advisory process, and imposes time periods during which personal transactions
may not be made in certain securities, and requires the submission of duplicate
broker confirmations and monthly reporting of securities transactions.
Exceptions to these and other provisions of the Code of Ethics may be granted in
particular circumstances after review by appropriate personnel.
INVESTMENT ADVISORY AND OTHER SERVICES
BUSINESS MANAGEMENT AND INVESTMENT ADVISORY SERVICES
IMI provides business management and investment advisory services to
the Fund pursuant to a Business Management and Investment Advisory Agreement
(the "Agreement"). The Agreement was approved by the sole shareholder of the
Fund on December 30, 1991. Prior to shareholder approval, the Agreement was
approved with respect to the Fund by the Board, including a majority of the
Trustees who are neither "interested persons" (as defined in the 1940 Act) of
the Trust nor have any direct or indirect financial interest in the operation of
the distribution plan (see "Distribution Services") or in any related agreement
(the "Independent Trustees") at a meeting held on October 28, 1991.
IMI is a wholly owned subsidiary of Mackenzie Investment Management
Inc. ("MIMI"). MIMI, a Delaware corporation, has approximately 10% of its
outstanding common stock listed for trading on the Toronto Stock Exchange
("TSE"). MIMI is a subsidiary of Mackenzie Financial Corporation ("MFC"), 150
Bloor Street West, Toronto, Ontario, Canada, a public corporation organized
under the laws of Ontario whose shares are listed for trading on the TSE. MFC is
registered in Ontario as a mutual fund dealer and advises Ivy Global Natural
Resources Fund. IMI currently acts as manager and investment adviser to the
following additional investment companies registered under the 1940 Act (other
than the Fund): Ivy Asia Pacific Fund, Ivy Bond Fund, Ivy China Region Fund, Ivy
Developing Nations Fund, Ivy European Opportunities Fund, Ivy Global Fund, Ivy
Global Science & Technology Fund, Ivy Growth Fund, Ivy International Fund, Ivy
International Fund II, Ivy International Small Companies Fund, Ivy International
Strategic Bond Fund, Ivy Money Market Fund, Ivy Pan-Europe Fund, Ivy South
America Fund, Ivy US Blue Chip Fund and Ivy US Emerging Growth Fund. IMI also
provides business management services to Ivy Global Natural Resources Fund.
The Agreement obligates IMI to make investments for the account of the
Fund in accordance with its best judgment and within the investment objectives
and restrictions set forth in the Prospectus, the 1940 Act and the provisions of
the Code relating to regulated investment companies, subject to policy decisions
adopted by the Board. IMI also determines the securities to be purchased or sold
by the Fund and places orders with brokers or dealers who deal in such
securities.
Under the Agreement, IMI also provides certain business management
services. IMI is obligated to (1) coordinate with the Fund's Custodian and
monitor the services it provides to the Fund; (2) coordinate with and monitor
any other third parties furnishing services to the Fund; (3) provide the Fund
with necessary office space, telephones and other communications facilities as
are adequate for the Fund's needs; (4) provide the services of individuals
competent to perform administrative and clerical functions that are not
performed by employees or other agents engaged by the Fund or by IMI acting in
some other capacity pursuant to a separate agreement or arrangements with the
Fund; (5) maintain or supervise the maintenance by third parties of such books
and records of the Trust as may be required by applicable Federal or state law;
(6) authorize and permit IMI's directors, officers and employees who may be
elected or appointed as trustees or officers of the Trust to serve in such
capacities; and (7) take such other action with respect to the Trust, after
approval by the Trust as may be required by applicable law, including without
limitation the rules and regulations of the SEC and of state securities
commissions and other regulatory agencies.
The Fund pays IMI a monthly fee for providing business management and
investment advisory services at an annual rate of .75% of the Fund's average net
assets.
During the fiscal years ended December 31, 1996, 1997 and 1998, the
Fund paid IMI fees of $629,322, $624,013 and [ ], respectively.
Under the Agreement, the Trust pays the following expenses: (1) the
fees and expenses of the Trust's Independent Trustees; (2) the salaries and
expenses of any of the Trust's officers or employees who are not affiliated with
IMI; (3) interest expenses; (4) taxes and governmental fees, including any
original issue taxes or transfer taxes applicable to the sale or delivery of
shares or certificates therefor; (5) brokerage commissions and other expenses
incurred in acquiring or disposing of portfolio securities; (6) the expenses of
registering and qualifying shares for sale with the SEC and with various state
securities commissions; (7) accounting and legal costs; (8) insurance premiums;
(9) fees and expenses of the Trust's Custodian and Transfer Agent and any
related services; (10) expenses of obtaining quotations of portfolio securities
and of pricing shares; (11) expenses of maintaining the Trust's legal existence
and of shareholders' meetings; (12) expenses of preparation and distribution to
existing shareholders of periodic reports, proxy materials and prospectuses; and
(13) fees and expenses of membership in industry organizations.
IMI currently limits the Fund's total operating expenses (excluding
Rule 12b-1 fees, interest, taxes, brokerage commissions, litigation,
class-specific expenses, indemnification expenses, and extraordinary expenses)
to an annual rate of 1.95% of the Fund's average net assets, which may lower the
Fund's expenses and increase its yield.
The Agreement will continue in effect with respect to the Fund from
year to year, only so long as the continuance is specifically approved at least
annually (i) by the vote of a majority of the Independent Trustees and (ii)
either (a) by the vote of a majority of the outstanding voting securities (as
defined in the 1940 Act) of the Fund or (b) by the vote of a majority of the
entire Board. If the question of continuance of the Agreement (or adoption of
any new agreement) is presented to the shareholders, continuance (or adoption)
shall be effected only if approved by the affirmative vote of a majority of the
outstanding voting securities of the Fund. See "Capitalization and Voting
Rights."
The Agreement may be terminated with respect to the Fund at any time,
without payment of any penalty, by the vote of a majority of the Board, or by a
vote of a majority of the outstanding voting securities of the Fund, on 60 days'
written notice to IMI, or by IMI on 60 days' written notice to the Trust. The
Agreement shall terminate automatically in the event of its assignment.
DISTRIBUTION SERVICES
IMDI, a wholly owned subsidiary of MIMI, serves as the exclusive
distributor of Ivy Fund's shares pursuant to an Amended and Restated
Distribution Agreement with the Trust dated _______________, 1999, as amended
from time to time (the "Distribution Agreement"). The Distribution Agreement was
approved by the Board on September 17, 1998. IMDI distributes shares of the Fund
through broker-dealers who are members of the National Association of Securities
Dealers, Inc. and who have executed dealer agreements with IMDI. IMDI
distributes shares of the Fund on a continuous basis, but reserves the right to
suspend or discontinue distribution on that basis. IMDI is not obligated to sell
any specific amount of Fund shares.
Pursuant to the Distribution Agreement, IMDI is entitled to deduct a
commission on all Class A Fund shares sold equal to the difference, if any,
between the public offering price, as set forth in the Fund's then-current
prospectus, and the net asset value on which such price is based. Out of that
commission, IMDI may reallow to dealers such concession as IMDI may determine
from time to time. In addition, IMDI is entitled to deduct a CDSC on the
redemption of Class A shares sold without an initial sales charge and Class B
and Class C shares, in accordance with, and in the manner set forth in, the
Prospectus.
Under the Distribution Agreement, the Fund bears, among other expenses,
the expenses of registering and qualifying its shares for sale under Federal and
state securities laws and preparing and distributing to existing shareholders
periodic reports, proxy materials and prospectuses.
During the fiscal year ended December 31, 1998, IMDI received from
sales of Class A shares of the Fund [ ] in sales commissions, of which [ ] was
retained after dealer allowances. During the fiscal year ended December 31,
1998, IMDI received [ ] in CDSCs on redemptions of Class B shares of the Fund.
During the fiscal year ended December 31, 1998, IMDI received [ ] in CDSCs on
redemptions of Class C shares of the Fund.
The Distribution Agreement will continue in effect for successive
one-year periods, provided that such continuance is specifically approved at
least annually by the vote of a majority of the Independent Trustees, cast in
person at a meeting called for that purpose and by the vote of either a majority
of the entire Board or a majority of the outstanding voting securities of the
Fund. The Distribution Agreement may be terminated with respect to the Fund at
any time, without payment of any penalty, by IMDI on 60 days' written notice to
the Fund or by the Fund by vote of either a majority of the outstanding voting
securities of the Fund or a majority of the Independent Trustees on 60 days'
written notice to IMDI. The Distribution Agreement shall terminate automatically
in the event of its assignment.
RULE 18F-3 PLAN. On February 23, 1995, the SEC adopted Rule 18f-3 under
the 1940 Act, which permits a registered open-end investment company to issue
multiple classes of shares in accordance with a written plan approved by the
investment company's board of directors/trustees and filed with the SEC. At a
meeting held on December 1-2, 1995, the Board adopted a Rule 18f-3 plan on
behalf of the Fund. The Board last approved the Rule 18f-3 plan at a meeting
held of December 5-6, 1997. The key features of the Rule 18f-3 plan are as
follows: (i) shares of each class of the Fund represent an equal pro rata
interest in the Fund and generally have identical voting, dividend, liquidation,
and other rights, preferences, powers, restrictions, limitations,
qualifications, terms and conditions, except that each class bears certain
class-specific expenses and has separate voting rights on certain matters that
relate solely to that class or in which the interests of shareholders of one
class differ from the interests of shareholders of another class; (ii) subject
to certain limitations described in the Prospectus, shares of a particular class
of the Fund may be exchanged for shares of the same class of another Ivy fund;
and (iii) the Fund's Class B shares will convert automatically into Class A
shares of the Fund after a period of eight years, based on the relative net
asset value of such shares at the time of conversion.
RULE 12B-1 DISTRIBUTION PLANS. The Trust has adopted on behalf of the
Fund, in accordance with Rule 12b-1 under the 1940 Act, separate Rule 12b-1
distribution plans pertaining to the Fund's Class A, Class B and Class C shares
(each, a "Plan"). In adopting each Plan, a majority of the Independent Trustees
have concluded in accordance with the requirements of Rule 12b-1 that there is a
reasonable likelihood that each Plan will benefit the Fund and its shareholders.
The Trustees of the Trust believe that the Plans should result in greater sales
and/or fewer redemptions of the Fund's shares, although it is impossible to know
for certain the level of sales and redemptions of the Fund's shares in the
absence of a Plan or under an alternative distribution arrangement.
Under each Plan, the Fund pays IMDI a service fee, accrued daily and
paid monthly, at the annual rate of up to 0.25% of the average daily net assets
attributable to its Class A, Class B or Class C shares, as the case may be. The
services for which service fees may be paid include, among other things,
advising clients or customers regarding the purchase, sale or retention of
shares of the Fund, answering routine inquiries concerning the Fund and
assisting shareholders in changing options or enrolling in specific plans.
Pursuant to each Plan, service fee payments made out of or charged against the
assets attributable to the Fund's Class A, Class B or Class C shares must be in
reimbursement for services rendered for or on behalf of the affected class. The
expenses not reimbursed in any one month may be reimbursed in a subsequent
month. The Class A Plan does not provide for the payment of interest or carrying
charges as distribution expenses.
Under the Fund's Class B and Class C Plans, the Fund also pays IMDI a
distribution fee, accrued daily and paid monthly, at the annual rate of 0.75% of
the average daily net assets attributable to its Class B or Class C shares. IMDI
may reallow to dealers all or a portion of the service and distribution fees as
IMDI may determine from time to time. The distribution fee compensates IMDI for
expenses incurred in connection with activities primarily intended to result in
the sale of the Fund's Class B or Class C shares, including the printing of
prospectuses and reports for persons other than existing shareholders and the
preparation, printing and distribution of sales literature and advertising
materials. Pursuant to each Class B and Class C Plan, IMDI may include interest,
carrying or other finance charges in its calculation of distribution expenses,
if not prohibited from doing so pursuant to an order of or a regulation adopted
by the SEC.
Among other things, each Plan provides that (1) IMDI will submit to the
Board at least quarterly, and the Trustees will review, written reports
regarding all amounts expended under the Plan and the purposes for which such
expenditures were made; (2) each Plan will continue in effect only so long as
such continuance is approved at least annually, and any material amendment
thereto is approved, by the votes of a majority of the Board, including the
Independent Trustees, cast in person at a meeting called for that purpose; (3)
payments by the Fund under each Plan shall not be materially increased without
the affirmative vote of the holders of a majority of the outstanding shares of
the relevant class; and (4) while each Plan is in effect, the selection and
nomination of Independent Trustees shall be committed to the discretion of the
Trustees who are not "interested persons" of the Trust.
IMDI may make payments for distribution assistance and for
administrative and accounting services from resources that may include the
management fees paid by the Fund. IMDI also may make payments (such as the
service fee payments described above) to unaffiliated broker-dealers for
services rendered in the distribution of the Fund's shares. To qualify for such
payments, shares may be subject to a minimum holding period. However, no such
payments will be made to any dealer or broker if at the end of each year the
amount of shares held does not exceed a minimum amount. The minimum holding
period and minimum level of holdings will be determined from time to time by
IMDI.
A report of the amount expended pursuant to each Plan, and the purposes
for which such expenditures were incurred, must be made to the Board for its
review at least quarterly.
During the fiscal year ended December 31, 1998, the Fund paid IMDI [ ]
pursuant to its Class A plan. During the fiscal year ended December 31, 1998 the
Fund paid IMDI [ ] pursuant to its Class B plan. During the fiscal year ended
December 31, 1998, the Fund paid IMDI [ ] pursuant to its Class C plan.
During the fiscal year ended December 31, 1998, IMDI expended the
following amounts in marketing Class A shares of the Fund: advertising [$ ;]
printing and mailing of prospectuses to persons other than current shareholders,
[$ ;] compensation to dealers, [$ ;] compensation to sales personnel [$ ;]
seminars and meetings, [$ ;] travel and entertainment, [$ ;] general and
administrative, [$ ;] telephone, [$ ;] and occupancy and equipment rental, [$ .]
During the fiscal year ended December 31, 1998, IMDI expended the
following amounts in marketing Class B shares of the Fund: advertising, [$ ;]
printing and mailing of prospectuses to persons other than current shareholders,
[$ ;] compensation to dealers, [$ ;] compensation to sales personnel, [$ ;]
seminars and meetings, [$ ;] travel and entertainment, [$ ;] general and
administrative, [$ ;] telephone, [$ ;] and occupancy and equipment rental [$ .]
During the fiscal year ended December 31, 1998, IMDI expended the
following amounts in marketing Class C shares of the Fund: advertising, [$ ;]
printing and mailing of prospectuses to persons other than current shareholders,
[$ ;] compensation to dealers, [$ ;] compensation to sales personnel, [$ ;]
seminars and meetings, [$ ;] travel and entertainment, [$ ;] general
administrative, [$ ;] telephone, [$ ;] and occupancy and equipment rental, [$ .]
Each Plan may be amended at any time with respect to the class of
shares of the Fund to which the Plan relates by vote of the Trustees, including
a majority of the Independent Trustees, cast in person at a meeting called for
the purpose of considering such amendment. Each Plan may be terminated at any
time with respect to the class of shares of the Fund to which the Plan relates,
without payment of any penalty, by vote of a majority of the Independent
Trustees, or by vote of a majority of the outstanding voting securities of that
class.
If the Distribution Agreement or the Distribution Plans are terminated
(or not renewed) with respect to any of the Ivy funds (or class of shares
thereof), each may continue in effect with respect to any other fund (or Class
of shares thereof) as to which they have not been terminated (or have been
renewed).
CUSTODIAN
Pursuant to a Custodian Agreement with the Trust, Brown Brothers
Harriman & Co. (the "Custodian"), a private bank and member of the principal
securities exchanges, located at 40 Water Street, Boston, Massachusetts 02109
(the "Custodian"), maintains custody of the assets of the Fund held in the
United States. Rules adopted under the 1940 Act permit the Trust to maintain its
foreign securities and cash in the custody of certain eligible foreign banks and
securities depositories. Pursuant to those rules, the Custodian has entered into
subcustodial agreements for the holding of the Fund's foreign securities. With
respect to the Fund, the Custodian may receive, as partial payment for its
services to the Fund, a portion of the Trust's brokerage business, subject to
its ability to provide best price and execution.
FUND ACCOUNTING SERVICES
Pursuant to a Fund Accounting Services Agreement, MIMI provides certain
accounting and pricing services for the Fund. As compensation for those
services, the Fund pays MIMI a monthly fee plus out-of-pocket expenses as
incurred. The monthly fee is based upon the net assets of the Fund at the
preceding month end at the following rates: $1,250 when net assets are $10
million and under; $2,500 when net assets are over $10 million to $40 million;
$5,000 when net assets are over $40 million to $75 million; and $6,500 when net
assets are over $75 million.
During the fiscal year ended December 31, 1998, the Fund paid MIMI
[ ] under the agreement.
TRANSFER AGENT AND DIVIDEND PAYING AGENT
Pursuant to a Transfer Agency and Shareholder Service Agreement, Ivy
Mackenzie Services Corp. ("IMSC"), a wholly owned subsidiary of MIMI, is the
transfer agent for the Fund. Under the Agreement, the Fund pays a monthly fee at
an annual rate of $20.00 for each open Class A, Class B, Class C and Advisor
Class account. In addition, the Fund pays a monthly fee at an annual rate of
$4.58 per account that is closed plus certain out-of-pocket expenses. Such fees
and expenses for the fiscal year ended December 31, 1998 for the Fund totaled [$
]. Certain broker-dealers that maintain shareholder accounts with the Fund
through an omnibus account provide transfer agent and other shareholder-related
services that would otherwise be provided by IMSC if the individual accounts
that comprise the omnibus account were opened by their beneficial owners
directly. IMSC pays such broker-dealers a per account fee for each open account
within the omnibus account, or a fixed rate (e.g., 0.10%) fee, based on the
average daily net asset value of the omnibus account (or a combination thereof).
ADMINISTRATOR
Pursuant to an Administrative Services Agreement, MIMI provides certain
administrative services to the Fund. As compensation for these services, the
Fund pays MIMI a monthly fee at the annual rate of 0.10% of the Fund's average
daily net assets. Such fees for the fiscal year ended December 31, 1998 for the
Fund totaled [$ ].
Outside of providing administrative services to the Trust, as described
above, MIMI may also act on behalf of IMDI in paying commissions to
broker-dealers with respect to sales of Class B and Class C shares of the Fund.
AUDITORS
[ ], independent public accountants, has been selected as auditors for
the Trust. The audit services performed by [ ] include audits of the annual
financial statements of each of the funds of the Trust. Other services provided
principally relate to filings with the SEC and the preparation of the funds' tax
returns.
BROKERAGE ALLOCATION
Subject to the overall supervision of the President and the Board, IMI
places orders for the purchase and sale of the Fund's portfolio securities. All
portfolio transactions are effected at the best price and execution obtainable.
Purchases and sales of debt securities are usually principal transactions and
therefore, brokerage commissions are usually not required to be paid by the Fund
for such purchases and sales (although the price paid generally includes
undisclosed compensation to the dealer). The prices paid to underwriters of
newly-issued securities usually include a concession paid by the issuer to the
underwriter, and purchases of after-market securities from dealers normally
reflect the spread between the bid and asked prices. In connection with OTC
transactions, IMI attempts to deal directly with the principal market makers,
except in those circumstances where IMI believes that a better price and
execution are available elsewhere.
IMI selects broker-dealers to execute transactions and evaluates the
reasonableness of commissions on the basis of quality, quantity, and the nature
of the firms' professional services. Commissions to be charged and the rendering
of investment services, including statistical, research, and counseling services
by brokerage firms, are factors to be considered in the placing of brokerage
business. The types of research services provided by brokers may include general
economic and industry data, and information on securities of specific companies.
Research services furnished by brokers through whom the Trust effects securities
transactions may be used by IMI in servicing all of its accounts. In addition,
not all of these services may be used by IMI in connection with the services it
provides to the Fund or the Trust. IMI may consider sales of shares of Ivy funds
as a factor in the selection of broker-dealers and may select broker-dealers who
provide it with research services. IMI will not, however, execute brokerage
transactions other than at the best price and execution.
During the fiscal years ended December 31, 1996, 1997 and 1998, the
Fund paid brokerage commissions of $293,827, $155,283 and [ ], respectively.
The Fund may, under some circumstances, accept securities in lieu of
cash as payment for Fund shares. The Fund will accept securities only to
increase its holdings in a portfolio security or to take a new portfolio
position in a security that IMI deems to be a desirable investment for the Fund.
While no minimum has been established, it is expected that the Fund will not
accept securities having an aggregate value of less than $1 million. The Trust
may reject in whole or in part any or all offers to pay for the Fund shares with
securities and may discontinue accepting securities as payment for the Fund
shares at any time without notice. The Trust will value accepted securities in
the manner and at the same time provided for valuing portfolio securities of the
Fund, and the Fund shares will be sold for net asset value determined at the
same time the accepted securities are valued. The Trust will only accept
securities delivered in proper form and will not accept securities subject to
legal restrictions on transfer. The acceptance of securities by the Trust must
comply with the applicable laws of certain states.
CAPITALIZATION AND VOTING RIGHTS
The capitalization of the Trust consists of an unlimited number of
shares of beneficial interest (no par value per share). When issued, shares of
each class of the Fund are fully paid, non-assessable, redeemable and fully
transferable. No class of shares of the Fund has preemptive rights or
subscription rights.
The Amended and Restated Declaration of Trust permits the Trustees to
create separate series or portfolios and to divide any series or portfolio into
one or more classes. The Trustees have authorized nineteen series, each of which
represents a fund. The Trustees have further authorized the issuance of Class A,
Class B, and Class C shares for Ivy International Fund and Ivy Money Market Fund
and Class A, Class B, Class C and Advisor Class shares for the Fund, Ivy Asia
Pacific Fund, Ivy Bond Fund, Ivy China Region Fund, Ivy Developing Nations Fund,
Ivy European Opportunities Fund, Ivy Global Fund, Ivy Global Natural Resources
Fund, Ivy Global Science & Technology Fund, Ivy Growth Fund, Ivy International
Fund II, Ivy International Small Companies Fund, Ivy International Strategic
Bond Fund, Ivy Pan-Europe Fund, Ivy South America Fund, Ivy US Blue Chip Fund
and Ivy US Emerging Growth Fund, as well as Class I shares for Ivy Bond Fund,
Ivy European Opportunities Fund, Ivy Global Science & Technology Fund, Ivy
International Fund, Ivy International Fund II, Ivy International Small Companies
Fund, Ivy International Strategic Bond Fund and Ivy US Blue Chip Fund.
Shareholders have the right to vote for the election of Trustees of the
Trust and on any and all matters on which they may be entitled to vote by law or
by the provisions of the Trust's By-Laws. The Trust is not required to hold a
regular annual meeting of shareholders, and it does not intend to do so. Shares
of each class of the Fund entitle their holders to one vote per share (with
proportionate voting for fractional shares). Shareholders of the Fund are
entitled to vote alone on matters that only affect the Fund. All classes of
shares of the Fund will vote together, except with respect to the distribution
plan applicable to the Fund's Class A, Class B or Class C shares or when a class
vote is required by the 1940 Act. On matters relating to all funds of the Trust,
but affecting the funds differently, separate votes by the shareholders of each
fund are required. Approval of an investment advisory agreement and a change in
fundamental policies would be regarded as matters requiring separate voting by
the shareholders of each fund of the Trust. If the Trustees determine that a
matter does not affect the interests of the Fund, then the shareholders of the
Fund will not be entitled to vote on that matter. Matters that affect the Trust
in general, such as ratification of the selection of independent public
accountants, will be voted upon collectively by the shareholders of all funds of
the Trust.
As used in this SAI and the Prospectus, the phrase "majority vote of
the outstanding shares" of the Fund means the vote of the lesser of: (1) 67% of
the shares of the Fund (or of the Trust) present at a meeting if the holders of
more than 50% of the outstanding shares are present in person or by proxy; or
(2) more than 50% of the outstanding shares of the Fund (or of the Trust).
With respect to the submission to shareholder vote of a matter
requiring separate voting by the Fund, the matter shall have been effectively
acted upon with respect to the Fund if a majority of the outstanding voting
securities of the Fund votes for the approval of the matter, notwithstanding
that: (1) the matter has not been approved by a majority of the outstanding
voting securities of any other fund of the Trust; or (2) the matter has not been
approved by a majority of the outstanding voting securities of the Trust.
The Amended and Restated Declaration of Trust provides that the holders
of not less than two-thirds of the outstanding shares of the Trust may remove a
person serving as trustee either by declaration in writing or at a meeting
called for such purpose. The Trustees are required to call a meeting for the
purpose of considering the removal of a person serving as Trustee if requested
in writing to do so by the holders of not less than 10% of the outstanding
shares of the Trust. Shareholders will be assisted in communicating with other
shareholders in connection with the removal of a Trustee as if Section 26(c) of
the Act were applicable.
The Trust's shares do not have cumulative voting rights and accordingly
the holders of more than 50% of the outstanding shares could elect the entire
Board, in which case the holders of the remaining shares would not be able to
elect any Trustees.
Under Massachusetts law, the Trust's shareholders could, under certain
circumstances, be held personally liable for the obligations of the Trust.
However, the Amended and Restated Declaration of Trust disclaims liability of
the shareholders, Trustees or officers of the Trust for acts or obligations of
the Trust, which are binding only on the assets and property of the Trust, and
requires that notice of the disclaimer be given in each contract or obligation
entered into or executed by the Trust or its Trustees. The Amended and Restated
Declaration of Trust provides for indemnification out of Fund property for all
loss and expense of any shareholder of the Fund held personally liable for the
obligations of the Fund. The risk of a shareholder of the Trust incurring
financial loss on account of shareholder liability is limited to circumstances
in which the Trust itself would be unable to meet its obligations and, thus,
should be considered remote. No series of the Trust is liable for the
obligations of any other series of the Trust.
SPECIAL RIGHTS AND PRIVILEGES
The Trust offers, and (except as noted below) bears the cost of
providing, to investors the following rights and privileges. The Trust reserves
the right to amend or terminate any one or more of these rights and privileges.
Notice of amendments to or terminations of rights and privileges will be
provided to shareholders in accordance with applicable law.
Certain of the rights and privileges described below refer to funds,
other than the Fund, whose shares are also distributed by IMDI. These funds are:
Ivy Asia Pacific Fund, Ivy Bond Fund, Ivy China Region Fund, Ivy Developing
Nations Fund, Ivy European Opportunities Fund, Ivy Global Fund, Ivy Global
Natural Resources Fund, Ivy Global Science & Technology Fund, Ivy Growth Fund,
Ivy International Fund, Ivy International Fund II, Ivy International Small
Companies Fund, Ivy International Strategic Bond Fund, Ivy Money Market Fund,
Ivy Pan-Europe Fund, Ivy South America Fund, Ivy US Blue Chip Fund, and Ivy US
Emerging Growth Fund (the other eighteen series of the Trust). (Effective April
18, 1997, Ivy International Fund suspended the offer of its shares to new
investors). Shareholders should obtain a current prospectus before exercising
any right or privilege that may relate to these funds.
AUTOMATIC INVESTMENT METHOD
The Automatic Investment Method, which enables a Fund shareholder to
have specified amounts automatically drawn each month from his or her bank for
investment in Fund shares, is available for all classes of shares. The minimum
initial and subsequent investment under this method is $50 per month ($250 for
Advisor Class shares), (except in the case of a tax qualified retirement plan
for which the minimum initial and subsequent investment is $25 per month). A
shareholder may terminate the Automatic Investment Method at any time upon
delivery to IMSC of telephone instructions or written notice. See "Automatic
Investment Method" in the Prospectus. To begin the plan, complete Sections 6A
and 7B of the Account Application.
EXCHANGE OF SHARES
As described in the Prospectus, shareholders of the Fund have an
exchange privilege with other Ivy funds (except Ivy International Fund unless
they have an existing Ivy International Fund account). Before effecting an
exchange, shareholders of the Fund should obtain and read the currently
effective prospectus for the Ivy fund into which the exchange is to be made.
INITIAL SALES CHARGE SHARES. Class A shareholders may exchange their
Class A shares ("outstanding Class A shares") for Class A shares of another Ivy
fund ("new Class A Shares") on the basis of the relative net asset value per
Class A share, plus an amount equal to the difference, if any, between the sales
charge previously paid on the outstanding Class A shares and the sales charge
payable at the time of the exchange on the new Class A shares. (The additional
sales charge will be waived for Class A shares that have been invested for a
period of 12 months or longer.) Class A shareholders may also exchange their
shares for shares of Ivy Money Market Fund (no initial sales charge will be
assessed at the time of such an exchange).
CONTINGENT DEFERRED SALES CHARGE SHARES CLASS A: Class A shareholders
may exchange their Class A shares that are subject to a contingent deferred
sales charge ("CDSC"), as described in the Prospectus ("outstanding Class A
shares"), for Class A shares of another Ivy fund ("new Class A shares") on the
basis of the relative net asset value per Class A share, without the payment of
any CDSC that would otherwise be due upon the redemption of the outstanding
Class A shares. Class A shareholders of the Fund exercising the exchange
privilege will continue to be subject to that Fund's CDSC period following an
exchange if such period is longer than the CDSC period, if any, applicable to
the new Class A shares.
For purposes of computing the CDSC that may be payable upon the
redemption of the new Class A shares, the holding period of the outstanding
Class A shares is "tacked" onto the holding period of the new Class A shares.
CLASS B: Class B shareholders may exchange their Class B shares
("outstanding Class B shares") for Class B shares of another Ivy fund ("new
Class B shares") on the basis of the relative net asset value per Class B share,
without the payment of any CDSC that would otherwise be due upon the redemption
of the outstanding Class B shares. Class B shareholders of the Fund exercising
the exchange privilege will continue to be subject to that Fund's CDSC schedule
(or period) following an exchange if such schedule is higher (or such period is
longer) than the CDSC schedule (or period) applicable to the new Class B shares.
Class B shares of the Fund acquired through an exchange of Class B
shares of another Ivy fund will be subject to that Fund's CDSC schedule (or
period) if such schedule is higher (or such period is longer) than the CDSC
schedule (or period) applicable to the Ivy fund from which the exchange was
made.
For purposes of both the conversion feature and computing the CDSC that
may be payable upon the redemption of the new Class B shares (prior to
conversion), the holding period of the outstanding Class B shares is "tacked"
onto the holding period of the new Class B shares.
The following CDSC table applies to Class B shares of Ivy Asia Pacific
Fund, Ivy Bond Fund, Ivy China Region Fund, Ivy Developing Nations Fund, Ivy
European Opportunities Fund, Ivy Global Fund, Ivy Global Natural Resources Fund,
Ivy Global Science & Technology Fund, Ivy Growth Fund, Ivy Growth with Income
Fund, Ivy International Fund, Ivy International Fund II, Ivy International Small
Companies Fund, Ivy International Strategic Bond Fund, Ivy Pan-Europe Fund, Ivy
South America Fund, Ivy US Blue Chip Fund, and Ivy US Emerging Growth Fund.
CONTINGENT DEFERRED SALES CHARGE AS A PERCENTAGE OF
DOLLAR AMOUNT SUBJECT TO CHARGE
YEAR SINCE PURCHASE
First 5%
Second 4%
Third 3%
Fourth 3%
Fifth 2%
Sixth 1%
Seventh and thereafter 0%
CLASS C: Class C shareholders may exchange their Class C shares
("outstanding Class C shares") for Class C shares of another Ivy fund ("new
Class C shares") on the basis of the relative net asset value per Class C share,
without the payment of any CDSC that would otherwise be due upon redemption.
(Class C shares are subject to a CDSC of 1.00% if redeemed within one year of
the date of purchase.)
ADVISOR CLASS: Subject to the restrictions set forth in the following
paragraph, Advisor Class shareholders may exchange their outstanding Advisor
Class shares for Advisor Class shares of another Ivy fund on the basis of the
relative net asset value per share.
ALL CLASSES: The minimum value of shares which may be exchanged into an
Ivy fund in which shares are not already held is $1,000 ($10,000 in the case of
Advisor Class shares). No exchange out of the Fund (other than by a complete
exchange of all Fund shares) may be made if it would reduce the shareholder's
interest in the Fund to less than $1,000 ($10,000 in the case of Advisor Class
shares).
Each exchange will be made on the basis of the relative net asset value
per share of the Ivy funds involved in the exchange next computed following
receipt by IMSC of telephone instructions by IMSC or a properly executed
request. Exchanges, whether written or telephonic, must be received by IMSC by
the close of regular trading on the Exchange (normally 4:00 p.m., eastern time)
to receive the price computed on the day of receipt. Exchange requests received
after that time will receive the price next determined following receipt of the
request. The exchange privilege may be modified or terminated at any time, upon
at least 60 days' notice to the extent required by applicable law. See
"Redemptions."
An exchange of shares between any of the Ivy funds will result in a
taxable gain or loss. Generally, this will be a capital gain or loss (long-term
or short-term, depending on the holding period of the shares) in the amount of
the difference between the net asset value of the shares surrendered and the
shareholder's tax basis for those shares. However, in certain circumstances,
shareholders will be ineligible to take sales charges into account in computing
taxable gain or loss on an exchange. See "Taxation."
With limited exceptions, gain realized by a tax-deferred retirement
plan will not be taxable to the plan and will not be taxed to the participant
until distribution. Each investor should consult his or her tax adviser
regarding the tax consequences of an exchange transaction.
LETTER OF INTENT
Reduced sales charges apply to initial investments in Class A shares of
the Fund made pursuant to a non-binding Letter of Intent. A Letter of Intent may
be submitted by an individual, his or her spouse and children under the age of
21, or a trustee or other fiduciary of a single trust estate or single fiduciary
account. See the Account Application in the Prospectus. Any investor may submit
a Letter of Intent stating that he or she will invest, over a period of 13
months, at least $50,000 in Class A shares of the Fund. A Letter of Intent may
be submitted at the time of an initial purchase of Class A shares of the Fund or
within 90 days of the initial purchase, in which case the Letter of Intent will
be back dated. A shareholder may include, as an accumulation credit, the value
(at the applicable offering price) of all Class A shares of Ivy Asia Pacific
Fund, Ivy Bond Fund, Ivy China Region Fund, Ivy Developing Nations Fund, Ivy
European Opportunities Fund, Ivy Global Fund, Ivy Global Natural Resources Fund,
Ivy Global Science & Technology Fund, Ivy Growth Fund, Ivy Growth with Income
Fund, Ivy International Fund, Ivy International Fund II, Ivy International Small
Companies Fund, Ivy International Strategic Bond Fund, Ivy Pan-Europe Fund, Ivy
South America Fund, Ivy US Blue Chip Fund and Ivy US Emerging Growth Fund (and
shares that have been exchanged into Ivy Money Market Fund from any of the other
funds in the Ivy funds) held of record by him or her as of the date of his or
her Letter of Intent. During the term of the Letter of Intent, the Transfer
Agent will hold Class A shares representing 5% of the indicated amount (less any
accumulation credit value) in escrow. The escrowed Class A shares will be
released when the full indicated amount has been purchased. If the full
indicated amount is not purchased during the term of the Letter of Intent, the
investor is required to pay IMDI an amount equal to the difference between the
dollar amount of sales charge that he or she has paid and that which he or she
would have paid on his or her aggregate purchases if the total of such purchases
had been made at a single time. Such payment will be made by an automatic
liquidation of Class A shares in the escrow account. A Letter of Intent does not
obligate the investor to buy or the Trust to sell the indicated amount of Class
A shares, and the investor should read carefully all the provisions of such
letter before signing.
RETIREMENT PLANS
Shares may be purchased in connection with several types of
tax-deferred retirement plans. Shares of more than one fund distributed by IMDI
may be purchased in a single application establishing a single account under the
plan, and shares held in such an account may be exchanged among the Ivy funds in
accordance with the terms of the applicable plan and the exchange privilege
available to all shareholders. Initial and subsequent purchase payments in
connection with tax-deferred retirement plans must be at least $25 per
participant.
The following fees will be charged to individual shareholder accounts
as described in the retirement prototype plan document:
Retirement Plan New Account Fee no fee
Retirement Plan Annual Maintenance Fee $10.00 per fund account
For shareholders whose retirement accounts are diversified across
several Ivy funds, the annual maintenance fee will be limited to not more than
$20.
The following discussion describes the tax treatment of certain
tax-deferred retirement plans under current Federal income tax law. State income
tax consequences may vary. An individual considering the establishment of a
retirement plan should consult with an attorney and/or an accountant with
respect to the terms and tax aspects of the plan.
INDIVIDUAL RETIREMENT ACCOUNTS: Shares of the Fund may be used as a
funding medium for an Individual Retirement Account ("IRA"). Eligible
individuals may establish an IRA by adopting a model custodial account available
from IMSC, who may impose a charge for establishing the account. Individuals
should consult their tax advisers before investing IRA assets in an Ivy fund if
that fund primarily distributes exempt-interest dividends.
An individual who has not reached age 70-1/2 and who receives
compensation or earned income is eligible to contribute to an IRA, whether or
not he or she is an active participant in a retirement plan. An individual who
receives a distribution from another IRA, a qualified retirement plan, a
qualified annuity plan or a tax-sheltered annuity or custodial account ("403(b)
plan") that qualifies for "rollover" treatment is also eligible to establish an
IRA by rolling over the distribution either directly or within 60 days after its
receipt. Tax advice should be obtained in connection with planning a rollover
contribution to an IRA.
In general, an eligible individual may contribute up to the lesser of
$2,000 or 100% of his or her compensation or earned income to an IRA each year.
If a husband and wife are both employed, and both are under age 70-1/2, each may
set up his or her own IRA within these limits. If both earn at least $2,000 per
year, the maximum potential contribution is $4,000 per year for both. For years
after 1996, the result is similar even if one spouse has no earned income; if
the joint earned income of the spouses is at least $4,000, a contribution of up
to $2,000 may be made to each spouse's IRA. Rollover contributions are not
subject to these limits.
An individual may deduct his or her annual contributions to an IRA in
computing his or her Federal income tax within the limits described above,
provided he or she (or his or her spouse, if they file a joint Federal income
tax return) is not an active participant in a qualified retirement plan (such as
a qualified corporate, sole proprietorship, or partnership pension, profit
sharing, 401(k) or stock bonus plan), qualified annuity plan, 403(b) plan,
simplified employee pension, or governmental plan. If he or she (or his or her
spouse) is an active participant, whether the individual's contribution to an
IRA is fully deductible, partially deductible or not deductible depends on (i)
adjusted gross income and (ii) whether it is the individual or the individual's
spouse who is an active participant, in the case of married individuals filing
jointly. Contributions may be made up to the maximum permissible amount even if
they are not deductible. Rollover contributions are not includable in income for
Federal income tax purposes and therefore are not deductible from it.
Generally, earnings on an IRA are not subject to current Federal income
tax until distributed. Distributions attributable to tax-deductible
contributions and to IRA earnings are taxed as ordinary income. Distributions of
non-deductible contributions are not subject to Federal income tax. In general,
distributions from an IRA to an individual before he or she reaches age 59-1/2
are subject to a nondeductible penalty tax equal to 10% of the taxable amount of
the distribution. The 10% penalty tax does not apply to amounts withdrawn from
an IRA after the individual reaches age 59-1/2, becomes disabled or dies, or if
withdrawn in the form of substantially equal payments over the life or life
expectancy of the individual and his or her designated beneficiary, if any, or
rolled over into another IRA, amounts withdrawn and used to pay for deductible
medical expenses and amounts withdrawn by certain unemployed individuals not in
excess of amounts paid for certain health insurance premiums, amounts used to
pay certain qualified higher education expenses, and amounts used within 120
days of the date the distribution is received to pay for certain first-time
homebuyer expenses. Distributions must begin to be withdrawn not later than
April 1 of the calendar year following the calendar year in which the individual
reaches age 70-1/2. Failure to take certain minimum required distributions will
result in the imposition of a 50% non-deductible penalty tax.
ROTH IRAS: Shares of the Fund also may be used as a funding medium for
a Roth Individual Retirement Account ("Roth IRA"). A Roth IRA is similar in
numerous ways to the regular (traditional) IRA, described above.
Some of the primary differences are as follows.
A single individual earning below $95,000 can contribute up to $2,000
per year to a Roth IRA. The maximum contribution amount diminishes and gradually
falls to zero for single filers with adjusted gross incomes ranging from $95,000
to $110,000. Married couples earning less than $150,000 combined, and filing
jointly, can contribute a full $4,000 per year ($2,000 per IRA). The maximum
contribution amount for married couples filing jointly phases out from $150,000
to $160,000. An individual whose adjusted gross income exceeds the maximum
phase-out amount cannot contribute to a Roth IRA.
An eligible individual can contribute money to a traditional IRA and a
Roth IRA as long as the total contribution to all IRAs does not exceed $2,000.
Contributions to a Roth IRA are not deductible. Contributions to a Roth IRA may
be made even after the individual for whom the account is maintained has
attained age 70 1/2.
No distributions are required to be taken prior to the death of the
original account holder. If a Roth IRA has been established for a minimum of
five years, distributions can be taken tax-free after reaching age 59 1/2, for a
first-time home purchase ($10,000 maximum, one time use), or upon death or
disability. All other distributions from a Roth IRA (other than the amount of
nondeductible contributions) are taxable and subject to a 10% tax penalty unless
an exception applies. Exceptions to the 10% penalty include: reaching age 59
1/2, death, disability, deductible medical expenses, the purchase of health
insurance for certain unemployed individual and qualified higher education
expenses.
An individual with an income of less than $100,000 (who is not married
filing separately) can roll his or her existing IRA into a Roth IRA. However,
the individual must pay taxes on the taxable amount in his or her traditional
IRA. After 1998, all taxes on such a rollover will have to be paid in the tax
year in which the rollover is made.
QUALIFIED PLANS: For those self-employed individuals who wish to
purchase shares of one or more Ivy funds through a qualified retirement plan, a
Custodial Agreement and a Retirement Plan are available from IMSC. The
Retirement Plan may be adopted as a profit sharing plan or a money purchase
pension plan. A profit sharing plan permits an annual contribution to be made in
an amount determined each year by the self-employed individual within certain
limits prescribed by law. A money purchase pension plan requires annual
contributions at the level specified in the Custodial Agreement. There is no
set-up fee for qualified plans and the annual maintenance fee is $20.00 per
account.
In general, if a self-employed individual has any common law employees,
employees who have met certain minimum age and service requirements must be
covered by the Retirement Plan. A self-employed individual generally must
contribute the same percentage of income for common law employees as for himself
or herself.
A self-employed individual may contribute up to the lesser of $30,000
or 25% of compensation or earned income to a money purchase pension plan or to a
combination profit sharing and money purchase pension plan arrangement each year
on behalf of each participant. To be deductible, total contributions to a profit
sharing plan generally may not exceed 15% of the total compensation or earned
income of all participants in the plan, and total contributions to a combination
money purchase-profit sharing arrangement generally may not exceed 25% of the
total compensation or earned income of all participants. The amount of
compensation or earned income of any one participant that may be included in
computing the deduction is limited (generally to $150,000 for benefits accruing
in plan years beginning after 1993, with annual inflation adjustments). A
self-employed individual's contributions to a retirement plan on his or her own
behalf must be deducted in computing his or her earned income.
Corporate employers may also adopt the Custodial Agreement and
Retirement Plan for the benefit of their eligible employees. Similar
contribution and deduction rules apply to corporate employers.
Distributions from the Retirement Plan generally are made after a
participant's separation from service. A 10% penalty tax generally applies to
distributions to an individual before he or she reaches age 59-1/2, unless the
individual (1) has reached age 55 and separated from service; (2) dies; (3)
becomes disabled; (4) uses the withdrawal to pay tax-deductible medical
expenses; (5) takes the withdrawal as part of a series of substantially equal
payments over his or her life expectancy or the joint life expectancy of himself
or herself and a designated beneficiary; or (6) rolls over the distribution.
The Transfer Agent will arrange for Investors Bank & Trust to furnish
custodial services to the employer and any participating employees.
DEFERRED COMPENSATION FOR PUBLIC SCHOOLS AND CHARITABLE ORGANIZATIONS
("403(B)(7) ACCOUNT"): Section 403(b)(7) of the Internal Revenue Code of 1986,
as amended (the "Code") permits public school systems and certain charitable
organizations to use mutual fund shares held in a custodial account to fund
deferred compensation arrangements with their employees. A custodial account
agreement is available for those employers whose employees wish to purchase
shares of the Trust in conjunction with such an arrangement. The special
application for a 403(b)(7) Account is available from IMSC.
Distributions from the 403(b)(7) Account may be made only following
death, disability, separation from service, attainment of age 59-1/2, or
incurring a financial hardship. A 10% penalty tax generally applies to
distributions to an individual before he or she reaches age 59-1/2, unless the
individual (1) has reached age 55 and separated from service; (2) dies or
becomes disabled; (3) uses the withdrawal to pay tax-deductible medical
expenses; (4) takes the withdrawal as part of a series of substantially equal
payments over his or her life expectancy or the joint life expectancy of himself
or herself and a designated beneficiary; or (5) rolls over the distribution.
There is no set-up fee for 403(b)(7) Accounts and the annual maintenance fee is
$20.00 per account.
SIMPLIFIED EMPLOYEE PENSION ("SEP") IRAS: An employer may deduct
contributions to a SEP up to the lesser of $30,000 or 15% of compensation. SEP
accounts generally are subject to all rules applicable to IRA accounts, except
the deduction limits, and are subject to certain employee participation
requirements. No new salary reduction SEPs ("SARSEPs") may be established after
1996, but existing SARSEPs may continue to be maintained, and non-salary
reduction SEPs may continue to be established as well as maintained after 1996.
SIMPLE PLANS: An employer may establish a SIMPLE IRA or a SIMPLE 401(k)
for years after 1996. An employee can make pre-tax salary reduction
contributions to a SIMPLE Plan, up to $6,000 a year (as indexed). Subject to
certain limits, the employer will either match a portion of employee
contributions, or will make a contribution equal to 2% of each employee's
compensation without regard to the amount the employee contributes. An employer
cannot maintain a SIMPLE Plan for its employees if the employer maintains or
maintained any other qualified retirement plan with respect to which any
contributions or benefits have been credited.
REINVESTMENT PRIVILEGE
Shareholders who have redeemed Class A shares of the Fund may reinvest
all or a part of the proceeds of the redemption back into Class A shares of the
Fund at net asset value (without a sales charge) within 60 days from the date of
redemption. This privilege may be exercised only once. The reinvestment will be
made at the net asset value next determined after receipt by IMSC of the
reinvestment order accompanied by the funds to be reinvested. No compensation
will be paid to any sales personnel or dealer in connection with the
transaction.
Any redemption is a taxable event. A loss realized on a redemption
generally may be disallowed for tax purposes if the reinvestment privilege
is exercised within 30 days after the redemption. In certain circumstances,
shareholders will be ineligible to take sales charges into account in
computing taxable gain or loss on a redemption if the reinvestment
privilege is exercised. See "Taxation."
RIGHTS OF ACCUMULATION
A scale of reduced sales charges applies to any investment of $50,000
or more in Class A shares of the Fund. See "Initial Sales Charge Alternative --
Class A Shares" in the Prospectus. The reduced sales charge is applicable to
investments made at one time by an individual, his or her spouse and children
under the age of 21, or a trustee or other fiduciary of a single trust estate or
single fiduciary account (including a pension, profit sharing or other employee
benefit trust created pursuant to a plan qualified under Section 401 of the
Code). Rights of Accumulation is also applicable to current purchases of all of
the funds of Ivy Fund (except Ivy Money Market Fund) by any of the persons
enumerated above, where the aggregate quantity of Class A shares of such funds
(and shares that have been exchanged into Ivy Money Market Fund from any of the
other funds in the Ivy funds) and of any other investment company distributed by
IMDI, previously purchased or acquired and currently owned, determined at the
higher of current offering price or amount invested, plus the Class A shares
being purchased, amounts to $50,000 or more for all funds other than Ivy Bond
Fund; or $100,000 or more for Ivy Bond Fund.
At the time an investment takes place, IMSC must be notified by the
investor or his or her dealer that the investment qualifies for the reduced
sales charge on the basis of previous investments. The reduced sales charge is
subject to confirmation of the investor's holdings through a check of the
particular fund's records.
SYSTEMATIC WITHDRAWAL PLAN
A shareholder may establish a Systematic Withdrawal Plan (a "Withdrawal
Plan"), by telephone instructions or by delivery to IMSC of a written election
to have his or her shares withdrawn periodically (minimum distribution amount
$50 for Advisor Class shares), accompanied by a surrender to IMSC of all share
certificates then outstanding in such shareholder's name, properly endorsed by
the shareholder. To be eligible to elect a Withdrawal Plan, a shareholder must
have at least $5,000 in his or her account (except Advisor Class shareholders,
who must continually maintain an account balance of at least $10,000). A
Withdrawal Plan may not be established if the investor is currently
participating in the Automatic Investment Method. A Withdrawal Plan may involve
the depletion of a shareholder's principal, depending on the amount withdrawn.
A redemption under a Withdrawal Plan is a taxable event. Shareholders
contemplating participating in a Withdrawal Plan should consult their tax
advisers.
Additional investments made by investors participating in a Withdrawal
Plan must equal at least $1,000 each ($250 for Advisor Class shareholders) while
the Withdrawal Plan is in effect. Making additional purchases while a Withdrawal
Plan is in effect may be disadvantageous to the investor because of applicable
initial sales charges or CDSCs.
An investor may terminate his or her participation in the Withdrawal
Plan at any time by delivering written notice to IMSC. If all shares held by the
investor are liquidated at any time, participation in the Withdrawal Plan will
terminate automatically. The Trust or IMSC may terminate the Withdrawal Plan
option at any time after reasonable notice to shareholders.
GROUP SYSTEMATIC INVESTMENT PROGRAM
Shares of the Fund may be purchased in connection with investment
programs established by employee or other groups using systematic payroll
deductions or other systematic payment arrangements. The Trust does not itself
organize, offer or administer any such programs. However, it may, depending upon
the size of the program, waive the minimum initial and additional investment
requirements for purchases by individuals in conjunction with programs organized
and offered by others. Unless shares of the Fund are purchased in conjunction
with IRAs (see "How to Buy Shares" in the Prospectus), such group systematic
investment programs are not entitled to special tax benefits under the Code. The
Trust reserves the right to refuse purchases at any time or suspend the offering
of shares in connection with group systematic investment programs, and to
restrict the offering of shareholder privileges, such as check writing,
simplified redemptions and other optional privileges, as described in the
Prospectus, to shareholders using group systematic investment programs.
With respect to each shareholder account established on or after
September 15, 1972 under a group systematic investment program, the Trust and
IMI each currently charge a maintenance fee of $3.00 (or portion thereof) that
for each twelve-month period (or portion thereof) that the account is
maintained. The Trust may collect such fee (and any fees due to IMI) through a
deduction from distributions to the shareholders involved or by causing on the
date the fee is assessed a redemption in each such shareholder account
sufficient to pay such fee. The Trust reserves the right to change these fees
from time to time without advance notice.
Class A shares of the Fund are made available to Merrill Lynch Daily K
Plan (the "Plan") participants at NAV without an initial sales charge if:
(i) the Plan is recordkept on a daily valuation basis by Merrill
Lynch and, on the date the Plan Sponsor signs the Merrill
Lynch Recordkeeping Service Agreement, the Plan has $3 million
or more in assets invested in broker/dealer funds not advised
or managed by Merrill Lynch Asset Management, L.P. ("MLAM")
that are made available pursuant to a Service Agreement
between Merrill Lynch and the fund's principal underwriter or
distributor and in funds advised or managed by MLAM
(collectively, the "Applicable Investments");
(ii) the Plan is recordkept on a daily valuation basis by an
independent recordkeeper whose services are provided through a
contract or alliance arrangement with Merrill Lynch, and on
the date the Plan Sponsor signs the Merrill Lynch
Recordkeeping Service Agreement, the Plan has $3 million or
more in assets, excluding money market funds, invested in
Applicable Investments; or
(iii) the Plan has 500 or more eligible employees, as determined by
Merrill Lynch plan conversion manager, on the date the Plan
Sponsor signs the Merrill Lynch Recordkeeping Service
Agreement.
Alternatively, Class B shares of the Fund are made available to Plan
participants at NAV without a CDSC if the Plan conforms with the requirements
for eligibility set forth in (i) through (iii) above but either does not meet
the $3 million asset threshold or does not have 500 or more eligible employees.
Plans recordkept on a daily basis by Merrill Lynch or an independent
recordkeeper under a contract with Merrill Lynch that are currently investing in
Class B shares of the Fund convert to Class A shares once the Plan has reached
$5 million invested in Applicable Investments, or 10 years after the date of the
initial purchase by a participant under the Plan--the Plan will receive a Plan
level share conversion.
REDEMPTIONS
Shares of the Fund are redeemed at their net asset value next
determined after a proper redemption request has been received by IMSC, less any
applicable CDSC.
Unless a shareholder requests that the proceeds of any redemption be
wired to his or her bank account, payment for shares tendered for redemption is
made by check within seven days after tender in proper form, except that the
Trust reserves the right to suspend the right of redemption or to postpone the
date of payment upon redemption beyond seven days, (i) for any period during
which the Exchange is closed (other than customary weekend and holiday closings)
or during which trading on the Exchange is restricted, (ii) for any period
during which an emergency exists as determined by the SEC as a result of which
disposal of securities owned by the Fund is not reasonably practicable or it is
not reasonably practicable for the Fund to fairly determine the value of its net
assets, or (iii) for such other periods as the SEC may by order permit for the
protection of shareholders of the Fund.
Under unusual circumstances, when the Board deems it in the best
interest of the Fund's shareholders, the Fund may make payment for shares
repurchased or redeemed in whole or in part in securities of the Fund taken at
current values. If any such redemption in kind is to be made, the Fund may make
an election pursuant to Rule 18f-1 under the 1940 Act. This will require the
Fund to redeem with cash at a shareholder's election in any case where the
redemption involves less than $250,000 (or 1% of the Fund's net asset value at
the beginning of each 90-day period during which such redemptions are in effect,
if that amount is less than $250,000). Should payment be made in securities, the
redeeming shareholder may incur brokerage costs in converting such securities to
cash.
The Trust may redeem those accounts of shareholders who have maintained
an investment, including sales charges paid, of less than $1,000 ($10,000 for
Advisor Class shareholders) in the Fund for a period of more than 12 months. All
accounts below that minimum will be redeemed simultaneously when MIMI deems it
advisable. The $1,000 balance ($10,000 for Advisor Class shareholders) will be
determined by actual dollar amounts invested by the shareholder, unaffected by
market fluctuations. The Trust will notify any such shareholder by certified
mail of its intention to redeem such account, and the shareholder shall have 60
days from the date of such letter to invest such additional sums as shall raise
the value of such account above that minimum. Should the shareholder fail to
forward such sum within 60 days of the date of the Trust's letter of
notification, the Trust will redeem the shares held in such account and transmit
the redemption in value thereof to the shareholder. However, those shareholders
who are investing pursuant to the Automatic Investment Method will not be
redeemed automatically unless they have ceased making payments pursuant to the
plan for a period of at least six consecutive months, and these shareholders
will be given six-months' notice by the Trust before such redemption.
Shareholders in a qualified retirement, pension or profit sharing plan who wish
to avoid tax consequences must "rollover" any sum so redeemed into another
qualified plan within 60 days. The Trustees of the Trust may change the minimum
account size.
If a shareholder has given authorization for telephonic redemption
privilege, shares can be redeemed and proceeds sent by Federal wire to a single
previously designated bank account. Delivery of the proceeds of a wire
redemption request of $250,000 or more may be delayed by the Fund for up to
seven days if deemed appropriate under then-current market conditions. The Trust
reserves the right to change this minimum or to terminate the telephonic
redemption privilege without prior notice. The Trust cannot be responsible for
the efficiency of the Federal wire system of the shareholder's dealer of record
or bank. The shareholder is responsible for any charges by the shareholder's
bank.
The Fund employs reasonable procedures that require personal
identification prior to acting on redemption or exchange instructions
communicated by telephone to confirm that such instructions are genuine. In the
absence of such instructions, the Fund may be liable for any losses due to
unauthorized or fraudulent telephone instructions.
CONVERSION OF CLASS B SHARES
As described in the Prospectus, Class B shares of the Fund will
automatically convert to Class A shares of the Fund, based on the relative net
asset values per share of the two classes, no later than the month following the
eighth anniversary of the initial issuance of such Class B shares of the Fund
occurs. For the purpose of calculating the holding period required for
conversion of Class B shares, the date of initial issuance shall mean: (1) the
date on which such Class B shares were issued, or (2) for Class B shares
obtained through an exchange, or a series of exchanges, (subject to the exchange
privileges for Class B shares) the date on which the original Class B shares
were issued. For purposes of conversion of Class B shares, Class B shares
purchased through the reinvestment of dividends and capital gain distributions
paid in respect of Class B shares will be held in a separate sub-account. Each
time any Class B shares in the shareholder's regular account (other than those
shares in the sub-account) convert to Class A shares, a pro rata portion of the
Class B shares in the sub-account will also convert to Class A shares. The
portion will be determined by the ratio that the shareholder's Class B shares
converting to Class A shares bears to the shareholder's total Class B shares not
acquired through the reinvestment of dividends and capital gain distributions.
NET ASSET VALUE
The net asset value per share of the Fund is computed by dividing the
value of the Fund's aggregate net assets (i.e., its total assets less its
liabilities) by the number of the Fund's shares outstanding. For purposes of
determining the Fund's aggregate net assets, receivables are valued at their
realizable amounts. The Fund's liabilities, if not identifiable as belonging to
a particular class of the Fund, are allocated among the Fund's several classes
based on their relative net asset size. Liabilities attributable to a particular
class are charged to that class directly. The total liabilities for a class are
then deducted from the class's proportionate interest in the Fund's assets, and
the resulting amount is divided by the number of shares of the class outstanding
to produce its net asset value per share.
A security listed or traded on a recognized stock exchange or The
Nasdaq Stock Market, Inc. ("Nasdaq") is valued at the security's last sale price
on the exchange on which the security is principally traded. If no sale is
reported at that time, the average between the last bid and asked price (the
"Calculated Mean") is used. Unless otherwise noted herein, the value of a
foreign security is determined in its national currency as of the normal close
of trading on the foreign exchange on which it is traded or as of the close of
regular trading on the Exchange, if that is earlier, and that value is then
converted into its U.S. dollar equivalent at the foreign exchange rate in effect
at noon, eastern time, on the day the value of the foreign security is
determined. All other securities for which OTC market quotations are readily
available are valued at the Calculated Mean.
A debt security normally is valued on the basis of quotes obtained from
at least two dealers (or one dealer who has made a market in the security) or
pricing services that take into account appropriate valuation factors. Interest
is accrued daily. Money market instruments are valued at amortized cost, which
the Board believes approximates market value.
An exchange-traded option is valued at the last sale price on the
exchange on which it is principally traded, if available, and otherwise is
valued at the last sale price on the other exchange(s). If there were no sales
on any exchange, the option shall be valued at the Calculated Mean, if possible,
and otherwise at the last offering price, in the case of a written option, and
the last bid price, in the case of a purchased option. An OTC option is valued
at the last offering price, in the case of a written option, and the last bid
price, in the case of a purchased option. Exchange listed and widely-traded OTC
futures (and options thereon) are valued at the most recent settlement price.
Securities and other assets for which market prices are not readily
available are priced at their "fair value" as determined by IMI in accordance
with procedures approved by the Board. Trading in securities on many foreign
securities exchanges is normally completed before the close of regular trading
on the Exchange. Trading on foreign exchanges may not take place on all days on
which there is regular trading on the Exchange, or may take place on days on
which there is no regular trading on the Exchange (e.g., any of the national
business holidays identified below). If events materially affecting the value of
the Fund's portfolio securities occur between the time when a foreign exchange
closes and the time when the Fund's net asset value is calculated (see following
paragraph), such securities may be valued at fair value as determined by IMI and
approved by the Board.
Portfolio securities are valued (and net asset value per share is
determined) as of the close of regular trading on the Exchange (normally 4:00
p.m., eastern time) on each day the Exchange is open for trading. The Exchange
and the Trust's offices are expected to be closed, and net asset value will not
be calculated, on the following national business holidays: New Year's Day,
Martin Luther King, Jr. Day, Presidents' Day, Good Friday, Memorial Day,
Independence Day, Labor Day, Thanksgiving Day and Christmas Day. On those days
when either or both of the Fund's Custodian or the Exchange close early as a
result of a partial holiday or otherwise, the Trust reserves the right to
advance the time on that day by which purchase and redemption requests must be
received.
The number of shares you receive when you place a purchase order, and
the payment you receive after submitting a redemption request, is based on the
Fund's net asset value next determined after your instructions are received in
proper form by IMSC or by your registered securities dealer. Each purchase and
redemption order is subject to any applicable sales charge. Since the Fund
normally invests in securities that are listed on foreign exchanges that may
trade on weekends or other days when the Fund does not price its shares, the
Fund's net asset value may change on days when shareholders will not be able to
purchase or redeem the Fund's shares. The sale of the Fund's shares will be
suspended during any period when the determination of its net asset value is
suspended pursuant to rules or orders of the SEC and may be suspended by the
Board whenever in its judgment it is in the Fund's best interest to do so.
TAXATION
The following is a general discussion of certain tax rules thought to
be applicable with respect to the Fund. It is merely a summary and is not an
exhaustive discussion of all possible situations or of all potentially
applicable taxes. Accordingly, shareholders and prospective shareholders should
consult a competent tax adviser about the tax consequences to them of investing
in the Fund.
The Fund intends to be taxed as a regulated investment company under
Subchapter M of the Code. Accordingly, the Fund must, among other things, (a)
derive in each taxable year at least 90% of its gross income from dividends,
interest, payments with respect to certain securities loans, and gains from the
sale or other disposition of stock, securities or foreign currencies, or other
income derived with respect to its business of investing in such stock,
securities or currencies; and (b) diversify its holdings so that, at the end of
each fiscal quarter, (i) at least 50% of the market value of the Fund's assets
is represented by cash, U.S. Government securities, the securities of other
regulated investment companies and other securities, with such other securities
limited, in respect of any one issuer, to an amount not greater than 5% of the
value of the Fund's total assets and 10% of the outstanding voting securities of
such issuer, and (ii) not more than 25% of the value of its total assets is
invested in the securities of any one issuer (other than U.S. Government
securities and the securities of other regulated investment companies).
As a regulated investment company, the Fund generally will not be
subject to U.S. Federal income tax on its income and gains that it distributes
to shareholders, if at least 90% of its investment company taxable income (which
includes, among other items, dividends, interest and the excess of any
short-term capital gains over long-term capital losses) for the taxable year is
distributed. The Fund intends to distribute all such income.
Amounts not distributed on a timely basis in accordance with a calendar
year distribution requirement are subject to a nondeductible 4% excise tax at
the Fund level. To avoid the tax, the Fund must distribute during each calendar
year, (1) at least 98% of its ordinary income (not taking into account any
capital gains or losses) for the calendar year (2) at least 98% of its capital
gains in excess of its capital losses (adjusted for certain ordinary losses) for
a one-year period generally ending on October 31 of the calendar year, and (3)
all ordinary income and capital gains for previous years that were not
distributed during such years. To avoid application of the excise tax, the Fund
intends to make distributions in accordance with the calendar year distribution
requirements. A distribution will be treated as paid on December 31 of the
current calendar year if it is declared by the Fund in October, November or
December of the year with a record date in such a month and paid by the Fund
during January of the following year. Such distributions will be taxable to
shareholders in the calendar year the distributions are declared, rather than
the calendar year in which the distributions are received.
OPTIONS, FUTURES AND FOREIGN CURRENCY FORWARD CONTRACTS
The taxation of equity options and OTC options on debt securities is
governed by Code section 1234. Pursuant to Code section 1234, the premium
received by the Fund for selling a put or call option is not included in income
at the time of receipt. If the option expires, the premium is short-term capital
gain to the Fund. If the Fund enters into a closing transaction, the difference
between the amount paid to close out its position and the premium received is
short-term capital gain or loss. If a call option written by the Fund is
exercised, thereby requiring the Fund to sell the underlying security, the
premium will increase the amount realized upon the sale of such security and any
resulting gain or loss will be a capital gain or loss, and will be long-term or
short-term depending upon the holding period of the security. With respect to a
put or call option that is purchased by the Fund, if the option is sold, any
resulting gain or loss will be a capital gain or loss, and will be long-term or
short-term, depending upon the holding period of the option. If the option
expires, the resulting loss is a capital loss and is long-term or short-term,
depending upon the holding period of the option. If the option is exercised, the
cost of the option, in the case of a call option, is added to the basis of the
purchased security and, in the case of a put option, reduces the amount realized
on the underlying security in determining gain or loss.
Some of the options, futures and foreign currency forward contracts in
which the Fund may invest may be "section 1256 contracts." Gains (or losses) on
these contracts generally are considered to be 60% long-term and 40% short-term
capital gains or losses; however, as described below, foreign currency gains or
losses arising from certain section 1256 contracts are ordinary in character.
Also, section 1256 contracts held by the Fund at the end of each taxable year
(and on certain other dates prescribed in the Code) are "marked-to-market" with
the result that unrealized gains or losses are treated as though they were
realized.
The transactions in options, futures and forward contracts undertaken
by the Fund may result in "straddles" for Federal income tax purposes. The
straddle rules may affect the character of gains or losses realized by the Fund.
In addition, losses realized by the Fund on positions that are part of a
straddle may be deferred under the straddle rules, rather than being taken into
account in calculating the taxable income for the taxable year in which such
losses are realized. Because only a few regulations implementing the straddle
rules have been promulgated, the consequences of such transactions to the Fund
are not entirely clear. The straddle rules may increase the amount of short-term
capital gain realized by the Fund, which is taxed as ordinary income when
distributed to shareholders.
The Fund may make one or more of the elections available under the Code
which are applicable to straddles. If the Fund makes any of the elections, the
amount, character and timing of the recognition of gains or losses from the
affected straddle positions will be determined under rules that vary according
to the election(s) made. The rules applicable under certain of the elections may
operate to accelerate the recognition of gains or losses from the affected
straddle positions.
Because application of the straddle rules may affect the character of
gains or losses, defer losses and/or accelerate the recognition of gains or
losses from the affected straddle positions, the amount which must be
distributed to shareholders as ordinary income or long-term capital gain may be
increased or decreased substantially as compared to a fund that did not engage
in such transactions.
Notwithstanding any of the foregoing, the Fund may recognize gain (but
not loss) from a constructive sale of certain "appreciated financial positions"
if the Fund enters into a short sale, offsetting notional principal contract,
futures or forward contract transaction with respect to the appreciated position
or substantially identical property. Appreciated financial positions subject to
this constructive sale treatment are interests (including options, futures and
forward contracts and short sales) in stock, partnership interests, certain
actively traded trust instruments and certain debt instruments. Constructive
sale treatment of appreciated financial positions does not apply to certain
transactions closed in the 90-day period ending with the 30th day after the
close of the Fund's taxable year, if certain conditions are met.
CURRENCY FLUCTUATIONS -- "SECTION 988" GAINS OR LOSSES
Gains or losses attributable to fluctuations in exchange rates which
occur between the time the Fund accrues receivables or liabilities denominated
in a foreign currency and the time the Fund actually collects such receivables
or pays such liabilities generally are treated as ordinary income or ordinary
loss. Similarly, on disposition of some investments, including debt securities
denominated in a foreign currency and certain options, futures and forward
contracts, gains or losses attributable to fluctuations in the value of the
foreign currency between the date of acquisition of the security or contract and
the date of disposition also are treated as ordinary gain or loss. These gains
and losses, referred to under the Code as "section 988" gains or losses,
increase or decrease the amount of the Fund's investment company taxable income
available to be distributed to its shareholders as ordinary income.
INVESTMENT IN PASSIVE FOREIGN INVESTMENT COMPANIES
The Fund may invest in shares of foreign corporations which may be
classified under the Code as passive foreign investment companies ("PFICs"). In
general, a foreign corporation is classified as a PFIC if at least one-half of
its assets constitute investment-type assets, or 75% or more of its gross income
is investment-type income. If the Fund receives a so-called "excess
distribution" with respect to PFIC stock, the Fund itself may be subject to a
tax on a portion of the excess distribution, whether or not the corresponding
income is distributed by the Fund to shareholders. In general, under the PFIC
rules, an excess distribution is treated as having been realized ratably over
the period during which a Fund held the PFIC shares. The Fund itself will be
subject to tax on the portion, if any, of an excess distribution that is so
allocated to prior Fund taxable years and an interest factor will be added to
the tax, as if the tax had been payable in such prior taxable years. Certain
distributions from a PFIC as well as gain from the sale of PFIC shares are
treated as excess distributions. Excess distributions are characterized as
ordinary income even though, absent application of the PFIC rules, certain
excess distributions might have been classified as capital gain.
The Fund may be eligible to elect alternative tax treatment with
respect to PFIC shares. The Fund may elect to mark to market its PFIC shares,
resulting in the shares being treated as sold at fair market value on the last
business day of each taxable year. Any resulting gain would be reported as
ordinary income; any resulting loss and any loss from an actual disposition of
the shares would be reported as ordinary loss to the extent of any net gains
reported in prior years. Under another election that currently is available in
some circumstances, the Fund generally would be required to include in its gross
income its share of the earnings of a PFIC on a current basis, regardless of
whether distributions are received from the PFIC in a given year.
DEBT SECURITIES ACQUIRED AT A DISCOUNT
Some of the debt securities (with a fixed maturity date of more than
one year from the date of issuance) that may be acquired by the Fund may be
treated as debt securities that are issued originally at a discount. Generally,
the amount of the original issue discount ("OID") is treated as interest income
and is included in income over the term of the debt security, even though
payment of that amount is not received until a later time, usually when the debt
security matures.
Some of the debt securities (with a fixed maturity date of more than
one year from the date of issuance) that may be acquired by the Fund in the
secondary market may be treated as having market discount. Generally, gain
recognized on the disposition of, and any partial payment of principal on, a
debt security having market discount is treated as ordinary income to the extent
the gain, or principal payment, does not exceed the "accrued market discount" on
such debt security. In addition, the deduction of any interest expenses
attributable to debt securities having market discount may be deferred. Market
discount generally accrues in equal daily installments. The Fund may make one or
more of the elections applicable to debt securities having market discount,
which could affect the character and timing of recognition of income.
Some debt securities (with a fixed maturity date of one year or less
from the date of issuance) that may be acquired by the Fund may be treated as
having acquisition discount, or OID in the case of certain types of debt
securities. Generally, the Fund will be required to include the acquisition
discount, or OID, in income over the term of the debt security, even though
payment of that amount is not received until a later time, usually when the debt
security matures. The Fund may make one or more of the elections applicable to
debt securities having acquisition discount, or OID, which could affect the
character and timing of recognition of income.
The Fund generally will be required to distribute dividends to
shareholders representing discount on debt securities that is currently
includable in income, even though cash representing such income may not have
been received by the Fund. Cash to pay such dividends may be obtained from sales
proceeds of securities held by the Fund.
DISTRIBUTIONS
Distributions of investment company taxable income are taxable to a
U.S. shareholder as ordinary income, whether paid in cash or shares. Dividends
paid by the Fund to a corporate shareholder, to the extent such dividends are
attributable to dividends received from U.S. corporations by the Fund, may
qualify for the dividends received deduction. However, the revised alternative
minimum tax applicable to corporations may reduce the value of the dividends
received deduction. Distributions of net capital gains (the excess of net
long-term capital gains over net short-term capital losses), if any, designated
by the Fund as capital gain dividends, are taxable to shareholders as long-term
capital gains whether paid in cash or in shares, and regardless of how long the
shareholder has held the Fund's shares; such distributions are not eligible for
the dividends received deduction. Shareholders receiving distributions in the
form of newly issued shares will have a cost basis in each share received equal
to the net asset value of a share of the Fund on the distribution date. A
distribution of an amount in excess of the Fund's current and accumulated
earnings and profits will be treated by a shareholder as a return of capital
which is applied against and reduces the shareholder's basis in his or her
shares. To the extent that the amount of any such distribution exceeds the
shareholder's basis in his or her shares, the excess will be treated by the
shareholder as gain from a sale or exchange of the shares. Shareholders will be
notified annually as to the U.S. Federal tax status of distributions and
shareholders receiving distributions in the form of newly issued shares will
receive a report as to the net asset value of the shares received.
If the net asset value of shares is reduced below a shareholder's cost
as a result of a distribution by the Fund, such distribution generally will be
taxable even though it represents a return of invested capital. Shareholders
should be careful to consider the tax implications of buying shares just prior
to a distribution. The price of shares purchased at this time may reflect the
amount of the forthcoming distribution. Those purchasing just prior to a
distribution will receive a distribution which generally will be taxable to
them.
DISPOSITION OF SHARES
Upon a redemption, sale or exchange of his or her shares, a shareholder
will realize a taxable gain or loss depending upon his or her basis in the
shares. Such gain or loss will be treated as capital gain or loss if the shares
are capital assets in the shareholder's hands and, if so, will be long-term or
short-term, depending upon the shareholder's holding period for the shares. Any
loss realized on a redemption sale or exchange will be disallowed to the extent
the shares disposed of are replaced (including through reinvestment of
dividends) within a period of 61 days beginning 30 days before and ending 30
days after the shares are disposed of. In such a case, the basis of the shares
acquired will be adjusted to reflect the disallowed loss. Any loss realized by a
shareholder on the sale of Fund shares held by the shareholder for six-months or
less will be treated for tax purposes as a long-term capital loss to the extent
of any distributions of capital gain dividends received or treated as having
been received by the shareholder with respect to such shares.
In some cases, shareholders will not be permitted to take all or
portion of their sales loads into account for purposes of determining the amount
of gain or loss realized on the disposition of their shares. This prohibition
generally applies where (1) the shareholder incurs a sales load in acquiring the
shares of the Fund, (2) the shares are disposed of before the 91st day after the
date on which they were acquired, and (3) the shareholder subsequently acquires
shares in the Fund or another regulated investment company and the otherwise
applicable sales charge is reduced under a "reinvestment right" received upon
the initial purchase of Fund shares. The term "reinvestment right" means any
right to acquire shares of one or more regulated investment companies without
the payment of a sales load or with the payment of a reduced sales charge. Sales
charges affected by this rule are treated as if they were incurred with respect
to the shares acquired under the reinvestment right. This provision may be
applied to successive acquisitions of fund shares.
FOREIGN WITHHOLDING TAXES
Income received by the Fund from sources within a foreign country may
be subject to withholding and other taxes imposed by that country.
If more than 50% of the value of the Fund's total assets at the close
of its taxable year consists of securities of foreign corporations, the Fund
will be eligible and may elect to "pass-through" to the Fund's shareholders the
amount of foreign income and similar taxes paid by the Fund. Pursuant to this
election, a shareholder will be required to include in gross income (in addition
to taxable dividends actually received) his or her pro rata share of the foreign
income and similar taxes paid by the Fund, and will be entitled either to deduct
his or her pro rata share of foreign income and similar taxes in computing his
or her taxable income or to use it as a foreign tax credit against his or her
U.S. Federal income taxes, subject to limitations. No deduction for foreign
taxes may be claimed by a shareholder who does not itemize deductions. Foreign
taxes generally may not be deducted by a shareholder that is an individual in
computing the alternative minimum tax. Each shareholder will be notified within
60 days after the close of the Fund's taxable year whether the foreign taxes
paid by the Fund will "pass-through" for that year and, if so, such notification
will designate (1) the shareholder's portion of the foreign taxes paid to each
such country and (2) the portion of the dividend which represents income derived
from sources within each such country.
Generally, except in the case of certain electing individual taxpayers
who have limited creditable foreign taxes and no foreign source income other
than passive investment-type income, a credit for foreign taxes is subject to
the limitation that it may not exceed the shareholder's U.S. tax attributable to
his or her total foreign source taxable income. For this purpose, if the Fund
makes the election described in the preceding paragraph, the source of the
Fund's income flows through to its shareholders. With respect to the Fund, gains
from the sale of securities generally will be treated as derived from U.S.
sources and section 988 gains will be treated as ordinary income derived from
U.S. sources. The limitation on the foreign tax credit is applied separately to
foreign source passive income, including foreign source passive income received
from the Fund. In addition, the foreign tax credit may offset only 90% of the
revised alternative minimum tax imposed on corporations and individuals.
Furthermore, the foreign tax credit is eliminated with respect to foreign taxes
withheld on dividends if the dividend-paying shares or the shares of the Fund
are held by the Fund or the shareholder, as the case may be, for less than 16
days (46 days in the case of preferred shares) during the 30-day period (90-day
period for preferred shares) beginning 15 days (45 days for preferred shares)
before the shares become ex-dividend. In addition, if the Fund fails to satisfy
these holding period requirements, it cannot elect to pass through to
shareholders the ability to claim a deduction for related foreign taxes.
The foregoing is only a general description of the foreign tax credit
under current law. Because application of the credit depends on the particular
circumstances of each shareholder, shareholders are advised to consult their own
tax advisers.
BACKUP WITHHOLDING
The Fund will be required to report to the Internal Revenue Service
("IRS") all taxable distributions as well as gross proceeds from the redemption
of the Fund's shares, except in the case of certain exempt shareholders. All
such distributions and proceeds will be subject to withholding of Federal income
tax at a rate of 31% ("backup withholding") in the case of non-exempt
shareholders if (1) the shareholder fails to furnish the Fund with and to
certify the shareholder's correct taxpayer identification number or social
security number, (2) the IRS notifies the shareholder or the Fund that the
shareholder has failed to report properly certain interest and dividend income
to the IRS and to respond to notices to that effect, or (3) when required to do
so, the shareholder fails to certify that he or she is not subject to backup
withholding. If the withholding provisions are applicable, any such
distributions or proceeds, whether reinvested in additional shares or taken in
cash, will be reduced by the amounts required to be withheld.
Distributions may also be subject to additional state, local and
foreign taxes depending on each shareholder's particular situation. Non-U.S.
shareholders may be subject to U.S. tax rules that differ significantly from
those summarized above. This discussion does not purport to deal with all of the
tax consequences applicable to the Fund or shareholders. Shareholders are
advised to consult their own tax advisers with respect to the particular tax
consequences to them of an investment in the Fund.
PERFORMANCE INFORMATION
Performance information for the classes of shares of the Fund may be
compared, in reports and promotional literature, to: (i) the S&P 500 Index, the
Dow Jones Industrial Average ("DJIA"), or other unmanaged indices so that
investors may compare the Fund's results with those of a group of unmanaged
securities widely regarded by investors as representative of the securities
markets in general; (ii) other groups of mutual funds tracked by Lipper
Analytical Services, a widely used independent research firm that ranks mutual
funds by overall performance, investment objectives and assets, or tracked by
other services, companies, publications or other criteria; and (iii) the
Consumer Price Index (measure for inflation) to assess the real rate of return
from an investment in the Fund. Unmanaged indices may assume the reinvestment of
dividends but generally do not reflect deductions or administrative and
management costs and expenses. Performance rankings are based on historical
information and are not intended to indicate future performance.
YIELD. Quotations of yield for a specific class of shares of the Fund
will be based on all investment income attributable to that class earned during
a particular 30-day (or one month) period (including dividends and interest),
less expenses attributable to that class accrued during the period ("net
investment income"), and will be computed by dividing the net investment income
per share of that class earned during the period by the maximum offering price
per share (in the case of Class A shares) or the net asset value per share (in
the case of Class B and Class C shares) on the last day of the period, according
to the following formula:
YIELD = 2[({(a-b)/cd} + 1){superscript 6}-1]
Where: a = dividends and interest earned during the
period attributable to a
specific class of shares,
b = expenses accrued for the period attributable
to that class (net of reimbursements),
c = the average daily number of shares
of that class outstanding during the
period that were entitled to receive
dividends, and
d = the maximum offering price per
share (in the case of Class A
shares) or the net asset value per
share (in the case of Class B and
Class C shares) on the last day of
the period.
AVERAGE ANNUAL TOTAL RETURN. Quotations of standardized average annual
total return ("Standardized Return") for a specific class of shares of the Fund
will be expressed in terms of the average annual compounded rate of return that
would cause a hypothetical investment in that class of the Fund made on the
first day of a designated period to equal the ending redeemable value ("ERV") of
such hypothetical investment on the last day of the designated period, according
to the following formula:
P(1 + T){superscript n} = ERV
Where: P = a hypothetical initial payment of $1,000 to purchase
shares of a specific class
T = the average annual total return of shares of that
class
n = the number of years
ERV = the ending redeemable value of a
hypothetical $1,000 payment made at
the beginning of the period.
For purposes of the above computation for the Fund, it is assumed that
all dividends and capital gains distributions made by the Fund are reinvested at
net asset value in additional shares of the same class during the designated
period. In calculating the ending redeemable value for Class A shares and
assuming complete redemption at the end of the applicable period, the maximum
5.75% sales charge is deducted from the initial $1,000 payment and, for Class B
and Class C shares, the applicable CDSC imposed upon redemption of Class B or
Class C shares held for the period is deducted. Standardized Return quotations
for the Fund do not take into account any required payments for federal or state
income taxes. Standardized Return quotations for Class B shares for periods of
over eight years will reflect conversion of the Class B shares to Class A shares
at the end of the eighth year. Standardized Return quotations are determined to
the nearest 1/100 of 1%.
The Fund may, from time to time, include in advertisements, promotional
literature or reports to shareholders or prospective investors total return data
that are not calculated according to the formula set forth above
("Non-Standardized Return"). Neither initial nor CDSCs are taken into account in
calculating Non-Standardized Return; a sales charge, if deducted, would reduce
the return.
The following table summarizes the calculation of Standardized and
Non-Standardized Return for the Class A, Class B, Class C and Advisor Class
shares of the Fund for the periods indicated. In determining the average annual
total return for a specific class of shares of the Fund, recurring fees, if any,
that are charged to all shareholder accounts are taken into consideration. For
any account fees that vary with the size of the account of the Fund, the account
fee used for purposes of the following computations is assumed to be the fee
that would be charged to the mean account size of the Fund.
STANDARDIZED RETURN[*]
<TABLE>
CLASS A[1] CLASS B[2] CLASS C[3] ADVISOR CLASS
<S> <C> <C> <C> <C>
Year ended December 31,
1998
% % % %
Five years ended
December 31, 1998
% % % %
Ten years ended December 31, 1998:
% % % %
Inception [#] to year
ended December 31, 1998
[7]: % % % %
NON-STANDARDIZED RETURN[**]
CLASS A[4] CLASS B[5] CLASS C[6] ADVISOR CLASS
Year ended December 31, 1998:
% % % %
Five years ended
December 31, 1998
% % % %
Ten years ended December 31, 1998:
% % % %
Inception [#] to year
ended December 31, 1998
[7]: % % % %
- ------------------------- ----------------- ------------------ -------------------
</TABLE>
[*] The Standardized Return figures for Class A shares reflect the
deduction of the maximum initial sales charge of 5.75%. The Standardized Return
figures for Class B and C shares reflect the deduction of the applicable CDSC
imposed on redemption of Class B or C shares held for the period.
[**] The Non-Standardized Return figures do not reflect the deduction of
any initial sales charge or CDSC.
[#] The inception date for the Fund (Class A shares) was April 1, 1984;
the inception date for Class B shares of the Fund was October 23, 1993; and the
inception date for the Class C shares of the Fund was April 30, 1996. The
inception of Class C shares of the Fund coincided with the redesignation as
"Class D" those shares of Ivy Growth with Income Fund that were initially issued
as "Ivy Growth with Income Fund -- Class C" to shareholders of Mackenzie Growth
& Income Fund, a former series of the Company, in connection with the
reorganization between that fund and Ivy Growth with Income Fund, which shares
are not offered for sale to the public. Advisor Class shares of the Fund were
first offered on January 1, 1998.
[1] The Standardized Return figures for the Class A shares reflect
expense reimbursement. Without expense reimbursement, the Standardized Return
for Class A shares for the period from inception through and the one, five and
ten year periods ended December 31, 1998 would have been [ %].
[2] The Standardized Return figures for the Class B shares reflect
expense reimbursement. Without expense reimbursement, the Standardized Return
for Class B shares for the period from inception through and the one, five and
ten year periods ended December 31, 1998 would have been [ %].
[3] The Standardized Return figures for the Class C shares reflect
expense reimbursement. Without expense reimbursement, the Standardized Return
for Class C shares for the period from inception through and the one, five and
ten year periods ended December 31, 1998 would have been [ %].
[4] The Non-Standardized Return figures for Class A shares reflect
expense reimbursement. Without expense reimbursement, the Non-Standardized
Return for Class A shares for the period from inception through and the one,
five and ten year periods ended December 31, 1998 would have been [ %].
[5] The Non-Standardized Return figures for Class B shares reflect
expense reimbursement. Without expense reimbursement, the Non-Standardized
Return for Class B shares for the period from inception through and the one,
five and ten year periods ended December 31, 1998 would have been [ %].
[6] The Non-Standardized Return figures for Class C shares reflect
expense reimbursement. Without expense reimbursement, the Non-Standardized
Return for Class C shares for the period from inception through and the one,
five and ten year periods ended December 31, 1998 would have been [ %].
[7] The total return for a period less than a full year is calculated
on an aggregate basis and is not annualized.
CUMULATIVE TOTAL RETURN. Cumulative total return is the cumulative rate
of return on a hypothetical initial investment of $1,000 in a specific class of
shares of the Fund for a specified period. Cumulative total return quotations
reflect changes in the price of the Fund's shares and assume that all dividends
and capital gains distributions during the period were reinvested in the Fund
shares. Cumulative total return is calculated by computing the cumulative rates
of return of a hypothetical investment in a specific class of shares of the Fund
over such periods, according to the following formula (cumulative total return
is then expressed as a percentage):
C = (ERV/P) - 1
Where: C = cumulative total return
P = a hypothetical initial investment of $1,000 to
purchase shares of a specific class
ERV = ending redeemable value: ERV is
the value, at the end of the
applicable period, of a hypothetical
$1,000 investment made at the
beginning of the applicable period.
The following table summarizes the calculation of Cumulative Total
Return for the periods indicated through December 31, 1998, assuming the maximum
5.75% sales charge has been assessed.
ONE YEAR FIVE YEARS TEN YEARS SINCE INCEPTION[*]
Class A
Class B
Class C
Advisor Class
The following table summarizes the calculation of Cumulative Total
Return for the periods indicated through December 31, 1998, assuming the maximum
5.75% sales charge has not been assessed.
ONE YEAR FIVE YEARS TEN YEARS SINCE INCEPTION[*]
Class A
Class B
Class C
Advisor Class
- ---------------------------
[*] The inception date for the Fund (Class A shares) was April 1, 1984; the
inception date for the Class B shares of the Fund was October 23, 1993.
The inception date for Class C shares of the Fund was April 30, 1996.
The inception date for Advisor Class shares was January 1, 1998.
OTHER QUOTATIONS, COMPARISONS AND GENERAL INFORMATION. The foregoing
computation methods are prescribed for advertising and other communications
subject to SEC Rule 482. Communications not subject to this rule may contain a
number of different measures of performance, computation methods and
assumptions, including but not limited to: historical total returns; results of
actual or hypothetical investments; changes in dividends, distributions or share
values; or any graphic illustration of such data. These data may cover any
period of the Trust's existence and may or may not include the impact of sales
charges, taxes or other factors.
Performance quotations for the Fund will vary from time to time
depending on market conditions, the composition of the Fund's portfolio and
operating expenses of the Fund. These factors and possible differences in the
methods used in calculating performance quotations should be considered when
comparing performance information regarding the Fund's shares with information
published for other investment companies and other investment vehicles.
Performance quotations should also be considered relative to changes in the
value of the Fund's shares and the risks associated with the Fund's investment
objectives and policies. At any time in the future, performance quotations may
be higher or lower than past performance quotations and there can be no
assurance that any historical performance quotation will continue in the future.
The Fund may also cite endorsements or use for comparison its
performance rankings and listings reported in such newspapers or business or
consumer publications as, among others: AAII Journal, Barron's, Boston Business
Journal, Boston Globe, Boston Herald, Business Week, Consumer's Digest, Consumer
Guide Publications, Changing Times, Financial Planning, Financial World, Forbes,
Fortune, Growth Fund Guide, Houston Post, Institutional Investor, International
Fund Monitor, Investor's Daily, Los Angeles Times, Medical Economics, Miami
Herald, Money Mutual Fund Forecaster, Mutual Fund Letter, Mutual Fund Source
Book, Mutual Fund Values, National Underwriter, Nelson's Directory of Investment
Managers, New York Times, Newsweek, No Load Fund Investor, No Load Fund* X,
Oakland Tribune, Pension World, Pensions and Investment Age, Personal Investor,
Rugg and Steele, Time, U.S. News and World Report, USA Today, The Wall Street
Journal, and Washington Post.
FINANCIAL STATEMENTS
The Fund's Portfolio of Investments as of December 31, 1998, Statement
of Assets and Liabilities as of December 31, 1998, Statement of Operations for
the fiscal year ended December 31, 1998, Statement of Changes in Net Assets for
the fiscal year ended December 31, 1998, Financial Highlights, Notes to
Financial Statements, and Report of Independent Accountants, which are included
in the Fund's December 31, 1998 Annual Report to shareholders, are incorporated
by reference into this SAI.
<PAGE>
APPENDIX A
DESCRIPTION OF STANDARD & POOR'S RATINGS GROUP ("S&P") AND MOODY'S
INVESTORS SERVICE, INC. ("MOODY'S") CORPORATE BOND AND COMMERCIAL
PAPER RATINGS
[From"Moody's Bond Record," November 1994 Issue (Moody's Investors
Service, New York, 1994), and "Standard & Poor's Municipal Ratings
Handbook," October 1997 Issue (McGraw Hill, New York, 1997).]
MOODY'S:
(a) CORPORATE BONDS. Bonds rated Aaa by Moody's are judged by Moody's
to be of the best quality, carrying the smallest degree of investment risk.
Interest payments are protected by a large or exceptionally stable margin and
principal is secure. While the various protective elements are likely to change,
such changes as can be visualized are most unlikely to impair the fundamentally
strong position of such issues. Bonds rated Aa are judged by Moody's to be of
high quality by all standards. Aa bonds are rated lower than Aaa bonds because
margins of protection may not be as large as those of Aaa bonds, or fluctuations
of protective elements may be of greater amplitude, or there may be other
elements present which make the long-term risks appear somewhat larger than
those applicable to Aaa securities. Bonds which are rated A by Moody's possess
many favorable investment attributes and are to be considered as upper
medium-grade obligations. Factors giving security to principal and interest are
considered adequate, but elements may be present which suggest a susceptibility
to impairment sometime in the future. Bonds rated Baa by Moody's are considered
medium-grade obligations (i.e., they are neither highly protected nor poorly
secured). Interest payments and principal security appear adequate for the
present, but certain protective elements may be lacking or may be
characteristically unreliable over any great length of time. Such bonds lack
outstanding investment characteristics and in fact have speculative
characteristics as well. Bonds which are rated Ba are judged to have speculative
elements; their future cannot be considered well-assured. Often the protection
of interest and principal payments may be very moderate and thereby not well
safeguarded during both good and bad times over the future. Uncertainty of
position characterizes bonds in this class. Bonds which are rated B generally
lack characteristics of the desirable investment. Assurance of interest and
principal payments of or maintenance of other terms of the contract over any
long period of time may be small. Bonds which are rated Caa are of poor
standing. Such issues may be in default or there may be present elements of
danger with respect to principal or interest. Bonds which are rated Ca represent
obligations which are speculative in a high degree. Such issues are often in
default or have other marked shortcomings. Bonds which are rated C are the
lowest rated class of bonds and issues so rated can be regarded as having
extremely poor prospects of ever attaining any real investment standing.
(b) COMMERCIAL PAPER. The Prime rating is the highest commercial paper
rating assigned by Moody's. Among the factors considered by Moody's in assigning
ratings are the following: (1) evaluation of the management of the issuer; (2)
economic evaluation of the issuer's industry or industries and an appraisal of
speculative-type risks which may be inherent in certain areas; (3) evaluation of
the issuer's products in relation to competition and customer acceptance; (4)
liquidity; (5) amount and quality of long-term debt; (6) trend of earnings over
a period of ten years; (7) financial strength of a parent company and the
relationships which exist with the issuer; and (8) recognition by management of
obligations which may be present or may arise as a result of public interest
questions and preparations to meet such obligations. Issuers within this Prime
category may be given ratings 1, 2 or 3, depending on the relative strengths of
these factors. The designation of Prime-1 indicates the highest quality
repayment capacity of the rated issue. Issuers rated Prime-2 are deemed to have
a strong ability for repayment while issuers voted Prime-3 are deemed to have an
acceptable ability for repayment. Issuers rated Not Prime do not fall within any
of the Prime rating categories.
S&P:
(a) CORPORATE BONDS. An S&P corporate debt rating is a current
assessment of the creditworthiness of an obligor with respect to a specific
obligation. The ratings are based on current information furnished by the issuer
or obtained by S&P from other sources it considers reliable. The ratings
described below may be modified by the addition of a plus or minus sign to show
relative standing within the major rating categories.
Debt rated AAA has the highest rating assigned by S&P. Capacity to pay
interest and repay principal is extremely strong. Debt rated AA is judged by S&P
to have a very strong capacity to pay interest and repay principal and differs
from the highest rated issues only in small degree. Debt rated A by S&P has a
strong capacity to pay interest and repay principal, although it is somewhat
more susceptible to the adverse effects of changes in circumstances and economic
conditions than debt in higher rated categories.
Debt rated BBB by S&P is regarded by S&P as having an adequate capacity
to pay interest and repay principal. Although such bonds normally exhibit
adequate protection parameters, adverse economic conditions or changing
circumstances are more likely to lead to a weakened capacity to pay interest and
repay principal than debt in higher rated categories.
Debt rated BB, B, CCC, CC and C is regarded as having predominately
speculative characteristics with respect to capacity to pay interest and repay
principal. BB indicates the least degree of speculation and C the highest. While
such debt will likely have some quality and protective characteristics, these
are outweighed by large uncertainties or exposures to adverse conditions. Debt
rated BB has less near-term vulnerability to default than other speculative
issues. However, it faces major ongoing uncertainties or exposure to adverse
business, financial or economic conditions which could lead to inadequate
capacity to meet timely interest and principal payments. The BB rating category
is also used for debt subordinated to senior debt that is assigned an actual or
implied BBB- rating. Debt rated B has a greater vulnerability to default but
currently has the capacity to meet interest payments and principal repayments.
Adverse business, financial, or economic conditions will likely impair capacity
or willingness to pay interest and repay principal. The B rating category is
also used for debt subordinated to senior debt that is assigned an actual or
implied BB or BB- rating. Debt rated CCC has a currently identifiable
vulnerability to default, and is dependent upon favorable business, financial,
and economic conditions to meet timely payment of interest and repayment of
principal. In the event of adverse business, financial or economic conditions,
it is not likely to have the capacity to pay interest and repay principal. The
CCC rating category is also used for debt subordinated to senior debt that is
assigned an actual or implied B or B- rating. The rating CC typically is applied
to debt subordinated to senior debt which is assigned an actual or implied CCC
debt rating. The rating C typically is applied to debt subordinated to senior
debt which is assigned an actual or implied CCC- debt rating. The C rating may
be used to cover a situation where a bankruptcy petition has been filed, but
debt service payments are continued.
The rating CI is reserved for income bonds on which no interest is
being paid. Debt rated D is in payment default. The D rating category is used
when interest payments or principal payments are not made on the date due, even
if the applicable grace period has not expired, unless S&P believes that such
payments will be made during such grace period. The D rating also will be used
upon the filing of a bankruptcy petition if debt service payments are
jeopardized.
(b) COMMERCIAL PAPER. An S&P commercial paper rating is a current
assessment of the likelihood of timely payment of debt considered short-term in
the relevant market.
The commercial paper rating A-1 by S&P indicates that the degree of
safety regarding timely payment is strong. Those issues determined to possess
extremely strong safety characteristics are denoted with a plus sign (+)
designation. For commercial paper with an A-2 rating, the capacity for timely
payment on issues is satisfactory, but not as high as for issues designated A-1.
Issues rated A-3 have adequate capacity for timely payment, but are more
vulnerable to the adverse effects of changes in circumstances than obligations
carrying higher designations.
Issues rated B are regarded as having only speculative capacity for
timely payment. The C rating is assigned to short-term debt obligations with a
doubtful capacity for payment. Debt rated D is in payment default. The D rating
category is used when interest payments or principal payments are not made on
the date due, even if the applicable grace period has not expired, unless S&P
believes such payments will be made during such grace period.
<PAGE>
IVY INTERNATIONAL FUND
a series of
IVY FUND
Via Mizner Financial Plaza, Suite 300
700 South Federal Highway
Boca Raton, Florida 33432
STATEMENT OF ADDITIONAL INFORMATION
April , 1999
Ivy Fund (the "Trust") is an open-end management investment company
that currently consists of nineteen fully managed portfolios, each of which
(except for Ivy South America Fund and Ivy International Strategic Bond Fund) is
diversified. This Statement of Additional Information ("SAI") relates to the
Class A, B, C and I shares of Ivy International Fund (the "Fund"). The other
eighteen portfolios of the Trust are described in separate prospectuses and
SAIs.
This SAI is not a prospectus and should be read in conjunction with the
prospectus for the Fund dated April , 1999 (the "Prospectus"), which may be
obtained upon request and without charge from the Trust at the Distributor's
address and telephone number printed below.
INVESTMENT MANAGER
Ivy Management, Inc. ("IMI")
Via Mizner Financial Plaza, Suite 300
700 South Federal Highway
Boca Raton, Florida 33432
Telephone: (800) 777-6472
DISTRIBUTOR
Ivy Mackenzie Distributors, Inc. ("IMDI")
Via Mizner Financial Plaza, Suite 300
700 South Federal Highway
Boca Raton, Florida 33432
Telephone: (800) 456-5111
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TABLE OF CONTENTS
GENERAL INFORMATION.........................................................
INVESTMENT OBJECTIVES, STRATEGIES AND RISKS.................................
COMMON STOCKS......................................................
CONVERTIBLE SECURITIES.............................................
DEBT SECURITIES....................................................
IN GENERAL................................................
INVESTMENT-GRADE DEBT SECURITIES..........................
U.S. GOVERNMENT SECURITIES................................
FIRM COMMITMENT AGREEMENTS AND "WHEN-ISSUED"SECURITIES....
ILLIQUID SECURITIES................................................
FOREIGN SECURITIES.................................................
DEPOSITORY RECEIPTS................................................
EMERGING MARKETS...................................................
FOREIGN CURRENCIES.................................................
FOREIGN CURRENCY EXCHANGE TRANSACTIONS.............................
OTHER INVESTMENT COMPANIES.........................................
REPURCHASE AGREEMENTS..............................................
BANKING INDUSTRY AND SAVINGS AND LOAN OBLIGATIONS..................
COMMERCIAL PAPER...................................................
BORROWING..........................................................
WARRANTS...........................................................
OPTIONS TRANSACTIONS...............................................
IN GENERAL................................................
WRITING OPTIONS ON INDIVIDUAL SECURITIES..................
PURCHASING OPTIONS ON INDIVIDUAL SECURITIES...............
PURCHASING AND WRITING OPTIONS ON SECURITIES INDICES......
RISKS OF OPTIONS TRANSACTIONS.............................
FUTURES CONTRACTS AND OPTIONS ON FUTURES CONTRACTS.................
IN GENERAL................................................
FOREIGN CURRENCY FUTURES CONTRACTS AND RELATED OPTIONS....
RISKS ASSOCIATED WITH FUTURES AND RELATED OPTIONS.........
SECURITIES INDEX FUTURES CONTRACTS.................................
RISKS OF SECURITIES INDEX FUTURES.........................
COMBINED TRANSACTIONS.....................................
INVESTMENT RESTRICTIONS.....................................................
PORTFOLIO TURNOVER..........................................................
TRUSTEES AND OFFICERS.......................................................
PERSONAL INVESTMENTS BY EMPLOYEES OF IMI..................
INVESTMENT ADVISORY AND OTHER SERVICES......................................
BUSINESS MANAGEMENT AND INVESTMENT ADVISORY SERVICES...............
SUBADVISORY CONTRACT......................................
DISTRIBUTION SERVICES..............................................
RULE 18F-3 PLAN...........................................
RULE 12B-1 DISTRIBUTION PLANS.............................
CUSTODIAN..........................................................
FUND ACCOUNTING SERVICES...........................................
TRANSFER AGENT AND DIVIDEND PAYING AGENT...........................
ADMINISTRATOR......................................................
AUDITORS...........................................................
BROKERAGE ALLOCATION........................................................
CAPITALIZATION AND VOTING RIGHTS............................................
SPECIAL RIGHTS AND PRIVILEGES...............................................
AUTOMATIC INVESTMENT METHOD........................................
EXCHANGE OF SHARES.................................................
INITIAL SALES CHARGE SHARES...............................
CONTINGENT DEFERRED SALES CHARGE SHARES CLASS A...........
CLASS B...................................................
CLASS C...................................................
CLASS I...................................................
ALL CLASSES...............................................
LETTER OF INTENT...................................................
RETIREMENT PLANS...................................................
INDIVIDUAL RETIREMENT ACCOUNTS............................
ROTH IRAS.................................................
QUALIFIED PLANS...........................................
DEFERRED COMPENSATION FOR PUBLIC SCHOOLS AND CHARITABLE
ORGANIZATIONS ("403(B)(7) ACCOUNT")
SIMPLIFIED EMPLOYEE PENSION ("SEP") IRAS...................
SIMPLE PLANS...............................................
REINVESTMENT PRIVILEGE..............................................
RIGHTS OF ACCUMULATION..............................................
SYSTEMATIC WITHDRAWAL PLAN..........................................
GROUP SYSTEMATIC INVESTMENT PROGRAM.................................
REDEMPTIONS..................................................................
CONVERSION OF CLASS B SHARES.................................................
NET ASSET VALUE..............................................................
TAXATION 42
OPTIONS, FUTURES AND FOREIGN CURRENCY FORWARD CONTRACTS.............
CURRENCY FLUCTUATIONS -- "SECTION 988" GAINS OR LOSSES..............
INVESTMENT IN PASSIVE FOREIGN INVESTMENT COMPANIES..................
DEBT SECURITIES ACQUIRED AT A DISCOUNT..............................
DISTRIBUTIONS.......................................................
DISPOSITION OF SHARES...............................................
FOREIGN WITHHOLDING TAXES...........................................
BACKUP WITHHOLDING..................................................
PERFORMANCE INFORMATION......................................................
YIELD......................................................
AVERAGE ANNUAL TOTAL RETURN................................
CUMULATIVE TOTAL RETURN....................................
OTHER QUOTATIONS, COMPARISONS AND GENERAL INFORMATION......
FINANCIAL STATEMENTS.........................................................
APPENDIX A...................................................................
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GENERAL INFORMATION
The Fund is organized as a separate, diversified portfolio of the
Trust, an open-end management investment company organized as a Massachusetts
business trust on December 21, 1983. The Fund commenced operations (Class A
shares) on April 21, 1986. The inception date for Class B and Class I shares was
October 23, 1993. The inception date for Class C shares was April 30, 1996.
Descriptions in this Statement of a particular investment practice or
technique in which the Fund may engage or a financial instrument which the Fund
may purchase are meant to describe the spectrum of investments that IMI, in its
discretion, might, but is not required to, use in managing the Fund's portfolio
assets. IMI may, in its discretion, at any time employ such practice, technique
or instrument for one or more funds but not for all funds advised by it.
Furthermore, it is possible that certain types of financial instruments or
investment techniques described herein may not be available, permissible,
economically feasible or effective for their intended purposes in all markets.
Certain practices, techniques, or instruments may not be principal activities of
the Fund but, to the extent employed, could from time to time have a material
impact on the Fund's performance.
INVESTMENT OBJECTIVES, STRATEGIES AND RISKS
The Fund has its own investment objectives and policies, which are
described in the Prospectus under the captions "Summary" and "Additional
Information About Strategies and Risks." Additional information regarding the
characteristics and risks associated with the Fund's investment techniques is
set forth below.
Sales of shares of the Fund to new investors have been suspended. See "How
to Buy Shares."
The Fund's principal objective is long-term capital growth primarily
through investment in equity securities. Consideration of current income is
secondary to this principal objective. It is anticipated that at least 65% of
the Fund's total assets will be invested in common stocks (and securities
convertible into common stocks) principally traded in European, Pacific Basin
and Latin American markets. Under this investment policy, at least three
different countries (other than the United States) will be represented in the
Fund's overall portfolio holdings. For temporary defensive purposes, the Fund
may also invest in equity securities principally traded in U.S. markets.
The Fund's subadviser, Northern Cross Investments Limited ("Northern
Cross"), invests the Fund's assets in a variety of economic sectors, industry
segments and individual securities to reduce the effects of price volatility in
any one area and to enable shareholders to participate in markets that do not
necessarily move in concert with U.S. markets. Northern Cross seeks to identify
rapidly expanding foreign economies, and then searches out growing industries
and corporations, focusing on companies with established records. Individual
securities are selected based on value indicators, such as a low price-earnings
ratio, and are reviewed for fundamental financial strength. Companies in which
investments are made will generally have at least $1 billion in capitalization
and a solid history of operations.
When economic or market conditions warrant, the Fund may invest without
limit in U.S. Government securities, investment-grade debt securities (i.e.,
those rated Baa or higher by Moody's or BBB or higher by S&P, or if unrated,
considered by Northern Cross to be of comparable quality), preferred stocks,
sponsored or unsponsored ADRs, GDRs, ADSs and GDSs, warrants, or cash or cash
equivalents such as bank obligations (including certificates of deposit and
bankers' acceptances), commercial paper, short-term notes and repurchase
agreements. For temporary or emergency purposes, the Fund may borrow up to 10%
of the value of its total assets from banks. The Fund may also purchase
securities on a "when-issued" or firm commitment basis, and may engage in
foreign currency exchange transactions and enter into forward foreign currency
contracts. The Fund may also invest up to 10% of its total assets in other
investment companies and up to 15% of its net assets in illiquid securities.
The Fund may purchase put and call options on securities and stock
indices, provided the premium paid for such options does not exceed 5% of the
Fund's net assets. The Fund may also sell covered put options with respect to up
to 10% of the value of its net assets, and may write covered call options so
long as not more than 25% of the Fund's net assets is subject to being purchased
upon the exercise of the calls. For hedging purposes only, the Fund may engage
in transactions in (and options on) stock index and foreign currency futures
contracts, provided that the Fund's equivalent exposure in such contracts does
not exceed 15% of its total assets.
COMMON STOCKS
Common stock can be issued by companies to raise cash; all common stock
shares represent a proportionate ownership interest in a company. As a result,
the value of common stock rises and falls with a company's success or failure.
The market value of common stock can fluctuate significantly, with smaller
companies being particularly susceptible to price swings. Transaction costs in
smaller company stocks may also be higher than those of larger companies.
CONVERTIBLE SECURITIES
The convertible securities in which the Fund may invest include
corporate bonds, notes, debentures, preferred stock and other securities that
may be converted or exchanged at a stated or determinable exchange ratio into
underlying shares of common stock. Investments in convertible securities can
provide income through interest and dividend payments as well as an opportunity
for capital appreciation by virtue of their conversion or exchange features.
Because convertible securities can be converted into equity securities, their
values will normally vary in some proportion with those of the underlying equity
securities. Convertible securities usually provide a higher yield than the
underlying equity, however, so that the price decline of a convertible security
may sometimes be less substantial than that of the underlying equity security.
The exchange ratio for any particular convertible security may be adjusted from
time to time due to stock splits, dividends, spin-offs, other corporate
distributions or scheduled changes in the exchange ratio. Convertible debt
securities and convertible preferred stocks, until converted, have general
characteristics similar to both debt and equity securities. Although to a lesser
extent than with debt securities generally, the market value of convertible
securities tends to decline as interest rates increase and, conversely, tends to
increase as interest rates decline. In addition, because of the conversion or
exchange feature, the market value of convertible securities typically changes
as the market value of the underlying common stock changes, and, therefore, also
tends to follow movements in the general market for equity securities. When the
market price of the underlying common stock increases, the price of a
convertible security tends to rise as a reflection of the value of the
underlying common stock, although typically not as much as the price of the
underlying common stock. While no securities investments are without risk,
investments in convertible securities generally entail less risk than
investments in common stock of the same issuer.
As debt securities, convertible securities are investments that provide
for a stream of income. Like all debt securities, there can be no assurance of
income or principal payments because the issuers of the convertible securities
may default on their obligations. Convertible securities generally offer lower
yields than non-convertible securities of similar quality because of their
conversion or exchange features.
Convertible securities generally are subordinated to other similar but
non-convertible securities of the same issuer, although convertible bonds, as
corporate debt obligations, are senior in right of payment to all equity
securities, and convertible preferred stock is senior to common stock, of the
same issuer. However, convertible bonds and convertible preferred stock
typically have lower coupon rates than similar non-convertible securities.
Convertible securities may be issued as fixed income obligations that pay
current income.
DEBT SECURITIES
IN GENERAL. Investment in debt securities involves both interest rate
and credit risk. Generally, the value of debt instruments rises and falls
inversely with fluctuations in interest rates. As interest rates decline, the
value of debt securities generally increases. Conversely, rising interest rates
tend to cause the value of debt securities to decrease. Bonds with longer
maturities generally are more volatile than bonds with shorter maturities. The
market value of debt securities also varies according to the relative financial
condition of the issuer. In general, lower-quality bonds offer higher yields due
to the increased risk that the issuer will be unable to meet its obligations on
interest or principal payments at the time called for by the debt instrument.
INVESTMENT-GRADE DEBT SECURITIES. Bonds rated Aaa by Moody's Investors
Service, Inc. ("Moody's") and AAA by Standard & Poor's Ratings Group ("S&P") are
judged to be of the best quality (i.e., capacity to pay interest and repay
principal is extremely strong). Bonds rated Aa/AA are considered to be of high
quality (i.e., capacity to pay interest and repay principal is very strong and
differs from the highest rated issues only to a small degree). Bonds rated A are
viewed as having many favorable investment attributes, but elements may be
present that suggest a susceptibility to the adverse effects of changes in
circumstances and economic conditions than debt in higher rated categories.
Bonds rated Baa/BBB (considered by Moody's to be "medium grade" obligations) are
considered to have an adequate capacity to pay interest and repay principal, but
certain protective elements may be lacking (i.e., such bonds lack outstanding
investment characteristics and have some speculative characteristics). The Fund
may invest in debt securities that are given an investment-grade rating by
Moody's or S&P, and may also invest in unrated debt securities that are
considered by IMI to be of comparable quality.
U.S. GOVERNMENT SECURITIES. U.S. Government securities are obligations of,
or guaranteed by, the U.S. Government, its agencies or instrumentalities.
Securities guaranteed by the U.S. Government include: (1) direct obligations of
the U.S. Treasury (such as Treasury bills, notes, and bonds) and (2) Federal
agency obligations guaranteed as to principal and interest by the U.S. Treasury
(such as GNMA certificates, which are mortgage-backed securities). When such
securities are held to maturity, the payment of principal and interest is
unconditionally guaranteed by the U.S. Government, and thus they are of the
highest possible credit quality. U.S. Government securities that are not held to
maturity are subject to variations in market value due to fluctuations in
interest rates.
Mortgage-backed securities are securities representing part ownership
of a pool of mortgage loans. For example, GNMA certificates are such securities
in which the timely payment of principal and interest is guaranteed by the full
faith and credit of the U.S. Government. Although the mortgage loans in the pool
will have maturities of up to 30 years, the actual average life of the loans
typically will be substantially less because the mortgages will be subject to
principal amortization and may be prepaid prior to maturity. Prepayment rates
vary widely and may be affected by changes in market interest rates. In periods
of falling interest rates, the rate of prepayment tends to increase, thereby
shortening the actual average life of the security. Conversely, rising interest
rates tend to decrease the rate of prepayments, thereby lengthening the actual
average life of the security (and increasing the security's price volatility).
Accordingly, it is not possible to predict accurately the average life of a
particular pool. Reinvestment of prepayment may occur at higher or lower rates
than the original yield on the certificates. Due to the prepayment feature and
the need to reinvest prepayments of principal at current rates, mortgage-backed
securities can be less effective than typical bonds of similar maturities at
"locking in" yields during periods of declining interest rates, and may involve
significantly greater price and yield volatility than traditional debt
securities. Such securities may appreciate or decline in market value during
periods of declining or rising interest rates, respectively.
Securities issued by U.S. Government instrumentalities and certain
Federal agencies are neither direct obligations of nor guaranteed by the U.S.
Treasury; however, they involve Federal sponsorship in one way or another. Some
are backed by specific types of collateral, some are supported by the issuer's
right to borrow from the Treasury, some are supported by the discretionary
authority of the Treasury to purchase certain obligations of the issuer, others
are supported only by the credit of the issuing government agency or
instrumentality. These agencies and instrumentalities include, but are not
limited to, Federal Land Banks, Farmers Home Administration, Central Bank for
Cooperatives, Federal Intermediate Credit Banks, Federal Home Loan Banks,
Federal National Mortgage Association, Federal Home Loan Mortgage Association,
and Student Loan Marketing Association.
FIRM COMMITMENT AGREEMENTS AND "WHEN-ISSUED" SECURITIES. New issues of
certain debt securities are often offered on a "when-issued" basis, meaning the
payment obligation and the interest rate are fixed at the time the buyer enters
into the commitment, but delivery and payment for the securities normally take
place after the date of the commitment to purchase. Firm commitment agreements
call for the purchase of securities at an agreed-upon price on a specified
future date. The Fund uses such investment techniques in order to secure what is
considered to be an advantageous price and yield to the Fund and not for
purposes of leveraging the Fund's assets. In either instance, the Fund will
maintain in a segregated account with its Custodian cash or liquid securities
equal (on a daily marked-to-market basis) to the amount of its commitment to
purchase the underlying securities.
ILLIQUID SECURITIES
The Fund may purchase securities other than in the open market. While
such purchases may often offer attractive opportunities for investment not
otherwise available on the open market, the securities so purchased are often
"restricted securities" or "not readily marketable" (i.e., they cannot be sold
to the public without registration under the Securities Act of 1933, as amended
(the "1933 Act"), or the availability of an exemption from registration (such as
Rule 144A) or because they are subject to other legal or contractual delays in
or restrictions on resale). This investment practice, therefore, could have the
effect of increasing the level of illiquidity of the Fund. It is the Fund's
policy that illiquid securities (including repurchase agreements of more than
seven days duration, certain restricted securities, and other securities which
are not readily marketable) may not constitute, at the time of purchase, more
than 15% of the value of the Fund's net assets. The Trust's Board of Trustees
has approved guidelines for use by IMI in determining whether a security is
illiquid.
Generally speaking, restricted securities may be sold (i) only to
qualified institutional buyers; (ii) in a privately negotiated transaction to a
limited number of purchasers; (iii) in limited quantities after they have been
held for a specified period of time and other conditions are met pursuant to an
exemption from registration; or (iv) in a public offering for which a
registration statement is in effect under the 1933 Act. Issuers of restricted
securities may not be subject to the disclosure and other investor protection
requirements that would be applicable if their securities were publicly traded.
If adverse market conditions were to develop during the period between the
Fund's decision to sell a restricted or illiquid security and the point at which
the Fund is permitted or able to sell such security, the Fund might obtain a
price less favorable than the price that prevailed when it decided to sell.
Where a registration statement is required for the resale of restricted
securities, the Fund may be required to bear all or part of the registration
expenses. The Fund may be deemed to be an "underwriter" for purposes of the 1933
Act when selling restricted securities to the public and, in such event, the
Fund may be liable to purchasers of such securities if the registration
statement prepared by the issuer is materially inaccurate or misleading.
Since it is not possible to predict with assurance that the market for
securities eligible for resale under Rule 144A will continue to be liquid, IMI
will monitor such restricted securities subject to the supervision of the Board
of Trustees. Among the factors IMI may consider in reaching liquidity decisions
relating to Rule 144A securities are: (1) the frequency of trades and quotes for
the security; (2) the number of dealers wishing to purchase or sell the security
and the number of other potential purchasers; (3) dealer undertakings to make a
market in the security; and (4) the nature of the security and the nature of the
market for the security (i.e., the time needed to dispose of the security, the
method of soliciting offers, and the mechanics of the transfer).
FOREIGN SECURITIES
The securities of foreign issuers in which the Fund may invest include
non-U.S. dollar-denominated debt securities, Euro dollar securities, sponsored
and unsponsored American Depository Receipts ("ADRs"), Global Depository
Receipts ("GDRs"), American Depository Shares ("ADSs"), Global Depository Shares
("GDSs") and related depository instruments, and debt securities issued, assumed
or guaranteed by foreign governments or political subdivisions or
instrumentalities thereof. Shareholders should consider carefully the
substantial risks involved in investing in securities issued by companies and
governments of foreign nations, which are in addition to the usual risks
inherent in the Fund's domestic investments.
Although IMI intends to invest the Fund's assets only in nations that
are generally considered to have relatively stable and friendly governments,
there is the possibility of expropriation, nationalization, repatriation or
confiscatory taxation, taxation on income earned in a foreign country and other
foreign taxes, foreign exchange controls (which may include suspension of the
ability to transfer currency from a given country), default on foreign
government securities, political or social instability or diplomatic
developments which could affect investments in securities of issuers in those
nations. In addition, in many countries there is less publicly available
information about issuers than is available for U.S. companies. Moreover,
foreign companies are not generally subject to uniform accounting, auditing and
financial reporting standards, and auditing practices and requirements may not
be comparable to those applicable to U.S. companies. In many foreign countries,
there is less governmental supervision and regulation of business and industry
practices, stock exchanges, brokers, and listed companies than in the United
States. Foreign securities transactions may also be subject to higher brokerage
costs than domestic securities transactions. The foreign securities markets of
many of the countries in which the Fund may invest may also be smaller, less
liquid and subject to greater price volatility than those in the United States.
In addition, the Fund may encounter difficulties or be unable to pursue legal
remedies and obtain judgment in foreign courts.
Foreign bond markets have different clearance and settlement procedures
and in certain markets there have been times when settlements have been unable
to keep pace with the volume of securities transactions, making it difficult to
conduct such transactions. Delays in settlement could result in temporary
periods when assets of the Fund are uninvested and no return is earned thereon.
The inability of the Fund to make intended security purchases due to settlement
problems could cause the Fund to miss attractive investment opportunities.
Further, the inability to dispose of portfolio securities due to settlement
problems could result either in losses to the Fund because of subsequent
declines in the value of the portfolio security or, if the Fund has entered into
a contract to sell the security, in possible liability to the purchaser. It may
be more difficult for the Fund's agents to keep currently informed about
corporate actions such as stock dividends or other matters that may affect the
prices of portfolio securities. Communications between the United States and
foreign countries may be less reliable than within the United States, thus
increasing the risk of delayed settlements of portfolio transactions or loss of
certificates for portfolio securities. Moreover, individual foreign economies
may differ favorably or unfavorably from the United States economy in such
respects as growth of gross national product, rate of inflation, capital
reinvestment, resource self-sufficiency and balance of payments position. IMI
seeks to mitigate the risks to the Fund associated with the foregoing
considerations through investment variation and continuous professional
management.
DEPOSITORY RECEIPTS
ADRs, GDRs, ADSs, GDSs and related securities are depository
instruments, the issuance of which is typically administered by a U.S. or
foreign bank or trust company. These instruments evidence ownership of
underlying securities issued by a U.S. or foreign corporation. ADRs are publicly
traded on exchanges or over-the-counter ("OTC") in the United States.
Unsponsored programs are organized independently and without the cooperation of
the issuer of the underlying securities. As a result, information concerning the
issuer may not be as current or as readily available as in the case of sponsored
depository instruments, and their prices may be more volatile than if they were
sponsored by the issuers of the underlying securities.
EMERGING MARKETS
The Fund could have significant investments in securities traded in
emerging markets. Investors should recognize that investing in such countries
involves special considerations, in addition to those set forth above, that are
not typically associated with investing in United States securities and that may
affect the Fund's performance favorably or unfavorably.
In recent years, many emerging market countries around the world have
undergone political changes that have reduced government's role in economic and
personal affairs and have stimulated investment and growth. Historically, there
is a strong direct correlation between economic growth and stock market returns.
While this is no guarantee of future performance, IMI believes that investment
opportunities (particularly in the energy, environmental services, natural
resources, basic materials, power, telecommunications and transportation
industries) may result within the evolving economies of emerging market
countries from which the Fund and its shareholders will benefit.
Investments in companies domiciled in developing countries may be
subject to potentially higher risks than investments in developed countries.
Such risks include (i) less social, political and economic stability; (ii) a
small market for securities and/or a low or nonexistent volume of trading, which
result in a lack of liquidity and in greater price volatility; (iii) certain
national policies that may restrict the Fund's investment opportunities,
including restrictions on investment in issuers or industries deemed sensitive
to national interests; (iv) foreign taxation; (v) the absence of developed
structures governing private or foreign investment or allowing for judicial
redress for injury to private property; (vi) the absence, until relatively
recently in certain Eastern European countries, of a capital market structure or
market-oriented economy; (vii) the possibility that recent favorable economic
developments in Eastern Europe may be slowed or reversed by unanticipated
political or social events in such countries; and (viii) the possibility that
currency devaluations could adversely affect the value of the Fund's
investments. Further, many emerging markets have experienced and continue to
experience high rates of inflation.
Despite the dissolution of the Soviet Union, the Communist Party may
continue to exercise a significant role in certain Eastern European countries.
To the extent of the Communist Party's influence, investments in such countries
will involve risks of nationalization, expropriation and confiscatory taxation.
The communist governments of a number of Eastern European countries expropriated
large amounts of private property in the past, in many cases without adequate
compensation, and there can be no assurance that such expropriation will not
occur in the future. In the event of such expropriation, the Fund could lose a
substantial portion of any investments it has made in the affected countries.
Further, few (if any) accounting standards exist in Eastern European countries.
Finally, even though certain Eastern European currencies may be convertible into
U.S. dollars, the conversion rates may be artificial in relation to the actual
market values and may be adverse to the Fund's net asset value.
Certain Eastern European countries that do not have well-established
trading markets are characterized by an absence of developed legal structures
governing private and foreign investments and private property. In addition,
certain countries require governmental approval prior to investments by foreign
persons, or limit the amount of investment by foreign persons in a particular
company, or limit the investment of foreign persons to only a specific class of
securities of a company that may have less advantageous terms than securities of
the company available for purchase by nationals.
Authoritarian governments in certain Eastern European countries may
require that a governmental or quasi-governmental authority act as custodian of
the Fund's assets invested in such country. To the extent such governmental or
quasi-governmental authorities do not satisfy the requirements of the Investment
Company Act of 1940, as amended (the "1940 Act"), with respect to the custody of
the Fund's cash and securities, the Fund's investment in such countries may be
limited or may be required to be effected through intermediaries. The risk of
loss through governmental confiscation may be increased in such countries.
FOREIGN CURRENCIES
Investment in foreign securities usually will involve currencies of
foreign countries. Moreover, the Fund may temporarily hold funds in bank
deposits in foreign currencies during the completion of investment programs and
may purchase forward foreign currency contracts. Because of these factors, the
value of the assets of the Fund as measured in U.S. dollars may be affected
favorably or unfavorably by changes in foreign currency exchange rates and
exchange control regulations, and the Fund may incur costs in connection with
conversions between various currencies. Although the Fund's custodian values the
Fund's assets daily in terms of U.S. dollars, the Fund does not intend to
convert its holdings of foreign currencies into U.S. dollars on a daily basis.
The Fund will do so from time to time, however, and investors should be aware of
the costs of currency conversion. Although foreign exchange dealers do not
charge a fee for conversion, they do realize a profit based on the difference
(the "spread") between the prices at which they are buying and selling various
currencies. Thus, a dealer may offer to sell a foreign currency to the Fund at
one rate, while offering a lesser rate of exchange should the Fund desire to
resell that currency to the dealer. The Fund will conduct its foreign currency
exchange transactions either on a spot (i.e., cash) basis at the spot rate
prevailing in the foreign currency exchange market, or through entering into
forward contracts to purchase or sell foreign currencies.
Because the Fund normally will be invested in both U.S. and foreign
securities markets, changes in the Fund's share price may have a low correlation
with movements in U.S. markets. The Fund's share price will reflect the
movements of the different stock and bond markets in which it is invested (both
U.S. and foreign), and of the currencies in which the investments are
denominated. Thus, the strength or weakness of the U.S. dollar against foreign
currencies may account for part of the Fund's investment performance. U.S. and
foreign securities markets do not always move in step with each other, and the
total returns from different markets may vary significantly. In addition,
significant uncertainty surrounds the proposed introduction of the euro (a
common currency for the European Union) in January 1999 and its effect on the
value of securities denominated in local European currencies. These and other
currencies in which the Fund's assets are denominated may be devalued against
the U.S. dollar, resulting in a loss to the Fund.
FOREIGN CURRENCY EXCHANGE TRANSACTIONS
The Fund may enter into forward foreign currency contracts in order to
protect against uncertainty in the level of future foreign exchange rates in the
purchase and sale of securities. A forward contract is an obligation to purchase
or sell a specific currency for an agreed price at a future date (usually less
than a year), and typically is individually negotiated and privately traded by
currency traders and their customers. A forward contract generally has no
deposit requirement, and no commissions are charged at any stage for trades.
Although foreign exchange dealers do not charge a fee for commissions, they do
realize a profit based on the difference between the price at which they are
buying and selling various currencies. Although these contracts are intended to
minimize the risk of loss due to a decline in the value of the hedged
currencies, at the same time, they tend to limit any potential gain which might
result should the value of such currencies increase.
While the Fund may enter into forward contracts to reduce currency
exchange risks, changes in currency exchange rates may result in poorer overall
performance for the Fund than if it had not engaged in such transactions.
Moreover, there may be an imperfect correlation between the Fund's portfolio
holdings of securities denominated in a particular currency and forward
contracts entered into by the Fund. An imperfect correlation of this type may
prevent the Fund from achieving the intended hedge or expose the Fund to the
risk of currency exchange loss.
The Fund may purchase currency forwards and combine such purchases with
sufficient cash or short-term securities to create unleveraged substitutes for
investments in foreign markets when deemed advantageous. The Fund may also
combine the foregoing with bond futures or interest rate futures contracts to
create the economic equivalent of an unhedged foreign bond position.
The Fund may also cross-hedge currencies by entering into transactions
to purchase or sell one or more currencies that are expected to decline in value
relative to other currencies to which the Fund has or in which the Fund expects
to have portfolio exposure.
Currency transactions are subject to risks different from those of
other portfolio transactions. Because currency control is of great importance to
the issuing governments and influences economic planning and policy, purchases
and sales of currency and related instruments can be negatively affected by
government exchange controls, blockages, and manipulations or exchange
restrictions imposed by governments. These can result in losses to the Fund if
it is unable to deliver or receive currency or funds in settlement of
obligations and could also cause hedges it has entered into to be rendered
useless, resulting in full currency exposure as well as incurring transactions
costs. Buyers and sellers of currency futures are subject to the same risks that
apply to the use of futures generally. Further, settlement of a currency futures
contract for the purchase of most currencies must occur at a bank based in the
issuing nation. Trading options on currency futures is relatively new, and the
ability to establish and close out positions on such options is subject to the
maintenance of a liquid market which may not always be available. Currency
exchange rates may fluctuate based on factors extrinsic to that country's
economy.
OTHER INVESTMENT COMPANIES
The Fund may invest up to 10% of its total assets in the shares of
other investment companies. As a shareholder of an investment company, the Fund
would bear its ratable shares of the fund's expenses (which often include an
asset-based management fee). The Fund could also lose money by investing in
other investment companies, since the value of their respective investments and
the income they generate will vary daily based on prevailing market conditions.
REPURCHASE AGREEMENTS
Repurchase agreements are contracts under which the Fund buys a money
market instrument and obtains a simultaneous commitment from the seller to
repurchase the instrument at a specified time and at an agreed-upon yield. Under
guidelines approved by the Board, the Fund is permitted to enter into repurchase
agreements only if the repurchase agreements are at least fully collateralized
with U.S. Government securities or other securities that IMI has approved for
use as collateral for repurchase agreements and the collateral must be
marked-to-market daily. The Fund will enter into repurchase agreements only with
banks and broker-dealers deemed to be creditworthy by IMI under the
above-referenced guidelines. In the unlikely event of failure of the executing
bank or broker-dealer, the Fund could experience some delay in obtaining direct
ownership of the underlying collateral and might incur a loss if the value of
the security should decline, as well as costs in disposing of the security.
BANKING INDUSTRY AND SAVINGS AND LOAN OBLIGATIONS
Certificates of deposit are negotiable certificates issued against
funds deposited in a commercial bank for a definite period of time and earning a
specified return. Bankers' acceptances are negotiable drafts or bills of
exchange, normally drawn by an importer or exporter to pay for specific
merchandise, which are "accepted" by a bank (meaning, in effect, that the bank
unconditionally agrees to pay the face value of the instrument at maturity). In
addition to investing in certificates of deposit and bankers' acceptances, the
Fund may invest in time deposits in banks or savings and loan associations. Time
deposits are generally similar to certificates of deposit, but are
uncertificated. The Fund's investments in certificates of deposit, time
deposits, and bankers' acceptance are limited to obligations of (i) banks having
total assets in excess of $1 billion, (ii) U.S. banks which do not meet the $1
billion asset requirement, if the principal amount of such obligation is fully
insured by the Federal Deposit Insurance Corporation (the "FDIC"), (iii) savings
and loan association which have total assets in excess of $1 billion and which
are members of the FDIC, and (iv) foreign banks if the obligation is, in IMI's
opinion, of an investment quality comparable to other debt securities which may
be purchased by the Fund. The Fund's investments in certificates of deposit of
savings associations are limited to obligations of Federal and state-chartered
institutions whose total assets exceed $1 billion and whose deposits are insured
by the FDIC.
COMMERCIAL PAPER
Commercial paper represents short-term unsecured promissory notes
issued in bearer form by bank holding companies, corporations and finance
companies. The Fund may invest in commercial paper that is rated Prime-1 by
Moody's Investors Service, Inc. ("Moody's") or A-1 by Standard & Poor's
Corporation ("S&P") or, if not rated by Moody's or S&P, is issued by companies
having an outstanding debt issue rated Aaa or Aa by Moody's or AAA or AA by S&P.
BORROWING
Borrowing may exaggerate the effect on the Fund's net asset value of
any increase or decrease in the value of the Fund's portfolio securities. Money
borrowed will be subject to interest costs (which may include commitment fees
and/or the cost of maintaining minimum average balances). Although the principal
of the Fund's borrowings will be fixed, the Fund's assets may change in value
during the time a borrowing is outstanding, thus increasing exposure to capital
risk.
WARRANTS
The holder of a warrant has the right, until the warrant expires, to
purchase a given number of shares of a particular issuer at a specified price.
Such investments can provide a greater potential for profit or loss than an
equivalent investment in the underlying security. However, prices of warrants do
not necessarily move in a tandem with the prices of the underlying securities,
and are, therefore, considered speculative investments. Warrants pay no
dividends and confer no rights other than a purchase option. Thus, if a warrant
held by the Fund were not exercised by the date of its expiration, the Fund
would lose the entire purchase price of the warrant.
OPTIONS TRANSACTIONS
IN GENERAL. A call option is a short-term contract (having a duration
of less than one year) pursuant to which the purchaser, in return for the
premium paid, has the right to buy the security underlying the option at the
specified exercise price at any time during the term of the option. The writer
of the call option, who receives the premium, has the obligation, upon exercise
of the option, to deliver the underlying security against payment of the
exercise price. A put option is a similar contract pursuant to which the
purchaser, in return for the premium paid, has the right to sell the security
underlying the option at the specified exercise price at any time during the
term of the option. The writer of the put option, who receives the premium, has
the obligation, upon exercise of the option, to buy the underlying security at
the exercise price. The premium paid by the purchaser of an option will reflect,
among other things, the relationship of the exercise price to the market price
and volatility of the underlying security, the time remaining to expiration of
the option, supply and demand, and interest rates.
If the writer of an option wishes to terminate the obligation, the
writer may effect a "closing purchase transaction." This is accomplished by
buying an option of the same series as the option previously written. The effect
of the purchase is that the writer's position will be canceled by the Options
Clearing Corporation. However, a writer may not effect a closing purchase
transaction after it has been notified of the exercise of an option. Likewise,
an investor who is the holder of an option may liquidate his or her position by
effecting a "closing sale transaction." This is accomplished by selling an
option of the same series as the option previously purchased. There is no
guarantee that either a closing purchase or a closing sale transaction can be
effected at any particular time or at any acceptable price. If any call or put
option is not exercised or sold, it will become worthless on its expiration
date.
The Fund will realize a gain (or a loss) on a closing purchase
transaction with respect to a call or a put previously written by the Fund if
the premium, plus commission costs, paid by the Fund to purchase the call or the
put is less (or greater) than the premium, less commission costs, received by
the Fund on the sale of the call or the put. A gain also will be realized if a
call or a put that the Fund has written lapses unexercised, because the Fund
would retain the premium. Any such gains (or losses) are considered short-term
capital gains (or losses) for Federal income tax purposes. Net short-term
capital gains, when distributed by the Fund, are taxable as ordinary income. See
"Taxation."
The Fund will realize a gain (or a loss) on a closing sale transaction
with respect to a call or a put previously purchased by the Fund if the premium,
less commission costs, received by the Fund on the sale of the call or the put
is greater (or less) than the premium, plus commission costs, paid by the Fund
to purchase the call or the put. If a put or a call expires unexercised, it will
become worthless on the expiration date, and the Fund will realize a loss in the
amount of the premium paid, plus commission costs. Any such gain or loss will be
long-term or short-term gain or loss, depending upon the Fund's holding period
for the option.
Exchange-traded options generally have standardized terms and are
issued by a regulated clearing organization (such as the Options Clearing
Corporation), which, in effect, guarantees the completion of every
exchange-traded option transaction. In contrast, the terms of OTC options are
negotiated by the Fund and its counterparty (usually a securities dealer or a
financial institution) with no clearing organization guarantee. When the Fund
purchases an OTC option, it relies on the party from whom it has purchased the
option (the "counterparty") to make delivery of the instrument underlying the
option. If the counterparty fails to do so, the Fund will lose any premium paid
for the option, as well as any expected benefit of the transaction. Accordingly,
IMI will assess the creditworthiness of each counterparty to determine the
likelihood that the terms of the OTC option will be satisfied.
WRITING OPTIONS ON INDIVIDUAL SECURITIES. The Fund may write (sell)
covered call options on the Fund's securities in an attempt to realize a greater
current return than would be realized on the securities alone. The Fund may also
write covered call options to hedge a possible stock or bond market decline
(only to the extent of the premium paid to the Fund for the options). In view of
the investment objectives of the Fund, the Fund generally would write call
options only in circumstances where the investment adviser to the Fund does not
anticipate significant appreciation of the underlying security in the near
future or has otherwise determined to dispose of the security.
A "covered" call option means generally that so long as the Fund is
obligated as the writer of a call option, the Fund will (i) own the underlying
securities subject to the option, or (ii) have the right to acquire the
underlying securities through immediate conversion or exchange of convertible
preferred stocks or convertible debt securities owned by the Fund. Although the
Fund receives premium income from these activities, any appreciation realized on
an underlying security will be limited by the terms of the call option. The Fund
may purchase call options on individual securities only to effect a "closing
purchase transaction."
As the writer of a call option, the Fund receives a premium for
undertaking the obligation to sell the underlying security at a fixed price
during the option period, if the option is exercised. So long as the Fund
remains obligated as a writer of a call option, it forgoes the opportunity to
profit from increases in the market price of the underlying security above the
exercise price of the option, except insofar as the premium represents such a
profit (and retains the risk of loss should the value of the underlying security
decline).
PURCHASING OPTIONS ON INDIVIDUAL SECURITIES. The Fund may purchase a
put option on an underlying security owned by the Fund as a defensive technique
in order to protect against an anticipated decline in the value of the security.
The Fund, as the holder of the put option, may sell the underlying security at
the exercise price regardless of any decline in its market price. In order for a
put option to be profitable, the market price of the underlying security must
decline sufficiently below the exercise price to cover the premium and
transaction costs that the Fund must pay. These costs will reduce any profit the
Fund might have realized had it sold the underlying security instead of buying
the put option. The premium paid for the put option would reduce any capital
gain otherwise available for distribution when the security is eventually sold.
The purchase of put options will not be used by the Fund for leverage purposes.
The Fund may also purchase a put option on an underlying security that
it owns and at the same time write a call option on the same security with the
same exercise price and expiration date. Depending on whether the underlying
security appreciates or depreciates in value, the Fund would sell the underlying
security for the exercise price either upon exercise of the call option written
by it or by exercising the put option held by it. The Fund would enter into such
transactions in order to profit from the difference between the premium received
by the Fund for the writing of the call option and the premium paid by the Fund
for the purchase of the put option, thereby increasing the Fund's current
return. The Fund may write (sell) put options on individual securities only to
effect a "closing sale transaction."
PURCHASING AND WRITING OPTIONS ON SECURITIES INDICES. The Fund may
purchase and sell (write) put and call options on securities indices. An index
assigns relative values to the securities included in the index and the index
fluctuates with changes in the market values of the securities so included.
Options on indices are similar to options on individual securities, except that,
rather than giving the purchaser the right to take delivery of an individual
security at a specified price, they give the purchaser the right to receive
cash. The amount of cash is equal to the difference between the closing price of
the index and the exercise price of the option, expressed in dollars, times a
specified multiple (the "multiplier"). The writer of the option is obligated, in
return for the premium received, to make delivery of this amount.
The multiplier for an index option performs a function similar to the
unit of trading for a stock option. It determines the total dollar value per
contract of each point in the difference between the exercise price of an option
and the current level of the underlying index. A multiplier of 100 means that a
one-point difference will yield $100. Options on different indices have
different multipliers.
When the Fund writes a call or put option on a stock index, the option
is "covered", in the case of a call, or "secured", in the case of a put, if the
Fund maintains in a segregated account with the Custodian cash or liquid
securities equal to the contract value. A call option is also covered if the
Fund holds a call on the same index as the call written where the exercise price
of the call held is (i) equal to or less than the exercise price of the call
written or (ii) greater than the exercise price of the call written, provided
that the Fund maintains in a segregated account with the Custodian the
difference in cash or liquid securities. A put option is also "secured" if the
Fund holds a put on the same index as the put written where the exercise price
of the put held is (i) equal to or greater than the exercise price of the put
written or (ii) less than the exercise price of the put written, provided that
the Fund maintains in a segregated account with the Custodian the difference in
cash or liquid securities.
RISKS OF OPTIONS TRANSACTIONS. The purchase and writing of options
involves certain risks. During the option period, the covered call writer has,
in return for the premium on the option, given up the opportunity to profit from
a price increase in the underlying securities above the exercise price, but, as
long as its obligation as a writer continues, has retained the risk of loss
should the price of the underlying security decline. The writer of a U.S. option
has no control over the time when it may be required to fulfill its obligation
as a writer of the option. Once an option writer has received an exercise
notice, it cannot effect a closing purchase transaction in order to terminate
its obligation under the option and must deliver the underlying securities (or
cash in the case of an index option) at the exercise price. If a put or call
option purchased by the Fund is not sold when it has remaining value, and if the
market price of the underlying security (or index), in the case of a put,
remains equal to or greater than the exercise price or, in the case of a call,
remains less than or equal to the exercise price, the Fund will lose its entire
investment in the option. Also, where a put or call option on a particular
security (or index) is purchased to hedge against price movements in a related
security (or securities), the price of the put or call option may move more or
less than the price of the related security (or securities). In this regard,
there are differences between the securities and options markets that could
result in an imperfect correlation between these markets, causing a given
transaction not to achieve its objective.
There can be no assurance that a liquid market will exist when the Fund
seeks to close out an option position. Furthermore, if trading restrictions or
suspensions are imposed on the options markets, the Fund may be unable to close
out a position. Finally, trading could be interrupted, for example, because of
supply and demand imbalances arising from a lack of either buyers or sellers, or
the options exchange could suspend trading after the price has risen or fallen
more than the maximum amount specified by the exchange. Closing transactions can
be made for OTC options only by negotiating directly with the counterparty or by
a transaction in the secondary market, if any such market exists. There is no
assurance that the Fund will be able to close out an OTC option position at a
favorable price prior to its expiration. In the event of insolvency of the
counterparty, the Fund might be unable to close out an OTC option position at
any time prior to its expiration. Although the Fund may be able to offset to
some extent any adverse effects of being unable to liquidate an option position,
the Fund may experience losses in some cases as a result of such inability.
When conducted outside the U.S., options transactions may not be
regulated as rigorously as in the U.S., may not involve a clearing mechanism and
related guarantees, and are subject to the risk of governmental actions
affecting trading in, or the prices of, foreign securities, currencies and other
instruments. The value of such positions also could be adversely affected by:
(i) other complex foreign political, legal and economic factors, (ii) lesser
availability than in the U.S. of data on which to make trading decisions, (iii)
delays in the Fund's ability to act upon economic events occurring in foreign
markets during non-business hours in the U.S., (iv) the imposition of different
exercise and settlement terms and procedures and margin requirements than in the
U.S., and (v) lower trading volume and liquidity.
The Fund's options activities also may have an impact upon the level of its
portfolio turnover and brokerage commissions. See "Portfolio Turnover."
The Fund's success in using options techniques depends, among other
things, on IMI's ability to predict accurately the direction and volatility of
price movements in the options and securities markets, and to select the proper
type, time and duration of options.
FUTURES CONTRACTS AND OPTIONS ON FUTURES CONTRACTS
IN GENERAL. The Fund may enter into futures contracts and options on
futures contracts for hedging purposes. A futures contract provides for the
future sale by one party and purchase by another party of a specified quantity
of a commodity at a specified price and time. When a purchase or sale of a
futures contract is made by the Fund, the Fund is required to deposit with its
custodian (or broker, if legally permitted) a specified amount of cash or liquid
securities ("initial margin"). The margin required for a futures contract is set
by the exchange on which the contract is traded and may be modified during the
term of the contract. The initial margin is in the nature of a performance bond
or good faith deposit on the futures contract which is returned to the Fund upon
termination of the contract, assuming all contractual obligations have been
satisfied. A futures contract held by the Fund is valued daily at the official
settlement price of the exchange on which it is traded. Each day the Fund pays
or receives cash, called "variation margin," equal to the daily change in value
of the futures contract. This process is known as "marking to market." Variation
margin does not represent a borrowing or loan by the Fund but is instead a
settlement between the Fund and the broker of the amount one would owe the other
if the futures contract expired. In computing daily net asset value, the Fund
will mark-to-market its open futures position.
The Fund is also required to deposit and maintain margin with respect
to put and call options on futures contracts written by it. Such margin deposits
will vary depending on the nature of the underlying futures contract (and the
related initial margin requirements), the current market value of the option,
and other futures positions held by the Fund.
Although some futures contracts call for making or taking delivery of
the underlying securities, generally these obligations are closed out prior to
delivery of offsetting purchases or sales of matching futures contracts (same
exchange, underlying security or index, and delivery month). If an offsetting
purchase price is less than the original sale price, the Fund generally realizes
a capital gain, or if it is more, the Fund generally realizes a capital loss.
Conversely, if an offsetting sale price is more than the original purchase
price, the Fund generally realizes a capital gain, or if it is less, the Fund
generally realizes a capital loss.
The transaction costs must also be included in these calculations.
When purchasing a futures contract, the Fund will maintain with its
Custodian (and mark-to-market on a daily basis) cash or liquid securities that,
when added to the amounts deposited with a futures commission merchant ("FCM")
as margin, are equal to the market value of the futures contract. Alternatively,
the Fund may "cover" its position by purchasing a put option on the same futures
contract with a strike price as high as or higher than the price of the contract
held by the Fund, or, if lower, may cover the difference with cash or short-term
securities.
When selling a futures contract, the Fund will maintain with its
Custodian in a segregated account (and mark-to-market on a daily basis) cash or
liquid securities that, when added to the amounts deposited with an FCM as
margin, are equal to the market value of the instruments underlying the
contract. Alternatively, the Fund may "cover" its position by owning the
instruments underlying the contract (or, in the case of an index futures
contract, a portfolio with a volatility substantially similar to that of the
index on which the futures contract is based), or by holding a call option
permitting the Fund to purchase the same futures contract at a price no higher
than the price of the contract written by the Fund (or at a higher price if the
difference is maintained in liquid assets with the Fund's custodian).
When selling a call option on a futures contract, the Fund will
maintain with its Custodian in a segregated account (and mark-to-market on a
daily basis) cash or liquid securities that, when added to the amounts deposited
with an FCM as margin, equal the total market value of the futures contract
underlying the call option. Alternatively, the Fund may cover its position by
entering into a long position in the same futures contract at a price no higher
than the strike price of the call option, by owning the instruments underlying
the futures contract, or by holding a separate call option permitting the Fund
to purchase the same futures contract at a price not higher than the strike
price of the call option sold by the Fund, or covering the difference if the
price is higher.
When selling a put option on a futures contract, the Fund will maintain
with its Custodian (and mark-to-market on a daily basis) cash or liquid
securities that equal the purchase price of the futures contract less any margin
on deposit. Alternatively, the Fund may cover the position either by entering
into a short position in the same futures contract, or by owning a separate put
option permitting it to sell the same futures contract so long as the strike
price of the purchased put option is the same or higher than the strike price of
the put option sold by the Fund, or, if lower, the Fund may hold securities to
cover the difference.
FOREIGN CURRENCY FUTURES CONTRACTS AND RELATED OPTIONS. The Fund may
engage in foreign currency futures contracts and related options transactions
for hedging purposes. A foreign currency futures contract provides for the
future sale by one party and purchase by another party of a specified quantity
of a foreign currency at a specified price and time.
An option on a foreign currency futures contract gives the holder the
right, in return for the premium paid, to assume a long position (call) or short
position (put) in a futures contract at a specified exercise price at any time
during the period of the option. Upon the exercise of a call option, the holder
acquires a long position in the futures contract and the writer is assigned the
opposite short position. In the case of a put option, the opposite is true.
The Fund may purchase call and put options on foreign currencies as a
hedge against changes in the value of the U.S. dollar (or another currency) in
relation to a foreign currency in which portfolio securities of the Fund may be
denominated. A call option on a foreign currency gives the buyer the right to
buy, and a put option the right to sell, a certain amount of foreign currency at
a specified price during a fixed period of time. The Fund may invest in options
on foreign currency which are either listed on a domestic securities exchange or
traded on a recognized foreign exchange.
In those situations where foreign currency options may not be readily
purchased (or where such options may be deemed illiquid) in the currency in
which the hedge is desired, the hedge may be obtained by purchasing an option on
a "surrogate" currency, i.e., a currency where there is tangible evidence of a
direct correlation in the trading value of the two currencies. A surrogate
currency's exchange rate movements parallel that of the primary currency.
Surrogate currencies are used to hedge an illiquid currency risk, when no liquid
hedge instruments exist in world currency markets for the primary currency.
The Fund will only enter into futures contracts and futures options
which are standardized and traded on a U.S. or foreign exchange, board of trade,
or similar entity or quoted on an automated quotation system. The Fund will not
enter into a futures contract or purchase an option thereon if, immediately
thereafter, the aggregate initial margin deposits for futures contracts held by
the Fund plus premiums paid by it for open futures option positions, less the
amount by which any such positions are "in-the-money," would exceed 5% of the
liquidation value of the Fund's portfolio (or the Fund's net asset value), after
taking into account unrealized profits and unrealized losses on any such
contracts the Fund has entered into. A call option is "in-the-money" if the
value of the futures contract that is the subject of the option exceeds the
exercise price. A put option is "in-the-money" if the exercise price exceeds the
value of the futures contract that is the subject of the option. For additional
information about margin deposits required with respect to futures contracts and
options thereon, see "Futures Contracts and Options on Futures Contracts."
RISKS ASSOCIATED WITH FUTURES AND RELATED OPTIONS. There can be no
guarantee that there will be a correlation between price movements in the
hedging vehicle and in the Fund's portfolio securities being hedged. In
addition, there are significant differences between the securities and futures
markets that could result in an imperfect correlation between the markets,
causing a given hedge not to achieve its objectives. The degree of imperfection
of correlation depends on circumstances such as variations in speculative market
demand for futures and futures options on securities, including technical
influences in futures trading and futures options, and differences between the
financial instruments being hedged and the instruments underlying the standard
contracts available for trading in such respects as interest rate levels,
maturities, and creditworthiness of issuers. A decision as to whether, when and
how to hedge involves the exercise of skill and judgment, and even a
well-conceived hedge may be unsuccessful to some degree because of market
behavior or unexpected interest rate trends.
Futures exchanges may limit the amount of fluctuation permitted in
certain futures contract prices during a single trading day. The daily limit
establishes the maximum amount that the price of a futures contract may vary
either up or down from the previous day's settlement price at the end of the
current trading session. Once the daily limit has been reached in a futures
contract subject to the limit, no more trades may be made on that day at a price
beyond that limit. The daily limit governs only price movements during a
particular trading day and therefore does not limit potential losses because the
limit may work to prevent the liquidation of unfavorable positions. For example,
futures prices have occasionally moved to the daily limit for several
consecutive trading days with little or no trading, thereby preventing prompt
liquidation of positions and subjecting some holders of futures contracts to
substantial losses.
There can be no assurance that a liquid market will exist at a time
when the Fund seeks to close out a futures or a futures option position, and the
Fund would remain obligated to meet margin requirements until the position is
closed. In addition, there can be no assurance that an active secondary market
will continue to exist.
Currency futures contracts and options thereon may be traded on foreign
exchanges. Such transactions may not be regulated as effectively as similar
transactions in the United States; may not involve a clearing mechanism and
related guarantees; and are subject to the risk of governmental actions
affecting trading in, or the prices of, foreign securities. The value of such
position also could be adversely affected by (i) other complex foreign
political, legal and economic factors, (ii) lesser availability than in the
United States of data on which to make trading decisions, (iii) delays in the
Fund's ability to act upon economic events occurring in foreign markets during
non business hours in the United States, (iv) the imposition of different
exercise and settlement terms and procedures and margin requirements than in the
United States, and (v) lesser trading volume.
SECURITIES INDEX FUTURES CONTRACTS
The Fund may enter into securities index futures contracts as an
efficient means of regulating the Fund's exposure to the equity markets. The
Fund will not engage in transactions in futures contracts for speculation, but
only as a hedge against changes resulting from market conditions in the values
of securities held in the Fund's portfolio or which it intends to purchase. An
index futures contract is a contract to buy or sell units of an index at a
specified future date at a price agreed upon when the contract is made. Entering
into a contract to buy units of an index is commonly referred to as purchasing a
contract or holding a long position in the index. Entering into a contract to
sell units of an index is commonly referred to as selling a contract or holding
a short position. The value of a unit is the current value of the stock index.
For example, the S&P 500 Index is composed of 500 selected common stocks, most
of which are listed on the New York Stock Exchange (the "Exchange"). The S&P 500
Index assigns relative weightings to the 500 common stocks included in the
Index, and the Index fluctuates with changes in the market values of the shares
of those common stocks. In the case of the S&P 500 Index, contracts are to buy
or sell 500 units. Thus, if the value of the S&P 500 Index were $150, one
contract would be worth $75,000 (500 units x $150). The index futures contract
specifies that no delivery of the actual securities making up the index will
take place. Instead, settlement in cash must occur upon the termination of the
contract, with the settlement being the difference between the contract price
and the actual level of the stock index at the expiration of the contract. For
example, if the Fund enters into a futures contract to buy 500 units of the S&P
500 Index at a specified future date at a contract price of $150 and the S&P 500
Index is at $154 on that future date, the Fund will gain $2,000 (500 units x
gain of $4). If the Fund enters into a futures contract to sell 500 units of the
stock index at a specified future date at a contract price of $150 and the S&P
500 Index is at $154 on that future date, the Fund will lose $2,000 (500 units x
loss of $4).
RISKS OF SECURITIES INDEX FUTURES. The Fund's success in using hedging
techniques depends, among other things, on IMI's ability to predict correctly
the direction and volatility of price movements in the futures and options
markets as well as in the securities markets and to select the proper type, time
and duration of hedges. The skills necessary for successful use of hedges are
different from those used in the selection of individual stocks.
The Fund's ability to hedge effectively all or a portion of its
securities through transactions in index futures (and therefore the extent of
its gain or loss on such transactions) depends on the degree to which price
movements in the underlying index correlate with price movements in the Fund's
securities. Inasmuch as such securities will not duplicate the components of an
index, the correlation probably will not be perfect. Consequently, the Fund will
bear the risk that the prices of the securities being hedged will not move in
the same amount as the hedging instrument. This risk will increase as the
composition of the Fund's portfolio diverges from the composition of the hedging
instrument.
Although the Fund intends to establish positions in these instruments
only when there appears to be an active market, there is no assurance that a
liquid market will exist at a time when the Fund seeks to close a particular
option or futures position. Trading could be interrupted, for example, because
of supply and demand imbalances arising from a lack of either buyers or sellers.
In addition, the futures exchanges may suspend trading after the price has risen
or fallen more than the maximum amount specified by the exchange. In some cases,
the Fund may experience losses as a result of its inability to close out a
position, and it may have to liquidate other investments to meet its cash needs.
Although some index futures contracts call for making or taking
delivery of the underlying securities, generally these obligations are closed
out prior to delivery by offsetting purchases or sales of matching futures
contracts (same exchange, underlying security or index, and delivery month). If
an offsetting purchase price is less than the original sale price, the Fund
generally realizes a capital gain, or if it is more, the Fund generally realizes
a capital loss. Conversely, if an offsetting sale price is more than the
original purchase price, the Fund generally realizes a capital gain, or if it is
less, the Fund generally realizes a capital loss.
The transaction costs must also be included in these calculations.
The Fund will only enter into index futures contracts or futures
options that are standardized and traded on a U.S. or foreign exchange or board
of trade, or similar entity, or quoted on an automated quotation system. The
Fund will use futures contracts and related options only for "bona fide hedging"
purposes, as such term is defined in applicable regulations of the CFTC.
When purchasing an index futures contract, the Fund will maintain with
its Custodian (and mark-to-market on a daily basis) cash or liquid securities
that, when added to the amounts deposited with a futures commission merchant
("FCM") as margin, are equal to the market value of the futures contract.
Alternatively, the Fund may "cover" its position by purchasing a put option on
the same futures contract with a strike price as high as or higher than the
price of the contract held by the Fund.
When selling an index futures contract, the Fund will maintain with its
Custodian (and mark-to-market on a daily basis) cash or liquid securities that,
when added to the amounts deposited with an FCM as margin, are equal to the
market value of the instruments underlying the contract. Alternatively, the Fund
may "cover" its position by owning the instruments underlying the contract (or,
in the case of an index futures contract, a portfolio with a volatility
substantially similar to that of the index on which the futures contract is
based), or by holding a call option permitting the Fund to purchase the same
futures contract at a price no higher than the price of the contract written by
the Fund (or at a higher price if the difference is maintained in cash or liquid
assets in a segregated account with the Fund's custodian).
COMBINED TRANSACTIONS. The Fund may enter into multiple transactions,
including multiple options transactions, multiple futures transactions, and
multiple currency transactions (including forward currency contracts) and some
combination of futures, options, and currency transactions ("component"
transactions), instead of a single transaction, as part of a single or combined
strategy when, in the opinion of IMI, it is in the best interests of the Fund to
do so. A combined transaction will usually contain elements of risk that are
present in each of its component transactions. Although combined transactions
are normally entered into based on IMI's judgment that the combined strategies
will reduce risk or otherwise more effectively achieve the desired portfolio
management goal, it is possible that the combination will instead increase such
risks or hinder achievement of the management objective.
INVESTMENT RESTRICTIONS
The Fund's investment objectives as set forth in the "Summary" section
of the Prospectus, together with the investment restrictions set forth below,
are fundamental policies of the Fund and may not be changed without the approval
of a majority of the outstanding voting shares of the Fund. Under these
restrictions, the Fund may not:
(i) borrow money, except for temporary purposes where
investment transactions might advantageously require
it. Any such loan may not be for a period in excess
of 60 days, and the aggregate amount of all
outstanding loans may not at any time exceed 10% of
the value of the total assets of the Fund at the time
any such loan is made;
(ii) purchase securities on margin;
(iii) sell securities short;
(iv) lend any funds or other assets, except that this
restriction shall not prohibit (a) the entry into
repurchase agreements or (b) the purchase of publicly
distributed bonds, debentures and other securities of
a similar type, or privately placed municipal or
corporate bonds, debentures and other securities of a
type customarily purchased by institutional investors
or publicly traded in the securities markets;
(v) participate in an underwriting or selling group in
connection with the public distribution of securities
except for its own capital stock;
(vi) purchase from or sell to any of its officers or
trustees, or firms of which any of them are members
or which they control, any securities (other than
capital stock of the Fund), but such persons or firms
may act as brokers for the Fund for customary
commissions to the extent permitted by the 1940 Act;
(vii) purchase or sell real estate or commodities and commodity contracts;
(viii) make an investment in securities of companies in any
one industry (except obligations of domestic banks or
the U.S. Government, its agencies, authorities, or
instrumentalities) if such investment would cause
investments in such industry to exceed 25% of the
market value of the Fund's total assets at the time
of such investment;
(ix) issue senior securities, except as appropriate to
evidence indebtedness which it is permitted to incur,
and except to the extent that shares of the separate
classes or series of the Trust may be deemed to be
senior securities; provided that collateral
arrangements with respect to currency-related
contracts, futures contracts, options or other
permitted investments, including deposits of initial
and variation margin, are not considered to be the
issuance of senior securities for purposes of this
restriction;
(x) invest more than 5% of the value of its total assets
in the securities of any one issuer (except
obligations of domestic banks or the U.S. Government,
its agencies, authorities, and instrumentalities);
(xi) hold more than 10% of the voting securities of any
one issuer (except obligations of domestic banks or
the U.S. Government, its agencies, authorities and
instrumentalities); or
(xii) purchase the securities of any other open-end
investment company, except as part of a plan of
merger or consolidation.
The Fund will continue to interpret fundamental investment restriction
(vii) above to prohibit investment in real estate limited partnership interests;
this restriction shall not, however, prohibit investment in readily marketable
securities of companies that invest in real estate or interests therein,
including real estate investment trusts.
Under the Investment Company Act of 1940, the Fund is permitted,
subject to its investment restrictions, to borrow money only from banks. The
Trust has no current intention of borrowing amounts in excess of 5% of the
Fund's assets.
ADDITIONAL RESTRICTIONS
The Fund has adopted the following additional restrictions, which are
not fundamental and which may be changed without shareholder approval, to the
extent permitted by applicable law, regulation or regulatory policy.
Under these restrictions, the Fund may not:
(i) invest in oil, gas or other mineral leases or exploration or development
programs;
(ii) invest in companies for the purpose of exercising control of management; or
(iii) invest more than 5% of its total assets in warrants,
valued at the lower of cost or market, or more than
2% of its total assets in warrants, so valued, which
are not listed on either the New York or American
Stock Exchanges.
Whenever an investment objective, policy or restriction set forth in
the Prospectus or this SAI states a maximum percentage of assets that may be
invested in any security or other asset or describes a policy regarding quality
standards, such percentage limitation or standard shall, unless otherwise
indicated, apply to the Fund only at the time a transaction is entered into.
Accordingly, if a percentage limitation is adhered to at the time of investment,
a later increase or decrease in the percentage which results from circumstances
not involving any affirmative action by the Fund, such as a change in market
conditions or a change in the Fund's asset level or other circumstances beyond
the Fund's control, will not be considered a violation.
PORTFOLIO TURNOVER
The Fund purchases securities that are believed by IMI to have above
average potential for capital appreciation. Common stocks are disposed of in
situations where it is believed that potential for such appreciation has
lessened or that other common stocks have a greater potential. Therefore, the
Fund may purchase and sell securities without regard to the length of time the
security is to be, or has been, held. A change in securities held by the Fund is
known as "portfolio turnover" and may involve the payment by the Fund of dealer
markup or underwriting commission and other transaction costs on the sale of
securities, as well as on the reinvestment of the proceeds in other securities.
The Fund's portfolio turnover rate is calculated by dividing the lesser of
purchases or sales of portfolio securities for the most recently completed
fiscal year by the monthly average of the value of the portfolio securities
owned by the Fund during that year. For purposes of determining the Fund's
portfolio turnover rate, all securities whose maturities at the time of
acquisition were one year or less are excluded.
TRUSTEES AND OFFICERS
The Fund's Board of Trustees (the "Board") is responsible for the
overall management of the Fund, including general supervision and review of the
Fund's investment activities. The Board, in turn, elects the officers who are
responsible for administering the Fund's day-to-day operations.
The Trustees and Executive Officers of the Trust, their business
addresses and principal occupations during the past five years are:
POSITION WITH BUSINESS AFFILIATIONS
NAME, ADDRESS, AGE THE TRUST AND PRINCIPAL OCCUPATIONS
John S. Anderegg, Jr. Trustee Chairman, Dynamics Research
60 Concord Street Corp. (instruments and controls);
Wilmington, MA 01887 Director, Burr-Brown Corp.
Age: 74 (operational amplifiers); Director,
Metritage Incorporated (level
measuring instruments); Trustee of
Mackenzie Series Trust (1992-1998).
Paul H. Broyhill Trustee Chairman, BMC Fund, Inc.
800 Hickory Blvd. (1983-present); Chairman,
Golfview Park-Box 500 Broyhill Family Foundation,
Lenoir, NC 28645 Inc. (1983-Present); Chairman and
Age: 74 President, Broyhill Investments,
Inc. (1983-present); Chairman,
Broyhill Timber Resources (1983-
present); Management of a personal
portfolio of fixed-income and equity
investments (1983-present); Trustee
of Mackenzie Series Trust (1988-
1998); Director of The Mackenzie
Funds Inc. (1988-1995).
Stanley Channick Trustee President and Chief
11 Bala Avenue Executive Officer, The
Bala Cynwyd, PA 19004 Whitestone Corporation
Age: 75 (insurance agency); Chairman, Scott
Management Company (administrative
services for insurance companies);
President, The Channick Group
(consultants to insurance companies
and national trade associations);
Trustee of Mackenzie Series Trust
(1994-1998); Director of The
Mackenzie Funds Inc. (1994-1995).
Frank W. DeFriece, Jr. Trustee Director, Manager and Vice
The Landmark Centre President, Director and
113 Landmark Lane, Fund Manager, Massengill-
Suite B DeFriece Foundation
Bristol, TN 37620-2285 (charitable organization)
Age: 77 (1950-present); Trustee and Vice
Chairman, East Tennessee Public
Communications Corp. (WSJK-TV)
(1984-present); Trustee of Mackenzie
Series Trust (1985-1998); Director
of The Mackenzie Funds Inc. (1987-
1995).
Roy J. Glauber Trustee Mallinckrodt Professor of
Lyman Laboratory Physics, Harvard
of Physics University (1974-present);
Harvard University Trustee of Mackenzie Series
Cambridge, MA 02138 Trust (1994-1997).
Age: 72
Michael G. Landry Trustee President, Chief Executive
700 South Federal Hwy. And Officer and Director of
Suite 300 Chairman Mackenzie Investment
Boca Raton, FL 33432 Management Inc. (1987-
Age: 51 present); President,
[*Deemed to be an Director and Chairman of
"interested person" Ivy Management Inc. (1992-
of the Trust, as present); Chairman and
defined under the Director of Ivy Mackenzie
1940 Act.] Services Corp.(1993-present);
Chairman and Director of Ivy
Mackenzie Distributors, Inc.
(1994-present); Director and
President of Ivy Mackenzie
Distributors, Inc. (1993-1994);
Director and President of The
Mackenzie Funds Inc. (1987-1995);
Trustee of Mackenzie Series Trust
(1987-1998); President of Mackenzie
Series Trust (1987-1996); Chairman
of Mackenzie Series Trust (1996-
1998).
Joseph G. Rosenthal Trustee Chartered Accountant
110 Jardin Drive (1958-present); Trustee of
Unit #12 Mackenzie Series Trust
Concord, Ontario Canada (1985-1998); Director of
L4K 2T7 The Mackenzie Funds Inc.
Age: 63 (1987-1995).
Richard N. Silverman Trustee Director, Newton-Wellesley
18 Bonnybrook Road Hospital; Director, Beth
Waban, MA 02168 Israel Hospital; Director,
Age: 74 Boston Ballet; Director, Boston
Children's Museum; Director, Brimmer
and May School.
J. Brendan Swan Trustee President, Airspray
4701 North Federal Hwy. International, Inc.;
Suite 465 Joint Managing Director,
Pompano Beach, FL 33064 Airspray International
Age: 67 B.V. (an environmentally sensitive
packaging company); Director of
Polyglass LTD.; Director, The
Mackenzie Funds Inc. (1992-1995);
Trustee of Mackenzie Series Trust
(1992-1998).
Keith J. Carlson Trustee Senior Vice President of Mackenzie
700 South Federal Hwy. And Investment Management, Inc. (1996 -
Suite 300 President -present); Senior Vice President and
Boca Raton, FL 33432 Director of Mackenzie Investment
Age: 41 Management, Inc. (1994 - 1996);
[*Deemed to be an Senior Vice President and Treasurer
"interested person" of Mackenzie Investment Management,
of the Trust, Inc. (1989-1994); Senior Vice President
as defined under President and Director of Ivy
the 1940 Act.] Management Inc. (1994-present);
Senior Vice President, Treasurer and
Director of Ivy Management Inc.
(1992-1994); Vice President of The
Mackenzie Funds Inc. (1987-1995);
Senior Vice President and Director,
Ivy Mackenzie Services Corp. (1996-
present); President and Director of
Ivy Mackenzie Services Corp. (1993-
1996); Trustee and President of
Mackenzie Series Trust (1996-1998);
Vice President of Mackenzie Series
Trust (1994-1998); Treasurer of
Mackenzie Series Trust (1985-1994);
President, Chief Executive Officer
and Director of Ivy Mackenzie
Distributors, Inc. (1994-present);
Executive Vice President and
Director of Ivy Mackenzie
Distributors, Inc. (1993-1994);
Trustee of Mackenzie Series Trust
(1996-1998).
C. William Ferris Secretary/ Senior Vice President,
700 South Federal Hwy. Treasurer Chief Financial Officer
Suite 300 and Secretary/Treasurer
Boca Raton, FL 33432 of Mackenzie Investment
Age: 53 Management Inc. (1995-present);
Senior Vice President, Finance and
Administration/Compliance Officer of
Mackenzie Investment Management Inc.
(1989-1994); Senior Vice President,
Secretary/ Treasurer and Clerk of
Ivy Management Inc. (1994-present);
Vice President, Finance/
Administration and Compliance
Officer of Ivy Management Inc.
(1992-1994); Senior Vice President,
Secretary/Treasurer and Director of
Ivy Mackenzie Distributors, Inc.
(1994-present); Secretary/Treasurer
and Director of Ivy Mackenzie
Distributors, Inc. (1993-1994);
President and Director of Ivy
Mackenzie Services Corp.
(1996-present); Secretary/Treasurer
and Director of Ivy Mackenzie
Services Corp. (1993-1996);
Secretary/Treasurer
of The Mackenzie Funds Inc.
(1993-1995); Secretary/Treasurer of
Mackenzie Series Trust (1994-1998).
James W. Broadfoot Vice Executive Vice President,
700 South Federal Hwy. President Ivy Management Inc. (1996-
Suite 300 present); Senior Vice
Boca Raton, FL 33432 President, Ivy Management,
Age: 56 Inc. (1992-1996); Director and
Senior Vice President, Mackenzie
Investment Management Inc. (1995-
present); Senior Vice President,
Mackenzie Investment Management Inc.
(1990-1995).
COMPENSATION TABLE
IVY FUND
(FISCAL YEAR ENDED DECEMBER 31, 1998)
PENSION OR TOTAL COMPENSA-
AGGREGATE RETIREMENT ESTIMATED TION FROM TRUST
NAME, COMPENSATION BENEFITS ACCRUED ANNUAL AND FUND
POSITION FROM TRUST AS PART OF BENEFITS UPON COMPLEX PAID TO
FUND EXPENSES RETIREMENT TRUSTEES
John S. N/A N/A
Anderegg, Jr.
(Trustee)
Paul H. N/A N/A
Broyhill
(Trustee)
Keith J. $0 N/A N/A $0
Carlson
(Trustee and
President)
Stanley N/A N/A
Channick
(Trustee)
Frank W. N/A N/A
DeFriece, Jr.
(Trustee)
Roy J. N/A N/A
Glauber
(Trustee)
Michael G. $0 N/A N/A $0
Landry
(Trustee and
Chairman of
the Board)
Joseph G. N/A N/A
Rosenthal
(Trustee)
Richard N. N/A N/A
Silverman
(Trustee)
J. Brendan N/A N/A
Swan
(Trustee)
C. William $0 N/A N/A $0
Ferris
(Secretary/
Treasurer)
To the knowledge of the Trust, as of [ ], no shareholder owned
beneficially or of record 5% or more of the Fund's outstanding shares of any
class, except that [to be completed by amendment.]
As of [.. ], the Officers and Trustees of the Trust as a group owned
beneficially or of record less than 1% of the outstanding Class A, Class B,
Class C and Class I shares of the Fund.
PERSONAL INVESTMENTS BY EMPLOYEES OF IMI. Employees of IMI are
permitted to make personal securities transactions, subject to the requirements
and restrictions set forth in IMI's Code of Ethics and Business Conduct Policy
(the "Code of Ethics"). The Code of Ethics is designed to identify and address
certain conflicts of interest between personal investment activities and the
interests of investment advisory clients such as the Fund. Among other things,
the Code of Ethics, which generally complies with standards recommended by the
Investment Company Institute's Advisory Group on Personal Investing, prohibits
certain types of transactions absent prior approval, applies to portfolio
managers, traders, research analysts and others involved in the investment
advisory process, and imposes time periods during which personal transactions
may not be made in certain securities, and requires the submission of duplicate
broker confirmations and monthly reporting of securities transactions.
Exceptions to these and other provisions of the Code of Ethics may be granted in
particular circumstances after review by appropriate personnel.
INVESTMENT ADVISORY AND OTHER SERVICES
BUSINESS MANAGEMENT AND INVESTMENT ADVISORY SERVICES
IMI provides business management and investment advisory services to
the Fund pursuant to a Business Management and Investment Advisory Agreement
(the "Agreement"). The Agreement was approved by the shareholders of the Fund on
December 30, 1991. Prior to shareholder approval, the Agreement was approved
with respect to the Fund by the Board, including a majority of the Trustees who
are neither "interested persons" (as defined in the 1940 Act) of the Trust nor
have any direct or indirect financial interest in the operation of the
distribution plan (see "Distribution Services") or in any related agreement (the
"Independent Trustees") at a meeting held on October 28, 1991.
IMI is a wholly owned subsidiary of Mackenzie Investment Management
Inc. ("MIMI"). MIMI, a Delaware corporation, has approximately 10% of its
outstanding common stock listed for trading on the Toronto Stock Exchange
("TSE"). MIMI is a subsidiary of Mackenzie Financial Corporation ("MFC"), 150
Bloor Street West, Toronto, Ontario, Canada, a public corporation organized
under the laws of Ontario whose shares are listed for trading on the TSE. MFC is
registered in Ontario as a mutual fund dealer and advises Ivy Global Natural
Resources Fund. IMI currently acts as manager and investment adviser to the
following additional investment companies registered under the 1940 Act (other
than the Fund): Ivy Asia Pacific Fund, Ivy Bond Fund, Ivy China Region Fund, Ivy
Developing Nations Fund, Ivy European Opportunities Fund, Ivy Global Fund, Ivy
Global Science & Technology Fund, Ivy Growth Fund, Ivy Growth with Income Fund,
Ivy International Fund II, Ivy International Small Companies Fund, Ivy
International Strategic Bond Fund, Ivy Money Market Fund, Ivy Pan-Europe Fund,
Ivy South America Fund, Ivy US Blue Chip Fund and Ivy US Emerging Growth Fund.
IMI also provides business management services to Ivy Global Natural Resources
Fund.
The Agreement obligates IMI to make investments for the account of the
Fund in accordance with its best judgment and within the investment objectives
and restrictions set forth in the Prospectus, the 1940 Act and the provisions of
the Code relating to regulated investment companies, subject to policy decisions
adopted by the Board. IMI also determines the securities to be purchased or sold
by the Fund and places orders with brokers or dealers who deal in such
securities.
Under the Agreement, IMI also provides certain business management
services. IMI is obligated to (1) coordinate with the Fund's Custodian and
monitor the services it provides to the Fund; (2) coordinate with and monitor
any other third parties furnishing services to the Fund; (3) provide the Fund
with necessary office space, telephones and other communications facilities as
are adequate for the Fund's needs; (4) provide the services of individuals
competent to perform administrative and clerical functions that are not
performed by employees or other agents engaged by the Fund or by IMI acting in
some other capacity pursuant to a separate agreement or arrangements with the
Fund; (5) maintain or supervise the maintenance by third parties of such books
and records of the Trust as may be required by applicable Federal or state law;
(6) authorize and permit IMI's directors, officers and employees who may be
elected or appointed as trustees or officers of the Trust to serve in such
capacities; and (7) take such other action with respect to the Trust, after
approval by the Trust as may be required by applicable law, including without
limitation the rules and regulations of the SEC and of state securities
commissions and other regulatory agencies.
The Fund pays IMI a monthly fee for providing business management and
investment advisory services at an annual rate of 1.00% of the Fund's average
net assets.
For the fiscal years ended December 31, 1996, 1997 and 1998, the Fund
paid IMI fees of $9,157,858, $22,898,279 and [. ], respectively.
Under the Agreement, the Trust pays the following expenses: (1) the
fees and expenses of the Trust's Independent Trustees; (2) the salaries and
expenses of any of the Trust's officers or employees who are not affiliated with
IMI; (3) interest expenses; (4) taxes and governmental fees, including any
original issue taxes or transfer taxes applicable to the sale or delivery of
shares or certificates therefor; (5) brokerage commissions and other expenses
incurred in acquiring or disposing of portfolio securities; (6) the expenses of
registering and qualifying shares for sale with the SEC and with various state
securities commissions; (7) accounting and legal costs; (8) insurance premiums;
(9) fees and expenses of the Trust's Custodian and Transfer Agent and any
related services; (10) expenses of obtaining quotations of portfolio securities
and of pricing shares; (11) expenses of maintaining the Trust's legal existence
and of shareholders' meetings; (12) expenses of preparation and distribution to
existing shareholders of periodic reports, proxy materials and prospectuses; and
(13) fees and expenses of membership in industry organizations.
The Agreement will continue in effect with respect to the Fund from
year to year, only so long as the continuance is specifically approved at least
annually (i) by the vote of a majority of the Independent Trustees and (ii)
either (a) by the vote of a majority of the outstanding voting securities (as
defined in the 1940 Act) of the Fund or (b) by the vote of a majority of the
entire Board. If the question of continuance of the Agreement (or adoption of
any new agreement) is presented to the shareholders, continuance (or adoption)
shall be effected only if approved by the affirmative vote of a majority of the
outstanding voting securities of the Fund. See "Capitalization and Voting
Rights."
The Agreement may be terminated with respect to the Fund at any time,
without payment of any penalty, by the vote of a majority of the Board, or by a
vote of a majority of the outstanding voting securities of the Fund, on 60 days'
written notice to IMI, or by IMI on 60 days' written notice to the Trust. The
Agreement shall terminate automatically in the event of its assignment.
SUBADVISORY CONTRACT . The Trust and IMI, on behalf of the Fund, have
entered into a subadvisory contract with an independent investment adviser (the
"Subadvisory Contract") under which the subadviser develops, recommends and
implements an investment program and strategy for the Fund's portfolio and is
responsible for making all portfolio security and brokerage decisions, subject
to the supervision of IMI and, ultimately, the Board. Fees payable under the
Subadvisory Contract accrue daily and are paid quarterly by IMI. Effective April
1, 1993, Northern Cross serves as subadviser for the Fund's portfolio pursuant
to the Subadvisory Contract. As compensation for its services, Northern Cross is
paid a fee by IMI at the annual rate of 0.60% of the Fund's average net assets.
As compensation for advisory services rendered for the fiscal years ended
December 31, 1996, 1997 and 1998, IMI paid Northern Cross $5,494,715,
$13,738,967 and [ ], respectively. Northern Cross, wholly-owned and operated by
Hakan Castegren, is the successor to the investment advisory functions of Boston
Overseas Investors, Inc. ("BOI"), which also was wholly-owned and operated by
Hakan Castegren. Boston Investor Services, Inc., the successor to the
administrative and research functions of BOI, provides administrative and
research services to Northern Cross.
Any amendment to the current Subadvisory Contract requires approval by
votes of (a) a majority of the outstanding voting securities of the Fund
affected thereby and (b) a majority of the Trustees who are not interested
persons of the Trust or of any other party to such Contract. The Subadvisory
Contract terminates automatically in the event of its assignment (as defined in
the 1940 Act) or upon termination of the Agreement. Also, the Subadvisory
Contract may be terminated by not more than 60 days' nor less than 30 days'
written notice by either the Trust or IMI or upon not less than 120 days' notice
by the Subadviser. The Subadvisory Contract provides that IMI or the Subadviser
shall not be liable to the Trust, to any shareholder of the Trust, or to any
other person, except for loss resulting from willful misfeasance, bad faith,
gross negligence or reckless disregard of duty.
The Subadvisory Contract will continue in effect (subject to provisions
for earlier termination as described above) only if such continuance is approved
at least annually (a) by a majority of the Trustees who are not interested
persons of the Trust or of any other party to the Contract and (b) by either (i)
a majority of all of the Trustees of the Trust or (ii) a vote of a majority of
the outstanding voting securities of any Fund affected thereby. On __________,
the Board, including a majority of the Independent Trustees, last approved the
continuance of the Subadvisory Contract.
DISTRIBUTION SERVICES
IMDI, a wholly owned subsidiary of MIMI, serves as the exclusive
distributor of Ivy Fund's shares pursuant to an Amended and Restated
Distribution Agreement with the Trust dated _____________, 1999, as amended from
time to time (the "Distribution Agreement"). The Distribution Agreement was
approved by the Board on September 17, 1998. IMDI distributes shares of the Fund
through broker-dealers who are members of the National Association of Securities
Dealers, Inc. and who have executed dealer agreements with IMDI. IMDI
distributes shares of the Fund on a continuous basis, but reserves the right to
suspend or discontinue distribution on that basis. IMDI is not obligated to sell
any specific amount of Fund shares.
Pursuant to the Distribution Agreement, IMDI is entitled to deduct a
commission on all Class A Fund shares sold equal to the difference, if any,
between the public offering price, as set forth in the Fund's then-current
prospectus, and the net asset value on which such price is based. Out of that
commission, IMDI may reallow to dealers such concession as IMDI may determine
from time to time. In addition, IMDI is entitled to deduct a CDSC on the
redemption of Class A shares sold without an initial sales charge and Class B
and Class C shares, in accordance with, and in the manner set forth in, the
Prospectus.
Under the Distribution Agreement, the Fund bears, among other expenses,
the expenses of registering and qualifying its shares for sale under federal and
state securities laws and preparing and distributing to existing shareholders
periodic reports, proxy materials and prospectuses.
During the fiscal year ended December 31, 1998, IMDI received from
sales of Class A shares of the Fund [ ] in sales commissions, of which [ ] was
retained after dealer allowances. During the fiscal year ended December 31,
1998, IMDI received [ ] in CDSCs on redemptions of Class B shares of the Fund.
During the fiscal year ended December 31, 1998, IMDI received [ ] in CDSCs on
redemptions of Class C shares of the Fund.
The Distribution Agreement will continue in effect for successive
one-year periods, provided that such continuance is specifically approved at
least annually by the vote of a majority of the Independent Trustees, cast in
person at a meeting called for that purpose and by the vote of either a majority
of the entire Board or a majority of the outstanding voting securities of the
Fund. The Distribution Agreement may be terminated with respect to the Fund at
any time, without payment of any penalty, by IMDI on 60 days' written notice to
the Fund or by the Fund by vote of either a majority of the outstanding voting
securities of the Fund or a majority of the Independent Trustees on 60 days'
written notice to IMDI. The Distribution Agreement shall terminate automatically
in the event of its assignment.
RULE 18F-3 PLAN. On February 23, 1995, the SEC adopted Rule 18f-3 under
the 1940 Act, which permits a registered open-end investment company to issue
multiple classes of shares in accordance with a written plan approved by the
investment company's board of directors/trustees and filed with the SEC. At a
meeting held on December 1-2, 1995, the Board adopted a Rule 18f-3 plan on
behalf of the Fund. The Board last approved the Rule 18f-3 plan at a meeting
held of December 5-6, 1997. The key features of the Rule 18f-3 plan are as
follows: (i) shares of each class of the Fund represent an equal pro rata
interest in the Fund and generally have identical voting, dividend, liquidation,
and other rights, preferences, powers, restrictions, limitations,
qualifications, terms and conditions, except that each class bears certain
class-specific expenses and has separate voting rights on certain matters that
relate solely to that class or in which the interests of shareholders of one
class differ from the interests of shareholders of another class; (ii) subject
to certain limitations described in the Prospectus, shares of a particular class
of the Fund may be exchanged for shares of the same class of another Ivy fund;
and (iii) the Fund's Class B shares will convert automatically into Class A
shares of the Fund after a period of eight years, based on the relative net
asset value of such shares at the time of conversion.
RULE 12B-1 DISTRIBUTION PLANS. The Trust has adopted on behalf of the
Fund, in accordance with Rule 12b-1 under the 1940 Act, separate Rule 12b-1
distribution plans pertaining to the Fund's Class A, Class B and Class C shares
(each, a "Plan"). In adopting each Plan, a majority of the Independent Trustees
have concluded in accordance with the requirements of Rule 12b-1 that there is a
reasonable likelihood that each Plan will benefit the Fund and its shareholders.
The Trustees of the Trust believe that the Plans should result in greater sales
and/or fewer redemptions of the Fund's shares, although it is impossible to know
for certain the level of sales and redemptions of the Fund's shares in the
absence of a Plan or under an alternative distribution arrangement.
Under each Plan, the Fund pays IMDI a service fee, accrued daily and
paid monthly, at the annual rate of up to 0.25% of the average daily net assets
attributable to its Class A, Class B or Class C shares, as the case may be. The
services for which service fees may be paid include, among other things,
advising clients or customers regarding the purchase, sale or retention of
shares of the Fund, answering routine inquiries concerning the Fund and
assisting shareholders in changing options or enrolling in specific plans.
Pursuant to each Plan, service fee payments made out of or charged against the
assets attributable to the Fund's Class A, Class B or Class C shares must be in
reimbursement for services rendered for or on behalf of the affected class. The
expenses not reimbursed in any one month may be reimbursed in a subsequent
month. The Class A Plan does not provide for the payment of interest or carrying
charges as distribution expenses.
Under the Fund's Class B and Class C Plans, the Fund also pays IMDI a
distribution fee, accrued daily and paid monthly, at the annual rate of 0.75% of
the average daily net assets attributable to its Class B or Class C shares. IMDI
may reallow to dealers all or a portion of the service and distribution fees as
IMDI may determine from time to time. The distribution fee compensates IMDI for
expenses incurred in connection with activities primarily intended to result in
the sale of the Fund's Class B or Class C shares, including the printing of
prospectuses and reports for persons other than existing shareholders and the
preparation, printing and distribution of sales literature and advertising
materials. Pursuant to each Class B and Class C Plan, IMDI may include interest,
carrying or other finance charges in its calculation of distribution expenses,
if not prohibited from doing so pursuant to an order of or a regulation adopted
by the SEC.
Among other things, each Plan provides that (1) IMDI will submit to the
Board at least quarterly, and the Trustees will review, written reports
regarding all amounts expended under the Plan and the purposes for which such
expenditures were made; (2) each Plan will continue in effect only so long as
such continuance is approved at least annually, and any material amendment
thereto is approved, by the votes of a majority of the Board, including the
Independent Trustees, cast in person at a meeting called for that purpose; (3)
payments by the Fund under each Plan shall not be materially increased without
the affirmative vote of the holders of a majority of the outstanding shares of
the relevant class; and (4) while each Plan is in effect, the selection and
nomination of Independent Trustees shall be committed to the discretion of the
Trustees who are not "interested persons" of the Trust.
IMDI may make payments for distribution assistance and for
administrative and accounting services from resources that may include the
management fees paid by the Fund. IMDI also may make payments (such as the
service fee payments described above) to unaffiliated broker-dealers for
services rendered in the distribution of the Fund's shares. To qualify for such
payments, shares may be subject to a minimum holding period. However, no such
payments will be made to any dealer or broker if at the end of each year the
amount of shares held does not exceed a minimum amount. The minimum holding
period and minimum level of holdings will be determined from time to time by
IMDI.
A report of the amount expended pursuant to each Plan, and the purposes
for which such expenditures were incurred, must be made to the Board for its
review at least quarterly.
During the fiscal year ended December 31, 1998, the Fund paid IMDI [ ]
pursuant to its Class A plan. During the fiscal year ended December 31, 1998 the
Fund paid IMDI [ ] pursuant to its Class B plan. During the fiscal year ended
December 31, 1998, the Fund paid IMDI [ ] pursuant to its Class C plan.
During the fiscal year ended December 31, 1998, IMDI expended the
following amounts in marketing Class A shares of the Fund: advertising [$ ;]
printing and mailing of prospectuses to persons other than current shareholders,
[$.. ;] compensation to dealers, [$ ;] compensation to sales personnel [$ ;]
seminars and meetings, [$ ;] travel and entertainment, [$ ;] general and
administrative, [$ ;] telephone, [$.. ;] and occupancy and equipment rental, [$
]
During the fiscal year ended December 31, 1998, IMDI expended the
following amounts in marketing Class B shares of the Fund: advertising, [$ ;]
printing and mailing of prospectuses to persons other than current shareholders,
[$.. ;] compensation to dealers, [$ ;] compensation to sales personnel, [$ ;]
seminars and meetings, [$ ;] travel and entertainment, [$ ;] general and
administrative, [$ ;] telephone, [$..;] and occupancy and equipment rental [$ .]
During the fiscal year ended December 31, 1998, IMDI expended the
following amounts in marketing Class C shares of the Fund: advertising, [$ ;]
printing and mailing of prospectuses to persons other than current shareholders,
[$..;] compensation to dealers, [$ ] compensation to sales personnel, [$ ;]
seminars and meetings, [$ ;] travel and entertainment, [$ ;] general
administrative, [$ ;] telephone, [$.. ;] and occupancy and equipment rental, [$
.]
Each Plan may be amended at any time with respect to the class of
shares of the Fund to which the Plan relates by vote of the Trustees, including
a majority of the Independent Trustees, cast in person at a meeting called for
the purpose of considering such amendment. Each Plan may be terminated at any
time with respect to the class of shares of the Fund to which the Plan relates,
without payment of any penalty, by vote of a majority of the Independent
Trustees, or by vote of a majority of the outstanding voting securities of that
class.
If the Distribution Agreement or the Distribution Plans are terminated
(or not renewed) with respect to any of the Ivy funds (or class of shares
thereof), each may continue in effect with respect to any other fund (or Class
of shares thereof) as to which they have not been terminated (or have been
renewed).
CUSTODIAN
Pursuant to a Custodian Agreement with the Trust, Brown Brothers
Harriman & Co. (the "Custodian"), a private bank and member of the principal
securities exchanges, located at 40 Water Street, Boston, Massachusetts 02109
(the "Custodian"), maintains custody of the assets of the Fund held in the
United States. Rules adopted under the 1940 Act permit the Trust to maintain its
foreign securities and cash in the custody of certain eligible foreign banks and
securities depositories. Pursuant to those rules, the Custodian has entered into
subcustodial agreements for the holding of the Fund's foreign securities. With
respect to the Fund, the Custodian may receive, as partial payment for its
services to the Fund, a portion of the Trust's brokerage business, subject to
its ability to provide best price and execution.
FUND ACCOUNTING SERVICES
Pursuant to a Fund Accounting Services Agreement, MIMI provides certain
accounting and pricing services for the Fund. As compensation for those
services, the Fund pays MIMI a monthly fee plus out-of-pocket expenses as
incurred. The monthly fee is based upon the net assets of the Fund at the
preceding month end at the following rates: $1,250 when net assets are $10
million and under; $2,500 when net assets are over $10 million to $40 million;
$5,000 when net assets are over $40 million to $75 million; and $6,500 when net
assets are over $75 million.
During the fiscal year ended December 31, 1998, the Fund paid MIMI [ ]
under the agreement.
TRANSFER AGENT AND DIVIDEND PAYING AGENT
Pursuant to a Transfer Agency and Shareholder Service Agreement, Ivy
Mackenzie Services Corp. ("IMSC"), a wholly owned subsidiary of MIMI, is the
transfer agent for the Fund. Under the Agreement, the Fund pays a monthly fee at
an annual rate of $20.00 for each open Class A, Class B and Class C account. The
Fund pays $10.25 per open Class I account. In addition, the Fund pays a monthly
fee at an annual rate of $4.58 per account that is closed plus certain
out-of-pocket expenses. Such fees and expenses for the fiscal year ended
December 31, 1998 for the Fund totaled [$ ]. Certain broker-dealers that
maintain shareholder accounts with the Fund through an omnibus account provide
transfer agent and other shareholder-related services that would otherwise be
provided by IMSC if the individual accounts that comprise the omnibus account
were opened by their beneficial owners directly. IMSC pays such broker-dealers a
per account fee for each open account within the omnibus account, or a fixed
rate (e.g., 0.10%) fee, based on the average daily net asset value of the
omnibus account (or a combination thereof).
ADMINISTRATOR
Pursuant to an Administrative Services Agreement, MIMI provides certain
administrative services to the Fund. As compensation for these services, the
Fund (except with respect to its Class I shares) pays MIMI a monthly fee at the
annual rate of 0.10% of the Fund's average daily net assets. The Fund pays MIMI
a monthly fee at the annual rate of 0.01% of its average daily net assets for
Class I. Such fees for the fiscal year ended December 31, 1998 for the Fund
totaled [$ ].
Outside of providing administrative services to the Trust, as described
above, MIMI may also act on behalf of IMDI in paying commissions to
broker-dealers with respect to sales of Class B and Class C shares of the Fund.
AUDITORS
[........ ], independent public accountants, has been selected as
auditors for the Trust. The audit services performed by [ ] include audits of
the annual financial statements of each of the funds of the Trust. Other
services provided principally relate to filings with the SEC and the preparation
of the funds' tax returns.
BROKERAGE ALLOCATION
Subject to the overall supervision of the President and the Board, IMI
and/or Northern Cross places orders for the purchase and sale of the Fund's
portfolio securities. All portfolio transactions are effected at the best price
and execution obtainable. Purchases and sales of debt securities are usually
principal transactions and therefore, brokerage commissions are usually not
required to be paid by the Fund for such purchases and sales (although the price
paid generally includes undisclosed compensation to the dealer). The prices paid
to underwriters of newly-issued securities usually include a concession paid by
the issuer to the underwriter, and purchases of after-market securities from
dealers normally reflect the spread between the bid and asked prices. In
connection with OTC transactions, IMI and/or Northern Cross attempts to deal
directly with the principal market makers, except in those circumstances where
IMI and/or Northern Cross believes that a better price and execution are
available elsewhere.
IMI and/or Northern Cross selects broker-dealers to execute
transactions and evaluates the reasonableness of commissions on the basis of
quality, quantity, and the nature of the firms' professional services.
Commissions to be charged and the rendering of investment services, including
statistical, research, and counseling services by brokerage firms, are factors
to be considered in the placing of brokerage business. The types of research
services provided by brokers may include general economic and industry data, and
information on securities of specific companies. Research services furnished by
brokers through whom the Trust effects securities transactions may be used by
IMI and/or Northern Cross in servicing all of its accounts. In addition, not all
of these services may be used by IMI and/or Northern Cross in connection with
the services it provides to the Fund or the Trust. IMI and/or Northern Cross may
consider sales of shares of Ivy funds as a factor in the selection of
broker-dealers and may select broker-dealers who provide it with research
services. IMI and/or Northern Cross will not, however, execute brokerage
transactions other than at the best price and execution.
During the fiscal years ended December 31, 1996, 1997 and 1998, the
Fund paid brokerage commissions of $1,709,643, $2,987,187 and [ ], respectively.
The Fund may, under some circumstances, accept securities in lieu of
cash as payment for Fund shares. The Fund will accept securities only to
increase its holdings in a portfolio security or to take a new portfolio
position in a security that IMI and/or Northern Cross deems to be a desirable
investment for the Fund. While no minimum has been established, it is expected
that the Fund will not accept securities having an aggregate value of less than
$1 million. The Trust may reject in whole or in part any or all offers to pay
for the Fund shares with securities and may discontinue accepting securities as
payment for the Fund shares at any time without notice. The Trust will value
accepted securities in the manner and at the same time provided for valuing
portfolio securities of the Fund, and the Fund shares will be sold for net asset
value determined at the same time the accepted securities are valued. The Trust
will only accept securities delivered in proper form and will not accept
securities subject to legal restrictions on transfer. The acceptance of
securities by the Trust must comply with the applicable laws of certain states.
CAPITALIZATION AND VOTING RIGHTS
The capitalization of the Trust consists of an unlimited number of
shares of beneficial interest (no par value per share). When issued, shares of
each class of the Fund are fully paid, non-assessable, redeemable and fully
transferable. No class of shares of the Fund has preemptive rights or
subscription rights.
The Amended and Restated Declaration of Trust permits the Trustees to
create separate series or portfolios and to divide any series or portfolio into
one or more classes. The Trustees have authorized nineteen series, each of which
represents a fund. The Trustees have further authorized the issuance of Class A,
Class B, and Class C shares for the Fund and Ivy Money Market Fund and Class A,
Class B, Class C and Advisor Class shares for Ivy Asia Pacific Fund, Ivy Bond
Fund, Ivy China Region Fund, Ivy Developing Nations Fund, Ivy European
Opportunities Fund Ivy Global Fund, Ivy Global Natural Resources Fund, Ivy
Global Science & Technology Fund, Ivy Growth Fund, Ivy Growth with Income Fund,
Ivy International Fund II, Ivy International Small Companies Fund, Ivy
International Strategic Bond Fund, Ivy Pan-Europe Fund, Ivy South America Fund,
Ivy US Blue Chip Fund and Ivy US Emerging Growth Fund, as well as Class I shares
for the Fund, Ivy Bond Fund, Ivy European Opportunities Fund, Ivy Global Science
& Technology Fund, Ivy International Fund II, Ivy International Small Companies
Fund, Ivy International Strategic Bond Fund and Ivy US Blue Chip Fund.
Shareholders have the right to vote for the election of Trustees of the
Trust and on any and all matters on which they may be entitled to vote by law or
by the provisions of the Trust's By-Laws. The Trust is not required to hold a
regular annual meeting of shareholders, and it does not intend to do so. Shares
of each class of the Fund entitle their holders to one vote per share (with
proportionate voting for fractional shares). Shareholders of the Fund are
entitled to vote alone on matters that only affect the Fund. All classes of
shares of the Fund will vote together, except with respect to the distribution
plan applicable to the Fund's Class A, Class B or Class C shares or when a class
vote is required by the 1940 Act. On matters relating to all funds of the Trust,
but affecting the funds differently, separate votes by the shareholders of each
fund are required. Approval of an investment advisory agreement and a change in
fundamental policies would be regarded as matters requiring separate voting by
the shareholders of each fund of the Trust. If the Trustees determine that a
matter does not affect the interests of the Fund, then the shareholders of the
Fund will not be entitled to vote on that matter. Matters that affect the Trust
in general, such as ratification of the selection of independent public
accountants, will be voted upon collectively by the shareholders of all funds of
the Trust.
As used in this SAI and the Prospectus, the phrase "majority vote of
the outstanding shares" of the Fund means the vote of the lesser of: (1) 67% of
the shares of the Fund (or of the Trust) present at a meeting if the holders of
more than 50% of the outstanding shares are present in person or by proxy; or
(2) more than 50% of the outstanding shares of the Fund (or of the Trust).
With respect to the submission to shareholder vote of a matter
requiring separate voting by the Fund, the matter shall have been effectively
acted upon with respect to the Fund if a majority of the outstanding voting
securities of the Fund votes for the approval of the matter, notwithstanding
that: (1) the matter has not been approved by a majority of the outstanding
voting securities of any other fund of the Trust; or (2) the matter has not been
approved by a majority of the outstanding voting securities of the Trust.
The Amended and Restated Declaration of Trust provides that the holders
of not less than two-thirds of the outstanding shares of the Trust may remove a
person serving as trustee either by declaration in writing or at a meeting
called for such purpose. The Trustees are required to call a meeting for the
purpose of considering the removal of a person serving as Trustee if requested
in writing to do so by the holders of not less than 10% of the outstanding
shares of the Trust. Shareholders will be assisted in communicating with other
shareholders in connection with the removal of a Trustee as if Section 26(c) of
the Act were applicable.
The Trust's shares do not have cumulative voting rights and accordingly
the holders of more than 50% of the outstanding shares could elect the entire
Board, in which case the holders of the remaining shares would not be able to
elect any Trustees.
Under Massachusetts law, the Trust's shareholders could, under certain
circumstances, be held personally liable for the obligations of the Trust.
However, the Amended and Restated Declaration of Trust disclaims liability of
the shareholders, Trustees or officers of the Trust for acts or obligations of
the Trust, which are binding only on the assets and property of the Trust, and
requires that notice of the disclaimer be given in each contract or obligation
entered into or executed by the Trust or its Trustees. The Amended and Restated
Declaration of Trust provides for indemnification out of Fund property for all
loss and expense of any shareholder of the Fund held personally liable for the
obligations of the Fund. The risk of a shareholder of the Trust incurring
financial loss on account of shareholder liability is limited to circumstances
in which the Trust itself would be unable to meet its obligations and, thus,
should be considered remote. No series of the Trust is liable for the
obligations of any other series of the Trust.
SPECIAL RIGHTS AND PRIVILEGES
The Trust offers, and (except as noted below) bears the cost of
providing, to investors the following rights and privileges. The Trust reserves
the right to amend or terminate any one or more of these rights and privileges.
Notice of amendments to or terminations of rights and privileges will be
provided to shareholders in accordance with applicable law.
Certain of the rights and privileges described below refer to funds,
other than the Fund, whose shares are also distributed by IMDI. These funds are:
Ivy Asia Pacific Fund, Ivy Bond Fund, Ivy China Region Fund, Ivy Developing
Nations Fund, Ivy European Opportunities Fund, Ivy Global Fund, Ivy Global
Natural Resources Fund, Ivy Global Science & Technology Fund, Ivy Growth Fund,
Ivy Growth with Income Fund, Ivy International Fund II, Ivy International Small
Companies Fund, Ivy International Strategic Bond Fund, Ivy Money Market Fund,
Ivy Pan-Europe Fund, Ivy South America Fund, Ivy US Blue Chip Fund and Ivy US
Emerging Growth Fund (the other eighteen series of the Trust). Shareholders
should obtain a current prospectus before exercising any right or privilege that
may relate to these funds.
Effective April 18, 1997, the Fund suspended the offer of its shares to
new investors. Shares of the Fund are available for purchase only by existing
shareholders of the Fund. Once a shareholder's account has been liquidated, the
shareholder may not invest in the Fund at a later date.
AUTOMATIC INVESTMENT METHOD
The Automatic Investment Method, which enables a Fund shareholder to
have specified amounts automatically drawn each month from his or her bank for
investment in Fund shares, is available for all classes of shares, except Class
I. The minimum initial and subsequent investment under this method is $50 per
month (except in the case of a tax qualified retirement plan for which the
minimum initial and subsequent investment is $25 per month). A shareholder may
terminate the Automatic Investment Method at any time upon delivery to IMSC of
telephone instructions or written notice. See "Automatic Investment Method" in
the Prospectus. To begin the plan, complete Sections 6A and 7B of the Account
Application.
EXCHANGE OF SHARES
As described in the Prospectus, shareholders of the Fund have an
exchange privilege with other Ivy funds. Before effecting an exchange,
shareholders of the Fund should obtain and read the currently effective
prospectus for the Ivy fund into which the exchange is to be made.
INITIAL SALES CHARGE SHARES. Class A shareholders may exchange their
Class A shares ("outstanding Class A shares") for Class A shares of another Ivy
fund ("new Class A Shares") on the basis of the relative net asset value per
Class A share, plus an amount equal to the difference, if any, between the sales
charge previously paid on the outstanding Class A shares and the sales charge
payable at the time of the exchange on the new Class A shares. (The additional
sales charge will be waived for Class A shares that have been invested for a
period of 12 months or longer.) Class A shareholders may also exchange their
shares for shares of Ivy Money Market Fund (no initial sales charge will be
assessed at the time of such an exchange).
CONTINGENT DEFERRED SALES CHARGE SHARES CLASS A: Class A shareholders
may exchange their Class A shares that are subject to a contingent deferred
sales charge ("CDSC"), as described in the Prospectus ("outstanding Class A
shares"), for Class A shares of another Ivy fund ("new Class A shares") on the
basis of the relative net asset value per Class A share, without the payment of
any CDSC that would otherwise be due upon the redemption of the outstanding
Class A shares. Class A shareholders of the Fund exercising the exchange
privilege will continue to be subject to that Fund's CDSC period following an
exchange if such period is longer than the CDSC period, if any, applicable to
the new Class A shares.
For purposes of computing the CDSC that may be payable upon the
redemption of the new Class A shares, the holding period of the outstanding
Class A shares is "tacked" onto the holding period of the new Class A shares.
CLASS B: Class B shareholders may exchange their Class B shares
("outstanding Class B shares") for Class B shares of another Ivy fund ("new
Class B shares") on the basis of the relative net asset value per Class B share,
without the payment of any CDSC that would otherwise be due upon the redemption
of the outstanding Class B shares. Class B shareholders of the Fund exercising
the exchange privilege will continue to be subject to that Fund's CDSC schedule
(or period) following an exchange if such schedule is higher (or such period is
longer) than the CDSC schedule (or period) applicable to the new Class B shares.
Class B shares of the Fund acquired through an exchange of Class B
shares of another Ivy fund will be subject to that Fund's CDSC schedule (or
period) if such schedule is higher (or such period is longer) than the CDSC
schedule (or period) applicable to the Ivy fund from which the exchange was
made.
For purposes of both the conversion feature and computing the CDSC that
may be payable upon the redemption of the new Class B shares (prior to
conversion), the holding period of the outstanding Class B shares is "tacked"
onto the holding period of the new Class B shares.
The following CDSC table applies to Class B shares of Ivy Asia Pacific
Fund, Ivy Bond Fund, Ivy China Region Fund, Ivy Developing Nations Fund, Ivy
European Opportunities Fund, Ivy Global Fund, Ivy Global Natural Resources Fund,
Ivy Global Science & Technology Fund, Ivy Growth Fund, Ivy Growth with Income
Fund, Ivy International Fund II, Ivy International Fund, Ivy International Small
Companies Fund, Ivy International Strategic Bond Fund, Ivy Pan-Europe Fund, Ivy
South America Fund, Ivy US Blue Chip Fund and Ivy US Emerging Growth Fund:
CONTINGENT DEFERRED SALES CHARGE AS A PERCENTAGE OF
DOLLAR AMOUNT SUBJECT TO CHARGE
YEAR SINCE PURCHASE
First 5%
Second 4%
Third 3%
Fourth 3%
Fifth 2%
Sixth 1%
Seventh and thereafter 0%
CLASS C: Class C shareholders may exchange their Class C shares
("outstanding Class C shares") for Class C shares of another Ivy fund ("new
Class C shares") on the basis of the relative net asset value per Class C share,
without the payment of any CDSC that would otherwise be due upon redemption.
(Class C shares are subject to a CDSC of 1.00% if redeemed within one year of
the date of purchase.)
CLASS I : Subject to the restrictions set forth in the following
paragraph, Class I shareholders may exchange their outstanding Class I shares
for Class I shares of another Ivy fund on the basis of the relative net asset
value per share.
ALL CLASSES: The minimum value of shares which may be exchanged into an
Ivy fund in which shares are not already held is $1,000 ($5,000,000 in the case
of Class I shares). No exchange out of the Fund (other than by a complete
exchange of all Fund shares) may be made if it would reduce the shareholder's
interest in the Fund to less than $1,000 ($250,000 in the case of Class I
shares).
Each exchange will be made on the basis of the relative net asset value
per share of the Ivy funds involved in the exchange next computed following
receipt by IMSC of telephone instructions by IMSC or a properly executed
request. Exchanges, whether written or telephonic, must be received by IMSC by
the close of regular trading on the Exchange (normally 4:00 p.m., eastern time)
to receive the price computed on the day of receipt. Exchange requests received
after that time will receive the price next determined following receipt of the
request. The exchange privilege may be modified or terminated at any time, upon
at least 60 days' notice to the extent required by applicable law. See
"Redemptions."
An exchange of shares between any of the Ivy funds will result in a
taxable gain or loss. Generally, this will be a capital gain or loss (long-term
or short-term, depending on the holding period of the shares) in the amount of
the difference between the net asset value of the shares surrendered and the
shareholder's tax basis for those shares. However, in certain circumstances,
shareholders will be ineligible to take sales charges into account in computing
taxable gain or loss on an exchange. See "Taxation."
With limited exceptions, gain realized by a tax-deferred retirement
plan will not be taxable to the plan and will not be taxed to the participant
until distribution. Each investor should consult his or her tax adviser
regarding the tax consequences of an exchange transaction.
LETTER OF INTENT
Reduced sales charges apply to initial investments in Class A shares of
the Fund made pursuant to a non-binding Letter of Intent. A Letter of Intent may
be submitted by an individual, his or her spouse and children under the age of
21, or a trustee or other fiduciary of a single trust estate or single fiduciary
account. See the Account Application in the Prospectus. Any investor may submit
a Letter of Intent stating that he or she will invest, over a period of 13
months, at least $50,000 in Class A shares of the Fund. A Letter of Intent may
be submitted at the time of an initial purchase of Class A shares of the Fund or
within 90 days of the initial purchase, in which case the Letter of Intent will
be back dated. A shareholder may include, as an accumulation credit, the value
(at the applicable offering price) of all Class A shares of Ivy Asia Pacific
Fund, Ivy Bond Fund, Ivy China Region Fund, Ivy Developing Nations Fund, Ivy
European Opportunities Fund, Ivy Global Fund, Ivy Global Natural Resources Fund,
Ivy Global Science & Technology Fund, Ivy Growth Fund, Ivy Growth with Income
Fund, Ivy International Fund II, Ivy International Fund, Ivy International Small
Companies Fund, Ivy International Strategic Bond Fund, Ivy Pan-Europe Fund, Ivy
South America Fund, Ivy US Blue Chip Fund and Ivy US Emerging Growth Fund (and
shares that have been exchanged into Ivy Money Market Fund from any of the other
funds in the Ivy funds) held of record by him or her as of the date of his or
her Letter of Intent. During the term of the Letter of Intent, the Transfer
Agent will hold Class A shares representing 5% of the indicated amount (less any
accumulation credit value) in escrow. The escrowed Class A shares will be
released when the full indicated amount has been purchased. If the full
indicated amount is not purchased during the term of the Letter of Intent, the
investor is required to pay IMDI an amount equal to the difference between the
dollar amount of sales charge that he or she has paid and that which he or she
would have paid on his or her aggregate purchases if the total of such purchases
had been made at a single time. Such payment will be made by an automatic
liquidation of Class A shares in the escrow account. A Letter of Intent does not
obligate the investor to buy or the Trust to sell the indicated amount of Class
A shares, and the investor should read carefully all the provisions of such
letter before signing.
RETIREMENT PLANS
Shares may be purchased in connection with several types of
tax-deferred retirement plans. Shares of more than one fund distributed by IMDI
may be purchased in a single application establishing a single account under the
plan, and shares held in such an account may be exchanged among the Ivy funds in
accordance with the terms of the applicable plan and the exchange privilege
available to all shareholders. Initial and subsequent purchase payments in
connection with tax-deferred retirement plans must be at least $25 per
participant.
The following fees will be charged to individual shareholder accounts
as described in the retirement prototype plan document:
Retirement Plan New Account Fee no fee
Retirement Plan Annual Maintenance Fee $10.00 per fund account
For shareholders whose retirement accounts are diversified across
several Ivy funds, the annual maintenance fee will be limited to not more than
$20.
The following discussion describes the tax treatment of certain
tax-deferred retirement plans under current Federal income tax law. State income
tax consequences may vary. An individual considering the establishment of a
retirement plan should consult with an attorney and/or an accountant with
respect to the terms and tax aspects of the plan.
INDIVIDUAL RETIREMENT ACCOUNTS: Shares of the Fund may be used as a
funding medium for an Individual Retirement Account ("IRA"). Eligible
individuals may establish an IRA by adopting a model custodial account available
from IMSC, who may impose a charge for establishing the account. Individuals
should consult their tax advisers before investing IRA assets in an Ivy fund if
that fund primarily distributes exempt-interest dividends.
An individual who has not reached age 70-1/2 and who receives
compensation or earned income is eligible to contribute to an IRA, whether or
not he or she is an active participant in a retirement plan. An individual who
receives a distribution from another IRA, a qualified retirement plan, a
qualified annuity plan or a tax-sheltered annuity or custodial account ("403(b)
plan") that qualifies for "rollover" treatment is also eligible to establish an
IRA by rolling over the distribution either directly or within 60 days after its
receipt. Tax advice should be obtained in connection with planning a rollover
contribution to an IRA.
In general, an eligible individual may contribute up to the lesser of
$2,000 or 100% of his or her compensation or earned income to an IRA each year.
If a husband and wife are both employed, and both are under age 70-1/2, each may
set up his or her own IRA within these limits. If both earn at least $2,000 per
year, the maximum potential contribution is $4,000 per year for both. For years
after 1996, the result is similar even if one spouse has no earned income; if
the joint earned income of the spouses is at least $4,000, a contribution of up
to $2,000 may be made to each spouse's IRA. Rollover contributions are not
subject to these limits.
An individual may deduct his or her annual contributions to an IRA in
computing his or her Federal income tax within the limits described above,
provided he or she (or his or her spouse, if they file a joint Federal income
tax return) is not an active participant in a qualified retirement plan (such as
a qualified corporate, sole proprietorship, or partnership pension, profit
sharing, 401(k) or stock bonus plan), qualified annuity plan, 403(b) plan,
simplified employee pension, or governmental plan. If he or she (or his or her
spouse) is an active participant, whether the individual's contribution to an
IRA is fully deductible, partially deductible or not deductible depends on (i)
adjusted gross income and (ii) whether it is the individual or the individual's
spouse who is an active participant, in the case of married individuals filing
jointly. Contributions may be made up to the maximum permissible amount even if
they are not deductible. Rollover contributions are not includable in income for
Federal income tax purposes and therefore are not deductible from it.
Generally, earnings on an IRA are not subject to current Federal income
tax until distributed. Distributions attributable to tax-deductible
contributions and to IRA earnings are taxed as ordinary income. Distributions of
non-deductible contributions are not subject to Federal income tax. In general,
distributions from an IRA to an individual before he or she reaches age 59-1/2
are subject to a nondeductible penalty tax equal to 10% of the taxable amount of
the distribution. The 10% penalty tax does not apply to amounts withdrawn from
an IRA after the individual reaches age 59-1/2, becomes disabled or dies, or if
withdrawn in the form of substantially equal payments over the life or life
expectancy of the individual and his or her designated beneficiary, if any, or
rolled over into another IRA, amounts withdrawn and used to pay for deductible
medical expenses and amounts withdrawn by certain unemployed individuals not in
excess of amounts paid for certain health insurance premiums, amounts used to
pay certain qualified higher education expenses, and amounts used within 120
days of the date the distribution is received to pay for certain first-time
homebuyer expenses. Distributions must begin to be withdrawn not later than
April 1 of the calendar year following the calendar year in which the individual
reaches age 70-1/2. Failure to take certain minimum required distributions will
result in the imposition of a 50% non-deductible penalty tax.
ROTH IRAS: Shares of the Fund also may be used as a funding medium for
a Roth Individual Retirement Account ("Roth IRA"). A Roth IRA is similar in
numerous ways to the regular (traditional) IRA, described above.
Some of the primary differences are as follows.
A single individual earning below $95,000 can contribute up to $2,000
per year to a Roth IRA. The maximum contribution amount diminishes and gradually
falls to zero for single filers with adjusted gross incomes ranging from $95,000
to $110,000. Married couples earning less than $150,000 combined, and filing
jointly, can contribute a full $4,000 per year ($2,000 per IRA). The maximum
contribution amount for married couples filing jointly phases out from $150,000
to $160,000. An individual whose adjusted gross income exceeds the maximum
phase-out amount cannot contribute to a Roth IRA.
An eligible individual can contribute money to a traditional IRA and a
Roth IRA as long as the total contribution to all IRAs does not exceed $2,000.
Contributions to a Roth IRA are not deductible. Contributions to a Roth IRA may
be made even after the individual for whom the account is maintained has
attained age 70 1/2.
No distributions are required to be taken prior to the death of the
original account holder. If a Roth IRA has been established for a minimum of
five years, distributions can be taken tax-free after reaching age 59 1/2, for a
first-time home purchase ($10,000 maximum, one time use), or upon death or
disability. All other distributions from a Roth IRA (other than the amount of
nondeductible contributions) are taxable and subject to a 10% tax penalty unless
an exception applies. Exceptions to the 10% penalty include: reaching age 59
1/2, death, disability, deductible medical expenses, the purchase of health
insurance for certain unemployed individual and qualified higher education
expenses.
An individual with an income of less than $100,000 (who is not married
filing separately) can roll his or her existing IRA into a Roth IRA. However,
the individual must pay taxes on the taxable amount in his or her traditional
IRA. After 1998, all taxes on such a rollover will have to be paid in the tax
year in which the rollover is made.
QUALIFIED PLANS: For those self-employed individuals who wish to
purchase shares of one or more Ivy funds through a qualified retirement plan, a
Custodial Agreement and a Retirement Plan are available from IMSC. The
Retirement Plan may be adopted as a profit sharing plan or a money purchase
pension plan. A profit sharing plan permits an annual contribution to be made in
an amount determined each year by the self-employed individual within certain
limits prescribed by law. A money purchase pension plan requires annual
contributions at the level specified in the Custodial Agreement. There is no
set-up fee for qualified plans and the annual maintenance fee is $20.00 per
account.
In general, if a self-employed individual has any common law employees,
employees who have met certain minimum age and service requirements must be
covered by the Retirement Plan. A self-employed individual generally must
contribute the same percentage of income for common law employees as for himself
or herself.
A self-employed individual may contribute up to the lesser of $30,000
or 25% of compensation or earned income to a money purchase pension plan or to a
combination profit sharing and money purchase pension plan arrangement each year
on behalf of each participant. To be deductible, total contributions to a profit
sharing plan generally may not exceed 15% of the total compensation or earned
income of all participants in the plan, and total contributions to a combination
money purchase-profit sharing arrangement generally may not exceed 25% of the
total compensation or earned income of all participants. The amount of
compensation or earned income of any one participant that may be included in
computing the deduction is limited (generally to $150,000 for benefits accruing
in plan years beginning after 1993, with annual inflation adjustments). A
self-employed individual's contributions to a retirement plan on his or her own
behalf must be deducted in computing his or her earned income.
Corporate employers may also adopt the Custodial Agreement and
Retirement Plan for the benefit of their eligible employees. Similar
contribution and deduction rules apply to corporate employers.
Distributions from the Retirement Plan generally are made after a
participant's separation from service. A 10% penalty tax generally applies to
distributions to an individual before he or she reaches age 59-1/2, unless the
individual (1) has reached age 55 and separated from service; (2) dies; (3)
becomes disabled; (4) uses the withdrawal to pay tax-deductible medical
expenses; (5) takes the withdrawal as part of a series of substantially equal
payments over his or her life expectancy or the joint life expectancy of himself
or herself and a designated beneficiary; or (6) rolls over the distribution.
The Transfer Agent will arrange for Investors Bank & Trust to furnish
custodial services to the employer and any participating employees.
DEFERRED COMPENSATION FOR PUBLIC SCHOOLS AND CHARITABLE ORGANIZATIONS
("403(B)(7) ACCOUNT"): Section 403(b)(7) of the Internal Revenue Code of 1986,
as amended (the "Code") permits public school systems and certain charitable
organizations to use mutual fund shares held in a custodial account to fund
deferred compensation arrangements with their employees. A custodial account
agreement is available for those employers whose employees wish to purchase
shares of the Trust in conjunction with such an arrangement. The special
application for a 403(b)(7) Account is available from IMSC.
Distributions from the 403(b)(7) Account may be made only following
death, disability, separation from service, attainment of age 59-1/2, or
incurring a financial hardship. A 10% penalty tax generally applies to
distributions to an individual before he or she reaches age 59-1/2, unless the
individual (1) has reached age 55 and separated from service; (2) dies or
becomes disabled; (3) uses the withdrawal to pay tax-deductible medical
expenses; (4) takes the withdrawal as part of a series of substantially equal
payments over his or her life expectancy or the joint life expectancy of himself
or herself and a designated beneficiary; or (5) rolls over the distribution.
There is no set-up fee for 403(b)(7) Accounts and the annual maintenance fee is
$20.00 per account.
SIMPLIFIED EMPLOYEE PENSION ("SEP") IRAS: An employer may deduct
contributions to a SEP up to the lesser of $30,000 or 15% of compensation. SEP
accounts generally are subject to all rules applicable to IRA accounts, except
the deduction limits, and are subject to certain employee participation
requirements. No new salary reduction SEPs ("SARSEPs") may be established after
1996, but existing SARSEPs may continue to be maintained, and non-salary
reduction SEPs may continue to be established as well as maintained after 1996.
SIMPLE PLANS: An employer may establish a SIMPLE IRA or a SIMPLE 401(k)
for years after 1996. An employee can make pre-tax salary reduction
contributions to a SIMPLE Plan, up to $6,000 a year (as indexed). Subject to
certain limits, the employer will either match a portion of employee
contributions, or will make a contribution equal to 2% of each employee's
compensation without regard to the amount the employee contributes. An employer
cannot maintain a SIMPLE Plan for its employees if the employer maintains or
maintained any other qualified retirement plan with respect to which any
contributions or benefits have been credited.
REINVESTMENT PRIVILEGE
Shareholders who have redeemed Class A shares of the Fund may reinvest
all or a part of the proceeds of the redemption back into Class A shares of the
Fund at net asset value (without a sales charge) within 60 days from the date of
redemption. This privilege may be exercised only once. The reinvestment will be
made at the net asset value next determined after receipt by IMSC of the
reinvestment order accompanied by the funds to be reinvested. No compensation
will be paid to any sales personnel or dealer in connection with the
transaction.
Any redemption is a taxable event. A loss realized on a redemption
generally may be disallowed for tax purposes if the reinvestment privilege is
exercised within 30 days after the redemption. In certain circumstances,
shareholders will be ineligible to take sales charges into account in computing
taxable gain or loss on a redemption if the reinvestment privilege is exercised.
See "Taxation."
RIGHTS OF ACCUMULATION
A scale of reduced sales charges applies to any investment of $50,000
or more in Class A shares of the Fund. See "Initial Sales Charge Alternative --
Class A Shares" in the Prospectus. The reduced sales charge is applicable to
investments made at one time by an individual, his or her spouse and children
under the age of 21, or a trustee or other fiduciary of a single trust estate or
single fiduciary account (including a pension, profit sharing or other employee
benefit trust created pursuant to a plan qualified under Section 401 of the
Code). Rights of Accumulation is also applicable to current purchases of all of
the funds of Ivy Fund (except Ivy Money Market Fund) by any of the persons
enumerated above, where the aggregate quantity of Class A shares of such funds
(and shares that have been exchanged into Ivy Money Market Fund from any of the
other funds in the Ivy funds) and of any other investment company distributed by
IMDI, previously purchased or acquired and currently owned, determined at the
higher of current offering price or amount invested, plus the Class A shares
being purchased, amounts to $50,000 or more for all funds other than Ivy Bond
Fund; or $100,000 or more for Ivy Bond Fund.
At the time an investment takes place, IMSC must be notified by the
investor or his or her dealer that the investment qualifies for the reduced
sales charge on the basis of previous investments. The reduced sales charge is
subject to confirmation of the investor's holdings through a check of the
particular fund's records.
SYSTEMATIC WITHDRAWAL PLAN
A shareholder (except shareholders with accounts in Class I) may
establish a Systematic Withdrawal Plan (a "Withdrawal Plan"), by telephone
instructions or by delivery to IMSC of a written election to have his or her
shares withdrawn periodically, accompanied by a surrender to IMSC of all share
certificates then outstanding in such shareholder's name, properly endorsed by
the shareholder. To be eligible to elect a Withdrawal Plan, a shareholder must
have at least $5,000 in his or her account. A Withdrawal Plan may not be
established if the investor is currently participating in the Automatic
Investment Method. A Withdrawal Plan may involve the depletion of a
shareholder's principal, depending on the amount withdrawn.
A redemption under a Withdrawal Plan is a taxable event. Shareholders
contemplating participating in a Withdrawal Plan should consult their tax
advisers.
Additional investments made by investors participating in a Withdrawal
Plan must equal at least $1,000 each while the Withdrawal Plan is in effect.
Making additional purchases while a Withdrawal Plan is in effect may be
disadvantageous to the investor because of applicable initial sales charges or
CDSCs.
An investor may terminate his or her participation in the Withdrawal
Plan at any time by delivering written notice to IMSC. If all shares held by the
investor are liquidated at any time, participation in the Withdrawal Plan will
terminate automatically. The Trust or IMSC may terminate the Withdrawal Plan
option at any time after reasonable notice to shareholders.
GROUP SYSTEMATIC INVESTMENT PROGRAM
Shares of the Fund may be purchased in connection with investment
programs established by employee or other groups using systematic payroll
deductions or other systematic payment arrangements. The Trust does not itself
organize, offer or administer any such programs. However, it may, depending upon
the size of the program, waive the minimum initial and additional investment
requirements for purchases by individuals in conjunction with programs organized
and offered by others. Unless shares of the Fund are purchased in conjunction
with IRAs (see "How to Buy Shares" in the Prospectus), such group systematic
investment programs are not entitled to special tax benefits under the Code. The
Trust reserves the right to refuse purchases at any time or suspend the offering
of shares in connection with group systematic investment programs, and to
restrict the offering of shareholder privileges, such as check writing,
simplified redemptions and other optional privileges, as described in the
Prospectus, to shareholders using group systematic investment programs.
With respect to each shareholder account established on or after
September 15, 1972 under a group systematic investment program, the Trust and
IMI each currently charge a maintenance fee of $3.00 (or portion thereof) that
for each twelve-month period (or portion thereof) that the account is
maintained. The Trust may collect such fee (and any fees due to IMI) through a
deduction from distributions to the shareholders involved or by causing on the
date the fee is assessed a redemption in each such shareholder account
sufficient to pay such fee. The Trust reserves the right to change these fees
from time to time without advance notice.
Class A shares of the Fund are made available to Merrill Lynch Daily K
Plan (the "Plan") participants at NAV without an initial sales charge if:
(i) the Plan is recordkept on a daily valuation basis by
Merrill Lynch and, on the date the Plan Sponsor signs
the Merrill Lynch Recordkeeping Service Agreement,
the Plan has $3 million or more in assets invested in
broker/dealer funds not advised or managed by Merrill
Lynch Asset Management, L.P. ("MLAM") that are made
available pursuant to a Service Agreement between
Merrill Lynch and the fund's principal underwriter or
distributor and in funds advised or managed by MLAM
(collectively, the "Applicable Investments");
(ii) the Plan is recordkept on a daily valuation basis by
an independent recordkeeper whose services are
provided through a contract or alliance arrangement
with Merrill Lynch, and on the date the Plan Sponsor
signs the Merrill Lynch Recordkeeping Service
Agreement, the Plan has $3 million or more in assets,
excluding money market funds, invested in Applicable
Investments; or
(iii) the Plan has 500 or more eligible employees, as
determined by Merrill Lynch plan conversion manager,
on the date the Plan Sponsor signs the Merrill Lynch
Recordkeeping Service Agreement.
Alternatively, Class B shares of the Fund are made available to Plan
participants at NAV without a CDSC if the Plan conforms with the requirements
for eligibility set forth in (i) through (iii) above but either does not meet
the $3 million asset threshold or does not have 500 or more eligible employees.
Plans recordkept on a daily basis by Merrill Lynch or an independent
recordkeeper under a contract with Merrill Lynch that are currently investing in
Class B shares of the Fund convert to Class A shares once the Plan has reached
$5 million invested in Applicable Investments, or 10 years after the date of the
initial purchase by a participant under the Plan--the Plan will receive a Plan
level share conversion.
REDEMPTIONS
Shares of the Fund are redeemed at their net asset value next
determined after a proper redemption request has been received by IMSC, less any
applicable CDSC.
Unless a shareholder requests that the proceeds of any redemption be
wired to his or her bank account, payment for shares tendered for redemption is
made by check within seven days after tender in proper form, except that the
Trust reserves the right to suspend the right of redemption or to postpone the
date of payment upon redemption beyond seven days, (i) for any period during
which the Exchange is closed (other than customary weekend and holiday closings)
or during which trading on the Exchange is restricted, (ii) for any period
during which an emergency exists as determined by the SEC as a result of which
disposal of securities owned by the Fund is not reasonably practicable or it is
not reasonably practicable for the Fund to fairly determine the value of its net
assets, or (iii) for such other periods as the SEC may by order permit for the
protection of shareholders of the Fund.
Under unusual circumstances, when the Board deems it in the best
interest of the Fund's shareholders, the Fund may make payment for shares
repurchased or redeemed in whole or in part in securities of the Fund taken at
current values. If any such redemption in kind is to be made, the Fund may make
an election pursuant to Rule 18f-1 under the 1940 Act. This will require the
Fund to redeem with cash at a shareholder's election in any case where the
redemption involves less than $250,000 (or 1% of the Fund's net asset value at
the beginning of each 90-day period during which such redemptions are in effect,
if that amount is less than $250,000). Should payment be made in securities, the
redeeming shareholder may incur brokerage costs in converting such securities to
cash.
The Trust may redeem those accounts of shareholders who have maintained
an investment, including sales charges paid, of less than $1,000 in the Fund for
a period of more than 12 months. All accounts below that minimum will be
redeemed simultaneously when MIMI deems it advisable. The $1,000 balance will be
determined by actual dollar amounts invested by the shareholder, unaffected by
market fluctuations. The Trust will notify any such shareholder by certified
mail of its intention to redeem such account, and the shareholder shall have 60
days from the date of such letter to invest such additional sums as shall raise
the value of such account above that minimum. Should the shareholder fail to
forward such sum within 60 days of the date of the Trust's letter of
notification, the Trust will redeem the shares held in such account and transmit
the redemption in value thereof to the shareholder. However, those shareholders
who are investing pursuant to the Automatic Investment Method will not be
redeemed automatically unless they have ceased making payments pursuant to the
plan for a period of at least six consecutive months, and these shareholders
will be given six-months' notice by the Trust before such redemption.
Shareholders in a qualified retirement, pension or profit sharing plan who wish
to avoid tax consequences must "rollover" any sum so redeemed into another
qualified plan within 60 days. The Trustees of the Trust may change the minimum
account size.
If a shareholder has given authorization for telephonic redemption
privilege, shares can be redeemed and proceeds sent by Federal wire to a single
previously designated bank account. Delivery of the proceeds of a wire
redemption request of $250,000 or more may be delayed by the Fund for up to
seven days if deemed appropriate under then-current market conditions. The Trust
reserves the right to change this minimum or to terminate the telephonic
redemption privilege without prior notice. The Trust cannot be responsible for
the efficiency of the Federal wire system of the shareholder's dealer of record
or bank. The shareholder is responsible for any charges by the shareholder's
bank.
The Fund employs reasonable procedures that require personal
identification prior to acting on redemption or exchange instructions
communicated by telephone to confirm that such instructions are genuine. In the
absence of such instructions, the Fund may be liable for any losses due to
unauthorized or fraudulent telephone instructions.
CONVERSION OF CLASS B SHARES
As described in the Prospectus, Class B shares of the Fund will
automatically convert to Class A shares of the Fund, based on the relative net
asset values per share of the two classes, no later than the month following the
eighth anniversary of the initial issuance of such Class B shares of the Fund
occurs. For the purpose of calculating the holding period required for
conversion of Class B shares, the date of initial issuance shall mean: (1) the
date on which such Class B shares were issued, or (2) for Class B shares
obtained through an exchange, or a series of exchanges, (subject to the exchange
privileges for Class B shares) the date on which the original Class B shares
were issued. For purposes of conversion of Class B shares, Class B shares
purchased through the reinvestment of dividends and capital gain distributions
paid in respect of Class B shares will be held in a separate sub-account. Each
time any Class B shares in the shareholder's regular account (other than those
shares in the sub-account) convert to Class A shares, a pro rata portion of the
Class B shares in the sub-account will also convert to Class A shares. The
portion will be determined by the ratio that the shareholder's Class B shares
converting to Class A shares bears to the shareholder's total Class B shares not
acquired through the reinvestment of dividends and capital gain distributions.
NET ASSET VALUE
The net asset value per share of the Fund is computed by dividing the
value of the Fund's aggregate net assets (i.e., its total assets less its
liabilities) by the number of the Fund's shares outstanding. For purposes of
determining the Fund's aggregate net assets, receivables are valued at their
realizable amounts. The Fund's liabilities, if not identifiable as belonging to
a particular class of the Fund, are allocated among the Fund's several classes
based on their relative net asset size. Liabilities attributable to a particular
class are charged to that class directly. The total liabilities for a class are
then deducted from the class's proportionate interest in the Fund's assets, and
the resulting amount is divided by the number of shares of the class outstanding
to produce its net asset value per share.
A security listed or traded on a recognized stock exchange or The
Nasdaq Stock Market, Inc. ("Nasdaq") is valued at the security's last sale price
on the exchange on which the security is principally traded. If no sale is
reported at that time, the average between the last bid and asked price (the
"Calculated Mean") is used. Unless otherwise noted herein, the value of a
foreign security is determined in its national currency as of the normal close
of trading on the foreign exchange on which it is traded or as of the close of
regular trading on the Exchange, if that is earlier, and that value is then
converted into its U.S. dollar equivalent at the foreign exchange rate in effect
at noon, eastern time, on the day the value of the foreign security is
determined. All other securities for which OTC market quotations are readily
available are valued at the Calculated Mean.
A debt security normally is valued on the basis of quotes obtained from
at least two dealers (or one dealer who has made a market in the security) or
pricing services that take into account appropriate valuation factors. Interest
is accrued daily. Money market instruments are valued at amortized cost, which
the Board believes approximates market value.
An exchange-traded option is valued at the last sale price on the
exchange on which it is principally traded, if available, and otherwise is
valued at the last sale price on the other exchange(s). If there were no sales
on any exchange, the option shall be valued at the Calculated Mean, if possible,
and otherwise at the last offering price, in the case of a written option, and
the last bid price, in the case of a purchased option. An OTC option is valued
at the last offering price, in the case of a written option, and the last bid
price, in the case of a purchased option. Exchange listed and widely-traded OTC
futures (and options thereon) are valued at the most recent settlement price.
Securities and other assets for which market prices are not readily
available are priced at their "fair value" as determined by IMI in accordance
with procedures approved by the Board. Trading in securities on many foreign
securities exchanges is normally completed before the close of regular trading
on the Exchange. Trading on foreign exchanges may not take place on all days on
which there is regular trading on the Exchange, or may take place on days on
which there is no regular trading on the Exchange (e.g., any of the national
business holidays identified below). If events materially affecting the value of
the Fund's portfolio securities occur between the time when a foreign exchange
closes and the time when the Fund's net asset value is calculated (see following
paragraph), such securities may be valued at fair value as determined by IMI and
approved by the Board.
Portfolio securities are valued (and net asset value per share is
determined) as of the close of regular trading on the Exchange (normally 4:00
p.m., eastern time) on each day the Exchange is open for trading. The Exchange
and the Trust's offices are expected to be closed, and net asset value will not
be calculated, on the following national business holidays: New Year's Day,
Martin Luther King, Jr. Day, Presidents' Day, Good Friday, Memorial Day,
Independence Day, Labor Day, Thanksgiving Day and Christmas Day. On those days
when either or both of the Fund's Custodian or the Exchange close early as a
result of a partial holiday or otherwise, the Trust reserves the right to
advance the time on that day by which purchase and redemption requests must be
received.
The number of shares you receive when you place a purchase order, and
the payment you receive after submitting a redemption request, is based on the
Fund's net asset value next determined after your instructions are received in
proper form by IMSC or by your registered securities dealer. Each purchase and
redemption order is subject to any applicable sales charge. Since the Fund
invests in securities that are listed on foreign exchanges that may trade on
weekends or other days when the Fund does not price its shares, the Fund's net
asset value may change on days when shareholders will not be able to purchase or
redeem the Fund's shares. The sale of the Fund's shares will be suspended during
any period when the determination of its net asset value is suspended pursuant
to rules or orders of the SEC and may be suspended by the Board whenever in its
judgment it is in the Fund's best interest to do so.
TAXATION
The following is a general discussion of certain tax rules thought to
be applicable with respect to the Fund. It is merely a summary and is not an
exhaustive discussion of all possible situations or of all potentially
applicable taxes. Accordingly, shareholders and prospective shareholders should
consult a competent tax adviser about the tax consequences to them of investing
in the Fund.
The Fund intends to be taxed as a regulated investment company under
Subchapter M of the Code. Accordingly, the Fund must, among other things, (a)
derive in each taxable year at least 90% of its gross income from dividends,
interest, payments with respect to certain securities loans, and gains from the
sale or other disposition of stock, securities or foreign currencies, or other
income derived with respect to its business of investing in such stock,
securities or currencies; and (b) diversify its holdings so that, at the end of
each fiscal quarter, (i) at least 50% of the market value of the Fund's assets
is represented by cash, U.S. Government securities, the securities of other
regulated investment companies and other securities, with such other securities
limited, in respect of any one issuer, to an amount not greater than 5% of the
value of the Fund's total assets and 10% of the outstanding voting securities of
such issuer, and (ii) not more than 25% of the value of its total assets is
invested in the securities of any one issuer (other than U.S. Government
securities and the securities of other regulated investment companies).
As a regulated investment company, the Fund generally will not be
subject to U.S. Federal income tax on its income and gains that it distributes
to shareholders, if at least 90% of its investment company taxable income (which
includes, among other items, dividends, interest and the excess of any
short-term capital gains over long-term capital losses) for the taxable year is
distributed. The Fund intends to distribute all such income.
Amounts not distributed on a timely basis in accordance with a calendar
year distribution requirement are subject to a nondeductible 4% excise tax at
the Fund level. To avoid the tax, the Fund must distribute during each calendar
year, (1) at least 98% of its ordinary income (not taking into account any
capital gains or losses) for the calendar year (2) at least 98% of its capital
gains in excess of its capital losses (adjusted for certain ordinary losses) for
a one-year period generally ending on October 31 of the calendar year, and (3)
all ordinary income and capital gains for previous years that were not
distributed during such years. To avoid application of the excise tax, the Fund
intends to make distributions in accordance with the calendar year distribution
requirements. A distribution will be treated as paid on December 31 of the
current calendar year if it is declared by the Fund in October, November or
December of the year with a record date in such a month and paid by the Fund
during January of the following year. Such distributions will be taxable to
shareholders in the calendar year the distributions are declared, rather than
the calendar year in which the distributions are received.
OPTIONS, FUTURES AND FOREIGN CURRENCY FORWARD CONTRACTS
The taxation of equity options and OTC options on debt securities is
governed by Code section 1234. Pursuant to Code section 1234, the premium
received by the Fund for selling a put or call option is not included in income
at the time of receipt. If the option expires, the premium is short-term capital
gain to the Fund. If the Fund enters into a closing transaction, the difference
between the amount paid to close out its position and the premium received is
short-term capital gain or loss. If a call option written by the Fund is
exercised, thereby requiring the Fund to sell the underlying security, the
premium will increase the amount realized upon the sale of such security and any
resulting gain or loss will be a capital gain or loss, and will be long-term or
short-term depending upon the holding period of the security. With respect to a
put or call option that is purchased by the Fund, if the option is sold, any
resulting gain or loss will be a capital gain or loss, and will be long-term or
short-term, depending upon the holding period of the option. If the option
expires, the resulting loss is a capital loss and is long-term or short-term,
depending upon the holding period of the option. If the option is exercised, the
cost of the option, in the case of a call option, is added to the basis of the
purchased security and, in the case of a put option, reduces the amount realized
on the underlying security in determining gain or loss.
Some of the options, futures and foreign currency forward contracts in
which the Fund may invest may be "section 1256 contracts." Gains (or losses) on
these contracts generally are considered to be 60% long-term and 40% short-term
capital gains or losses; however, as described below, foreign currency gains or
losses arising from certain section 1256 contracts are ordinary in character.
Also, section 1256 contracts held by the Fund at the end of each taxable year
(and on certain other dates prescribed in the Code) are "marked-to-market" with
the result that unrealized gains or losses are treated as though they were
realized.
The transactions in options, futures and forward contracts undertaken
by the Fund may result in "straddles" for Federal income tax purposes. The
straddle rules may affect the character of gains or losses realized by the Fund.
In addition, losses realized by the Fund on positions that are part of a
straddle may be deferred under the straddle rules, rather than being taken into
account in calculating the taxable income for the taxable year in which such
losses are realized. Because only a few regulations implementing the straddle
rules have been promulgated, the consequences of such transactions to the Fund
are not entirely clear. The straddle rules may increase the amount of short-term
capital gain realized by the Fund, which is taxed as ordinary income when
distributed to shareholders.
The Fund may make one or more of the elections available under the Code
which are applicable to straddles. If the Fund makes any of the elections, the
amount, character and timing of the recognition of gains or losses from the
affected straddle positions will be determined under rules that vary according
to the election(s) made. The rules applicable under certain of the elections may
operate to accelerate the recognition of gains or losses from the affected
straddle positions.
Because application of the straddle rules may affect the character of
gains or losses, defer losses and/or accelerate the recognition of gains or
losses from the affected straddle positions, the amount which must be
distributed to shareholders as ordinary income or long-term capital gain may be
increased or decreased substantially as compared to a fund that did not engage
in such transactions.
Notwithstanding any of the foregoing, the Fund may recognize gain (but
not loss) from a constructive sale of certain "appreciated financial positions"
if the Fund enters into a short sale, offsetting notional principal contract,
futures or forward contract transaction with respect to the appreciated position
or substantially identical property. Appreciated financial positions subject to
this constructive sale treatment are interests (including options, futures and
forward contracts and short sales) in stock, partnership interests, certain
actively traded trust instruments and certain debt instruments. Constructive
sale treatment of appreciated financial positions does not apply to certain
transactions closed in the 90-day period ending with the 30th day after the
close of the Fund's taxable year, if certain conditions are met.
CURRENCY FLUCTUATIONS -- "SECTION 988" GAINS OR LOSSES
Gains or losses attributable to fluctuations in exchange rates which
occur between the time the Fund accrues receivables or liabilities denominated
in a foreign currency and the time the Fund actually collects such receivables
or pays such liabilities generally are treated as ordinary income or ordinary
loss. Similarly, on disposition of some investments, including debt securities
denominated in a foreign currency and certain options, futures and forward
contracts, gains or losses attributable to fluctuations in the value of the
foreign currency between the date of acquisition of the security or contract and
the date of disposition also are treated as ordinary gain or loss. These gains
and losses, referred to under the Code as "section 988" gains or losses,
increase or decrease the amount of the Fund's investment company taxable income
available to be distributed to its shareholders as ordinary income.
INVESTMENT IN PASSIVE FOREIGN INVESTMENT COMPANIES
The Fund may invest in shares of foreign corporations which may be
classified under the Code as passive foreign investment companies ("PFICs"). In
general, a foreign corporation is classified as a PFIC if at least one-half of
its assets constitute investment-type assets, or 75% or more of its gross income
is investment-type income. If the Fund receives a so-called "excess
distribution" with respect to PFIC stock, the Fund itself may be subject to a
tax on a portion of the excess distribution, whether or not the corresponding
income is distributed by the Fund to shareholders. In general, under the PFIC
rules, an excess distribution is treated as having been realized ratably over
the period during which a Fund held the PFIC shares. The Fund itself will be
subject to tax on the portion, if any, of an excess distribution that is so
allocated to prior Fund taxable years and an interest factor will be added to
the tax, as if the tax had been payable in such prior taxable years. Certain
distributions from a PFIC as well as gain from the sale of PFIC shares are
treated as excess distributions. Excess distributions are characterized as
ordinary income even though, absent application of the PFIC rules, certain
excess distributions might have been classified as capital gain.
The Fund may be eligible to elect alternative tax treatment with
respect to PFIC shares. The Fund may elect to mark to market its PFIC shares,
resulting in the shares being treated as sold at fair market value on the last
business day of each taxable year. Any resulting gain would be reported as
ordinary income; any resulting loss and any loss from an actual disposition of
the shares would be reported as ordinary loss to the extent of any net gains
reported in prior years. Under another election that currently is available in
some circumstances, the Fund generally would be required to include in its gross
income its share of the earnings of a PFIC on a current basis, regardless of
whether distributions are received from the PFIC in a given year.
DEBT SECURITIES ACQUIRED AT A DISCOUNT
Some of the debt securities (with a fixed maturity date of more than
one year from the date of issuance) that may be acquired by the Fund may be
treated as debt securities that are issued originally at a discount. Generally,
the amount of the original issue discount ("OID") is treated as interest income
and is included in income over the term of the debt security, even though
payment of that amount is not received until a later time, usually when the debt
security matures.
Some of the debt securities (with a fixed maturity date of more than
one year from the date of issuance) that may be acquired by the Fund in the
secondary market may be treated as having market discount. Generally, gain
recognized on the disposition of, and any partial payment of principal on, a
debt security having market discount is treated as ordinary income to the extent
the gain, or principal payment, does not exceed the "accrued market discount" on
such debt security. In addition, the deduction of any interest expenses
attributable to debt securities having market discount may be deferred. Market
discount generally accrues in equal daily installments. The Fund may make one or
more of the elections applicable to debt securities having market discount,
which could affect the character and timing of recognition of income.
Some debt securities (with a fixed maturity date of one year or less
from the date of issuance) that may be acquired by the Fund may be treated as
having acquisition discount, or OID in the case of certain types of debt
securities. Generally, the Fund will be required to include the acquisition
discount, or OID, in income over the term of the debt security, even though
payment of that amount is not received until a later time, usually when the debt
security matures. The Fund may make one or more of the elections applicable to
debt securities having acquisition discount, or OID, which could affect the
character and timing of recognition of income.
The Fund generally will be required to distribute dividends to
shareholders representing discount on debt securities that is currently
includable in income, even though cash representing such income may not have
been received by the Fund. Cash to pay such dividends may be obtained from sales
proceeds of securities held by the Fund.
DISTRIBUTIONS
Distributions of investment company taxable income are taxable to a
U.S. shareholder as ordinary income, whether paid in cash or shares. Dividends
paid by the Fund to a corporate shareholder, to the extent such dividends are
attributable to dividends received from U.S. corporations by the Fund, may
qualify for the dividends received deduction. However, the revised alternative
minimum tax applicable to corporations may reduce the value of the dividends
received deduction. Distributions of net capital gains (the excess of net
long-term capital gains over net short-term capital losses), if any, designated
by the Fund as capital gain dividends, are taxable to shareholders as long-term
capital gains whether paid in cash or in shares, and regardless of how long the
shareholder has held the Fund's shares; such distributions are not eligible for
the dividends received deduction. Shareholders receiving distributions in the
form of newly issued shares will have a cost basis in each share received equal
to the net asset value of a share of the Fund on the distribution date. A
distribution of an amount in excess of the Fund's current and accumulated
earnings and profits will be treated by a shareholder as a return of capital
which is applied against and reduces the shareholder's basis in his or her
shares. To the extent that the amount of any such distribution exceeds the
shareholder's basis in his or her shares, the excess will be treated by the
shareholder as gain from a sale or exchange of the shares. Shareholders will be
notified annually as to the U.S. Federal tax status of distributions and
shareholders receiving distributions in the form of newly issued shares will
receive a report as to the net asset value of the shares received.
If the net asset value of shares is reduced below a shareholder's cost
as a result of a distribution by the Fund, such distribution generally will be
taxable even though it represents a return of invested capital. Shareholders
should be careful to consider the tax implications of buying shares just prior
to a distribution. The price of shares purchased at this time may reflect the
amount of the forthcoming distribution. Those purchasing just prior to a
distribution will receive a distribution which generally will be taxable to
them.
DISPOSITION OF SHARES
Upon a redemption, sale or exchange of his or her shares, a shareholder
will realize a taxable gain or loss depending upon his or her basis in the
shares. Such gain or loss will be treated as capital gain or loss if the shares
are capital assets in the shareholder's hands and, if so, will be long-term or
short-term, depending upon the shareholder's holding period for the shares. Any
loss realized on a redemption sale or exchange will be disallowed to the extent
the shares disposed of are replaced (including through reinvestment of
dividends) within a period of 61 days beginning 30 days before and ending 30
days after the shares are disposed of. In such a case, the basis of the shares
acquired will be adjusted to reflect the disallowed loss. Any loss realized by a
shareholder on the sale of Fund shares held by the shareholder for six-months or
less will be treated for tax purposes as a long-term capital loss to the extent
of any distributions of capital gain dividends received or treated as having
been received by the shareholder with respect to such shares.
In some cases, shareholders will not be permitted to take all or
portion of their sales loads into account for purposes of determining the amount
of gain or loss realized on the disposition of their shares. This prohibition
generally applies where (1) the shareholder incurs a sales load in acquiring the
shares of the Fund, (2) the shares are disposed of before the 91st day after the
date on which they were acquired, and (3) the shareholder subsequently acquires
shares in the Fund or another regulated investment company and the otherwise
applicable sales charge is reduced under a "reinvestment right" received upon
the initial purchase of Fund shares. The term "reinvestment right" means any
right to acquire shares of one or more regulated investment companies without
the payment of a sales load or with the payment of a reduced sales charge. Sales
charges affected by this rule are treated as if they were incurred with respect
to the shares acquired under the reinvestment right. This provision may be
applied to successive acquisitions of fund shares.
FOREIGN WITHHOLDING TAXES
Income received by the Fund from sources within a foreign country may
be subject to withholding and other taxes imposed by that country.
If more than 50% of the value of the Fund's total assets at the close
of its taxable year consists of securities of foreign corporations, the Fund
will be eligible and may elect to "pass-through" to the Fund's shareholders the
amount of foreign income and similar taxes paid by the Fund. Pursuant to this
election, a shareholder will be required to include in gross income (in addition
to taxable dividends actually received) his or her pro rata share of the foreign
income and similar taxes paid by the Fund, and will be entitled either to deduct
his or her pro rata share of foreign income and similar taxes in computing his
or her taxable income or to use it as a foreign tax credit against his or her
U.S. Federal income taxes, subject to limitations. No deduction for foreign
taxes may be claimed by a shareholder who does not itemize deductions. Foreign
taxes generally may not be deducted by a shareholder that is an individual in
computing the alternative minimum tax. Each shareholder will be notified within
60 days after the close of the Fund's taxable year whether the foreign taxes
paid by the Fund will "pass-through" for that year and, if so, such notification
will designate (1) the shareholder's portion of the foreign taxes paid to each
such country and (2) the portion of the dividend which represents income derived
from sources within each such country.
Generally, except in the case of certain electing individual taxpayers
who have limited creditable foreign taxes and no foreign source income other
than passive investment-type income, a credit for foreign taxes is subject to
the limitation that it may not exceed the shareholder's U.S. tax attributable to
his or her total foreign source taxable income. For this purpose, if the Fund
makes the election described in the preceding paragraph, the source of the
Fund's income flows through to its shareholders. With respect to the Fund, gains
from the sale of securities generally will be treated as derived from U.S.
sources and section 988 gains will be treated as ordinary income derived from
U.S. sources. The limitation on the foreign tax credit is applied separately to
foreign source passive income, including foreign source passive income received
from the Fund. In addition, the foreign tax credit may offset only 90% of the
revised alternative minimum tax imposed on corporations and individuals.
Furthermore, the foreign tax credit is eliminated with respect to foreign taxes
withheld on dividends if the dividend-paying shares or the shares of the Fund
are held by the Fund or the shareholder, as the case may be, for less than 16
days (46 days in the case of preferred shares) during the 30-day period (90-day
period for preferred shares) beginning 15 days (45 days for preferred shares)
before the shares become ex-dividend. In addition, if the Fund fails to satisfy
these holding period requirements, it cannot elect to pass through to
shareholders the ability to claim a deduction for related foreign taxes.
The foregoing is only a general description of the foreign tax credit
under current law. Because application of the credit depends on the particular
circumstances of each shareholder, shareholders are advised to consult their own
tax advisers.
BACKUP WITHHOLDING
The Fund will be required to report to the Internal Revenue Service
("IRS") all taxable distributions as well as gross proceeds from the redemption
of the Fund's shares, except in the case of certain exempt shareholders. All
such distributions and proceeds will be subject to withholding of Federal income
tax at a rate of 31% ("backup withholding") in the case of non-exempt
shareholders if (1) the shareholder fails to furnish the Fund with and to
certify the shareholder's correct taxpayer identification number or social
security number, (2) the IRS notifies the shareholder or the Fund that the
shareholder has failed to report properly certain interest and dividend income
to the IRS and to respond to notices to that effect, or (3) when required to do
so, the shareholder fails to certify that he or she is not subject to backup
withholding. If the withholding provisions are applicable, any such
distributions or proceeds, whether reinvested in additional shares or taken in
cash, will be reduced by the amounts required to be withheld.
Distributions may also be subject to additional state, local and
foreign taxes depending on each shareholder's particular situation. Non-U.S.
shareholders may be subject to U.S. tax rules that differ significantly from
those summarized above. This discussion does not purport to deal with all of the
tax consequences applicable to the Fund or shareholders. Shareholders are
advised to consult their own tax advisers with respect to the particular tax
consequences to them of an investment in the Fund.
PERFORMANCE INFORMATION
Performance information for the classes of shares of the Fund may be
compared, in reports and promotional literature, to: (i) the S&P 500 Index, the
Dow Jones Industrial Average ("DJIA"), or other unmanaged indices so that
investors may compare the Fund's results with those of a group of unmanaged
securities widely regarded by investors as representative of the securities
markets in general; (ii) other groups of mutual funds tracked by Lipper
Analytical Services, a widely used independent research firm that ranks mutual
funds by overall performance, investment objectives and assets, or tracked by
other services, companies, publications or other criteria; and (iii) the
Consumer Price Index (measure for inflation) to assess the real rate of return
from an investment in the Fund. Unmanaged indices may assume the reinvestment of
dividends but generally do not reflect deductions or administrative and
management costs and expenses. Performance rankings are based on historical
information and are not intended to indicate future performance.
YIELD. Quotations of yield for a specific class of shares of the Fund
will be based on all investment income attributable to that class earned during
a particular 30-day (or one month) period (including dividends and interest),
less expenses attributable to that class accrued during the period ("net
investment income"), and will be computed by dividing the net investment income
per share of that class earned during the period by the maximum offering price
per share (in the case of Class A shares) or the net asset value per share (in
the case of Class B and Class C shares) on the last day of the period, according
to the following formula:
YIELD = 2[({(a-b)/cd} + 1){superscript 6}-1]
Where: a = dividends and interest earned during the period
attributable to a specific class of shares,
b = expenses accrued for the period attributable to that
class (net of reimbursements),
c = the average daily number of shares
of that class outstanding during the
period that were entitled to receive
dividends, and
d = the maximum offering price per
share (in the case of Class A
shares) or the net asset value per
share (in the case of Class B
shares, Class C shares and Class I
shares) on the last day of the
period.
AVERAGE ANNUAL TOTAL RETURN. Quotations of standardized average annual
total return ("Standardized Return") for a specific class of shares of the Fund
will be expressed in terms of the average annual compounded rate of return that
would cause a hypothetical investment in that class of the Fund made on the
first day of a designated period to equal the ending redeemable value ("ERV") of
such hypothetical investment on the last day of the designated period, according
to the following formula:
P(1 + T){superscript n} = ERV
Where: P = a hypothetical initial payment of $1,000 to purchase
shares of a specific class
T = the average annual total return of shares of that class
n = the number of years
ERV = the ending redeemable value of a
hypothetical $1,000 payment made at
the beginning of the period.
For purposes of the above computation for the Fund, it is assumed that
all dividends and capital gains distributions made by the Fund are reinvested at
net asset value in additional shares of the same class during the designated
period. In calculating the ending redeemable value for Class A shares and
assuming complete redemption at the end of the applicable period, the maximum
5.75% sales charge is deducted from the initial $1,000 payment and, for Class B
and Class C shares, the applicable CDSC imposed upon redemption of Class B or
Class C shares held for the period is deducted. Standardized Return quotations
for the Fund do not take into account any required payments for federal or state
income taxes. Standardized Return quotations for Class B shares for periods of
over eight years will reflect conversion of the Class B shares to Class A shares
at the end of the eighth year. Standardized Return quotations are determined to
the nearest 1/100 of 1%.
The Fund may, from time to time, include in advertisements, promotional
literature or reports to shareholders or prospective investors total return data
that are not calculated according to the formula set forth above
("Non-Standardized Return"). Neither initial nor CDSCs are taken into account in
calculating Non-Standardized Return; a sales charge, if deducted, would reduce
the return.
The following table summarizes the calculation of Standardized and
Non-Standardized Return for the Class A, Class B, Class C and Class I shares of
the Fund for the periods indicated. In determining the average annual total
return for a specific class of shares of the Fund, recurring fees, if any, that
are charged to all shareholder accounts are taken into consideration. For any
account fees that vary with the size of the account of the Fund, the account fee
used for purposes of the following computations is assumed to be the fee that
would be charged to the mean account size of the Fund.
STANDARDIZED RETURN[*]
CLASS A[1] CLASS B[2] CLASS C[3] CLASS I[4]
Year ended December 31,
1998
% % % %
Five years ended
December 31, 1998
------% ------% ------% ------%
Ten years ended
December 31, 1998
------% ------% ------% ------%
Inception [#] to year
ended December 31,
1998[8]: % % % %
NON-STANDARDIZED RETURN[**]
CLASS A[5] CLASS B[6] CLASS C[7] CLASS I[4]
Year ended December 31,
1998
------% ------% ------% -------%
Five years ended
December 31, 1998
------% ------% ------% -------%
Ten years ended
December 31, 1998
% % % %
Inception [#] to year
ended December 31,
1998[8]: % % % %
- ------------------- ----------------- ------------------ --------------------
[*] The Standardized Return figures for Class A shares reflect the
deduction of the maximum initial sales charge of 5.75%. The Standardized Return
figures for Class B and C shares reflect the deduction of the applicable CDSC
imposed on redemption of Class B or C shares held for the period. Class I shares
are not subject to an initial sales change or to a CDSC; therefore, the
Non-Standardized Return Figures would be identical to the Standarized Return
Figures.
[**] The Non-Standardized Return figures do not reflect the deduction of
any initial sales charge or CDSC.
[#] The inception date for the Fund (Class A shares) was April 21,
1986. The inception date for Class B and Class I shares was October 23, 1993.
The inception date for Class C shares was April 30, 1996.
[1] The Standardized Return figures for the Class A shares reflect
expense reimbursement. Without expense reimbursement, the Standardized Return
for Class A shares for the period from inception through and the one, five and
ten year periods ended December 31, 1998 would have been [ %].
[2] The Standardized Return figures for the Class B shares reflect
expense reimbursement. Without expense reimbursement, the Standardized Return
for Class B shares for the period from inception through and the one, five and
ten year periods ended December 31, 1998 would have been [ %].
[3] The Standardized Return figures for the Class C shares reflect
expense reimbursement. Without expense reimbursement, the Standardized Return
for Class C shares for the period from inception through and the one, five and
ten year periods ended December 31, 1998 would have been [ %].
[4] Class I shares are not subject to an initial sales charge or a
CDSC; therefore the Non-Standardized and Standardized Return figures are
identical.
[5] The Non-Standardized Return figures for Class A shares reflect
expense reimbursement. Without expense reimbursement, the Non-Standardized
Return for Class A shares for the period from inception through and the one,
five and ten year periods ended December 31, 1998 would have been [ %].
[6] The Non-Standardized Return figures for Class B shares reflect
expense reimbursement. Without expense reimbursement, the Non-Standardized
Return for Class B shares for the period from inception through and the one,
five and ten year periods ended December 31, 1998 would have been [ %].
[7] The Non-Standardized Return figures for Class C shares reflect
expense reimbursement. Without expense reimbursement, the Non-Standardized
Return for Class C shares for the period from inception through and the one,
five and ten year periods ended December 31, 1998 would have been [ %].
[8] The total return for a period less than a full year is calculated
on an aggregate basis and is not annualized.
CUMULATIVE TOTAL RETURN. Cumulative total return is the cumulative rate
of return on a hypothetical initial investment of $1,000 in a specific class of
shares of the Fund for a specified period. Cumulative total return quotations
reflect changes in the price of the Fund's shares and assume that all dividends
and capital gains distributions during the period were reinvested in the Fund
shares. Cumulative total return is calculated by computing the cumulative rates
of return of a hypothetical investment in a specific class of shares of the Fund
over such periods, according to the following formula (cumulative total return
is then expressed as a percentage):
C = (ERV/P) - 1
Where: C = cumulative total return
P = a hypothetical initial investment of $1,000 to purchase
shares of a specific class
ERV = ending redeemable value: ERV is
the value, at the end of the
applicable period, of a hypothetical
$1,000 investment made at the
beginning of the applicable period.
The following table summarizes the calculation of Cumulative Total
Return for the periods indicated through December 31, 1998, assuming the maximum
5.75% sales charge has been assessed.
ONE YEAR FIVE YEARS TEN YEARS SINCE INCEPTION [*]
Class A
Class B
Class C
Class I
The following table summarizes the calculation of Cumulative Total Return for
the periods indicated through December 31, 1998, assuming the maximum 5.75%
sales charge has not been assessed.
ONE YEAR FIVE YEARS TEN YEARS SINCE INCEPTION [*]
Class A
Class B
Class C
Class I
- ---------------------------
[*] The inception date for the Fund (Class A shares) was April 21, 1986. The
inception date for Class B and Class I shares was October 23, 1993. The
inception date for Class C shares was April 30, 1996.
OTHER QUOTATIONS, COMPARISONS AND GENERAL INFORMATION. The foregoing
computation methods are prescribed for advertising and other communications
subject to SEC Rule 482. Communications not subject to this rule may contain a
number of different measures of performance, computation methods and
assumptions, including but not limited to: historical total returns; results of
actual or hypothetical investments; changes in dividends, distributions or share
values; or any graphic illustration of such data. These data may cover any
period of the Trust's existence and may or may not include the impact of sales
charges, taxes or other factors.
Performance quotations for the Fund will vary from time to time
depending on market conditions, the composition of the Fund's portfolio and
operating expenses of the Fund. These factors and possible differences in the
methods used in calculating performance quotations should be considered when
comparing performance information regarding the Fund's shares with information
published for other investment companies and other investment vehicles.
Performance quotations should also be considered relative to changes in the
value of the Fund's shares and the risks associated with the Fund's investment
objectives and policies. At any time in the future, performance quotations may
be higher or lower than past performance quotations and there can be no
assurance that any historical performance quotation will continue in the future.
The Fund may also cite endorsements or use for comparison its
performance rankings and listings reported in such newspapers or business or
consumer publications as, among others: AAII Journal, Barron's, Boston Business
Journal, Boston Globe, Boston Herald, Business Week, Consumer's Digest, Consumer
Guide Publications, Changing Times, Financial Planning, Financial World, Forbes,
Fortune, Growth Fund Guide, Houston Post, Institutional Investor, International
Fund Monitor, Investor's Daily, Los Angeles Times, Medical Economics, Miami
Herald, Money Mutual Fund Forecaster, Mutual Fund Letter, Mutual Fund Source
Book, Mutual Fund Values, National Underwriter, Nelson's Directory of Investment
Managers, New York Times, Newsweek, No Load Fund Investor, No Load Fund* X,
Oakland Tribune, Pension World, Pensions and Investment Age, Personal Investor,
Rugg and Steele, Time, U.S. News and World Report, USA Today, The Wall Street
Journal, and Washington Post.
FINANCIAL STATEMENTS
The Fund's Portfolio of Investments as of December 31, 1998, Statement
of Assets and Liabilities as of December 31, 1998, Statement of Operations for
the fiscal year ended December 31, 1998, Statement of Changes in Net Assets for
the fiscal year ended December 31, 1998, Financial Highlights, Notes to
Financial Statements, and Report of Independent Accountants, which are included
in the Fund's December 31, 1998 Annual Report to shareholders, are incorporated
by reference into this SAI.
<PAGE>
APPENDIX A
DESCRIPTION OF STANDARD & POOR'S RATINGS GROUP ("S&P") AND
MOODY'S INVESTORS SERVICE, INC. ("MOODY'S") CORPORATE
BOND AND COMMERCIAL PAPER RATINGS
[From "Moody's Bond Record," November 1994 Issue (Moody's Investors Service, New
York, 1994), and "Standard & Poor's Municipal Ratings Handbook," October 1997
Issue (McGraw Hill, New York, 1997).]
MOODY'S:
(a) CORPORATE BONDS. Bonds rated Aaa by Moody's are judged by Moody's
to be of the best quality, carrying the smallest degree of investment risk.
Interest payments are protected by a large or exceptionally stable margin and
principal is secure. While the various protective elements are likely to change,
such changes as can be visualized are most unlikely to impair the fundamentally
strong position of such issues. Bonds rated Aa are judged by Moody's to be of
high quality by all standards. Aa bonds are rated lower than Aaa bonds because
margins of protection may not be as large as those of Aaa bonds, or fluctuations
of protective elements may be of greater amplitude, or there may be other
elements present which make the long-term risks appear somewhat larger than
those applicable to Aaa securities. Bonds which are rated A by Moody's possess
many favorable investment attributes and are to be considered as upper
medium-grade obligations. Factors giving security to principal and interest are
considered adequate, but elements may be present which suggest a susceptibility
to impairment sometime in the future. Bonds rated Baa by Moody's are considered
medium-grade obligations (i.e., they are neither highly protected nor poorly
secured). Interest payments and principal security appear adequate for the
present, but certain protective elements may be lacking or may be
characteristically unreliable over any great length of time. Such bonds lack
outstanding investment characteristics and in fact have speculative
characteristics as well. Bonds which are rated Ba are judged to have speculative
elements; their future cannot be considered well-assured. Often the protection
of interest and principal payments may be very moderate and thereby not well
safeguarded during both good and bad times over the future. Uncertainty of
position characterizes bonds in this class. Bonds which are rated B generally
lack characteristics of the desirable investment. Assurance of interest and
principal payments of or maintenance of other terms of the contract over any
long period of time may be small. Bonds which are rated Caa are of poor
standing. Such issues may be in default or there may be present elements of
danger with respect to principal or interest. Bonds which are rated Ca represent
obligations which are speculative in a high degree. Such issues are often in
default or have other marked shortcomings. Bonds which are rated C are the
lowest rated class of bonds and issues so rated can be regarded as having
extremely poor prospects of ever attaining any real investment standing.
(b) COMMERCIAL PAPER. The Prime rating is the highest commercial paper
rating assigned by Moody's. Among the factors considered by Moody's in assigning
ratings are the following: (1) evaluation of the management of the issuer; (2)
economic evaluation of the issuer's industry or industries and an appraisal of
speculative-type risks which may be inherent in certain areas; (3) evaluation of
the issuer's products in relation to competition and customer acceptance; (4)
liquidity; (5) amount and quality of long-term debt; (6) trend of earnings over
a period of ten years; (7) financial strength of a parent company and the
relationships which exist with the issuer; and (8) recognition by management of
obligations which may be present or may arise as a result of public interest
questions and preparations to meet such obligations. Issuers within this Prime
category may be given ratings 1, 2 or 3, depending on the relative strengths of
these factors. The designation of Prime-1 indicates the highest quality
repayment capacity of the rated issue. Issuers rated Prime-2 are deemed to have
a strong ability for repayment while issuers voted Prime-3 are deemed to have an
acceptable ability for repayment. Issuers rated Not Prime do not fall within any
of the Prime rating categories.
S&P:
(a) CORPORATE BONDS. An S&P corporate debt rating is a current
assessment of the creditworthiness of an obligor with respect to a specific
obligation. The ratings are based on current information furnished by the issuer
or obtained by S&P from other sources it considers reliable. The ratings
described below may be modified by the addition of a plus or minus sign to show
relative standing within the major rating categories.
Debt rated AAA has the highest rating assigned by S&P. Capacity to pay
interest and repay principal is extremely strong. Debt rated AA is judged by S&P
to have a very strong capacity to pay interest and repay principal and differs
from the highest rated issues only in small degree. Debt rated A by S&P has a
strong capacity to pay interest and repay principal, although it is somewhat
more susceptible to the adverse effects of changes in circumstances and economic
conditions than debt in higher rated categories.
Debt rated BBB by S&P is regarded by S&P as having an adequate capacity
to pay interest and repay principal. Although such bonds normally exhibit
adequate protection parameters, adverse economic conditions or changing
circumstances are more likely to lead to a weakened capacity to pay interest and
repay principal than debt in higher rated categories.
Debt rated BB, B, CCC, CC and C is regarded as having predominately
speculative characteristics with respect to capacity to pay interest and repay
principal. BB indicates the least degree of speculation and C the highest. While
such debt will likely have some quality and protective characteristics, these
are outweighed by large uncertainties or exposures to adverse conditions. Debt
rated BB has less near-term vulnerability to default than other speculative
issues. However, it faces major ongoing uncertainties or exposure to adverse
business, financial or economic conditions which could lead to inadequate
capacity to meet timely interest and principal payments. The BB rating category
is also used for debt subordinated to senior debt that is assigned an actual or
implied BBB- rating. Debt rated B has a greater vulnerability to default but
currently has the capacity to meet interest payments and principal repayments.
Adverse business, financial, or economic conditions will likely impair capacity
or willingness to pay interest and repay principal. The B rating category is
also used for debt subordinated to senior debt that is assigned an actual or
implied BB or BB- rating. Debt rated CCC has a currently identifiable
vulnerability to default, and is dependent upon favorable business, financial,
and economic conditions to meet timely payment of interest and repayment of
principal. In the event of adverse business, financial or economic conditions,
it is not likely to have the capacity to pay interest and repay principal. The
CCC rating category is also used for debt subordinated to senior debt that is
assigned an actual or implied B or B- rating. The rating CC typically is applied
to debt subordinated to senior debt which is assigned an actual or implied CCC
debt rating. The rating C typically is applied to debt subordinated to senior
debt which is assigned an actual or implied CCC- debt rating. The C rating may
be used to cover a situation where a bankruptcy petition has been filed, but
debt service payments are continued.
The rating CI is reserved for income bonds on which no interest is
being paid. Debt rated D is in payment default. The D rating category is used
when interest payments or principal payments are not made on the date due, even
if the applicable grace period has not expired, unless S&P believes that such
payments will be made during such grace period. The D rating also will be used
upon the filing of a bankruptcy petition if debt service payments are
jeopardized.
(b) COMMERCIAL PAPER. An S&P commercial paper rating is a current
assessment of the likelihood of timely payment of debt considered short-term in
the relevant market.
The commercial paper rating A-1 by S&P indicates that the degree of
safety regarding timely payment is strong. Those issues determined to possess
extremely strong safety characteristics are denoted with a plus sign (+)
designation. For commercial paper with an A-2 rating, the capacity for timely
payment on issues is satisfactory, but not as high as for issues designated A-1.
Issues rated A-3 have adequate capacity for timely payment, but are more
vulnerable to the adverse effects of changes in circumstances than obligations
carrying higher designations.
Issues rated B are regarded as having only speculative capacity for
timely payment. The C rating is assigned to short-term debt obligations with a
doubtful capacity for payment. Debt rated D is in payment default. The D rating
category is used when interest payments or principal payments are not made on
the date due, even if the applicable grace period has not expired, unless S&P
believes such payments will be made during such grace period.
<PAGE>
IVY INTERNATIONAL FUND II
a series of
IVY FUND
Via Mizner Financial Plaza, Suite 300
700 South Federal Highway
Boca Raton, Florida 33432
STATEMENT OF ADDITIONAL INFORMATION
April , 1999
Ivy Fund (the "Trust") is an open-end management investment company
that currently consists of nineteen fully managed portfolios, each of which
(except for Ivy South America Fund and Ivy International Strategic Bond Fund) is
diversified. This Statement of Additional Information ("SAI") relates to the
Class A, B, C and I and Advisor Class shares of Ivy International Fund II (the
"Fund"). The other eighteen portfolios of the Trust are described in separate
prospectuses and SAIs.
This SAI is not a prospectus and should be read in conjunction with the
prospectus for the Fund dated April , 1999 (the "Prospectus"), which may be
obtained upon request and without charge from the Trust at the Distributor's
address and telephone number printed below.
INVESTMENT MANAGER
Ivy Management, Inc. ("IMI")
Via Mizner Financial Plaza, Suite 300
700 South Federal Highway
Boca Raton, Florida 33432
Telephone: (800) 777-6472
DISTRIBUTOR
Ivy Mackenzie Distributors, Inc. ("IMDI")
Via Mizner Financial Plaza, Suite 300
700 South Federal Highway
Boca Raton, Florida 33432
Telephone: (800) 456-5111
<PAGE>
iii
TABLE OF CONTENTS
GENERAL INFORMATION........................................................
INVESTMENT OBJECTIVES, STRATEGIES AND RISKS................................
COMMON STOCKS.....................................................
CONVERTIBLE SECURITIES............................................
DEBT SECURITIES...................................................
IN GENERAL...............................................
INVESTMENT-GRADE DEBT SECURITIES.........................
U.S. GOVERNMENT SECURITIES...............................
FIRM COMMITMENT AGREEMENTS AND "WHEN-ISSUED"SECURITIES...
ILLIQUID SECURITIES...............................................
FOREIGN SECURITIES................................................
DEPOSITORY RECEIPTS...............................................
EMERGING MARKETS..................................................
FOREIGN CURRENCIES................................................
FOREIGN CURRENCY EXCHANGE TRANSACTIONS............................
OTHER INVESTMENT COMPANIES........................................
REPURCHASE AGREEMENTS.............................................
BANKING INDUSTRY AND SAVINGS AND LOAN OBLIGATIONS.................
COMMERCIAL PAPER..................................................
BORROWING.........................................................
WARRANTS..........................................................
OPTIONS TRANSACTIONS..............................................
IN GENERAL...............................................
WRITING OPTIONS ON INDIVIDUAL SECURITIES.................
PURCHASING OPTIONS ON INDIVIDUAL SECURITIES..............
PURCHASING AND WRITING OPTIONS ON SECURITIES INDICES.....
RISKS OF OPTIONS TRANSACTIONS............................
FUTURES CONTRACTS AND OPTIONS ON FUTURES CONTRACTS................
IN GENERAL...............................................
FOREIGN CURRENCY FUTURES CONTRACTS AND RELATED OPTIONS...
RISKS ASSOCIATED WITH FUTURES AND RELATED OPTIONS........
SECURITIES INDEX FUTURES CONTRACTS................................
RISKS OF SECURITIES INDEX FUTURES........................
COMBINED TRANSACTIONS....................................
INVESTMENT RESTRICTIONS....................................................
PORTFOLIO TURNOVER.........................................................
TRUSTEES AND OFFICERS......................................................
PERSONAL INVESTMENTS BY EMPLOYEES OF IMI.................
INVESTMENT ADVISORY AND OTHER SERVICES.....................................
BUSINESS MANAGEMENT AND INVESTMENT ADVISORY SERVICES..............
DISTRIBUTION SERVICES.............................................
RULE 18F-3 PLAN..........................................
RULE 12B-1 DISTRIBUTION PLANS............................
CUSTODIAN.........................................................
FUND ACCOUNTING SERVICES..........................................
TRANSFER AGENT AND DIVIDEND PAYING AGENT..........................
ADMINISTRATOR.....................................................
AUDITORS..........................................................
BROKERAGE ALLOCATION.......................................................
CAPITALIZATION AND VOTING RIGHTS...........................................
SPECIAL RIGHTS AND PRIVILEGES..............................................
AUTOMATIC INVESTMENT METHOD.......................................
EXCHANGE OF SHARES................................................
INITIAL SALES CHARGE SHARES..............................
CONTINGENT DEFERRED SALES CHARGE SHARES CLASS A..........
CLASS B..................................................
CLASS C..................................................
CLASS I AND ADVISOR CLASS................................
ALL CLASSES..............................................
LETTER OF INTENT..................................................
RETIREMENT PLANS..................................................
INDIVIDUAL RETIREMENT ACCOUNTS...........................
ROTH IRAS................................................
QUALIFIED PLANS..........................................
DEFERRED COMPENSATION FOR PUBLIC SCHOOLS AND CHARITABLE
ORGANIZATIONS ("403(B)(7) ACCOUNT")....
SIMPLIFIED EMPLOYEE PENSION ("SEP") IRAS.................
SIMPLE PLANS.............................................
REINVESTMENT PRIVILEGE............................................
RIGHTS OF ACCUMULATION............................................
SYSTEMATIC WITHDRAWAL PLAN........................................
GROUP SYSTEMATIC INVESTMENT PROGRAM...............................
REDEMPTIONS................................................................
CONVERSION OF CLASS B SHARES...............................................
NET ASSET VALUE............................................................
TAXATION 41
OPTIONS, FUTURES AND FOREIGN CURRENCY FORWARD CONTRACTS...........
CURRENCY FLUCTUATIONS -- "SECTION 988" GAINS OR LOSSES............
INVESTMENT IN PASSIVE FOREIGN INVESTMENT COMPANIES................
DEBT SECURITIES ACQUIRED AT A DISCOUNT............................
DISTRIBUTIONS.....................................................
DISPOSITION OF SHARES.............................................
FOREIGN WITHHOLDING TAXES.........................................
BACKUP WITHHOLDING................................................
PERFORMANCE INFORMATION....................................................
YIELD....................................................
AVERAGE ANNUAL TOTAL RETURN..............................
CUMULATIVE TOTAL RETURN..................................
OTHER QUOTATIONS, COMPARISONS AND GENERAL INFORMATION....
FINANCIAL STATEMENTS.......................................................
APPENDIX A.................................................................
<PAGE>
5
GENERAL INFORMATION
The Fund is organized as a separate, diversified portfolio of the
Trust, an open-end management investment company organized as a Massachusetts
business trust on December 21, 1983. The Fund commenced operations on May 13,
1997. Advisor class shares were first offered on January 1, 1998.
Descriptions in this Statement of a particular investment practice or
technique in which the Fund may engage or a financial instrument which the Fund
may purchase are meant to describe the spectrum of investments that IMI, in its
discretion, might, but is not required to, use in managing the Fund's portfolio
assets. IMI may, in its discretion, at any time employ such practice, technique
or instrument for one or more funds but not for all funds advised by it.
Furthermore, it is possible that certain types of financial instruments or
investment techniques described herein may not be available, permissible,
economically feasible or effective for their intended purposes in all markets.
Certain practices, techniques, or instruments may not be principal activities of
the Fund but, to the extent employed, could from time to time have a material
impact on the Fund's performance.
INVESTMENT OBJECTIVES, STRATEGIES AND RISKS
The Fund has its own investment objectives and policies, which are
described in the Prospectus under the captions "Summary" and "Additional
Information About Strategies and Risks." Additional information regarding the
characteristics and risks associated with the Fund's investment techniques is
set forth below.
The Fund's principal objective is long-term capital growth primarily
through investment in equity securities. Consideration of current income is
secondary to this principal objective. It is anticipated that at least 65% of
the Fund's total assets will be invested in common stocks (and securities
convertible into common stocks) principally traded in European, Pacific Basin
and Latin American markets. Under this investment policy, at least three
different countries (other than the United States) will be represented in the
Fund's overall portfolio holdings. For temporary defensive purposes, the Fund
may also invest in equity securities principally traded in U.S. markets. IMI,
the Fund's investment manager, invests the Fund's assets in a variety of
economic sectors, industry segments and individual securities in order to reduce
the effects of price volatility in any one area and to enable shareholders to
participate in markets that do not necessarily move in concert with U.S.
markets. IMI seeks to identify rapidly expanding foreign economies, and then
searches out growing industries and corporations, focusing on companies with
established records. Individual securities are selected based on value
indicators, such as a low price-earnings ratio, and are reviewed for fundamental
financial strength. Companies in which investments are made will generally have
at least $1 billion in capitalization and a solid history of operations.
When economic or market conditions warrants, the Fund may invest
without limit in U.S. Government securities, investment-grade debt securities
(i.e., those rated Baa or higher by Moody's or BBB or higher by S&P, or if
unrated, considered by IMI to be of comparable quality), preferred stocks,
sponsored or unsponsored ADRs, GDRs, ADSs and GDSs, warrants, or cash or cash
equivalents such as bank obligations (including certificates of deposit and
bankers' acceptances), commercial paper, short-term notes and repurchase
agreements. For temporary or emergency purposes, the Fund may borrow up to 10%
of the value of its total assets from banks. The Fund may also purchase
securities on a "when-issued" or firm commitment basis, and may engage in
foreign currency exchange transactions and enter into forward foreign currency
contracts. The Fund may also invest up to 10% of its total assets in other
investment companies and up to 15% of its net assets in illiquid securities.
The Fund may purchase put and call options on securities and stock
indices, provided the premium paid for such options does not exceed 5% of the
Fund's net assets. The Fund may also sell covered put options with respect to up
to 10% of the value of its net assets, and may write covered call options so
long as not more than 25% of the Fund's net assets is subject to being purchased
upon the exercise of the calls. For hedging purposes only, the Fund may engage
in transactions in (and options on) stock index and foreign currency futures
contracts, provided that the Fund's equivalent exposure in such contracts does
not exceed 15% of its total assets.
COMMON STOCKS
Common stock can be issued by companies to raise cash; all common stock
shares represent a proportionate ownership interest in a company. As a result,
the value of common stock rises and falls with a company's success or failure.
The market value of common stock can fluctuate significantly, with smaller
companies being particularly susceptible to price swings. Transaction costs in
smaller company stocks may also be higher than those of larger companies.
CONVERTIBLE SECURITIES
The convertible securities in which the Fund may invest include
corporate bonds, notes, debentures, preferred stock and other securities that
may be converted or exchanged at a stated or determinable exchange ratio into
underlying shares of common stock. Investments in convertible securities can
provide income through interest and dividend payments as well as an opportunity
for capital appreciation by virtue of their conversion or exchange features.
Because convertible securities can be converted into equity securities, their
values will normally vary in some proportion with those of the underlying equity
securities. Convertible securities usually provide a higher yield than the
underlying equity, however, so that the price decline of a convertible security
may sometimes be less substantial than that of the underlying equity security.
The exchange ratio for any particular convertible security may be adjusted from
time to time due to stock splits, dividends, spin-offs, other corporate
distributions or scheduled changes in the exchange ratio. Convertible debt
securities and convertible preferred stocks, until converted, have general
characteristics similar to both debt and equity securities. Although to a lesser
extent than with debt securities generally, the market value of convertible
securities tends to decline as interest rates increase and, conversely, tends to
increase as interest rates decline. In addition, because of the conversion or
exchange feature, the market value of convertible securities typically changes
as the market value of the underlying common stock changes, and, therefore, also
tends to follow movements in the general market for equity securities. When the
market price of the underlying common stock increases, the price of a
convertible security tends to rise as a reflection of the value of the
underlying common stock, although typically not as much as the price of the
underlying common stock. While no securities investments are without risk,
investments in convertible securities generally entail less risk than
investments in common stock of the same issuer.
As debt securities, convertible securities are investments that provide
for a stream of income. Like all debt securities, there can be no assurance of
income or principal payments because the issuers of the convertible securities
may default on their obligations. Convertible securities generally offer lower
yields than non-convertible securities of similar quality because of their
conversion or exchange features.
Convertible securities generally are subordinated to other similar but
non-convertible securities of the same issuer, although convertible bonds, as
corporate debt obligations, are senior in right of payment to all equity
securities, and convertible preferred stock is senior to common stock, of the
same issuer. However, convertible bonds and convertible preferred stock
typically have lower coupon rates than similar non-convertible securities.
Convertible securities may be issued as fixed income obligations that pay
current income.
DEBT SECURITIES
IN GENERAL. Investment in debt securities involves both interest rate
and credit risk. Generally, the value of debt instruments rises and falls
inversely with fluctuations in interest rates. As interest rates decline, the
value of debt securities generally increases. Conversely, rising interest rates
tend to cause the value of debt securities to decrease. Bonds with longer
maturities generally are more volatile than bonds with shorter maturities. The
market value of debt securities also varies according to the relative financial
condition of the issuer. In general, lower-quality bonds offer higher yields due
to the increased risk that the issuer will be unable to meet its obligations on
interest or principal payments at the time called for by the debt instrument.
INVESTMENT-GRADE DEBT SECURITIES. Bonds rated Aaa by Moody's Investors
Service, Inc. ("Moody's") and AAA by Standard & Poor's Ratings Group ("S&P") are
judged to be of the best quality (i.e., capacity to pay interest and repay
principal is extremely strong). Bonds rated Aa/AA are considered to be of high
quality (i.e., capacity to pay interest and repay principal is very strong and
differs from the highest rated issues only to a small degree). Bonds rated A are
viewed as having many favorable investment attributes, but elements may be
present that suggest a susceptibility to the adverse effects of changes in
circumstances and economic conditions than debt in higher rated categories.
Bonds rated Baa/BBB (considered by Moody's to be "medium grade" obligations) are
considered to have an adequate capacity to pay interest and repay principal, but
certain protective elements may be lacking (i.e., such bonds lack outstanding
investment characteristics and have some speculative characteristics). The Fund
may invest in debt securities that are given an investment-grade rating by
Moody's or S&P, and may also invest in unrated debt securities that are
considered by IMI to be of comparable quality.
U.S. GOVERNMENT SECURITIES. U.S. Government securities are obligations of,
or guaranteed by, the U.S. Government, its agencies or instrumentalities.
Securities guaranteed by the U.S. Government include: (1) direct
obligations of the U.S. Treasury (such as Treasury bills, notes, and bonds)
and (2) Federal agency obligations guaranteed as to principal and interest
by the U.S. Treasury (such as GNMA certificates, which are mortgage-backed
securities). When such securities are held to maturity, the payment of
principal and interest is unconditionally guaranteed by the U.S.
Government, and thus they are of the highest possible credit quality. U.S.
Government securities that are not held to maturity are subject to
variations in market value due to fluctuations in interest rates.
Mortgage-backed securities are securities representing part ownership
of a pool of mortgage loans. For example, GNMA certificates are such securities
in which the timely payment of principal and interest is guaranteed by the full
faith and credit of the U.S. Government. Although the mortgage loans in the pool
will have maturities of up to 30 years, the actual average life of the loans
typically will be substantially less because the mortgages will be subject to
principal amortization and may be prepaid prior to maturity. Prepayment rates
vary widely and may be affected by changes in market interest rates. In periods
of falling interest rates, the rate of prepayment tends to increase, thereby
shortening the actual average life of the security. Conversely, rising interest
rates tend to decrease the rate of prepayments, thereby lengthening the actual
average life of the security (and increasing the security's price volatility).
Accordingly, it is not possible to predict accurately the average life of a
particular pool. Reinvestment of prepayment may occur at higher or lower rates
than the original yield on the certificates. Due to the prepayment feature and
the need to reinvest prepayments of principal at current rates, mortgage-backed
securities can be less effective than typical bonds of similar maturities at
"locking in" yields during periods of declining interest rates, and may involve
significantly greater price and yield volatility than traditional debt
securities. Such securities may appreciate or decline in market value during
periods of declining or rising interest rates, respectively.
Securities issued by U.S. Government instrumentalities and certain
Federal agencies are neither direct obligations of nor guaranteed by the U.S.
Treasury; however, they involve Federal sponsorship in one way or another. Some
are backed by specific types of collateral, some are supported by the issuer's
right to borrow from the Treasury, some are supported by the discretionary
authority of the Treasury to purchase certain obligations of the issuer, others
are supported only by the credit of the issuing government agency or
instrumentality. These agencies and instrumentalities include, but are not
limited to, Federal Land Banks, Farmers Home Administration, Central Bank for
Cooperatives, Federal Intermediate Credit Banks, Federal Home Loan Banks,
Federal National Mortgage Association, Federal Home Loan Mortgage Association,
and Student Loan Marketing Association.
FIRM COMMITMENT AGREEMENTS AND "WHEN-ISSUED" SECURITIES. New issues of
certain debt securities are often offered on a "when-issued" basis, meaning the
payment obligation and the interest rate are fixed at the time the buyer enters
into the commitment, but delivery and payment for the securities normally take
place after the date of the commitment to purchase. Firm commitment agreements
call for the purchase of securities at an agreed-upon price on a specified
future date. The Fund uses such investment techniques in order to secure what is
considered to be an advantageous price and yield to the Fund and not for
purposes of leveraging the Fund's assets. In either instance, the Fund will
maintain in a segregated account with its Custodian cash or liquid securities
equal (on a daily marked-to-market basis) to the amount of its commitment to
purchase the underlying securities.
ILLIQUID SECURITIES
The Fund may purchase securities other than in the open market. While
such purchases may often offer attractive opportunities for investment not
otherwise available on the open market, the securities so purchased are often
"restricted securities" or "not readily marketable" (i.e., they cannot be sold
to the public without registration under the Securities Act of 1933, as amended
(the "1933 Act"), or the availability of an exemption from registration (such as
Rule 144A) or because they are subject to other legal or contractual delays in
or restrictions on resale). This investment practice, therefore, could have the
effect of increasing the level of illiquidity of the Fund. It is the Fund's
policy that illiquid securities (including repurchase agreements of more than
seven days duration, certain restricted securities, and other securities which
are not readily marketable) may not constitute, at the time of purchase, more
than 15% of the value of the Fund's net assets. The Trust's Board of Trustees
has approved guidelines for use by IMI in determining whether a security is
illiquid.
Generally speaking, restricted securities may be sold (i) only to
qualified institutional buyers; (ii) in a privately negotiated transaction to a
limited number of purchasers; (iii) in limited quantities after they have been
held for a specified period of time and other conditions are met pursuant to an
exemption from registration; or (iv) in a public offering for which a
registration statement is in effect under the 1933 Act. Issuers of restricted
securities may not be subject to the disclosure and other investor protection
requirements that would be applicable if their securities were publicly traded.
If adverse market conditions were to develop during the period between the
Fund's decision to sell a restricted or illiquid security and the point at which
the Fund is permitted or able to sell such security, the Fund might obtain a
price less favorable than the price that prevailed when it decided to sell.
Where a registration statement is required for the resale of restricted
securities, the Fund may be required to bear all or part of the registration
expenses. The Fund may be deemed to be an "underwriter" for purposes of the 1933
Act when selling restricted securities to the public and, in such event, the
Fund may be liable to purchasers of such securities if the registration
statement prepared by the issuer is materially inaccurate or misleading.
Since it is not possible to predict with assurance that the market for
securities eligible for resale under Rule 144A will continue to be liquid, IMI
will monitor such restricted securities subject to the supervision of the Board
of Trustees. Among the factors IMI may consider in reaching liquidity decisions
relating to Rule 144A securities are: (1) the frequency of trades and quotes for
the security; (2) the number of dealers wishing to purchase or sell the security
and the number of other potential purchasers; (3) dealer undertakings to make a
market in the security; and (4) the nature of the security and the nature of the
market for the security (i.e., the time needed to dispose of the security, the
method of soliciting offers, and the mechanics of the transfer).
FOREIGN SECURITIES
The securities of foreign issuers in which the Fund may invest include
non-U.S. dollar-denominated debt securities, Euro dollar securities, sponsored
and unsponsored American Depository Receipts ("ADRs"), Global Depository
Receipts ("GDRs"), American Depository Shares ("ADSs"), Global Depository Shares
("GDSs") and related depository instruments, and debt securities issued, assumed
or guaranteed by foreign governments or political subdivisions or
instrumentalities thereof. Shareholders should consider carefully the
substantial risks involved in investing in securities issued by companies and
governments of foreign nations, which are in addition to the usual risks
inherent in the Fund's domestic investments.
Although IMI intends to invest the Fund's assets only in nations that
are generally considered to have relatively stable and friendly governments,
there is the possibility of expropriation, nationalization, repatriation or
confiscatory taxation, taxation on income earned in a foreign country and other
foreign taxes, foreign exchange controls (which may include suspension of the
ability to transfer currency from a given country), default on foreign
government securities, political or social instability or diplomatic
developments which could affect investments in securities of issuers in those
nations. In addition, in many countries there is less publicly available
information about issuers than is available for U.S. companies. Moreover,
foreign companies are not generally subject to uniform accounting, auditing and
financial reporting standards, and auditing practices and requirements may not
be comparable to those applicable to U.S. companies. In many foreign countries,
there is less governmental supervision and regulation of business and industry
practices, stock exchanges, brokers, and listed companies than in the United
States. Foreign securities transactions may also be subject to higher brokerage
costs than domestic securities transactions. The foreign securities markets of
many of the countries in which the Fund may invest may also be smaller, less
liquid and subject to greater price volatility than those in the United States.
In addition, the Fund may encounter difficulties or be unable to pursue legal
remedies and obtain judgment in foreign courts.
Foreign bond markets have different clearance and settlement procedures
and in certain markets there have been times when settlements have been unable
to keep pace with the volume of securities transactions, making it difficult to
conduct such transactions. Delays in settlement could result in temporary
periods when assets of the Fund are uninvested and no return is earned thereon.
The inability of the Fund to make intended security purchases due to settlement
problems could cause the Fund to miss attractive investment opportunities.
Further, the inability to dispose of portfolio securities due to settlement
problems could result either in losses to the Fund because of subsequent
declines in the value of the portfolio security or, if the Fund has entered into
a contract to sell the security, in possible liability to the purchaser. It may
be more difficult for the Fund's agents to keep currently informed about
corporate actions such as stock dividends or other matters that may affect the
prices of portfolio securities. Communications between the United States and
foreign countries may be less reliable than within the United States, thus
increasing the risk of delayed settlements of portfolio transactions or loss of
certificates for portfolio securities. Moreover, individual foreign economies
may differ favorably or unfavorably from the United States economy in such
respects as growth of gross national product, rate of inflation, capital
reinvestment, resource self-sufficiency and balance of payments position. IMI
seeks to mitigate the risks to the Fund associated with the foregoing
considerations through investment variation and continuous professional
management.
DEPOSITORY RECEIPTS
ADRs, GDRs, ADSs, GDSs and related securities are depository
instruments, the issuance of which is typically administered by a U.S. or
foreign bank or trust company. These instruments evidence ownership of
underlying securities issued by a U.S. or foreign corporation. ADRs are publicly
traded on exchanges or over-the-counter ("OTC") in the United States.
Unsponsored programs are organized independently and without the cooperation of
the issuer of the underlying securities. As a result, information concerning the
issuer may not be as current or as readily available as in the case of sponsored
depository instruments, and their prices may be more volatile than if they were
sponsored by the issuers of the underlying securities.
EMERGING MARKETS
The Fund could have significant investments in securities traded in
emerging markets. Investors should recognize that investing in such countries
involves special considerations, in addition to those set forth above, that are
not typically associated with investing in United States securities and that may
affect the Fund's performance favorably or unfavorably.
In recent years, many emerging market countries around the world have
undergone political changes that have reduced government's role in economic and
personal affairs and have stimulated investment and growth. Historically, there
is a strong direct correlation between economic growth and stock market returns.
While this is no guarantee of future performance, IMI believes that investment
opportunities (particularly in the energy, environmental services, natural
resources, basic materials, power, telecommunications and transportation
industries) may result within the evolving economies of emerging market
countries from which the Fund and its shareholders will benefit.
Investments in companies domiciled in developing countries may be
subject to potentially higher risks than investments in developed countries.
Such risks include (i) less social, political and economic stability; (ii) a
small market for securities and/or a low or nonexistent volume of trading, which
result in a lack of liquidity and in greater price volatility; (iii) certain
national policies that may restrict the Fund's investment opportunities,
including restrictions on investment in issuers or industries deemed sensitive
to national interests; (iv) foreign taxation; (v) the absence of developed
structures governing private or foreign investment or allowing for judicial
redress for injury to private property; (vi) the absence, until relatively
recently in certain Eastern European countries, of a capital market structure or
market-oriented economy; (vii) the possibility that recent favorable economic
developments in Eastern Europe may be slowed or reversed by unanticipated
political or social events in such countries; and (viii) the possibility that
currency devaluations could adversely affect the value of the Fund's
investments. Further, many emerging markets have experienced and continue to
experience high rates of inflation.
Despite the dissolution of the Soviet Union, the Communist Party may
continue to exercise a significant role in certain Eastern European countries.
To the extent of the Communist Party's influence, investments in such countries
will involve risks of nationalization, expropriation and confiscatory taxation.
The communist governments of a number of Eastern European countries expropriated
large amounts of private property in the past, in many cases without adequate
compensation, and there can be no assurance that such expropriation will not
occur in the future. In the event of such expropriation, the Fund could lose a
substantial portion of any investments it has made in the affected countries.
Further, few (if any) accounting standards exist in Eastern European countries.
Finally, even though certain Eastern European currencies may be convertible into
U.S. dollars, the conversion rates may be artificial in relation to the actual
market values and may be adverse to the Fund's net asset value.
Certain Eastern European countries that do not have well-established
trading markets are characterized by an absence of developed legal structures
governing private and foreign investments and private property. In addition,
certain countries require governmental approval prior to investments by foreign
persons, or limit the amount of investment by foreign persons in a particular
company, or limit the investment of foreign persons to only a specific class of
securities of a company that may have less advantageous terms than securities of
the company available for purchase by nationals.
Authoritarian governments in certain Eastern European countries may
require that a governmental or quasi-governmental authority act as custodian of
the Fund's assets invested in such country. To the extent such governmental or
quasi-governmental authorities do not satisfy the requirements of the Investment
Company Act of 1940, as amended (the "1940 Act"), with respect to the custody of
the Fund's cash and securities, the Fund's investment in such countries may be
limited or may be required to be effected through intermediaries. The risk of
loss through governmental confiscation may be increased in such countries.
FOREIGN CURRENCIES
Investment in foreign securities usually will involve currencies of
foreign countries. Moreover, the Fund may temporarily hold funds in bank
deposits in foreign currencies during the completion of investment programs and
may purchase forward foreign currency contracts. Because of these factors, the
value of the assets of the Fund as measured in U.S. dollars may be affected
favorably or unfavorably by changes in foreign currency exchange rates and
exchange control regulations, and the Fund may incur costs in connection with
conversions between various currencies. Although the Fund's custodian values the
Fund's assets daily in terms of U.S. dollars, the Fund does not intend to
convert its holdings of foreign currencies into U.S. dollars on a daily basis.
The Fund will do so from time to time, however, and investors should be aware of
the costs of currency conversion. Although foreign exchange dealers do not
charge a fee for conversion, they do realize a profit based on the difference
(the "spread") between the prices at which they are buying and selling various
currencies. Thus, a dealer may offer to sell a foreign currency to the Fund at
one rate, while offering a lesser rate of exchange should the Fund desire to
resell that currency to the dealer. The Fund will conduct its foreign currency
exchange transactions either on a spot (i.e., cash) basis at the spot rate
prevailing in the foreign currency exchange market, or through entering into
forward contracts to purchase or sell foreign currencies.
Because the Fund normally will be invested in both U.S. and foreign
securities markets, changes in the Fund's share price may have a low correlation
with movements in U.S. markets. The Fund's share price will reflect the
movements of the different stock and bond markets in which it is invested (both
U.S. and foreign), and of the currencies in which the investments are
denominated. Thus, the strength or weakness of the U.S. dollar against foreign
currencies may account for part of the Fund's investment performance. U.S. and
foreign securities markets do not always move in step with each other, and the
total returns from different markets may vary significantly. In addition,
significant uncertainty surrounds the proposed introduction of the euro (a
common currency for the European Union) in January 1999 and its effect on the
value of securities denominated in local European currencies. These and other
currencies in which the Fund's assets are denominated may be devalued against
the U.S. dollar, resulting in a loss to the Fund.
FOREIGN CURRENCY EXCHANGE TRANSACTIONS
The Fund may enter into forward foreign currency contracts in order to
protect against uncertainty in the level of future foreign exchange rates in the
purchase and sale of securities. A forward contract is an obligation to purchase
or sell a specific currency for an agreed price at a future date (usually less
than a year), and typically is individually negotiated and privately traded by
currency traders and their customers. A forward contract generally has no
deposit requirement, and no commissions are charged at any stage for trades.
Although foreign exchange dealers do not charge a fee for commissions, they do
realize a profit based on the difference between the price at which they are
buying and selling various currencies. Although these contracts are intended to
minimize the risk of loss due to a decline in the value of the hedged
currencies, at the same time, they tend to limit any potential gain which might
result should the value of such currencies increase.
While the Fund may enter into forward contracts to reduce currency
exchange risks, changes in currency exchange rates may result in poorer overall
performance for the Fund than if it had not engaged in such transactions.
Moreover, there may be an imperfect correlation between the Fund's portfolio
holdings of securities denominated in a particular currency and forward
contracts entered into by the Fund. An imperfect correlation of this type may
prevent the Fund from achieving the intended hedge or expose the Fund to the
risk of currency exchange loss.
The Fund may purchase currency forwards and combine such purchases with
sufficient cash or short-term securities to create unleveraged substitutes for
investments in foreign markets when deemed advantageous. The Fund may also
combine the foregoing with bond futures or interest rate futures contracts to
create the economic equivalent of an unhedged foreign bond position.
The Fund may also cross-hedge currencies by entering into transactions
to purchase or sell one or more currencies that are expected to decline in value
relative to other currencies to which the Fund has or in which the Fund expects
to have portfolio exposure.
Currency transactions are subject to risks different from those of
other portfolio transactions. Because currency control is of great importance to
the issuing governments and influences economic planning and policy, purchases
and sales of currency and related instruments can be negatively affected by
government exchange controls, blockages, and manipulations or exchange
restrictions imposed by governments. These can result in losses to the Fund if
it is unable to deliver or receive currency or funds in settlement of
obligations and could also cause hedges it has entered into to be rendered
useless, resulting in full currency exposure as well as incurring transactions
costs. Buyers and sellers of currency futures are subject to the same risks that
apply to the use of futures generally. Further, settlement of a currency futures
contract for the purchase of most currencies must occur at a bank based in the
issuing nation. Trading options on currency futures is relatively new, and the
ability to establish and close out positions on such options is subject to the
maintenance of a liquid market which may not always be available. Currency
exchange rates may fluctuate based on factors extrinsic to that country's
economy.
OTHER INVESTMENT COMPANIES
The Fund may invest up to 10% of its total assets in the shares of
other investment companies. As a shareholder of an investment company, the Fund
would bear its ratable shares of the fund's expenses (which often include an
asset-based management fee). The Fund could also lose money by investing in
other investment companies, since the value of their respective investments and
the income they generate will vary daily based on prevailing market conditions.
REPURCHASE AGREEMENTS
Repurchase agreements are contracts under which the Fund buys a money
market instrument and obtains a simultaneous commitment from the seller to
repurchase the instrument at a specified time and at an agreed-upon yield. Under
guidelines approved by the Board, the Fund is permitted to enter into repurchase
agreements only if the repurchase agreements are at least fully collateralized
with U.S. Government securities or other securities that IMI has approved for
use as collateral for repurchase agreements and the collateral must be
marked-to-market daily. The Fund will enter into repurchase agreements only with
banks and broker-dealers deemed to be creditworthy by IMI under the
above-referenced guidelines. In the unlikely event of failure of the executing
bank or broker-dealer, the Fund could experience some delay in obtaining direct
ownership of the underlying collateral and might incur a loss if the value of
the security should decline, as well as costs in disposing of the security.
BANKING INDUSTRY AND SAVINGS AND LOAN OBLIGATIONS
Certificates of deposit are negotiable certificates issued against
funds deposited in a commercial bank for a definite period of time and earning a
specified return. Bankers' acceptances are negotiable drafts or bills of
exchange, normally drawn by an importer or exporter to pay for specific
merchandise, which are "accepted" by a bank (meaning, in effect, that the bank
unconditionally agrees to pay the face value of the instrument at maturity). In
addition to investing in certificates of deposit and bankers' acceptances, the
Fund may invest in time deposits in banks or savings and loan associations. Time
deposits are generally similar to certificates of deposit, but are
uncertificated. The Fund's investments in certificates of deposit, time
deposits, and bankers' acceptance are limited to obligations of (i) banks having
total assets in excess of $1 billion, (ii) U.S. banks which do not meet the $1
billion asset requirement, if the principal amount of such obligation is fully
insured by the Federal Deposit Insurance Corporation (the "FDIC"), (iii) savings
and loan association which have total assets in excess of $1 billion and which
are members of the FDIC, and (iv) foreign banks if the obligation is, in IMI's
opinion, of an investment quality comparable to other debt securities which may
be purchased by the Fund. The Fund's investments in certificates of deposit of
savings associations are limited to obligations of Federal and state-chartered
institutions whose total assets exceed $1 billion and whose deposits are insured
by the FDIC.
COMMERCIAL PAPER
Commercial paper represents short-term unsecured promissory notes
issued in bearer form by bank holding companies, corporations and finance
companies. The Fund may invest in commercial paper that is rated Prime-1 by
Moody's Investors Service, Inc. ("Moody's") or A-1 by Standard & Poor's
Corporation ("S&P") or, if not rated by Moody's or S&P, is issued by companies
having an outstanding debt issue rated Aaa or Aa by Moody's or AAA or AA by S&P.
BORROWING
Borrowing may exaggerate the effect on the Fund's net asset value of
any increase or decrease in the value of the Fund's portfolio securities. Money
borrowed will be subject to interest costs (which may include commitment fees
and/or the cost of maintaining minimum average balances). Although the principal
of the Fund's borrowings will be fixed, the Fund's assets may change in value
during the time a borrowing is outstanding, thus increasing exposure to capital
risk.
WARRANTS
The holder of a warrant has the right, until the warrant expires, to
purchase a given number of shares of a particular issuer at a specified price.
Such investments can provide a greater potential for profit or loss than an
equivalent investment in the underlying security. However, prices of warrants do
not necessarily move in a tandem with the prices of the underlying securities,
and are, therefore, considered speculative investments. Warrants pay no
dividends and confer no rights other than a purchase option. Thus, if a warrant
held by the Fund were not exercised by the date of its expiration, the Fund
would lose the entire purchase price of the warrant.
OPTIONS TRANSACTIONS
IN GENERAL. A call option is a short-term contract (having a duration
of less than one year) pursuant to which the purchaser, in return for the
premium paid, has the right to buy the security underlying the option at the
specified exercise price at any time during the term of the option. The writer
of the call option, who receives the premium, has the obligation, upon exercise
of the option, to deliver the underlying security against payment of the
exercise price. A put option is a similar contract pursuant to which the
purchaser, in return for the premium paid, has the right to sell the security
underlying the option at the specified exercise price at any time during the
term of the option. The writer of the put option, who receives the premium, has
the obligation, upon exercise of the option, to buy the underlying security at
the exercise price. The premium paid by the purchaser of an option will reflect,
among other things, the relationship of the exercise price to the market price
and volatility of the underlying security, the time remaining to expiration of
the option, supply and demand, and interest rates.
If the writer of an option wishes to terminate the obligation, the
writer may effect a "closing purchase transaction." This is accomplished by
buying an option of the same series as the option previously written. The effect
of the purchase is that the writer's position will be canceled by the Options
Clearing Corporation. However, a writer may not effect a closing purchase
transaction after it has been notified of the exercise of an option. Likewise,
an investor who is the holder of an option may liquidate his or her position by
effecting a "closing sale transaction." This is accomplished by selling an
option of the same series as the option previously purchased. There is no
guarantee that either a closing purchase or a closing sale transaction can be
effected at any particular time or at any acceptable price. If any call or put
option is not exercised or sold, it will become worthless on its expiration
date.
The Fund will realize a gain (or a loss) on a closing purchase
transaction with respect to a call or a put previously written by the Fund if
the premium, plus commission costs, paid by the Fund to purchase the call or the
put is less (or greater) than the premium, less commission costs, received by
the Fund on the sale of the call or the put. A gain also will be realized if a
call or a put that the Fund has written lapses unexercised, because the Fund
would retain the premium. Any such gains (or losses) are considered short-term
capital gains (or losses) for Federal income tax purposes. Net short-term
capital gains, when distributed by the Fund, are taxable as ordinary income. See
"Taxation."
The Fund will realize a gain (or a loss) on a closing sale transaction
with respect to a call or a put previously purchased by the Fund if the premium,
less commission costs, received by the Fund on the sale of the call or the put
is greater (or less) than the premium, plus commission costs, paid by the Fund
to purchase the call or the put. If a put or a call expires unexercised, it will
become worthless on the expiration date, and the Fund will realize a loss in the
amount of the premium paid, plus commission costs. Any such gain or loss will be
long-term or short-term gain or loss, depending upon the Fund's holding period
for the option.
Exchange-traded options generally have standardized terms and are
issued by a regulated clearing organization (such as the Options Clearing
Corporation), which, in effect, guarantees the completion of every
exchange-traded option transaction. In contrast, the terms of OTC options are
negotiated by the Fund and its counterparty (usually a securities dealer or a
financial institution) with no clearing organization guarantee. When the Fund
purchases an OTC option, it relies on the party from whom it has purchased the
option (the "counterparty") to make delivery of the instrument underlying the
option. If the counterparty fails to do so, the Fund will lose any premium paid
for the option, as well as any expected benefit of the transaction. Accordingly,
IMI will assess the creditworthiness of each counterparty to determine the
likelihood that the terms of the OTC option will be satisfied.
WRITING OPTIONS ON INDIVIDUAL SECURITIES. The Fund may write (sell)
covered call options on the Fund's securities in an attempt to realize a greater
current return than would be realized on the securities alone. The Fund may also
write covered call options to hedge a possible stock or bond market decline
(only to the extent of the premium paid to the Fund for the options). In view of
the investment objectives of the Fund, the Fund generally would write call
options only in circumstances where the investment adviser to the Fund does not
anticipate significant appreciation of the underlying security in the near
future or has otherwise determined to dispose of the security.
A "covered" call option means generally that so long as the Fund is
obligated as the writer of a call option, the Fund will (i) own the underlying
securities subject to the option, or (ii) have the right to acquire the
underlying securities through immediate conversion or exchange of convertible
preferred stocks or convertible debt securities owned by the Fund. Although the
Fund receives premium income from these activities, any appreciation realized on
an underlying security will be limited by the terms of the call option. The Fund
may purchase call options on individual securities only to effect a "closing
purchase transaction."
As the writer of a call option, the Fund receives a premium for
undertaking the obligation to sell the underlying security at a fixed price
during the option period, if the option is exercised. So long as the Fund
remains obligated as a writer of a call option, it forgoes the opportunity to
profit from increases in the market price of the underlying security above the
exercise price of the option, except insofar as the premium represents such a
profit (and retains the risk of loss should the value of the underlying security
decline).
PURCHASING OPTIONS ON INDIVIDUAL SECURITIES. The Fund may purchase a
put option on an underlying security owned by the Fund as a defensive technique
in order to protect against an anticipated decline in the value of the security.
The Fund, as the holder of the put option, may sell the underlying security at
the exercise price regardless of any decline in its market price. In order for a
put option to be profitable, the market price of the underlying security must
decline sufficiently below the exercise price to cover the premium and
transaction costs that the Fund must pay. These costs will reduce any profit the
Fund might have realized had it sold the underlying security instead of buying
the put option. The premium paid for the put option would reduce any capital
gain otherwise available for distribution when the security is eventually sold.
The purchase of put options will not be used by the Fund for leverage purposes.
The Fund may also purchase a put option on an underlying security that
it owns and at the same time write a call option on the same security with the
same exercise price and expiration date. Depending on whether the underlying
security appreciates or depreciates in value, the Fund would sell the underlying
security for the exercise price either upon exercise of the call option written
by it or by exercising the put option held by it. The Fund would enter into such
transactions in order to profit from the difference between the premium received
by the Fund for the writing of the call option and the premium paid by the Fund
for the purchase of the put option, thereby increasing the Fund's current
return. The Fund may write (sell) put options on individual securities only to
effect a "closing sale transaction."
PURCHASING AND WRITING OPTIONS ON SECURITIES INDICES. The Fund may
purchase and sell (write) put and call options on securities indices. An index
assigns relative values to the securities included in the index and the index
fluctuates with changes in the market values of the securities so included.
Options on indices are similar to options on individual securities, except that,
rather than giving the purchaser the right to take delivery of an individual
security at a specified price, they give the purchaser the right to receive
cash. The amount of cash is equal to the difference between the closing price of
the index and the exercise price of the option, expressed in dollars, times a
specified multiple (the "multiplier"). The writer of the option is obligated, in
return for the premium received, to make delivery of this amount.
The multiplier for an index option performs a function similar to the
unit of trading for a stock option. It determines the total dollar value per
contract of each point in the difference between the exercise price of an option
and the current level of the underlying index. A multiplier of 100 means that a
one-point difference will yield $100. Options on different indices have
different multipliers.
When the Fund writes a call or put option on a stock index, the option
is "covered", in the case of a call, or "secured", in the case of a put, if the
Fund maintains in a segregated account with the Custodian cash or liquid
securities equal to the contract value. A call option is also covered if the
Fund holds a call on the same index as the call written where the exercise price
of the call held is (i) equal to or less than the exercise price of the call
written or (ii) greater than the exercise price of the call written, provided
that the Fund maintains in a segregated account with the Custodian the
difference in cash or liquid securities. A put option is also "secured" if the
Fund holds a put on the same index as the put written where the exercise price
of the put held is (i) equal to or greater than the exercise price of the put
written or (ii) less than the exercise price of the put written, provided that
the Fund maintains in a segregated account with the Custodian the difference in
cash or liquid securities.
RISKS OF OPTIONS TRANSACTIONS. The purchase and writing of options
involves certain risks. During the option period, the covered call writer has,
in return for the premium on the option, given up the opportunity to profit from
a price increase in the underlying securities above the exercise price, but, as
long as its obligation as a writer continues, has retained the risk of loss
should the price of the underlying security decline. The writer of a U.S. option
has no control over the time when it may be required to fulfill its obligation
as a writer of the option. Once an option writer has received an exercise
notice, it cannot effect a closing purchase transaction in order to terminate
its obligation under the option and must deliver the underlying securities (or
cash in the case of an index option) at the exercise price. If a put or call
option purchased by the Fund is not sold when it has remaining value, and if the
market price of the underlying security (or index), in the case of a put,
remains equal to or greater than the exercise price or, in the case of a call,
remains less than or equal to the exercise price, the Fund will lose its entire
investment in the option. Also, where a put or call option on a particular
security (or index) is purchased to hedge against price movements in a related
security (or securities), the price of the put or call option may move more or
less than the price of the related security (or securities). In this regard,
there are differences between the securities and options markets that could
result in an imperfect correlation between these markets, causing a given
transaction not to achieve its objective.
There can be no assurance that a liquid market will exist when the Fund
seeks to close out an option position. Furthermore, if trading restrictions or
suspensions are imposed on the options markets, the Fund may be unable to close
out a position. Finally, trading could be interrupted, for example, because of
supply and demand imbalances arising from a lack of either buyers or sellers, or
the options exchange could suspend trading after the price has risen or fallen
more than the maximum amount specified by the exchange. Closing transactions can
be made for OTC options only by negotiating directly with the counterparty or by
a transaction in the secondary market, if any such market exists. There is no
assurance that the Fund will be able to close out an OTC option position at a
favorable price prior to its expiration. In the event of insolvency of the
counterparty, the Fund might be unable to close out an OTC option position at
any time prior to its expiration. Although the Fund may be able to offset to
some extent any adverse effects of being unable to liquidate an option position,
the Fund may experience losses in some cases as a result of such inability.
When conducted outside the U.S., options transactions may not be
regulated as rigorously as in the U.S., may not involve a clearing mechanism and
related guarantees, and are subject to the risk of governmental actions
affecting trading in, or the prices of, foreign securities, currencies and other
instruments. The value of such positions also could be adversely affected by:
(i) other complex foreign political, legal and economic factors, (ii) lesser
availability than in the U.S. of data on which to make trading decisions, (iii)
delays in the Fund's ability to act upon economic events occurring in foreign
markets during non-business hours in the U.S., (iv) the imposition of different
exercise and settlement terms and procedures and margin requirements than in the
U.S., and (v) lower trading volume and liquidity.
The Fund's options activities also may have an impact upon the level of its
portfolio turnover and brokerage commissions. See "Portfolio Turnover."
The Fund's success in using options techniques depends, among other
things, on IMI's ability to predict accurately the direction and volatility of
price movements in the options and securities markets, and to select the proper
type, time and duration of options.
FUTURES CONTRACTS AND OPTIONS ON FUTURES CONTRACTS
IN GENERAL. The Fund may enter into futures contracts and options on
futures contracts for hedging purposes. A futures contract provides for the
future sale by one party and purchase by another party of a specified quantity
of a commodity at a specified price and time. When a purchase or sale of a
futures contract is made by the Fund, the Fund is required to deposit with its
custodian (or broker, if legally permitted) a specified amount of cash or liquid
securities ("initial margin"). The margin required for a futures contract is set
by the exchange on which the contract is traded and may be modified during the
term of the contract. The initial margin is in the nature of a performance bond
or good faith deposit on the futures contract which is returned to the Fund upon
termination of the contract, assuming all contractual obligations have been
satisfied. A futures contract held by the Fund is valued daily at the official
settlement price of the exchange on which it is traded. Each day the Fund pays
or receives cash, called "variation margin," equal to the daily change in value
of the futures contract. This process is known as "marking to market." Variation
margin does not represent a borrowing or loan by the Fund but is instead a
settlement between the Fund and the broker of the amount one would owe the other
if the futures contract expired. In computing daily net asset value, the Fund
will mark-to-market its open futures position.
The Fund is also required to deposit and maintain margin with respect
to put and call options on futures contracts written by it. Such margin deposits
will vary depending on the nature of the underlying futures contract (and the
related initial margin requirements), the current market value of the option,
and other futures positions held by the Fund.
Although some futures contracts call for making or taking delivery of
the underlying securities, generally these obligations are closed out prior to
delivery of offsetting purchases or sales of matching futures contracts (same
exchange, underlying security or index, and delivery month). If an offsetting
purchase price is less than the original sale price, the Fund generally realizes
a capital gain, or if it is more, the Fund generally realizes a capital loss.
Conversely, if an offsetting sale price is more than the original purchase
price, the Fund generally realizes a capital gain, or if it is less, the Fund
generally realizes a capital loss.
The transaction costs must also be included in these calculations.
When purchasing a futures contract, the Fund will maintain with its
Custodian (and mark-to-market on a daily basis) cash or liquid securities that,
when added to the amounts deposited with a futures commission merchant ("FCM")
as margin, are equal to the market value of the futures contract. Alternatively,
the Fund may "cover" its position by purchasing a put option on the same futures
contract with a strike price as high as or higher than the price of the contract
held by the Fund, or, if lower, may cover the difference with cash or short-term
securities.
When selling a futures contract, the Fund will maintain with its
Custodian in a segregated account (and mark-to-market on a daily basis) cash or
liquid securities that, when added to the amounts deposited with an FCM as
margin, are equal to the market value of the instruments underlying the
contract. Alternatively, the Fund may "cover" its position by owning the
instruments underlying the contract (or, in the case of an index futures
contract, a portfolio with a volatility substantially similar to that of the
index on which the futures contract is based), or by holding a call option
permitting the Fund to purchase the same futures contract at a price no higher
than the price of the contract written by the Fund (or at a higher price if the
difference is maintained in liquid assets with the Fund's custodian).
When selling a call option on a futures contract, the Fund will
maintain with its Custodian in a segregated account (and mark-to-market on a
daily basis) cash or liquid securities that, when added to the amounts deposited
with an FCM as margin, equal the total market value of the futures contract
underlying the call option. Alternatively, the Fund may cover its position by
entering into a long position in the same futures contract at a price no higher
than the strike price of the call option, by owning the instruments underlying
the futures contract, or by holding a separate call option permitting the Fund
to purchase the same futures contract at a price not higher than the strike
price of the call option sold by the Fund, or covering the difference if the
price is higher.
When selling a put option on a futures contract, the Fund will maintain
with its Custodian (and mark-to-market on a daily basis) cash or liquid
securities that equal the purchase price of the futures contract less any margin
on deposit. Alternatively, the Fund may cover the position either by entering
into a short position in the same futures contract, or by owning a separate put
option permitting it to sell the same futures contract so long as the strike
price of the purchased put option is the same or higher than the strike price of
the put option sold by the Fund, or, if lower, the Fund may hold securities to
cover the difference.
FOREIGN CURRENCY FUTURES CONTRACTS AND RELATED OPTIONS. The Fund may
engage in foreign currency futures contracts and related options transactions
for hedging purposes. A foreign currency futures contract provides for the
future sale by one party and purchase by another party of a specified quantity
of a foreign currency at a specified price and time.
An option on a foreign currency futures contract gives the holder the
right, in return for the premium paid, to assume a long position (call) or short
position (put) in a futures contract at a specified exercise price at any time
during the period of the option. Upon the exercise of a call option, the holder
acquires a long position in the futures contract and the writer is assigned the
opposite short position. In the case of a put option, the opposite is true.
The Fund may purchase call and put options on foreign currencies as a
hedge against changes in the value of the U.S. dollar (or another currency) in
relation to a foreign currency in which portfolio securities of the Fund may be
denominated. A call option on a foreign currency gives the buyer the right to
buy, and a put option the right to sell, a certain amount of foreign currency at
a specified price during a fixed period of time. The Fund may invest in options
on foreign currency which are either listed on a domestic securities exchange or
traded on a recognized foreign exchange.
In those situations where foreign currency options may not be readily
purchased (or where such options may be deemed illiquid) in the currency in
which the hedge is desired, the hedge may be obtained by purchasing an option on
a "surrogate" currency, i.e., a currency where there is tangible evidence of a
direct correlation in the trading value of the two currencies. A surrogate
currency's exchange rate movements parallel that of the primary currency.
Surrogate currencies are used to hedge an illiquid currency risk, when no liquid
hedge instruments exist in world currency markets for the primary currency.
The Fund will only enter into futures contracts and futures options
which are standardized and traded on a U.S. or foreign exchange, board of trade,
or similar entity or quoted on an automated quotation system. The Fund will not
enter into a futures contract or purchase an option thereon if, immediately
thereafter, the aggregate initial margin deposits for futures contracts held by
the Fund plus premiums paid by it for open futures option positions, less the
amount by which any such positions are "in-the-money," would exceed 5% of the
liquidation value of the Fund's portfolio (or the Fund's net asset value), after
taking into account unrealized profits and unrealized losses on any such
contracts the Fund has entered into. A call option is "in-the-money" if the
value of the futures contract that is the subject of the option exceeds the
exercise price. A put option is "in-the-money" if the exercise price exceeds the
value of the futures contract that is the subject of the option. For additional
information about margin deposits required with respect to futures contracts and
options thereon, see "Futures Contracts and Options on Futures Contracts."
RISKS ASSOCIATED WITH FUTURES AND RELATED OPTIONS. There can be no
guarantee that there will be a correlation between price movements in the
hedging vehicle and in the Fund's portfolio securities being hedged. In
addition, there are significant differences between the securities and futures
markets that could result in an imperfect correlation between the markets,
causing a given hedge not to achieve its objectives. The degree of imperfection
of correlation depends on circumstances such as variations in speculative market
demand for futures and futures options on securities, including technical
influences in futures trading and futures options, and differences between the
financial instruments being hedged and the instruments underlying the standard
contracts available for trading in such respects as interest rate levels,
maturities, and creditworthiness of issuers. A decision as to whether, when and
how to hedge involves the exercise of skill and judgment, and even a
well-conceived hedge may be unsuccessful to some degree because of market
behavior or unexpected interest rate trends.
Futures exchanges may limit the amount of fluctuation permitted in
certain futures contract prices during a single trading day. The daily limit
establishes the maximum amount that the price of a futures contract may vary
either up or down from the previous day's settlement price at the end of the
current trading session. Once the daily limit has been reached in a futures
contract subject to the limit, no more trades may be made on that day at a price
beyond that limit. The daily limit governs only price movements during a
particular trading day and therefore does not limit potential losses because the
limit may work to prevent the liquidation of unfavorable positions. For example,
futures prices have occasionally moved to the daily limit for several
consecutive trading days with little or no trading, thereby preventing prompt
liquidation of positions and subjecting some holders of futures contracts to
substantial losses.
There can be no assurance that a liquid market will exist at a time
when the Fund seeks to close out a futures or a futures option position, and the
Fund would remain obligated to meet margin requirements until the position is
closed. In addition, there can be no assurance that an active secondary market
will continue to exist.
Currency futures contracts and options thereon may be traded on foreign
exchanges. Such transactions may not be regulated as effectively as similar
transactions in the United States; may not involve a clearing mechanism and
related guarantees; and are subject to the risk of governmental actions
affecting trading in, or the prices of, foreign securities. The value of such
position also could be adversely affected by (i) other complex foreign
political, legal and economic factors, (ii) lesser availability than in the
United States of data on which to make trading decisions, (iii) delays in the
Fund's ability to act upon economic events occurring in foreign markets during
non business hours in the United States, (iv) the imposition of different
exercise and settlement terms and procedures and margin requirements than in the
United States, and (v) lesser trading volume.
SECURITIES INDEX FUTURES CONTRACTS
The Fund may enter into securities index futures contracts as an
efficient means of regulating the Fund's exposure to the equity markets. The
Fund will not engage in transactions in futures contracts for speculation, but
only as a hedge against changes resulting from market conditions in the values
of securities held in the Fund's portfolio or which it intends to purchase. An
index futures contract is a contract to buy or sell units of an index at a
specified future date at a price agreed upon when the contract is made. Entering
into a contract to buy units of an index is commonly referred to as purchasing a
contract or holding a long position in the index. Entering into a contract to
sell units of an index is commonly referred to as selling a contract or holding
a short position. The value of a unit is the current value of the stock index.
For example, the S&P 500 Index is composed of 500 selected common stocks, most
of which are listed on the New York Stock Exchange (the "Exchange"). The S&P 500
Index assigns relative weightings to the 500 common stocks included in the
Index, and the Index fluctuates with changes in the market values of the shares
of those common stocks. In the case of the S&P 500 Index, contracts are to buy
or sell 500 units. Thus, if the value of the S&P 500 Index were $150, one
contract would be worth $75,000 (500 units x $150). The index futures contract
specifies that no delivery of the actual securities making up the index will
take place. Instead, settlement in cash must occur upon the termination of the
contract, with the settlement being the difference between the contract price
and the actual level of the stock index at the expiration of the contract. For
example, if the Fund enters into a futures contract to buy 500 units of the S&P
500 Index at a specified future date at a contract price of $150 and the S&P 500
Index is at $154 on that future date, the Fund will gain $2,000 (500 units x
gain of $4). If the Fund enters into a futures contract to sell 500 units of the
stock index at a specified future date at a contract price of $150 and the S&P
500 Index is at $154 on that future date, the Fund will lose $2,000 (500 units x
loss of $4).
RISKS OF SECURITIES INDEX FUTURES. The Fund's success in using hedging
techniques depends, among other things, on IMI's ability to predict correctly
the direction and volatility of price movements in the futures and options
markets as well as in the securities markets and to select the proper type, time
and duration of hedges. The skills necessary for successful use of hedges are
different from those used in the selection of individual stocks.
The Fund's ability to hedge effectively all or a portion of its
securities through transactions in index futures (and therefore the extent of
its gain or loss on such transactions) depends on the degree to which price
movements in the underlying index correlate with price movements in the Fund's
securities. Inasmuch as such securities will not duplicate the components of an
index, the correlation probably will not be perfect. Consequently, the Fund will
bear the risk that the prices of the securities being hedged will not move in
the same amount as the hedging instrument. This risk will increase as the
composition of the Fund's portfolio diverges from the composition of the hedging
instrument.
Although the Fund intends to establish positions in these instruments
only when there appears to be an active market, there is no assurance that a
liquid market will exist at a time when the Fund seeks to close a particular
option or futures position. Trading could be interrupted, for example, because
of supply and demand imbalances arising from a lack of either buyers or sellers.
In addition, the futures exchanges may suspend trading after the price has risen
or fallen more than the maximum amount specified by the exchange. In some cases,
the Fund may experience losses as a result of its inability to close out a
position, and it may have to liquidate other investments to meet its cash needs.
Although some index futures contracts call for making or taking
delivery of the underlying securities, generally these obligations are closed
out prior to delivery by offsetting purchases or sales of matching futures
contracts (same exchange, underlying security or index, and delivery month). If
an offsetting purchase price is less than the original sale price, the Fund
generally realizes a capital gain, or if it is more, the Fund generally realizes
a capital loss. Conversely, if an offsetting sale price is more than the
original purchase price, the Fund generally realizes a capital gain, or if it is
less, the Fund generally realizes a capital loss.
The transaction costs must also be included in these calculations.
The Fund will only enter into index futures contracts or futures
options that are standardized and traded on a U.S. or foreign exchange or board
of trade, or similar entity, or quoted on an automated quotation system. The
Fund will use futures contracts and related options only for "bona fide hedging"
purposes, as such term is defined in applicable regulations of the CFTC.
When purchasing an index futures contract, the Fund will maintain with
its Custodian (and mark-to-market on a daily basis) cash or liquid securities
that, when added to the amounts deposited with a futures commission merchant
("FCM") as margin, are equal to the market value of the futures contract.
Alternatively, the Fund may "cover" its position by purchasing a put option on
the same futures contract with a strike price as high as or higher than the
price of the contract held by the Fund.
When selling an index futures contract, the Fund will maintain with its
Custodian (and mark-to-market on a daily basis) cash or liquid securities that,
when added to the amounts deposited with an FCM as margin, are equal to the
market value of the instruments underlying the contract. Alternatively, the Fund
may "cover" its position by owning the instruments underlying the contract (or,
in the case of an index futures contract, a portfolio with a volatility
substantially similar to that of the index on which the futures contract is
based), or by holding a call option permitting the Fund to purchase the same
futures contract at a price no higher than the price of the contract written by
the Fund (or at a higher price if the difference is maintained in cash or liquid
assets in a segregated account with the Fund's custodian).
COMBINED TRANSACTIONS. The Fund may enter into multiple transactions,
including multiple options transactions, multiple futures transactions, and
multiple currency transactions (including forward currency contracts) and some
combination of futures, options, and currency transactions ("component"
transactions), instead of a single transaction, as part of a single or combined
strategy when, in the opinion of IMI, it is in the best interests of the Fund to
do so. A combined transaction will usually contain elements of risk that are
present in each of its component transactions. Although combined transactions
are normally entered into based on IMI's judgment that the combined strategies
will reduce risk or otherwise more effectively achieve the desired portfolio
management goal, it is possible that the combination will instead increase such
risks or hinder achievement of the management objective.
INVESTMENT RESTRICTIONS
The Fund's investment objectives as set forth in the "Summary" section
of the Prospectus, together with the investment restrictions set forth below,
are fundamental policies of the Fund and may not be changed without the approval
of a majority of the outstanding voting shares of the Fund. Under these
restrictions, the Fund may not:
(i) make an investment in securities of companies in any
one industry (except obligation of domestic banks or
the U.S. Government, its agencies, authorities, or
instrumentalities) if such investment would cause
investments in such industry to exceed 25% of the
market value of the Fund's total assets at the time
of such investment;
(ii) issue senior securities, except as appropriate to
evidence indebtedness which it is permitted to incur,
and except to the extent that shares of the separate
classes or series of the Trust may be deemed to be
senior securities; provided that collateral
arrangements with respect to currency-related
contracts, futures contracts, options or other
permitted investments, including deposits of initial
and variation margin, are not considered to be the
issuance of senior securities for purposes of this
restriction;
(iii) participate in an underwriting or selling group in
connection with the public distribution of securities
except for its own capital stock;
(iv) purchase from or sell to any of its officers or
trustees, or firms of which any of them are members
or which they control, any securities (other than
capital stock of the Fund), but such persons or firms
may act as brokers for the Fund for customary
commissions to the extent permitted by the Investment
Company Act of 1940;
(v) purchase securities on margin, except such short-term
credits as are necessary for the clearance of
transactions, but Ivy Asia Pacific Fund, Ivy Global
Fund, Ivy Global Natural Resources Fund, Ivy
International Fund II, Ivy International Small
Companies Fund and Ivy Pan-Europe Fund may make
margin deposits in connection with transactions in
options, futures and options on futures;
(vi) make loans, except this restriction shall not prohibit (a) the
purchase and holding of a portion of an issue of publicly
distributed debt securities, (b) the entry into repurchase
agreements with banks or broker-dealers, or, with respect to Ivy
Asia Pacific Fund, Ivy Global Fund, Ivy Global Natural Resources
Fund, Ivy International Fund II, Ivy International Small
Companies Fund and Ivy Pan-Europe Fund, (c) the lending of the
Fund's portfolio securities in accordance with applicable
guidelines established by the Securities and Exchange Commission
(the "SEC") and any guidelines established by the Trust's
Trustees;
(vii) borrow money, except as a temporary measure for
extraordinary or emergency purposes, and provided
that the Fund maintains assets coverage of 300% for
all borrowings;
(viii) invest more than 5% of the value of its total assets
in the securities of any one issuer (except
obligations of domestic banks or the U.S. Government,
its agencies, authorities and instrumentalities);
(ix) purchase the securities of any other open-end
investment company, except as part of a plan of
merger or conslidations; or
(x) purchase or sell real estate or commodities and commodity contracts.
The Fund will continue to interpret fundamental investment restriction
(x) above to prohibit investment in real estate limited partnership interests;
this restriction shall not, however, prohibit investment in readily marketable
securities of companies that invest in real estate or interests therein,
including real estate investment trusts.
Under the Investment Company Act of 1940, the Fund is permitted,
subject to its investment restrictions, to borrow money only from banks. The
Trust has no current intention of borrowing amounts in excess of 5% of the
Fund's assets.
ADDITIONAL RESTRICTIONS
The Fund has adopted the following additional restrictions, which are
not fundamental and which may be changed without shareholder approval, to the
extent permitted by applicable law, regulation or regulatory policy.
Under these restrictions, the Fund may not:
(i) invest in oil, gas or other mineral leases or exploration or
development programs;
(ii) invest in companies for the purpose of exercising control of
management;
(iii)invest more than 5% of its total assets in warrants, valued at
the lower of cost or market, or more than 2% of its total assets
in warrants, so valued, which are not listed on either the New
York or American Stock Exchanges; or
(iv) sell securities short, except for short sales, "against the box."
Whenever an investment objective, policy or restriction set forth in
the Prospectus or this SAI states a maximum percentage of assets that may be
invested in any security or other asset or describes a policy regarding quality
standards, such percentage limitation or standard shall, unless otherwise
indicated, apply to the Fund only at the time a transaction is entered into.
Accordingly, if a percentage limitation is adhered to at the time of investment,
a later increase or decrease in the percentage which results from circumstances
not involving any affirmative action by the Fund, such as a change in market
conditions or a change in the Fund's asset level or other circumstances beyond
the Fund's control, will not be considered a violation.
PORTFOLIO TURNOVER
The Fund purchases securities that are believed by IMI to have above
average potential for capital appreciation. Common stocks are disposed of in
situations where it is believed that potential for such appreciation has
lessened or that other common stocks have a greater potential. Therefore, the
Fund may purchase and sell securities without regard to the length of time the
security is to be, or has been, held. A change in securities held by the Fund is
known as "portfolio turnover" and may involve the payment by the Fund of dealer
markup or underwriting commission and other transaction costs on the sale of
securities, as well as on the reinvestment of the proceeds in other securities.
The Fund's portfolio turnover rate is calculated by dividing the lesser of
purchases or sales of portfolio securities for the most recently completed
fiscal year by the monthly average of the value of the portfolio securities
owned by the Fund during that year. For purposes of determining the Fund's
portfolio turnover rate, all securities whose maturities at the time of
acquisition were one year or less are excluded.
TRUSTEES AND OFFICERS
The Fund's Board of Trustees (the "Board") is responsible for the
overall management of the Fund, including general supervision and review of the
Fund's investment activities. The Board, in turn, elects the officers who are
responsible for administering the Fund's day-to-day operations.
The Trustees and Executive Officers of the Trust, their business
addresses and principal occupations during the past five years are:
POSITION WITH BUSINESS AFFILIATIONS
NAME, ADDRESS, AGE THE TRUST AND PRINCIPAL OCCUPATIONS
John S. Anderegg, Jr. Trustee Chairman, Dynamics Research
60 Concord Street Corp. (instruments and controls);
Wilmington, MA 01887 Director, Burr-Brown Corp.
Age: 74 (operational amplifiers); Director,
Metritage Incorporated (level
measuring instruments); Trustee of
Mackenzie Series Trust (1992-1998).
Paul H. Broyhill Trustee Chairman, BMC Fund, Inc.
800 Hickory Blvd. (1983-present); Chairman,
Golfview Park-Box 500 Broyhill Family Foundation,
Lenoir, NC 28645 Inc. (1983-Present); Chairman and
Age: 74 President, Broyhill Investments,
Inc. (1983-present); Chairman,
Broyhill Timber Resources (1983-
present); Management of a personal
portfolio of fixed-income and equity
investments (1983-present); Trustee
of Mackenzie Series Trust (1988-
1998); Director of The Mackenzie
Funds Inc. (1988-1995).
Stanley Channick Trustee President and Chief
11 Bala Avenue Executive Officer, The
Bala Cynwyd, PA 19004 Whitestone Corporation
Age: 75 (insurance agency); Chairman, Scott
Management Company (administrative
services for insurance companies);
President, The Channick Group
(consultants to insurance companies
and national trade associations);
Trustee of Mackenzie Series Trust
(1994-1998); Director of The
Mackenzie Funds Inc. (1994-1995).
Frank W. DeFriece, Jr. Trustee Director, Manager and Vice
The Landmark Centre President, Director and
113 Landmark Lane, Fund Manager, Massengill-
Suite B DeFriece Foundation
Bristol, TN 37620-2285 (charitable organization)
Age: 77 (1950-present); Trustee and Vice
Chairman, East Tennessee Public
Communications Corp. (WSJK-TV)
(1984-present); Trustee of Mackenzie
Series Trust (1985-1998); Director
of The Mackenzie Funds Inc. (1987-
1995).
Roy J. Glauber Trustee Mallinckrodt Professor of
Lyman Laboratory Physics, Harvard
of Physics University (1974-present);
Harvard University Trustee of Mackenzie Series
Cambridge, MA 02138 Trust (1994-1997).
Age: 72
Michael G. Landry Trustee President, Chief Executive
700 South Federal Hwy. And Officer and Director of
Suite 300 Chairman Mackenzie Investment
Boca Raton, FL 33432 Management Inc. (1987-
Age: 51 present); President,
[*Deemed to be an Director and Chairman of
"interested person" Ivy Management Inc. (1992-
of the Trust, as present); Chairman and
defined under the Director of Ivy Mackenzie
1940 Act.] Services Corp.(1993-present);
Chairman and Director of Ivy
Mackenzie Distributors, Inc.
(1994-present); Director and
President of Ivy Mackenzie
Distributors, Inc. (1993-1994);
Director and President of The
Mackenzie Funds Inc. (1987-1995);
Trustee of Mackenzie Series Trust
(1987-1998); President of Mackenzie
Series Trust (1987-1996); Chairman
of Mackenzie Series Trust (1996-
1998).
Joseph G. Rosenthal Trustee Chartered Accountant
110 Jardin Drive (1958-present); Trustee of
Unit #12 Mackenzie Series Trust
Concord, Ontario Canada (1985-1998); Director of
L4K 2T7 The Mackenzie Funds Inc.
Age: 63 (1987-1995).
Richard N. Silverman Trustee Director, Newton-Wellesley
18 Bonnybrook Road Hospital; Director, Beth
Waban, MA 02168 Israel Hospital; Director,
Age: 74 Boston Ballet; Director, Boston
Children's Museum; Director, Brimmer
and May School.
J. Brendan Swan Trustee President, Airspray
4701 North Federal Hwy. International, Inc.;
Suite 465 Joint Managing Director,
Pompano Beach, FL 33064 Airspray International
Age: 67 B.V. (an environmentally sensitive
packaging company); Director of
Polyglass LTD.; Director, The
Mackenzie Funds Inc. (1992-1995);
Trustee of Mackenzie Series Trust
(1992-1998).
Keith J. Carlson Trustee Senior Vice President of Mackenzie
700 South Federal Hwy. And Investment Management, Inc. (1996 -
Suite 300 President -present); Senior Vice President and
Boca Raton, FL 33432 Director of Mackenzie Investment
Age: 41 Management, Inc. (1994 - 1996);
[*Deemed to be an Senior Vice President and Treasurer
"interested person" of Mackenzie Investment Management,
of the Trust, Inc. (1989-1994); Senior Vice President
as defined under President and Director of Ivy
the 1940 Act.] Management Inc. (1994-present);
Senior Vice President, Treasurer and
Director of Ivy Management Inc.
(1992-1994); Vice President of The
Mackenzie Funds Inc. (1987-1995);
Senior Vice President and Director,
Ivy Mackenzie Services Corp. (1996-
present); President and Director of
Ivy Mackenzie Services Corp. (1993-
1996); Trustee and President of
Mackenzie Series Trust (1996-1998);
Vice President of Mackenzie Series
Trust (1994-1998); Treasurer of
Mackenzie Series Trust (1985-1994);
President, Chief Executive Officer
and Director of Ivy Mackenzie
Distributors, Inc. (1994-present);
Executive Vice President and
Director of Ivy Mackenzie
Distributors, Inc. (1993-1994);
Trustee of Mackenzie Series Trust
(1996-1998).
C. William Ferris Secretary/ Senior Vice President,
700 South Federal Hwy. Treasurer Chief Financial Officer
Suite 300 and Secretary/Treasurer
Boca Raton, FL 33432 of Mackenzie Investment
Age: 53 Management Inc. (1995-present);
Senior Vice President, Finance and
Administration/Compliance Officer of
Mackenzie Investment Management Inc.
(1989-1994); Senior Vice President,
Secretary/ Treasurer and Clerk of
Ivy Management Inc. (1994-present);
Vice President, Finance/
Administration and Compliance
Officer of Ivy Management Inc.
(1992-1994); Senior Vice President,
Secretary/Treasurer and Director of
Ivy Mackenzie Distributors, Inc.
(1994-present); Secretary/Treasurer
and Director of Ivy Mackenzie
Distributors, Inc. (1993-1994);
President and Director of Ivy
Mackenzie Services Corp.
(1996-present); Secretary/Treasurer
and Director of Ivy Mackenzie
Services Corp. (1993-1996);
Secretary/Treasurer
of The Mackenzie Funds Inc.
(1993-1995); Secretary/Treasurer of
Mackenzie Series Trust (1994-1998).
James W. Broadfoot Vice Executive Vice President,
700 South Federal Hwy. President Ivy Management Inc. (1996-
Suite 300 present); Senior Vice
Boca Raton, FL 33432 President, Ivy Management,
Age: 56 Inc. (1992-1996); Director and
Senior Vice President, Mackenzie
Investment Management Inc. (1995-
present); Senior Vice President,
Mackenzie Investment Management Inc.
(1990-1995).
COMPENSATION TABLE
IVY FUND
(FISCAL YEAR ENDED DECEMBER 31, 1998)
PENSION OR TOTAL COMPENSA-
AGGREGATE RETIREMENT ESTIMATED TION FROM TRUST
NAME, COMPENSATION BENEFITS ACCRUED ANNUAL AND FUND
POSITION FROM TRUST AS PART OF BENEFITS UPON COMPLEX PAID TO
FUND EXPENSES RETIREMENT TRUSTEES
John S. N/A N/A
Anderegg, Jr.
(Trustee)
Paul H. N/A N/A
Broyhill
(Trustee)
Keith J. $0 N/A N/A $0
Carlson
(Trustee and
President)
Stanley N/A N/A
Channick
(Trustee)
Frank W. N/A N/A
DeFriece, Jr.
(Trustee)
Roy J. N/A N/A
Glauber
(Trustee)
Michael G. $0 N/A N/A $0
Landry
(Trustee and
Chairman of
the Board)
Joseph G. N/A N/A
Rosenthal
(Trustee)
Richard N. N/A N/A
Silverman
(Trustee)
J. Brendan N/A N/A
Swan
(Trustee)
C. William $0 N/A N/A $0
Ferris
(Secretary/
Treasurer)
To the knowledge of the Trust, as of [ ], no shareholder owned
beneficially or of record 5% or more of the Fund's outstanding shares of any
class, except that [to be completed by amendment.]
As of [.. ], the Officers and Trustees of the Trust as a group owned
beneficially or of record less than 1% of the outstanding Class A, Class B,
Class C, Class I and Advisor Class shares of the Fund.
PERSONAL INVESTMENTS BY EMPLOYEES OF IMI. Employees of IMI are
permitted to make personal securities transactions, subject to the requirements
and restrictions set forth in IMI's Code of Ethics and Business Conduct Policy
(the "Code of Ethics"). The Code of Ethics is designed to identify and address
certain conflicts of interest between personal investment activities and the
interests of investment advisory clients such as the Fund. Among other things,
the Code of Ethics, which generally complies with standards recommended by the
Investment Company Institute's Advisory Group on Personal Investing, prohibits
certain types of transactions absent prior approval, applies to portfolio
managers, traders, research analysts and others involved in the investment
advisory process, and imposes time periods during which personal transactions
may not be made in certain securities, and requires the submission of duplicate
broker confirmations and monthly reporting of securities transactions.
Exceptions to these and other provisions of the Code of Ethics may be granted in
particular circumstances after review by appropriate personnel.
INVESTMENT ADVISORY AND OTHER SERVICES
BUSINESS MANAGEMENT AND INVESTMENT ADVISORY SERVICES
IMI provides business management and investment advisory services to
the Fund pursuant to a Business Management and Investment Advisory Agreement
(the "Agreement"). The Agreement was approved by the sole shareholder of the
Fund on April 30, 1997. Prior to shareholder approval, the Agreement was
approved with respect to the Fund by the Board, including a majority of the
Trustees who are neither "interested persons" (as defined in the 1940 Act) of
the Trust nor have any direct or indirect financial interest in the operation of
the distribution plan (see "Distribution Services") or in any related agreement
(the "Independent Trustees") at a meeting held on April 29, 1997.
IMI is a wholly owned subsidiary of Mackenzie Investment Management
Inc. ("MIMI"). MIMI, a Delaware corporation, has approximately 10% of its
outstanding common stock listed for trading on the Toronto Stock Exchange
("TSE"). MIMI is a subsidiary of Mackenzie Financial Corporation ("MFC"), 150
Bloor Street West, Toronto, Ontario, Canada, a public corporation organized
under the laws of Ontario whose shares are listed for trading on the TSE. MFC is
registered in Ontario as a mutual fund dealer and advises Ivy Global Natural
Resources Fund. IMI currently acts as manager and investment adviser to the
following additional investment companies registered under the 1940 Act (other
than the Fund): Ivy Asia Pacific Fund, Ivy Bond Fund, Ivy China Region Fund, Ivy
Developing Nations Fund, Ivy European Opportunities Fund, Ivy Global Fund, Ivy
Global Science & Technology Fund, Ivy Growth Fund, Ivy Growth with Income Fund,
Ivy International Fund, Ivy International Small Companies Fund, Ivy
International Strategic Bond Fund, Ivy Money Market Fund, Ivy Pan-Europe Fund,
Ivy South America Fund, Ivy US Blue Chip Fund and Ivy US Emerging Growth Fund.
IMI also provides business management services to Ivy Global Natural Resources
Fund.
The Agreement obligates IMI to make investments for the account of the
Fund in accordance with its best judgment and within the investment objectives
and restrictions set forth in the Prospectus, the 1940 Act and the provisions of
the Code relating to regulated investment companies, subject to policy decisions
adopted by the Board. IMI also determines the securities to be purchased or sold
by the Fund and places orders with brokers or dealers who deal in such
securities.
Under the Agreement, IMI also provides certain business management
services. IMI is obligated to (1) coordinate with the Fund's Custodian and
monitor the services it provides to the Fund; (2) coordinate with and monitor
any other third parties furnishing services to the Fund; (3) provide the Fund
with necessary office space, telephones and other communications facilities as
are adequate for the Fund's needs; (4) provide the services of individuals
competent to perform administrative and clerical functions that are not
performed by employees or other agents engaged by the Fund or by IMI acting in
some other capacity pursuant to a separate agreement or arrangements with the
Fund; (5) maintain or supervise the maintenance by third parties of such books
and records of the Trust as may be required by applicable Federal or state law;
(6) authorize and permit IMI's directors, officers and employees who may be
elected or appointed as trustees or officers of the Trust to serve in such
capacities; and (7) take such other action with respect to the Trust, after
approval by the Trust as may be required by applicable law, including without
limitation the rules and regulations of the SEC and of state securities
commissions and other regulatory agencies.
The Fund pays IMI a monthly fee for providing business management and
investment advisory services at an annual rate of 1.00% of the Fund's average
net assets.
During the period from May 13, 1997 (commencement of operations) to
December 31, 1997 and the fiscal year ended December 31, 1998, the Fund paid IMI
fees of $413,862 and [ ], respectively (of which IMI reimbursed $123,177 and [
], respectively, pursuant to expense limitations).
Under the Agreement, the Trust pays the following expenses: (1) the
fees and expenses of the Trust's Independent Trustees; (2) the salaries and
expenses of any of the Trust's officers or employees who are not affiliated with
IMI; (3) interest expenses; (4) taxes and governmental fees, including any
original issue taxes or transfer taxes applicable to the sale or delivery of
shares or certificates therefor; (5) brokerage commissions and other expenses
incurred in acquiring or disposing of portfolio securities; (6) the expenses of
registering and qualifying shares for sale with the SEC and with various state
securities commissions; (7) accounting and legal costs; (8) insurance premiums;
(9) fees and expenses of the Trust's Custodian and Transfer Agent and any
related services; (10) expenses of obtaining quotations of portfolio securities
and of pricing shares; (11) expenses of maintaining the Trust's legal existence
and of shareholders' meetings; (12) expenses of preparation and distribution to
existing shareholders of periodic reports, proxy materials and prospectuses; and
(13) fees and expenses of membership in industry organizations.
IMI currently limits the Fund's total operating expenses (excluding
Rule 12b-1 fees, interest, taxes, brokerage commissions, litigation,
class-specific expenses, indemnification expenses, and extraordinary expenses)
to an annual rate of 1.95% of the Fund's average net assets, which may lower the
Fund's expenses and increase its yield.
The Agreement will continue in effect with respect to the Fund from
year to year, only so long as the continuance is specifically approved at least
annually (i) by the vote of a majority of the Independent Trustees and (ii)
either (a) by the vote of a majority of the outstanding voting securities (as
defined in the 1940 Act) of the Fund or (b) by the vote of a majority of the
entire Board. If the question of continuance of the Agreement (or adoption of
any new agreement) is presented to the shareholders, continuance (or adoption)
shall be effected only if approved by the affirmative vote of a majority of the
outstanding voting securities of the Fund. See "Capitalization and Voting
Rights."
The Agreement may be terminated with respect to the Fund at any time,
without payment of any penalty, by the vote of a majority of the Board, or by a
vote of a majority of the outstanding voting securities of the Fund, on 60 days'
written notice to IMI, or by IMI on 60 days' written notice to the Trust. The
Agreement shall terminate automatically in the event of its assignment.
DISTRIBUTION SERVICES
IMDI, a wholly owned subsidiary of MIMI, serves as the exclusive
distributor of Ivy Fund's shares pursuant to an Amended and Restated
Distribution Agreement with the Trust dated _____________, 1999, as amended from
time to time (the "Distribution Agreement"). The Distribution Agreement was
approved by the Board on September 17, 1998. IMDI distributes shares of the Fund
through broker-dealers who are members of the National Association of Securities
Dealers, Inc. and who have executed dealer agreements with IMDI. IMDI
distributes shares of the Fund on a continuous basis, but reserves the right to
suspend or discontinue distribution on that basis. IMDI is not obligated to sell
any specific amount of Fund shares.
Pursuant to the Distribution Agreement, IMDI is entitled to deduct a
commission on all Class A Fund shares sold equal to the difference, if any,
between the public offering price, as set forth in the Fund's then-current
prospectus, and the net asset value on which such price is based. Out of that
commission, IMDI may reallow to dealers such concession as IMDI may determine
from time to time. In addition, IMDI is entitled to deduct a CDSC on the
redemption of Class A shares sold without an initial sales charge and Class B
and Class C shares, in accordance with, and in the manner set forth in, the
Prospectus.
Under the Distribution Agreement, the Fund bears, among other expenses,
the expenses of registering and qualifying its shares for sale under federal and
state securities laws and preparing and distributing to existing shareholders
periodic reports, proxy materials and prospectuses.
During the fiscal year ended December 31, 1998, IMDI received from
sales of Class A shares of the Fund [ ] in sales commissions, of which [ ] was
retained after dealer allowances. During the fiscal year ended December 31,
1998, IMDI received [ ] in CDSCs on redemptions of Class B shares of the Fund.
During the fiscal year ended December 31, 1998, IMDI received [ ] in CDSCs on
redemptions of Class C shares of the Fund.
The Distribution Agreement will continue in effect for successive
one-year periods, provided that such continuance is specifically approved at
least annually by the vote of a majority of the Independent Trustees, cast in
person at a meeting called for that purpose and by the vote of either a majority
of the entire Board or a majority of the outstanding voting securities of the
Fund. The Distribution Agreement may be terminated with respect to the Fund at
any time, without payment of any penalty, by IMDI on 60 days' written notice to
the Fund or by the Fund by vote of either a majority of the outstanding voting
securities of the Fund or a majority of the Independent Trustees on 60 days'
written notice to IMDI. The Distribution Agreement shall terminate automatically
in the event of its assignment.
RULE 18F-3 PLAN. On February 23, 1995, the SEC adopted Rule 18f-3 under
the 1940 Act, which permits a registered open-end investment company to issue
multiple classes of shares in accordance with a written plan approved by the
investment company's board of directors/trustees and filed with the SEC. At a
meeting held on April 29, 1997, the Board adopted a Rule 18f-3 plan on behalf of
the Fund. The Board last approved the Rule 18f-3 plan at a meeting held of
December 5-6, 1997. The key features of the Rule 18f-3 plan are as follows: (i)
shares of each class of the Fund represent an equal pro rata interest in the
Fund and generally have identical voting, dividend, liquidation, and other
rights, preferences, powers, restrictions, limitations, qualifications, terms
and conditions, except that each class bears certain class-specific expenses and
has separate voting rights on certain matters that relate solely to that class
or in which the interests of shareholders of one class differ from the interests
of shareholders of another class; (ii) subject to certain limitations described
in the Prospectus, shares of a particular class of the Fund may be exchanged for
shares of the same class of another Ivy fund; and (iii) the Fund's Class B
shares will convert automatically into Class A shares of the Fund after a period
of eight years, based on the relative net asset value of such shares at the time
of conversion.
RULE 12B-1 DISTRIBUTION PLANS. The Trust has adopted on behalf of the
Fund, in accordance with Rule 12b-1 under the 1940 Act, separate Rule 12b-1
distribution plans pertaining to the Fund's Class A, Class B and Class C shares
(each, a "Plan"). In adopting each Plan, a majority of the Independent Trustees
have concluded in accordance with the requirements of Rule 12b-1 that there is a
reasonable likelihood that each Plan will benefit the Fund and its shareholders.
The Trustees of the Trust believe that the Plans should result in greater sales
and/or fewer redemptions of the Fund's shares, although it is impossible to know
for certain the level of sales and redemptions of the Fund's shares in the
absence of a Plan or under an alternative distribution arrangement.
Under each Plan, the Fund pays IMDI a service fee, accrued daily and
paid monthly, at the annual rate of up to 0.25% of the average daily net assets
attributable to its Class A, Class B or Class C shares, as the case may be. The
services for which service fees may be paid include, among other things,
advising clients or customers regarding the purchase, sale or retention of
shares of the Fund, answering routine inquiries concerning the Fund and
assisting shareholders in changing options or enrolling in specific plans.
Pursuant to each Plan, service fee payments made out of or charged against the
assets attributable to the Fund's Class A, Class B or Class C shares must be in
reimbursement for services rendered for or on behalf of the affected class. The
expenses not reimbursed in any one month may be reimbursed in a subsequent
month. The Class A Plan does not provide for the payment of interest or carrying
charges as distribution expenses.
Under the Fund's Class B and Class C Plans, the Fund also pays IMDI a
distribution fee, accrued daily and paid monthly, at the annual rate of 0.75% of
the average daily net assets attributable to its Class B or Class C shares. IMDI
may reallow to dealers all or a portion of the service and distribution fees as
IMDI may determine from time to time. The distribution fee compensates IMDI for
expenses incurred in connection with activities primarily intended to result in
the sale of the Fund's Class B or Class C shares, including the printing of
prospectuses and reports for persons other than existing shareholders and the
preparation, printing and distribution of sales literature and advertising
materials. Pursuant to each Class B and Class C Plan, IMDI may include interest,
carrying or other finance charges in its calculation of distribution expenses,
if not prohibited from doing so pursuant to an order of or a regulation adopted
by the SEC.
Among other things, each Plan provides that (1) IMDI will submit to the
Board at least quarterly, and the Trustees will review, written reports
regarding all amounts expended under the Plan and the purposes for which such
expenditures were made; (2) each Plan will continue in effect only so long as
such continuance is approved at least annually, and any material amendment
thereto is approved, by the votes of a majority of the Board, including the
Independent Trustees, cast in person at a meeting called for that purpose; (3)
payments by the Fund under each Plan shall not be materially increased without
the affirmative vote of the holders of a majority of the outstanding shares of
the relevant class; and (4) while each Plan is in effect, the selection and
nomination of Independent Trustees shall be committed to the discretion of the
Trustees who are not "interested persons" of the Trust.
IMDI may make payments for distribution assistance and for
administrative and accounting services from resources that may include the
management fees paid by the Fund. IMDI also may make payments (such as the
service fee payments described above) to unaffiliated broker-dealers for
services rendered in the distribution of the Fund's shares. To qualify for such
payments, shares may be subject to a minimum holding period. However, no such
payments will be made to any dealer or broker if at the end of each year the
amount of shares held does not exceed a minimum amount. The minimum holding
period and minimum level of holdings will be determined from time to time by
IMDI.
A report of the amount expended pursuant to each Plan, and the purposes
for which such expenditures were incurred, must be made to the Board for its
review at least quarterly.
During the fiscal year ended December 31, 1998, the Fund paid IMDI [ ]
pursuant to its Class A plan. During the fiscal year ended December 31, 1998 the
Fund paid IMDI [ ] pursuant to its Class B plan. During the fiscal year ended
December 31, 1998, the Fund paid IMDI [ ] pursuant to its Class C plan.
During the fiscal year ended December 31, 1998, IMDI expended the
following amounts in marketing Class A shares of the Fund: advertising [$ ;]
printing and mailing of prospectuses to persons other than current shareholders,
[$.. ;] compensation to dealers, [$ ;] compensation to sales personnel [$ ;]
seminars and meetings, [$ ;] travel and entertainment, [$ ;] general and
administrative, [$ ;] telephone, [$.. ;] and occupancy and equipment rental, [$
]
During the fiscal year ended December 31, 1998, IMDI expended the
following amounts in marketing Class B shares of the Fund: advertising, [$ ;]
printing and mailing of prospectuses to persons other than current shareholders,
[$.. ;] compensation to dealers, [$ ;] compensation to sales personnel, [$ ;]
seminars and meetings, [$ ;] travel and entertainment, [$ ;] general and
administrative, [$ ;] telephone, [$..;] and occupancy and equipment rental [$ .]
During the fiscal year ended December 31, 1998, IMDI expended the
following amounts in marketing Class C shares of the Fund: advertising, [$ ;]
printing and mailing of prospectuses to persons other than current shareholders,
[$..;] compensation to dealers, [$ ] compensation to sales personnel, [$ ;]
seminars and meetings, [$ ;] travel and entertainment, [$ ;] general
administrative, [$ ;] telephone, [$.. ;] and occupancy and equipment rental, [$
.]
Each Plan may be amended at any time with respect to the class of
shares of the Fund to which the Plan relates by vote of the Trustees, including
a majority of the Independent Trustees, cast in person at a meeting called for
the purpose of considering such amendment. Each Plan may be terminated at any
time with respect to the class of shares of the Fund to which the Plan relates,
without payment of any penalty, by vote of a majority of the Independent
Trustees, or by vote of a majority of the outstanding voting securities of that
class.
If the Distribution Agreement or the Distribution Plans are terminated
(or not renewed) with respect to any of the Ivy funds (or class of shares
thereof), each may continue in effect with respect to any other fund (or Class
of shares thereof) as to which they have not been terminated (or have been
renewed).
CUSTODIAN
Pursuant to a Custodian Agreement with the Trust, Brown Brothers
Harriman & Co. (the "Custodian"), a private bank and member of the principal
securities exchanges, located at 40 Water Street, Boston, Massachusetts 02109
(the "Custodian"), maintains custody of the assets of the Fund held in the
United States. Rules adopted under the 1940 Act permit the Trust to maintain its
foreign securities and cash in the custody of certain eligible foreign banks and
securities depositories. Pursuant to those rules, the Custodian has entered into
subcustodial agreements for the holding of the Fund's foreign securities. With
respect to the Fund, the Custodian may receive, as partial payment for its
services to the Fund, a portion of the Trust's brokerage business, subject to
its ability to provide best price and execution.
FUND ACCOUNTING SERVICES
Pursuant to a Fund Accounting Services Agreement, MIMI provides certain
accounting and pricing services for the Fund. As compensation for those
services, the Fund pays MIMI a monthly fee plus out-of-pocket expenses as
incurred. The monthly fee is based upon the net assets of the Fund at the
preceding month end at the following rates: $1,250 when net assets are $10
million and under; $2,500 when net assets are over $10 million to $40 million;
$5,000 when net assets are over $40 million to $75 million; and $6,500 when net
assets are over $75 million.
During the fiscal year ended December 31, 1998, the Fund paid MIMI
[ ] under the agreement.
TRANSFER AGENT AND DIVIDEND PAYING AGENT
Pursuant to a Transfer Agency and Shareholder Service Agreement, Ivy
Mackenzie Services Corp. ("IMSC"), a wholly owned subsidiary of MIMI, is the
transfer agent for the Fund. Under the Agreement, the Fund pays a monthly fee at
an annual rate of $20.00 for each open Class A, Class B , Class C and Advisor
Class account. The Fund pays $10.25 per open Class I account. In addition, the
Fund pays a monthly fee at an annual rate of $4.58 per account that is closed
plus certain out-of-pocket expenses. Such fees and expenses for the fiscal year
ended December 31, 1998 for the Fund totaled [$ ]. Certain broker-dealers that
maintain shareholder accounts with the Fund through an omnibus account provide
transfer agent and other shareholder-related services that would otherwise be
provided by IMSC if the individual accounts that comprise the omnibus account
were opened by their beneficial owners directly. IMSC pays such broker-dealers a
per account fee for each open account within the omnibus account, or a fixed
rate (e.g., 0.10%) fee, based on the average daily net asset value of the
omnibus account (or a combination thereof).
ADMINISTRATOR
Pursuant to an Administrative Services Agreement, MIMI provides certain
administrative services to the Fund. As compensation for these services, the
Fund (except with respect to its Class I shares) pays MIMI a monthly fee at the
annual rate of 0.10% of the Fund's average daily net assets. The Fund pays MIMI
a monthly fee at the annual rate of 0.01% of its average daily net assets for
Class I. Such fees for the fiscal year ended December 31, 1998 for the Fund
totaled [$ ].
Outside of providing administrative services to the Trust, as described
above, MIMI may also act on behalf of IMDI in paying commissions to
broker-dealers with respect to sales of Class B and Class C shares of the Fund.
AUDITORS
[........ ], independent public accountants, has been selected as
auditors for the Trust. The audit services performed by [ ] include audits of
the annual financial statements of each of the funds of the Trust. Other
services provided principally relate to filings with the SEC and the preparation
of the funds' tax returns.
BROKERAGE ALLOCATION
Subject to the overall supervision of the President and the Board, IMI
places orders for the purchase and sale of the Fund's portfolio securities. All
portfolio transactions are effected at the best price and execution obtainable.
Purchases and sales of debt securities are usually principal transactions and
therefore, brokerage commissions are usually not required to be paid by the Fund
for such purchases and sales (although the price paid generally includes
undisclosed compensation to the dealer). The prices paid to underwriters of
newly-issued securities usually include a concession paid by the issuer to the
underwriter, and purchases of after-market securities from dealers normally
reflect the spread between the bid and asked prices. In connection with OTC
transactions, IMI attempts to deal directly with the principal market makers,
except in those circumstances where IMI believes that a better price and
execution are available elsewhere.
IMI selects broker-dealers to execute transactions and evaluates the
reasonableness of commissions on the basis of quality, quantity, and the nature
of the firms' professional services. Commissions to be charged and the rendering
of investment services, including statistical, research, and counseling services
by brokerage firms, are factors to be considered in the placing of brokerage
business. The types of research services provided by brokers may include general
economic and industry data, and information on securities of specific companies.
Research services furnished by brokers through whom the Trust effects securities
transactions may be used by IMI in servicing all of its accounts. In addition,
not all of these services may be used by IMI in connection with the services it
provides to the Fund or the Trust. IMI may consider sales of shares of Ivy funds
as a factor in the selection of broker-dealers and may select broker-dealers who
provide it with research services. IMI will not, however, execute brokerage
transactions other than at the best price and execution.
During the period from May 13, 1997 (commencement of operations) to
December 31, 1997, and the fiscal year ended December 31, 1998, the Fund paid
brokerage commissions of $1,080 and [ ], respectively.
The Fund may, under some circumstances, accept securities in lieu of
cash as payment for Fund shares. The Fund will accept securities only to
increase its holdings in a portfolio security or to take a new portfolio
position in a security that IMI deems to be a desirable investment for the Fund.
While no minimum has been established, it is expected that the Fund will not
accept securities having an aggregate value of less than $1 million. The Trust
may reject in whole or in part any or all offers to pay for the Fund shares with
securities and may discontinue accepting securities as payment for the Fund
shares at any time without notice. The Trust will value accepted securities in
the manner and at the same time provided for valuing portfolio securities of the
Fund, and the Fund shares will be sold for net asset value determined at the
same time the accepted securities are valued. The Trust will only accept
securities delivered in proper form and will not accept securities subject to
legal restrictions on transfer. The acceptance of securities by the Trust must
comply with the applicable laws of certain states.
CAPITALIZATION AND VOTING RIGHTS
The capitalization of the Trust consists of an unlimited number of
shares of beneficial interest (no par value per share). When issued, shares of
each class of the Fund are fully paid, non-assessable, redeemable and fully
transferable. No class of shares of the Fund has preemptive rights or
subscription rights.
The Amended and Restated Declaration of Trust permits the Trustees to
create separate series or portfolios and to divide any series or portfolio into
one or more classes. The Trustees have authorized nineteen series, each of which
represents a fund. The Trustees have further authorized the issuance of Class A,
Class B, and Class C shares for Ivy International Fund and Ivy Money Market Fund
and Class A, Class B, Class C and Advisor Class shares for the Fund, Ivy Asia
Pacific Fund, Ivy Bond Fund, Ivy China Region Fund, Ivy Developing Nations Fund,
Ivy European Opportunities Fund Ivy Global Fund, Ivy Global Natural Resources
Fund, Ivy Global Science & Technology Fund, Ivy Growth Fund, Ivy Growth with
Income Fund, Ivy International Small Companies Fund, Ivy International Strategic
Bond Fund, Ivy Pan-Europe Fund, Ivy South America Fund, Ivy US Blue Chip Fund
and Ivy US Emerging Growth Fund, as well as Class I shares for the Fund, Ivy
Bond Fund, Ivy European Opportunities Fund, Ivy Global Science & Technology
Fund, Ivy International Fund, Ivy International Small Companies Fund, Ivy
International Strategic Bond Fund and Ivy US Blue Chip Fund.
Shareholders have the right to vote for the election of Trustees of the
Trust and on any and all matters on which they may be entitled to vote by law or
by the provisions of the Trust's By-Laws. The Trust is not required to hold a
regular annual meeting of shareholders, and it does not intend to do so. Shares
of each class of the Fund entitle their holders to one vote per share (with
proportionate voting for fractional shares). Shareholders of the Fund are
entitled to vote alone on matters that only affect the Fund. All classes of
shares of the Fund will vote together, except with respect to the distribution
plan applicable to the Fund's Class A, Class B or Class C shares or when a class
vote is required by the 1940 Act. On matters relating to all funds of the Trust,
but affecting the funds differently, separate votes by the shareholders of each
fund are required. Approval of an investment advisory agreement and a change in
fundamental policies would be regarded as matters requiring separate voting by
the shareholders of each fund of the Trust. If the Trustees determine that a
matter does not affect the interests of the Fund, then the shareholders of the
Fund will not be entitled to vote on that matter. Matters that affect the Trust
in general, such as ratification of the selection of independent public
accountants, will be voted upon collectively by the shareholders of all funds of
the Trust.
As used in this SAI and the Prospectus, the phrase "majority vote of
the outstanding shares" of the Fund means the vote of the lesser of: (1) 67% of
the shares of the Fund (or of the Trust) present at a meeting if the holders of
more than 50% of the outstanding shares are present in person or by proxy; or
(2) more than 50% of the outstanding shares of the Fund (or of the Trust).
With respect to the submission to shareholder vote of a matter
requiring separate voting by the Fund, the matter shall have been effectively
acted upon with respect to the Fund if a majority of the outstanding voting
securities of the Fund votes for the approval of the matter, notwithstanding
that: (1) the matter has not been approved by a majority of the outstanding
voting securities of any other fund of the Trust; or (2) the matter has not been
approved by a majority of the outstanding voting securities of the Trust.
The Amended and Restated Declaration of Trust provides that the holders
of not less than two-thirds of the outstanding shares of the Trust may remove a
person serving as trustee either by declaration in writing or at a meeting
called for such purpose. The Trustees are required to call a meeting for the
purpose of considering the removal of a person serving as Trustee if requested
in writing to do so by the holders of not less than 10% of the outstanding
shares of the Trust. Shareholders will be assisted in communicating with other
shareholders in connection with the removal of a Trustee as if Section 26(c) of
the Act were applicable.
The Trust's shares do not have cumulative voting rights and accordingly
the holders of more than 50% of the outstanding shares could elect the entire
Board, in which case the holders of the remaining shares would not be able to
elect any Trustees.
Under Massachusetts law, the Trust's shareholders could, under certain
circumstances, be held personally liable for the obligations of the Trust.
However, the Amended and Restated Declaration of Trust disclaims liability of
the shareholders, Trustees or officers of the Trust for acts or obligations of
the Trust, which are binding only on the assets and property of the Trust, and
requires that notice of the disclaimer be given in each contract or obligation
entered into or executed by the Trust or its Trustees. The Amended and Restated
Declaration of Trust provides for indemnification out of Fund property for all
loss and expense of any shareholder of the Fund held personally liable for the
obligations of the Fund. The risk of a shareholder of the Trust incurring
financial loss on account of shareholder liability is limited to circumstances
in which the Trust itself would be unable to meet its obligations and, thus,
should be considered remote. No series of the Trust is liable for the
obligations of any other series of the Trust.
SPECIAL RIGHTS AND PRIVILEGES
The Trust offers, and (except as noted below) bears the cost of
providing, to investors the following rights and privileges. The Trust reserves
the right to amend or terminate any one or more of these rights and privileges.
Notice of amendments to or terminations of rights and privileges will be
provided to shareholders in accordance with applicable law.
Certain of the rights and privileges described below refer to funds,
other than the Fund, whose shares are also distributed by IMDI. These funds are:
Ivy Asia Pacific Fund, Ivy Bond Fund, Ivy China Region Fund, Ivy Developing
Nations Fund, Ivy European Opportunities Fund, Ivy Global Fund, Ivy Global
Natural Resources Fund, Ivy Global Science & Technology Fund, Ivy Growth Fund,
Ivy Growth with Income Fund, Ivy International Fund, Ivy International Small
Companies Fund, Ivy International Strategic Bond Fund, Ivy Money Market Fund,
Ivy Pan-Europe Fund, Ivy South America Fund, Ivy US Blue Chip Fund and Ivy US
Emerging Growth Fund (the other eighteen series of the Trust). (Effective April
18, 1997, Ivy International Fund suspended the offer of its shares to new
investors). Shareholders should obtain a current prospectus before exercising
any right or privilege that may relate to these funds.
AUTOMATIC INVESTMENT METHOD
The Automatic Investment Method, which enables a Fund shareholder to
have specified amounts automatically drawn each month from his or her bank for
investment in Fund shares, is available for all classes of shares, except Class
I. The minimum initial and subsequent investment under this method is $50 per
month ($250 for Advisor Class shares), (except in the case of a tax qualified
retirement plan for which the minimum initial and subsequent investment is $25
per month). A shareholder may terminate the Automatic Investment Method at any
time upon delivery to IMSC of telephone instructions or written notice. See
"Automatic Investment Method" in the Prospectus. To begin the plan, complete
Sections 6A and 7B of the Account Application.
EXCHANGE OF SHARES
As described in the Prospectus, shareholders of the Fund have an
exchange privilege with other Ivy funds (except Ivy International Fund unless
they have an existing Ivy International Fund account). Before effecting an
exchange, shareholders of the Fund should obtain and read the currently
effective prospectus for the Ivy fund into which the exchange is to be made.
INITIAL SALES CHARGE SHARES. Class A shareholders may exchange their
Class A shares ("outstanding Class A shares") for Class A shares of another Ivy
fund ("new Class A Shares") on the basis of the relative net asset value per
Class A share, plus an amount equal to the difference, if any, between the sales
charge previously paid on the outstanding Class A shares and the sales charge
payable at the time of the exchange on the new Class A shares. (The additional
sales charge will be waived for Class A shares that have been invested for a
period of 12 months or longer.) Class A shareholders may also exchange their
shares for shares of Ivy Money Market Fund (no initial sales charge will be
assessed at the time of such an exchange).
CONTINGENT DEFERRED SALES CHARGE SHARES CLASS A: Class A shareholders
may exchange their Class A shares that are subject to a contingent deferred
sales charge ("CDSC"), as described in the Prospectus ("outstanding Class A
shares"), for Class A shares of another Ivy fund ("new Class A shares") on the
basis of the relative net asset value per Class A share, without the payment of
any CDSC that would otherwise be due upon the redemption of the outstanding
Class A shares. Class A shareholders of the Fund exercising the exchange
privilege will continue to be subject to that Fund's CDSC period following an
exchange if such period is longer than the CDSC period, if any, applicable to
the new Class A shares.
For purposes of computing the CDSC that may be payable upon the
redemption of the new Class A shares, the holding period of the outstanding
Class A shares is "tacked" onto the holding period of the new Class A shares.
CLASS B: Class B shareholders may exchange their Class B shares
("outstanding Class B shares") for Class B shares of another Ivy fund ("new
Class B shares") on the basis of the relative net asset value per Class B share,
without the payment of any CDSC that would otherwise be due upon the redemption
of the outstanding Class B shares. Class B shareholders of the Fund exercising
the exchange privilege will continue to be subject to that Fund's CDSC schedule
(or period) following an exchange if such schedule is higher (or such period is
longer) than the CDSC schedule (or period) applicable to the new Class B shares.
Class B shares of the Fund acquired through an exchange of Class B
shares of another Ivy fund will be subject to that Fund's CDSC schedule (or
period) if such schedule is higher (or such period is longer) than the CDSC
schedule (or period) applicable to the Ivy fund from which the exchange was
made.
For purposes of both the conversion feature and computing the CDSC that
may be payable upon the redemption of the new Class B shares (prior to
conversion), the holding period of the outstanding Class B shares is "tacked"
onto the holding period of the new Class B shares.
The following CDSC table applies to Class B shares of Ivy Asia Pacific
Fund, Ivy Bond Fund, Ivy China Region Fund, Ivy Developing Nations Fund, Ivy
European Opportunities Fund, Ivy Global Fund, Ivy Global Natural Resources Fund,
Ivy Global Science & Technology Fund, Ivy Growth Fund, Ivy Growth with Income
Fund, Ivy International Fund II, Ivy International Fund, Ivy International Small
Companies Fund, Ivy International Strategic Bond Fund, Ivy Pan-Europe Fund, Ivy
South America Fund, Ivy US Blue Chip Fund and Ivy US Emerging Growth Fund:
CONTINGENT DEFERRED SALES CHARGE AS A PERCENTAGE OF
DOLLAR AMOUNT SUBJECT TO CHARGE
YEAR SINCE PURCHASE
First 5%
Second 4%
Third 3%
Fourth 3%
Fifth 2%
Sixth 1%
Seventh and thereafter 0%
CLASS C: Class C shareholders may exchange their Class C shares
("outstanding Class C shares") for Class C shares of another Ivy fund ("new
Class C shares") on the basis of the relative net asset value per Class C share,
without the payment of any CDSC that would otherwise be due upon redemption.
(Class C shares are subject to a CDSC of 1.00% if redeemed within one year of
the date of purchase.)
CLASS I AND ADVISOR CLASS: Subject to the restrictions set forth in the
following paragraph, Class I and Advisor Class shareholders may exchange their
outstanding Class I (or Advisor Class) shares for Class I (or Advisor Class)
shares of another Ivy fund on the basis of the relative net asset value per
share.
ALL CLASSES: The minimum value of shares which may be exchanged into an
Ivy fund in which shares are not already held is $1,000 ($5,000,000 in the case
of Class I shares and $10,000 in the case of Advisor Class shares). No exchange
out of the Fund (other than by a complete exchange of all Fund shares) may be
made if it would reduce the shareholder's interest in the Fund to less than
$1,000 ($250,000 in the case of Class I shares and $10,000 in the case of
Advisor Class shares).
Each exchange will be made on the basis of the relative net asset value
per share of the Ivy funds involved in the exchange next computed following
receipt by IMSC of telephone instructions by IMSC or a properly executed
request. Exchanges, whether written or telephonic, must be received by IMSC by
the close of regular trading on the Exchange (normally 4:00 p.m., eastern time)
to receive the price computed on the day of receipt. Exchange requests received
after that time will receive the price next determined following receipt of the
request. The exchange privilege may be modified or terminated at any time, upon
at least 60 days' notice to the extent required by applicable law. See
"Redemptions."
An exchange of shares between any of the Ivy funds will result in a
taxable gain or loss. Generally, this will be a capital gain or loss (long-term
or short-term, depending on the holding period of the shares) in the amount of
the difference between the net asset value of the shares surrendered and the
shareholder's tax basis for those shares. However, in certain circumstances,
shareholders will be ineligible to take sales charges into account in computing
taxable gain or loss on an exchange. See "Taxation."
With limited exceptions, gain realized by a tax-deferred retirement
plan will not be taxable to the plan and will not be taxed to the participant
until distribution. Each investor should consult his or her tax adviser
regarding the tax consequences of an exchange transaction.
LETTER OF INTENT
Reduced sales charges apply to initial investments in Class A shares of
the Fund made pursuant to a non-binding Letter of Intent. A Letter of Intent may
be submitted by an individual, his or her spouse and children under the age of
21, or a trustee or other fiduciary of a single trust estate or single fiduciary
account. See the Account Application in the Prospectus. Any investor may submit
a Letter of Intent stating that he or she will invest, over a period of 13
months, at least $50,000 in Class A shares of the Fund. A Letter of Intent may
be submitted at the time of an initial purchase of Class A shares of the Fund or
within 90 days of the initial purchase, in which case the Letter of Intent will
be back dated. A shareholder may include, as an accumulation credit, the value
(at the applicable offering price) of all Class A shares of Ivy Asia Pacific
Fund, Ivy Bond Fund, Ivy China Region Fund, Ivy Developing Nations Fund, Ivy
European Opportunities Fund, Ivy Global Fund, Ivy Global Natural Resources Fund,
Ivy Global Science & Technology Fund, Ivy Growth Fund, Ivy Growth with Income
Fund, Ivy International Fund II, Ivy International Fund, Ivy International Small
Companies Fund, Ivy International Strategic Bond Fund, Ivy Pan-Europe Fund, Ivy
South America Fund, Ivy US Blue Chip Fund and Ivy US Emerging Growth Fund (and
shares that have been exchanged into Ivy Money Market Fund from any of the other
funds in the Ivy funds) held of record by him or her as of the date of his or
her Letter of Intent. During the term of the Letter of Intent, the Transfer
Agent will hold Class A shares representing 5% of the indicated amount (less any
accumulation credit value) in escrow. The escrowed Class A shares will be
released when the full indicated amount has been purchased. If the full
indicated amount is not purchased during the term of the Letter of Intent, the
investor is required to pay IMDI an amount equal to the difference between the
dollar amount of sales charge that he or she has paid and that which he or she
would have paid on his or her aggregate purchases if the total of such purchases
had been made at a single time. Such payment will be made by an automatic
liquidation of Class A shares in the escrow account. A Letter of Intent does not
obligate the investor to buy or the Trust to sell the indicated amount of Class
A shares, and the investor should read carefully all the provisions of such
letter before signing.
RETIREMENT PLANS
Shares may be purchased in connection with several types of
tax-deferred retirement plans. Shares of more than one fund distributed by IMDI
may be purchased in a single application establishing a single account under the
plan, and shares held in such an account may be exchanged among the Ivy funds in
accordance with the terms of the applicable plan and the exchange privilege
available to all shareholders. Initial and subsequent purchase payments in
connection with tax-deferred retirement plans must be at least $25 per
participant.
The following fees will be charged to individual shareholder accounts
as described in the retirement prototype plan document:
Retirement Plan New Account Fee no fee
Retirement Plan Annual Maintenance Fee $10.00 per fund account
For shareholders whose retirement accounts are diversified across
several Ivy funds, the annual maintenance fee will be limited to not more than
$20.
The following discussion describes the tax treatment of certain
tax-deferred retirement plans under current Federal income tax law. State income
tax consequences may vary. An individual considering the establishment of a
retirement plan should consult with an attorney and/or an accountant with
respect to the terms and tax aspects of the plan.
INDIVIDUAL RETIREMENT ACCOUNTS: Shares of the Fund may be used as a
funding medium for an Individual Retirement Account ("IRA"). Eligible
individuals may establish an IRA by adopting a model custodial account available
from IMSC, who may impose a charge for establishing the account. Individuals
should consult their tax advisers before investing IRA assets in an Ivy fund if
that fund primarily distributes exempt-interest dividends.
An individual who has not reached age 70-1/2 and who receives
compensation or earned income is eligible to contribute to an IRA, whether or
not he or she is an active participant in a retirement plan. An individual who
receives a distribution from another IRA, a qualified retirement plan, a
qualified annuity plan or a tax-sheltered annuity or custodial account ("403(b)
plan") that qualifies for "rollover" treatment is also eligible to establish an
IRA by rolling over the distribution either directly or within 60 days after its
receipt. Tax advice should be obtained in connection with planning a rollover
contribution to an IRA.
In general, an eligible individual may contribute up to the lesser of
$2,000 or 100% of his or her compensation or earned income to an IRA each year.
If a husband and wife are both employed, and both are under age 70-1/2, each may
set up his or her own IRA within these limits. If both earn at least $2,000 per
year, the maximum potential contribution is $4,000 per year for both. For years
after 1996, the result is similar even if one spouse has no earned income; if
the joint earned income of the spouses is at least $4,000, a contribution of up
to $2,000 may be made to each spouse's IRA. Rollover contributions are not
subject to these limits.
An individual may deduct his or her annual contributions to an IRA in
computing his or her Federal income tax within the limits described above,
provided he or she (or his or her spouse, if they file a joint Federal income
tax return) is not an active participant in a qualified retirement plan (such as
a qualified corporate, sole proprietorship, or partnership pension, profit
sharing, 401(k) or stock bonus plan), qualified annuity plan, 403(b) plan,
simplified employee pension, or governmental plan. If he or she (or his or her
spouse) is an active participant, whether the individual's contribution to an
IRA is fully deductible, partially deductible or not deductible depends on (i)
adjusted gross income and (ii) whether it is the individual or the individual's
spouse who is an active participant, in the case of married individuals filing
jointly. Contributions may be made up to the maximum permissible amount even if
they are not deductible. Rollover contributions are not includable in income for
Federal income tax purposes and therefore are not deductible from it.
Generally, earnings on an IRA are not subject to current Federal income
tax until distributed. Distributions attributable to tax-deductible
contributions and to IRA earnings are taxed as ordinary income. Distributions of
non-deductible contributions are not subject to Federal income tax. In general,
distributions from an IRA to an individual before he or she reaches age 59-1/2
are subject to a nondeductible penalty tax equal to 10% of the taxable amount of
the distribution. The 10% penalty tax does not apply to amounts withdrawn from
an IRA after the individual reaches age 59-1/2, becomes disabled or dies, or if
withdrawn in the form of substantially equal payments over the life or life
expectancy of the individual and his or her designated beneficiary, if any, or
rolled over into another IRA, amounts withdrawn and used to pay for deductible
medical expenses and amounts withdrawn by certain unemployed individuals not in
excess of amounts paid for certain health insurance premiums, amounts used to
pay certain qualified higher education expenses, and amounts used within 120
days of the date the distribution is received to pay for certain first-time
homebuyer expenses. Distributions must begin to be withdrawn not later than
April 1 of the calendar year following the calendar year in which the individual
reaches age 70-1/2. Failure to take certain minimum required distributions will
result in the imposition of a 50% non-deductible penalty tax.
ROTH IRAS: Shares of the Fund also may be used as a funding medium for
a Roth Individual Retirement Account ("Roth IRA"). A Roth IRA is similar in
numerous ways to the regular (traditional) IRA, described above.
Some of the primary differences are as follows.
A single individual earning below $95,000 can contribute up to $2,000
per year to a Roth IRA. The maximum contribution amount diminishes and gradually
falls to zero for single filers with adjusted gross incomes ranging from $95,000
to $110,000. Married couples earning less than $150,000 combined, and filing
jointly, can contribute a full $4,000 per year ($2,000 per IRA). The maximum
contribution amount for married couples filing jointly phases out from $150,000
to $160,000. An individual whose adjusted gross income exceeds the maximum
phase-out amount cannot contribute to a Roth IRA.
An eligible individual can contribute money to a traditional IRA and a
Roth IRA as long as the total contribution to all IRAs does not exceed $2,000.
Contributions to a Roth IRA are not deductible. Contributions to a Roth IRA may
be made even after the individual for whom the account is maintained has
attained age 70 1/2.
No distributions are required to be taken prior to the death of the
original account holder. If a Roth IRA has been established for a minimum of
five years, distributions can be taken tax-free after reaching age 59 1/2, for a
first-time home purchase ($10,000 maximum, one time use), or upon death or
disability. All other distributions from a Roth IRA (other than the amount of
nondeductible contributions) are taxable and subject to a 10% tax penalty unless
an exception applies. Exceptions to the 10% penalty include: reaching age 59
1/2, death, disability, deductible medical expenses, the purchase of health
insurance for certain unemployed individual and qualified higher education
expenses.
An individual with an income of less than $100,000 (who is not married
filing separately) can roll his or her existing IRA into a Roth IRA. However,
the individual must pay taxes on the taxable amount in his or her traditional
IRA. After 1998, all taxes on such a rollover will have to be paid in the tax
year in which the rollover is made.
QUALIFIED PLANS: For those self-employed individuals who wish to
purchase shares of one or more Ivy funds through a qualified retirement plan, a
Custodial Agreement and a Retirement Plan are available from IMSC. The
Retirement Plan may be adopted as a profit sharing plan or a money purchase
pension plan. A profit sharing plan permits an annual contribution to be made in
an amount determined each year by the self-employed individual within certain
limits prescribed by law. A money purchase pension plan requires annual
contributions at the level specified in the Custodial Agreement. There is no
set-up fee for qualified plans and the annual maintenance fee is $20.00 per
account.
In general, if a self-employed individual has any common law employees,
employees who have met certain minimum age and service requirements must be
covered by the Retirement Plan. A self-employed individual generally must
contribute the same percentage of income for common law employees as for himself
or herself.
A self-employed individual may contribute up to the lesser of $30,000
or 25% of compensation or earned income to a money purchase pension plan or to a
combination profit sharing and money purchase pension plan arrangement each year
on behalf of each participant. To be deductible, total contributions to a profit
sharing plan generally may not exceed 15% of the total compensation or earned
income of all participants in the plan, and total contributions to a combination
money purchase-profit sharing arrangement generally may not exceed 25% of the
total compensation or earned income of all participants. The amount of
compensation or earned income of any one participant that may be included in
computing the deduction is limited (generally to $150,000 for benefits accruing
in plan years beginning after 1993, with annual inflation adjustments). A
self-employed individual's contributions to a retirement plan on his or her own
behalf must be deducted in computing his or her earned income.
Corporate employers may also adopt the Custodial Agreement and
Retirement Plan for the benefit of their eligible employees. Similar
contribution and deduction rules apply to corporate employers.
Distributions from the Retirement Plan generally are made after a
participant's separation from service. A 10% penalty tax generally applies to
distributions to an individual before he or she reaches age 59-1/2, unless the
individual (1) has reached age 55 and separated from service; (2) dies; (3)
becomes disabled; (4) uses the withdrawal to pay tax-deductible medical
expenses; (5) takes the withdrawal as part of a series of substantially equal
payments over his or her life expectancy or the joint life expectancy of himself
or herself and a designated beneficiary; or (6) rolls over the distribution.
The Transfer Agent will arrange for Investors Bank & Trust to furnish
custodial services to the employer and any participating employees.
DEFERRED COMPENSATION FOR PUBLIC SCHOOLS AND CHARITABLE ORGANIZATIONS
("403(B)(7) ACCOUNT"): Section 403(b)(7) of the Internal Revenue Code of 1986,
as amended (the "Code") permits public school systems and certain charitable
organizations to use mutual fund shares held in a custodial account to fund
deferred compensation arrangements with their employees. A custodial account
agreement is available for those employers whose employees wish to purchase
shares of the Trust in conjunction with such an arrangement. The special
application for a 403(b)(7) Account is available from IMSC.
Distributions from the 403(b)(7) Account may be made only following
death, disability, separation from service, attainment of age 59-1/2, or
incurring a financial hardship. A 10% penalty tax generally applies to
distributions to an individual before he or she reaches age 59-1/2, unless the
individual (1) has reached age 55 and separated from service; (2) dies or
becomes disabled; (3) uses the withdrawal to pay tax-deductible medical
expenses; (4) takes the withdrawal as part of a series of substantially equal
payments over his or her life expectancy or the joint life expectancy of himself
or herself and a designated beneficiary; or (5) rolls over the distribution.
There is no set-up fee for 403(b)(7) Accounts and the annual maintenance fee is
$20.00 per account.
SIMPLIFIED EMPLOYEE PENSION ("SEP") IRAS: An employer may deduct
contributions to a SEP up to the lesser of $30,000 or 15% of compensation. SEP
accounts generally are subject to all rules applicable to IRA accounts, except
the deduction limits, and are subject to certain employee participation
requirements. No new salary reduction SEPs ("SARSEPs") may be established after
1996, but existing SARSEPs may continue to be maintained, and non-salary
reduction SEPs may continue to be established as well as maintained after 1996.
SIMPLE PLANS: An employer may establish a SIMPLE IRA or a SIMPLE 401(k)
for years after 1996. An employee can make pre-tax salary reduction
contributions to a SIMPLE Plan, up to $6,000 a year (as indexed). Subject to
certain limits, the employer will either match a portion of employee
contributions, or will make a contribution equal to 2% of each employee's
compensation without regard to the amount the employee contributes. An employer
cannot maintain a SIMPLE Plan for its employees if the employer maintains or
maintained any other qualified retirement plan with respect to which any
contributions or benefits have been credited.
REINVESTMENT PRIVILEGE
Shareholders who have redeemed Class A shares of the Fund may reinvest
all or a part of the proceeds of the redemption back into Class A shares of the
Fund at net asset value (without a sales charge) within 60 days from the date of
redemption. This privilege may be exercised only once. The reinvestment will be
made at the net asset value next determined after receipt by IMSC of the
reinvestment order accompanied by the funds to be reinvested. No compensation
will be paid to any sales personnel or dealer in connection with the
transaction.
Any redemption is a taxable event. A loss realized on a redemption
generally may be disallowed for tax purposes if the reinvestment privilege
is exercised within 30 days after the redemption. In certain circumstances,
shareholders will be ineligible to take sales charges into account in
computing taxable gain or loss on a redemption if the reinvestment
privilege is exercised. See "Taxation."
RIGHTS OF ACCUMULATION
A scale of reduced sales charges applies to any investment of $50,000
or more in Class A shares of the Fund. See "Initial Sales Charge Alternative --
Class A Shares" in the Prospectus. The reduced sales charge is applicable to
investments made at one time by an individual, his or her spouse and children
under the age of 21, or a trustee or other fiduciary of a single trust estate or
single fiduciary account (including a pension, profit sharing or other employee
benefit trust created pursuant to a plan qualified under Section 401 of the
Code). Rights of Accumulation is also applicable to current purchases of all of
the funds of Ivy Fund (except Ivy Money Market Fund) by any of the persons
enumerated above, where the aggregate quantity of Class A shares of such funds
(and shares that have been exchanged into Ivy Money Market Fund from any of the
other funds in the Ivy funds) and of any other investment company distributed by
IMDI, previously purchased or acquired and currently owned, determined at the
higher of current offering price or amount invested, plus the Class A shares
being purchased, amounts to $50,000 or more for all funds other than Ivy Bond
Fund; or $100,000 or more for Ivy Bond Fund.
At the time an investment takes place, IMSC must be notified by the
investor or his or her dealer that the investment qualifies for the reduced
sales charge on the basis of previous investments. The reduced sales charge is
subject to confirmation of the investor's holdings through a check of the
particular fund's records.
SYSTEMATIC WITHDRAWAL PLAN
A shareholder (except shareholders with accounts in Class I) may
establish a Systematic Withdrawal Plan (a "Withdrawal Plan"), by telephone
instructions or by delivery to IMSC of a written election to have his or her
shares withdrawn periodically (minimum distribution amount $50 for Advisor Class
shares), accompanied by a surrender to IMSC of all share certificates then
outstanding in such shareholder's name, properly endorsed by the shareholder. To
be eligible to elect a Withdrawal Plan, a shareholder must have at least $5,000
in his or her account (except Advisor Class shareholders, who must continually
maintain an account balance of at least $10,000). A Withdrawal Plan may not be
established if the investor is currently participating in the Automatic
Investment Method. A Withdrawal Plan may involve the depletion of a
shareholder's principal, depending on the amount withdrawn.
A redemption under a Withdrawal Plan is a taxable event. Shareholders
contemplating participating in a Withdrawal Plan should consult their tax
advisers.
Additional investments made by investors participating in a Withdrawal
Plan must equal at least $1,000 each ($250 for Advisor Class shareholders) while
the Withdrawal Plan is in effect. Making additional purchases while a Withdrawal
Plan is in effect may be disadvantageous to the investor because of applicable
initial sales charges or CDSCs.
An investor may terminate his or her participation in the Withdrawal
Plan at any time by delivering written notice to IMSC. If all shares held by the
investor are liquidated at any time, participation in the Withdrawal Plan will
terminate automatically. The Trust or IMSC may terminate the Withdrawal Plan
option at any time after reasonable notice to shareholders.
GROUP SYSTEMATIC INVESTMENT PROGRAM
Shares of the Fund may be purchased in connection with investment
programs established by employee or other groups using systematic payroll
deductions or other systematic payment arrangements. The Trust does not itself
organize, offer or administer any such programs. However, it may, depending upon
the size of the program, waive the minimum initial and additional investment
requirements for purchases by individuals in conjunction with programs organized
and offered by others. Unless shares of the Fund are purchased in conjunction
with IRAs (see "How to Buy Shares" in the Prospectus), such group systematic
investment programs are not entitled to special tax benefits under the Code. The
Trust reserves the right to refuse purchases at any time or suspend the offering
of shares in connection with group systematic investment programs, and to
restrict the offering of shareholder privileges, such as check writing,
simplified redemptions and other optional privileges, as described in the
Prospectus, to shareholders using group systematic investment programs.
With respect to each shareholder account established on or after
September 15, 1972 under a group systematic investment program, the Trust and
IMI each currently charge a maintenance fee of $3.00 (or portion thereof) that
for each twelve-month period (or portion thereof) that the account is
maintained. The Trust may collect such fee (and any fees due to IMI) through a
deduction from distributions to the shareholders involved or by causing on the
date the fee is assessed a redemption in each such shareholder account
sufficient to pay such fee. The Trust reserves the right to change these fees
from time to time without advance notice.
Class A shares of the Fund are made available to Merrill Lynch Daily K
Plan (the "Plan") participants at NAV without an initial sales charge if:
(i) the Plan is recordkept on a daily valuation basis by
Merrill Lynch and, on the date the Plan Sponsor signs
the Merrill Lynch Recordkeeping Service Agreement,
the Plan has $3 million or more in assets invested in
broker/dealer funds not advised or managed by Merrill
Lynch Asset Management, L.P. ("MLAM") that are made
available pursuant to a Service Agreement between
Merrill Lynch and the fund's principal underwriter or
distributor and in funds advised or managed by MLAM
(collectively, the "Applicable Investments");
(ii) the Plan is recordkept on a daily valuation basis by
an independent recordkeeper whose services are
provided through a contract or alliance arrangement
with Merrill Lynch, and on the date the Plan Sponsor
signs the Merrill Lynch Recordkeeping Service
Agreement, the Plan has $3 million or more in assets,
excluding money market funds, invested in Applicable
Investments; or
(iii) the Plan has 500 or more eligible employees, as
determined by Merrill Lynch plan conversion manager,
on the date the Plan Sponsor signs the Merrill Lynch
Recordkeeping Service Agreement.
Alternatively, Class B shares of the Fund are made available to Plan
participants at NAV without a CDSC if the Plan conforms with the requirements
for eligibility set forth in (i) through (iii) above but either does not meet
the $3 million asset threshold or does not have 500 or more eligible employees.
Plans recordkept on a daily basis by Merrill Lynch or an independent
recordkeeper under a contract with Merrill Lynch that are currently investing in
Class B shares of the Fund convert to Class A shares once the Plan has reached
$5 million invested in Applicable Investments, or 10 years after the date of the
initial purchase by a participant under the Plan--the Plan will receive a Plan
level share conversion.
REDEMPTIONS
Shares of the Fund are redeemed at their net asset value next
determined after a proper redemption request has been received by IMSC, less any
applicable CDSC.
Unless a shareholder requests that the proceeds of any redemption be
wired to his or her bank account, payment for shares tendered for redemption is
made by check within seven days after tender in proper form, except that the
Trust reserves the right to suspend the right of redemption or to postpone the
date of payment upon redemption beyond seven days, (i) for any period during
which the Exchange is closed (other than customary weekend and holiday closings)
or during which trading on the Exchange is restricted, (ii) for any period
during which an emergency exists as determined by the SEC as a result of which
disposal of securities owned by the Fund is not reasonably practicable or it is
not reasonably practicable for the Fund to fairly determine the value of its net
assets, or (iii) for such other periods as the SEC may by order permit for the
protection of shareholders of the Fund.
Under unusual circumstances, when the Board deems it in the best
interest of the Fund's shareholders, the Fund may make payment for shares
repurchased or redeemed in whole or in part in securities of the Fund taken at
current values. If any such redemption in kind is to be made, the Fund may make
an election pursuant to Rule 18f-1 under the 1940 Act. This will require the
Fund to redeem with cash at a shareholder's election in any case where the
redemption involves less than $250,000 (or 1% of the Fund's net asset value at
the beginning of each 90-day period during which such redemptions are in effect,
if that amount is less than $250,000). Should payment be made in securities, the
redeeming shareholder may incur brokerage costs in converting such securities to
cash.
The Trust may redeem those accounts of shareholders who have maintained
an investment, including sales charges paid, of less than $1,000 ($10,000 for
Advisor Class shareholders) in the Fund for a period of more than 12 months. All
accounts below that minimum will be redeemed simultaneously when MIMI deems it
advisable. The $1,000 balance ($10,000 for Advisor Class shareholders) will be
determined by actual dollar amounts invested by the shareholder, unaffected by
market fluctuations. The Trust will notify any such shareholder by certified
mail of its intention to redeem such account, and the shareholder shall have 60
days from the date of such letter to invest such additional sums as shall raise
the value of such account above that minimum. Should the shareholder fail to
forward such sum within 60 days of the date of the Trust's letter of
notification, the Trust will redeem the shares held in such account and transmit
the redemption in value thereof to the shareholder. However, those shareholders
who are investing pursuant to the Automatic Investment Method will not be
redeemed automatically unless they have ceased making payments pursuant to the
plan for a period of at least six consecutive months, and these shareholders
will be given six-months' notice by the Trust before such redemption.
Shareholders in a qualified retirement, pension or profit sharing plan who wish
to avoid tax consequences must "rollover" any sum so redeemed into another
qualified plan within 60 days. The Trustees of the Trust may change the minimum
account size.
If a shareholder has given authorization for telephonic redemption
privilege, shares can be redeemed and proceeds sent by Federal wire to a single
previously designated bank account. Delivery of the proceeds of a wire
redemption request of $250,000 or more may be delayed by the Fund for up to
seven days if deemed appropriate under then-current market conditions. The Trust
reserves the right to change this minimum or to terminate the telephonic
redemption privilege without prior notice. The Trust cannot be responsible for
the efficiency of the Federal wire system of the shareholder's dealer of record
or bank. The shareholder is responsible for any charges by the shareholder's
bank.
The Fund employs reasonable procedures that require personal
identification prior to acting on redemption or exchange instructions
communicated by telephone to confirm that such instructions are genuine. In the
absence of such instructions, the Fund may be liable for any losses due to
unauthorized or fraudulent telephone instructions.
CONVERSION OF CLASS B SHARES
As described in the Prospectus, Class B shares of the Fund will
automatically convert to Class A shares of the Fund, based on the relative net
asset values per share of the two classes, no later than the month following the
eighth anniversary of the initial issuance of such Class B shares of the Fund
occurs. For the purpose of calculating the holding period required for
conversion of Class B shares, the date of initial issuance shall mean: (1) the
date on which such Class B shares were issued, or (2) for Class B shares
obtained through an exchange, or a series of exchanges, (subject to the exchange
privileges for Class B shares) the date on which the original Class B shares
were issued. For purposes of conversion of Class B shares, Class B shares
purchased through the reinvestment of dividends and capital gain distributions
paid in respect of Class B shares will be held in a separate sub-account. Each
time any Class B shares in the shareholder's regular account (other than those
shares in the sub-account) convert to Class A shares, a pro rata portion of the
Class B shares in the sub-account will also convert to Class A shares. The
portion will be determined by the ratio that the shareholder's Class B shares
converting to Class A shares bears to the shareholder's total Class B shares not
acquired through the reinvestment of dividends and capital gain distributions.
NET ASSET VALUE
The net asset value per share of the Fund is computed by dividing the
value of the Fund's aggregate net assets (i.e., its total assets less its
liabilities) by the number of the Fund's shares outstanding. For purposes of
determining the Fund's aggregate net assets, receivables are valued at their
realizable amounts. The Fund's liabilities, if not identifiable as belonging to
a particular class of the Fund, are allocated among the Fund's several classes
based on their relative net asset size. Liabilities attributable to a particular
class are charged to that class directly. The total liabilities for a class are
then deducted from the class's proportionate interest in the Fund's assets, and
the resulting amount is divided by the number of shares of the class outstanding
to produce its net asset value per share.
A security listed or traded on a recognized stock exchange or The
Nasdaq Stock Market, Inc. ("Nasdaq") is valued at the security's last sale price
on the exchange on which the security is principally traded. If no sale is
reported at that time, the average between the last bid and asked price (the
"Calculated Mean") is used. Unless otherwise noted herein, the value of a
foreign security is determined in its national currency as of the normal close
of trading on the foreign exchange on which it is traded or as of the close of
regular trading on the Exchange, if that is earlier, and that value is then
converted into its U.S. dollar equivalent at the foreign exchange rate in effect
at noon, eastern time, on the day the value of the foreign security is
determined. All other securities for which OTC market quotations are readily
available are valued at the Calculated Mean.
A debt security normally is valued on the basis of quotes obtained from
at least two dealers (or one dealer who has made a market in the security) or
pricing services that take into account appropriate valuation factors. Interest
is accrued daily. Money market instruments are valued at amortized cost, which
the Board believes approximates market value.
An exchange-traded option is valued at the last sale price on the
exchange on which it is principally traded, if available, and otherwise is
valued at the last sale price on the other exchange(s). If there were no sales
on any exchange, the option shall be valued at the Calculated Mean, if possible,
and otherwise at the last offering price, in the case of a written option, and
the last bid price, in the case of a purchased option. An OTC option is valued
at the last offering price, in the case of a written option, and the last bid
price, in the case of a purchased option. Exchange listed and widely-traded OTC
futures (and options thereon) are valued at the most recent settlement price.
Securities and other assets for which market prices are not readily
available are priced at their "fair value" as determined by IMI in accordance
with procedures approved by the Board. Trading in securities on many foreign
securities exchanges is normally completed before the close of regular trading
on the Exchange. Trading on foreign exchanges may not take place on all days on
which there is regular trading on the Exchange, or may take place on days on
which there is no regular trading on the Exchange (e.g., any of the national
business holidays identified below). If events materially affecting the value of
the Fund's portfolio securities occur between the time when a foreign exchange
closes and the time when the Fund's net asset value is calculated (see following
paragraph), such securities may be valued at fair value as determined by IMI and
approved by the Board.
Portfolio securities are valued (and net asset value per share is
determined) as of the close of regular trading on the Exchange (normally 4:00
p.m., eastern time) on each day the Exchange is open for trading. The Exchange
and the Trust's offices are expected to be closed, and net asset value will not
be calculated, on the following national business holidays: New Year's Day,
Martin Luther King, Jr. Day, Presidents' Day, Good Friday, Memorial Day,
Independence Day, Labor Day, Thanksgiving Day and Christmas Day. On those days
when either or both of the Fund's Custodian or the Exchange close early as a
result of a partial holiday or otherwise, the Trust reserves the right to
advance the time on that day by which purchase and redemption requests must be
received.
The number of shares you receive when you place a purchase order, and
the payment you receive after submitting a redemption request, is based on the
Fund's net asset value next determined after your instructions are received in
proper form by IMSC or by your registered securities dealer. Each purchase and
redemption order is subject to any applicable sales charge. Since the Fund
invests in securities that are listed on foreign exchanges that may trade on
weekends or other days when the Fund does not price its shares, the Fund's net
asset value may change on days when shareholders will not be able to purchase or
redeem the Fund's shares. The sale of the Fund's shares will be suspended during
any period when the determination of its net asset value is suspended pursuant
to rules or orders of the SEC and may be suspended by the Board whenever in its
judgment it is in the Fund's best interest to do so.
TAXATION
The following is a general discussion of certain tax rules thought to
be applicable with respect to the Fund. It is merely a summary and is not an
exhaustive discussion of all possible situations or of all potentially
applicable taxes. Accordingly, shareholders and prospective shareholders should
consult a competent tax adviser about the tax consequences to them of investing
in the Fund.
The Fund intends to be taxed as a regulated investment company under
Subchapter M of the Code. Accordingly, the Fund must, among other things, (a)
derive in each taxable year at least 90% of its gross income from dividends,
interest, payments with respect to certain securities loans, and gains from the
sale or other disposition of stock, securities or foreign currencies, or other
income derived with respect to its business of investing in such stock,
securities or currencies; and (b) diversify its holdings so that, at the end of
each fiscal quarter, (i) at least 50% of the market value of the Fund's assets
is represented by cash, U.S. Government securities, the securities of other
regulated investment companies and other securities, with such other securities
limited, in respect of any one issuer, to an amount not greater than 5% of the
value of the Fund's total assets and 10% of the outstanding voting securities of
such issuer, and (ii) not more than 25% of the value of its total assets is
invested in the securities of any one issuer (other than U.S. Government
securities and the securities of other regulated investment companies).
As a regulated investment company, the Fund generally will not be
subject to U.S. Federal income tax on its income and gains that it distributes
to shareholders, if at least 90% of its investment company taxable income (which
includes, among other items, dividends, interest and the excess of any
short-term capital gains over long-term capital losses) for the taxable year is
distributed. The Fund intends to distribute all such income.
Amounts not distributed on a timely basis in accordance with a calendar
year distribution requirement are subject to a nondeductible 4% excise tax at
the Fund level. To avoid the tax, the Fund must distribute during each calendar
year, (1) at least 98% of its ordinary income (not taking into account any
capital gains or losses) for the calendar year (2) at least 98% of its capital
gains in excess of its capital losses (adjusted for certain ordinary losses) for
a one-year period generally ending on October 31 of the calendar year, and (3)
all ordinary income and capital gains for previous years that were not
distributed during such years. To avoid application of the excise tax, the Fund
intends to make distributions in accordance with the calendar year distribution
requirements. A distribution will be treated as paid on December 31 of the
current calendar year if it is declared by the Fund in October, November or
December of the year with a record date in such a month and paid by the Fund
during January of the following year. Such distributions will be taxable to
shareholders in the calendar year the distributions are declared, rather than
the calendar year in which the distributions are received.
OPTIONS, FUTURES AND FOREIGN CURRENCY FORWARD CONTRACTS
The taxation of equity options and OTC options on debt securities is
governed by Code section 1234. Pursuant to Code section 1234, the premium
received by the Fund for selling a put or call option is not included in income
at the time of receipt. If the option expires, the premium is short-term capital
gain to the Fund. If the Fund enters into a closing transaction, the difference
between the amount paid to close out its position and the premium received is
short-term capital gain or loss. If a call option written by the Fund is
exercised, thereby requiring the Fund to sell the underlying security, the
premium will increase the amount realized upon the sale of such security and any
resulting gain or loss will be a capital gain or loss, and will be long-term or
short-term depending upon the holding period of the security. With respect to a
put or call option that is purchased by the Fund, if the option is sold, any
resulting gain or loss will be a capital gain or loss, and will be long-term or
short-term, depending upon the holding period of the option. If the option
expires, the resulting loss is a capital loss and is long-term or short-term,
depending upon the holding period of the option. If the option is exercised, the
cost of the option, in the case of a call option, is added to the basis of the
purchased security and, in the case of a put option, reduces the amount realized
on the underlying security in determining gain or loss.
Some of the options, futures and foreign currency forward contracts in
which the Fund may invest may be "section 1256 contracts." Gains (or losses) on
these contracts generally are considered to be 60% long-term and 40% short-term
capital gains or losses; however, as described below, foreign currency gains or
losses arising from certain section 1256 contracts are ordinary in character.
Also, section 1256 contracts held by the Fund at the end of each taxable year
(and on certain other dates prescribed in the Code) are "marked-to-market" with
the result that unrealized gains or losses are treated as though they were
realized.
The transactions in options, futures and forward contracts undertaken
by the Fund may result in "straddles" for Federal income tax purposes. The
straddle rules may affect the character of gains or losses realized by the Fund.
In addition, losses realized by the Fund on positions that are part of a
straddle may be deferred under the straddle rules, rather than being taken into
account in calculating the taxable income for the taxable year in which such
losses are realized. Because only a few regulations implementing the straddle
rules have been promulgated, the consequences of such transactions to the Fund
are not entirely clear. The straddle rules may increase the amount of short-term
capital gain realized by the Fund, which is taxed as ordinary income when
distributed to shareholders.
The Fund may make one or more of the elections available under the Code
which are applicable to straddles. If the Fund makes any of the elections, the
amount, character and timing of the recognition of gains or losses from the
affected straddle positions will be determined under rules that vary according
to the election(s) made. The rules applicable under certain of the elections may
operate to accelerate the recognition of gains or losses from the affected
straddle positions.
Because application of the straddle rules may affect the character of
gains or losses, defer losses and/or accelerate the recognition of gains or
losses from the affected straddle positions, the amount which must be
distributed to shareholders as ordinary income or long-term capital gain may be
increased or decreased substantially as compared to a fund that did not engage
in such transactions.
Notwithstanding any of the foregoing, the Fund may recognize gain (but
not loss) from a constructive sale of certain "appreciated financial positions"
if the Fund enters into a short sale, offsetting notional principal contract,
futures or forward contract transaction with respect to the appreciated position
or substantially identical property. Appreciated financial positions subject to
this constructive sale treatment are interests (including options, futures and
forward contracts and short sales) in stock, partnership interests, certain
actively traded trust instruments and certain debt instruments. Constructive
sale treatment of appreciated financial positions does not apply to certain
transactions closed in the 90-day period ending with the 30th day after the
close of the Fund's taxable year, if certain conditions are met.
CURRENCY FLUCTUATIONS -- "SECTION 988" GAINS OR LOSSES
Gains or losses attributable to fluctuations in exchange rates which
occur between the time the Fund accrues receivables or liabilities denominated
in a foreign currency and the time the Fund actually collects such receivables
or pays such liabilities generally are treated as ordinary income or ordinary
loss. Similarly, on disposition of some investments, including debt securities
denominated in a foreign currency and certain options, futures and forward
contracts, gains or losses attributable to fluctuations in the value of the
foreign currency between the date of acquisition of the security or contract and
the date of disposition also are treated as ordinary gain or loss. These gains
and losses, referred to under the Code as "section 988" gains or losses,
increase or decrease the amount of the Fund's investment company taxable income
available to be distributed to its shareholders as ordinary income.
INVESTMENT IN PASSIVE FOREIGN INVESTMENT COMPANIES
The Fund may invest in shares of foreign corporations which may be
classified under the Code as passive foreign investment companies ("PFICs"). In
general, a foreign corporation is classified as a PFIC if at least one-half of
its assets constitute investment-type assets, or 75% or more of its gross income
is investment-type income. If the Fund receives a so-called "excess
distribution" with respect to PFIC stock, the Fund itself may be subject to a
tax on a portion of the excess distribution, whether or not the corresponding
income is distributed by the Fund to shareholders. In general, under the PFIC
rules, an excess distribution is treated as having been realized ratably over
the period during which a Fund held the PFIC shares. The Fund itself will be
subject to tax on the portion, if any, of an excess distribution that is so
allocated to prior Fund taxable years and an interest factor will be added to
the tax, as if the tax had been payable in such prior taxable years. Certain
distributions from a PFIC as well as gain from the sale of PFIC shares are
treated as excess distributions. Excess distributions are characterized as
ordinary income even though, absent application of the PFIC rules, certain
excess distributions might have been classified as capital gain.
The Fund may be eligible to elect alternative tax treatment with
respect to PFIC shares. The Fund may elect to mark to market its PFIC shares,
resulting in the shares being treated as sold at fair market value on the last
business day of each taxable year. Any resulting gain would be reported as
ordinary income; any resulting loss and any loss from an actual disposition of
the shares would be reported as ordinary loss to the extent of any net gains
reported in prior years. Under another election that currently is available in
some circumstances, the Fund generally would be required to include in its gross
income its share of the earnings of a PFIC on a current basis, regardless of
whether distributions are received from the PFIC in a given year.
DEBT SECURITIES ACQUIRED AT A DISCOUNT
Some of the debt securities (with a fixed maturity date of more than
one year from the date of issuance) that may be acquired by the Fund may be
treated as debt securities that are issued originally at a discount. Generally,
the amount of the original issue discount ("OID") is treated as interest income
and is included in income over the term of the debt security, even though
payment of that amount is not received until a later time, usually when the debt
security matures.
Some of the debt securities (with a fixed maturity date of more than
one year from the date of issuance) that may be acquired by the Fund in the
secondary market may be treated as having market discount. Generally, gain
recognized on the disposition of, and any partial payment of principal on, a
debt security having market discount is treated as ordinary income to the extent
the gain, or principal payment, does not exceed the "accrued market discount" on
such debt security. In addition, the deduction of any interest expenses
attributable to debt securities having market discount may be deferred. Market
discount generally accrues in equal daily installments. The Fund may make one or
more of the elections applicable to debt securities having market discount,
which could affect the character and timing of recognition of income.
Some debt securities (with a fixed maturity date of one year or less
from the date of issuance) that may be acquired by the Fund may be treated as
having acquisition discount, or OID in the case of certain types of debt
securities. Generally, the Fund will be required to include the acquisition
discount, or OID, in income over the term of the debt security, even though
payment of that amount is not received until a later time, usually when the debt
security matures. The Fund may make one or more of the elections applicable to
debt securities having acquisition discount, or OID, which could affect the
character and timing of recognition of income.
The Fund generally will be required to distribute dividends to
shareholders representing discount on debt securities that is currently
includable in income, even though cash representing such income may not have
been received by the Fund. Cash to pay such dividends may be obtained from sales
proceeds of securities held by the Fund.
DISTRIBUTIONS
Distributions of investment company taxable income are taxable to a
U.S. shareholder as ordinary income, whether paid in cash or shares. Dividends
paid by the Fund to a corporate shareholder, to the extent such dividends are
attributable to dividends received from U.S. corporations by the Fund, may
qualify for the dividends received deduction. However, the revised alternative
minimum tax applicable to corporations may reduce the value of the dividends
received deduction. Distributions of net capital gains (the excess of net
long-term capital gains over net short-term capital losses), if any, designated
by the Fund as capital gain dividends, are taxable to shareholders as long-term
capital gains whether paid in cash or in shares, and regardless of how long the
shareholder has held the Fund's shares; such distributions are not eligible for
the dividends received deduction. Shareholders receiving distributions in the
form of newly issued shares will have a cost basis in each share received equal
to the net asset value of a share of the Fund on the distribution date. A
distribution of an amount in excess of the Fund's current and accumulated
earnings and profits will be treated by a shareholder as a return of capital
which is applied against and reduces the shareholder's basis in his or her
shares. To the extent that the amount of any such distribution exceeds the
shareholder's basis in his or her shares, the excess will be treated by the
shareholder as gain from a sale or exchange of the shares. Shareholders will be
notified annually as to the U.S. Federal tax status of distributions and
shareholders receiving distributions in the form of newly issued shares will
receive a report as to the net asset value of the shares received.
If the net asset value of shares is reduced below a shareholder's cost
as a result of a distribution by the Fund, such distribution generally will be
taxable even though it represents a return of invested capital. Shareholders
should be careful to consider the tax implications of buying shares just prior
to a distribution. The price of shares purchased at this time may reflect the
amount of the forthcoming distribution. Those purchasing just prior to a
distribution will receive a distribution which generally will be taxable to
them.
DISPOSITION OF SHARES
Upon a redemption, sale or exchange of his or her shares, a shareholder
will realize a taxable gain or loss depending upon his or her basis in the
shares. Such gain or loss will be treated as capital gain or loss if the shares
are capital assets in the shareholder's hands and, if so, will be long-term or
short-term, depending upon the shareholder's holding period for the shares. Any
loss realized on a redemption sale or exchange will be disallowed to the extent
the shares disposed of are replaced (including through reinvestment of
dividends) within a period of 61 days beginning 30 days before and ending 30
days after the shares are disposed of. In such a case, the basis of the shares
acquired will be adjusted to reflect the disallowed loss. Any loss realized by a
shareholder on the sale of Fund shares held by the shareholder for six-months or
less will be treated for tax purposes as a long-term capital loss to the extent
of any distributions of capital gain dividends received or treated as having
been received by the shareholder with respect to such shares.
In some cases, shareholders will not be permitted to take all or
portion of their sales loads into account for purposes of determining the amount
of gain or loss realized on the disposition of their shares. This prohibition
generally applies where (1) the shareholder incurs a sales load in acquiring the
shares of the Fund, (2) the shares are disposed of before the 91st day after the
date on which they were acquired, and (3) the shareholder subsequently acquires
shares in the Fund or another regulated investment company and the otherwise
applicable sales charge is reduced under a "reinvestment right" received upon
the initial purchase of Fund shares. The term "reinvestment right" means any
right to acquire shares of one or more regulated investment companies without
the payment of a sales load or with the payment of a reduced sales charge. Sales
charges affected by this rule are treated as if they were incurred with respect
to the shares acquired under the reinvestment right. This provision may be
applied to successive acquisitions of fund shares.
FOREIGN WITHHOLDING TAXES
Income received by the Fund from sources within a foreign country may
be subject to withholding and other taxes imposed by that country.
If more than 50% of the value of the Fund's total assets at the close
of its taxable year consists of securities of foreign corporations, the Fund
will be eligible and may elect to "pass-through" to the Fund's shareholders the
amount of foreign income and similar taxes paid by the Fund. Pursuant to this
election, a shareholder will be required to include in gross income (in addition
to taxable dividends actually received) his or her pro rata share of the foreign
income and similar taxes paid by the Fund, and will be entitled either to deduct
his or her pro rata share of foreign income and similar taxes in computing his
or her taxable income or to use it as a foreign tax credit against his or her
U.S. Federal income taxes, subject to limitations. No deduction for foreign
taxes may be claimed by a shareholder who does not itemize deductions. Foreign
taxes generally may not be deducted by a shareholder that is an individual in
computing the alternative minimum tax. Each shareholder will be notified within
60 days after the close of the Fund's taxable year whether the foreign taxes
paid by the Fund will "pass-through" for that year and, if so, such notification
will designate (1) the shareholder's portion of the foreign taxes paid to each
such country and (2) the portion of the dividend which represents income derived
from sources within each such country.
Generally, except in the case of certain electing individual taxpayers
who have limited creditable foreign taxes and no foreign source income other
than passive investment-type income, a credit for foreign taxes is subject to
the limitation that it may not exceed the shareholder's U.S. tax attributable to
his or her total foreign source taxable income. For this purpose, if the Fund
makes the election described in the preceding paragraph, the source of the
Fund's income flows through to its shareholders. With respect to the Fund, gains
from the sale of securities generally will be treated as derived from U.S.
sources and section 988 gains will be treated as ordinary income derived from
U.S. sources. The limitation on the foreign tax credit is applied separately to
foreign source passive income, including foreign source passive income received
from the Fund. In addition, the foreign tax credit may offset only 90% of the
revised alternative minimum tax imposed on corporations and individuals.
Furthermore, the foreign tax credit is eliminated with respect to foreign taxes
withheld on dividends if the dividend-paying shares or the shares of the Fund
are held by the Fund or the shareholder, as the case may be, for less than 16
days (46 days in the case of preferred shares) during the 30-day period (90-day
period for preferred shares) beginning 15 days (45 days for preferred shares)
before the shares become ex-dividend. In addition, if the Fund fails to satisfy
these holding period requirements, it cannot elect to pass through to
shareholders the ability to claim a deduction for related foreign taxes.
The foregoing is only a general description of the foreign tax credit
under current law. Because application of the credit depends on the particular
circumstances of each shareholder, shareholders are advised to consult their own
tax advisers.
BACKUP WITHHOLDING
The Fund will be required to report to the Internal Revenue Service
("IRS") all taxable distributions as well as gross proceeds from the redemption
of the Fund's shares, except in the case of certain exempt shareholders. All
such distributions and proceeds will be subject to withholding of Federal income
tax at a rate of 31% ("backup withholding") in the case of non-exempt
shareholders if (1) the shareholder fails to furnish the Fund with and to
certify the shareholder's correct taxpayer identification number or social
security number, (2) the IRS notifies the shareholder or the Fund that the
shareholder has failed to report properly certain interest and dividend income
to the IRS and to respond to notices to that effect, or (3) when required to do
so, the shareholder fails to certify that he or she is not subject to backup
withholding. If the withholding provisions are applicable, any such
distributions or proceeds, whether reinvested in additional shares or taken in
cash, will be reduced by the amounts required to be withheld.
Distributions may also be subject to additional state, local and
foreign taxes depending on each shareholder's particular situation. Non-U.S.
shareholders may be subject to U.S. tax rules that differ significantly from
those summarized above. This discussion does not purport to deal with all of the
tax consequences applicable to the Fund or shareholders. Shareholders are
advised to consult their own tax advisers with respect to the particular tax
consequences to them of an investment in the Fund.
PERFORMANCE INFORMATION
Performance information for the classes of shares of the Fund may be
compared, in reports and promotional literature, to: (i) the S&P 500 Index, the
Dow Jones Industrial Average ("DJIA"), or other unmanaged indices so that
investors may compare the Fund's results with those of a group of unmanaged
securities widely regarded by investors as representative of the securities
markets in general; (ii) other groups of mutual funds tracked by Lipper
Analytical Services, a widely used independent research firm that ranks mutual
funds by overall performance, investment objectives and assets, or tracked by
other services, companies, publications or other criteria; and (iii) the
Consumer Price Index (measure for inflation) to assess the real rate of return
from an investment in the Fund. Unmanaged indices may assume the reinvestment of
dividends but generally do not reflect deductions or administrative and
management costs and expenses. Performance rankings are based on historical
information and are not intended to indicate future performance.
YIELD. Quotations of yield for a specific class of shares of the Fund
will be based on all investment income attributable to that class earned during
a particular 30-day (or one month) period (including dividends and interest),
less expenses attributable to that class accrued during the period ("net
investment income"), and will be computed by dividing the net investment income
per share of that class earned during the period by the maximum offering price
per share (in the case of Class A shares) or the net asset value per share (in
the case of Class B and Class C shares) on the last day of the period, according
to the following formula:
YIELD = 2[({(a-b)/cd} + 1){superscript 6}-1]
Where: a = dividends and interest earned during the period
attributable to a specific class of shares,
b = expenses accrued for the period attributable to that
class (net of reimbursements),
c = the average daily number of shares
of that class outstanding during the
period that were entitled to receive
dividends, and
d = the maximum offering price per
share (in the case of Class A
shares) or the net asset value per
share (in the case of Class B
shares, Class C shares and Class I
shares) on the last day of the
period.
AVERAGE ANNUAL TOTAL RETURN. Quotations of standardized average annual
total return ("Standardized Return") for a specific class of shares of the Fund
will be expressed in terms of the average annual compounded rate of return that
would cause a hypothetical investment in that class of the Fund made on the
first day of a designated period to equal the ending redeemable value ("ERV") of
such hypothetical investment on the last day of the designated period, according
to the following formula:
P(1 + T){superscript n} = ERV
Where: P = a hypothetical initial payment of $1,000 to purchase shares of
a specific class
T = the average annual total return of shares of that class
n = the number of years
ERV = the ending redeemable value of a
hypothetical $1,000 payment made at
the beginning of the period.
For purposes of the above computation for the Fund, it is assumed that
all dividends and capital gains distributions made by the Fund are reinvested at
net asset value in additional shares of the same class during the designated
period. In calculating the ending redeemable value for Class A shares and
assuming complete redemption at the end of the applicable period, the maximum
5.75% sales charge is deducted from the initial $1,000 payment and, for Class B
and Class C shares, the applicable CDSC imposed upon redemption of Class B or
Class C shares held for the period is deducted. Standardized Return quotations
for the Fund do not take into account any required payments for federal or state
income taxes. Standardized Return quotations for Class B shares for periods of
over eight years will reflect conversion of the Class B shares to Class A shares
at the end of the eighth year. Standardized Return quotations are determined to
the nearest 1/100 of 1%.
The Fund may, from time to time, include in advertisements, promotional
literature or reports to shareholders or prospective investors total return data
that are not calculated according to the formula set forth above
("Non-Standardized Return"). Neither initial nor CDSCs are taken into account in
calculating Non-Standardized Return; a sales charge, if deducted, would reduce
the return.
The following table summarizes the calculation of Standardized and
Non-Standardized Return for the Class A, Class B, Class, C, Class I and Advisor
Class shares of the Fund for the periods indicated. In determining the average
annual total return for a specific class of shares of the Fund, recurring fees,
if any, that are charged to all shareholder accounts are taken into
consideration. For any account fees that vary with the size of the account of
the Fund, the account fee used for purposes of the following computations is
assumed to be the fee that would be charged to the mean account size of the
Fund.
STANDARDIZED RETURN[*]
<TABLE>
CLASS A[1] CLASS B[2] CLASS C[3] CLASS I[4] ADVISOR CLASS
<S> <C> <C> <C> <C> <C>
Year ended December 31,
1998
% % % % %
Inception [#] to year
ended December 31,
1998[8]: % % % % %
NON-STANDARDIZED RETURN[**]
CLASS A[5] CLASS B[6] CLASS C[7] CLASS I[4] ADVISOR CLASS
Year ended December 31,
1998
% % % % %
Inception [#] to year
ended December 31,
1998[8]: % % % % %
- ------------------------- ----------------- ------------------ -------------------
</TABLE>
[*] The Standardized Return figures for Class A shares reflect the
deduction of the maximum initial sales charge of 5.75%. The Standardized Return
figures for Class B and C shares reflect the deduction of the applicable CDSC
imposed on redemption of Class B or C shares held for the period. Class I and
Advisor Class shares are not subject to an initial sales change or to a CDSC;
therefore, the Non-Standardized Return Figures would be identical to the
Standarized Return Figures.
[**] The Non-Standardized Return figures do not reflect the deduction of
any initial sales charge or CDSC.
[#] The inception date for the Fund (and Class A, Class B, Class C and
Class I shares of the Fund) was May 13, 1997. Advisor Class shares were first
offered on January 1, 1998.
[1] The Standardized Return figures for the Class A shares reflect
expense reimbursement. Without expense reimbursement, the Standardized Return
for Class A shares for the period from inception through and the one year ended
December 31, 1998 would have been [ %].
[2] The Standardized Return figures for the Class B shares reflect
expense reimbursement. Without expense reimbursement, the Standardized Return
for Class B shares for the period from inception through and the one year ended
December 31, 1998 would have been [ %].
[3] The Standardized Return figures for the Class C shares reflect
expense reimbursement. Without expense reimbursement, the Standardized Return
for Class C shares for the period from inception through and the one year ended
December 31, 1998 would have been [ %].
[4] Class I shares are not subject to an initial sales charge or a
CDSC; therefore the Non-Standardized and Standardized Return figures are
identical.
[5] The Non-Standardized Return figures for Class A shares reflect
expense reimbursement. Without expense reimbursement, the Non-Standardized
Return for Class A shares for the period from inception through and the one year
ended December 31, 1998 would have been [ %].
[6] The Non-Standardized Return figures for Class B shares reflect
expense reimbursement. Without expense reimbursement, the Non-Standardized
Return for Class B shares for the period from inception through and the one year
ended December 31, 1998 would have been [ %].
[7] The Non-Standardized Return figures for Class C shares reflect
expense reimbursement. Without expense reimbursement, the Non-Standardized
Return for Class C shares for the period from inception through and the one year
ended December 31, 1998 would have been [ %].
[8] The total return for a period less than a full year is calculated
on an aggregate basis and is not annualized.
CUMULATIVE TOTAL RETURN. Cumulative total return is the cumulative rate
of return on a hypothetical initial investment of $1,000 in a specific class of
shares of the Fund for a specified period. Cumulative total return quotations
reflect changes in the price of the Fund's shares and assume that all dividends
and capital gains distributions during the period were reinvested in the Fund
shares. Cumulative total return is calculated by computing the cumulative rates
of return of a hypothetical investment in a specific class of shares of the Fund
over such periods, according to the following formula (cumulative total return
is then expressed as a percentage):
C = (ERV/P) - 1
Where: C = cumulative total return
P = a hypothetical initial investment of $1,000 to purchase
shares of a specific class
ERV = ending redeemable value: ERV is
the value, at the end of the
applicable period, of a hypothetical
$1,000 investment made at the
beginning of the applicable period.
The following table summarizes the calculation of Cumulative Total
Return for the periods indicated through December 31, 1998, assuming the maximum
5.75% sales charge has been assessed.
ONE YEAR SINCE INCEPTION [*]
Class A
Class B
Class C
Class I
Advisor Class
The following table summarizes the calculation of Cumulative Total Return for
the periods indicated through December 31, 1998, assuming the maximum 5.75%
sales charge has not been assessed.
ONE YEAR SINCE INCEPTION [*]
Class A
Class B
Class C
Class I
Advisor Class
- ---------------------------
[*] The inception date for the Fund (Class A, Class B, Class C and Class I
shares) was May 13, 1997. Advisor Class shares were first offered on January 1,
1998.
OTHER QUOTATIONS, COMPARISONS AND GENERAL INFORMATION. The foregoing
computation methods are prescribed for advertising and other communications
subject to SEC Rule 482. Communications not subject to this rule may contain a
number of different measures of performance, computation methods and
assumptions, including but not limited to: historical total returns; results of
actual or hypothetical investments; changes in dividends, distributions or share
values; or any graphic illustration of such data. These data may cover any
period of the Trust's existence and may or may not include the impact of sales
charges, taxes or other factors.
Performance quotations for the Fund will vary from time to time
depending on market conditions, the composition of the Fund's portfolio and
operating expenses of the Fund. These factors and possible differences in the
methods used in calculating performance quotations should be considered when
comparing performance information regarding the Fund's shares with information
published for other investment companies and other investment vehicles.
Performance quotations should also be considered relative to changes in the
value of the Fund's shares and the risks associated with the Fund's investment
objectives and policies. At any time in the future, performance quotations may
be higher or lower than past performance quotations and there can be no
assurance that any historical performance quotation will continue in the future.
The Fund may also cite endorsements or use for comparison its
performance rankings and listings reported in such newspapers or business or
consumer publications as, among others: AAII Journal, Barron's, Boston Business
Journal, Boston Globe, Boston Herald, Business Week, Consumer's Digest, Consumer
Guide Publications, Changing Times, Financial Planning, Financial World, Forbes,
Fortune, Growth Fund Guide, Houston Post, Institutional Investor, International
Fund Monitor, Investor's Daily, Los Angeles Times, Medical Economics, Miami
Herald, Money Mutual Fund Forecaster, Mutual Fund Letter, Mutual Fund Source
Book, Mutual Fund Values, National Underwriter, Nelson's Directory of Investment
Managers, New York Times, Newsweek, No Load Fund Investor, No Load Fund* X,
Oakland Tribune, Pension World, Pensions and Investment Age, Personal Investor,
Rugg and Steele, Time, U.S. News and World Report, USA Today, The Wall Street
Journal, and Washington Post.
FINANCIAL STATEMENTS
The Fund's Portfolio of Investments as of December 31, 1998, Statement
of Assets and Liabilities as of December 31, 1998, Statement of Operations for
the fiscal year ended December 31, 1998, Statement of Changes in Net Assets for
the fiscal year ended December 31, 1998, Financial Highlights, Notes to
Financial Statements, and Report of Independent Accountants, which are included
in the Fund's December 31, 1998 Annual Report to shareholders, are incorporated
by reference into this SAI.
<PAGE>
APPENDIX A
DESCRIPTION OF STANDARD & POOR'S RATINGS GROUP ("S&P") AND MOODY'S
INVESTORS SERVICE, INC. ("MOODY'S") CORPORATE BOND AND COMMERCIAL PAPER
RATINGS
[From "Moody's Bond Record," November 1994 Issue (Moody's Investors
Service, New York, 1994), and "Standard & Poor's Municipal Ratings
Handbook," October 1997 Issue (McGraw Hill, New York, 1997).]
MOODY'S:
(a) CORPORATE BONDS. Bonds rated Aaa by Moody's are judged by Moody's
to be of the best quality, carrying the smallest degree of investment risk.
Interest payments are protected by a large or exceptionally stable margin and
principal is secure. While the various protective elements are likely to change,
such changes as can be visualized are most unlikely to impair the fundamentally
strong position of such issues. Bonds rated Aa are judged by Moody's to be of
high quality by all standards. Aa bonds are rated lower than Aaa bonds because
margins of protection may not be as large as those of Aaa bonds, or fluctuations
of protective elements may be of greater amplitude, or there may be other
elements present which make the long-term risks appear somewhat larger than
those applicable to Aaa securities. Bonds which are rated A by Moody's possess
many favorable investment attributes and are to be considered as upper
medium-grade obligations. Factors giving security to principal and interest are
considered adequate, but elements may be present which suggest a susceptibility
to impairment sometime in the future. Bonds rated Baa by Moody's are considered
medium-grade obligations (i.e., they are neither highly protected nor poorly
secured). Interest payments and principal security appear adequate for the
present, but certain protective elements may be lacking or may be
characteristically unreliable over any great length of time. Such bonds lack
outstanding investment characteristics and in fact have speculative
characteristics as well. Bonds which are rated Ba are judged to have speculative
elements; their future cannot be considered well-assured. Often the protection
of interest and principal payments may be very moderate and thereby not well
safeguarded during both good and bad times over the future. Uncertainty of
position characterizes bonds in this class. Bonds which are rated B generally
lack characteristics of the desirable investment. Assurance of interest and
principal payments of or maintenance of other terms of the contract over any
long period of time may be small. Bonds which are rated Caa are of poor
standing. Such issues may be in default or there may be present elements of
danger with respect to principal or interest. Bonds which are rated Ca represent
obligations which are speculative in a high degree. Such issues are often in
default or have other marked shortcomings. Bonds which are rated C are the
lowest rated class of bonds and issues so rated can be regarded as having
extremely poor prospects of ever attaining any real investment standing.
(b) COMMERCIAL PAPER. The Prime rating is the highest commercial paper
rating assigned by Moody's. Among the factors considered by Moody's in assigning
ratings are the following: (1) evaluation of the management of the issuer; (2)
economic evaluation of the issuer's industry or industries and an appraisal of
speculative-type risks which may be inherent in certain areas; (3) evaluation of
the issuer's products in relation to competition and customer acceptance; (4)
liquidity; (5) amount and quality of long-term debt; (6) trend of earnings over
a period of ten years; (7) financial strength of a parent company and the
relationships which exist with the issuer; and (8) recognition by management of
obligations which may be present or may arise as a result of public interest
questions and preparations to meet such obligations. Issuers within this Prime
category may be given ratings 1, 2 or 3, depending on the relative strengths of
these factors. The designation of Prime-1 indicates the highest quality
repayment capacity of the rated issue. Issuers rated Prime-2 are deemed to have
a strong ability for repayment while issuers voted Prime-3 are deemed to have an
acceptable ability for repayment. Issuers rated Not Prime do not fall within any
of the Prime rating categories.
S&P:
(a) CORPORATE BONDS. An S&P corporate debt rating is a current
assessment of the creditworthiness of an obligor with respect to a specific
obligation. The ratings are based on current information furnished by the issuer
or obtained by S&P from other sources it considers reliable. The ratings
described below may be modified by the addition of a plus or minus sign to show
relative standing within the major rating categories.
Debt rated AAA has the highest rating assigned by S&P. Capacity to pay
interest and repay principal is extremely strong. Debt rated AA is judged by S&P
to have a very strong capacity to pay interest and repay principal and differs
from the highest rated issues only in small degree. Debt rated A by S&P has a
strong capacity to pay interest and repay principal, although it is somewhat
more susceptible to the adverse effects of changes in circumstances and economic
conditions than debt in higher rated categories.
Debt rated BBB by S&P is regarded by S&P as having an adequate capacity
to pay interest and repay principal. Although such bonds normally exhibit
adequate protection parameters, adverse economic conditions or changing
circumstances are more likely to lead to a weakened capacity to pay interest and
repay principal than debt in higher rated categories.
Debt rated BB, B, CCC, CC and C is regarded as having predominately
speculative characteristics with respect to capacity to pay interest and repay
principal. BB indicates the least degree of speculation and C the highest. While
such debt will likely have some quality and protective characteristics, these
are outweighed by large uncertainties or exposures to adverse conditions. Debt
rated BB has less near-term vulnerability to default than other speculative
issues. However, it faces major ongoing uncertainties or exposure to adverse
business, financial or economic conditions which could lead to inadequate
capacity to meet timely interest and principal payments. The BB rating category
is also used for debt subordinated to senior debt that is assigned an actual or
implied BBB- rating. Debt rated B has a greater vulnerability to default but
currently has the capacity to meet interest payments and principal repayments.
Adverse business, financial, or economic conditions will likely impair capacity
or willingness to pay interest and repay principal. The B rating category is
also used for debt subordinated to senior debt that is assigned an actual or
implied BB or BB- rating. Debt rated CCC has a currently identifiable
vulnerability to default, and is dependent upon favorable business, financial,
and economic conditions to meet timely payment of interest and repayment of
principal. In the event of adverse business, financial or economic conditions,
it is not likely to have the capacity to pay interest and repay principal. The
CCC rating category is also used for debt subordinated to senior debt that is
assigned an actual or implied B or B- rating. The rating CC typically is applied
to debt subordinated to senior debt which is assigned an actual or implied CCC
debt rating. The rating C typically is applied to debt subordinated to senior
debt which is assigned an actual or implied CCC- debt rating. The C rating may
be used to cover a situation where a bankruptcy petition has been filed, but
debt service payments are continued.
The rating CI is reserved for income bonds on which no interest is
being paid. Debt rated D is in payment default. The D rating category is used
when interest payments or principal payments are not made on the date due, even
if the applicable grace period has not expired, unless S&P believes that such
payments will be made during such grace period. The D rating also will be used
upon the filing of a bankruptcy petition if debt service payments are
jeopardized.
(b) COMMERCIAL PAPER. An S&P commercial paper rating is a current
assessment of the likelihood of timely payment of debt considered short-term in
the relevant market.
The commercial paper rating A-1 by S&P indicates that the degree of
safety regarding timely payment is strong. Those issues determined to possess
extremely strong safety characteristics are denoted with a plus sign (+)
designation. For commercial paper with an A-2 rating, the capacity for timely
payment on issues is satisfactory, but not as high as for issues designated A-1.
Issues rated A-3 have adequate capacity for timely payment, but are more
vulnerable to the adverse effects of changes in circumstances than obligations
carrying higher designations.
Issues rated B are regarded as having only speculative capacity for
timely payment. The C rating is assigned to short-term debt obligations with a
doubtful capacity for payment. Debt rated D is in payment default. The D rating
category is used when interest payments or principal payments are not made on
the date due, even if the applicable grace period has not expired, unless S&P
believes such payments will be made during such grace period.
<PAGE>
IVY INTERNATIONAL SMALL COMPANIES FUND
a series of
IVY FUND
Via Mizner Financial Plaza, Suite 300
700 South Federal Highway
Boca Raton, Florida 33432
STATEMENT OF ADDITIONAL INFORMATION
April , 1999
Ivy Fund (the "Trust") is an open-end management investment company
that currently consists of nineteen fully managed portfolios, each of which
(except for Ivy South America Fund and Ivy International Strategic Bond Fund) is
diversified. This Statement of Additional Information ("SAI") relates to the
Class A, B, C and I and Advisor Class shares of Ivy International Small
Companies Fund (the "Fund"). The other eighteen portfolios of the Trust are
described in separate prospectuses and SAIs.
This SAI is not a prospectus and should be read in conjunction with the
prospectus for the Fund dated April , 1999 (the "Prospectus"), which may be
obtained upon request and without charge from the Trust at the Distributor's
address and telephone number printed below.
INVESTMENT MANAGER
Ivy Management, Inc. ("IMI")
Via Mizner Financial Plaza, Suite 300
700 South Federal Highway
Boca Raton, Florida 33432
Telephone: (800) 777-6472
DISTRIBUTOR
Ivy Mackenzie Distributors, Inc. ("IMDI")
Via Mizner Financial Plaza, Suite 300
700 South Federal Highway
Boca Raton, Florida 33432
Telephone: (800) 456-5111
<PAGE>
iii
TABLE OF CONTENTS
GENERAL INFORMATION...................................
INVESTMENT OBJECTIVES, STRATEGIES AND RISKS...........
COMMON STOCKS................................
CONVERTIBLE SECURITIES.......................
SMALL COMPANIES..............................
DEBT SECURITIES..............................
IN GENERAL..........................
INVESTMENT-GRADE DEBT SECURITIES....
LOW-RATED DEBT SECURITIES...........
U.S. GOVERNMENT SECURITIES..........
ZERO COUPON BONDS...................
ILLIQUID SECURITIES..........................
FOREIGN SECURITIES...........................
DEPOSITORY RECEIPTS..........................
EMERGING MARKETS.............................
FOREIGN CURRENCIES...........................
FOREIGN CURRENCY EXCHANGE TRANSACTIONS.......
OTHER INVESTMENT COMPANIES...................
REPURCHASE AGREEMENTS........................
BANKING INDUSTRY AND SAVINGS AND LOAN OBLIGATIONS...
COMMERCIAL PAPER....................................
BORROWING...........................................
WARRANTS............................................
OPTIONS TRANSACTIONS................................
IN GENERAL.................................
WRITING OPTIONS ON INDIVIDUAL SECURITIES...
PURCHASING OPTIONS ON INDIVIDUAL SECURITIES
PURCHASING AND WRITING OPTIONS ON SECURITIES INDICES....
RISKS OF OPTIONS TRANSACTIONS...........................
FUTURES CONTRACTS AND OPTIONS ON FUTURES CONTRACTS...............
IN GENERAL..............................................
FOREIGN CURRENCY FUTURES CONTRACTS AND RELATED OPTIONS..
RISKS ASSOCIATED WITH FUTURES AND RELATED OPTIONS.......
SECURITIES INDEX FUTURES CONTRACTS...............................
RISKS OF SECURITIES INDEX FUTURES.......................
COMBINED TRANSACTIONS...................................
INVESTMENT RESTRICTIONS...................................................
PORTFOLIO TURNOVER........................................................
TRUSTEES AND OFFICERS.....................................................
PERSONAL INVESTMENTS BY EMPLOYEES OF IMI................
INVESTMENT ADVISORY AND OTHER SERVICES....................................
BUSINESS MANAGEMENT AND INVESTMENT ADVISORY SERVICES.............
DISTRIBUTION SERVICES............................................
RULE 18F-3 PLAN.........................................
RULE 12B-1 DISTRIBUTION PLANS...........................
CUSTODIAN........................................................
FUND ACCOUNTING SERVICES.........................................
TRANSFER AGENT AND DIVIDEND PAYING AGENT.........................
ADMINISTRATOR....................................................
AUDITORS.........................................................
BROKERAGE ALLOCATION......................................................
CAPITALIZATION AND VOTING RIGHTS..........................................
SPECIAL RIGHTS AND PRIVILEGES.............................................
AUTOMATIC INVESTMENT METHOD......................................
EXCHANGE OF SHARES...............................................
INITIAL SALES CHARGE SHARES.............................
CONTINGENT DEFERRED SALES CHARGE SHARES CLASS A.........
CLASS B.................................................
CLASS C.................................................
CLASS I AND ADVISOR CLASS...............................
ALL CLASSES.............................................
LETTER OF INTENT.................................................
RETIREMENT PLANS.................................................
INDIVIDUAL RETIREMENT ACCOUNTS..........................
ROTH IRAS...............................................
QUALIFIED PLANS.........................................
DEFERRED COMPENSATION FOR PUBLIC SCHOOLS AND CHARITABLE
ORGANIZATIONS ("403(B)(7) ACCOUNT")
SIMPLIFIED EMPLOYEE PENSION ("SEP") IRAS................
SIMPLE PLANS............................................
REINVESTMENT PRIVILEGE...........................................
RIGHTS OF ACCUMULATION...........................................
SYSTEMATIC WITHDRAWAL PLAN.......................................
GROUP SYSTEMATIC INVESTMENT PROGRAM..............................
REDEMPTIONS...............................................................
CONVERSION OF CLASS B SHARES..............................................
NET ASSET VALUE...........................................................
TAXATION 44
OPTIONS, FUTURES AND FOREIGN CURRENCY FORWARD CONTRACTS..........
CURRENCY FLUCTUATIONS -- "SECTION 988" GAINS OR LOSSES...........
INVESTMENT IN PASSIVE FOREIGN INVESTMENT COMPANIES...............
DEBT SECURITIES ACQUIRED AT A DISCOUNT...........................
DISTRIBUTIONS....................................................
DISPOSITION OF SHARES............................................
FOREIGN WITHHOLDING TAXES........................................
BACKUP WITHHOLDING...............................................
PERFORMANCE INFORMATION...................................................
YIELD...................................................
AVERAGE ANNUAL TOTAL RETURN.............................
CUMULATIVE TOTAL RETURN.................................
OTHER QUOTATIONS, COMPARISONS AND GENERAL INFORMATION...
FINANCIAL STATEMENTS......................................................
APPENDIX A................................................................
<PAGE>
GENERAL INFORMATION
The Fund is organized as a separate, diversified portfolio of the
Trust, an open-end management investment company organized as a Massachusetts
business trust on December 21, 1983. The Fund commenced operations on January 1,
1997. Advisor Class shares were first offered on January 1, 1998.
Descriptions in this Statement of a particular investment practice or
technique in which the Fund may engage or a financial instrument which the Fund
may purchase are meant to describe the spectrum of investments that IMI, in its
discretion, might, but is not required to, use in managing the Fund's portfolio
assets. IMI may, in its discretion, at any time employ such practice, technique
or instrument for one or more funds but not for all funds advised by it.
Furthermore, it is possible that certain types of financial instruments or
investment techniques described herein may not be available, permissible,
economically feasible or effective for their intended purposes in all markets.
Certain practices, techniques, or instruments may not be principal activities of
the Fund but, to the extent employed, could from time to time have a material
impact on the Fund's performance.
INVESTMENT OBJECTIVES, STRATEGIES AND RISKS
The Fund has its own investment objectives and policies, which are
described in the Prospectus under the captions "Summary" and "Additional
Information About Strategies and Risks." Additional information regarding the
characteristics and risks associated with the Fund's investment techniques is
set forth below.
The Fund's principal investment objective is long-term growth primarily
through investment in foreign equity securities. Consideration of current income
is secondary to this principal objective. Under normal circumstances the Fund
invests at least 65% of its total assets in common and preferred stocks (and
securities convertible into common stocks) of foreign issuers having total
market capitalization of less than $1 billion. Under this investment policy, at
least three different countries (other than the United States) will be
represented in the Fund's overall portfolio holdings. For temporary defensive
purposes, the Fund may also invest in equity securities principally traded in
the United States. The Fund will invest its assets in a variety of economic
sectors, industry segments and individual securities in order to reduce the
effects of price volatility in any area and to enable shareholders to
participate in markets that do not necessarily move in concert with the U.S.
market. The factors that IMI considers in determining the appropriate
distribution of investments among various countries and regions include
prospects for relative economic growth, expected levels of inflation, government
policies influencing business conditions and the outlook for currency
relationships.
In selecting the Fund's investments, IMI will seek to identify
securities that are attractively priced relative to their intrinsic value. The
intrinsic value of a particular security is analyzed by reference to
characteristics such as relative price-earnings ratio, dividend yield and other
relevant factors (such as applicable financial, tax, social and political
conditions).
When economic or market conditions warrant, the Fund may invest without
limit in U.S. Government securities, investment-grade debt securities, zero
coupon bonds, preferred stocks, warrants, or cash or cash equivalents such as
bank obligations (including certificates of deposit and bankers' acceptances),
commercial paper, short-term notes and repurchase agreements. The Fund may also
invest up to 5% of its net assets in debt securities rated Ba or below by
Moody's or BB or below by S&P, or if unrated, are considered by IMI to be of
comparable quality (commonly referred to as "high yield" or "junk" bonds). The
Fund will not invest in debt securities rated less than C by either Moody's or
S&P. [As of December 31, 1998, the Fund held no low-rated debt securities.]
For temporary or emergency purposes, the Fund may borrow up to
one-third of the value of its total assets from banks, but may not purchase
securities at any time during which the value of the Fund's outstanding loans
exceeds 10% of the value of the Fund's assets. The Fund may engage in foreign
currency exchange transactions and enter into forward foreign currency
contracts. The Fund may also invest (i) up to 10% of its total assets in other
investment companies and (ii) up to 15% of its net assets in illiquid
securities.
The Fund may purchase put and call options on securities and stock
indices, provided the premium paid for such options does not exceed 5% of the
Fund's net assets. The Fund may also sell covered put options with respect to up
to 10% of the value of its net assets, and may write covered call options so
long as not more than 25% of the Fund's net assets is subject to being purchased
upon the exercise of the calls. For hedging purposes only, the Fund may engage
in transactions in stock index and foreign currency futures contracts, provided
that the Fund's equivalent exposure in such contracts does not exceed 15% of its
total assets.
COMMON STOCKS
Common stock can be issued by companies to raise cash; all common stock
shares represent a proportionate ownership interest in a company. As a result,
the value of common stock rises and falls with a company's success or failure.
The market value of common stock can fluctuate significantly, with smaller
companies being particularly susceptible to price swings. Transaction costs in
smaller company stocks may also be higher than those of larger companies.
CONVERTIBLE SECURITIES
The convertible securities in which the Fund may invest include
corporate bonds, notes, debentures, preferred stock and other securities that
may be converted or exchanged at a stated or determinable exchange ratio into
underlying shares of common stock. Investments in convertible securities can
provide income through interest and dividend payments as well as an opportunity
for capital appreciation by virtue of their conversion or exchange features.
Because convertible securities can be converted into equity securities, their
values will normally vary in some proportion with those of the underlying equity
securities. Convertible securities usually provide a higher yield than the
underlying equity, however, so that the price decline of a convertible security
may sometimes be less substantial than that of the underlying equity security.
The exchange ratio for any particular convertible security may be adjusted from
time to time due to stock splits, dividends, spin-offs, other corporate
distributions or scheduled changes in the exchange ratio. Convertible debt
securities and convertible preferred stocks, until converted, have general
characteristics similar to both debt and equity securities. Although to a lesser
extent than with debt securities generally, the market value of convertible
securities tends to decline as interest rates increase and, conversely, tends to
increase as interest rates decline. In addition, because of the conversion or
exchange feature, the market value of convertible securities typically changes
as the market value of the underlying common stock changes, and, therefore, also
tends to follow movements in the general market for equity securities. When the
market price of the underlying common stock increases, the price of a
convertible security tends to rise as a reflection of the value of the
underlying common stock, although typically not as much as the price of the
underlying common stock. While no securities investments are without risk,
investments in convertible securities generally entail less risk than
investments in common stock of the same issuer.
As debt securities, convertible securities are investments that provide
for a stream of income. Like all debt securities, there can be no assurance of
income or principal payments because the issuers of the convertible securities
may default on their obligations. Convertible securities generally offer lower
yields than non-convertible securities of similar quality because of their
conversion or exchange features.
Convertible securities generally are subordinated to other similar but
non-convertible securities of the same issuer, although convertible bonds, as
corporate debt obligations, are senior in right of payment to all equity
securities, and convertible preferred stock is senior to common stock, of the
same issuer. However, convertible bonds and convertible preferred stock
typically have lower coupon rates than similar non-convertible securities.
Convertible securities may be issued as fixed income obligations that pay
current income.
SMALL COMPANIES
Investing in smaller company stocks involves certain special
considerations and risks that are not usually associated with investing in
larger, more established companies. For example, the securities of small or new
companies may be subject to more abrupt or erratic market movements because they
tend to be thinly traded and are subject to a greater degree to changes in the
issuer's earnings and prospects. Small companies also tend to have limited
product lines, markets or financial resources. Transaction costs in smaller
company stocks also may be higher than those of larger companies.
DEBT SECURITIES
IN GENERAL. Investment in debt securities involves both interest rate
and credit risk. Generally, the value of debt instruments rises and falls
inversely with fluctuations in interest rates. As interest rates decline, the
value of debt securities generally increases. Conversely, rising interest rates
tend to cause the value of debt securities to decrease. Bonds with longer
maturities generally are more volatile than bonds with shorter maturities. The
market value of debt securities also varies according to the relative financial
condition of the issuer. In general, lower-quality bonds offer higher yields due
to the increased risk that the issuer will be unable to meet its obligations on
interest or principal payments at the time called for by the debt instrument.
INVESTMENT-GRADE DEBT SECURITIES. Bonds rated Aaa by Moody's Investors
Service, Inc. ("Moody's") and AAA by Standard & Poor's Ratings Group ("S&P") are
judged to be of the best quality (i.e., capacity to pay interest and repay
principal is extremely strong). Bonds rated Aa/AA are considered to be of high
quality (i.e., capacity to pay interest and repay principal is very strong and
differs from the highest rated issues only to a small degree). Bonds rated A are
viewed as having many favorable investment attributes, but elements may be
present that suggest a susceptibility to the adverse effects of changes in
circumstances and economic conditions than debt in higher rated categories.
Bonds rated Baa/BBB (considered by Moody's to be "medium grade" obligations) are
considered to have an adequate capacity to pay interest and repay principal, but
certain protective elements may be lacking (i.e., such bonds lack outstanding
investment characteristics and have some speculative characteristics). The Fund
may invest in debt securities that are given an investment-grade rating by
Moody's or S&P, and may also invest in unrated debt securities that are
considered by IMI to be of comparable quality.
LOW-RATED DEBT SECURITIES. Securities rated lower than Baa by Moody's
or BBB by S&P, and comparable unrated securities (commonly referred to as "high
yield" or "junk" bonds), including many emerging markets bonds, are considered
to be predominantly speculative with respect to the issuer's continuing ability
to meet principal and interest payments. The lower the ratings of corporate debt
securities, the more their risks render them like equity securities. Such
securities carry a high degree of risk (including the possibility of default or
bankruptcy of the issuers of such securities), and generally involve greater
volatility of price and risk of principal and income (and may be less liquid)
than securities in the higher rating categories. (See Appendix A for a more
complete description of the ratings assigned by Moody's and S&P and their
respective characteristics.)
Lower rated and unrated securities are especially subject to adverse
changes in general economic conditions and to changes in the financial condition
of their issuers. Economic downturns may disrupt the high yield market and
impair the ability of issuers to repay principal and interest. Also, an increase
in interest rates would likely have an adverse impact on the value of such
obligations. During an economic downturn or period of rising interest rates,
highly leveraged issuers may experience financial stress which could adversely
affect their ability to service their principal and interest payment
obligations. Prices and yields of high yield securities will fluctuate over time
and, during periods of economic uncertainty, volatility of high yield securities
may adversely affect the Fund's net asset value. In addition, investments in
high yield zero coupon or pay-in-kind bonds, rather than income-bearing high
yield securities, may be more speculative and may be subject to greater
fluctuations in value due to changes in interest rates.
Changes in interest rates may have a less direct or dominant impact on
high yield bonds than on higher quality issues of similar maturities. However,
the price of high yield bonds can change significantly or suddenly due to a host
of factors including changes in interest rates, fundamental credit quality,
market psychology, government regulations, U.S. economic growth and, at times,
stock market activity. High yield bonds may contain redemption or call
provisions. If an issuer exercises these provisions in a declining interest rate
market, the Fund may have to replace the security with a lower yielding
security.
The trading market for high yield securities may be thin to the extent
that there is no established retail secondary market or because of a decline in
the value of such securities. A thin trading market may limit the ability of the
Fund to accurately value high yield securities in the Fund's portfolio, could
adversely affect the price at which the Fund could sell such securities, and
cause large fluctuations in the daily net asset value of the Fund's shares.
Adverse publicity and investor perceptions, whether or not based on fundamental
analysis, may decrease the value and liquidity of low-rated debt securities,
especially in a thinly traded market. When secondary markets for high yield
securities become relatively less liquid, it may be more difficult to value the
securities, requiring additional research and elements of judgment. These
securities may also involve special registration responsibilities, liabilities
and costs, and liquidity and valuation difficulties.
Credit quality in the high yield securities market can change suddenly
and unexpectedly, and even recently issued credit ratings may not fully reflect
the actual risks posed by a particular high yield security. For these reasons,
it is the policy of IMI not to rely exclusively on ratings issued by established
credit rating agencies, but to supplement such ratings with its own independent
and on-going review of credit quality. The achievement of the Fund's investment
objectives by investment in such securities may be more dependent on IMI's
credit analysis than is the case for higher quality bonds. Should the rating of
a portfolio security be downgraded, IMI will determine whether it is in the best
interest of the Fund to retain or dispose of such security. However, should any
individual bond held by the Fund be downgraded below a rating of C, IMI
currently intends to dispose of such bond based on then existing market
conditions.
Prices for high yield securities may be affected by legislative and
regulatory developments. For example, Federal rules require savings and loan
institutions to gradually reduce their holdings of this type of security. Also,
Congress has from time to time considered legislation that would restrict or
eliminate the corporate tax deduction for interest payments in these securities
and regulate corporate restructurings. Such legislation may significantly
depress the prices of outstanding securities of this type.
U.S. GOVERNMENT SECURITIES. U.S. Government securities are obligations of,
or guaranteed by, the U.S. Government, its agencies or instrumentalities.
Securities guaranteed by the U.S. Government include: (1) direct
obligations of the U.S. Treasury (such as Treasury bills, notes, and bonds)
and (2) Federal agency obligations guaranteed as to principal and interest
by the U.S. Treasury (such as GNMA certificates, which are mortgage-backed
securities). When such securities are held to maturity, the payment of
principal and interest is unconditionally guaranteed by the U.S.
Government, and thus they are of the highest possible credit quality. U.S.
Government securities that are not held to maturity are subject to
variations in market value due to fluctuations in interest rates.
Mortgage-backed securities are securities representing part ownership of a
pool of mortgage loans. For example, GNMA certificates are such securities
in which the timely payment of principal and interest is guaranteed by the
full faith and credit of the U.S. Government. Although the mortgage loans
in the pool will have maturities of up to 30 years, the actual average life
of the loans typically will be substantially less because the mortgages
will be subject to principal amortization and may be prepaid prior to
maturity. Prepayment rates vary widely and may be affected by changes in
market interest rates. In periods of falling interest rates, the rate of
prepayment tends to increase, thereby shortening the actual average life of
the security. Conversely, rising interest rates tend to decrease the rate
of prepayments, thereby lengthening the actual average life of the security
(and increasing the security's price volatility). Accordingly, it is not
possible to predict accurately the average life of a particular pool.
Reinvestment of prepayment may occur at higher or lower rates than the
original yield on the certificates. Due to the prepayment feature and the
need to reinvest prepayments of principal at current rates, mortgage-backed
securities can be less effective than typical bonds of similar maturities
at "locking in" yields during periods of declining interest rates, and may
involve significantly greater price and yield volatility than traditional
debt securities. Such securities may appreciate or decline in market value
during periods of declining or rising interest rates, respectively.
Securities issued by U.S. Government instrumentalities and certain
Federal agencies are neither direct obligations of nor guaranteed by the U.S.
Treasury; however, they involve Federal sponsorship in one way or another. Some
are backed by specific types of collateral, some are supported by the issuer's
right to borrow from the Treasury, some are supported by the discretionary
authority of the Treasury to purchase certain obligations of the issuer, others
are supported only by the credit of the issuing government agency or
instrumentality. These agencies and instrumentalities include, but are not
limited to, Federal Land Banks, Farmers Home Administration, Central Bank for
Cooperatives, Federal Intermediate Credit Banks, Federal Home Loan Banks,
Federal National Mortgage Association, Federal Home Loan Mortgage Association,
and Student Loan Marketing Association.
ZERO COUPON BONDS. Zero coupon bonds are debt obligations issued
without any requirement for the periodic payment of interest. Zero coupon bonds
are issued at a significant discount from face value. The discount approximates
the total amount of interest the bonds would accrue and compound over the period
until maturity at a rate of interest reflecting the market rate at the time of
issuance. If the Fund holds zero coupon bonds in its portfolio, it would
recognize income currently for Federal income tax purposes in the amount of the
unpaid, accrued interest and generally would be required to distribute dividends
representing such income to shareholders currently, even though funds
representing such income would not have been received by the Fund. Cash to pay
dividends representing unpaid, accrued interest may be obtained from, for
example, sales proceeds of portfolio securities and Fund shares and from loan
proceeds. The potential sale of portfolio securities to pay cash distributions
from income earned on zero coupon bonds may result in the Fund being forced to
sell portfolio securities at a time when it might otherwise choose not to sell
these securities and when the Fund might incur a capital loss on such sales.
Because interest on zero coupon obligations is not distributed to the Fund on a
current basis, but is in effect compounded, the value of the securities of this
type is subject to greater fluctuations in response to changing interest rates
than the value of debt obligations which distribute income regularly.
ILLIQUID SECURITIES
The Fund may purchase securities other than in the open market. While
such purchases may often offer attractive opportunities for investment not
otherwise available on the open market, the securities so purchased are often
"restricted securities" or "not readily marketable" (i.e., they cannot be sold
to the public without registration under the Securities Act of 1933, as amended
(the "1933 Act"), or the availability of an exemption from registration (such as
Rule 144A) or because they are subject to other legal or contractual delays in
or restrictions on resale). This investment practice, therefore, could have the
effect of increasing the level of illiquidity of the Fund. It is the Fund's
policy that illiquid securities (including repurchase agreements of more than
seven days duration, certain restricted securities, and other securities which
are not readily marketable) may not constitute, at the time of purchase, more
than 15% of the value of the Fund's net assets. The Trust's Board of Trustees
has approved guidelines for use by IMI in determining whether a security is
illiquid.
Generally speaking, restricted securities may be sold (i) only to
qualified institutional buyers; (ii) in a privately negotiated transaction to a
limited number of purchasers; (iii) in limited quantities after they have been
held for a specified period of time and other conditions are met pursuant to an
exemption from registration; or (iv) in a public offering for which a
registration statement is in effect under the 1933 Act. Issuers of restricted
securities may not be subject to the disclosure and other investor protection
requirements that would be applicable if their securities were publicly traded.
If adverse market conditions were to develop during the period between the
Fund's decision to sell a restricted or illiquid security and the point at which
the Fund is permitted or able to sell such security, the Fund might obtain a
price less favorable than the price that prevailed when it decided to sell.
Where a registration statement is required for the resale of restricted
securities, the Fund may be required to bear all or part of the registration
expenses. The Fund may be deemed to be an "underwriter" for purposes of the 1933
Act when selling restricted securities to the public and, in such event, the
Fund may be liable to purchasers of such securities if the registration
statement prepared by the issuer is materially inaccurate or misleading.
Since it is not possible to predict with assurance that the market for
securities eligible for resale under Rule 144A will continue to be liquid, IMI
will monitor such restricted securities subject to the supervision of the Board
of Trustees. Among the factors IMI may consider in reaching liquidity decisions
relating to Rule 144A securities are: (1) the frequency of trades and quotes for
the security; (2) the number of dealers wishing to purchase or sell the security
and the number of other potential purchasers; (3) dealer undertakings to make a
market in the security; and (4) the nature of the security and the nature of the
market for the security (i.e., the time needed to dispose of the security, the
method of soliciting offers, and the mechanics of the transfer).
FOREIGN SECURITIES
The securities of foreign issuers in which the Fund may invest include
non-U.S. dollar-denominated debt securities, Euro dollar securities, sponsored
and unsponsored American Depository Receipts ("ADRs"), Global Depository
Receipts ("GDRs"), American Depository Shares ("ADSs"), Global Depository Shares
("GDSs") and related depository instruments, and debt securities issued, assumed
or guaranteed by foreign governments or political subdivisions or
instrumentalities thereof. Shareholders should consider carefully the
substantial risks involved in investing in securities issued by companies and
governments of foreign nations, which are in addition to the usual risks
inherent in the Fund's domestic investments.
Although IMI intends to invest the Fund's assets only in nations that
are generally considered to have relatively stable and friendly governments,
there is the possibility of expropriation, nationalization, repatriation or
confiscatory taxation, taxation on income earned in a foreign country and other
foreign taxes, foreign exchange controls (which may include suspension of the
ability to transfer currency from a given country), default on foreign
government securities, political or social instability or diplomatic
developments which could affect investments in securities of issuers in those
nations. In addition, in many countries there is less publicly available
information about issuers than is available for U.S. companies. Moreover,
foreign companies are not generally subject to uniform accounting, auditing and
financial reporting standards, and auditing practices and requirements may not
be comparable to those applicable to U.S. companies. In many foreign countries,
there is less governmental supervision and regulation of business and industry
practices, stock exchanges, brokers, and listed companies than in the United
States. Foreign securities transactions may also be subject to higher brokerage
costs than domestic securities transactions. The foreign securities markets of
many of the countries in which the Fund may invest may also be smaller, less
liquid and subject to greater price volatility than those in the United States.
In addition, the Fund may encounter difficulties or be unable to pursue legal
remedies and obtain judgment in foreign courts.
Foreign bond markets have different clearance and settlement procedures
and in certain markets there have been times when settlements have been unable
to keep pace with the volume of securities transactions, making it difficult to
conduct such transactions. Delays in settlement could result in temporary
periods when assets of the Fund are uninvested and no return is earned thereon.
The inability of the Fund to make intended security purchases due to settlement
problems could cause the Fund to miss attractive investment opportunities.
Further, the inability to dispose of portfolio securities due to settlement
problems could result either in losses to the Fund because of subsequent
declines in the value of the portfolio security or, if the Fund has entered into
a contract to sell the security, in possible liability to the purchaser. It may
be more difficult for the Fund's agents to keep currently informed about
corporate actions such as stock dividends or other matters that may affect the
prices of portfolio securities. Communications between the United States and
foreign countries may be less reliable than within the United States, thus
increasing the risk of delayed settlements of portfolio transactions or loss of
certificates for portfolio securities. Moreover, individual foreign economies
may differ favorably or unfavorably from the United States economy in such
respects as growth of gross national product, rate of inflation, capital
reinvestment, resource self-sufficiency and balance of payments position. IMI
seeks to mitigate the risks to the Fund associated with the foregoing
considerations through investment variation and continuous professional
management.
DEPOSITORY RECEIPTS
ADRs, GDRs, ADSs, GDSs and related securities are depository
instruments, the issuance of which is typically administered by a U.S. or
foreign bank or trust company. These instruments evidence ownership of
underlying securities issued by a U.S. or foreign corporation. ADRs are publicly
traded on exchanges or over-the-counter ("OTC") in the United States.
Unsponsored programs are organized independently and without the cooperation of
the issuer of the underlying securities. As a result, information concerning the
issuer may not be as current or as readily available as in the case of sponsored
depository instruments, and their prices may be more volatile than if they were
sponsored by the issuers of the underlying securities.
EMERGING MARKETS
The Fund could have significant investments in securities traded in
emerging markets. Investors should recognize that investing in such countries
involves special considerations, in addition to those set forth above, that are
not typically associated with investing in United States securities and that may
affect the Fund's performance favorably or unfavorably.
In recent years, many emerging market countries around the world have
undergone political changes that have reduced government's role in economic and
personal affairs and have stimulated investment and growth. Historically, there
is a strong direct correlation between economic growth and stock market returns.
While this is no guarantee of future performance, IMI believes that investment
opportunities (particularly in the energy, environmental services, natural
resources, basic materials, power, telecommunications and transportation
industries) may result within the evolving economies of emerging market
countries from which the Fund and its shareholders will benefit.
Investments in companies domiciled in developing countries may be
subject to potentially higher risks than investments in developed countries.
Such risks include (i) less social, political and economic stability; (ii) a
small market for securities and/or a low or nonexistent volume of trading, which
result in a lack of liquidity and in greater price volatility; (iii) certain
national policies that may restrict the Fund's investment opportunities,
including restrictions on investment in issuers or industries deemed sensitive
to national interests; (iv) foreign taxation; (v) the absence of developed
structures governing private or foreign investment or allowing for judicial
redress for injury to private property; (vi) the absence, until relatively
recently in certain Eastern European countries, of a capital market structure or
market-oriented economy; (vii) the possibility that recent favorable economic
developments in Eastern Europe may be slowed or reversed by unanticipated
political or social events in such countries; and (viii) the possibility that
currency devaluations could adversely affect the value of the Fund's
investments. Further, many emerging markets have experienced and continue to
experience high rates of inflation.
Despite the dissolution of the Soviet Union, the Communist Party may
continue to exercise a significant role in certain Eastern European countries.
To the extent of the Communist Party's influence, investments in such countries
will involve risks of nationalization, expropriation and confiscatory taxation.
The communist governments of a number of Eastern European countries expropriated
large amounts of private property in the past, in many cases without adequate
compensation, and there can be no assurance that such expropriation will not
occur in the future. In the event of such expropriation, the Fund could lose a
substantial portion of any investments it has made in the affected countries.
Further, few (if any) accounting standards exist in Eastern European countries.
Finally, even though certain Eastern European currencies may be convertible into
U.S. dollars, the conversion rates may be artificial in relation to the actual
market values and may be adverse to the Fund's net asset value.
Certain Eastern European countries that do not have well-established
trading markets are characterized by an absence of developed legal structures
governing private and foreign investments and private property. In addition,
certain countries require governmental approval prior to investments by foreign
persons, or limit the amount of investment by foreign persons in a particular
company, or limit the investment of foreign persons to only a specific class of
securities of a company that may have less advantageous terms than securities of
the company available for purchase by nationals.
Authoritarian governments in certain Eastern European countries may
require that a governmental or quasi-governmental authority act as custodian of
the Fund's assets invested in such country. To the extent such governmental or
quasi-governmental authorities do not satisfy the requirements of the Investment
Company Act of 1940, as amended (the "1940 Act"), with respect to the custody of
the Fund's cash and securities, the Fund's investment in such countries may be
limited or may be required to be effected through intermediaries. The risk of
loss through governmental confiscation may be increased in such countries.
FOREIGN CURRENCIES
Investment in foreign securities usually will involve currencies of
foreign countries. Moreover, the Fund may temporarily hold funds in bank
deposits in foreign currencies during the completion of investment programs and
may purchase forward foreign currency contracts. Because of these factors, the
value of the assets of the Fund as measured in U.S. dollars may be affected
favorably or unfavorably by changes in foreign currency exchange rates and
exchange control regulations, and the Fund may incur costs in connection with
conversions between various currencies. Although the Fund's custodian values the
Fund's assets daily in terms of U.S. dollars, the Fund does not intend to
convert its holdings of foreign currencies into U.S. dollars on a daily basis.
The Fund will do so from time to time, however, and investors should be aware of
the costs of currency conversion. Although foreign exchange dealers do not
charge a fee for conversion, they do realize a profit based on the difference
(the "spread") between the prices at which they are buying and selling various
currencies. Thus, a dealer may offer to sell a foreign currency to the Fund at
one rate, while offering a lesser rate of exchange should the Fund desire to
resell that currency to the dealer. The Fund will conduct its foreign currency
exchange transactions either on a spot (i.e., cash) basis at the spot rate
prevailing in the foreign currency exchange market, or through entering into
forward contracts to purchase or sell foreign currencies.
Because the Fund normally will be invested in both U.S. and foreign
securities markets, changes in the Fund's share price may have a low correlation
with movements in U.S. markets. The Fund's share price will reflect the
movements of the different stock and bond markets in which it is invested (both
U.S. and foreign), and of the currencies in which the investments are
denominated. Thus, the strength or weakness of the U.S. dollar against foreign
currencies may account for part of the Fund's investment performance. U.S. and
foreign securities markets do not always move in step with each other, and the
total returns from different markets may vary significantly. In addition,
significant uncertainty surrounds the proposed introduction of the euro (a
common currency for the European Union) in January 1999 and its effect on the
value of securities denominated in local European currencies. These and other
currencies in which the Fund's assets are denominated may be devalued against
the U.S. dollar, resulting in a loss to the Fund.
FOREIGN CURRENCY EXCHANGE TRANSACTIONS
The Fund may enter into forward foreign currency contracts in order to
protect against uncertainty in the level of future foreign exchange rates in the
purchase and sale of securities. A forward contract is an obligation to purchase
or sell a specific currency for an agreed price at a future date (usually less
than a year), and typically is individually negotiated and privately traded by
currency traders and their customers. A forward contract generally has no
deposit requirement, and no commissions are charged at any stage for trades.
Although foreign exchange dealers do not charge a fee for commissions, they do
realize a profit based on the difference between the price at which they are
buying and selling various currencies. Although these contracts are intended to
minimize the risk of loss due to a decline in the value of the hedged
currencies, at the same time, they tend to limit any potential gain which might
result should the value of such currencies increase.
While the Fund may enter into forward contracts to reduce currency
exchange risks, changes in currency exchange rates may result in poorer overall
performance for the Fund than if it had not engaged in such transactions.
Moreover, there may be an imperfect correlation between the Fund's portfolio
holdings of securities denominated in a particular currency and forward
contracts entered into by the Fund. An imperfect correlation of this type may
prevent the Fund from achieving the intended hedge or expose the Fund to the
risk of currency exchange loss.
The Fund may purchase currency forwards and combine such purchases with
sufficient cash or short-term securities to create unleveraged substitutes for
investments in foreign markets when deemed advantageous. The Fund may also
combine the foregoing with bond futures or interest rate futures contracts to
create the economic equivalent of an unhedged foreign bond position.
The Fund may also cross-hedge currencies by entering into transactions
to purchase or sell one or more currencies that are expected to decline in value
relative to other currencies to which the Fund has or in which the Fund expects
to have portfolio exposure.
Currency transactions are subject to risks different from those of
other portfolio transactions. Because currency control is of great importance to
the issuing governments and influences economic planning and policy, purchases
and sales of currency and related instruments can be negatively affected by
government exchange controls, blockages, and manipulations or exchange
restrictions imposed by governments. These can result in losses to the Fund if
it is unable to deliver or receive currency or funds in settlement of
obligations and could also cause hedges it has entered into to be rendered
useless, resulting in full currency exposure as well as incurring transactions
costs. Buyers and sellers of currency futures are subject to the same risks that
apply to the use of futures generally. Further, settlement of a currency futures
contract for the purchase of most currencies must occur at a bank based in the
issuing nation. Trading options on currency futures is relatively new, and the
ability to establish and close out positions on such options is subject to the
maintenance of a liquid market which may not always be available. Currency
exchange rates may fluctuate based on factors extrinsic to that country's
economy.
OTHER INVESTMENT COMPANIES
The Fund may invest up to 10% of its total assets in the shares of
other investment companies. As a shareholder of an investment company, the Fund
would bear its ratable shares of the fund's expenses (which often include an
asset-based management fee). The Fund could also lose money by investing in
other investment companies, since the value of their respective investments and
the income they generate will vary daily based on prevailing market conditions.
REPURCHASE AGREEMENTS
Repurchase agreements are contracts under which the Fund buys a money
market instrument and obtains a simultaneous commitment from the seller to
repurchase the instrument at a specified time and at an agreed-upon yield. Under
guidelines approved by the Board, the Fund is permitted to enter into repurchase
agreements only if the repurchase agreements are at least fully collateralized
with U.S. Government securities or other securities that IMI has approved for
use as collateral for repurchase agreements and the collateral must be
marked-to-market daily. The Fund will enter into repurchase agreements only with
banks and broker-dealers deemed to be creditworthy by IMI under the
above-referenced guidelines. In the unlikely event of failure of the executing
bank or broker-dealer, the Fund could experience some delay in obtaining direct
ownership of the underlying collateral and might incur a loss if the value of
the security should decline, as well as costs in disposing of the security.
BANKING INDUSTRY AND SAVINGS AND LOAN OBLIGATIONS
Certificates of deposit are negotiable certificates issued against
funds deposited in a commercial bank for a definite period of time and earning a
specified return. Bankers' acceptances are negotiable drafts or bills of
exchange, normally drawn by an importer or exporter to pay for specific
merchandise, which are "accepted" by a bank (meaning, in effect, that the bank
unconditionally agrees to pay the face value of the instrument at maturity). In
addition to investing in certificates of deposit and bankers' acceptances, the
Fund may invest in time deposits in banks or savings and loan associations. Time
deposits are generally similar to certificates of deposit, but are
uncertificated. The Fund's investments in certificates of deposit, time
deposits, and bankers' acceptance are limited to obligations of (i) banks having
total assets in excess of $1 billion, (ii) U.S. banks which do not meet the $1
billion asset requirement, if the principal amount of such obligation is fully
insured by the Federal Deposit Insurance Corporation (the "FDIC"), (iii) savings
and loan association which have total assets in excess of $1 billion and which
are members of the FDIC, and (iv) foreign banks if the obligation is, in IMI's
opinion, of an investment quality comparable to other debt securities which may
be purchased by the Fund. The Fund's investments in certificates of deposit of
savings associations are limited to obligations of Federal and state-chartered
institutions whose total assets exceed $1 billion and whose deposits are insured
by the FDIC.
COMMERCIAL PAPER
Commercial paper represents short-term unsecured promissory notes
issued in bearer form by bank holding companies, corporations and finance
companies. The Fund may invest in commercial paper that is rated Prime-1 by
Moody's Investors Service, Inc. ("Moody's") or A-1 by Standard & Poor's
Corporation ("S&P") or, if not rated by Moody's or S&P, is issued by companies
having an outstanding debt issue rated Aaa or Aa by Moody's or AAA or AA by S&P.
BORROWING
Borrowing may exaggerate the effect on the Fund's net asset value of
any increase or decrease in the value of the Fund's portfolio securities. Money
borrowed will be subject to interest costs (which may include commitment fees
and/or the cost of maintaining minimum average balances). Although the principal
of the Fund's borrowings will be fixed, the Fund's assets may change in value
during the time a borrowing is outstanding, thus increasing exposure to capital
risk.
WARRANTS
The holder of a warrant has the right, until the warrant expires, to
purchase a given number of shares of a particular issuer at a specified price.
Such investments can provide a greater potential for profit or loss than an
equivalent investment in the underlying security. However, prices of warrants do
not necessarily move in a tandem with the prices of the underlying securities,
and are, therefore, considered speculative investments. Warrants pay no
dividends and confer no rights other than a purchase option. Thus, if a warrant
held by the Fund were not exercised by the date of its expiration, the Fund
would lose the entire purchase price of the warrant.
OPTIONS TRANSACTIONS
IN GENERAL. A call option is a short-term contract (having a duration
of less than one year) pursuant to which the purchaser, in return for the
premium paid, has the right to buy the security underlying the option at the
specified exercise price at any time during the term of the option. The writer
of the call option, who receives the premium, has the obligation, upon exercise
of the option, to deliver the underlying security against payment of the
exercise price. A put option is a similar contract pursuant to which the
purchaser, in return for the premium paid, has the right to sell the security
underlying the option at the specified exercise price at any time during the
term of the option. The writer of the put option, who receives the premium, has
the obligation, upon exercise of the option, to buy the underlying security at
the exercise price. The premium paid by the purchaser of an option will reflect,
among other things, the relationship of the exercise price to the market price
and volatility of the underlying security, the time remaining to expiration of
the option, supply and demand, and interest rates.
If the writer of an option wishes to terminate the obligation, the
writer may effect a "closing purchase transaction." This is accomplished by
buying an option of the same series as the option previously written. The effect
of the purchase is that the writer's position will be canceled by the Options
Clearing Corporation. However, a writer may not effect a closing purchase
transaction after it has been notified of the exercise of an option. Likewise,
an investor who is the holder of an option may liquidate his or her position by
effecting a "closing sale transaction." This is accomplished by selling an
option of the same series as the option previously purchased. There is no
guarantee that either a closing purchase or a closing sale transaction can be
effected at any particular time or at any acceptable price. If any call or put
option is not exercised or sold, it will become worthless on its expiration
date.
The Fund will realize a gain (or a loss) on a closing purchase
transaction with respect to a call or a put previously written by the Fund if
the premium, plus commission costs, paid by the Fund to purchase the call or the
put is less (or greater) than the premium, less commission costs, received by
the Fund on the sale of the call or the put. A gain also will be realized if a
call or a put that the Fund has written lapses unexercised, because the Fund
would retain the premium. Any such gains (or losses) are considered short-term
capital gains (or losses) for Federal income tax purposes. Net short-term
capital gains, when distributed by the Fund, are taxable as ordinary income. See
"Taxation."
The Fund will realize a gain (or a loss) on a closing sale transaction
with respect to a call or a put previously purchased by the Fund if the premium,
less commission costs, received by the Fund on the sale of the call or the put
is greater (or less) than the premium, plus commission costs, paid by the Fund
to purchase the call or the put. If a put or a call expires unexercised, it will
become worthless on the expiration date, and the Fund will realize a loss in the
amount of the premium paid, plus commission costs. Any such gain or loss will be
long-term or short-term gain or loss, depending upon the Fund's holding period
for the option.
Exchange-traded options generally have standardized terms and are
issued by a regulated clearing organization (such as the Options Clearing
Corporation), which, in effect, guarantees the completion of every
exchange-traded option transaction. In contrast, the terms of OTC options are
negotiated by the Fund and its counterparty (usually a securities dealer or a
financial institution) with no clearing organization guarantee. When the Fund
purchases an OTC option, it relies on the party from whom it has purchased the
option (the "counterparty") to make delivery of the instrument underlying the
option. If the counterparty fails to do so, the Fund will lose any premium paid
for the option, as well as any expected benefit of the transaction. Accordingly,
IMI will assess the creditworthiness of each counterparty to determine the
likelihood that the terms of the OTC option will be satisfied.
WRITING OPTIONS ON INDIVIDUAL SECURITIES. The Fund may write (sell)
covered call options on the Fund's securities in an attempt to realize a greater
current return than would be realized on the securities alone. The Fund may also
write covered call options to hedge a possible stock or bond market decline
(only to the extent of the premium paid to the Fund for the options). In view of
the investment objectives of the Fund, the Fund generally would write call
options only in circumstances where the investment adviser to the Fund does not
anticipate significant appreciation of the underlying security in the near
future or has otherwise determined to dispose of the security.
A "covered" call option means generally that so long as the Fund is
obligated as the writer of a call option, the Fund will (i) own the underlying
securities subject to the option, or (ii) have the right to acquire the
underlying securities through immediate conversion or exchange of convertible
preferred stocks or convertible debt securities owned by the Fund. Although the
Fund receives premium income from these activities, any appreciation realized on
an underlying security will be limited by the terms of the call option. The Fund
may purchase call options on individual securities only to effect a "closing
purchase transaction."
As the writer of a call option, the Fund receives a premium for
undertaking the obligation to sell the underlying security at a fixed price
during the option period, if the option is exercised. So long as the Fund
remains obligated as a writer of a call option, it forgoes the opportunity to
profit from increases in the market price of the underlying security above the
exercise price of the option, except insofar as the premium represents such a
profit (and retains the risk of loss should the value of the underlying security
decline).
PURCHASING OPTIONS ON INDIVIDUAL SECURITIES. The Fund may purchase a
put option on an underlying security owned by the Fund as a defensive technique
in order to protect against an anticipated decline in the value of the security.
The Fund, as the holder of the put option, may sell the underlying security at
the exercise price regardless of any decline in its market price. In order for a
put option to be profitable, the market price of the underlying security must
decline sufficiently below the exercise price to cover the premium and
transaction costs that the Fund must pay. These costs will reduce any profit the
Fund might have realized had it sold the underlying security instead of buying
the put option. The premium paid for the put option would reduce any capital
gain otherwise available for distribution when the security is eventually sold.
The purchase of put options will not be used by the Fund for leverage purposes.
The Fund may also purchase a put option on an underlying security that
it owns and at the same time write a call option on the same security with the
same exercise price and expiration date. Depending on whether the underlying
security appreciates or depreciates in value, the Fund would sell the underlying
security for the exercise price either upon exercise of the call option written
by it or by exercising the put option held by it. The Fund would enter into such
transactions in order to profit from the difference between the premium received
by the Fund for the writing of the call option and the premium paid by the Fund
for the purchase of the put option, thereby increasing the Fund's current
return. The Fund may write (sell) put options on individual securities only to
effect a "closing sale transaction."
PURCHASING AND WRITING OPTIONS ON SECURITIES INDICES. The Fund may
purchase and sell (write) put and call options on securities indices. An index
assigns relative values to the securities included in the index and the index
fluctuates with changes in the market values of the securities so included.
Options on indices are similar to options on individual securities, except that,
rather than giving the purchaser the right to take delivery of an individual
security at a specified price, they give the purchaser the right to receive
cash. The amount of cash is equal to the difference between the closing price of
the index and the exercise price of the option, expressed in dollars, times a
specified multiple (the "multiplier"). The writer of the option is obligated, in
return for the premium received, to make delivery of this amount.
The multiplier for an index option performs a function similar to the
unit of trading for a stock option. It determines the total dollar value per
contract of each point in the difference between the exercise price of an option
and the current level of the underlying index. A multiplier of 100 means that a
one-point difference will yield $100. Options on different indices have
different multipliers.
When the Fund writes a call or put option on a stock index, the option
is "covered", in the case of a call, or "secured", in the case of a put, if the
Fund maintains in a segregated account with the Custodian cash or liquid
securities equal to the contract value. A call option is also covered if the
Fund holds a call on the same index as the call written where the exercise price
of the call held is (i) equal to or less than the exercise price of the call
written or (ii) greater than the exercise price of the call written, provided
that the Fund maintains in a segregated account with the Custodian the
difference in cash or liquid securities. A put option is also "secured" if the
Fund holds a put on the same index as the put written where the exercise price
of the put held is (i) equal to or greater than the exercise price of the put
written or (ii) less than the exercise price of the put written, provided that
the Fund maintains in a segregated account with the Custodian the difference in
cash or liquid securities.
RISKS OF OPTIONS TRANSACTIONS. The purchase and writing of options
involves certain risks. During the option period, the covered call writer has,
in return for the premium on the option, given up the opportunity to profit from
a price increase in the underlying securities above the exercise price, but, as
long as its obligation as a writer continues, has retained the risk of loss
should the price of the underlying security decline. The writer of a U.S. option
has no control over the time when it may be required to fulfill its obligation
as a writer of the option. Once an option writer has received an exercise
notice, it cannot effect a closing purchase transaction in order to terminate
its obligation under the option and must deliver the underlying securities (or
cash in the case of an index option) at the exercise price. If a put or call
option purchased by the Fund is not sold when it has remaining value, and if the
market price of the underlying security (or index), in the case of a put,
remains equal to or greater than the exercise price or, in the case of a call,
remains less than or equal to the exercise price, the Fund will lose its entire
investment in the option. Also, where a put or call option on a particular
security (or index) is purchased to hedge against price movements in a related
security (or securities), the price of the put or call option may move more or
less than the price of the related security (or securities). In this regard,
there are differences between the securities and options markets that could
result in an imperfect correlation between these markets, causing a given
transaction not to achieve its objective.
There can be no assurance that a liquid market will exist when the Fund
seeks to close out an option position. Furthermore, if trading restrictions or
suspensions are imposed on the options markets, the Fund may be unable to close
out a position. Finally, trading could be interrupted, for example, because of
supply and demand imbalances arising from a lack of either buyers or sellers, or
the options exchange could suspend trading after the price has risen or fallen
more than the maximum amount specified by the exchange. Closing transactions can
be made for OTC options only by negotiating directly with the counterparty or by
a transaction in the secondary market, if any such market exists. There is no
assurance that the Fund will be able to close out an OTC option position at a
favorable price prior to its expiration. In the event of insolvency of the
counterparty, the Fund might be unable to close out an OTC option position at
any time prior to its expiration. Although the Fund may be able to offset to
some extent any adverse effects of being unable to liquidate an option position,
the Fund may experience losses in some cases as a result of such inability.
When conducted outside the U.S., options transactions may not be
regulated as rigorously as in the U.S., may not involve a clearing mechanism and
related guarantees, and are subject to the risk of governmental actions
affecting trading in, or the prices of, foreign securities, currencies and other
instruments. The value of such positions also could be adversely affected by:
(i) other complex foreign political, legal and economic factors, (ii) lesser
availability than in the U.S. of data on which to make trading decisions, (iii)
delays in the Fund's ability to act upon economic events occurring in foreign
markets during non-business hours in the U.S., (iv) the imposition of different
exercise and settlement terms and procedures and margin requirements than in the
U.S., and (v) lower trading volume and liquidity.
The Fund's options activities also may have an impact upon the level of its
portfolio turnover and brokerage commissions. See "Portfolio Turnover."
The Fund's success in using options techniques depends, among other
things, on IMI's ability to predict accurately the direction and volatility of
price movements in the options and securities markets, and to select the proper
type, time and duration of options.
FUTURES CONTRACTS AND OPTIONS ON FUTURES CONTRACTS
IN GENERAL. The Fund may enter into futures contracts and options on
futures contracts for hedging purposes. A futures contract provides for the
future sale by one party and purchase by another party of a specified quantity
of a commodity at a specified price and time. When a purchase or sale of a
futures contract is made by the Fund, the Fund is required to deposit with its
custodian (or broker, if legally permitted) a specified amount of cash or liquid
securities ("initial margin"). The margin required for a futures contract is set
by the exchange on which the contract is traded and may be modified during the
term of the contract. The initial margin is in the nature of a performance bond
or good faith deposit on the futures contract which is returned to the Fund upon
termination of the contract, assuming all contractual obligations have been
satisfied. A futures contract held by the Fund is valued daily at the official
settlement price of the exchange on which it is traded. Each day the Fund pays
or receives cash, called "variation margin," equal to the daily change in value
of the futures contract. This process is known as "marking to market." Variation
margin does not represent a borrowing or loan by the Fund but is instead a
settlement between the Fund and the broker of the amount one would owe the other
if the futures contract expired. In computing daily net asset value, the Fund
will mark-to-market its open futures position.
The Fund is also required to deposit and maintain margin with respect
to put and call options on futures contracts written by it. Such margin deposits
will vary depending on the nature of the underlying futures contract (and the
related initial margin requirements), the current market value of the option,
and other futures positions held by the Fund.
Although some futures contracts call for making or taking delivery of
the underlying securities, generally these obligations are closed out prior to
delivery of offsetting purchases or sales of matching futures contracts (same
exchange, underlying security or index, and delivery month). If an offsetting
purchase price is less than the original sale price, the Fund generally realizes
a capital gain, or if it is more, the Fund generally realizes a capital loss.
Conversely, if an offsetting sale price is more than the original purchase
price, the Fund generally realizes a capital gain, or if it is less, the Fund
generally realizes a capital loss.
The transaction costs must also be included in these calculations.
When purchasing a futures contract, the Fund will maintain with its
Custodian (and mark-to-market on a daily basis) cash or liquid securities that,
when added to the amounts deposited with a futures commission merchant ("FCM")
as margin, are equal to the market value of the futures contract. Alternatively,
the Fund may "cover" its position by purchasing a put option on the same futures
contract with a strike price as high as or higher than the price of the contract
held by the Fund, or, if lower, may cover the difference with cash or short-term
securities.
When selling a futures contract, the Fund will maintain with its
Custodian in a segregated account (and mark-to-market on a daily basis) cash or
liquid securities that, when added to the amounts deposited with an FCM as
margin, are equal to the market value of the instruments underlying the
contract. Alternatively, the Fund may "cover" its position by owning the
instruments underlying the contract (or, in the case of an index futures
contract, a portfolio with a volatility substantially similar to that of the
index on which the futures contract is based), or by holding a call option
permitting the Fund to purchase the same futures contract at a price no higher
than the price of the contract written by the Fund (or at a higher price if the
difference is maintained in liquid assets with the Fund's custodian).
When selling a call option on a futures contract, the Fund will
maintain with its Custodian in a segregated account (and mark-to-market on a
daily basis) cash or liquid securities that, when added to the amounts deposited
with an FCM as margin, equal the total market value of the futures contract
underlying the call option. Alternatively, the Fund may cover its position by
entering into a long position in the same futures contract at a price no higher
than the strike price of the call option, by owning the instruments underlying
the futures contract, or by holding a separate call option permitting the Fund
to purchase the same futures contract at a price not higher than the strike
price of the call option sold by the Fund, or covering the difference if the
price is higher.
When selling a put option on a futures contract, the Fund will maintain
with its Custodian (and mark-to-market on a daily basis) cash or liquid
securities that equal the purchase price of the futures contract less any margin
on deposit. Alternatively, the Fund may cover the position either by entering
into a short position in the same futures contract, or by owning a separate put
option permitting it to sell the same futures contract so long as the strike
price of the purchased put option is the same or higher than the strike price of
the put option sold by the Fund, or, if lower, the Fund may hold securities to
cover the difference.
FOREIGN CURRENCY FUTURES CONTRACTS AND RELATED OPTIONS. The Fund may
engage in foreign currency futures contracts and related options transactions
for hedging purposes. A foreign currency futures contract provides for the
future sale by one party and purchase by another party of a specified quantity
of a foreign currency at a specified price and time.
An option on a foreign currency futures contract gives the holder the
right, in return for the premium paid, to assume a long position (call) or short
position (put) in a futures contract at a specified exercise price at any time
during the period of the option. Upon the exercise of a call option, the holder
acquires a long position in the futures contract and the writer is assigned the
opposite short position. In the case of a put option, the opposite is true.
The Fund may purchase call and put options on foreign currencies as a
hedge against changes in the value of the U.S. dollar (or another currency) in
relation to a foreign currency in which portfolio securities of the Fund may be
denominated. A call option on a foreign currency gives the buyer the right to
buy, and a put option the right to sell, a certain amount of foreign currency at
a specified price during a fixed period of time. The Fund may invest in options
on foreign currency which are either listed on a domestic securities exchange or
traded on a recognized foreign exchange.
In those situations where foreign currency options may not be readily
purchased (or where such options may be deemed illiquid) in the currency in
which the hedge is desired, the hedge may be obtained by purchasing an option on
a "surrogate" currency, i.e., a currency where there is tangible evidence of a
direct correlation in the trading value of the two currencies. A surrogate
currency's exchange rate movements parallel that of the primary currency.
Surrogate currencies are used to hedge an illiquid currency risk, when no liquid
hedge instruments exist in world currency markets for the primary currency.
The Fund will only enter into futures contracts and futures options
which are standardized and traded on a U.S. or foreign exchange, board of trade,
or similar entity or quoted on an automated quotation system. The Fund will not
enter into a futures contract or purchase an option thereon if, immediately
thereafter, the aggregate initial margin deposits for futures contracts held by
the Fund plus premiums paid by it for open futures option positions, less the
amount by which any such positions are "in-the-money," would exceed 5% of the
liquidation value of the Fund's portfolio (or the Fund's net asset value), after
taking into account unrealized profits and unrealized losses on any such
contracts the Fund has entered into. A call option is "in-the-money" if the
value of the futures contract that is the subject of the option exceeds the
exercise price. A put option is "in-the-money" if the exercise price exceeds the
value of the futures contract that is the subject of the option. For additional
information about margin deposits required with respect to futures contracts and
options thereon, see "Futures Contracts and Options on Futures Contracts."
RISKS ASSOCIATED WITH FUTURES AND RELATED OPTIONS. There can be no
guarantee that there will be a correlation between price movements in the
hedging vehicle and in the Fund's portfolio securities being hedged. In
addition, there are significant differences between the securities and futures
markets that could result in an imperfect correlation between the markets,
causing a given hedge not to achieve its objectives. The degree of imperfection
of correlation depends on circumstances such as variations in speculative market
demand for futures and futures options on securities, including technical
influences in futures trading and futures options, and differences between the
financial instruments being hedged and the instruments underlying the standard
contracts available for trading in such respects as interest rate levels,
maturities, and creditworthiness of issuers. A decision as to whether, when and
how to hedge involves the exercise of skill and judgment, and even a
well-conceived hedge may be unsuccessful to some degree because of market
behavior or unexpected interest rate trends.
Futures exchanges may limit the amount of fluctuation permitted in
certain futures contract prices during a single trading day. The daily limit
establishes the maximum amount that the price of a futures contract may vary
either up or down from the previous day's settlement price at the end of the
current trading session. Once the daily limit has been reached in a futures
contract subject to the limit, no more trades may be made on that day at a price
beyond that limit. The daily limit governs only price movements during a
particular trading day and therefore does not limit potential losses because the
limit may work to prevent the liquidation of unfavorable positions. For example,
futures prices have occasionally moved to the daily limit for several
consecutive trading days with little or no trading, thereby preventing prompt
liquidation of positions and subjecting some holders of futures contracts to
substantial losses.
There can be no assurance that a liquid market will exist at a time
when the Fund seeks to close out a futures or a futures option position, and the
Fund would remain obligated to meet margin requirements until the position is
closed. In addition, there can be no assurance that an active secondary market
will continue to exist.
Currency futures contracts and options thereon may be traded on foreign
exchanges. Such transactions may not be regulated as effectively as similar
transactions in the United States; may not involve a clearing mechanism and
related guarantees; and are subject to the risk of governmental actions
affecting trading in, or the prices of, foreign securities. The value of such
position also could be adversely affected by (i) other complex foreign
political, legal and economic factors, (ii) lesser availability than in the
United States of data on which to make trading decisions, (iii) delays in the
Fund's ability to act upon economic events occurring in foreign markets during
non business hours in the United States, (iv) the imposition of different
exercise and settlement terms and procedures and margin requirements than in the
United States, and (v) lesser trading volume.
SECURITIES INDEX FUTURES CONTRACTS
The Fund may enter into securities index futures contracts as an
efficient means of regulating the Fund's exposure to the equity markets. The
Fund will not engage in transactions in futures contracts for speculation, but
only as a hedge against changes resulting from market conditions in the values
of securities held in the Fund's portfolio or which it intends to purchase. An
index futures contract is a contract to buy or sell units of an index at a
specified future date at a price agreed upon when the contract is made. Entering
into a contract to buy units of an index is commonly referred to as purchasing a
contract or holding a long position in the index. Entering into a contract to
sell units of an index is commonly referred to as selling a contract or holding
a short position. The value of a unit is the current value of the stock index.
For example, the S&P 500 Index is composed of 500 selected common stocks, most
of which are listed on the New York Stock Exchange (the "Exchange"). The S&P 500
Index assigns relative weightings to the 500 common stocks included in the
Index, and the Index fluctuates with changes in the market values of the shares
of those common stocks. In the case of the S&P 500 Index, contracts are to buy
or sell 500 units. Thus, if the value of the S&P 500 Index were $150, one
contract would be worth $75,000 (500 units x $150). The index futures contract
specifies that no delivery of the actual securities making up the index will
take place. Instead, settlement in cash must occur upon the termination of the
contract, with the settlement being the difference between the contract price
and the actual level of the stock index at the expiration of the contract. For
example, if the Fund enters into a futures contract to buy 500 units of the S&P
500 Index at a specified future date at a contract price of $150 and the S&P 500
Index is at $154 on that future date, the Fund will gain $2,000 (500 units x
gain of $4). If the Fund enters into a futures contract to sell 500 units of the
stock index at a specified future date at a contract price of $150 and the S&P
500 Index is at $154 on that future date, the Fund will lose $2,000 (500 units x
loss of $4).
RISKS OF SECURITIES INDEX FUTURES. The Fund's success in using hedging
techniques depends, among other things, on IMI's ability to predict correctly
the direction and volatility of price movements in the futures and options
markets as well as in the securities markets and to select the proper type, time
and duration of hedges. The skills necessary for successful use of hedges are
different from those used in the selection of individual stocks.
The Fund's ability to hedge effectively all or a portion of its
securities through transactions in index futures (and therefore the extent of
its gain or loss on such transactions) depends on the degree to which price
movements in the underlying index correlate with price movements in the Fund's
securities. Inasmuch as such securities will not duplicate the components of an
index, the correlation probably will not be perfect. Consequently, the Fund will
bear the risk that the prices of the securities being hedged will not move in
the same amount as the hedging instrument. This risk will increase as the
composition of the Fund's portfolio diverges from the composition of the hedging
instrument.
Although the Fund intends to establish positions in these instruments
only when there appears to be an active market, there is no assurance that a
liquid market will exist at a time when the Fund seeks to close a particular
option or futures position. Trading could be interrupted, for example, because
of supply and demand imbalances arising from a lack of either buyers or sellers.
In addition, the futures exchanges may suspend trading after the price has risen
or fallen more than the maximum amount specified by the exchange. In some cases,
the Fund may experience losses as a result of its inability to close out a
position, and it may have to liquidate other investments to meet its cash needs.
Although some index futures contracts call for making or taking
delivery of the underlying securities, generally these obligations are closed
out prior to delivery by offsetting purchases or sales of matching futures
contracts (same exchange, underlying security or index, and delivery month). If
an offsetting purchase price is less than the original sale price, the Fund
generally realizes a capital gain, or if it is more, the Fund generally realizes
a capital loss. Conversely, if an offsetting sale price is more than the
original purchase price, the Fund generally realizes a capital gain, or if it is
less, the Fund generally realizes a capital loss.
The transaction costs must also be included in these calculations.
The Fund will only enter into index futures contracts or futures
options that are standardized and traded on a U.S. or foreign exchange or board
of trade, or similar entity, or quoted on an automated quotation system. The
Fund will use futures contracts and related options only for "bona fide hedging"
purposes, as such term is defined in applicable regulations of the CFTC.
When purchasing an index futures contract, the Fund will maintain with
its Custodian (and mark-to-market on a daily basis) cash or liquid securities
that, when added to the amounts deposited with a futures commission merchant
("FCM") as margin, are equal to the market value of the futures contract.
Alternatively, the Fund may "cover" its position by purchasing a put option on
the same futures contract with a strike price as high as or higher than the
price of the contract held by the Fund.
When selling an index futures contract, the Fund will maintain with its
Custodian (and mark-to-market on a daily basis) cash or liquid securities that,
when added to the amounts deposited with an FCM as margin, are equal to the
market value of the instruments underlying the contract. Alternatively, the Fund
may "cover" its position by owning the instruments underlying the contract (or,
in the case of an index futures contract, a portfolio with a volatility
substantially similar to that of the index on which the futures contract is
based), or by holding a call option permitting the Fund to purchase the same
futures contract at a price no higher than the price of the contract written by
the Fund (or at a higher price if the difference is maintained in cash or liquid
assets in a segregated account with the Fund's custodian).
COMBINED TRANSACTIONS. The Fund may enter into multiple transactions
including multiple options transactions, multiple futures transactions and
multiple currency transactions (including forward currency contracts) and some
combination of futures, options, and currency transactions ("component"
transactions), instead of a single transaction, as part of a single or combined
strategy when, in the opinion of IMI, it is in the best interests of the Fund to
do so. A combined transaction will usually contain elements of risk that are
present in each of its component transactions. Although combined transactions
are normally entered into based on IMI's judgment that the combined strategies
will reduce risk or otherwise more effectively achieve the desired portfolio
management goal, it is possible that the combination will instead increase such
risks or hinder achievement of the management objective.
INVESTMENT RESTRICTIONS
The Fund's investment objectives as set forth in the "Summary" section
of the Prospectus, together with the investment restrictions set forth below,
are fundamental policies of the Fund and may not be changed without the approval
of a majority of the outstanding voting shares of the Fund. Under these
restrictions, the Fund may not:
(i) Invest in real estate, real estate mortgage loans, commodities
or interests in oil, gas and/or mineral exploration or
development programs, although (a) the Fund may purchase and
sell marketable securities of issuers which are secured by
real estate, (b) the Fund may purchase and sell securities of
issuers which invest or deal in real estate, (c) the Fund may
enter into forward foreign currency contracts as described in
the Fund's prospectus, and (d) the Fund may write or buy puts,
calls, straddles or spreads and may invest in commodity
futures contracts and options on futures contracts.
(ii) Make investments in securities for the purpose of exercising control over
or management of the issuer;
(iii) Purchase securities on margin, except such short-term credits
as are necessary for the clearance of transactions, but the
Fund may make margin deposits in connection with transactions
in options, futures and options on futures;
(iv) Make loans, except that this restriction shall not prohibit
(a) the purchase and holding of a portion of an issue of
publicly distributed debt securities, (b) the entry into
repurchase agreements with banks or broker-dealers, or (c) the
lending of portfolio securities in accordance with applicable
guidelines established by the Securities and Exchange
Commission ("SEC") and any guidelines established by the
Trust's Trustees;
(v) Borrow money, except as a temporary measure for extraordinary
or emergency purposes, and provided that the Fund maintains
asset coverage of 300% for all borrowings;
(vi) Lend any funds or other assets, except that this restriction shall not
prohibit (a) the entry into repurchase agreements, (b) the purchase of
publicly distributed bonds, debentures and other securities of a
similar type, or privately placed municipal or corporate bonds,
debentures and other securities of a type customarily purchased by
institutional investors or publicly traded in the securities markets,
or (c) the lending of portfolio securities (provided that the loan is
secured continuously by collateral consisting of U.S. Government
securities or cash or cash equivalents maintained on a daily
marked-to-market basis in an amount at least equal to the market value
of the securities loaned);
(vii) Purchase securities of any one issuer (except U.S. Government
securities) if as a result more than 5% of the Fund's total
assets would be invested in such issuer or the Fund would own
or hold more than 10% of the outstanding voting securities of
that issuer; provided, however, that up to 25% of the value of
the Fund's total assets may be invested without regard to
these limitations;
(viii) Make an investment in securities of companies in any one
industry (except obligations of domestic banks or the U.S.
Government, its agencies, authorities, or instrumentalities),
if such investment would cause investments in such industry to
exceed 25% of the market value of the Fund's total assets at
the time of such investment;
(ix) Act as an underwriter of securities, except to the extent
that, in connection with the sale of securities, it may be
deemed to be an underwriter under applicable securities laws;
or
(x) Issue senior securities, except as appropriate to evidence
indebtedness which it is permitted to incur, and except to the
extent that shares of the separate classes or series of the
Trust may be deemed to be senior securities; provided that
collateral arrangements with respect to currency-related
contracts, futures contracts, options or other permitted
investments, including deposits of initial and variation
margin, are not considered to be the issuance of senior
securities for purposes of this restriction.
<PAGE>
ADDITIONAL RESTRICTIONS
The Fund has adopted the following additional restrictions, which are
not fundamental and which may be changed without shareholder approval, to the
extent permitted by applicable law, regulation or regulatory policy.
Under these restrictions, the Fund may not:
(xi) purchase or sell real estate limited partnership interests;
(xii) purchase or sell interests in oil, gas and mineral leases
(other than securities of companies that invest in or sponsor
such programs);
(xiii) invest more than 15% of its net assets taken at market value at the
time of the investment in "illiquid securities;" illiquid securities
may include securities subject to legal or contractual restrictions on
resale (including private placements), repurchase agreements maturing
in more than seven days, certain options traded over the counter that
the Fund has purchased, securities being used to cover certain options
that the Fund has written, securities for which market quotations are
not readily available, or other securities which legally or in IMI's
opinion, subject to the Board's supervision, may be deemed illiquid,
but shall not include any instrument that, due to the existence of a
trading market, to the Fund's compliance with certain conditions
intended to provide liquidity, or to other factors, is liquid;
(xiv) purchase securities of other investment companies, except in
connection with a merger, consolidation or sale of assets, and
except that the Fund may purchase shares of other investment
companies subject to such restrictions as may be imposed by
the Investment Company Act of 1940 (the "1940 Act") and rules
thereunder;
(xv) sell securities short, except for short sales "against the box;" or
(xvi) participate on a joint or a joint and several basis in any
trading account in securities. The "bunching" of orders of the
Fund and of other accounts under the investment management of
the Fund's investment adviser, for the sale or purchase of
portfolio securities shall not be considered participation in
a joint securities trading account.
Whenever an investment objective, policy or restriction set forth in
the Prospectus or this SAI states a maximum percentage of assets that may be
invested in any security or other asset or describes a policy regarding quality
standards, such percentage limitation or standard shall, unless otherwise
indicated, apply to the Fund only at the time a transaction is entered into.
Accordingly, if a percentage limitation is adhered to at the time of investment,
a later increase or decrease in the percentage which results from circumstances
not involving any affirmative action by the Fund, such as a change in market
conditions or a change in the Fund's asset level or other circumstances beyond
the Fund's control, will not be considered a violation.
<PAGE>
PORTFOLIO TURNOVER
The Fund purchases securities that are believed by IMI to have above
average potential for capital appreciation. Common stocks are disposed of in
situations where it is believed that potential for such appreciation has
lessened or that other common stocks have a greater potential. Therefore, the
Fund may purchase and sell securities without regard to the length of time the
security is to be, or has been, held. A change in securities held by the Fund is
known as "portfolio turnover" and may involve the payment by the Fund of dealer
markup or underwriting commission and other transaction costs on the sale of
securities, as well as on the reinvestment of the proceeds in other securities.
The Fund's portfolio turnover rate is calculated by dividing the lesser of
purchases or sales of portfolio securities for the most recently completed
fiscal year by the monthly average of the value of the portfolio securities
owned by the Fund during that year. For purposes of determining the Fund's
portfolio turnover rate, all securities whose maturities at the time of
acquisition were one year or less are excluded.
TRUSTEES AND OFFICERS
The Fund's Board of Trustees (the "Board") is responsible for the
overall management of the Fund, including general supervision and review of the
Fund's investment activities. The Board, in turn, elects the officers who are
responsible for administering the Fund's day-to-day operations.
The Trustees and Executive Officers of the Trust, their business
addresses and principal occupations during the past five years are:
POSITION WITH BUSINESS AFFILIATIONS
NAME, ADDRESS, AGE THE TRUST AND PRINCIPAL OCCUPATIONS
John S. Anderegg, Jr. Trustee Chairman, Dynamics Research
60 Concord Street Corp. (instruments and controls);
Wilmington, MA 01887 Director, Burr-Brown Corp.
Age: 74 (operational amplifiers); Director,
Metritage Incorporated (level
measuring instruments); Trustee of
Mackenzie Series Trust (1992-1998).
Paul H. Broyhill Trustee Chairman, BMC Fund, Inc.
800 Hickory Blvd. (1983-present); Chairman,
Golfview Park-Box 500 Broyhill Family Foundation,
Lenoir, NC 28645 Inc. (1983-Present); Chairman and
Age: 74 President, Broyhill Investments,
Inc. (1983-present); Chairman,
Broyhill Timber Resources (1983-
present); Management of a personal
portfolio of fixed-income and equity
investments (1983-present); Trustee
of Mackenzie Series Trust (1988-
1998); Director of The Mackenzie
Funds Inc. (1988-1995).
Stanley Channick Trustee President and Chief
11 Bala Avenue Executive Officer, The
Bala Cynwyd, PA 19004 Whitestone Corporation
Age: 75 (insurance agency); Chairman, Scott
Management Company (administrative
services for insurance companies);
President, The Channick Group
(consultants to insurance companies
and national trade associations);
Trustee of Mackenzie Series Trust
(1994-1998); Director of The
Mackenzie Funds Inc. (1994-1995).
Frank W. DeFriece, Jr. Trustee Director, Manager and Vice
The Landmark Centre President, Director and
113 Landmark Lane, Fund Manager, Massengill-
Suite B DeFriece Foundation
Bristol, TN 37620-2285 (charitable organization)
Age: 77 (1950-present); Trustee and Vice
Chairman, East Tennessee Public
Communications Corp. (WSJK-TV)
(1984-present); Trustee of Mackenzie
Series Trust (1985-1998); Director
of The Mackenzie Funds Inc. (1987-
1995).
Roy J. Glauber Trustee Mallinckrodt Professor of
Lyman Laboratory Physics, Harvard
of Physics University (1974-present);
Harvard University Trustee of Mackenzie Series
Cambridge, MA 02138 Trust (1994-1997).
Age: 72
Michael G. Landry Trustee President, Chief Executive
700 South Federal Hwy. And Officer and Director of
Suite 300 Chairman Mackenzie Investment
Boca Raton, FL 33432 Management Inc. (1987-
Age: 51 present); President,
[*Deemed to be an Director and Chairman of
"interested person" Ivy Management Inc. (1992-
of the Trust, as present); Chairman and
defined under the Director of Ivy Mackenzie
1940 Act.] Services Corp.(1993-present);
Chairman and Director of Ivy
Mackenzie Distributors, Inc.
(1994-present); Director and
President of Ivy Mackenzie
Distributors, Inc. (1993-1994);
Director and President of The
Mackenzie Funds Inc. (1987-1995);
Trustee of Mackenzie Series Trust
(1987-1998); President of Mackenzie
Series Trust (1987-1996); Chairman
of Mackenzie Series Trust (1996-
1998).
Joseph G. Rosenthal Trustee Chartered Accountant
110 Jardin Drive (1958-present); Trustee of
Unit #12 Mackenzie Series Trust
Concord, Ontario Canada (1985-1998); Director of
L4K 2T7 The Mackenzie Funds Inc.
Age: 63 (1987-1995).
Richard N. Silverman Trustee Director, Newton-Wellesley
18 Bonnybrook Road Hospital; Director, Beth
Waban, MA 02168 Israel Hospital; Director,
Age: 74 Boston Ballet; Director, Boston
Children's Museum; Director, Brimmer
and May School.
J. Brendan Swan Trustee President, Airspray
4701 North Federal Hwy. International, Inc.;
Suite 465 Joint Managing Director,
Pompano Beach, FL 33064 Airspray International
Age: 67 B.V. (an environmentally sensitive
packaging company); Director of
Polyglass LTD.; Director, The
Mackenzie Funds Inc. (1992-1995);
Trustee of Mackenzie Series Trust
(1992-1998).
Keith J. Carlson Trustee Senior Vice President of Mackenzie
700 South Federal Hwy. And Investment Management, Inc. (1996 -
Suite 300 President -present); Senior Vice President and
Boca Raton, FL 33432 Director of Mackenzie Investment
Age: 41 Management, Inc. (1994 - 1996);
[*Deemed to be an Senior Vice President and Treasurer
"interested person" of Mackenzie Investment Management,
of the Trust, Inc. (1989-1994); Senior Vice President
as defined under President and Director of Ivy
the 1940 Act.] Management Inc. (1994-present);
Senior Vice President, Treasurer and
Director of Ivy Management Inc.
(1992-1994); Vice President of The
Mackenzie Funds Inc. (1987-1995);
Senior Vice President and Director,
Ivy Mackenzie Services Corp. (1996-
present); President and Director of
Ivy Mackenzie Services Corp. (1993-
1996); Trustee and President of
Mackenzie Series Trust (1996-1998);
Vice President of Mackenzie Series
Trust (1994-1998); Treasurer of
Mackenzie Series Trust (1985-1994);
President, Chief Executive Officer
and Director of Ivy Mackenzie
Distributors, Inc. (1994-present);
Executive Vice President and
Director of Ivy Mackenzie
Distributors, Inc. (1993-1994);
Trustee of Mackenzie Series Trust
(1996-1998).
C. William Ferris Secretary/ Senior Vice President,
700 South Federal Hwy. Treasurer Chief Financial Officer
Suite 300 and Secretary/Treasurer
Boca Raton, FL 33432 of Mackenzie Investment
Age: 53 Management Inc. (1995-present);
Senior Vice President, Finance and
Administration/Compliance Officer of
Mackenzie Investment Management Inc.
(1989-1994); Senior Vice President,
Secretary/ Treasurer and Clerk of
Ivy Management Inc. (1994-present);
Vice President, Finance/
Administration and Compliance
Officer of Ivy Management Inc.
(1992-1994); Senior Vice President,
Secretary/Treasurer and Director of
Ivy Mackenzie Distributors, Inc.
(1994-present); Secretary/Treasurer
and Director of Ivy Mackenzie
Distributors, Inc. (1993-1994);
President and Director of Ivy
Mackenzie Services Corp.
(1996-present); Secretary/Treasurer
and Director of Ivy Mackenzie
Services Corp. (1993-1996);
Secretary/Treasurer
of The Mackenzie Funds Inc.
(1993-1995); Secretary/Treasurer of
Mackenzie Series Trust (1994-1998).
James W. Broadfoot Vice Executive Vice President,
700 South Federal Hwy. President Ivy Management Inc. (1996-
Suite 300 present); Senior Vice
Boca Raton, FL 33432 President, Ivy Management,
Age: 56 Inc. (1992-1996); Director and
Senior Vice President, Mackenzie
Investment Management Inc. (1995-
present); Senior Vice President,
Mackenzie Investment Management Inc.
(1990-1995).
COMPENSATION TABLE
IVY FUND
(FISCAL YEAR ENDED DECEMBER 31, 1998)
PENSION OR TOTAL COMPENSA-
AGGREGATE RETIREMENT ESTIMATED TION FROM TRUST
NAME, COMPENSATION BENEFITS ACCRUED ANNUAL AND FUND
POSITION FROM TRUST AS PART OF BENEFITS UPON COMPLEX PAID TO
FUND EXPENSES RETIREMENT TRUSTEES
John S. N/A N/A
Anderegg, Jr.
(Trustee)
Paul H. N/A N/A
Broyhill
(Trustee)
Keith J. $0 N/A N/A $0
Carlson
(Trustee and
President)
Stanley N/A N/A
Channick
(Trustee)
Frank W. N/A N/A
DeFriece, Jr.
(Trustee)
Roy J. N/A N/A
Glauber
(Trustee)
Michael G. $0 N/A N/A $0
Landry
(Trustee and
Chairman of
the Board)
Joseph G. N/A N/A
Rosenthal
(Trustee)
Richard N. N/A N/A
Silverman
(Trustee)
J. Brendan N/A N/A
Swan
(Trustee)
C. William $0 N/A N/A $0
Ferris
(Secretary/
Treasurer)
To the knowledge of the Trust, as of [ ], no shareholder owned
beneficially or of record 5% or more of the Fund's outstanding shares of any
class, except that [to be completed by amendment].
As of [.. ], the Officers and Trustees of the Trust as a group owned
beneficially or of record less than 1% of the outstanding Class A, Class B,
Class C, Class I and Advisor Class shares of the Fund.
PERSONAL INVESTMENTS BY EMPLOYEES OF IMI. Employees of IMI are
permitted to make personal securities transactions, subject to the requirements
and restrictions set forth in IMI's Code of Ethics and Business Conduct Policy
(the "Code of Ethics"). The Code of Ethics is designed to identify and address
certain conflicts of interest between personal investment activities and the
interests of investment advisory clients such as the Fund. Among other things,
the Code of Ethics, which generally complies with standards recommended by the
Investment Company Institute's Advisory Group on Personal Investing, prohibits
certain types of transactions absent prior approval, applies to portfolio
managers, traders, research analysts and others involved in the investment
advisory process, and imposes time periods during which personal transactions
may not be made in certain securities, and requires the submission of duplicate
broker confirmations and monthly reporting of securities transactions.
Exceptions to these and other provisions of the Code of Ethics may be granted in
particular circumstances after review by appropriate personnel.
INVESTMENT ADVISORY AND OTHER SERVICES
BUSINESS MANAGEMENT AND INVESTMENT ADVISORY SERVICES
IMI provides business management and investment advisory services to
the Fund pursuant to a Business Management and Investment Advisory Agreement
(the "Agreement"). The Agreement was approved by the sole shareholder of the
Fund on December 13, 1996. Prior to shareholder approval, the Agreement was
approved with respect to the Fund by the Board, including a majority of the
Trustees who are neither "interested persons" (as defined in the 1940 Act) of
the Trust nor have any direct or indirect financial interest in the operation of
the distribution plan (see "Distribution Services") or in any related agreement
(the "Independent Trustees") at a meeting held on December 7, 1996.
IMI is a wholly owned subsidiary of Mackenzie Investment Management
Inc. ("MIMI"). MIMI, a Delaware corporation, has approximately 10% of its
outstanding common stock listed for trading on the Toronto Stock Exchange
("TSE"). MIMI is a subsidiary of Mackenzie Financial Corporation ("MFC"), 150
Bloor Street West, Toronto, Ontario, Canada, a public corporation organized
under the laws of Ontario whose shares are listed for trading on the TSE. MFC is
registered in Ontario as a mutual fund dealer and advises Ivy Global Natural
Resources Fund. IMI currently acts as manager and investment adviser to the
following additional investment companies registered under the 1940 Act (other
than the Fund): Ivy Asia Pacific Fund, Ivy Bond Fund, Ivy China Region Fund, Ivy
Developing Nations Fund, Ivy European Opportunities Fund, Ivy Global Fund, Ivy
Global Science & Technology Fund, Ivy Growth Fund, Ivy Growth with Income Fund,
Ivy International Fund II, Ivy International Fund, Ivy International Strategic
Bond Fund, Ivy Money Market Fund, Ivy Pan-Europe Fund, Ivy South America Fund,
Ivy US Blue Chip Fund and Ivy US Emerging Growth Fund. IMI also provides
business management service to Ivy Global Natural Resources Fund.
The Agreement obligates IMI to make investments for the account of the
Fund in accordance with its best judgment and within the investment objectives
and restrictions set forth in the Prospectus, the 1940 Act and the provisions of
the Code relating to regulated investment companies, subject to policy decisions
adopted by the Board. IMI also determines the securities to be purchased or sold
by the Fund and places orders with brokers or dealers who deal in such
securities.
Under the Agreement, IMI also provides certain business management
services. IMI is obligated to (1) coordinate with the Fund's Custodian and
monitor the services it provides to the Fund; (2) coordinate with and monitor
any other third parties furnishing services to the Fund; (3) provide the Fund
with necessary office space, telephones and other communications facilities as
are adequate for the Fund's needs; (4) provide the services of individuals
competent to perform administrative and clerical functions that are not
performed by employees or other agents engaged by the Fund or by IMI acting in
some other capacity pursuant to a separate agreement or arrangements with the
Fund; (5) maintain or supervise the maintenance by third parties of such books
and records of the Trust as may be required by applicable Federal or state law;
(6) authorize and permit IMI's directors, officers and employees who may be
elected or appointed as trustees or officers of the Trust to serve in such
capacities; and (7) take such other action with respect to the Trust, after
approval by the Trust as may be required by applicable law, including without
limitation the rules and regulations of the SEC and of state securities
commissions and other regulatory agencies.
The Fund pays IMI a monthly fee for providing business management and
investment advisory services at an annual rate of 1.00% of the Fund's average
net assets.
During the fiscal years ended December 31, 1997 and 1998, the Fund paid
IMI fees of $28,799 and [ ], respectively (of which IMI reimbursed $28,799 and [
], respectively, pursuant to expense limitations).
Under the Agreement, the Trust pays the following expenses: (1) the
fees and expenses of the Trust's Independent Trustees; (2) the salaries and
expenses of any of the Trust's officers or employees who are not affiliated with
IMI; (3) interest expenses; (4) taxes and governmental fees, including any
original issue taxes or transfer taxes applicable to the sale or delivery of
shares or certificates therefor; (5) brokerage commissions and other expenses
incurred in acquiring or disposing of portfolio securities; (6) the expenses of
registering and qualifying shares for sale with the SEC and with various state
securities commissions; (7) accounting and legal costs; (8) insurance premiums;
(9) fees and expenses of the Trust's Custodian and Transfer Agent and any
related services; (10) expenses of obtaining quotations of portfolio securities
and of pricing shares; (11) expenses of maintaining the Trust's legal existence
and of shareholders' meetings; (12) expenses of preparation and distribution to
existing shareholders of periodic reports, proxy materials and prospectuses; and
(13) fees and expenses of membership in industry organizations.
IMI currently limits the Fund's total operating expenses (excluding
Rule 12b-1 fees, interest, taxes, brokerage commissions, litigation,
class-specific expenses, indemnification expenses, and extraordinary expenses)
to an annual rate of 1.95% of the Fund's average net assets, which may lower the
Fund's expenses and increase its yield.
The Agreement will continue in effect with respect to the Fund from
year to year, only so long as the continuance is specifically approved at least
annually (i) by the vote of a majority of the Independent Trustees and (ii)
either (a) by the vote of a majority of the outstanding voting securities (as
defined in the 1940 Act) of the Fund or (b) by the vote of a majority of the
entire Board. If the question of continuance of the Agreement (or adoption of
any new agreement) is presented to the shareholders, continuance (or adoption)
shall be effected only if approved by the affirmative vote of a majority of the
outstanding voting securities of the Fund. See "Capitalization and Voting
Rights."
The Agreement may be terminated with respect to the Fund at any time,
without payment of any penalty, by the vote of a majority of the Board, or by a
vote of a majority of the outstanding voting securities of the Fund, on 60 days'
written notice to IMI, or by IMI on 60 days' written notice to the Trust. The
Agreement shall terminate automatically in the event of its assignment.
DISTRIBUTION SERVICES
IMDI, a wholly owned subsidiary of MIMI, serves as the exclusive
distributor of Ivy Fund's shares pursuant to an Amended and Restated
Distribution Agreement with the Trust dated , 1999, as amended from time to time
(the "Distribution Agreement"). The Distribution Agreement was approved by the
Board on September 17, 1998. IMDI distributes shares of the Fund through
broker-dealers who are members of the National Association of Securities
Dealers, Inc. and who have executed dealer agreements with IMDI. IMDI
distributes shares of the Fund on a continuous basis, but reserves the right to
suspend or discontinue distribution on that basis. IMDI is not obligated to sell
any specific amount of Fund shares.
The Fund has authorized IMDI to accept on its behalf purchase and
redemption orders for its Advisor Class shares. IMDI is also authorized to
designate other intermediaries to accept purchase and redemption orders for the
Fund's Advisor Class shares on the Fund's behalf. The Fund will be deemed to
have received a purchase or redemption order for Advisor Class shares when an
authorized intermediary or, if applicable, an intermediary's authorized
designee, accepts the order. Client orders will be priced at the Fund's Net
Asset Value next computed after an authorized intermediary or the intermediary's
authorized designee accepts them.
Pursuant to the Distribution Agreement, IMDI is entitled to deduct a
commission on all Class A Fund shares sold equal to the difference, if any,
between the public offering price, as set forth in the Fund's then-current
prospectus, and the net asset value on which such price is based. Out of that
commission, IMDI may reallow to dealers such concession as IMDI may determine
from time to time. In addition, IMDI is entitled to deduct a CDSC on the
redemption of Class A shares sold without an initial sales charge and Class B
and Class C shares, in accordance with, and in the manner set forth in, the
Prospectus.
Under the Distribution Agreement, the Fund bears, among other expenses,
the expenses of registering and qualifying its shares for sale under Federal and
state securities laws and preparing and distributing to existing shareholders
periodic reports, proxy materials and prospectuses.
During the fiscal year ended December 31, 1998, IMDI received from
sales of Class A shares of the Fund [ ] in sales commissions, of which [ ] was
retained after dealer allowances. During the fiscal year ended December 31,
1998, IMDI received [ ] in CDSCs on redemptions of Class B shares of the Fund.
During the fiscal year ended December 31, 1998, IMDI received [ ] in CDSCs on
redemptions of Class C shares of the Fund.
The Distribution Agreement will continue in effect for successive
one-year periods, provided that such continuance is specifically approved at
least annually by the vote of a majority of the Independent Trustees, cast in
person at a meeting called for that purpose and by the vote of either a majority
of the entire Board or a majority of the outstanding voting securities of the
Fund. The Distribution Agreement may be terminated with respect to the Fund at
any time, without payment of any penalty, by IMDI on 60 days' written notice to
the Fund or by the Fund by vote of either a majority of the outstanding voting
securities of the Fund or a majority of the Independent Trustees on 60 days'
written notice to IMDI. The Distribution Agreement shall terminate automatically
in the event of its assignment.
RULE 18F-3 PLAN. On February 23, 1995, the SEC adopted Rule 18f-3 under
the 1940 Act, which permits a registered open-end investment company to issue
multiple classes of shares in accordance with a written plan approved by the
investment company's board of directors/trustees and filed with the SEC. At a
meeting held on December 7, 1996, the Board adopted a Rule 18f-3 plan on behalf
of the Fund. The Board last approved the Rule 18f-3 plan at a meeting held of
December 5-6, 1997. The key features of the Rule 18f-3 plan are as follows: (i)
shares of each class of the Fund represent an equal pro rata interest in the
Fund and generally have identical voting, dividend, liquidation, and other
rights, preferences, powers, restrictions, limitations, qualifications, terms
and conditions, except that each class bears certain class-specific expenses and
has separate voting rights on certain matters that relate solely to that class
or in which the interests of shareholders of one class differ from the interests
of shareholders of another class; (ii) subject to certain limitations described
in the Prospectus, shares of a particular class of the Fund may be exchanged for
shares of the same class of another Ivy fund; and (iii) the Fund's Class B
shares will convert automatically into Class A shares of the Fund after a period
of eight years, based on the relative net asset value of such shares at the time
of conversion.
RULE 12B-1 DISTRIBUTION PLANS. The Trust has adopted on behalf of the
Fund, in accordance with Rule 12b-1 under the 1940 Act, separate Rule 12b-1
distribution plans pertaining to the Fund's Class A, Class B and Class C shares
(each, a "Plan"). In adopting each Plan, a majority of the Independent Trustees
have concluded in accordance with the requirements of Rule 12b-1 that there is a
reasonable likelihood that each Plan will benefit the Fund and its shareholders.
The Trustees of the Trust believe that the Plans should result in greater sales
and/or fewer redemptions of the Fund's shares, although it is impossible to know
for certain the level of sales and redemptions of the Fund's shares in the
absence of a Plan or under an alternative distribution arrangement.
Under each Plan, the Fund pays IMDI a service fee, accrued daily and
paid monthly, at the annual rate of up to 0.25% of the average daily net assets
attributable to its Class A, Class B or Class C shares, as the case may be. The
services for which service fees may be paid include, among other things,
advising clients or customers regarding the purchase, sale or retention of
shares of the Fund, answering routine inquiries concerning the Fund and
assisting shareholders in changing options or enrolling in specific plans.
Pursuant to each Plan, service fee payments made out of or charged against the
assets attributable to the Fund's Class A, Class B or Class C shares must be in
reimbursement for services rendered for or on behalf of the affected class. The
expenses not reimbursed in any one month may be reimbursed in a subsequent
month. The Class A Plan does not provide for the payment of interest or carrying
charges as distribution expenses.
Under the Fund's Class B and Class C Plans, the Fund also pays IMDI a
distribution fee, accrued daily and paid monthly, at the annual rate of 0.75% of
the average daily net assets attributable to its Class B or Class C shares. IMDI
may reallow to dealers all or a portion of the service and distribution fees as
IMDI may determine from time to time. The distribution fee compensates IMDI for
expenses incurred in connection with activities primarily intended to result in
the sale of the Fund's Class B or Class C shares, including the printing of
prospectuses and reports for persons other than existing shareholders and the
preparation, printing and distribution of sales literature and advertising
materials. Pursuant to each Class B and Class C Plan, IMDI may include interest,
carrying or other finance charges in its calculation of distribution expenses,
if not prohibited from doing so pursuant to an order of or a regulation adopted
by the SEC.
Among other things, each Plan provides that (1) IMDI will submit to the
Board at least quarterly, and the Trustees will review, written reports
regarding all amounts expended under the Plan and the purposes for which such
expenditures were made; (2) each Plan will continue in effect only so long as
such continuance is approved at least annually, and any material amendment
thereto is approved, by the votes of a majority of the Board, including the
Independent Trustees, cast in person at a meeting called for that purpose; (3)
payments by the Fund under each Plan shall not be materially increased without
the affirmative vote of the holders of a majority of the outstanding shares of
the relevant class; and (4) while each Plan is in effect, the selection and
nomination of Independent Trustees shall be committed to the discretion of the
Trustees who are not "interested persons" of the Trust.
IMDI may make payments for distribution assistance and for
administrative and accounting services from resources that may include the
management fees paid by the Fund. IMDI also may make payments (such as the
service fee payments described above) to unaffiliated broker-dealers for
services rendered in the distribution of the Fund's shares. To qualify for such
payments, shares may be subject to a minimum holding period. However, no such
payments will be made to any dealer or broker if at the end of each year the
amount of shares held does not exceed a minimum amount. The minimum holding
period and minimum level of holdings will be determined from time to time by
IMDI.
A report of the amount expended pursuant to each Plan, and the purposes
for which such expenditures were incurred, must be made to the Board for its
review at least quarterly.
During the fiscal year ended December 31, 1998, the Fund paid IMDI [ ]
pursuant to its Class A plan. During the fiscal year ended December 31, 1998 the
Fund paid IMDI [ ] pursuant to its Class B plan. During the fiscal year ended
December 31, 1998, the Fund paid IMDI [ ] pursuant to its Class C plan.
During the fiscal year ended December 31, 1998, IMDI expended the
following amounts in marketing Class A shares of the Fund: advertising [$ ;]
printing and mailing of prospectuses to persons other than current shareholders,
[$.. ;] compensation to dealers, [$ ;] compensation to sales personnel [$ ;]
seminars and meetings, [$ ;] travel and entertainment, [$ ;] general and
administrative, [$ ;] telephone, [$.. ;] and occupancy and equipment rental, [$
]
During the fiscal year ended December 31, 1998, IMDI expended the
following amounts in marketing Class B shares of the Fund: advertising, [$ ;]
printing and mailing of prospectuses to persons other than current shareholders,
[$.. ;] compensation to dealers, [$ ;] compensation to sales personnel, [$ ;]
seminars and meetings, [$ ;] travel and entertainment, [$ ;] general and
administrative, [$ ;] telephone, [$..;] and occupancy and equipment rental [$ .]
During the fiscal year ended December 31, 1998, IMDI expended the
following amounts in marketing Class C shares of the Fund: advertising, [$ ;]
printing and mailing of prospectuses to persons other than current shareholders,
[$..;] compensation to dealers, [$ ] compensation to sales personnel, [$ ;]
seminars and meetings, [$ ;] travel and entertainment, [$ ;] general
administrative, [$ ;] telephone, [$.. ;] and occupancy and equipment rental, [$
.]
Each Plan may be amended at any time with respect to the class of
shares of the Fund to which the Plan relates by vote of the Trustees, including
a majority of the Independent Trustees, cast in person at a meeting called for
the purpose of considering such amendment. Each Plan may be terminated at any
time with respect to the class of shares of the Fund to which the Plan relates,
without payment of any penalty, by vote of a majority of the Independent
Trustees, or by vote of a majority of the outstanding voting securities of that
class.
If the Distribution Agreement or the Distribution Plans are terminated
(or not renewed) with respect to any of the Ivy funds (or class of shares
thereof), each may continue in effect with respect to any other fund (or Class
of shares thereof) as to which they have not been terminated (or have been
renewed).
CUSTODIAN
Pursuant to a Custodian Agreement with the Trust, Brown Brothers
Harriman & Co. (the "Custodian"), a private bank and member of the principal
securities exchanges, located at 40 Water Street, Boston, Massachusetts 02109
(the "Custodian"), maintains custody of the assets of the Fund held in the
United States. Rules adopted under the 1940 Act permit the Trust to maintain its
foreign securities and cash in the custody of certain eligible foreign banks and
securities depositories. Pursuant to those rules, the Custodian has entered into
subcustodial agreements for the holding of the Fund's foreign securities. With
respect to the Fund, the Custodian may receive, as partial payment for its
services to the Fund, a portion of the Trust's brokerage business, subject to
its ability to provide best price and execution.
FUND ACCOUNTING SERVICES
Pursuant to a Fund Accounting Services Agreement, MIMI provides certain
accounting and pricing services for the Fund. As compensation for those
services, the Fund pays MIMI a monthly fee plus out-of-pocket expenses as
incurred. The monthly fee is based upon the net assets of the Fund at the
preceding month end at the following rates: $1,250 when net assets are $10
million and under; $2,500 when net assets are over $10 million to $40 million;
$5,000 when net assets are over $40 million to $75 million; and $6,500 when net
assets are over $75 million.
During the fiscal year ended December 31, 1998, the Fund paid MIMI
[ ] under the agreement.
TRANSFER AGENT AND DIVIDEND PAYING AGENT
Pursuant to a Transfer Agency and Shareholder Service Agreement, Ivy
Mackenzie Services Corp. ("IMSC"), a wholly owned subsidiary of MIMI, is the
transfer agent for the Fund. Under the Agreement, the Fund pays a monthly fee at
an annual rate of $20.00 for each open Class A, Class B , Class C and Advisor
Class account. The Fund pays $10.25 per open Class I account. In addition, the
Fund pays a monthly fee at an annual rate of $4.58 per account that is closed
plus certain out-of-pocket expenses. Such fees and expenses for the fiscal year
ended December 31, 1998 for the Fund totaled [$ ]. Certain broker-dealers that
maintain shareholder accounts with the Fund through an omnibus account provide
transfer agent and other shareholder-related services that would otherwise be
provided by IMSC if the individual accounts that comprise the omnibus account
were opened by their beneficial owners directly. IMSC pays such broker-dealers a
per account fee for each open account within the omnibus account, or a fixed
rate (e.g., 0.10%) fee, based on the average daily net asset value of the
omnibus account (or a combination thereof).
ADMINISTRATOR
Pursuant to an Administrative Services Agreement, MIMI provides certain
administrative services to the Fund. As compensation for these services, the
Fund (except with respect to its Class I shares) pays MIMI a monthly fee at the
annual rate of 0.10% of the Fund's average daily net assets. The Fund pays MIMI
a monthly fee at the annual rate of 0.01% of its average daily net assets for
Class I. Such fees for the fiscal year ended December 31, 1998 for the Fund
totaled [$ ].
Outside of providing administrative services to the Trust, as described
above, MIMI may also act on behalf of IMDI in paying commissions to
broker-dealers with respect to sales of Class B and Class C shares of the Fund.
AUDITORS
[........ ], independent public accountants, has been selected as
auditors for the Trust. The audit services performed by [ ], include audits of
the annual financial statements of each of the funds of the Trust. Other
services provided principally relate to filings with the SEC and the preparation
of the funds' tax returns.
BROKERAGE ALLOCATION
Subject to the overall supervision of the President and the Board, IMI
places orders for the purchase and sale of the Fund's portfolio securities. All
portfolio transactions are effected at the best price and execution obtainable.
Purchases and sales of debt securities are usually principal transactions and
therefore, brokerage commissions are usually not required to be paid by the Fund
for such purchases and sales (although the price paid generally includes
undisclosed compensation to the dealer). The prices paid to underwriters of
newly-issued securities usually include a concession paid by the issuer to the
underwriter, and purchases of after-market securities from dealers normally
reflect the spread between the bid and asked prices. In connection with OTC
transactions, IMI attempts to deal directly with the principal market makers,
except in those circumstances where IMI believes that a better price and
execution are available elsewhere.
IMI selects broker-dealers to execute transactions and evaluates the
reasonableness of commissions on the basis of quality, quantity, and the nature
of the firms' professional services. Commissions to be charged and the rendering
of investment services, including statistical, research, and counseling services
by brokerage firms, are factors to be considered in the placing of brokerage
business. The types of research services provided by brokers may include general
economic and industry data, and information on securities of specific companies.
Research services furnished by brokers through whom the Trust effects securities
transactions may be used by IMI in servicing all of its accounts. In addition,
not all of these services may be used by IMI in connection with the services it
provides to the Fund or the Trust. IMI may consider sales of shares of Ivy funds
as a factor in the selection of broker-dealers and may select broker-dealers who
provide it with research services. IMI will not, however, execute brokerage
transactions other than at the best price and execution.
During the fiscal years ended December 31, 1997 and 1998, the Fund paid
brokerage commissions of $17,540 and [ .........], respectively.
The Fund may, under some circumstances, accept securities in lieu of
cash as payment for Fund shares. The Fund will accept securities only to
increase its holdings in a portfolio security or to take a new portfolio
position in a security that IMI deems to be a desirable investment for the Fund.
While no minimum has been established, it is expected that the Fund will not
accept securities having an aggregate value of less than $1 million. The Trust
may reject in whole or in part any or all offers to pay for the Fund shares with
securities and may discontinue accepting securities as payment for the Fund
shares at any time without notice. The Trust will value accepted securities in
the manner and at the same time provided for valuing portfolio securities of the
Fund, and the Fund shares will be sold for net asset value determined at the
same time the accepted securities are valued. The Trust will only accept
securities delivered in proper form and will not accept securities subject to
legal restrictions on transfer. The acceptance of securities by the Trust must
comply with the applicable laws of certain states.
CAPITALIZATION AND VOTING RIGHTS
The capitalization of the Trust consists of an unlimited number of
shares of beneficial interest (no par value per share). When issued, shares of
each class of the Fund are fully paid, non-assessable, redeemable and fully
transferable. No class of shares of the Fund has preemptive rights or
subscription rights.
The Amended and Restated Declaration of Trust permits the Trustees to
create separate series or portfolios and to divide any series or portfolio into
one or more classes. The Trustees have authorized nineteen series, each of which
represents a fund. The Trustees have further authorized the issuance of Class A,
Class B, and Class C shares for Ivy International Fund and Ivy Money Market Fund
and Class A, Class B, Class C and Advisor Class shares for the Fund, Ivy Asia
Pacific Fund, Ivy Bond Fund, Ivy China Region Fund, Ivy Developing Nations Fund,
Ivy European Opportunities Fund, Ivy Global Fund, Ivy Global Natural Resources
Fund, Ivy Global Science & Technology Fund, Ivy Growth Fund, Ivy Growth with
Income Fund, Ivy International Fund II, Ivy International Strategic Bond Fund,
Ivy Pan-Europe Fund, Ivy South America Fund, Ivy US Blue Chip Fund and Ivy US
Emerging Growth Fund, as well as Class I shares for the Fund, Ivy Bond Fund, Ivy
European Opportunities Fund, Ivy Global Science & Technology Fund, Ivy
International Fund II, Ivy International Fund, Ivy International Strategic Bond
Fund and Ivy US Blue Chip Fund.
Shareholders have the right to vote for the election of Trustees of the
Trust and on any and all matters on which they may be entitled to vote by law or
by the provisions of the Trust's By-Laws. The Trust is not required to hold a
regular annual meeting of shareholders, and it does not intend to do so. Shares
of each class of the Fund entitle their holders to one vote per share (with
proportionate voting for fractional shares). Shareholders of the Fund are
entitled to vote alone on matters that only affect the Fund. All classes of
shares of the Fund will vote together, except with respect to the distribution
plan applicable to the Fund's Class A, Class B or Class C shares or when a class
vote is required by the 1940 Act. On matters relating to all funds of the Trust,
but affecting the funds differently, separate votes by the shareholders of each
fund are required. Approval of an investment advisory agreement and a change in
fundamental policies would be regarded as matters requiring separate voting by
the shareholders of each fund of the Trust. If the Trustees determine that a
matter does not affect the interests of the Fund, then the shareholders of the
Fund will not be entitled to vote on that matter. Matters that affect the Trust
in general, such as ratification of the selection of independent public
accountants, will be voted upon collectively by the shareholders of all funds of
the Trust.
As used in this SAI and the Prospectus, the phrase "majority vote of
the outstanding shares" of the Fund means the vote of the lesser of: (1) 67% of
the shares of the Fund (or of the Trust) present at a meeting if the holders of
more than 50% of the outstanding shares are present in person or by proxy; or
(2) more than 50% of the outstanding shares of the Fund (or of the Trust).
With respect to the submission to shareholder vote of a matter
requiring separate voting by the Fund, the matter shall have been effectively
acted upon with respect to the Fund if a majority of the outstanding voting
securities of the Fund votes for the approval of the matter, notwithstanding
that: (1) the matter has not been approved by a majority of the outstanding
voting securities of any other fund of the Trust; or (2) the matter has not been
approved by a majority of the outstanding voting securities of the Trust.
The Amended and Restated Declaration of Trust provides that the holders
of not less than two-thirds of the outstanding shares of the Trust may remove a
person serving as trustee either by declaration in writing or at a meeting
called for such purpose. The Trustees are required to call a meeting for the
purpose of considering the removal of a person serving as Trustee if requested
in writing to do so by the holders of not less than 10% of the outstanding
shares of the Trust. Shareholders will be assisted in communicating with other
shareholders in connection with the removal of a Trustee as if Section 26(c) of
the Act were applicable.
The Trust's shares do not have cumulative voting rights and accordingly
the holders of more than 50% of the outstanding shares could elect the entire
Board, in which case the holders of the remaining shares would not be able to
elect any Trustees.
Under Massachusetts law, the Trust's shareholders could, under certain
circumstances, be held personally liable for the obligations of the Trust.
However, the Amended and Restated Declaration of Trust disclaims liability of
the shareholders, Trustees or officers of the Trust for acts or obligations of
the Trust, which are binding only on the assets and property of the Trust, and
requires that notice of the disclaimer be given in each contract or obligation
entered into or executed by the Trust or its Trustees. The Amended and Restated
Declaration of Trust provides for indemnification out of Fund property for all
loss and expense of any shareholder of the Fund held personally liable for the
obligations of the Fund. The risk of a shareholder of the Trust incurring
financial loss on account of shareholder liability is limited to circumstances
in which the Trust itself would be unable to meet its obligations and, thus,
should be considered remote. No series of the Trust is liable for the
obligations of any other series of the Trust.
SPECIAL RIGHTS AND PRIVILEGES
The Trust offers, and (except as noted below) bears the cost of
providing, to investors the following rights and privileges. The Trust reserves
the right to amend or terminate any one or more of these rights and privileges.
Notice of amendments to or terminations of rights and privileges will be
provided to shareholders in accordance with applicable law.
Certain of the rights and privileges described below refer to funds,
other than the Fund, whose shares are also distributed by IMDI. These funds are:
Ivy Asia Pacific Fund, Ivy Bond Fund, Ivy China Region Fund, Ivy Developing
Nations Fund, Ivy European Opportunities Fund, Ivy Global Fund, Ivy Global
Natural Resources Fund, Ivy Global Science & Technology Fund, Ivy Growth Fund,
Ivy Growth with Income Fund, Ivy International Fund II, Ivy International Fund,
Ivy International Strategic Bond Fund, Ivy Money Market Fund, Ivy Pan-Europe
Fund, Ivy South America Fund, Ivy US Blue Chip Fund and Ivy US Emerging Growth
Fund, (the other eighteen series of the Trust). (Effective April 18, 1997, Ivy
International Fund suspended the offer of its shares to new investors).
Shareholders should obtain a current prospectus before exercising any right or
privilege that may relate to these funds.
AUTOMATIC INVESTMENT METHOD
The Automatic Investment Method, which enables a Fund shareholder to
have specified amounts automatically drawn each month from his or her bank for
investment in Fund shares, is available for all classes of shares, except Class
I. The minimum initial and subsequent investment under this method is $50 per
month ($250 for Advisor Class shares), (except in the case of a tax qualified
retirement plan for which the minimum initial and subsequent investment is $25
per month). A shareholder may terminate the Automatic Investment Method at any
time upon delivery to IMSC of telephone instructions or written notice. See
"Automatic Investment Method" in the Prospectus. To begin the plan, complete
Sections 6A and 7B of the Account Application.
EXCHANGE OF SHARES
As described in the Prospectus, shareholders of the Fund have an
exchange privilege with other Ivy funds (except Ivy International Fund unless
they have an existing Ivy International Fund account). Before effecting an
exchange, shareholders of the Fund should obtain and read the currently
effective prospectus for the Ivy fund into which the exchange is to be made.
INITIAL SALES CHARGE SHARES. Class A shareholders may exchange their
Class A shares ("outstanding Class A shares") for Class A shares of another Ivy
fund ("new Class A Shares") on the basis of the relative net asset value per
Class A share, plus an amount equal to the difference, if any, between the sales
charge previously paid on the outstanding Class A shares and the sales charge
payable at the time of the exchange on the new Class A shares. (The additional
sales charge will be waived for Class A shares that have been invested for a
period of 12 months or longer.) Class A shareholders may also exchange their
shares for shares of Ivy Money Market Fund (no initial sales charge will be
assessed at the time of such an exchange).
CONTINGENT DEFERRED SALES CHARGE SHARES CLASS A: Class A shareholders
may exchange their Class A shares that are subject to a contingent deferred
sales charge ("CDSC"), as described in the Prospectus ("outstanding Class A
shares"), for Class A shares of another Ivy fund ("new Class A shares") on the
basis of the relative net asset value per Class A share, without the payment of
any CDSC that would otherwise be due upon the redemption of the outstanding
Class A shares. Class A shareholders of the Fund exercising the exchange
privilege will continue to be subject to that Fund's CDSC period following an
exchange if such period is longer than the CDSC period, if any, applicable to
the new Class A shares.
For purposes of computing the CDSC that may be payable upon the
redemption of the new Class A shares, the holding period of the outstanding
Class A shares is "tacked" onto the holding period of the new Class A shares.
CLASS B: Class B shareholders may exchange their Class B shares
("outstanding Class B shares") for Class B shares of another Ivy fund ("new
Class B shares") on the basis of the relative net asset value per Class B share,
without the payment of any CDSC that would otherwise be due upon the redemption
of the outstanding Class B shares. Class B shareholders of the Fund exercising
the exchange privilege will continue to be subject to that Fund's CDSC schedule
(or period) following an exchange if such schedule is higher (or such period is
longer) than the CDSC schedule (or period) applicable to the new Class B shares.
Class B shares of the Fund acquired through an exchange of Class B
shares of another Ivy fund will be subject to that Fund's CDSC schedule (or
period) if such schedule is higher (or such period is longer) than the CDSC
schedule (or period) applicable to the Ivy fund from which the exchange was
made.
For purposes of both the conversion feature and computing the CDSC that
may be payable upon the redemption of the new Class B shares (prior to
conversion), the holding period of the outstanding Class B shares is "tacked"
onto the holding period of the new Class B shares.
The following CDSC table applies to Class B shares of Ivy Asia Pacific
Fund, Ivy Bond Fund, Ivy China Region Fund, Ivy Developing Nations Fund, Ivy
European Opportunities Fund, Ivy Global Fund, Ivy Global Natural Resources Fund,
Ivy Global Science & Technology Fund, Ivy Growth Fund, Ivy Growth with Income
Fund, Ivy International Fund II, Ivy International Fund, Ivy International Small
Companies Fund, Ivy International Strategic Bond Fund, Ivy Pan-Europe Fund, Ivy
South America Fund, Ivy US Blue Chip Fund and Ivy US Emerging Growth Fund:
CONTINGENT DEFERRED SALES CHARGE AS A PERCENTAGE OF
DOLLAR AMOUNT SUBJECT TO CHARGE
YEAR SINCE PURCHASE
First 5%
Second 4%
Third 3%
Fourth 3%
Fifth 2%
Sixth 1%
Seventh and thereafter 0%
CLASS C: Class C shareholders may exchange their Class C shares
("outstanding Class C shares") for Class C shares of another Ivy fund ("new
Class C shares") on the basis of the relative net asset value per Class C share,
without the payment of any CDSC that would otherwise be due upon redemption.
(Class C shares are subject to a CDSC of 1.00% if redeemed within one year of
the date of purchase.)
CLASS I AND ADVISOR CLASS: Subject to the restrictions set forth in the
following paragraph, Class I and Advisor Class shareholders may exchange their
outstanding Class I (or Advisor Class) shares for Class I (or Advisor Class)
shares of another Ivy fund on the basis of the relative net asset value per
share.
ALL CLASSES: The minimum value of shares which may be exchanged into an
Ivy fund in which shares are not already held is $1,000 ($5,000,000 in the case
of Class I shares and $10,000 in the case of Advisor Class shares). No exchange
out of the Fund (other than by a complete exchange of all Fund shares) may be
made if it would reduce the shareholder's interest in the Fund to less than
$1,000 ($250,000 in the case of Class I shares and $10,000 in the case of
Advisor Class shares).
Each exchange will be made on the basis of the relative net asset value
per share of the Ivy funds involved in the exchange next computed following
receipt by IMSC of telephone instructions by IMSC or a properly executed
request. Exchanges, whether written or telephonic, must be received by IMSC by
the close of regular trading on the Exchange (normally 4:00 p.m., eastern time)
to receive the price computed on the day of receipt. Exchange requests received
after that time will receive the price next determined following receipt of the
request. The exchange privilege may be modified or terminated at any time, upon
at least 60 days' notice to the extent required by applicable law. See
"Redemptions."
An exchange of shares between any of the Ivy funds will result in a
taxable gain or loss. Generally, this will be a capital gain or loss (long-term
or short-term, depending on the holding period of the shares) in the amount of
the difference between the net asset value of the shares surrendered and the
shareholder's tax basis for those shares. However, in certain circumstances,
shareholders will be ineligible to take sales charges into account in computing
taxable gain or loss on an exchange. See "Taxation."
With limited exceptions, gain realized by a tax-deferred retirement
plan will not be taxable to the plan and will not be taxed to the participant
until distribution. Each investor should consult his or her tax adviser
regarding the tax consequences of an exchange transaction.
LETTER OF INTENT
Reduced sales charges apply to initial investments in Class A shares of
the Fund made pursuant to a non-binding Letter of Intent. A Letter of Intent may
be submitted by an individual, his or her spouse and children under the age of
21, or a trustee or other fiduciary of a single trust estate or single fiduciary
account. See the Account Application in the Prospectus. Any investor may submit
a Letter of Intent stating that he or she will invest, over a period of 13
months, at least $50,000 in Class A shares of the Fund. A Letter of Intent may
be submitted at the time of an initial purchase of Class A shares of the Fund or
within 90 days of the initial purchase, in which case the Letter of Intent will
be back dated. A shareholder may include, as an accumulation credit, the value
(at the applicable offering price) of all Class A shares of Ivy Asia Pacific
Fund, Ivy Bond Fund, Ivy China Region Fund, Ivy Developing Nations Fund, Ivy
European Opportunities Fund, Ivy Global Fund, Ivy Global Natural Resources Fund,
Ivy Global Science & Technology Fund, Ivy Growth Fund, Ivy Growth with Income
Fund, Ivy International Fund II, Ivy International Fund, Ivy International Small
Companies Fund, Ivy International Strategic Bond Fund, Ivy Pan-Europe Fund, Ivy
South America Fund, Ivy US Blue Chip Fund and Ivy US Emerging Growth Fund (and
shares that have been exchanged into Ivy Money Market Fund from any of the other
funds in the Ivy funds) held of record by him or her as of the date of his or
her Letter of Intent. During the term of the Letter of Intent, the Transfer
Agent will hold Class A shares representing 5% of the indicated amount (less any
accumulation credit value) in escrow. The escrowed Class A shares will be
released when the full indicated amount has been purchased. If the full
indicated amount is not purchased during the term of the Letter of Intent, the
investor is required to pay IMDI an amount equal to the difference between the
dollar amount of sales charge that he or she has paid and that which he or she
would have paid on his or her aggregate purchases if the total of such purchases
had been made at a single time. Such payment will be made by an automatic
liquidation of Class A shares in the escrow account. A Letter of Intent does not
obligate the investor to buy or the Trust to sell the indicated amount of Class
A shares, and the investor should read carefully all the provisions of such
letter before signing.
RETIREMENT PLANS
Shares may be purchased in connection with several types of
tax-deferred retirement plans. Shares of more than one fund distributed by IMDI
may be purchased in a single application establishing a single account under the
plan, and shares held in such an account may be exchanged among the Ivy funds in
accordance with the terms of the applicable plan and the exchange privilege
available to all shareholders. Initial and subsequent purchase payments in
connection with tax-deferred retirement plans must be at least $25 per
participant.
The following fees will be charged to individual shareholder accounts
as described in the retirement prototype plan document:
Retirement Plan New Account Fee no fee
Retirement Plan Annual Maintenance Fee $10.00 per fund account
For shareholders whose retirement accounts are diversified across
several Ivy funds, the annual maintenance fee will be limited to not more than
$20.
The following discussion describes the tax treatment of certain
tax-deferred retirement plans under current Federal income tax law. State income
tax consequences may vary. An individual considering the establishment of a
retirement plan should consult with an attorney and/or an accountant with
respect to the terms and tax aspects of the plan.
INDIVIDUAL RETIREMENT ACCOUNTS: Shares of the Fund may be used as a
funding medium for an Individual Retirement Account ("IRA"). Eligible
individuals may establish an IRA by adopting a model custodial account available
from IMSC, who may impose a charge for establishing the account. Individuals
should consult their tax advisers before investing IRA assets in an Ivy fund if
that fund primarily distributes exempt-interest dividends.
An individual who has not reached age 70-1/2 and who receives
compensation or earned income is eligible to contribute to an IRA, whether or
not he or she is an active participant in a retirement plan. An individual who
receives a distribution from another IRA, a qualified retirement plan, a
qualified annuity plan or a tax-sheltered annuity or custodial account ("403(b)
plan") that qualifies for "rollover" treatment is also eligible to establish an
IRA by rolling over the distribution either directly or within 60 days after its
receipt. Tax advice should be obtained in connection with planning a rollover
contribution to an IRA.
In general, an eligible individual may contribute up to the lesser of
$2,000 or 100% of his or her compensation or earned income to an IRA each year.
If a husband and wife are both employed, and both are under age 70-1/2, each may
set up his or her own IRA within these limits. If both earn at least $2,000 per
year, the maximum potential contribution is $4,000 per year for both. For years
after 1996, the result is similar even if one spouse has no earned income; if
the joint earned income of the spouses is at least $4,000, a contribution of up
to $2,000 may be made to each spouse's IRA. Rollover contributions are not
subject to these limits.
An individual may deduct his or her annual contributions to an IRA in
computing his or her Federal income tax within the limits described above,
provided he or she (or his or her spouse, if they file a joint Federal income
tax return) is not an active participant in a qualified retirement plan (such as
a qualified corporate, sole proprietorship, or partnership pension, profit
sharing, 401(k) or stock bonus plan), qualified annuity plan, 403(b) plan,
simplified employee pension, or governmental plan. If he or she (or his or her
spouse) is an active participant, whether the individual's contribution to an
IRA is fully deductible, partially deductible or not deductible depends on (i)
adjusted gross income and (ii) whether it is the individual or the individual's
spouse who is an active participant, in the case of married individuals filing
jointly. Contributions may be made up to the maximum permissible amount even if
they are not deductible. Rollover contributions are not includable in income for
Federal income tax purposes and therefore are not deductible from it.
Generally, earnings on an IRA are not subject to current Federal income
tax until distributed. Distributions attributable to tax-deductible
contributions and to IRA earnings are taxed as ordinary income. Distributions of
non-deductible contributions are not subject to Federal income tax. In general,
distributions from an IRA to an individual before he or she reaches age 59-1/2
are subject to a nondeductible penalty tax equal to 10% of the taxable amount of
the distribution. The 10% penalty tax does not apply to amounts withdrawn from
an IRA after the individual reaches age 59-1/2, becomes disabled or dies, or if
withdrawn in the form of substantially equal payments over the life or life
expectancy of the individual and his or her designated beneficiary, if any, or
rolled over into another IRA, amounts withdrawn and used to pay for deductible
medical expenses and amounts withdrawn by certain unemployed individuals not in
excess of amounts paid for certain health insurance premiums, amounts used to
pay certain qualified higher education expenses, and amounts used within 120
days of the date the distribution is received to pay for certain first-time
homebuyer expenses. Distributions must begin to be withdrawn not later than
April 1 of the calendar year following the calendar year in which the individual
reaches age 70-1/2. Failure to take certain minimum required distributions will
result in the imposition of a 50% non-deductible penalty tax.
ROTH IRAS: Shares of the Fund also may be used as a funding medium for
a Roth Individual Retirement Account ("Roth IRA"). A Roth IRA is similar in
numerous ways to the regular (traditional) IRA, described above.
Some of the primary differences are as follows.
A single individual earning below $95,000 can contribute up to $2,000
per year to a Roth IRA. The maximum contribution amount diminishes and gradually
falls to zero for single filers with adjusted gross incomes ranging from $95,000
to $110,000. Married couples earning less than $150,000 combined, and filing
jointly, can contribute a full $4,000 per year ($2,000 per IRA). The maximum
contribution amount for married couples filing jointly phases out from $150,000
to $160,000. An individual whose adjusted gross income exceeds the maximum
phase-out amount cannot contribute to a Roth IRA.
An eligible individual can contribute money to a traditional IRA and a
Roth IRA as long as the total contribution to all IRAs does not exceed $2,000.
Contributions to a Roth IRA are not deductible. Contributions to a Roth IRA may
be made even after the individual for whom the account is maintained has
attained age 70 1/2.
No distributions are required to be taken prior to the death of the
original account holder. If a Roth IRA has been established for a minimum of
five years, distributions can be taken tax-free after reaching age 59 1/2, for a
first-time home purchase ($10,000 maximum, one time use), or upon death or
disability. All other distributions from a Roth IRA (other than the amount of
nondeductible contributions) are taxable and subject to a 10% tax penalty unless
an exception applies. Exceptions to the 10% penalty include: reaching age 59
1/2, death, disability, deductible medical expenses, the purchase of health
insurance for certain unemployed individual and qualified higher education
expenses.
An individual with an income of less than $100,000 (who is not married
filing separately) can roll his or her existing IRA into a Roth IRA. However,
the individual must pay taxes on the taxable amount in his or her traditional
IRA. After 1998, all taxes on such a rollover will have to be paid in the tax
year in which the rollover is made.
QUALIFIED PLANS: For those self-employed individuals who wish to
purchase shares of one or more Ivy funds through a qualified retirement plan, a
Custodial Agreement and a Retirement Plan are available from IMSC. The
Retirement Plan may be adopted as a profit sharing plan or a money purchase
pension plan. A profit sharing plan permits an annual contribution to be made in
an amount determined each year by the self-employed individual within certain
limits prescribed by law. A money purchase pension plan requires annual
contributions at the level specified in the Custodial Agreement. There is no
set-up fee for qualified plans and the annual maintenance fee is $20.00 per
account.
In general, if a self-employed individual has any common law employees,
employees who have met certain minimum age and service requirements must be
covered by the Retirement Plan. A self-employed individual generally must
contribute the same percentage of income for common law employees as for himself
or herself.
A self-employed individual may contribute up to the lesser of $30,000
or 25% of compensation or earned income to a money purchase pension plan or to a
combination profit sharing and money purchase pension plan arrangement each year
on behalf of each participant. To be deductible, total contributions to a profit
sharing plan generally may not exceed 15% of the total compensation or earned
income of all participants in the plan, and total contributions to a combination
money purchase-profit sharing arrangement generally may not exceed 25% of the
total compensation or earned income of all participants. The amount of
compensation or earned income of any one participant that may be included in
computing the deduction is limited (generally to $150,000 for benefits accruing
in plan years beginning after 1993, with annual inflation adjustments). A
self-employed individual's contributions to a retirement plan on his or her own
behalf must be deducted in computing his or her earned income.
Corporate employers may also adopt the Custodial Agreement and
Retirement Plan for the benefit of their eligible employees. Similar
contribution and deduction rules apply to corporate employers.
Distributions from the Retirement Plan generally are made after a
participant's separation from service. A 10% penalty tax generally applies to
distributions to an individual before he or she reaches age 59-1/2, unless the
individual (1) has reached age 55 and separated from service; (2) dies; (3)
becomes disabled; (4) uses the withdrawal to pay tax-deductible medical
expenses; (5) takes the withdrawal as part of a series of substantially equal
payments over his or her life expectancy or the joint life expectancy of himself
or herself and a designated beneficiary; or (6) rolls over the distribution.
The Transfer Agent will arrange for Investors Bank & Trust to furnish
custodial services to the employer and any participating employees.
DEFERRED COMPENSATION FOR PUBLIC SCHOOLS AND CHARITABLE ORGANIZATIONS
("403(B)(7) ACCOUNT"): Section 403(b)(7) of the Internal Revenue Code of 1986,
as amended (the "Code") permits public school systems and certain charitable
organizations to use mutual fund shares held in a custodial account to fund
deferred compensation arrangements with their employees. A custodial account
agreement is available for those employers whose employees wish to purchase
shares of the Trust in conjunction with such an arrangement. The special
application for a 403(b)(7) Account is available from IMSC.
Distributions from the 403(b)(7) Account may be made only following
death, disability, separation from service, attainment of age 59-1/2, or
incurring a financial hardship. A 10% penalty tax generally applies to
distributions to an individual before he or she reaches age 59-1/2, unless the
individual (1) has reached age 55 and separated from service; (2) dies or
becomes disabled; (3) uses the withdrawal to pay tax-deductible medical
expenses; (4) takes the withdrawal as part of a series of substantially equal
payments over his or her life expectancy or the joint life expectancy of himself
or herself and a designated beneficiary; or (5) rolls over the distribution.
There is no set-up fee for 403(b)(7) Accounts and the annual maintenance fee is
$20.00 per account.
SIMPLIFIED EMPLOYEE PENSION ("SEP") IRAS: An employer may deduct
contributions to a SEP up to the lesser of $30,000 or 15% of compensation. SEP
accounts generally are subject to all rules applicable to IRA accounts, except
the deduction limits, and are subject to certain employee participation
requirements. No new salary reduction SEPs ("SARSEPs") may be established after
1996, but existing SARSEPs may continue to be maintained, and non-salary
reduction SEPs may continue to be established as well as maintained after 1996.
SIMPLE PLANS: An employer may establish a SIMPLE IRA or a SIMPLE 401(k)
for years after 1996. An employee can make pre-tax salary reduction
contributions to a SIMPLE Plan, up to $6,000 a year (as indexed). Subject to
certain limits, the employer will either match a portion of employee
contributions, or will make a contribution equal to 2% of each employee's
compensation without regard to the amount the employee contributes. An employer
cannot maintain a SIMPLE Plan for its employees if the employer maintains or
maintained any other qualified retirement plan with respect to which any
contributions or benefits have been credited.
REINVESTMENT PRIVILEGE
Shareholders who have redeemed Class A shares of the Fund may reinvest
all or a part of the proceeds of the redemption back into Class A shares of the
Fund at net asset value (without a sales charge) within 60 days from the date of
redemption. This privilege may be exercised only once. The reinvestment will be
made at the net asset value next determined after receipt by IMSC of the
reinvestment order accompanied by the funds to be reinvested. No compensation
will be paid to any sales personnel or dealer in connection with the
transaction.
Any redemption is a taxable event. A loss realized on a redemption
generally may be disallowed for tax purposes if the reinvestment privilege
is exercised within 30 days after the redemption. In certain circumstances,
shareholders will be ineligible to take sales charges into account in
computing taxable gain or loss on a redemption if the reinvestment
privilege is exercised. See "Taxation."
RIGHTS OF ACCUMULATION
A scale of reduced sales charges applies to any investment of $50,000
or more in Class A shares of the Fund. See "Initial Sales Charge Alternative --
Class A Shares" in the Prospectus. The reduced sales charge is applicable to
investments made at one time by an individual, his or her spouse and children
under the age of 21, or a trustee or other fiduciary of a single trust estate or
single fiduciary account (including a pension, profit sharing or other employee
benefit trust created pursuant to a plan qualified under Section 401 of the
Code). Rights of Accumulation is also applicable to current purchases of all of
the funds of Ivy Fund (except Ivy Money Market Fund) by any of the persons
enumerated above, where the aggregate quantity of Class A shares of such funds
(and shares that have been exchanged into Ivy Money Market Fund from any of the
other funds in the Ivy funds) and of any other investment company distributed by
IMDI, previously purchased or acquired and currently owned, determined at the
higher of current offering price or amount invested, plus the Class A shares
being purchased, amounts to $50,000 or more for all funds other than Ivy Bond
Fund; or $100,000 or more for Ivy Bond Fund.
At the time an investment takes place, IMSC must be notified by the
investor or his or her dealer that the investment qualifies for the reduced
sales charge on the basis of previous investments. The reduced sales charge is
subject to confirmation of the investor's holdings through a check of the
particular fund's records.
SYSTEMATIC WITHDRAWAL PLAN
A shareholder (except shareholders with accounts in Class I) may
establish a Systematic Withdrawal Plan (a "Withdrawal Plan"), by telephone
instructions or by delivery to IMSC of a written election to have his or her
shares withdrawn periodically (minimum distribution amount $50 for Advisor Class
shares), accompanied by a surrender to IMSC of all share certificates then
outstanding in such shareholder's name, properly endorsed by the shareholder. To
be eligible to elect a Withdrawal Plan, a shareholder must have at least $5,000
in his or her account (except Advisor Class shareholders, who must continually
maintain an account balance of at least $10,000). A Withdrawal Plan may not be
established if the investor is currently participating in the Automatic
Investment Method. A Withdrawal Plan may involve the depletion of a
shareholder's principal, depending on the amount withdrawn.
A redemption under a Withdrawal Plan is a taxable event. Shareholders
contemplating participating in a Withdrawal Plan should consult their tax
advisers.
Additional investments made by investors participating in a Withdrawal
Plan must equal at least $1,000 each ($250 for Advisor Class shareholders) while
the Withdrawal Plan is in effect. Making additional purchases while a Withdrawal
Plan is in effect may be disadvantageous to the investor because of applicable
initial sales charges or CDSCs.
An investor may terminate his or her participation in the Withdrawal
Plan at any time by delivering written notice to IMSC. If all shares held by the
investor are liquidated at any time, participation in the Withdrawal Plan will
terminate automatically. The Trust or IMSC may terminate the Withdrawal Plan
option at any time after reasonable notice to shareholders.
GROUP SYSTEMATIC INVESTMENT PROGRAM
Shares of the Fund may be purchased in connection with investment
programs established by employee or other groups using systematic payroll
deductions or other systematic payment arrangements. The Trust does not itself
organize, offer or administer any such programs. However, it may, depending upon
the size of the program, waive the minimum initial and additional investment
requirements for purchases by individuals in conjunction with programs organized
and offered by others. Unless shares of the Fund are purchased in conjunction
with IRAs (see "How to Buy Shares" in the Prospectus), such group systematic
investment programs are not entitled to special tax benefits under the Code. The
Trust reserves the right to refuse purchases at any time or suspend the offering
of shares in connection with group systematic investment programs, and to
restrict the offering of shareholder privileges, such as check writing,
simplified redemptions and other optional privileges, as described in the
Prospectus, to shareholders using group systematic investment programs.
With respect to each shareholder account established on or after
September 15, 1972 under a group systematic investment program, the Trust and
IMI each currently charge a maintenance fee of $3.00 (or portion thereof) that
for each twelve-month period (or portion thereof) that the account is
maintained. The Trust may collect such fee (and any fees due to IMI) through a
deduction from distributions to the shareholders involved or by causing on the
date the fee is assessed a redemption in each such shareholder account
sufficient to pay such fee. The Trust reserves the right to change these fees
from time to time without advance notice.
Class A shares of the Fund are made available to Merrill Lynch Daily K
Plan (the "Plan") participants at NAV without an initial sales charge if:
(i) the Plan is recordkept on a daily valuation basis by Merrill
Lynch and, on the date the Plan Sponsor signs the Merrill
Lynch Recordkeeping Service Agreement, the Plan has $3 million
or more in assets invested in broker/dealer funds not advised
or managed by Merrill Lynch Asset Management, L.P. ("MLAM")
that are made available pursuant to a Service Agreement
between Merrill Lynch and the fund's principal underwriter or
distributor and in funds advised or managed by MLAM
(collectively, the "Applicable Investments");
(ii) the Plan is recordkept on a daily valuation basis by an
independent recordkeeper whose services are provided through a
contract or alliance arrangement with Merrill Lynch, and on
the date the Plan Sponsor signs the Merrill Lynch
Recordkeeping Service Agreement, the Plan has $3 million or
more in assets, excluding money market funds, invested in
Applicable Investments; or
(iii) the Plan has 500 or more eligible employees, as determined by
Merrill Lynch plan conversion manager, on the date the Plan
Sponsor signs the Merrill Lynch Recordkeeping Service
Agreement.
Alternatively, Class B shares of the Fund are made available to Plan
participants at NAV without a CDSC if the Plan conforms with the requirements
for eligibility set forth in (i) through (iii) above but either does not meet
the $3 million asset threshold or does not have 500 or more eligible employees.
Plans recordkept on a daily basis by Merrill Lynch or an independent
recordkeeper under a contract with Merrill Lynch that are currently investing in
Class B shares of the Fund convert to Class A shares once the Plan has reached
$5 million invested in Applicable Investments, or 10 years after the date of the
initial purchase by a participant under the Plan--the Plan will receive a Plan
level share conversion.
REDEMPTIONS
Shares of the Fund are redeemed at their net asset value next
determined after a proper redemption request has been received by IMSC, less any
applicable CDSC.
Unless a shareholder requests that the proceeds of any redemption be
wired to his or her bank account, payment for shares tendered for redemption is
made by check within seven days after tender in proper form, except that the
Trust reserves the right to suspend the right of redemption or to postpone the
date of payment upon redemption beyond seven days, (i) for any period during
which the Exchange is closed (other than customary weekend and holiday closings)
or during which trading on the Exchange is restricted, (ii) for any period
during which an emergency exists as determined by the SEC as a result of which
disposal of securities owned by the Fund is not reasonably practicable or it is
not reasonably practicable for the Fund to fairly determine the value of its net
assets, or (iii) for such other periods as the SEC may by order permit for the
protection of shareholders of the Fund.
Under unusual circumstances, when the Board deems it in the best
interest of the Fund's shareholders, the Fund may make payment for shares
repurchased or redeemed in whole or in part in securities of the Fund taken at
current values. If any such redemption in kind is to be made, the Fund may make
an election pursuant to Rule 18f-1 under the 1940 Act. This will require the
Fund to redeem with cash at a shareholder's election in any case where the
redemption involves less than $250,000 (or 1% of the Fund's net asset value at
the beginning of each 90-day period during which such redemptions are in effect,
if that amount is less than $250,000). Should payment be made in securities, the
redeeming shareholder may incur brokerage costs in converting such securities to
cash.
The Trust may redeem those accounts of shareholders who have maintained
an investment, including sales charges paid, of less than $1,000 ($10,000 for
Advisor Class shareholders) in the Fund for a period of more than 12 months. All
accounts below that minimum will be redeemed simultaneously when MIMI deems it
advisable. The $1,000 balance ($10,000 for Advisor Class shareholders) will be
determined by actual dollar amounts invested by the shareholder, unaffected by
market fluctuations. The Trust will notify any such shareholder by certified
mail of its intention to redeem such account, and the shareholder shall have 60
days from the date of such letter to invest such additional sums as shall raise
the value of such account above that minimum. Should the shareholder fail to
forward such sum within 60 days of the date of the Trust's letter of
notification, the Trust will redeem the shares held in such account and transmit
the redemption in value thereof to the shareholder. However, those shareholders
who are investing pursuant to the Automatic Investment Method will not be
redeemed automatically unless they have ceased making payments pursuant to the
plan for a period of at least six consecutive months, and these shareholders
will be given six-months' notice by the Trust before such redemption.
Shareholders in a qualified retirement, pension or profit sharing plan who wish
to avoid tax consequences must "rollover" any sum so redeemed into another
qualified plan within 60 days. The Trustees of the Trust may change the minimum
account size.
If a shareholder has given authorization for telephonic redemption
privilege, shares can be redeemed and proceeds sent by Federal wire to a single
previously designated bank account. Delivery of the proceeds of a wire
redemption request of $250,000 or more may be delayed by the Fund for up to
seven days if deemed appropriate under then-current market conditions. The Trust
reserves the right to change this minimum or to terminate the telephonic
redemption privilege without prior notice. The Trust cannot be responsible for
the efficiency of the Federal wire system of the shareholder's dealer of record
or bank. The shareholder is responsible for any charges by the shareholder's
bank.
The Fund employs reasonable procedures that require personal
identification prior to acting on redemption or exchange instructions
communicated by telephone to confirm that such instructions are genuine. In the
absence of such instructions, the Fund may be liable for any losses due to
unauthorized or fraudulent telephone instructions.
CONVERSION OF CLASS B SHARES
As described in the Prospectus, Class B shares of the Fund will
automatically convert to Class A shares of the Fund, based on the relative net
asset values per share of the two classes, no later than the month following the
eighth anniversary of the initial issuance of such Class B shares of the Fund
occurs. For the purpose of calculating the holding period required for
conversion of Class B shares, the date of initial issuance shall mean: (1) the
date on which such Class B shares were issued, or (2) for Class B shares
obtained through an exchange, or a series of exchanges, (subject to the exchange
privileges for Class B shares) the date on which the original Class B shares
were issued. For purposes of conversion of Class B shares, Class B shares
purchased through the reinvestment of dividends and capital gain distributions
paid in respect of Class B shares will be held in a separate sub-account. Each
time any Class B shares in the shareholder's regular account (other than those
shares in the sub-account) convert to Class A shares, a pro rata portion of the
Class B shares in the sub-account will also convert to Class A shares. The
portion will be determined by the ratio that the shareholder's Class B shares
converting to Class A shares bears to the shareholder's total Class B shares not
acquired through the reinvestment of dividends and capital gain distributions.
NET ASSET VALUE
The net asset value per share of the Fund is computed by dividing the
value of the Fund's aggregate net assets (i.e., its total assets less its
liabilities) by the number of the Fund's shares outstanding. For purposes of
determining the Fund's aggregate net assets, receivables are valued at their
realizable amounts. The Fund's liabilities, if not identifiable as belonging to
a particular class of the Fund, are allocated among the Fund's several classes
based on their relative net asset size. Liabilities attributable to a particular
class are charged to that class directly. The total liabilities for a class are
then deducted from the class's proportionate interest in the Fund's assets, and
the resulting amount is divided by the number of shares of the class outstanding
to produce its net asset value per share.
A security listed or traded on a recognized stock exchange or The
Nasdaq Stock Market, Inc. ("Nasdaq") is valued at the security's last sale price
on the exchange on which the security is principally traded. If no sale is
reported at that time, the average between the last bid and asked price (the
"Calculated Mean") is used. Unless otherwise noted herein, the value of a
foreign security is determined in its national currency as of the normal close
of trading on the foreign exchange on which it is traded or as of the close of
regular trading on the Exchange, if that is earlier, and that value is then
converted into its U.S. dollar equivalent at the foreign exchange rate in effect
at noon, eastern time, on the day the value of the foreign security is
determined. All other securities for which OTC market quotations are readily
available are valued at the Calculated Mean.
A debt security normally is valued on the basis of quotes obtained from
at least two dealers (or one dealer who has made a market in the security) or
pricing services that take into account appropriate valuation factors. Interest
is accrued daily. Money market instruments are valued at amortized cost, which
the Board believes approximates market value.
An exchange-traded option is valued at the last sale price on the
exchange on which it is principally traded, if available, and otherwise is
valued at the last sale price on the other exchange(s). If there were no sales
on any exchange, the option shall be valued at the Calculated Mean, if possible,
and otherwise at the last offering price, in the case of a written option, and
the last bid price, in the case of a purchased option. An OTC option is valued
at the last offering price, in the case of a written option, and the last bid
price, in the case of a purchased option. Exchange listed and widely-traded OTC
futures (and options thereon) are valued at the most recent settlement price.
Securities and other assets for which market prices are not readily
available are priced at their "fair value" as determined by IMI in accordance
with procedures approved by the Board. Trading in securities on many foreign
securities exchanges is normally completed before the close of regular trading
on the Exchange. Trading on foreign exchanges may not take place on all days on
which there is regular trading on the Exchange, or may take place on days on
which there is no regular trading on the Exchange (e.g., any of the national
business holidays identified below). If events materially affecting the value of
the Fund's portfolio securities occur between the time when a foreign exchange
closes and the time when the Fund's net asset value is calculated (see following
paragraph), such securities may be valued at fair value as determined by IMI and
approved by the Board.
Portfolio securities are valued (and net asset value per share is
determined) as of the close of regular trading on the Exchange (normally 4:00
p.m., eastern time) on each day the Exchange is open for trading. The Exchange
and the Trust's offices are expected to be closed, and net asset value will not
be calculated, on the following national business holidays: New Year's Day,
Martin Luther King, Jr. Day, Presidents' Day, Good Friday, Memorial Day,
Independence Day, Labor Day, Thanksgiving Day and Christmas Day. On those days
when either or both of the Fund's Custodian or the Exchange close early as a
result of a partial holiday or otherwise, the Trust reserves the right to
advance the time on that day by which purchase and redemption requests must be
received.
The number of shares you receive when you place a purchase order, and
the payment you receive after submitting a redemption request, is based on the
Fund's net asset value next determined after your instructions are received in
proper from by IMSC or by your registered securities dealer. Each purchase and
redemption order is subject to any applicable sales charge. Since the Fund
normally invests in securities that are listed on foreign exchanges that may
trade on weekends or other days when the Fund does not price its shares, the
Fund's net asset value may change on days when shareholders will not be able to
purchase or redeem the Fund's shares. The sale of the Fund's shares will be
suspended during any period when the determination of its net asset value is
suspended pursuant to rules or orders of the SEC and may be suspended by the
Board whenever in its judgment it is in the Fund's best interest to do so.
TAXATION
The following is a general discussion of certain tax rules thought to
be applicable with respect to the Fund. It is merely a summary and is not an
exhaustive discussion of all possible situations or of all potentially
applicable taxes. Accordingly, shareholders and prospective shareholders should
consult a competent tax adviser about the tax consequences to them of investing
in the Fund.
The Fund intends to be taxed as a regulated investment company under
Subchapter M of the Code. Accordingly, the Fund must, among other things, (a)
derive in each taxable year at least 90% of its gross income from dividends,
interest, payments with respect to certain securities loans, and gains from the
sale or other disposition of stock, securities or foreign currencies, or other
income derived with respect to its business of investing in such stock,
securities or currencies; and (b) diversify its holdings so that, at the end of
each fiscal quarter, (i) at least 50% of the market value of the Fund's assets
is represented by cash, U.S. Government securities, the securities of other
regulated investment companies and other securities, with such other securities
limited, in respect of any one issuer, to an amount not greater than 5% of the
value of the Fund's total assets and 10% of the outstanding voting securities of
such issuer, and (ii) not more than 25% of the value of its total assets is
invested in the securities of any one issuer (other than U.S. Government
securities and the securities of other regulated investment companies).
As a regulated investment company, the Fund generally will not be
subject to U.S. Federal income tax on its income and gains that it distributes
to shareholders, if at least 90% of its investment company taxable income (which
includes, among other items, dividends, interest and the excess of any
short-term capital gains over long-term capital losses) for the taxable year is
distributed. The Fund intends to distribute all such income.
Amounts not distributed on a timely basis in accordance with a calendar
year distribution requirement are subject to a nondeductible 4% excise tax at
the Fund level. To avoid the tax, the Fund must distribute during each calendar
year, (1) at least 98% of its ordinary income (not taking into account any
capital gains or losses) for the calendar year (2) at least 98% of its capital
gains in excess of its capital losses (adjusted for certain ordinary losses) for
a one-year period generally ending on October 31 of the calendar year, and (3)
all ordinary income and capital gains for previous years that were not
distributed during such years. To avoid application of the excise tax, the Fund
intends to make distributions in accordance with the calendar year distribution
requirements. A distribution will be treated as paid on December 31 of the
current calendar year if it is declared by the Fund in October, November or
December of the year with a record date in such a month and paid by the Fund
during January of the following year. Such distributions will be taxable to
shareholders in the calendar year the distributions are declared, rather than
the calendar year in which the distributions are received.
OPTIONS, FUTURES AND FOREIGN CURRENCY FORWARD CONTRACTS
The taxation of equity options and OTC options on debt securities is
governed by Code section 1234. Pursuant to Code section 1234, the premium
received by the Fund for selling a put or call option is not included in income
at the time of receipt. If the option expires, the premium is short-term capital
gain to the Fund. If the Fund enters into a closing transaction, the difference
between the amount paid to close out its position and the premium received is
short-term capital gain or loss. If a call option written by the Fund is
exercised, thereby requiring the Fund to sell the underlying security, the
premium will increase the amount realized upon the sale of such security and any
resulting gain or loss will be a capital gain or loss, and will be long-term or
short-term depending upon the holding period of the security. With respect to a
put or call option that is purchased by the Fund, if the option is sold, any
resulting gain or loss will be a capital gain or loss, and will be long-term or
short-term, depending upon the holding period of the option. If the option
expires, the resulting loss is a capital loss and is long-term or short-term,
depending upon the holding period of the option. If the option is exercised, the
cost of the option, in the case of a call option, is added to the basis of the
purchased security and, in the case of a put option, reduces the amount realized
on the underlying security in determining gain or loss.
Some of the options, futures and foreign currency forward contracts in
which the Fund may invest may be "section 1256 contracts." Gains (or losses) on
these contracts generally are considered to be 60% long-term and 40% short-term
capital gains or losses; however, as described below, foreign currency gains or
losses arising from certain section 1256 contracts are ordinary in character.
Also, section 1256 contracts held by the Fund at the end of each taxable year
(and on certain other dates prescribed in the Code) are "marked-to-market" with
the result that unrealized gains or losses are treated as though they were
realized.
The transactions in options, futures and forward contracts undertaken
by the Fund may result in "straddles" for Federal income tax purposes. The
straddle rules may affect the character of gains or losses realized by the Fund.
In addition, losses realized by the Fund on positions that are part of a
straddle may be deferred under the straddle rules, rather than being taken into
account in calculating the taxable income for the taxable year in which such
losses are realized. Because only a few regulations implementing the straddle
rules have been promulgated, the consequences of such transactions to the Fund
are not entirely clear. The straddle rules may increase the amount of short-term
capital gain realized by the Fund, which is taxed as ordinary income when
distributed to shareholders.
The Fund may make one or more of the elections available under the Code
which are applicable to straddles. If the Fund makes any of the elections, the
amount, character and timing of the recognition of gains or losses from the
affected straddle positions will be determined under rules that vary according
to the election(s) made. The rules applicable under certain of the elections may
operate to accelerate the recognition of gains or losses from the affected
straddle positions.
Because application of the straddle rules may affect the character of
gains or losses, defer losses and/or accelerate the recognition of gains or
losses from the affected straddle positions, the amount which must be
distributed to shareholders as ordinary income or long-term capital gain may be
increased or decreased substantially as compared to a fund that did not engage
in such transactions.
Notwithstanding any of the foregoing, the Fund may recognize gain (but
not loss) from a constructive sale of certain "appreciated financial positions"
if the Fund enters into a short sale, offsetting notional principal contract,
futures or forward contract transaction with respect to the appreciated position
or substantially identical property. Appreciated financial positions subject to
this constructive sale treatment are interests (including options, futures and
forward contracts and short sales) in stock, partnership interests, certain
actively traded trust instruments and certain debt instruments. Constructive
sale treatment of appreciated financial positions does not apply to certain
transactions closed in the 90-day period ending with the 30th day after the
close of the Fund's taxable year, if certain conditions are met.
CURRENCY FLUCTUATIONS -- "SECTION 988" GAINS OR LOSSES
Gains or losses attributable to fluctuations in exchange rates which
occur between the time the Fund accrues receivables or liabilities denominated
in a foreign currency and the time the Fund actually collects such receivables
or pays such liabilities generally are treated as ordinary income or ordinary
loss. Similarly, on disposition of some investments, including debt securities
denominated in a foreign currency and certain options, futures and forward
contracts, gains or losses attributable to fluctuations in the value of the
foreign currency between the date of acquisition of the security or contract and
the date of disposition also are treated as ordinary gain or loss. These gains
and losses, referred to under the Code as "section 988" gains or losses,
increase or decrease the amount of the Fund's investment company taxable income
available to be distributed to its shareholders as ordinary income.
INVESTMENT IN PASSIVE FOREIGN INVESTMENT COMPANIES
The Fund may invest in shares of foreign corporations which may be
classified under the Code as passive foreign investment companies ("PFICs"). In
general, a foreign corporation is classified as a PFIC if at least one-half of
its assets constitute investment-type assets, or 75% or more of its gross income
is investment-type income. If the Fund receives a so-called "excess
distribution" with respect to PFIC stock, the Fund itself may be subject to a
tax on a portion of the excess distribution, whether or not the corresponding
income is distributed by the Fund to shareholders. In general, under the PFIC
rules, an excess distribution is treated as having been realized ratably over
the period during which a Fund held the PFIC shares. The Fund itself will be
subject to tax on the portion, if any, of an excess distribution that is so
allocated to prior Fund taxable years and an interest factor will be added to
the tax, as if the tax had been payable in such prior taxable years. Certain
distributions from a PFIC as well as gain from the sale of PFIC shares are
treated as excess distributions. Excess distributions are characterized as
ordinary income even though, absent application of the PFIC rules, certain
excess distributions might have been classified as capital gain.
The Fund may be eligible to elect alternative tax treatment with
respect to PFIC shares. The Fund may elect to mark to market its PFIC shares,
resulting in the shares being treated as sold at fair market value on the last
business day of each taxable year. Any resulting gain would be reported as
ordinary income; any resulting loss and any loss from an actual disposition of
the shares would be reported as ordinary loss to the extent of any net gains
reported in prior years. Under another election that currently is available in
some circumstances, the Fund generally would be required to include in its gross
income its share of the earnings of a PFIC on a current basis, regardless of
whether distributions are received from the PFIC in a given year.
DEBT SECURITIES ACQUIRED AT A DISCOUNT
Some of the debt securities (with a fixed maturity date of more than
one year from the date of issuance) that may be acquired by the Fund may be
treated as debt securities that are issued originally at a discount. Generally,
the amount of the original issue discount ("OID") is treated as interest income
and is included in income over the term of the debt security, even though
payment of that amount is not received until a later time, usually when the debt
security matures.
Some of the debt securities (with a fixed maturity date of more than
one year from the date of issuance) that may be acquired by the Fund in the
secondary market may be treated as having market discount. Generally, gain
recognized on the disposition of, and any partial payment of principal on, a
debt security having market discount is treated as ordinary income to the extent
the gain, or principal payment, does not exceed the "accrued market discount" on
such debt security. In addition, the deduction of any interest expenses
attributable to debt securities having market discount may be deferred. Market
discount generally accrues in equal daily installments. The Fund may make one or
more of the elections applicable to debt securities having market discount,
which could affect the character and timing of recognition of income.
Some debt securities (with a fixed maturity date of one year or less
from the date of issuance) that may be acquired by the Fund may be treated as
having acquisition discount, or OID in the case of certain types of debt
securities. Generally, the Fund will be required to include the acquisition
discount, or OID, in income over the term of the debt security, even though
payment of that amount is not received until a later time, usually when the debt
security matures. The Fund may make one or more of the elections applicable to
debt securities having acquisition discount, or OID, which could affect the
character and timing of recognition of income.
The Fund generally will be required to distribute dividends to
shareholders representing discount on debt securities that is currently
includable in income, even though cash representing such income may not have
been received by the Fund. Cash to pay such dividends may be obtained from sales
proceeds of securities held by the Fund.
DISTRIBUTIONS
Distributions of investment company taxable income are taxable to a
U.S. shareholder as ordinary income, whether paid in cash or shares. Dividends
paid by the Fund to a corporate shareholder, to the extent such dividends are
attributable to dividends received from U.S. corporations by the Fund, may
qualify for the dividends received deduction. However, the revised alternative
minimum tax applicable to corporations may reduce the value of the dividends
received deduction. Distributions of net capital gains (the excess of net
long-term capital gains over net short-term capital losses), if any, designated
by the Fund as capital gain dividends, are taxable to shareholders as long-term
capital gains whether paid in cash or in shares, and regardless of how long the
shareholder has held the Fund's shares; such distributions are not eligible for
the dividends received deduction. Shareholders receiving distributions in the
form of newly issued shares will have a cost basis in each share received equal
to the net asset value of a share of the Fund on the distribution date. A
distribution of an amount in excess of the Fund's current and accumulated
earnings and profits will be treated by a shareholder as a return of capital
which is applied against and reduces the shareholder's basis in his or her
shares. To the extent that the amount of any such distribution exceeds the
shareholder's basis in his or her shares, the excess will be treated by the
shareholder as gain from a sale or exchange of the shares. Shareholders will be
notified annually as to the U.S. Federal tax status of distributions and
shareholders receiving distributions in the form of newly issued shares will
receive a report as to the net asset value of the shares received.
If the net asset value of shares is reduced below a shareholder's cost
as a result of a distribution by the Fund, such distribution generally will be
taxable even though it represents a return of invested capital. Shareholders
should be careful to consider the tax implications of buying shares just prior
to a distribution. The price of shares purchased at this time may reflect the
amount of the forthcoming distribution. Those purchasing just prior to a
distribution will receive a distribution which generally will be taxable to
them.
DISPOSITION OF SHARES
Upon a redemption, sale or exchange of his or her shares, a shareholder
will realize a taxable gain or loss depending upon his or her basis in the
shares. Such gain or loss will be treated as capital gain or loss if the shares
are capital assets in the shareholder's hands and, if so, will be long-term or
short-term, depending upon the shareholder's holding period for the shares. Any
loss realized on a redemption sale or exchange will be disallowed to the extent
the shares disposed of are replaced (including through reinvestment of
dividends) within a period of 61 days beginning 30 days before and ending 30
days after the shares are disposed of. In such a case, the basis of the shares
acquired will be adjusted to reflect the disallowed loss. Any loss realized by a
shareholder on the sale of Fund shares held by the shareholder for six-months or
less will be treated for tax purposes as a long-term capital loss to the extent
of any distributions of capital gain dividends received or treated as having
been received by the shareholder with respect to such shares.
In some cases, shareholders will not be permitted to take all or
portion of their sales loads into account for purposes of determining the amount
of gain or loss realized on the disposition of their shares. This prohibition
generally applies where (1) the shareholder incurs a sales load in acquiring the
shares of the Fund, (2) the shares are disposed of before the 91st day after the
date on which they were acquired, and (3) the shareholder subsequently acquires
shares in the Fund or another regulated investment company and the otherwise
applicable sales charge is reduced under a "reinvestment right" received upon
the initial purchase of Fund shares. The term "reinvestment right" means any
right to acquire shares of one or more regulated investment companies without
the payment of a sales load or with the payment of a reduced sales charge. Sales
charges affected by this rule are treated as if they were incurred with respect
to the shares acquired under the reinvestment right. This provision may be
applied to successive acquisitions of fund shares.
FOREIGN WITHHOLDING TAXES
Income received by the Fund from sources within a foreign country may
be subject to withholding and other taxes imposed by that country.
If more than 50% of the value of the Fund's total assets at the close
of its taxable year consists of securities of foreign corporations, the Fund
will be eligible and may elect to "pass-through" to the Fund's shareholders the
amount of foreign income and similar taxes paid by the Fund. Pursuant to this
election, a shareholder will be required to include in gross income (in addition
to taxable dividends actually received) his or her pro rata share of the foreign
income and similar taxes paid by the Fund, and will be entitled either to deduct
his or her pro rata share of foreign income and similar taxes in computing his
or her taxable income or to use it as a foreign tax credit against his or her
U.S. Federal income taxes, subject to limitations. No deduction for foreign
taxes may be claimed by a shareholder who does not itemize deductions. Foreign
taxes generally may not be deducted by a shareholder that is an individual in
computing the alternative minimum tax. Each shareholder will be notified within
60 days after the close of the Fund's taxable year whether the foreign taxes
paid by the Fund will "pass-through" for that year and, if so, such notification
will designate (1) the shareholder's portion of the foreign taxes paid to each
such country and (2) the portion of the dividend which represents income derived
from sources within each such country.
Generally, except in the case of certain electing individual taxpayers
who have limited creditable foreign taxes and no foreign source income other
than passive investment-type income, a credit for foreign taxes is subject to
the limitation that it may not exceed the shareholder's U.S. tax attributable to
his or her total foreign source taxable income. For this purpose, if the Fund
makes the election described in the preceding paragraph, the source of the
Fund's income flows through to its shareholders. With respect to the Fund, gains
from the sale of securities generally will be treated as derived from U.S.
sources and section 988 gains will be treated as ordinary income derived from
U.S. sources. The limitation on the foreign tax credit is applied separately to
foreign source passive income, including foreign source passive income received
from the Fund. In addition, the foreign tax credit may offset only 90% of the
revised alternative minimum tax imposed on corporations and individuals.
Furthermore, the foreign tax credit is eliminated with respect to foreign taxes
withheld on dividends if the dividend-paying shares or the shares of the Fund
are held by the Fund or the shareholder, as the case may be, for less than 16
days (46 days in the case of preferred shares) during the 30-day period (90-day
period for preferred shares) beginning 15 days (45 days for preferred shares)
before the shares become ex-dividend. In addition, if the Fund fails to satisfy
these holding period requirements, it cannot elect to pass through to
shareholders the ability to claim a deduction for related foreign taxes.
The foregoing is only a general description of the foreign tax credit
under current law. Because application of the credit depends on the particular
circumstances of each shareholder, shareholders are advised to consult their own
tax advisers.
BACKUP WITHHOLDING
The Fund will be required to report to the Internal Revenue Service
("IRS") all taxable distributions as well as gross proceeds from the redemption
of the Fund's shares, except in the case of certain exempt shareholders. All
such distributions and proceeds will be subject to withholding of Federal income
tax at a rate of 31% ("backup withholding") in the case of non-exempt
shareholders if (1) the shareholder fails to furnish the Fund with and to
certify the shareholder's correct taxpayer identification number or social
security number, (2) the IRS notifies the shareholder or the Fund that the
shareholder has failed to report properly certain interest and dividend income
to the IRS and to respond to notices to that effect, or (3) when required to do
so, the shareholder fails to certify that he or she is not subject to backup
withholding. If the withholding provisions are applicable, any such
distributions or proceeds, whether reinvested in additional shares or taken in
cash, will be reduced by the amounts required to be withheld.
Distributions may also be subject to additional state, local and
foreign taxes depending on each shareholder's particular situation. Non-U.S.
shareholders may be subject to U.S. tax rules that differ significantly from
those summarized above. This discussion does not purport to deal with all of the
tax consequences applicable to the Fund or shareholders. Shareholders are
advised to consult their own tax advisers with respect to the particular tax
consequences to them of an investment in the Fund.
PERFORMANCE INFORMATION
Performance information for the classes of shares of the Fund may be
compared, in reports and promotional literature, to: (i) the S&P 500 Index, the
Dow Jones Industrial Average ("DJIA"), or other unmanaged indices so that
investors may compare the Fund's results with those of a group of unmanaged
securities widely regarded by investors as representative of the securities
markets in general; (ii) other groups of mutual funds tracked by Lipper
Analytical Services, a widely used independent research firm that ranks mutual
funds by overall performance, investment objectives and assets, or tracked by
other services, companies, publications or other criteria; and (iii) the
Consumer Price Index (measure for inflation) to assess the real rate of return
from an investment in the Fund. Unmanaged indices may assume the reinvestment of
dividends but generally do not reflect deductions or administrative and
management costs and expenses. Performance rankings are based on historical
information and are not intended to indicate future performance.
YIELD. Quotations of yield for a specific class of shares of the Fund
will be based on all investment income attributable to that class earned during
a particular 30-day (or one month) period (including dividends and interest),
less expenses attributable to that class accrued during the period ("net
investment income"), and will be computed by dividing the net investment income
per share of that class earned during the period by the maximum offering price
per share (in the case of Class A shares) or the net asset value per share (in
the case of Class B and Class C shares) on the last day of the period, according
to the following formula:
YIELD = 2[({(a-b)/cd} + 1){superscript 6}-1]
Where: a = dividends and interest earned during the period
attributable to a specific class of shares,
b = expenses accrued for the period attributable to that
class (net of reimbursements),
c = the average daily number of shares
of that class outstanding during the
period that were entitled to receive
dividends, and
d = the maximum offering price per
share (in the case of Class A
shares) or the net asset value per
share (in the case of Class B
shares, Class C shares and Class I
shares) on the last day of the
period.
AVERAGE ANNUAL TOTAL RETURN. Quotations of standardized average annual
total return ("Standardized Return") for a specific class of shares of the Fund
will be expressed in terms of the average annual compounded rate of return that
would cause a hypothetical investment in that class of the Fund made on the
first day of a designated period to equal the ending redeemable value ("ERV") of
such hypothetical investment on the last day of the designated period, according
to the following formula:
P(1 + T){superscript n} = ERV
Where: P = a hypothetical initial payment of $1,000 to
purchase shares of a specific class
T = the average annual total return of shares
of that class
n = the number of years
ERV = the ending redeemable value of a
hypothetical $1,000 payment made at
the beginning of the period.
For purposes of the above computation for the Fund, it is assumed that
all dividends and capital gains distributions made by the Fund are reinvested at
net asset value in additional shares of the same class during the designated
period. In calculating the ending redeemable value for Class A shares and
assuming complete redemption at the end of the applicable period, the maximum
5.75% sales charge is deducted from the initial $1,000 payment and, for Class B
and Class C shares, the applicable CDSC imposed upon redemption of Class B or
Class C shares held for the period is deducted. Standardized Return quotations
for the Fund do not take into account any required payments for federal or state
income taxes. Standardized Return quotations for Class B shares for periods of
over eight years will reflect conversion of the Class B shares to Class A shares
at the end of the eighth year. Standardized Return quotations are determined to
the nearest 1/100 of 1%.
The Fund may, from time to time, include in advertisements, promotional
literature or reports to shareholders or prospective investors total return data
that are not calculated according to the formula set forth above
("Non-Standardized Return"). Neither initial nor CDSCs are taken into account in
calculating Non-Standardized Return; a sales charge, if deducted, would reduce
the return.
The following table summarizes the calculation of Standardized and
Non-Standardized Return for the Class A, Class B, Class, C, Class I and Advisor
Class shares of the Fund for the periods indicated. In determining the average
annual total return for a specific class of shares of the Fund, recurring fees,
if any, that are charged to all shareholder accounts are taken into
consideration. For any account fees that vary with the size of the account of
the Fund, the account fee used for purposes of the following computations is
assumed to be the fee that would be charged to the mean account size of the
Fund.
STANDARDIZED RETURN[*]
<TABLE>
CLASS A[1] CLASS B[2] CLASS C[3] CLASS I[4] ADVISOR CLASS
<S> <C> <C> <C> <C> <C>
Year ended December 31,
1998
%
% % % %
Inception [#] to year ended December 31, 1998:
%
% % % %
NON-STANDARDIZED RETURN[**]
CLASS A[5] CLASS B[6] CLASS C[7] CLASS I[4] ADVISOR CLASS
Year ended December 31,
1998
%
% % % %
Inception [#] to year ended December 31, 1998:
%
% % % %
- ------------------------- ----------------- ------------------ -------------------
</TABLE>
[*] The Standardization Return figures for Class A shares reflect the
deduction of the maximum initial sales charge of 5.75%. The Standardized Return
figures for Class B and C shares reflect the deduction of the applicable CDSC
imposed on redemption of Class B or C shares held for the period.
[**] The Non-Standardized Return figures do not reflect the deduction of any
initial sales charge or CDSC.
[#] The inception date for Ivy International Small Companies Fund (and
Class A, Class B, Class C and Class I shares of the Fund) was January 1, 1997.
Advisor Class shares were first offered on January 1, 1998.
[1] The Standardized Return figures for the Class A shares reflect
expense reimbursement. Without expense reimbursement, the Standardized Return
for Class A shares for the period from inception through and the one year ended
December 31, 1998 would have been [ ].
[2] The Standardized Return figures for the Class B shares reflect
expense reimbursement. Without expense reimbursement, the Standardized Return
for Class B shares for the period from inception through and the one year ended
December 31, 1998 would have been [ ]
[3] The Standardized Return figures for the Class C shares reflect
expense reimbursement. Without expense reimbursement, the Standardized Return
for Class C shares for the period from inception through and the one year ended
December 31, 1998 would have been [ ]
[4] Class I shares are not subject to an initial sales charge or a
CDSC; therefore the Non-Standardized and Standardized Return figures are
identical.
[5] The Non-Standardized Return figures for Class A shares reflect
expense reimbursement. Without expense reimbursement, the Non-Standardized
Return for Class A shares for the period from inception through and the one year
ended December 31, 1998 would have been [ ].
[6] The Non-Standardized Return figures for Class B shares reflect
expense reimbursement. Without expense reimbursement, the Non-Standardized
Return for Class B shares for the period from inception through and the one year
ended December 31, 1998 would have been [ ]
[7] The Non-Standardized Return figures for Class C shares reflect
expense reimbursement. Without expense reimbursement, the Non-Standardized
Return for Class C shares for the period from inception through and the one year
ended December 31, 1998 would have been [ ]
CUMULATIVE TOTAL RETURN. Cumulative total return is the cumulative rate
of return on a hypothetical initial investment of $1,000 in a specific class of
shares of the Fund for a specified period. Cumulative total return quotations
reflect changes in the price of the Fund's shares and assume that all dividends
and capital gains distributions during the period were reinvested in the Fund
shares. Cumulative total return is calculated by computing the cumulative rates
of return of a hypothetical investment in a specific class of shares of the Fund
over such periods, according to the following formula (cumulative total return
is then expressed as a percentage):
C = (ERV/P) - 1
Where: C = cumulative total return
P = a hypothetical initial investment of $1,000 to purchase shares
of a specific class
ERV = ending redeemable value: ERV is
the value, at the end of the
applicable period, of a hypothetical
$1,000 investment made at the
beginning of the applicable period.
The following table summarizes the calculation of Cumulative Total
Return for the periods indicated through December 31, 1998, assuming the maximum
5.75% sales charge has been assessed.
ONE YEAR SINCE INCEPTION [*]
Class A
Class B
Class C
Class I
Advisor Class
The following table summarizes the calculation of Cumulative Total Return for
the periods indicated through December 31, 1998, assuming the maximum 5.75%
sales charge has not been assessed.
ONE YEAR SINCE INCEPTION [*]
Class A
Class B
Class C
Class I
Advisor Class
- ---------------------------
[*] The inception date for the Fund (Class A, Class B, Class C and
Class I shares) was January 1, 1997. Advisor Class shares were first offered on
January 1, 1998.
OTHER QUOTATIONS, COMPARISONS AND GENERAL INFORMATION. The foregoing
computation methods are prescribed for advertising and other communications
subject to SEC Rule 482. Communications not subject to this rule may contain a
number of different measures of performance, computation methods and
assumptions, including but not limited to: historical total returns; results of
actual or hypothetical investments; changes in dividends, distributions or share
values; or any graphic illustration of such data. These data may cover any
period of the Trust's existence and may or may not include the impact of sales
charges, taxes or other factors.
Performance quotations for the Fund will vary from time to time
depending on market conditions, the composition of the Fund's portfolio and
operating expenses of the Fund. These factors and possible differences in the
methods used in calculating performance quotations should be considered when
comparing performance information regarding the Fund's shares with information
published for other investment companies and other investment vehicles.
Performance quotations should also be considered relative to changes in the
value of the Fund's shares and the risks associated with the Fund's investment
objectives and policies. At any time in the future, performance quotations may
be higher or lower than past performance quotations and there can be no
assurance that any historical performance quotation will continue in the future.
The Fund may also cite endorsements or use for comparison its
performance rankings and listings reported in such newspapers or business or
consumer publications as, among others: AAII Journal, Barron's, Boston Business
Journal, Boston Globe, Boston Herald, Business Week, Consumer's Digest, Consumer
Guide Publications, Changing Times, Financial Planning, Financial World, Forbes,
Fortune, Growth Fund Guide, Houston Post, Institutional Investor, International
Fund Monitor, Investor's Daily, Los Angeles Times, Medical Economics, Miami
Herald, Money Mutual Fund Forecaster, Mutual Fund Letter, Mutual Fund Source
Book, Mutual Fund Values, National Underwriter, Nelson's Directory of Investment
Managers, New York Times, Newsweek, No Load Fund Investor, No Load Fund* X,
Oakland Tribune, Pension World, Pensions and Investment Age, Personal Investor,
Rugg and Steele, Time, U.S. News and World Report, USA Today, The Wall Street
Journal, and Washington Post.
FINANCIAL STATEMENTS
The Fund's Portfolio of Investments as of December 31, 1998, Statement
of Assets and Liabilities as of December 31, 1998, Statement of Operations for
the fiscal year ended December 31, 1998, Statement of Changes in Net Assets for
the fiscal year ended December 31, 1998, Financial Highlights, Notes to
Financial Statements, and Report of Independent Accountants, which are included
in the Fund's December 31, 1998 Annual Report to shareholders, are incorporated
by reference into this SAI.
<PAGE>
APPENDIX A
DESCRIPTION OF STANDARD & POOR'S RATINGS GROUP ("S&P") AND MOODY'S
INVESTORS SERVICE, INC. ("MOODY'S") CORPORATE BOND AND COMMERCIAL
PAPER RATINGS
[From"Moody's Bond Record," November 1994 Issue (Moody's Investors
Service, New York, 1994), and "Standard & Poor's Municipal Ratings
Handbook," October 1997 Issue (McGraw Hill, New York, 1997).]
MOODY'S:
(a) CORPORATE BONDS. Bonds rated Aaa by Moody's are judged by Moody's
to be of the best quality, carrying the smallest degree of investment risk.
Interest payments are protected by a large or exceptionally stable margin and
principal is secure. While the various protective elements are likely to change,
such changes as can be visualized are most unlikely to impair the fundamentally
strong position of such issues. Bonds rated Aa are judged by Moody's to be of
high quality by all standards. Aa bonds are rated lower than Aaa bonds because
margins of protection may not be as large as those of Aaa bonds, or fluctuations
of protective elements may be of greater amplitude, or there may be other
elements present which make the long-term risks appear somewhat larger than
those applicable to Aaa securities. Bonds which are rated A by Moody's possess
many favorable investment attributes and are to be considered as upper
medium-grade obligations. Factors giving security to principal and interest are
considered adequate, but elements may be present which suggest a susceptibility
to impairment sometime in the future. Bonds rated Baa by Moody's are considered
medium-grade obligations (i.e., they are neither highly protected nor poorly
secured). Interest payments and principal security appear adequate for the
present, but certain protective elements may be lacking or may be
characteristically unreliable over any great length of time. Such bonds lack
outstanding investment characteristics and in fact have speculative
characteristics as well. Bonds which are rated Ba are judged to have speculative
elements; their future cannot be considered well-assured. Often the protection
of interest and principal payments may be very moderate and thereby not well
safeguarded during both good and bad times over the future. Uncertainty of
position characterizes bonds in this class. Bonds which are rated B generally
lack characteristics of the desirable investment. Assurance of interest and
principal payments of or maintenance of other terms of the contract over any
long period of time may be small. Bonds which are rated Caa are of poor
standing. Such issues may be in default or there may be present elements of
danger with respect to principal or interest. Bonds which are rated Ca represent
obligations which are speculative in a high degree. Such issues are often in
default or have other marked shortcomings. Bonds which are rated C are the
lowest rated class of bonds and issues so rated can be regarded as having
extremely poor prospects of ever attaining any real investment standing.
(b) COMMERCIAL PAPER. The Prime rating is the highest commercial paper
rating assigned by Moody's. Among the factors considered by Moody's in assigning
ratings are the following: (1) evaluation of the management of the issuer; (2)
economic evaluation of the issuer's industry or industries and an appraisal of
speculative-type risks which may be inherent in certain areas; (3) evaluation of
the issuer's products in relation to competition and customer acceptance; (4)
liquidity; (5) amount and quality of long-term debt; (6) trend of earnings over
a period of ten years; (7) financial strength of a parent company and the
relationships which exist with the issuer; and (8) recognition by management of
obligations which may be present or may arise as a result of public interest
questions and preparations to meet such obligations. Issuers within this Prime
category may be given ratings 1, 2 or 3, depending on the relative strengths of
these factors. The designation of Prime-1 indicates the highest quality
repayment capacity of the rated issue. Issuers rated Prime-2 are deemed to have
a strong ability for repayment while issuers voted Prime-3 are deemed to have an
acceptable ability for repayment. Issuers rated Not Prime do not fall within any
of the Prime rating categories.
S&P:
(a) CORPORATE BONDS. An S&P corporate debt rating is a current
assessment of the creditworthiness of an obligor with respect to a specific
obligation. The ratings are based on current information furnished by the issuer
or obtained by S&P from other sources it considers reliable. The ratings
described below may be modified by the addition of a plus or minus sign to show
relative standing within the major rating categories.
Debt rated AAA has the highest rating assigned by S&P. Capacity to pay
interest and repay principal is extremely strong. Debt rated AA is judged by S&P
to have a very strong capacity to pay interest and repay principal and differs
from the highest rated issues only in small degree. Debt rated A by S&P has a
strong capacity to pay interest and repay principal, although it is somewhat
more susceptible to the adverse effects of changes in circumstances and economic
conditions than debt in higher rated categories.
Debt rated BBB by S&P is regarded by S&P as having an adequate capacity
to pay interest and repay principal. Although such bonds normally exhibit
adequate protection parameters, adverse economic conditions or changing
circumstances are more likely to lead to a weakened capacity to pay interest and
repay principal than debt in higher rated categories.
Debt rated BB, B, CCC, CC and C is regarded as having predominately
speculative characteristics with respect to capacity to pay interest and repay
principal. BB indicates the least degree of speculation and C the highest. While
such debt will likely have some quality and protective characteristics, these
are outweighed by large uncertainties or exposures to adverse conditions. Debt
rated BB has less near-term vulnerability to default than other speculative
issues. However, it faces major ongoing uncertainties or exposure to adverse
business, financial or economic conditions which could lead to inadequate
capacity to meet timely interest and principal payments. The BB rating category
is also used for debt subordinated to senior debt that is assigned an actual or
implied BBB- rating. Debt rated B has a greater vulnerability to default but
currently has the capacity to meet interest payments and principal repayments.
Adverse business, financial, or economic conditions will likely impair capacity
or willingness to pay interest and repay principal. The B rating category is
also used for debt subordinated to senior debt that is assigned an actual or
implied BB or BB- rating. Debt rated CCC has a currently identifiable
vulnerability to default, and is dependent upon favorable business, financial,
and economic conditions to meet timely payment of interest and repayment of
principal. In the event of adverse business, financial or economic conditions,
it is not likely to have the capacity to pay interest and repay principal. The
CCC rating category is also used for debt subordinated to senior debt that is
assigned an actual or implied B or B- rating. The rating CC typically is applied
to debt subordinated to senior debt which is assigned an actual or implied CCC
debt rating. The rating C typically is applied to debt subordinated to senior
debt which is assigned an actual or implied CCC- debt rating. The C rating may
be used to cover a situation where a bankruptcy petition has been filed, but
debt service payments are continued.
The rating CI is reserved for income bonds on which no interest is
being paid. Debt rated D is in payment default. The D rating category is used
when interest payments or principal payments are not made on the date due, even
if the applicable grace period has not expired, unless S&P believes that such
payments will be made during such grace period. The D rating also will be used
upon the filing of a bankruptcy petition if debt service payments are
jeopardized.
(b) COMMERCIAL PAPER. An S&P commercial paper rating is a current
assessment of the likelihood of timely payment of debt considered short-term in
the relevant market.
The commercial paper rating A-1 by S&P indicates that the degree of
safety regarding timely payment is strong. Those issues determined to possess
extremely strong safety characteristics are denoted with a plus sign (+)
designation. For commercial paper with an A-2 rating, the capacity for timely
payment on issues is satisfactory, but not as high as for issues designated A-1.
Issues rated A-3 have adequate capacity for timely payment, but are more
vulnerable to the adverse effects of changes in circumstances than obligations
carrying higher designations.
Issues rated B are regarded as having only speculative capacity for
timely payment. The C rating is assigned to short-term debt obligations with a
doubtful capacity for payment. Debt rated D is in payment default. The D rating
category is used when interest payments or principal payments are not made on
the date due, even if the applicable grace period has not expired, unless S&P
believes such payments will be made during such grace period.
<PAGE>
IVY INTERNATIONAL STRATEGIC BOND FUND
series of
IVY FUND
Via Mizner Financial Plaza, Suite 300
700 South Federal Highway
Boca Raton, Florida 33432
STATEMENT OF ADDITIONAL INFORMATION
April ___, 1999
Ivy Fund (the "Trust") is an open-end management investment company
that currently consists of nineteen fully managed portfolios, each of which
(except for Ivy South America Fund and Ivy International Strategic Bond Fund) is
diversified. This Statement of Additional Information ("SAI") relates to Class
A, B, C, I and Advisor Class shares of Ivy International Strategic Bond Fund
(the "Fund"). The other eighteen portfolios of the Trust are described in
separate prospectuses and SAIs.
This SAI is not a prospectus and should be read in conjunction with the
prospectus for the Fund dated April ___, 1999 (the "Prospectus"), which may be
obtained upon request and without charge from the Trust at the Distributor's
address and telephone number printed below. The Fund also offers Advisor Class
shares, which are described in a separate prospectus and SAI that may also be
obtained without charge from the Distributor.
INVESTMENT MANAGER
Ivy Management, Inc. ("IMI")
Via Mizner Financial Plaza, Suite 300
700 South Federal Highway
Boca Raton, Florida 33432
Telephone: (800) 777-6472
DISTRIBUTOR
Ivy Mackenzie Distributors, Inc.
Via Mizner Financial Plaza, Suite 300
700 South Federal Highway
Boca Raton, Florida 33432
Telephone: (800) 456-5111
<PAGE>
i
TABLE OF CONTENTS
INVESTMENT OBJECTIVES AND POLICIES............................................
INVESTING IN FOREIGN SECURITIES......................................
DEPOSITORY RECEIPTS..................................................
DEBT SECURITIES......................................................
IN GENERAL..................................................
INVESTMENT-GRADE DEBT SECURITIES............................
LOW-RATED DEBT SECURITIES...................................
U.S. GOVERNMENT SECURITIES..................................
COMMERCIAL PAPER............................................
CONVERTIBLE SECURITIES...............................................
ZERO COUPON BONDS....................................................
"WHEN-ISSUED" SECURITIES AND FIRM COMMITMENTS........................
BORROWING............................................................
REPURCHASE AGREEMENTS................................................
ILLIQUID SECURITIES..................................................
EMERGING MARKETS SECURITIES..........................................
FOREIGN SOVEREIGN DEBT OBLIGATIONS...................................
BRADY BONDS..........................................................
LOAN PARTICIPATIONS AND ASSIGNMENTS..................................
FOREIGN CURRENCIES...................................................
EURO CONVERSATION RISKS..............................................
FORWARD FOREIGN CURRENCY CONTRACTS...................................
SHORT SALES..........................................................
OPTIONS TRANSACTIONS.................................................
IN GENERAL..................................................
WRITING OPTIONS ON INDIVIDUAL SECURITIES....................
PURCHASING OPTIONS ON INDIVIDUAL SECURITIES.................
PURCHASING AND WRITING OPTIONS ON SECURITIES INDICES........
RISKS OF OPTIONS TRANSACTIONS...............................
FUTURES CONTRACTS AND OPTIONS ON FUTURES CONTRACTS...................
IN GENERAL..................................................
INTEREST RATE FUTURES CONTRACTS.............................
OPTIONS ON INTEREST RATE FUTURES CONTRACTS..................
SWAPS, CAPS, FLOORS AND COLLARS.............................
FOREIGN CURRENCY FUTURES CONTRACTS AND RELATED OPTIONS......
RISKS ASSOCIATED WITH FUTURES AND RELATED OPTIONS...........
SECURITIES INDEX FUTURES CONTRACTS...................................
RISKS OF SECURITIES INDEX FUTURES...........................
COMBINED TRANSACTIONS.......................................
INVESTMENT RESTRICTIONS.......................................................
ADDITIONAL RESTRICTIONS.......................................................
ADDITIONAL RIGHTS AND PRIVILEGES..............................................
AUTOMATIC INVESTMENT METHOD..........................................
EXCHANGE OF SHARES...................................................
INITIAL SALES CHARGE SHARES.................................
CONTINGENT DEFERRED SALES CHARGE SHARES CLASS A.............
CLASS B.....................................................
CLASS C.....................................................
CLASS I.....................................................
ALL CLASSES.................................................
LETTER OF INTENT.....................................................
RETIREMENT PLANS.....................................................
INDIVIDUAL RETIREMENT ACCOUNTS..............................
ROTH IRAS...................................................
QUALIFIED PLANS.............................................
DEFERRED COMPENSATION FOR PUBLIC SCHOOLS AND
CHARITABLE ORGANIZATIONS ("403(B)(7) ACCOUNT")....
SIMPLIFIED EMPLOYEE PENSION ("SEP") IRAS....................
SIMPLE PLANS................................................
REINVESTMENT PRIVILEGE...............................................
RIGHTS OF ACCUMULATION...............................................
SYSTEMATIC WITHDRAWAL PLAN...........................................
GROUP SYSTEMATIC INVESTMENT PROGRAM..................................
BROKERAGE ALLOCATION..........................................................
TRUSTEES AND OFFICERS.........................................................
PERSONAL INVESTMENTS BY EMPLOYEES OF IMI....................
COMPENSATION TABLE............................................................
INVESTMENT ADVISORY AND OTHER SERVICES........................................
BUSINESS MANAGEMENT AND INVESTMENT ADVISORY SERVICES.................
DISTRIBUTION SERVICES................................................
RULE 18F-3 PLAN.............................................
RULE 12B-1 DISTRIBUTION PLANS...............................
CUSTODIAN............................................................
FUND ACCOUNTING SERVICES.............................................
TRANSFER AGENT AND DIVIDEND PAYING AGENT.............................
ADMINISTRATOR........................................................
AUDITORS.............................................................
YEAR 2000 RISKS......................................................
CAPITALIZATION AND VOTING RIGHTS..............................................
NET ASSET VALUE...............................................................
PORTFOLIO TURNOVER............................................................
REDEMPTIONS...................................................................
CONVERSION OF CLASS B SHARES..................................................
TAXATION 51
OPTIONS, FUTURES AND FOREIGN CURRENCY FORWARD CONTRACTS..............
CURRENCY FLUCTUATIONS -- "SECTION 988" GAINS OR LOSSES...............
INVESTMENT IN PASSIVE FOREIGN INVESTMENT COMPANIES...................
DEBT SECURITIES ACQUIRED AT A DISCOUNT...............................
DISTRIBUTIONS........................................................
DISPOSITION OF SHARES................................................
FOREIGN WITHHOLDING TAXES............................................
BACKUP WITHHOLDING...................................................
PERFORMANCE INFORMATION.......................................................
YIELD.......................................................
AVERAGE ANNUAL TOTAL RETURN.................................
CUMULATIVE TOTAL RETURN.....................................
OTHER QUOTATIONS, COMPARISONS AND GENERAL INFORMATION.......
FINANCIAL STATEMENTS..........................................................
APPENDIX A....................................................................
APPENDIX B....................................................................
<PAGE>
INVESTMENT OBJECTIVES AND POLICIES
The Fund has its own investment objectives and policies, which are
described in the Prospectus under the captions "Investment Objective and
Policies" and "Risk Factors and Investment Techniques." Additional information
regarding the characteristics and risks associated with the Fund's investment
techniques is set forth below.
INVESTING IN FOREIGN SECURITIES
The Fund may invest in securities of foreign issuers, including
non-U.S. dollar-denominated debt securities, Euro dollar securities, sponsored
and unsponsored American Depository Receipts ("ADRs"), Global Depository
Receipts ("GDRs"), American Depository Shares ("ADSs"), Global Depository Shares
("GDSs"), and debt securities issued, assumed or guaranteed by foreign
governments or political subdivisions or instrumentalities thereof. Shareholders
should consider carefully the substantial risks involved in investing in
securities issued by companies and governments of foreign nations, which are in
addition to the usual risks inherent in the Fund's domestic investments.
Although IMI intends to invest the Fund's assets only in nations that
are generally considered to have relatively stable and friendly governments,
there is the possibility of expropriation, nationalization, repatriation or
confiscatory taxation, taxation on income earned in a foreign country and other
foreign taxes, foreign exchange controls (which may include suspension of the
ability to transfer currency from a given country), default on foreign
government securities, political or social instability or diplomatic
developments which could affect investments in securities of issuers in those
nations. In addition, in many countries there is less publicly available
information about issuers than is available for U.S. companies. Moreover,
foreign companies are not generally subject to uniform accounting, auditing and
financial reporting standards, and auditing practices and requirements may not
be comparable to those applicable to U.S. companies. In many foreign countries,
there is less governmental supervision and regulation of business and industry
practices, stock exchanges, brokers, and listed companies than in the United
States. Foreign securities transactions may also be subject to higher brokerage
costs than domestic securities transactions. The foreign securities markets of
many of the countries in which the Fund may invest may also be smaller, less
liquid and subject to greater price volatility than those in the United States.
In addition, the Fund may encounter difficulties or be unable to pursue legal
remedies and obtain judgment in foreign courts.
Foreign bond markets have different clearance and settlement procedures
and in certain markets there have been times when settlements have been unable
to keep pace with the volume of securities transactions, making it difficult to
conduct such transactions. Delays in settlement could result in temporary
periods when assets of the Fund are uninvested and no return is earned thereon.
The inability of the Fund to make intended security purchases due to settlement
problems could cause the Fund to miss attractive investment opportunities.
Further, the inability to dispose of portfolio securities due to settlement
problems could result either in losses to the Fund because of subsequent
declines in the value of the portfolio security or, if the Fund has entered into
a contract to sell the security, in possible liability to the purchaser. It may
be more difficult for the Fund's agents to keep currently informed about
corporate actions such as stock dividends or other matters that may affect the
prices of portfolio securities. Communications between the United States and
foreign countries may be less reliable than within the United States, thus
increasing the risk of delayed settlements of portfolio transactions or loss of
certificates for portfolio securities. Moreover, individual foreign economies
may differ favorably or unfavorably from the United States economy in such
respects as growth of gross national product, rate of inflation, capital
reinvestment, resource self-sufficiency and balance of payments position. IMI
seeks to mitigate the risks to the Fund associated with the foregoing
considerations through investment variation and continuous professional
management.
DEPOSITORY RECEIPTS
ADRs, GDRs, ADSs, and GDSs are depository instruments, the issuance of
which is typically administered by a U.S. or foreign bank or trust company.
These instruments evidence ownership of underlying securities issued by a U.S.
or foreign corporation. ADRs are publicly traded on exchanges or
over-the-counter ("OTC") in the United States. Unsponsored programs are
organized independently and without the cooperation of the issuer of the
underlying securities. As a result, information concerning the issuer may not be
as current or as readily available as in the case of sponsored depository
instruments, and their prices may be more volatile than if they were sponsored
by the issuers of the underlying securities.
DEBT SECURITIES
IN GENERAL. Investment in debt securities involves both interest rate
and credit risk. Generally, the value of debt instruments rises and falls
inversely with fluctuations in interest rates. As interest rates decline, the
value of debt securities generally increases. Conversely, rising interest rates
tend to cause the value of debt securities to decrease. Bonds with longer
maturities generally are more volatile than bonds with shorter maturities. The
market value of debt securities also varies according to the relative financial
condition of the issuer. In general, lower-quality bonds offer higher yields due
to the increased risk that the issuer will be unable to meet its obligations on
interest or principal payments at the time called for by the debt instrument.
INVESTMENT-GRADE DEBT SECURITIES. Bonds rated Aaa by Moody's Investors
Service, Inc. ("Moody's") and AAA by Standard & Poor's Ratings Group ("S&P") are
judged to be of the best quality (i.e., capacity to pay interest and repay
principal is extremely strong). Bonds rated Aa/AA are considered to be of high
quality (i.e., capacity to pay interest and repay principal is very strong and
differs from the highest rated issues only to a small degree). Bonds rated A are
viewed as having many favorable investment attributes, but elements may be
present that suggest a susceptibility to the adverse effects of changes in
circumstances and economic conditions than debt in higher rated categories.
Bonds rated Baa/BBB (considered by Moody's to be "medium grade" obligations) are
considered to have an adequate capacity to pay interest and repay principal, but
certain protective elements may be lacking (i.e., such bonds lack outstanding
investment characteristics and have some speculative characteristics). The Fund
may invest in debt securities that are given an investment-grade rating by
Moody's or S&P, and may also invest in unrated debt securities that are
considered by IMI to be of comparable quality.
LOW-RATED DEBT SECURITIES. The Fund may invest in corporate and
sovereign debt securities rated Ba or lower by Moody's, or BB or lower by S&P.
The Fund will not, however, invest in securities that, at the time of
investment, are rated lower than C by either Moody's or S&P. Securities rated
lower than Baa or BBB and comparable unrated securities (commonly referred to as
"high yield" or "junk" bonds), including many emerging markets bonds, are
considered to be predominantly speculative with respect to the issuer's
continuing ability to meet principal and interest payments. The lower the
ratings of corporate debt securities, the more their risks render them like
equity securities. Such securities carry a high degree of risk (including the
possibility of default or bankruptcy of the issuers of such securities), and
generally involve greater volatility of price and risk of principal and income
(and may be less liquid) than securities in the higher rating categories. (See
Appendix A for a more complete description of the ratings assigned by Moody's
and S&P and their respective characteristics.)
Lower rated and unrated securities are especially subject to adverse
changes in general economic conditions and to changes in the financial condition
of their issuers. Economic downturns may disrupt the high yield market and
impair the ability of issuers to repay principal and interest. Also, an increase
in interest rates would likely have an adverse impact on the value of such
obligations. During an economic downturn or period of rising interest rates,
highly leveraged issuers may experience financial stress which could adversely
affect their ability to service their principal and interest payment
obligations. Prices and yields of high yield securities will fluctuate over time
and, during periods of economic uncertainty, volatility of high yield securities
may adversely affect the Fund's net asset value. In addition, investments in
high yield zero coupon or pay-in-kind bonds, rather than income-bearing high
yield securities, may be more speculative and may be subject to greater
fluctuations in value due to changes in interest rates.
Changes in interest rates may have a less direct or dominant impact on
high yield bonds than on higher quality issues of similar maturities. However,
the price of high yield bonds can change significantly or suddenly due to a host
of factors including changes in interest rates, fundamental credit quality,
market psychology, government regulations, U.S. economic growth and, at times,
stock market activity. High yield bonds may contain redemption or call
provisions. If an issuer exercises these provisions in a declining interest rate
market, the Fund may have to replace the security with a lower yielding
security.
The trading market for high yield securities may be thin to the extent
that there is no established retail secondary market or because of a decline in
the value of such securities. A thin trading market may limit the ability of the
Fund to accurately value high yield securities in the Fund's portfolio, could
adversely affect the price at which the Fund could sell such securities, and
cause large fluctuations in the daily net asset value of the Fund's shares.
Adverse publicity and investor perceptions, whether or not based on fundamental
analysis, may decrease the value and liquidity of low-rated debt securities,
especially in a thinly traded market. When secondary markets for high yield
securities become relatively less liquid, it may be more difficult to value the
securities, requiring additional research and elements of judgment. These
securities may also involve special registration responsibilities, liabilities
and costs, and liquidity and valuation difficulties.
Credit quality in the high yield securities market can change suddenly
and unexpectedly, and even recently issued credit ratings may not fully reflect
the actual risks posed by a particular high yield security. For these reasons,
it is the policy of IMI not to rely exclusively on ratings issued by established
credit rating agencies, but to supplement such ratings with its own independent
and on-going review of credit quality. The achievement of the Fund's investment
objectives by investment in such securities may be more dependent on IMI's
credit analysis than is the case for higher quality bonds. Should the rating of
a portfolio security be downgraded, IMI will determine whether it is in the best
interest of the Fund to retain or dispose of such security. However, should any
individual bond held by the Fund be downgraded below a rating of C, IMI
currently intends to dispose of such bond based on then existing market
conditions.
Prices for high yield securities may be affected by legislative and
regulatory developments. For example, Federal rules require savings and loan
institutions to gradually reduce their holdings of this type of security. Also,
Congress has from time to time considered legislation that would restrict or
eliminate the corporate tax deduction for interest payments in these securities
and regulate corporate restructurings. Such legislation may significantly
depress the prices of outstanding securities of this type.
U.S. GOVERNMENT SECURITIES. U.S. Government securities are obligations of,
or guaranteed by, the U.S. Government, its agencies or instrumentalities.
Securities guaranteed by the U.S. Government include: (1) direct
obligations of the U.S. Treasury (such as Treasury bills, notes, and bonds)
and (2) Federal agency obligations guaranteed as to principal and interest
by the U.S. Treasury (such as GNMA certificates, which are mortgage-backed
securities). When such securities are held to maturity, the payment of
principal and interest is unconditionally guaranteed by the U.S.
Government, and thus they are of the highest possible credit quality. U.S.
Government securities that are not held to maturity are subject to
variations in market value due to fluctuations in interest rates.
Mortgage-backed securities are securities representing part ownership
of a pool of mortgage loans. For example, GNMA certificates are such securities
in which the timely payment of principal and interest is guaranteed by the full
faith and credit of the U.S. Government. Although the mortgage loans in the pool
will have maturities of up to 30 years, the actual average life of the loans
typically will be substantially less because the mortgages will be subject to
principal amortization and may be prepaid prior to maturity. Prepayment rates
vary widely and may be affected by changes in market interest rates. In periods
of falling interest rates, the rate of prepayment tends to increase, thereby
shortening the actual average life of the security. Conversely, rising interest
rates tend to decrease the rate of prepayments, thereby lengthening the actual
average life of the security (and increasing the security's price volatility).
Accordingly, it is not possible to predict accurately the average life of a
particular pool. Reinvestment of prepayment may occur at higher or lower rates
than the original yield on the certificates. Due to the prepayment feature and
the need to reinvest prepayments of principal at current rates, mortgage-backed
securities can be less effective than typical bonds of similar maturities at
"locking in" yields during periods of declining interest rates, and may involve
significantly greater price and yield volatility than traditional debt
securities. Such securities may appreciate or decline in market value during
periods of declining or rising interest rates, respectively.
Securities issued by U.S. Government instrumentalities and certain
Federal agencies are neither direct obligations of nor guaranteed by the U.S.
Treasury; however, they involve Federal sponsorship in one way or another. Some
are backed by specific types of collateral, some are supported by the issuer's
right to borrow from the Treasury, some are supported by the discretionary
authority of the Treasury to purchase certain obligations of the issuer, others
are supported only by the credit of the issuing government agency or
instrumentality. These agencies and instrumentalities include, but are not
limited to, Federal Land Banks, Farmers Home Administration, Central Bank for
Cooperatives, Federal Intermediate Credit Banks, Federal Home Loan Banks,
Federal National Mortgage Association, Federal Home Loan Mortgage Association,
and Student Loan Marketing Association.
COMMERCIAL PAPER. Commercial paper represents short-term unsecured
promissory notes issued in bearer form by bank holding companies, corporations
and finance companies. The Fund may invest in commercial paper that is rated
Prime-1 by Moody's Investors Service, Inc. ("Moody's") or A-1 by Standard &
Poor's Corporation ("S&P") or, if not rated by Moody's or S&P, is issued by
companies having an outstanding debt issue rated Aaa or Aa by Moody's or AAA or
AA by S&P.
CONVERTIBLE SECURITIES
The convertible securities in which the Fund may invest include
corporate bonds, notes, debentures, preferred stock and other securities that
may be converted or exchanged at a stated or determinable exchange ratio into
underlying shares of common stock. Investments in convertible securities can
provide income through interest and dividend payments as well as an opportunity
for capital appreciation by virtue of their conversion or exchange features.
Because convertible securities can be converted into equity securities, their
values will normally vary in some proportion with those of the underlying equity
securities. Convertible securities usually provide a higher yield than the
underlying equity, however, so that the price decline of a convertible security
may sometimes be less substantial than that of the underlying equity security.
The exchange ratio for any particular convertible security may be adjusted from
time to time due to stock splits, dividends, spin-offs, other corporate
distributions or scheduled changes in the exchange ratio. Convertible debt
securities and convertible preferred stocks, until converted, have general
characteristics similar to both debt and equity securities. Although to a lesser
extent than with debt securities generally, the market value of convertible
securities tends to decline as interest rates increase and, conversely, tends to
increase as interest rates decline. In addition, because of the conversion or
exchange feature, the market value of convertible securities typically changes
as the market value of the underlying common stock changes, and, therefore, also
tends to follow movements in the general market for equity securities. When the
market price of the underlying common stock increases, the price of a
convertible security tends to rise as a reflection of the value of the
underlying common stock, although typically not as much as the price of the
underlying common stock. While no securities investments are without risk,
investments in convertible securities generally entail less risk than
investments in common stock of the same issuer.
As debt securities, convertible securities are investments that provide
for a stream of income. Like all debt securities, there can be no assurance of
income or principal payments because the issuers of the convertible securities
may default on their obligations. Convertible securities generally offer lower
yields than non-convertible securities of similar quality because of their
conversion or exchange features.
Convertible securities generally are subordinated to other similar but
non-convertible securities of the same issuer, although convertible bonds, as
corporate debt obligations, are senior in right of payment to all equity
securities, and convertible preferred stock is senior to common stock, of the
same issuer. However, convertible bonds and convertible preferred stock
typically have lower coupon rates than similar non-convertible securities.
Convertible securities may be issued as fixed income obligations that pay
current income.
ZERO COUPON BONDS
The Fund may purchase zero coupon bonds in accordance with its credit
quality standards. Zero coupon bonds are debt obligations issued without any
requirement for the periodic payment of interest. Zero coupon bonds are issued
at a significant discount from face value. The discount approximates the total
amount of interest the bonds would accrue and compound over the period until
maturity at a rate of interest reflecting the market rate at the time of
issuance. If the Fund holds zero coupon bonds in its portfolio, it would
recognize income currently for Federal income tax purposes in the amount of the
unpaid, accrued interest and generally would be required to distribute dividends
representing such income to shareholders currently, even though funds
representing such income would not have been received by the Fund. Cash to pay
dividends representing unpaid, accrued interest may be obtained from, for
example, sales proceeds of portfolio securities and Fund shares and from loan
proceeds. The potential sale of portfolio securities to pay cash distributions
from income earned on zero coupon bonds may result in the Fund being forced to
sell portfolio securities at a time when it might otherwise choose not to sell
these securities and when the Fund might incur a capital loss on such sales.
Because interest on zero coupon obligations is not distributed to the Fund on a
current basis, but is in effect compounded, the value of the securities of this
type is subject to greater fluctuations in response to changing interest rates
than the value of debt obligations which distribute income regularly.
"WHEN-ISSUED" SECURITIES AND FIRM COMMITMENTS
New issues of certain debt securities are often offered on a
"when-issued" basis, meaning the payment obligation and the interest rate are
fixed at the time the buyer enters into the commitment, but delivery and payment
for the securities normally take place after the date of the commitment to
purchase. Firm commitment agreements call for the purchase of securities at an
agreed-upon price on a specified future date. The Fund uses such investment
techniques in order to secure what is considered to be an advantageous price and
yield to the Fund and not for purposes of leveraging the Fund's assets. In
either instance, the Fund will maintain in a segregated account with its
Custodian cash or liquid securities equal (on a daily marked-to-market basis) to
the amount of its commitment to purchase the underlying securities.
BORROWING
Borrowing may exaggerate the effect on the Fund's net asset value of
any increase or decrease in the value of the Fund's portfolio securities. Money
borrowed will be subject to interest costs (which may include commitment fees
and/or the cost of maintaining minimum average balances). Although the principal
of the Fund's borrowings will be fixed, the Fund's assets may change in value
during the time a borrowing is outstanding, thus increasing exposure to capital
risk.
REPURCHASE AGREEMENTS
Repurchase agreements are contracts under which the Fund buys a money
market instrument and obtains a simultaneous commitment from the seller to
repurchase the instrument at a specified time and at an agreed-upon yield. Under
guidelines approved by the Board, the Fund is permitted to enter into repurchase
agreements only if the repurchase agreements are at least fully collateralized
with U.S. Government securities or other securities that IMI has approved for
use as collateral for repurchase agreements and the collateral must be
marked-to-market daily. The Fund will enter into repurchase agreements only with
banks and broker-dealers deemed to be creditworthy by IMI under the
above-referenced guidelines. In the unlikely event of failure of the executing
bank or broker-dealer, the Fund could experience some delay in obtaining direct
ownership of the underlying collateral and might incur a loss if the value of
the security should decline, as well as costs in disposing of the security.
ILLIQUID SECURITIES
The Fund may purchase securities other than in the open market. While
such purchases may often offer attractive opportunities for investment not
otherwise available on the open market, the securities so purchased are often
"restricted securities" or "not readily marketable" (i.e., they cannot be sold
to the public without registration under the Securities Act of 1933, as amended
(the "1933 Act"), or the availability of an exemption from registration (such as
Rule 144A) or because they are subject to other legal or contractual delays in
or restrictions on resale). This investment practice, therefore, could have the
effect of increasing the level of illiquidity of the Fund. It is the Fund's
policy that illiquid securities (including repurchase agreements of more than
seven days duration, certain restricted securities, and other securities which
are not readily marketable) may not constitute, at the time of purchase, more
than 15% of the value of the Fund's net assets. The Trust's Board of Trustees
has approved guidelines for use by IMI in determining whether a security is
illiquid.
Generally speaking, restricted securities may be sold (i) only to
qualified institutional buyers; (ii) in a privately negotiated transaction to a
limited number of purchasers; (iii) in limited quantities after they have been
held for a specified period of time and other conditions are met pursuant to an
exemption from registration; or (iv) in a public offering for which a
registration statement is in effect under the 1933 Act. Issuers of restricted
securities may not be subject to the disclosure and other investor protection
requirements that would be applicable if their securities were publicly traded.
If adverse market conditions were to develop during the period between the
Fund's decision to sell a restricted or illiquid security and the point at which
the Fund is permitted or able to sell such security, the Fund might obtain a
price less favorable than the price that prevailed when it decided to sell.
Where a registration statement is required for the resale of restricted
securities, the Fund may be required to bear all or part of the registration
expenses. The Fund may be deemed to be an "underwriter" for purposes of the 1933
Act when selling restricted securities to the public and, in such event, the
Fund may be liable to purchasers of such securities if the registration
statement prepared by the issuer is materially inaccurate or misleading.
Since it is not possible to predict with assurance that the market for
securities eligible for resale under Rule 144A will continue to be liquid, IMI
will monitor such restricted securities subject to the supervision of the Board
of Trustees. Among the factors IMI may consider in reaching liquidity decisions
relating to Rule 144A securities are: (1) the frequency of trades and quotes for
the security; (2) the number of dealers wishing to purchase or sell the security
and the number of other potential purchasers; (3) dealer undertakings to make a
market in the security; and (4) the nature of the security and the nature of the
market for the security (i.e., the time needed to dispose of the security, the
method of soliciting offers, and the mechanics of the transfer).
EMERGING MARKETS SECURITIES
The Fund could have significant investments in securities traded in
emerging markets. Investors should recognize that investing in such countries
involves special considerations, in addition to those set forth above, that are
not typically associated with investing in United States securities and that may
affect the Fund's performance favorably or unfavorably.
In recent years, many emerging market countries around the world have
undergone political changes that have reduced government's role in economic and
personal affairs and have stimulated investment and growth. Historically, there
is a strong direct correlation between economic growth and stock market returns.
While this is no guarantee of future performance, IMI believes that investment
opportunities (particularly in the energy, environmental services, natural
resources, basic materials, power, telecommunications and transportation
industries) may result within the evolving economies of emerging market
countries from which the Fund and its shareholders will benefit.
Investments in companies domiciled in developing countries may be
subject to potentially higher risks than investments in developed countries.
Such risks include (i) less social, political and economic stability; (ii) a
small market for securities and/or a low or nonexistent volume of trading, which
result in a lack of liquidity and in greater price volatility; (iii) certain
national policies that may restrict the Fund's investment opportunities,
including restrictions on investment in issuers or industries deemed sensitive
to national interests; (iv) foreign taxation; (v) the absence of developed
structures governing private or foreign investment or allowing for judicial
redress for injury to private property; (vi) the absence, until relatively
recently in certain Eastern European countries, of a capital market structure or
market-oriented economy; (vii) the possibility that recent favorable economic
developments in Eastern Europe may be slowed or reversed by unanticipated
political or social events in such countries; and (viii) the possibility that
currency devaluations could adversely affect the value of the Fund's
investments. Further, many emerging markets have experienced and continue to
experience high rates of inflation.
Despite the dissolution of the Soviet Union, the Communist Party may
continue to exercise a significant role in certain Eastern European countries.
To the extent of the Communist Party's influence, investments in such countries
will involve risks of nationalization, expropriation and confiscatory taxation.
The communist governments of a number of Eastern European countries expropriated
large amounts of private property in the past, in many cases without adequate
compensation, and there can be no assurance that such expropriation will not
occur in the future. In the event of such expropriation, the Fund could lose a
substantial portion of any investments it has made in the affected countries.
Further, few (if any) accounting standards exist in Eastern European countries.
Finally, even though certain Eastern European currencies may be convertible into
U.S. dollars, the conversion rates may be artificial in relation to the actual
market values and may be adverse to the Fund's net asset value.
Certain Eastern European countries that do not have well-established
trading markets are characterized by an absence of developed legal structures
governing private and foreign investments and private property. In addition,
certain countries require governmental approval prior to investments by foreign
persons, or limit the amount of investment by foreign persons in a particular
company, or limit the investment of foreign persons to only a specific class of
securities of a company that may have less advantageous terms than securities of
the company available for purchase by nationals.
Authoritarian governments in certain Eastern European countries may
require that a governmental or quasi-governmental authority act as custodian of
the Fund's assets invested in such country. To the extent such governmental or
quasi-governmental authorities do not satisfy the requirements of the Investment
Company Act of 1940, as amended (the "1940 Act"), with respect to the custody of
the Fund's cash and securities, the Fund's investment in such countries may be
limited or may be required to be effected through intermediaries. The risk of
loss through governmental confiscation may be increased in such countries.
FOREIGN SOVEREIGN DEBT OBLIGATIONS
Investment in sovereign debt can involve a high degree of risk. The
governmental entity that controls the repayment of sovereign debt may not be
able or willing to repay the principal and/or interest when due in accordance
with the terms of such debt. A governmental entity's willingness or ability to
repay principal and interest due in a timely manner may be affected by, among
other factors, its cash flow situation, the extent of its foreign reserves, the
availability of sufficient foreign exchange on the date a payment is due, the
relative size of the debt service burden to the economy as a whole, the
governmental entity's policy towards the International Monetary Fund, and the
political constraints to which a governmental entity may be subject.
Governmental entities may also be dependent on expected disbursements from
foreign governments, multilateral agencies and others abroad to reduce principal
and interest arrearages on their debt. The commitment on the part of these
governments, agencies and others to make such disbursements may be conditioned
on a governmental entity's implementation of economic reforms and/or economic
performance and the timely service of such debtor's obligations. Failure to
implement such reforms, achieve such levels of economic performance or repay
principal or interest when due may result in the cancellation of such third
parties' commitments to lend funds to the governmental entity, which may further
impair such debtor's ability or willingness to service its debts in a timely
manner. Consequently, governmental entities may default on their sovereign debt.
Holders of sovereign debt (including the Fund) may be requested to participate
in the rescheduling of such debt and to extend further loans to governmental
entities. There is no bankruptcy proceeding by which sovereign debt on which
governmental entities have defaulted may be collected in whole or in part.
BRADY BONDS
The Fund may invest in Brady Bonds, which are securities created
through the exchange of existing commercial bank loans to public and private
entities in certain emerging markets for new bonds in connection with debt
restructurings under a debt restructuring plan introduced by former U.S.
Secretary of the Treasury, Nicholas F. Brady (the `Brady Plan"). Brady Plan debt
restructurings have been implemented to date in Argentina, Brazil, Bulgaria,
Costa Rica, the Dominican Republic, Ecuador, Jordan, Mexico, Nigeria, Peru, the
Philippines, Poland, Uruguay, and Venezuela.
Brady Bonds have been issued only recently, and for that reason do not
have a long payment history. Brady Bonds may be collateralized or
uncollateralized, are issued in various currencies (but primarily the U.S.
dollar) and are actively traded in over-the-counter secondary markets.
Dollar-denominated, collateralized Brady Bonds, which may be fixed-rate bonds or
floating-rate bonds, are generally collateralized in full as to principal by
U.S. Treasury zero coupon bonds having the same maturity as the cash or
securities in an amount that, in the case of fixed rate bonds, is equal to at
least one year of rolling interest payments or, in the case of floating rate
bonds, initially is equal to at least one year's rolling interest payments based
on the applicable interest rate at that time and is adjusted at regular
intervals thereafter.
Brady Bonds are often viewed as having three or four valuation
components: the collateralized repayment of principal at final maturity; the
collateralized interest payments; the uncollateralized interest payments; and
any uncollateralized repayment of principal at maturity (these uncollateralized
amounts constitute the "residual risk"). In light of the residual risk of Brady
Bonds and the history of defaults of countries issuing Brady Bonds, with respect
to commercial bank loans by public and private entities, investments in Brady
Bonds may be viewed as speculative.
LOAN PARTICIPATIONS AND ASSIGNMENTS
The Fund may invest in fixed- and floating-rate loans ("Loans")
arranged through private negotiations between an issuer of emerging market debt
instruments and one or more financial institutions ("Lenders"). The Fund's
investments in Loans are expected in most instances to be in the form of
participations in Loans ("Participations") and assignments of portions of Loans
("Assignments") from third parties. Participations typically will result in the
Fund having a contractual relationship only with the Lender and not with the
borrower. The Fund will have the right to receive payments of principal,
interest and any fees to which it is entitled only from the Lender selling the
Participation and only upon receipt by the Lender of the payments from the
borrower. In connection with purchasing Participations, the Fund generally will
have no right to enforce compliance by the borrower with the terms of the loan
agreement relating to the Loan, nor any rights of set-off against the borrower,
and the Fund may not directly benefit from any collateral supporting the Loan in
which it has purchased the Participation. As a result, the Fund will assume the
credit risk of both the borrower and the Lender that is selling the
Participation. In the event of the insolvency of the Lender selling a
Participation, the Fund may be treated as a general creditor of the Lender and
may not benefit from any set-off between the Lender and the borrower. The Fund
will acquire Participations only if the Lender interpositioned between the Fund
and the borrower is determined by the Adviser to be creditworthy.
When the Fund purchases Assignments from Lenders, it will acquire
direct rights against the borrower on the Loan. Because Assignments are arranged
through private negotiations between potential assignees and potential
assignors, however, the rights and obligations acquired by the Fund as the
purchaser of an Assignment may differ from, and may be more limited than, those
held by the assigning Lender.
The Fund may have difficulty disposing of Assignments and
Participation. Because no liquid market for these obligations typically exists,
the Fund anticipates that these obligations could be sold only to a limited
number of institutional investors. The lack of a liquid secondary market will
have an adverse effect on the Fund's ability to dispose of particular
Assignments or Participations when necessary to meet the Fund's liquidity needs
or in response to a specific economic event, such as a deterioration in the
creditworthiness of the borrower. The lack of a liquid secondary market for
Assignments and Participations may also make it more difficult for the Fund to
assign a value to those securities for purposes of valuing the Fund's portfolio
and calculating its net asset value.
FOREIGN CURRENCIES
Investment in foreign securities usually will involve currencies of
foreign countries. Moreover, the Fund may temporarily hold funds in bank
deposits in foreign currencies during the completion of investment programs and
may purchase forward foreign currency contracts. Because of these factors, the
value of the assets of the Fund as measured in U.S. dollars may be affected
favorably or unfavorably by changes in foreign currency exchange rates and
exchange control regulations, and the Fund may incur costs in connection with
conversions between various currencies. Although the Fund's custodian values the
Fund's assets daily in terms of U.S. dollars, the Fund does not intend to
convert its holdings of foreign currencies into U.S. dollars on a daily basis.
The Fund will do so from time to time, however, and investors should be aware of
the costs of currency conversion. Although foreign exchange dealers do not
charge a fee for conversion, they do realize a profit based on the difference
(the "spread") between the prices at which they are buying and selling various
currencies. Thus, a dealer may offer to sell a foreign currency to the Fund at
one rate, while offering a lesser rate of exchange should the Fund desire to
resell that currency to the dealer. The Fund will conduct its foreign currency
exchange transactions either on a spot (i.e., cash) basis at the spot rate
prevailing in the foreign currency exchange market, or through entering into
forward contracts to purchase or sell foreign currencies.
Because the Fund normally will be invested in both U.S. and foreign
securities markets, changes in the Fund's share price may have a low correlation
with movements in U.S. markets. The Fund's share price will reflect the
movements of the different stock and bond markets in which it is invested (both
U.S. and foreign), and of the currencies in which the investments are
denominated. Thus, the strength or weakness of the U.S. dollar against foreign
currencies may account for part of the Fund's investment performance. U.S. and
foreign securities markets do not always move in step with each other, and the
total returns from different markets may vary significantly. In addition,
significant uncertainty surrounds the proposed introduction of the euro (a
common currency for the European Union) in January 1999 and its effect on the
value of securities denominated in local European currencies. These and other
currencies in which the Fund's assets are denominated may be devalued against
the U.S. dollar, resulting in a loss to the Fund.
EURO CONVERSION RISKS
On January 1, 1999, a new European currency called the "Euro" was
introduced and adopted for use by eleven European countries. The transition to
daily usage of the Euro, including circulation of Euro bills and coins, will
occur during the period from January 1, 1999 through December 31, 2001. During
this transition, European debt and equity securities will have to be
redenominated and various accounting differences and/or adverse tax results
could occur. In addition, certain European Union (EU) members, including the
United Kingdom, did not officially implement the Euro on January 1, 1999 and may
cause market disruptions when and if they decide to do so. In any of these
instances, the Fund could experience investment losses.
FORWARD FOREIGN CURRENCY CONTRACTS
The Fund may enter into forward foreign currency contracts in order to
protect against uncertainty in the level of future foreign exchange rates in the
purchase and sale of securities. A forward contract is an obligation to purchase
or sell a specific currency for an agreed price at a future date (usually less
than a year), and typically is individually negotiated and privately traded by
currency traders and their customers. A forward contract generally has no
deposit requirement, and no commissions are charged at any stage for trades.
Although foreign exchange dealers do not charge a fee for commissions, they do
realize a profit based on the difference between the price at which they are
buying and selling various currencies. Although these contracts are intended to
minimize the risk of loss due to a decline in the value of the hedged
currencies, at the same time, they tend to limit any potential gain which might
result should the value of such currencies increase.
While the Fund may enter into forward contracts to reduce currency
exchange risks, changes in currency exchange rates may result in poorer overall
performance for the Fund than if it had not engaged in such transactions.
Moreover, there may be an imperfect correlation between the Fund's portfolio
holdings of securities denominated in a particular currency and forward
contracts entered into by the Fund. An imperfect correlation of this type may
prevent the Fund from achieving the intended hedge or expose the Fund to the
risk of currency exchange loss.
The Fund may purchase currency forwards and combine such purchases with
sufficient cash or short-term securities to create unleveraged substitutes for
investments in foreign markets when deemed advantageous. The Fund may also
combine the foregoing with bond futures or interest rate futures contracts to
create the economic equivalent of an unhedged foreign bond position.
The Fund may also cross-hedge currencies by entering into transactions
to purchase or sell one or more currencies that are expected to decline in value
relative to other currencies to which the Fund has or in which the Fund expects
to have portfolio exposure.
Currency transactions are subject to risks different from those of
other portfolio transactions. Because currency control is of great importance to
the issuing governments and influences economic planning and policy, purchases
and sales of currency and related instruments can be negatively affected by
government exchange controls, blockages, and manipulations or exchange
restrictions imposed by governments. These can result in losses to the Fund if
it is unable to deliver or receive currency or funds in settlement of
obligations and could also cause hedges it has entered into to be rendered
useless, resulting in full currency exposure as well as incurring transactions
costs. Buyers and sellers of currency futures are subject to the same risks that
apply to the use of futures generally. Further, settlement of a currency futures
contract for the purchase of most currencies must occur at a bank based in the
issuing nation. Trading options on currency futures is relatively new, and the
ability to establish and close out positions on such options is subject to the
maintenance of a liquid market which may not always be available. Currency
exchange rates may fluctuate based on factors extrinsic to that country's
economy.
SHORT SALES
The Fund may engage in short sale transactions in securities listed on
one or more foreign or U.S. securities exchanges or the National Association of
Securities Dealers, Inc. Automated Quotation System, or traded in the
over-the-counter market. Short selling involves the sale of borrowed securities.
At the time a short sale is effected, the Fund incurs an obligation to replace
the security borrowed at whatever its price may be at the time that the Fund
purchases it for delivery to the lender. When a short sale transaction is closed
out by delivery of the securities, any gain or loss on the transaction is
taxable as a short-term capital gain or loss. Until the security is replaced,
the Fund is required to pay to the lender amounts equal to any dividends or
interest which accrue during the period of the loan. To borrow the security, the
Fund also may be required to pay a premium, which would increase the cost of the
security sold. Until the Fund replaces a borrowed security in connection with a
short sale, the Fund will: (a) maintain daily a segregated account containing
cash or liquid securities, at such level that (i) the amount deposited in the
segregated account plus the amount deposited with the broker as collateral will
equal the current value of the security sold short and (ii) the amount deposited
in the segregated account plus the amount deposited with the broker as
collateral will not be less than the market value of the security at the time it
was sold short; or (b) otherwise cover its short position.
Since short selling can result in profits when stock prices generally
decline, the Fund in this manner, can, to a certain extent, hedge the market
risk to the value of its other investments and protect its equity in a declining
market. However, the Fund could, at any given time, suffer both a loss on the
purchase or retention of one security, if that security should decline in value,
and a loss on a short sale of another security, if the security sold short
should increase in value. If the Fund sells short one security to hedge a
position in a similar security, the Fund could experience a loss due to an
increase in the price of the security sold short resulting from an incorrectly
perceived correlation between the two securities or a correlation not present at
the time of the short sale transaction. Moreover, to the extent that in a
generally rising market the Fund maintains short positions in securities rising
with the market, the net asset value of the Fund would be expected to increase
to a lesser extent than the net asset value of an investment company that does
not engage in short sales.
OPTIONS TRANSACTIONS
IN GENERAL. The Fund may engage in transactions in options on
securities and stock indices in accordance with its stated investment objectives
and policies. The Fund may also purchase put options on securities and may
purchase and sell (write) put and call options on stock indices.
A call option is a short-term contract (having a duration of less than
one year) pursuant to which the purchaser, in return for the premium paid, has
the right to buy the security underlying the option at the specified exercise
price at any time during the term of the option. The writer of the call option,
who receives the premium, has the obligation, upon exercise of the option, to
deliver the underlying security against payment of the exercise price. A put
option is a similar contract pursuant to which the purchaser, in return for the
premium paid, has the right to sell the security underlying the option at the
specified exercise price at any time during the term of the option. The writer
of the put option, who receives the premium, has the obligation, upon exercise
of the option, to buy the underlying security at the exercise price. The premium
paid by the purchaser of an option will reflect, among other things, the
relationship of the exercise price to the market price and volatility of the
underlying security, the time remaining to expiration of the option, supply and
demand, and interest rates.
If the writer of an option wishes to terminate the obligation, the
writer may effect a "closing purchase transaction." This is accomplished by
buying an option of the same series as the option previously written. The effect
of the purchase is that the writer's position will be canceled by the Options
Clearing Corporation. However, a writer may not effect a closing purchase
transaction after it has been notified of the exercise of an option. Likewise,
an investor who is the holder of an option may liquidate his or her position by
effecting a "closing sale transaction." This is accomplished by selling an
option of the same series as the option previously purchased. There is no
guarantee that either a closing purchase or a closing sale transaction can be
effected at any particular time or at any acceptable price. If any call or put
option is not exercised or sold, it will become worthless on its expiration
date.
The Fund will realize a gain (or a loss) on a closing purchase
transaction with respect to a call or a put previously written by the Fund if
the premium, plus commission costs, paid by the Fund to purchase the call or the
put is less (or greater) than the premium, less commission costs, received by
the Fund on the sale of the call or the put. A gain also will be realized if a
call or a put that the Fund has written lapses unexercised, because the Fund
would retain the premium. Any such gains (or losses) are considered short-term
capital gains (or losses) for Federal income tax purposes. Net short-term
capital gains, when distributed by the Fund, are taxable as ordinary income. See
"Taxation."
The Fund will realize a gain (or a loss) on a closing sale transaction
with respect to a call or a put previously purchased by the Fund if the premium,
less commission costs, received by the Fund on the sale of the call or the put
is greater (or less) than the premium, plus commission costs, paid by the Fund
to purchase the call or the put. If a put or a call expires unexercised, it will
become worthless on the expiration date, and the Fund will realize a loss in the
amount of the premium paid, plus commission costs. Any such gain or loss will be
long-term or short-term gain or loss, depending upon the Fund's holding period
for the option.
Exchange-traded options generally have standardized terms and are
issued by a regulated clearing organization (such as the Options Clearing
Corporation), which, in effect, guarantees the completion of every
exchange-traded option transaction. In contrast, the terms of OTC options are
negotiated by the Fund and its counterparty (usually a securities dealer or a
financial institution) with no clearing organization guarantee. When the Fund
purchases an OTC option, it relies on the party from whom it has purchased the
option (the "counterparty") to make delivery of the instrument underlying the
option. If the counterparty fails to do so, the Fund will lose any premium paid
for the option, as well as any expected benefit of the transaction. Accordingly,
IMI will assess the creditworthiness of each counterparty to determine the
likelihood that the terms of the OTC option will be satisfied.
WRITING OPTIONS ON INDIVIDUAL SECURITIES. The Fund may write (sell)
covered call options on the Fund's securities in an attempt to realize a greater
current return than would be realized on the securities alone. The Fund may also
write covered call options to hedge a possible stock or bond market decline
(only to the extent of the premium paid to the Fund for the options). In view of
the investment objectives of the Fund, the Fund generally would write call
options only in circumstances where the investment adviser to the Fund does not
anticipate significant appreciation of the underlying security in the near
future or has otherwise determined to dispose of the security.
The Fund may write covered call options as described in the Fund's
Prospectus. A "covered" call option means generally that so long as the Fund is
obligated as the writer of a call option, the Fund will (i) own the underlying
securities subject to the option, or (ii) have the right to acquire the
underlying securities through immediate conversion or exchange of convertible
preferred stocks or convertible debt securities owned by the Fund. Although the
Fund receives premium income from these activities, any appreciation realized on
an underlying security will be limited by the terms of the call option. The Fund
may purchase call options on individual securities only to effect a "closing
purchase transaction."
As the writer of a call option, the Fund receives a premium for
undertaking the obligation to sell the underlying security at a fixed price
during the option period, if the option is exercised. So long as the Fund
remains obligated as a writer of a call option, it forgoes the opportunity to
profit from increases in the market price of the underlying security above the
exercise price of the option, except insofar as the premium represents such a
profit (and retains the risk of loss should the value of the underlying security
decline).
PURCHASING OPTIONS ON INDIVIDUAL SECURITIES. The Fund may purchase a
put option on an underlying security owned by the Fund as a defensive technique
in order to protect against an anticipated decline in the value of the security.
The Fund, as the holder of the put option, may sell the underlying security at
the exercise price regardless of any decline in its market price. In order for a
put option to be profitable, the market price of the underlying security must
decline sufficiently below the exercise price to cover the premium and
transaction costs that the Fund must pay. These costs will reduce any profit the
Fund might have realized had it sold the underlying security instead of buying
the put option. The premium paid for the put option would reduce any capital
gain otherwise available for distribution when the security is eventually sold.
The purchase of put options will not be used by the Fund for leverage purposes.
The Fund may also purchase a put option on an underlying security that
it owns and at the same time write a call option on the same security with the
same exercise price and expiration date. Depending on whether the underlying
security appreciates or depreciates in value, the Fund would sell the underlying
security for the exercise price either upon exercise of the call option written
by it or by exercising the put option held by it. The Fund would enter into such
transactions in order to profit from the difference between the premium received
by the Fund for the writing of the call option and the premium paid by the Fund
for the purchase of the put option, thereby increasing the Fund's current
return. The Fund may write (sell) put options on individual securities only to
effect a "closing sale transaction."
PURCHASING AND WRITING OPTIONS ON SECURITIES INDICES. The Fund may
purchase and sell (write) put and call options on securities indices. An index
assigns relative values to the securities included in the index and the index
fluctuates with changes in the market values of the securities so included.
Options on indices are similar to options on individual securities, except that,
rather than giving the purchaser the right to take delivery of an individual
security at a specified price, they give the purchaser the right to receive
cash. The amount of cash is equal to the difference between the closing price of
the index and the exercise price of the option, expressed in dollars, times a
specified multiple (the "multiplier"). The writer of the option is obligated, in
return for the premium received, to make delivery of this amount.
The multiplier for an index option performs a function similar to the
unit of trading for a stock option. It determines the total dollar value per
contract of each point in the difference between the exercise price of an option
and the current level of the underlying index. A multiplier of 100 means that a
one-point difference will yield $100. Options on different indices have
different multipliers.
When the Fund writes a call or put option on a stock index, the option
is "covered", in the case of a call, or "secured", in the case of a put, if the
Fund maintains in a segregated account with the Custodian cash or liquid
securities equal to the contract value. A call option is also covered if the
Fund holds a call on the same index as the call written where the exercise price
of the call held is (i) equal to or less than the exercise price of the call
written or (ii) greater than the exercise price of the call written, provided
that the Fund maintains in a segregated account with the Custodian the
difference in cash or liquid securities. A put option is also "secured" if the
Fund holds a put on the same index as the put written where the exercise price
of the put held is (i) equal to or greater than the exercise price of the put
written or (ii) less than the exercise price of the put written, provided that
the Fund maintains in a segregated account with the Custodian the difference in
cash or liquid securities.
RISKS OF OPTIONS TRANSACTIONS. The purchase and writing of options
involves certain risks. During the option period, the covered call writer has,
in return for the premium on the option, given up the opportunity to profit from
a price increase in the underlying securities above the exercise price, but, as
long as its obligation as a writer continues, has retained the risk of loss
should the price of the underlying security decline. The writer of a U.S. option
has no control over the time when it may be required to fulfill its obligation
as a writer of the option. Once an option writer has received an exercise
notice, it cannot effect a closing purchase transaction in order to terminate
its obligation under the option and must deliver the underlying securities (or
cash in the case of an index option) at the exercise price. If a put or call
option purchased by the Fund is not sold when it has remaining value, and if the
market price of the underlying security (or index), in the case of a put,
remains equal to or greater than the exercise price or, in the case of a call,
remains less than or equal to the exercise price, the Fund will lose its entire
investment in the option. Also, where a put or call option on a particular
security (or index) is purchased to hedge against price movements in a related
security (or securities), the price of the put or call option may move more or
less than the price of the related security (or securities). In this regard,
there are differences between the securities and options markets that could
result in an imperfect correlation between these markets, causing a given
transaction not to achieve its objective.
There can be no assurance that a liquid market will exist when the Fund
seeks to close out an option position. Furthermore, if trading restrictions or
suspensions are imposed on the options markets, the Fund may be unable to close
out a position. Finally, trading could be interrupted, for example, because of
supply and demand imbalances arising from a lack of either buyers or sellers, or
the options exchange could suspend trading after the price has risen or fallen
more than the maximum amount specified by the exchange. Closing transactions can
be made for OTC options only by negotiating directly with the counterparty or by
a transaction in the secondary market, if any such market exists. There is no
assurance that the Fund will be able to close out an OTC option position at a
favorable price prior to its expiration. In the event of insolvency of the
counterparty, the Fund might be unable to close out an OTC option position at
any time prior to its expiration. Although the Fund may be able to offset to
some extent any adverse effects of being unable to liquidate an option position,
the Fund may experience losses in some cases as a result of such inability.
When conducted outside the U.S., options transactions may not be
regulated as rigorously as in the U.S., may not involve a clearing mechanism and
related guarantees, and are subject to the risk of governmental actions
affecting trading in, or the prices of, foreign securities, currencies and other
instruments. The value of such positions also could be adversely affected by:
(i) other complex foreign political, legal and economic factors, (ii) lesser
availability than in the U.S. of data on which to make trading decisions, (iii)
delays in the Fund's ability to act upon economic events occurring in foreign
markets during non-business hours in the U.S., (iv) the imposition of different
exercise and settlement terms and procedures and margin requirements than in the
U.S., and (v) lower trading volume and liquidity.
The Fund's options activities also may have an impact upon the level
of its portfolio turnover and brokerage commissions. See "Portfolio Turnover."
The Fund's success in using options techniques depends, among other
things, on IMI's ability to predict accurately the direction and volatility of
price movements in the options and securities markets, and to select the proper
type, time and duration of options.
FUTURES CONTRACTS AND OPTIONS ON FUTURES CONTRACTS
IN GENERAL. The Fund may enter into futures contracts and options on
futures contracts for hedging purposes. A futures contract provides for the
future sale by one party and purchase by another party of a specified quantity
of a commodity at a specified price and time. When a purchase or sale of a
futures contract is made by the Fund, the Fund is required to deposit with its
custodian (or broker, if legally permitted) a specified amount of cash or liquid
securities ("initial margin"). The margin required for a futures contract is set
by the exchange on which the contract is traded and may be modified during the
term of the contract. The initial margin is in the nature of a performance bond
or good faith deposit on the futures contract which is returned to the Fund upon
termination of the contract, assuming all contractual obligations have been
satisfied. A futures contract held by the Fund is valued daily at the official
settlement price of the exchange on which it is traded. Each day the Fund pays
or receives cash, called "variation margin," equal to the daily change in value
of the futures contract. This process is known as "marking to market." Variation
margin does not represent a borrowing or loan by the Fund but is instead a
settlement between the Fund and the broker of the amount one would owe the other
if the futures contract expired. In computing daily net asset value, the Fund
will mark-to-market its open futures position.
The Fund is also required to deposit and maintain margin with respect
to put and call options on futures contracts written by it. Such margin deposits
will vary depending on the nature of the underlying futures contract (and the
related initial margin requirements), the current market value of the option,
and other futures positions held by the Fund.
Although some futures contracts call for making or taking delivery of
the underlying securities, generally these obligations are closed out prior to
delivery of offsetting purchases or sales of matching futures contracts (same
exchange, underlying security or index, and delivery month). If an offsetting
purchase price is less than the original sale price, the Fund generally realizes
a capital gain, or if it is more, the Fund generally realizes a capital loss.
Conversely, if an offsetting sale price is more than the original purchase
price, the Fund generally realizes a capital gain, or if it is less, the Fund
generally realizes a capital loss.
The transaction costs must also be included in these calculations.
When purchasing a futures contract, the Fund will maintain with its
Custodian (and mark-to-market on a daily basis) cash or liquid securities that,
when added to the amounts deposited with a futures commission merchant ("FCM")
as margin, are equal to the market value of the futures contract. Alternatively,
the Fund may "cover" its position by purchasing a put option on the same futures
contract with a strike price as high as or higher than the price of the contract
held by the Fund, or, if lower, may cover the difference with cash or short-term
securities.
When selling a futures contract, the Fund will maintain with its
Custodian in a segregated account (and mark-to-market on a daily basis) cash or
liquid securities that, when added to the amounts deposited with an FCM as
margin, are equal to the market value of the instruments underlying the
contract. Alternatively, the Fund may "cover" its position by owning the
instruments underlying the contract (or, in the case of an index futures
contract, a portfolio with a volatility substantially similar to that of the
index on which the futures contract is based), or by holding a call option
permitting the Fund to purchase the same futures contract at a price no higher
than the price of the contract written by the Fund (or at a higher price if the
difference is maintained in liquid assets with the Fund's custodian).
When selling a call option on a futures contract, the Fund will
maintain with its Custodian in a segregated account (and mark-to-market on a
daily basis) cash or liquid securities that, when added to the amounts deposited
with an FCM as margin, equal the total market value of the futures contract
underlying the call option. Alternatively, the Fund may cover its position by
entering into a long position in the same futures contract at a price no higher
than the strike price of the call option, by owning the instruments underlying
the futures contract, or by holding a separate call option permitting the Fund
to purchase the same futures contract at a price not higher than the strike
price of the call option sold by the Fund, or covering the difference if the
price is higher.
When selling a put option on a futures contract, the Fund will maintain
with its Custodian (and mark-to-market on a daily basis) cash or liquid
securities that equal the purchase price of the futures contract less any margin
on deposit. Alternatively, the Fund may cover the position either by entering
into a short position in the same futures contract, or by owning a separate put
option permitting it to sell the same futures contract so long as the strike
price of the purchased put option is the same or higher than the strike price of
the put option sold by the Fund, or, if lower, the Fund may hold securities to
cover the difference.
INTEREST RATE FUTURES CONTRACTS. An interest rate futures contract is
an agreement between parties to buy or sell a specified debt security at a set
price on a future date. The financial instruments that underlie interest rate
futures contracts include long-term U.S. Treasury bonds, U.S. Treasury notes,
and three-month U.S. Treasury bills. In the case of futures contracts traded on
U.S. exchanges, the exchange itself or an affiliated clearing corporation
assumes the opposite side of each transaction (i.e., as buyer or seller). A
futures contract may be satisfied or closed out by delivery or purchase, as the
case may be in the cash financial instrument or by payment of the change in the
cash value of the index. Frequently, using futures to effect a particular
strategy instead of using the underlying or related security will result in
lower transaction costs being incurred.
The Fund may sell interest rate futures contracts in order to hedge its
portfolio securities whose value may be sensitive to changes in interest rates.
In addition, the Fund could purchase and sell these futures contracts in order
to hedge its holdings in certain common stocks (such as utilities, banks and
savings and loans) whose value may be sensitive to changes in interest rates.
The Fund could sell interest rate futures contracts in anticipation of or during
a market decline to attempt to offset the decrease in market value of its
securities that might otherwise result. When the Fund is not fully invested in
securities, it could purchase interest rate futures in order to gain rapid
market exposure that may in part or entirely offset increases in the cost of
securities that it intends to purchase. If such purchases are made, an
equivalent amount of interest rate futures contracts will be terminated by
offsetting sales. The Fund may also maintain the futures contract as a
substitute for the underlying securities.
OPTIONS ON INTEREST RATE FUTURES CONTRACTS. The Fund may also purchase
and write put and call options on interest rate futures contracts which are
traded on a U.S. exchange or board of trade and sell or purchase such options to
terminate an existing position. Options on interest rate futures give the
purchaser the right (but not the obligation), in return for the premium paid, to
assume a position in an interest rate futures contract at a specified exercise
price at a time during the period of the option.
Transactions in options on interest rate futures would enable the Fund
to hedge against the possibility that fluctuations in interest rates and other
factors may result in a general decline in prices of debt securities owned by
the Fund. Assuming that any decline in the securities being hedged is
accomplished by a rise in interest rates, the purchase of put options and sale
of call options on the futures contracts may generate gains which can partially
offset any decline in the value of the particular Fund's portfolio securities
which have been hedged. However, if after the Fund purchases or sells an option
on a futures contract, the value of the securities being hedged moves in the
opposite direction from that contemplated, the Fund may experience losses in the
form of premiums on such options which would partially offset gains the Fund
would have.
SWAPS, CAPS, FLOORS AND COLLARS. The Fund may enter into interest rate,
currency and index swaps and the purchase or sale of related caps, floors and
collars. The Fund expects to enter into these transactions primarily to preserve
a return or spread on a particular investment or portion of its portfolio, to
protect against currency fluctuations, as a duration management technique or to
protect against any increase in the price of securities the Fund anticipates
purchasing at a later date. The Fund intends to use these transactions as hedges
and not as speculative investments and will not sell interest rate caps or
floors where it does not own securities or other instruments providing the
income stream the Fund may be obligated to pay. Interest rate swaps involve the
exchange by the Fund with another party of their respective commitments to pay
or receive interest, e.g., an exchange of floating rate payments for fixed rate
payments with respect to a notional amount of principal. A currency swap is an
agreement to exchange cash flows on a notional amount of two or more currencies
based on the relative value differential among them and an index swap is an
agreement to swap cash flows on a notional amount based on changes in the values
of the reference indices. The purchase of a cap entitles the purchaser to
receive payments on a notional principal amount from the party selling such cap
to the extent that a specified index exceeds a predetermined interest rate or
amount. The purchase of a floor entitles the purchaser to receive payments on a
notional principal amount from the party selling such floor to the extent that a
specified index falls below a predetermined interest rate or amount. A collar is
a combination of a cap and a floor that preserves a certain return within a
predetermined range of interest rate or values.
The Fund may enter credit protection swap arrangements involving the
sale by the Fund of a put option on a debt security which is exercisable by the
buyer upon certain events, such as a default by the referenced creditor on the
underlying debt or a bankruptcy event of the creditor.
The Fund will usually enter into swaps on a net basis, i.e., the two
payment streams are netted out in a cash settlement on the payment date or dates
specified in the instrument, with the Fund receiving or paying, as the case may
be, only the net amount of the two payments. Inasmuch as these swaps, caps,
floors and collars are entered into for good faith hedging purposes, IMI and the
Fund believe such obligations do not constitute senior securities under the 1940
Act and, accordingly, will not treat them as being subject to its borrowing
restrictions. The Fund will not enter into any swap, cap, floor or collar
transaction unless, at the time of entering into such transaction, the unsecured
long-term debt of the counterparty, combined with any credit enhancements, is
rated at least A by S&P or Moody's or has an equivalent rating from a nationally
recognized statistical rating organization or is determined to be of equivalent
credit quality by IMI. If there is a default by the counterparty, the Fund may
have contractual remedies pursuant to the agreements related to the transaction.
The swap market has grown substantially in recent years with a large number of
banks and investment banking firms acting both as principals and as agents
utilizing standardized swap documentation. As a result, the swap market has
become relatively liquid. Caps, floors and collars are more recent innovations
for which standardized documentation has not yet been fully developed and,
accordingly, they are less liquid than swaps.
FOREIGN CURRENCY FUTURES CONTRACTS AND RELATED OPTIONS. The Fund may
engage in foreign currency futures contracts and related options transactions
for hedging purposes. A foreign currency futures contract provides for the
future sale by one party and purchase by another party of a specified quantity
of a foreign currency at a specified price and time.
An option on a foreign currency futures contract gives the holder the
right, in return for the premium paid, to assume a long position (call) or short
position (put) in a futures contract at a specified exercise price at any time
during the period of the option. Upon the exercise of a call option, the holder
acquires a long position in the futures contract and the writer is assigned the
opposite short position. In the case of a put option, the opposite is true.
The Fund may purchase call and put options on foreign currencies as a
hedge against changes in the value of the U.S. dollar (or another currency) in
relation to a foreign currency in which portfolio securities of the Fund may be
denominated. A call option on a foreign currency gives the buyer the right to
buy, and a put option the right to sell, a certain amount of foreign currency at
a specified price during a fixed period of time. The Fund may invest in options
on foreign currency which are either listed on a domestic securities exchange or
traded on a recognized foreign exchange.
In those situations where foreign currency options may not be readily
purchased (or where such options may be deemed illiquid) in the currency in
which the hedge is desired, the hedge may be obtained by purchasing an option on
a "surrogate" currency, i.e., a currency where there is tangible evidence of a
direct correlation in the trading value of the two currencies. A surrogate
currency's exchange rate movements parallel that of the primary currency.
Surrogate currencies are used to hedge an illiquid currency risk, when no liquid
hedge instruments exist in world currency markets for the primary currency.
The Fund will only enter into futures contracts and futures options
which are standardized and traded on a U.S. or foreign exchange, board of trade,
or similar entity or quoted on an automated quotation system. The Fund will not
enter into a futures contract or purchase an option thereon if, immediately
thereafter, the aggregate initial margin deposits for futures contracts held by
the Fund plus premiums paid by it for open futures option positions, less the
amount by which any such positions are "in-the-money," would exceed 5% of the
liquidation value of the Fund's portfolio (or the Fund's net asset value), after
taking into account unrealized profits and unrealized losses on any such
contracts the Fund has entered into. A call option is "in-the-money" if the
value of the futures contract that is the subject of the option exceeds the
exercise price. A put option is "in-the-money" if the exercise price exceeds the
value of the futures contract that is the subject of the option. For additional
information about margin deposits required with respect to futures contracts and
options thereon, see "Futures Contracts and Options on Futures Contracts."
RISKS ASSOCIATED WITH FUTURES AND RELATED OPTIONS. There can be no
guarantee that there will be a correlation between price movements in the
hedging vehicle and in the Fund's portfolio securities being hedged. In
addition, there are significant differences between the securities and futures
markets that could result in an imperfect correlation between the markets,
causing a given hedge not to achieve its objectives. The degree of imperfection
of correlation depends on circumstances such as variations in speculative market
demand for futures and futures options on securities, including technical
influences in futures trading and futures options, and differences between the
financial instruments being hedged and the instruments underlying the standard
contracts available for trading in such respects as interest rate levels,
maturities, and creditworthiness of issuers. A decision as to whether, when and
how to hedge involves the exercise of skill and judgment, and even a
well-conceived hedge may be unsuccessful to some degree because of market
behavior or unexpected interest rate trends.
Futures exchanges may limit the amount of fluctuation permitted in
certain futures contract prices during a single trading day. The daily limit
establishes the maximum amount that the price of a futures contract may vary
either up or down from the previous day's settlement price at the end of the
current trading session. Once the daily limit has been reached in a futures
contract subject to the limit, no more trades may be made on that day at a price
beyond that limit. The daily limit governs only price movements during a
particular trading day and therefore does not limit potential losses because the
limit may work to prevent the liquidation of unfavorable positions. For example,
futures prices have occasionally moved to the daily limit for several
consecutive trading days with little or no trading, thereby preventing prompt
liquidation of positions and subjecting some holders of futures contracts to
substantial losses.
There can be no assurance that a liquid market will exist at a time
when the Fund seeks to close out a futures or a futures option position, and the
Fund would remain obligated to meet margin requirements until the position is
closed. In addition, there can be no assurance that an active secondary market
will continue to exist.
Currency futures contracts and options thereon may be traded on foreign
exchanges. Such transactions may not be regulated as effectively as similar
transactions in the United States; may not involve a clearing mechanism and
related guarantees; and are subject to the risk of governmental actions
affecting trading in, or the prices of, foreign securities. The value of such
position also could be adversely affected by (i) other complex foreign
political, legal and economic factors, (ii) lesser availability than in the
United States of data on which to make trading decisions, (iii) delays in the
Fund's ability to act upon economic events occurring in foreign markets during
non business hours in the United States, (iv) the imposition of different
exercise and settlement terms and procedures and margin requirements than in the
United States, and (v) lesser trading volume.
SECURITIES INDEX FUTURES CONTRACTS
The Fund may enter into securities index futures contracts as an
efficient means of regulating the Fund's exposure to the equity markets. The
Fund will not engage in transactions in futures contracts for speculation, but
only as a hedge against changes resulting from market conditions in the values
of securities held in the Fund's portfolio or which it intends to purchase. An
index futures contract is a contract to buy or sell units of an index at a
specified future date at a price agreed upon when the contract is made. Entering
into a contract to buy units of an index is commonly referred to as purchasing a
contract or holding a long position in the index. Entering into a contract to
sell units of an index is commonly referred to as selling a contract or holding
a short position. The value of a unit is the current value of the stock index.
For example, the S&P 500 Index is composed of 500 selected common stocks, most
of which are listed on the New York Stock Exchange (the "Exchange"). The S&P 500
Index assigns relative weightings to the 500 common stocks included in the
Index, and the Index fluctuates with changes in the market values of the shares
of those common stocks. In the case of the S&P 500 Index, contracts are to buy
or sell 500 units. Thus, if the value of the S&P 500 Index were $150, one
contract would be worth $75,000 (500 units x $150). The index futures contract
specifies that no delivery of the actual securities making up the index will
take place. Instead, settlement in cash must occur upon the termination of the
contract, with the settlement being the difference between the contract price
and the actual level of the stock index at the expiration of the contract. For
example, if the Fund enters into a futures contract to buy 500 units of the S&P
500 Index at a specified future date at a contract price of $150 and the S&P 500
Index is at $154 on that future date, the Fund will gain $2,000 (500 units x
gain of $4). If the Fund enters into a futures contract to sell 500 units of the
stock index at a specified future date at a contract price of $150 and the S&P
500 Index is at $154 on that future date, the Fund will lose $2,000 (500 units x
loss of $4).
RISKS OF SECURITIES INDEX FUTURES. The Fund's success in using hedging
techniques depends, among other things, on IMI's ability to predict correctly
the direction and volatility of price movements in the futures and options
markets as well as in the securities markets and to select the proper type, time
and duration of hedges. The skills necessary for successful use of hedges are
different from those used in the selection of individual stocks.
The Fund's ability to hedge effectively all or a portion of its
securities through transactions in index futures (and therefore the extent of
its gain or loss on such transactions) depends on the degree to which price
movements in the underlying index correlate with price movements in the Fund's
securities. Inasmuch as such securities will not duplicate the components of an
index, the correlation probably will not be perfect. Consequently, the Fund will
bear the risk that the prices of the securities being hedged will not move in
the same amount as the hedging instrument. This risk will increase as the
composition of the Fund's portfolio diverges from the composition of the hedging
instrument.
Although the Fund intends to establish positions in these instruments
only when there appears to be an active market, there is no assurance that a
liquid market will exist at a time when the Fund seeks to close a particular
option or futures position. Trading could be interrupted, for example, because
of supply and demand imbalances arising from a lack of either buyers or sellers.
In addition, the futures exchanges may suspend trading after the price has risen
or fallen more than the maximum amount specified by the exchange. In some cases,
the Fund may experience losses as a result of its inability to close out a
position, and it may have to liquidate other investments to meet its cash needs.
Although some index futures contracts call for making or taking
delivery of the underlying securities, generally these obligations are closed
out prior to delivery by offsetting purchases or sales of matching futures
contracts (same exchange, underlying security or index, and delivery month). If
an offsetting purchase price is less than the original sale price, the Fund
generally realizes a capital gain, or if it is more, the Fund generally realizes
a capital loss. Conversely, if an offsetting sale price is more than the
original purchase price, the Fund generally realizes a capital gain, or if it is
less, the Fund generally realizes a capital loss.
The transaction costs must also be included in these calculations.
The Fund will only enter into index futures contracts or futures
options that are standardized and traded on a U.S. or foreign exchange or board
of trade, or similar entity, or quoted on an automated quotation system. The
Fund will use futures contracts and related options only for "bona fide hedging"
purposes, as such term is defined in applicable regulations of the CFTC.
When purchasing an index futures contract, the Fund will maintain with
its Custodian (and mark-to-market on a daily basis) cash or liquid securities
that, when added to the amounts deposited with a futures commission merchant
("FCM") as margin, are equal to the market value of the futures contract.
Alternatively, the Fund may "cover" its position by purchasing a put option on
the same futures contract with a strike price as high as or higher than the
price of the contract held by the Fund.
When selling an index futures contract, the Fund will maintain with its
Custodian (and mark-to-market on a daily basis) cash or liquid securities that,
when added to the amounts deposited with an FCM as margin, are equal to the
market value of the instruments underlying the contract. Alternatively, the Fund
may "cover" its position by owning the instruments underlying the contract (or,
in the case of an index futures contract, a portfolio with a volatility
substantially similar to that of the index on which the futures contract is
based), or by holding a call option permitting the Fund to purchase the same
futures contract at a price no higher than the price of the contract written by
the Fund (or at a higher price if the difference is maintained in cash or liquid
assets in a segregated account with the Fund's custodian).
COMBINED TRANSACTIONS. The Fund may enter into multiple transactions,
including multiple options transactions, multiple futures transactions, multiple
currency transactions (including forward currency contracts) and multiple
interest rate transactions and some combination of futures, options, currency
and interest rate transactions ("component" transactions), instead of a single
transaction, as part of a single or combined strategy when, in the opinion of
IMI, it is in the best interests of the Fund to do so. A combined transaction
will usually contain elements of risk that are present in each of its component
transactions. Although combined transactions are normally entered into based on
IMI's judgment that the combined strategies will reduce risk or otherwise more
effectively achieve the desired portfolio management goal, it is possible that
the combination will instead increase such risks or hinder achievement of the
management objective.
INVESTMENT RESTRICTIONS
The Fund's investment objectives as set forth in the Prospectus under
"Investment Objectives and Policies," together with the investment restrictions
set forth below, are fundamental policies of the Fund and may not be changed
with respect to the Fund without the approval of a majority of the outstanding
voting shares of the Fund. Under these restrictions, the Fund may not:
(i) Invest in real estate, real estate mortgage loans,
commodities, commodity futures contracts or interests in oil,
gas and/or mineral exploration or development programs,
although the Fund may purchase and sell (a) securities which
are secured by real estate, (b) securities of issuers which
invest or deal in real estate, and (c) interest rate, currency
and other financial futures contracts and related options;
(ii) Make investments in securities for the purpose of exercising control over
or management of the issuer;
(iii) Participate on a joint or a joint and several basis in any
trading account in securities. The "bunching" of orders of the
Fund--or of the Fund and of other accounts under the
investment management of the persons rendering investment
advice to the Fund--for the sale or purchase of portfolio
securities shall not be considered participation in a joint
securities trading account;
(iv) Purchase securities on margin, except such short-term credits
as are necessary for the clearance of transactions; the
deposit or payment by the Fund of initial or variation margin
in connection with futures contracts or related options
transactions is not considered the purchase of a security on
margin;
(v) Make loans, except that this restriction shall not prohibit
(a) the purchase and holding of a portion of an issue of debt
securities, (b) the lending of portfolio securities in
accordance with applicable guidelines established by the SEC
and any guidelines established by the Trust's Trustees, or (c)
entry into repurchase agreements with banks or broker-dealers;
(vi) Borrow amounts in excess of 20% of its total assets, taken at
the lower of cost or market value, and then only from banks as
a temporary measure for extraordinary or emergency purposes or
except in connection with reverse repurchase agreements,
provided that the Fund maintains net asset coverage of at
least 300% for all borrowings;
(vii) Mortgage, pledge, hypothecate or in any manner transfer, as
security for indebtedness, any securities owned or held by the
Fund (except as may be necessary in connection with permitted
borrowings and then not in excess of 20% of the Fund's total
assets); provided, however, this does not prohibit escrow,
collateral or margin arrangements in connection with its use
of options, short sales, futures contracts and options on
future contracts;
(viii) Purchase the securities of issuers conducting their principal
business activities in the same industry if immediately after
such purchase the value of the Fund's investments in such
industry would exceed 25% of the value of the total assets of
the Fund;
(ix) Act as an underwriter of securities, except to the extent
that, in connection with the sale of securities, it may be
deemed to be an underwriter under applicable securities laws;
or
(x) Issue senior securities, except as appropriate to evidence
indebtedness which it is permitted to incur, and except to the
extent that shares of the separate classes or series of the
Trust may be deemed to be senior securities; provided that
collateral arrangements with respect to currency-related
contracts, futures contracts, short sales, swap contracts,
options or other permitted investments, including deposits of
initial and variation margin, are not considered to be the
issuance of senior securities for purposes of this
restriction.
ADDITIONAL RESTRICTIONS
The Fund has adopted the following additional restrictions, which are
not fundamental and which may be changed without shareholder approval, to the
extent permitted by applicable law, regulation or regulatory policy.
Under these restrictions, the Fund may not:
(i) purchase or sell real estate limited partnership interests;
(ii) purchase or sell interests in oil, gas and mineral leases
(other than securities of companies that invest in or sponsor
such programs);
(iii)invest more than 15% of its net assets taken at market value at
the time of the investment in "illiquid securities;" illiquid
securities may include securities subject to legal or contractual
restrictions on resale (including private placements), repurchase
agreements maturing in more than seven days, certain options
traded over the counter that the Fund has written, securities for
which market quotations are not readily available, or other
securities which legally or in IMI's opinion, subject to the
Board's supervision, may be deemed illiquid, but shall not
include any instrument that, due to the existence of a trading
market or to other factors, is liquid; or
(iv) purchase securities of other investment companies, except in
connection with a merger, consolidation or sale of assets, and
except that the Fund may purchase shares of other investment
companies subject to such restrictions as may be imposed by
the Investment Company Act of 1940 (the "1940 Act") and rules
thereunder.
Whenever an investment objective, policy or restriction set forth in
the Prospectus or this SAI states a maximum percentage of assets that may be
invested in any security or other asset or describes a policy regarding quality
standards, such percentage limitation or standard shall, unless otherwise
indicated, apply to the Fund only at the time a transaction is entered into.
Accordingly, if a percentage limitation is adhered to at the time of investment,
a later increase or decrease in the percentage which results from circumstances
not involving any affirmative action by the Fund, such as a change in market
conditions or a change in the Fund's asset level or other circumstances beyond
the Fund's control, will not be considered a violation.
PORTFOLIO TURNOVER
The Fund purchases securities that are believed by IMI to have above
average potential for capital appreciation. Common stocks are disposed of in
situations where it is believed that potential for such appreciation has
lessened or that other common stocks have a greater potential. Therefore, the
Fund may purchase and sell securities without regard to the length of time the
security is to be, or has been, held. A change in securities held by the Fund is
known as "portfolio turnover" and may involve the payment by the Fund of dealer
markup or underwriting commission and other transaction costs on the sale of
securities, as well as on the reinvestment of the proceeds in other securities.
The Fund's portfolio turnover rate is calculated by dividing the lesser of
purchases or sales of portfolio securities for the most recently completed
fiscal year by the monthly average of the value of the portfolio securities
owned by the Fund during that year. For purposes of determining the Fund's
portfolio turnover rate, all securities whose maturities at the time of
acquisition were one year or less are excluded.
TRUSTEES AND OFFICERS
The Fund's Board of Trustees (the "Board") is responsible for the
overall management of the Fund, including general supervision and review of the
Fund's investment activities. The Board, in turn, elects the officers who are
responsible for administering the Fund's day-to-day operations.
The Trustees and Executive Officers of the Trust, their business
addresses and principal occupations during the past five years are:
POSITION WITH BUSINESS AFFILIATIONS
NAME, ADDRESS, AGE THE TRUST AND PRINCIPAL OCCUPATIONS
John S. Anderegg, Jr. Trustee Chairman, Dynamics Research
60 Concord Street Corp. (instruments and controls);
Wilmington, MA 01887 Director, Burr-Brown Corp.
Age: 74 (operational amplifiers); Director,
Metritage Incorporated (level
measuring instruments); Trustee of
Mackenzie Series Trust (1992-1998).
Paul H. Broyhill Trustee Chairman, BMC Fund, Inc.
800 Hickory Blvd. (1983-present); Chairman,
Golfview Park-Box 500 Broyhill Family Foundation,
Lenoir, NC 28645 Inc. (1983-Present); Chairman and
Age: 74 President, Broyhill Investments,
Inc. (1983-present); Chairman,
Broyhill Timber Resources (1983-
present); Management of a personal
portfolio of fixed-income and equity
investments (1983-present); Trustee
of Mackenzie Series Trust (1988-
1998); Director of The Mackenzie
Funds Inc. (1988-1995).
Stanley Channick Trustee President and Chief
11 Bala Avenue Executive Officer, The
Bala Cynwyd, PA 19004 Whitestone Corporation
Age: 75 (insurance agency); Chairman, Scott
Management Company (administrative
services for insurance companies);
President, The Channick Group
(consultants to insurance companies
and national trade associations);
Trustee of Mackenzie Series Trust
(1994-1998); Director of The
Mackenzie Funds Inc. (1994-1995).
Frank W. DeFriece, Jr. Trustee Director, Manager and Vice
The Landmark Centre President, Director and
113 Landmark Lane, Fund Manager, Massengill-
Suite B DeFriece Foundation
Bristol, TN 37620-2285 (charitable organization)
Age: 77 (1950-present); Trustee and Vice
Chairman, East Tennessee Public
Communications Corp. (WSJK-TV)
(1984-present); Trustee of Mackenzie
Series Trust (1985-1998); Director
of The Mackenzie Funds Inc. (1987-
1995).
Roy J. Glauber Trustee Mallinckrodt Professor of
Lyman Laboratory Physics, Harvard
of Physics University (1974-present);
Harvard University Trustee of Mackenzie Series
Cambridge, MA 02138 Trust (1994-1997).
Age: 72
Michael G. Landry Trustee President, Chief Executive
700 South Federal Hwy. And Officer and Director of
Suite 300 Chairman Mackenzie Investment
Boca Raton, FL 33432 Management Inc. (1987-
Age: 51 present); President,
[*Deemed to be an Director and Chairman of
"interested person" Ivy Management Inc. (1992-
of the Trust, as present); Chairman and
defined under the Director of Ivy Mackenzie
1940 Act.] Services Corp.(1993-present);
Chairman and Director of Ivy
Mackenzie Distributors, Inc.
(1994-present); Director and
President of Ivy Mackenzie
Distributors, Inc. (1993-1994);
Director and President of The
Mackenzie Funds Inc. (1987-1995);
Trustee of Mackenzie Series Trust
(1987-1998); President of Mackenzie
Series Trust (1987-1996); Chairman
of Mackenzie Series Trust (1996-
1998).
Joseph G. Rosenthal Trustee Chartered Accountant
110 Jardin Drive (1958-present); Trustee of
Unit #12 Mackenzie Series Trust
Concord, Ontario Canada (1985-1998); Director of
L4K 2T7 The Mackenzie Funds Inc.
Age: 63 (1987-1995).
Richard N. Silverman Trustee Director, Newton-Wellesley
18 Bonnybrook Road Hospital; Director, Beth
Waban, MA 02168 Israel Hospital; Director,
Age: 74 Boston Ballet; Director, Boston
Children's Museum; Director, Brimmer
and May School.
J. Brendan Swan Trustee President, Airspray
4701 North Federal Hwy. International, Inc.;
Suite 465 Joint Managing Director,
Pompano Beach, FL 33064 Airspray International
Age: 67 B.V. (an environmentally sensitive
packaging company); Director of
Polyglass LTD.; Director, The
Mackenzie Funds Inc. (1992-1995);
Trustee of Mackenzie Series Trust
(1992-1998).
Keith J. Carlson Trustee Senior Vice President of Mackenzie
700 South Federal Hwy. And Investment Management, Inc. (1996 -
Suite 300 President -present); Senior Vice President and
Boca Raton, FL 33432 Director of Mackenzie Investment
Age: 41 Management, Inc. (1994 - 1996);
[*Deemed to be an Senior Vice President and Treasurer
"interested person" of Mackenzie Investment Management,
of the Trust, Inc. (1989-1994); Senior Vice President
as defined under President and Director of Ivy
the 1940 Act.] Management Inc. (1994-present);
Senior Vice President, Treasurer and
Director of Ivy Management Inc.
(1992-1994); Vice President of The
Mackenzie Funds Inc. (1987-1995);
Senior Vice President and Director,
Ivy Mackenzie Services Corp. (1996-
present); President and Director of
Ivy Mackenzie Services Corp. (1993-
1996); Trustee and President of
Mackenzie Series Trust (1996-1998);
Vice President of Mackenzie Series
Trust (1994-1998); Treasurer of
Mackenzie Series Trust (1985-1994);
President, Chief Executive Officer
and Director of Ivy Mackenzie
Distributors, Inc. (1994-present);
Executive Vice President and
Director of Ivy Mackenzie
Distributors, Inc. (1993-1994);
Trustee of Mackenzie Series Trust
(1996-1998).
C. William Ferris Secretary/ Senior Vice President,
700 South Federal Hwy. Treasurer Chief Financial Officer
Suite 300 and Secretary/Treasurer
Boca Raton, FL 33432 of Mackenzie Investment
Age: 53 Management Inc. (1995-present);
Senior Vice President, Finance and
Administration/Compliance Officer of
Mackenzie Investment Management Inc.
(1989-1994); Senior Vice President,
Secretary/ Treasurer and Clerk of
Ivy Management Inc. (1994-present);
Vice President, Finance/
Administration and Compliance
Officer of Ivy Management Inc.
(1992-1994); Senior Vice President,
Secretary/Treasurer and Director of
Ivy Mackenzie Distributors, Inc.
(1994-present); Secretary/Treasurer
and Director of Ivy Mackenzie
Distributors, Inc. (1993-1994);
President and Director of Ivy
Mackenzie Services Corp.
(1996-present); Secretary/Treasurer
and Director of Ivy Mackenzie
Services Corp. (1993-1996);
Secretary/Treasurer
of The Mackenzie Funds Inc.
(1993-1995); Secretary/Treasurer of
Mackenzie Series Trust (1994-1998).
James W. Broadfoot Vice Executive Vice President,
700 South Federal Hwy. President Ivy Management Inc. (1996-
Suite 300 present); Senior Vice
Boca Raton, FL 33432 President, Ivy Management,
Age: 56 Inc. (1992-1996); Director and
Senior Vice President, Mackenzie
Investment Management Inc. (1995-
present); Senior Vice President,
Mackenzie Investment Management Inc.
(1990-1995).
COMPENSATION TABLE
IVY FUND
(FISCAL YEAR ENDED DECEMBER 31, 1998)
PENSION OR TOTAL COMPENSA-
AGGREGATE RETIREMENT ESTIMATED TION FROM TRUST
NAME, COMPENSATION BENEFITS ACCRUED ANNUAL AND FUND
POSITION FROM TRUST AS PART OF BENEFITS UPON COMPLEX PAID TO
FUND EXPENSES RETIREMENT TRUSTEES
John S. N/A N/A
Anderegg, Jr.
(Trustee)
Paul H. N/A N/A
Broyhill
(Trustee)
Keith J. $0 N/A N/A $0
Carlson
(Trustee and
President)
Stanley N/A N/A
Channick
(Trustee)
Frank W. N/A N/A
DeFriece, Jr.
(Trustee)
Roy J. N/A N/A
Glauber
(Trustee)
Michael G. $0 N/A N/A $0
Landry
(Trustee and
Chairman of
the Board)
Joseph G. N/A N/A
Rosenthal
(Trustee)
Richard N. N/A N/A
Silverman
(Trustee)
J. Brendan N/A N/A
Swan
(Trustee)
C. William $0 N/A N/A $0
Ferris
(Secretary/
Treasurer)
To the knowledge of the Trust, as of [ ], no shareholder owned
beneficially or of record 5% or more of the Fund's outstanding shares of any
class, except that [to be completed by amendment].
As of [.. ], the Officers and Trustees of the Trust as a group owned
beneficially or of record less than 1% of the outstanding Class A, Class B,
Class C, Class I and Advisor Class shares of the Fund.
PERSONAL INVESTMENTS BY EMPLOYEES OF IMI. Employees of IMI are
permitted to make personal securities transactions, subject to the requirements
and restrictions set forth in IMI's Code of Ethics and Business Conduct Policy
(the "Code of Ethics"). The Code of Ethics is designed to identify and address
certain conflicts of interest between personal investment activities and the
interests of investment advisory clients such as the Fund. Among other things,
the Code of Ethics, which generally complies with standards recommended by the
Investment Company Institute's Advisory Group on Personal Investing, prohibits
certain types of transactions absent prior approval, applies to portfolio
managers, traders, research analysts and others involved in the investment
advisory process, and imposes time periods during which personal transactions
may not be made in certain securities, and requires the submission of duplicate
broker confirmations and monthly reporting of securities transactions.
Exceptions to these and other provisions of the Code of Ethics may be granted in
particular circumstances after review by appropriate personnel.
INVESTMENT ADVISORY AND OTHER SERVICES
BUSINESS MANAGEMENT AND INVESTMENT ADVISORY SERVICES
IMI provides business management and investment advisory services to
the Fund pursuant to a Business Management and Investment Advisory Agreement
(the "Agreement"). The Agreement was approved by the sole shareholder of the
Fund on December 13, 1996. Prior to shareholder approval, the Agreement was
approved with respect to the Fund by the Board, including a majority of the
Trustees who are neither "interested persons" (as defined in the 1940 Act) of
the Trust nor have any direct or indirect financial interest in the operation of
the distribution plan (see "Distribution Services") or in any related agreement
(the "Independent Trustees") at a meeting held on December 7, 1996.
IMI is a wholly owned subsidiary of Mackenzie Investment Management
Inc. ("MIMI"). MIMI, a Delaware corporation, has approximately 10% of its
outstanding common stock listed for trading on the Toronto Stock Exchange
("TSE"). MIMI is a subsidiary of Mackenzie Financial Corporation ("MFC"), 150
Bloor Street West, Toronto, Ontario, Canada, a public corporation organized
under the laws of Ontario whose shares are listed for trading on the TSE. MFC is
registered in Ontario as a mutual fund dealer and advises Ivy Global Natural
Resources Fund. IMI currently acts as manager and investment adviser to the
following additional investment companies registered under the 1940 Act (other
than the Fund): Ivy Asia Pacific Fund, Ivy Bond Fund, Ivy China Region Fund, Ivy
Developing Nations Fund, Ivy European Opportunities Fund, Ivy Global Fund, Ivy
Global Science & Technology Fund, Ivy Growth Fund, Ivy Growth with Income Fund,
Ivy International Fund II, Ivy International Fund, Ivy International Small
Companies Fund, Ivy Money Market Fund, Ivy Pan-Europe Fund, Ivy South America
Fund, Ivy US Blue Chip Fund and Ivy US Emerging Growth Fund. IMI also provides
business management service to Ivy Global Natural Resources Fund.
The Agreement obligates IMI to make investments for the account of the
Fund in accordance with its best judgment and within the investment objectives
and restrictions set forth in the Prospectus, the 1940 Act and the provisions of
the Code relating to regulated investment companies, subject to policy decisions
adopted by the Board. IMI also determines the securities to be purchased or sold
by the Fund and places orders with brokers or dealers who deal in such
securities.
Under the Agreement, IMI also provides certain business management
services. IMI is obligated to (1) coordinate with the Fund's Custodian and
monitor the services it provides to the Fund; (2) coordinate with and monitor
any other third parties furnishing services to the Fund; (3) provide the Fund
with necessary office space, telephones and other communications facilities as
are adequate for the Fund's needs; (4) provide the services of individuals
competent to perform administrative and clerical functions that are not
performed by employees or other agents engaged by the Fund or by IMI acting in
some other capacity pursuant to a separate agreement or arrangements with the
Fund; (5) maintain or supervise the maintenance by third parties of such books
and records of the Trust as may be required by applicable Federal or state law;
(6) authorize and permit IMI's directors, officers and employees who may be
elected or appointed as trustees or officers of the Trust to serve in such
capacities; and (7) take such other action with respect to the Trust, after
approval by the Trust as may be required by applicable law, including without
limitation the rules and regulations of the SEC and of state securities
commissions and other regulatory agencies.
The Fund pays IMI a monthly fee for providing business management and
investment advisory services at an annual rate of 1.00% of the Fund's average
net assets.
Under the Agreement, the Trust pays the following expenses: (1) the
fees and expenses of the Trust's Independent Trustees; (2) the salaries and
expenses of any of the Trust's officers or employees who are not affiliated with
IMI; (3) interest expenses; (4) taxes and governmental fees, including any
original issue taxes or transfer taxes applicable to the sale or delivery of
shares or certificates therefor; (5) brokerage commissions and other expenses
incurred in acquiring or disposing of portfolio securities; (6) the expenses of
registering and qualifying shares for sale with the SEC and with various state
securities commissions; (7) accounting and legal costs; (8) insurance premiums;
(9) fees and expenses of the Trust's Custodian and Transfer Agent and any
related services; (10) expenses of obtaining quotations of portfolio securities
and of pricing shares; (11) expenses of maintaining the Trust's legal existence
and of shareholders' meetings; (12) expenses of preparation and distribution to
existing shareholders of periodic reports, proxy materials and prospectuses; and
(13) fees and expenses of membership in industry organizations.
IMI currently limits the Fund's total operating expenses (excluding
Rule 12b-1 fees, interest, taxes, brokerage commissions, litigation,
class-specific expenses, indemnification expenses, and extraordinary expenses)
to an annual rate of 1.95% of the Fund's average net assets, which may lower the
Fund's expenses and increase its yield.
The Agreement will continue in effect with respect to the Fund from
year to year, only so long as the continuance is specifically approved at least
annually (i) by the vote of a majority of the Independent Trustees and (ii)
either (a) by the vote of a majority of the outstanding voting securities (as
defined in the 1940 Act) of the Fund or (b) by the vote of a majority of the
entire Board. If the question of continuance of the Agreement (or adoption of
any new agreement) is presented to the shareholders, continuance (or adoption)
shall be effected only if approved by the affirmative vote of a majority of the
outstanding voting securities of the Fund. See "Capitalization and Voting
Rights."
The Agreement may be terminated with respect to the Fund at any time,
without payment of any penalty, by the vote of a majority of the Board, or by a
vote of a majority of the outstanding voting securities of the Fund, on 60 days'
written notice to IMI, or by IMI on 60 days' written notice to the Trust. The
Agreement shall terminate automatically in the event of its assignment.
DISTRIBUTION SERVICES
IMDI, a wholly owned subsidiary of MIMI, serves as the exclusive
distributor of Ivy Fund's shares pursuant to an Amended and Restated
Distribution Agreement with the Trust dated , 1999, as amended from time to time
(the "Distribution Agreement"). The Distribution Agreement was approved by the
Board on September 17, 1998. IMDI distributes shares of the Fund through
broker-dealers who are members of the National Association of Securities
Dealers, Inc. and who have executed dealer agreements with IMDI. IMDI
distributes shares of the Fund on a continuous basis, but reserves the right to
suspend or discontinue distribution on that basis. IMDI is not obligated to sell
any specific amount of Fund shares.
The Fund has authorized IMDI to accept on its behalf purchase and
redemption orders for its Advisor Class shares. IMDI is also authorized to
designate other intermediaries to accept purchase and redemption orders for the
Fund's Advisor Class shares on the Fund's behalf. The Fund will be deemed to
have received a purchase or redemption order for Advisor Class shares when an
authorized intermediary or, if applicable, an intermediary's authorized
designee, accepts the order. Client orders will be priced at the Fund's Net
Asset Value next computed after an authorized intermediary or the intermediary's
authorized designee accepts them.
Pursuant to the Distribution Agreement, IMDI is entitled to deduct a
commission on all Class A Fund shares sold equal to the difference, if any,
between the public offering price, as set forth in the Fund's then-current
prospectus, and the net asset value on which such price is based. Out of that
commission, IMDI may reallow to dealers such concession as IMDI may determine
from time to time. In addition, IMDI is entitled to deduct a CDSC on the
redemption of Class A shares sold without an initial sales charge and Class B
and Class C shares, in accordance with, and in the manner set forth in, the
Prospectus.
Under the Distribution Agreement, the Fund bears, among other expenses,
the expenses of registering and qualifying its shares for sale under Federal and
state securities laws and preparing and distributing to existing shareholders
periodic reports, proxy materials and prospectuses.
The Distribution Agreement will continue in effect for successive
one-year periods, provided that such continuance is specifically approved at
least annually by the vote of a majority of the Independent Trustees, cast in
person at a meeting called for that purpose and by the vote of either a majority
of the entire Board or a majority of the outstanding voting securities of the
Fund. The Distribution Agreement may be terminated with respect to the Fund at
any time, without payment of any penalty, by IMDI on 60 days' written notice to
the Fund or by the Fund by vote of either a majority of the outstanding voting
securities of the Fund or a majority of the Independent Trustees on 60 days'
written notice to IMDI. The Distribution Agreement shall terminate automatically
in the event of its assignment.
RULE 18F-3 PLAN. On February 23, 1995, the SEC adopted Rule 18f-3 under
the 1940 Act, which permits a registered open-end investment company to issue
multiple classes of shares in accordance with a written plan approved by the
investment company's board of directors/trustees and filed with the SEC. At a
meeting held on ________________, the Board adopted a Rule 18f-3 plan on behalf
of the Fund. The key features of the Rule 18f-3 plan are as follows: (i) shares
of each class of the Fund represent an equal pro rata interest in the Fund and
generally have identical voting, dividend, liquidation, and other rights,
preferences, powers, restrictions, limitations, qualifications, terms and
conditions, except that each class bears certain class-specific expenses and has
separate voting rights on certain matters that relate solely to that class or in
which the interests of shareholders of one class differ from the interests of
shareholders of another class; (ii) subject to certain limitations described in
the Prospectus, shares of a particular class of the Fund may be exchanged for
shares of the same class of another Ivy fund; and (iii) the Fund's Class B
shares will convert automatically into Class A shares of the Fund after a period
of eight years, based on the relative net asset value of such shares at the time
of conversion.
RULE 12B-1 DISTRIBUTION PLANS. The Trust has adopted on behalf of the
Fund, in accordance with Rule 12b-1 under the 1940 Act, separate Rule 12b-1
distribution plans pertaining to the Fund's Class A, Class B and Class C shares
(each, a "Plan"). In adopting each Plan, a majority of the Independent Trustees
have concluded in accordance with the requirements of Rule 12b-1 that there is a
reasonable likelihood that each Plan will benefit the Fund and its shareholders.
The Trustees of the Trust believe that the Plans should result in greater sales
and/or fewer redemptions of the Fund's shares, although it is impossible to know
for certain the level of sales and redemptions of the Fund's shares in the
absence of a Plan or under an alternative distribution arrangement.
Under each Plan, the Fund pays IMDI a service fee, accrued daily and
paid monthly, at the annual rate of up to 0.25% of the average daily net assets
attributable to its Class A, Class B or Class C shares, as the case may be. The
services for which service fees may be paid include, among other things,
advising clients or customers regarding the purchase, sale or retention of
shares of the Fund, answering routine inquiries concerning the Fund and
assisting shareholders in changing options or enrolling in specific plans.
Pursuant to each Plan, service fee payments made out of or charged against the
assets attributable to the Fund's Class A, Class B or Class C shares must be in
reimbursement for services rendered for or on behalf of the affected class. The
expenses not reimbursed in any one month may be reimbursed in a subsequent
month. The Class A Plan does not provide for the payment of interest or carrying
charges as distribution expenses.
Under the Fund's Class B and Class C Plans, the Fund also pays IMDI a
distribution fee, accrued daily and paid monthly, at the annual rate of 0.75% of
the average daily net assets attributable to its Class B or Class C shares. IMDI
may reallow to dealers all or a portion of the service and distribution fees as
IMDI may determine from time to time. The distribution fee compensates IMDI for
expenses incurred in connection with activities primarily intended to result in
the sale of the Fund's Class B or Class C shares, including the printing of
prospectuses and reports for persons other than existing shareholders and the
preparation, printing and distribution of sales literature and advertising
materials. Pursuant to each Class B and Class C Plan, IMDI may include interest,
carrying or other finance charges in its calculation of distribution expenses,
if not prohibited from doing so pursuant to an order of or a regulation adopted
by the SEC.
Among other things, each Plan provides that (1) IMDI will submit to the
Board at least quarterly, and the Trustees will review, written reports
regarding all amounts expended under the Plan and the purposes for which such
expenditures were made; (2) each Plan will continue in effect only so long as
such continuance is approved at least annually, and any material amendment
thereto is approved, by the votes of a majority of the Board, including the
Independent Trustees, cast in person at a meeting called for that purpose; (3)
payments by the Fund under each Plan shall not be materially increased without
the affirmative vote of the holders of a majority of the outstanding shares of
the relevant class; and (4) while each Plan is in effect, the selection and
nomination of Independent Trustees shall be committed to the discretion of the
Trustees who are not "interested persons" of the Trust.
IMDI may make payments for distribution assistance and for
administrative and accounting services from resources that may include the
management fees paid by the Fund. IMDI also may make payments (such as the
service fee payments described above) to unaffiliated broker-dealers for
services rendered in the distribution of the Fund's shares. To qualify for such
payments, shares may be subject to a minimum holding period. However, no such
payments will be made to any dealer or broker if at the end of each year the
amount of shares held does not exceed a minimum amount. The minimum holding
period and minimum level of holdings will be determined from time to time by
IMDI.
A report of the amount expended pursuant to each Plan, and the purposes
for which such expenditures were incurred, must be made to the Board for its
review at least quarterly.
Each Plan may be amended at any time with respect to the class of
shares of the Fund to which the Plan relates by vote of the Trustees, including
a majority of the Independent Trustees, cast in person at a meeting called for
the purpose of considering such amendment. Each Plan may be terminated at any
time with respect to the class of shares of the Fund to which the Plan relates,
without payment of any penalty, by vote of a majority of the Independent
Trustees, or by vote of a majority of the outstanding voting securities of that
class.
If the Distribution Agreement or the Distribution Plans are terminated
(or not renewed) with respect to any of the Ivy funds (or class of shares
thereof), each may continue in effect with respect to any other fund (or Class
of shares thereof) as to which they have not been terminated (or have been
renewed).
CUSTODIAN
Pursuant to a Custodian Agreement with the Trust, Brown Brothers
Harriman & Co. (the "Custodian"), a private bank and member of the principal
securities exchanges, located at 40 Water Street, Boston, Massachusetts 02109
(the "Custodian"), maintains custody of the assets of the Fund held in the
United States. Rules adopted under the 1940 Act permit the Trust to maintain its
foreign securities and cash in the custody of certain eligible foreign banks and
securities depositories. Pursuant to those rules, the Custodian has entered into
subcustodial agreements for the holding of the Fund's foreign securities. With
respect to the Fund, the Custodian may receive, as partial payment for its
services to the Fund, a portion of the Trust's brokerage business, subject to
its ability to provide best price and execution.
FUND ACCOUNTING SERVICES
Pursuant to a Fund Accounting Services Agreement, MIMI provides certain
accounting and pricing services for the Fund. As compensation for those
services, the Fund pays MIMI a monthly fee plus out-of-pocket expenses as
incurred. The monthly fee is based upon the net assets of the Fund at the
preceding month end at the following rates: $1,250 when net assets are $10
million and under; $2,500 when net assets are over $10 million to $40 million;
$5,000 when net assets are over $40 million to $75 million; and $6,500 when net
assets are over $75 million.
TRANSFER AGENT AND DIVIDEND PAYING AGENT
Pursuant to a Transfer Agency and Shareholder Service Agreement, Ivy
Mackenzie Services Corp. ("IMSC"), a wholly owned subsidiary of MIMI, is the
transfer agent for the Fund. Under the Agreement, the Fund pays a monthly fee at
an annual rate of $20.00 for each open Class A, Class B , Class C and Advisor
Class account. The Fund pays $10.25 per open Class I account. In addition, the
Fund pays a monthly fee at an annual rate of $4.58 per account that is closed
plus certain out-of-pocket expenses. Certain broker-dealers that maintain
shareholder accounts with the Fund through an omnibus account provide transfer
agent and other shareholder-related services that would otherwise be provided by
IMSC if the individual accounts that comprise the omnibus account were opened by
their beneficial owners directly. IMSC pays such broker-dealers a per account
fee for each open account within the omnibus account, or a fixed rate (e.g.,
0.10%) fee, based on the average daily net asset value of the omnibus account
(or a combination thereof).
ADMINISTRATOR
Pursuant to an Administrative Services Agreement, MIMI provides certain
administrative services to the Fund. As compensation for these services, the
Fund (except with respect to its Class I shares) pays MIMI a monthly fee at the
annual rate of 0.10% of the Fund's average daily net assets. The Fund pays MIMI
a monthly fee at the annual rate of 0.01% of its average daily net assets for
Class I.
Outside of providing administrative services to the Trust, as described
above, MIMI may also act on behalf of IMDI in paying commissions to
broker-dealers with respect to sales of Class B and Class C shares of the Fund.
AUDITORS
[........ ], independent public accountants, has been selected as
auditors for the Trust. The audit services performed by [ ], include audits of
the annual financial statements of each of the funds of the Trust. Other
services provided principally relate to filings with the SEC and the preparation
of the funds' tax returns.
BROKERAGE ALLOCATION
Subject to the overall supervision of the President and the Board, IMI
places orders for the purchase and sale of the Fund's portfolio securities. All
portfolio transactions are effected at the best price and execution obtainable.
Purchases and sales of debt securities are usually principal transactions and
therefore, brokerage commissions are usually not required to be paid by the Fund
for such purchases and sales (although the price paid generally includes
undisclosed compensation to the dealer). The prices paid to underwriters of
newly-issued securities usually include a concession paid by the issuer to the
underwriter, and purchases of after-market securities from dealers normally
reflect the spread between the bid and asked prices. In connection with OTC
transactions, IMI attempts to deal directly with the principal market makers,
except in those circumstances where IMI believes that a better price and
execution are available elsewhere.
IMI selects broker-dealers to execute transactions and evaluates the
reasonableness of commissions on the basis of quality, quantity, and the nature
of the firms' professional services. Commissions to be charged and the rendering
of investment services, including statistical, research, and counseling services
by brokerage firms, are factors to be considered in the placing of brokerage
business. The types of research services provided by brokers may include general
economic and industry data, and information on securities of specific companies.
Research services furnished by brokers through whom the Trust effects securities
transactions may be used by IMI in servicing all of its accounts. In addition,
not all of these services may be used by IMI in connection with the services it
provides to the Fund or the Trust. IMI may consider sales of shares of Ivy funds
as a factor in the selection of broker-dealers and may select broker-dealers who
provide it with research services. IMI will not, however, execute brokerage
transactions other than at the best price and execution.
The Fund may, under some circumstances, accept securities in lieu of
cash as payment for Fund shares. The Fund will accept securities only to
increase its holdings in a portfolio security or to take a new portfolio
position in a security that IMI deems to be a desirable investment for the Fund.
While no minimum has been established, it is expected that the Fund will not
accept securities having an aggregate value of less than $1 million. The Trust
may reject in whole or in part any or all offers to pay for the Fund shares with
securities and may discontinue accepting securities as payment for the Fund
shares at any time without notice. The Trust will value accepted securities in
the manner and at the same time provided for valuing portfolio securities of the
Fund, and the Fund shares will be sold for net asset value determined at the
same time the accepted securities are valued. The Trust will only accept
securities delivered in proper form and will not accept securities subject to
legal restrictions on transfer. The acceptance of securities by the Trust must
comply with the applicable laws of certain states.
CAPITALIZATION AND VOTING RIGHTS
The capitalization of the Trust consists of an unlimited number of
shares of beneficial interest (no par value per share). When issued, shares of
each class of the Fund are fully paid, non-assessable, redeemable and fully
transferable. No class of shares of the Fund has preemptive rights or
subscription rights.
The Amended and Restated Declaration of Trust permits the Trustees to
create separate series or portfolios and to divide any series or portfolio into
one or more classes. The Trustees have authorized nineteen series, each of which
represents a fund. The Trustees have further authorized the issuance of Class A,
Class B, and Class C shares for Ivy International Fund and Ivy Money Market Fund
and Class A, Class B, Class C and Advisor Class shares for the Fund, Ivy Asia
Pacific Fund, Ivy Bond Fund, Ivy China Region Fund, Ivy Developing Nations Fund,
Ivy European Opportunities Fund, Ivy Global Fund, Ivy Global Natural Resources
Fund, Ivy Global Science & Technology Fund, Ivy Growth Fund, Ivy Growth with
Income Fund, Ivy International Fund II, Ivy International Small Companies Fund,
Ivy Pan-Europe Fund, Ivy South America Fund, Ivy US Blue Chip Fund and Ivy US
Emerging Growth Fund, as well as Class I shares for the Fund, Ivy Bond Fund, Ivy
European Opportunities Fund, Ivy Global Science & Technology Fund, Ivy
International Fund II, Ivy International Fund, Ivy International Small Companies
Fund and Ivy US Blue Chip Fund.
Shareholders have the right to vote for the election of Trustees of the
Trust and on any and all matters on which they may be entitled to vote by law or
by the provisions of the Trust's By-Laws. The Trust is not required to hold a
regular annual meeting of shareholders, and it does not intend to do so. Shares
of each class of the Fund entitle their holders to one vote per share (with
proportionate voting for fractional shares). Shareholders of the Fund are
entitled to vote alone on matters that only affect the Fund. All classes of
shares of the Fund will vote together, except with respect to the distribution
plan applicable to the Fund's Class A, Class B or Class C shares or when a class
vote is required by the 1940 Act. On matters relating to all funds of the Trust,
but affecting the funds differently, separate votes by the shareholders of each
fund are required. Approval of an investment advisory agreement and a change in
fundamental policies would be regarded as matters requiring separate voting by
the shareholders of each fund of the Trust. If the Trustees determine that a
matter does not affect the interests of the Fund, then the shareholders of the
Fund will not be entitled to vote on that matter. Matters that affect the Trust
in general, such as ratification of the selection of independent public
accountants, will be voted upon collectively by the shareholders of all funds of
the Trust.
As used in this SAI and the Prospectus, the phrase "majority vote of
the outstanding shares" of the Fund means the vote of the lesser of: (1) 67% of
the shares of the Fund (or of the Trust) present at a meeting if the holders of
more than 50% of the outstanding shares are present in person or by proxy; or
(2) more than 50% of the outstanding shares of the Fund (or of the Trust).
With respect to the submission to shareholder vote of a matter
requiring separate voting by the Fund, the matter shall have been effectively
acted upon with respect to the Fund if a majority of the outstanding voting
securities of the Fund votes for the approval of the matter, notwithstanding
that: (1) the matter has not been approved by a majority of the outstanding
voting securities of any other fund of the Trust; or (2) the matter has not been
approved by a majority of the outstanding voting securities of the Trust.
The Amended and Restated Declaration of Trust provides that the holders
of not less than two-thirds of the outstanding shares of the Trust may remove a
person serving as trustee either by declaration in writing or at a meeting
called for such purpose. The Trustees are required to call a meeting for the
purpose of considering the removal of a person serving as Trustee if requested
in writing to do so by the holders of not less than 10% of the outstanding
shares of the Trust. Shareholders will be assisted in communicating with other
shareholders in connection with the removal of a Trustee as if Section 26(c) of
the Act were applicable.
The Trust's shares do not have cumulative voting rights and accordingly
the holders of more than 50% of the outstanding shares could elect the entire
Board, in which case the holders of the remaining shares would not be able to
elect any Trustees.
Under Massachusetts law, the Trust's shareholders could, under certain
circumstances, be held personally liable for the obligations of the Trust.
However, the Amended and Restated Declaration of Trust disclaims liability of
the shareholders, Trustees or officers of the Trust for acts or obligations of
the Trust, which are binding only on the assets and property of the Trust, and
requires that notice of the disclaimer be given in each contract or obligation
entered into or executed by the Trust or its Trustees. The Amended and Restated
Declaration of Trust provides for indemnification out of Fund property for all
loss and expense of any shareholder of the Fund held personally liable for the
obligations of the Fund. The risk of a shareholder of the Trust incurring
financial loss on account of shareholder liability is limited to circumstances
in which the Trust itself would be unable to meet its obligations and, thus,
should be considered remote. No series of the Trust is liable for the
obligations of any other series of the Trust.
SPECIAL RIGHTS AND PRIVILEGES
The Trust offers, and (except as noted below) bears the cost of
providing, to investors the following rights and privileges. The Trust reserves
the right to amend or terminate any one or more of these rights and privileges.
Notice of amendments to or terminations of rights and privileges will be
provided to shareholders in accordance with applicable law.
Certain of the rights and privileges described below refer to funds,
other than the Fund, whose shares are also distributed by IMDI. These funds are:
Ivy Asia Pacific Fund, Ivy Bond Fund, Ivy China Region Fund, Ivy Developing
Nations Fund, Ivy European Opportunities Fund, Ivy Global Fund, Ivy Global
Natural Resources Fund, Ivy Global Science & Technology Fund, Ivy Growth Fund,
Ivy Growth with Income Fund, Ivy International Fund II, Ivy International Fund,
Ivy International Small Companies Fund, Ivy Money Market Fund, Ivy Pan-Europe
Fund, Ivy South America Fund, Ivy US Blue Chip Fund and Ivy US Emerging Growth
Fund, (the other eighteen series of the Trust). (Effective April 18, 1997, Ivy
International Fund suspended the offer of its shares to new investors).
Shareholders should obtain a current prospectus before exercising any right or
privilege that may relate to these funds.
AUTOMATIC INVESTMENT METHOD
The Automatic Investment Method, which enables a Fund shareholder to
have specified amounts automatically drawn each month from his or her bank for
investment in Fund shares, is available for all classes of shares, except Class
I. The minimum initial and subsequent investment under this method is $50 per
month ($250 for Advisor Class shares), (except in the case of a tax qualified
retirement plan for which the minimum initial and subsequent investment is $25
per month). A shareholder may terminate the Automatic Investment Method at any
time upon delivery to IMSC of telephone instructions or written notice. See
"Automatic Investment Method" in the Prospectus. To begin the plan, complete
Sections 6A and 7B of the Account Application.
EXCHANGE OF SHARES
As described in the Prospectus, shareholders of the Fund have an
exchange privilege with other Ivy funds (except Ivy International Fund unless
they have an existing Ivy International Fund account). Before effecting an
exchange, shareholders of the Fund should obtain and read the currently
effective prospectus for the Ivy fund into which the exchange is to be made.
INITIAL SALES CHARGE SHARES. Class A shareholders may exchange their
Class A shares ("outstanding Class A shares") for Class A shares of another Ivy
fund ("new Class A Shares") on the basis of the relative net asset value per
Class A share, plus an amount equal to the difference, if any, between the sales
charge previously paid on the outstanding Class A shares and the sales charge
payable at the time of the exchange on the new Class A shares. (The additional
sales charge will be waived for Class A shares that have been invested for a
period of 12 months or longer.) Class A shareholders may also exchange their
shares for shares of Ivy Money Market Fund (no initial sales charge will be
assessed at the time of such an exchange).
CONTINGENT DEFERRED SALES CHARGE SHARES CLASS A: Class A shareholders
may exchange their Class A shares that are subject to a contingent deferred
sales charge ("CDSC"), as described in the Prospectus ("outstanding Class A
shares"), for Class A shares of another Ivy fund ("new Class A shares") on the
basis of the relative net asset value per Class A share, without the payment of
any CDSC that would otherwise be due upon the redemption of the outstanding
Class A shares. Class A shareholders of the Fund exercising the exchange
privilege will continue to be subject to that Fund's CDSC period following an
exchange if such period is longer than the CDSC period, if any, applicable to
the new Class A shares.
For purposes of computing the CDSC that may be payable upon the
redemption of the new Class A shares, the holding period of the outstanding
Class A shares is "tacked" onto the holding period of the new Class A shares.
CLASS B: Class B shareholders may exchange their Class B shares
("outstanding Class B shares") for Class B shares of another Ivy fund ("new
Class B shares") on the basis of the relative net asset value per Class B share,
without the payment of any CDSC that would otherwise be due upon the redemption
of the outstanding Class B shares. Class B shareholders of the Fund exercising
the exchange privilege will continue to be subject to that Fund's CDSC schedule
(or period) following an exchange if such schedule is higher (or such period is
longer) than the CDSC schedule (or period) applicable to the new Class B shares.
Class B shares of the Fund acquired through an exchange of Class B
shares of another Ivy fund will be subject to that Fund's CDSC schedule (or
period) if such schedule is higher (or such period is longer) than the CDSC
schedule (or period) applicable to the Ivy fund from which the exchange was
made.
For purposes of both the conversion feature and computing the CDSC that
may be payable upon the redemption of the new Class B shares (prior to
conversion), the holding period of the outstanding Class B shares is "tacked"
onto the holding period of the new Class B shares.
The following CDSC table applies to Class B shares of Ivy Asia Pacific
Fund, Ivy Bond Fund, Ivy China Region Fund, Ivy Developing Nations Fund, Ivy
European Opportunities Fund, Ivy Global Fund, Ivy Global Natural Resources Fund,
Ivy Global Science & Technology Fund, Ivy Growth Fund, Ivy Growth with Income
Fund, Ivy International Fund II, Ivy International Fund, Ivy International Small
Companies Fund, Ivy Pan-Europe Fund, Ivy South America Fund, Ivy US Blue Chip
Fund and Ivy US Emerging Growth Fund:
CONTINGENT DEFERRED SALES CHARGE AS A PERCENTAGE OF
DOLLAR AMOUNT SUBJECT TO CHARGE
YEAR SINCE PURCHASE
First 5%
Second 4%
Third 3%
Fourth 3%
Fifth 2%
Sixth 1%
Seventh and thereafter 0%
CLASS C: Class C shareholders may exchange their Class C shares
("outstanding Class C shares") for Class C shares of another Ivy fund ("new
Class C shares") on the basis of the relative net asset value per Class C share,
without the payment of any CDSC that would otherwise be due upon redemption.
(Class C shares are subject to a CDSC of 1.00% if redeemed within one year of
the date of purchase.)
CLASS I AND ADVISOR CLASS: Subject to the restrictions set forth in the
following paragraph, Class I and Advisor Class shareholders may exchange their
outstanding Class I (or Advisor Class) shares for Class I (or Advisor Class)
shares of another Ivy fund on the basis of the relative net asset value per
share.
ALL CLASSES: The minimum value of shares which may be exchanged into an
Ivy fund in which shares are not already held is $1,000 ($5,000,000 in the case
of Class I shares and $10,000 in the case of Advisor Class shares). No exchange
out of the Fund (other than by a complete exchange of all Fund shares) may be
made if it would reduce the shareholder's interest in the Fund to less than
$1,000 ($250,000 in the case of Class I shares and $10,000 in the case of
Advisor Class shares).
Each exchange will be made on the basis of the relative net asset value
per share of the Ivy funds involved in the exchange next computed following
receipt by IMSC of telephone instructions by IMSC or a properly executed
request. Exchanges, whether written or telephonic, must be received by IMSC by
the close of regular trading on the Exchange (normally 4:00 p.m., eastern time)
to receive the price computed on the day of receipt. Exchange requests received
after that time will receive the price next determined following receipt of the
request. The exchange privilege may be modified or terminated at any time, upon
at least 60 days' notice to the extent required by applicable law. See
"Redemptions."
An exchange of shares between any of the Ivy funds will result in a
taxable gain or loss. Generally, this will be a capital gain or loss (long-term
or short-term, depending on the holding period of the shares) in the amount of
the difference between the net asset value of the shares surrendered and the
shareholder's tax basis for those shares. However, in certain circumstances,
shareholders will be ineligible to take sales charges into account in computing
taxable gain or loss on an exchange. See "Taxation."
With limited exceptions, gain realized by a tax-deferred retirement
plan will not be taxable to the plan and will not be taxed to the participant
until distribution. Each investor should consult his or her tax adviser
regarding the tax consequences of an exchange transaction.
LETTER OF INTENT
Reduced sales charges apply to initial investments in Class A shares of
the Fund made pursuant to a non-binding Letter of Intent. A Letter of Intent may
be submitted by an individual, his or her spouse and children under the age of
21, or a trustee or other fiduciary of a single trust estate or single fiduciary
account. See the Account Application in the Prospectus. Any investor may submit
a Letter of Intent stating that he or she will invest, over a period of 13
months, at least $50,000 in Class A shares of the Fund. A Letter of Intent may
be submitted at the time of an initial purchase of Class A shares of the Fund or
within 90 days of the initial purchase, in which case the Letter of Intent will
be back dated. A shareholder may include, as an accumulation credit, the value
(at the applicable offering price) of all Class A shares of Ivy Asia Pacific
Fund, Ivy Bond Fund, Ivy China Region Fund, Ivy Developing Nations Fund, Ivy
European Opportunities Fund, Ivy Global Fund, Ivy Global Natural Resources Fund,
Ivy Global Science & Technology Fund, Ivy Growth Fund, Ivy Growth with Income
Fund, Ivy International Fund II, Ivy International Fund, Ivy International Small
Companies Fund, Ivy Pan-Europe Fund, Ivy South America Fund, Ivy US Blue Chip
Fund and Ivy US Emerging Growth Fund (and shares that have been exchanged into
Ivy Money Market Fund from any of the other funds in the Ivy funds) held of
record by him or her as of the date of his or her Letter of Intent. During the
term of the Letter of Intent, the Transfer Agent will hold Class A shares
representing 5% of the indicated amount (less any accumulation credit value) in
escrow. The escrowed Class A shares will be released when the full indicated
amount has been purchased. If the full indicated amount is not purchased during
the term of the Letter of Intent, the investor is required to pay IMDI an amount
equal to the difference between the dollar amount of sales charge that he or she
has paid and that which he or she would have paid on his or her aggregate
purchases if the total of such purchases had been made at a single time. Such
payment will be made by an automatic liquidation of Class A shares in the escrow
account. A Letter of Intent does not obligate the investor to buy or the Trust
to sell the indicated amount of Class A shares, and the investor should read
carefully all the provisions of such letter before signing.
RETIREMENT PLANS
Shares may be purchased in connection with several types of
tax-deferred retirement plans. Shares of more than one fund distributed by IMDI
may be purchased in a single application establishing a single account under the
plan, and shares held in such an account may be exchanged among the Ivy funds in
accordance with the terms of the applicable plan and the exchange privilege
available to all shareholders. Initial and subsequent purchase payments in
connection with tax-deferred retirement plans must be at least $25 per
participant.
The following fees will be charged to individual shareholder accounts
as described in the retirement prototype plan document:
Retirement Plan New Account Fee no fee
Retirement Plan Annual Maintenance Fee $10.00 per fund account
For shareholders whose retirement accounts are diversified across
several Ivy funds, the annual maintenance fee will be limited to not more than
$20.
The following discussion describes the tax treatment of certain
tax-deferred retirement plans under current Federal income tax law. State income
tax consequences may vary. An individual considering the establishment of a
retirement plan should consult with an attorney and/or an accountant with
respect to the terms and tax aspects of the plan.
INDIVIDUAL RETIREMENT ACCOUNTS: Shares of the Fund may be used as a
funding medium for an Individual Retirement Account ("IRA"). Eligible
individuals may establish an IRA by adopting a model custodial account available
from IMSC, who may impose a charge for establishing the account. Individuals
should consult their tax advisers before investing IRA assets in an Ivy fund if
that fund primarily distributes exempt-interest dividends.
An individual who has not reached age 70-1/2 and who receives
compensation or earned income is eligible to contribute to an IRA, whether or
not he or she is an active participant in a retirement plan. An individual who
receives a distribution from another IRA, a qualified retirement plan, a
qualified annuity plan or a tax-sheltered annuity or custodial account ("403(b)
plan") that qualifies for "rollover" treatment is also eligible to establish an
IRA by rolling over the distribution either directly or within 60 days after its
receipt. Tax advice should be obtained in connection with planning a rollover
contribution to an IRA.
In general, an eligible individual may contribute up to the lesser of
$2,000 or 100% of his or her compensation or earned income to an IRA each year.
If a husband and wife are both employed, and both are under age 70-1/2, each may
set up his or her own IRA within these limits. If both earn at least $2,000 per
year, the maximum potential contribution is $4,000 per year for both. For years
after 1996, the result is similar even if one spouse has no earned income; if
the joint earned income of the spouses is at least $4,000, a contribution of up
to $2,000 may be made to each spouse's IRA. Rollover contributions are not
subject to these limits.
An individual may deduct his or her annual contributions to an IRA in
computing his or her Federal income tax within the limits described above,
provided he or she (or his or her spouse, if they file a joint Federal income
tax return) is not an active participant in a qualified retirement plan (such as
a qualified corporate, sole proprietorship, or partnership pension, profit
sharing, 401(k) or stock bonus plan), qualified annuity plan, 403(b) plan,
simplified employee pension, or governmental plan. If he or she (or his or her
spouse) is an active participant, whether the individual's contribution to an
IRA is fully deductible, partially deductible or not deductible depends on (i)
adjusted gross income and (ii) whether it is the individual or the individual's
spouse who is an active participant, in the case of married individuals filing
jointly. Contributions may be made up to the maximum permissible amount even if
they are not deductible. Rollover contributions are not includable in income for
Federal income tax purposes and therefore are not deductible from it.
Generally, earnings on an IRA are not subject to current Federal income
tax until distributed. Distributions attributable to tax-deductible
contributions and to IRA earnings are taxed as ordinary income. Distributions of
non-deductible contributions are not subject to Federal income tax. In general,
distributions from an IRA to an individual before he or she reaches age 59-1/2
are subject to a nondeductible penalty tax equal to 10% of the taxable amount of
the distribution. The 10% penalty tax does not apply to amounts withdrawn from
an IRA after the individual reaches age 59-1/2, becomes disabled or dies, or if
withdrawn in the form of substantially equal payments over the life or life
expectancy of the individual and his or her designated beneficiary, if any, or
rolled over into another IRA, amounts withdrawn and used to pay for deductible
medical expenses and amounts withdrawn by certain unemployed individuals not in
excess of amounts paid for certain health insurance premiums, amounts used to
pay certain qualified higher education expenses, and amounts used within 120
days of the date the distribution is received to pay for certain first-time
homebuyer expenses. Distributions must begin to be withdrawn not later than
April 1 of the calendar year following the calendar year in which the individual
reaches age 70-1/2. Failure to take certain minimum required distributions will
result in the imposition of a 50% non-deductible penalty tax.
ROTH IRAS: Shares of the Fund also may be used as a funding medium for
a Roth Individual Retirement Account ("Roth IRA"). A Roth IRA is similar in
numerous ways to the regular (traditional) IRA, described above.
Some of the primary differences are as follows.
A single individual earning below $95,000 can contribute up to $2,000
per year to a Roth IRA. The maximum contribution amount diminishes and gradually
falls to zero for single filers with adjusted gross incomes ranging from $95,000
to $110,000. Married couples earning less than $150,000 combined, and filing
jointly, can contribute a full $4,000 per year ($2,000 per IRA). The maximum
contribution amount for married couples filing jointly phases out from $150,000
to $160,000. An individual whose adjusted gross income exceeds the maximum
phase-out amount cannot contribute to a Roth IRA.
An eligible individual can contribute money to a traditional IRA and a
Roth IRA as long as the total contribution to all IRAs does not exceed $2,000.
Contributions to a Roth IRA are not deductible. Contributions to a Roth IRA may
be made even after the individual for whom the account is maintained has
attained age 70 1/2.
No distributions are required to be taken prior to the death of the
original account holder. If a Roth IRA has been established for a minimum of
five years, distributions can be taken tax-free after reaching age 59 1/2, for a
first-time home purchase ($10,000 maximum, one time use), or upon death or
disability. All other distributions from a Roth IRA (other than the amount of
nondeductible contributions) are taxable and subject to a 10% tax penalty unless
an exception applies. Exceptions to the 10% penalty include: reaching age 59
1/2, death, disability, deductible medical expenses, the purchase of health
insurance for certain unemployed individual and qualified higher education
expenses.
An individual with an income of less than $100,000 (who is not married
filing separately) can roll his or her existing IRA into a Roth IRA. However,
the individual must pay taxes on the taxable amount in his or her traditional
IRA. After 1998, all taxes on such a rollover will have to be paid in the tax
year in which the rollover is made.
QUALIFIED PLANS: For those self-employed individuals who wish to
purchase shares of one or more Ivy funds through a qualified retirement plan, a
Custodial Agreement and a Retirement Plan are available from IMSC. The
Retirement Plan may be adopted as a profit sharing plan or a money purchase
pension plan. A profit sharing plan permits an annual contribution to be made in
an amount determined each year by the self-employed individual within certain
limits prescribed by law. A money purchase pension plan requires annual
contributions at the level specified in the Custodial Agreement. There is no
set-up fee for qualified plans and the annual maintenance fee is $20.00 per
account.
In general, if a self-employed individual has any common law employees,
employees who have met certain minimum age and service requirements must be
covered by the Retirement Plan. A self-employed individual generally must
contribute the same percentage of income for common law employees as for himself
or herself.
A self-employed individual may contribute up to the lesser of $30,000
or 25% of compensation or earned income to a money purchase pension plan or to a
combination profit sharing and money purchase pension plan arrangement each year
on behalf of each participant. To be deductible, total contributions to a profit
sharing plan generally may not exceed 15% of the total compensation or earned
income of all participants in the plan, and total contributions to a combination
money purchase-profit sharing arrangement generally may not exceed 25% of the
total compensation or earned income of all participants. The amount of
compensation or earned income of any one participant that may be included in
computing the deduction is limited (generally to $150,000 for benefits accruing
in plan years beginning after 1993, with annual inflation adjustments). A
self-employed individual's contributions to a retirement plan on his or her own
behalf must be deducted in computing his or her earned income.
Corporate employers may also adopt the Custodial Agreement and
Retirement Plan for the benefit of their eligible employees. Similar
contribution and deduction rules apply to corporate employers.
Distributions from the Retirement Plan generally are made after a
participant's separation from service. A 10% penalty tax generally applies to
distributions to an individual before he or she reaches age 59-1/2, unless the
individual (1) has reached age 55 and separated from service; (2) dies; (3)
becomes disabled; (4) uses the withdrawal to pay tax-deductible medical
expenses; (5) takes the withdrawal as part of a series of substantially equal
payments over his or her life expectancy or the joint life expectancy of himself
or herself and a designated beneficiary; or (6) rolls over the distribution.
The Transfer Agent will arrange for Investors Bank & Trust to furnish
custodial services to the employer and any participating employees.
DEFERRED COMPENSATION FOR PUBLIC SCHOOLS AND CHARITABLE ORGANIZATIONS
("403(B)(7) ACCOUNT"): Section 403(b)(7) of the Internal Revenue Code of 1986,
as amended (the "Code") permits public school systems and certain charitable
organizations to use mutual fund shares held in a custodial account to fund
deferred compensation arrangements with their employees. A custodial account
agreement is available for those employers whose employees wish to purchase
shares of the Trust in conjunction with such an arrangement. The special
application for a 403(b)(7) Account is available from IMSC.
Distributions from the 403(b)(7) Account may be made only following
death, disability, separation from service, attainment of age 59-1/2, or
incurring a financial hardship. A 10% penalty tax generally applies to
distributions to an individual before he or she reaches age 59-1/2, unless the
individual (1) has reached age 55 and separated from service; (2) dies or
becomes disabled; (3) uses the withdrawal to pay tax-deductible medical
expenses; (4) takes the withdrawal as part of a series of substantially equal
payments over his or her life expectancy or the joint life expectancy of himself
or herself and a designated beneficiary; or (5) rolls over the distribution.
There is no set-up fee for 403(b)(7) Accounts and the annual maintenance fee is
$20.00 per account.
SIMPLIFIED EMPLOYEE PENSION ("SEP") IRAS: An employer may deduct
contributions to a SEP up to the lesser of $30,000 or 15% of compensation. SEP
accounts generally are subject to all rules applicable to IRA accounts, except
the deduction limits, and are subject to certain employee participation
requirements. No new salary reduction SEPs ("SARSEPs") may be established after
1996, but existing SARSEPs may continue to be maintained, and non-salary
reduction SEPs may continue to be established as well as maintained after 1996.
SIMPLE PLANS: An employer may establish a SIMPLE IRA or a SIMPLE 401(k)
for years after 1996. An employee can make pre-tax salary reduction
contributions to a SIMPLE Plan, up to $6,000 a year (as indexed). Subject to
certain limits, the employer will either match a portion of employee
contributions, or will make a contribution equal to 2% of each employee's
compensation without regard to the amount the employee contributes. An employer
cannot maintain a SIMPLE Plan for its employees if the employer maintains or
maintained any other qualified retirement plan with respect to which any
contributions or benefits have been credited.
REINVESTMENT PRIVILEGE
Shareholders who have redeemed Class A shares of the Fund may reinvest
all or a part of the proceeds of the redemption back into Class A shares of the
Fund at net asset value (without a sales charge) within 60 days from the date of
redemption. This privilege may be exercised only once. The reinvestment will be
made at the net asset value next determined after receipt by IMSC of the
reinvestment order accompanied by the funds to be reinvested. No compensation
will be paid to any sales personnel or dealer in connection with the
transaction.
Any redemption is a taxable event. A loss realized on a redemption
generally may be disallowed for tax purposes if the reinvestment privilege
is exercised within 30 days after the redemption. In certain circumstances,
shareholders will be ineligible to take sales charges into account in
computing taxable gain or loss on a redemption if the reinvestment
privilege is exercised. See "Taxation."
RIGHTS OF ACCUMULATION
A scale of reduced sales charges applies to any investment of $50,000
or more in Class A shares of the Fund. See "Initial Sales Charge Alternative --
Class A Shares" in the Prospectus. The reduced sales charge is applicable to
investments made at one time by an individual, his or her spouse and children
under the age of 21, or a trustee or other fiduciary of a single trust estate or
single fiduciary account (including a pension, profit sharing or other employee
benefit trust created pursuant to a plan qualified under Section 401 of the
Code). Rights of Accumulation is also applicable to current purchases of all of
the funds of Ivy Fund (except Ivy Money Market Fund) by any of the persons
enumerated above, where the aggregate quantity of Class A shares of such funds
(and shares that have been exchanged into Ivy Money Market Fund from any of the
other funds in the Ivy funds) and of any other investment company distributed by
IMDI, previously purchased or acquired and currently owned, determined at the
higher of current offering price or amount invested, plus the Class A shares
being purchased, amounts to $50,000 or more for all funds other than Ivy Bond
Fund; or $100,000 or more for Ivy Bond Fund.
At the time an investment takes place, IMSC must be notified by the
investor or his or her dealer that the investment qualifies for the reduced
sales charge on the basis of previous investments. The reduced sales charge is
subject to confirmation of the investor's holdings through a check of the
particular fund's records.
SYSTEMATIC WITHDRAWAL PLAN
A shareholder (except shareholders with accounts in Class I) may
establish a Systematic Withdrawal Plan (a "Withdrawal Plan"), by telephone
instructions or by delivery to IMSC of a written election to have his or her
shares withdrawn periodically (minimum distribution amount $50 for Advisor Class
shares), accompanied by a surrender to IMSC of all share certificates then
outstanding in such shareholder's name, properly endorsed by the shareholder. To
be eligible to elect a Withdrawal Plan, a shareholder must have at least $5,000
in his or her account (except Advisor Class shareholders, who must continually
maintain an account balance of at least $10,000). A Withdrawal Plan may not be
established if the investor is currently participating in the Automatic
Investment Method. A Withdrawal Plan may involve the depletion of a
shareholder's principal, depending on the amount withdrawn.
A redemption under a Withdrawal Plan is a taxable event. Shareholders
contemplating participating in a Withdrawal Plan should consult their tax
advisers.
Additional investments made by investors participating in a Withdrawal
Plan must equal at least $1,000 each ($250 for Advisor Class shareholders) while
the Withdrawal Plan is in effect. Making additional purchases while a Withdrawal
Plan is in effect may be disadvantageous to the investor because of applicable
initial sales charges or CDSCs.
An investor may terminate his or her participation in the Withdrawal
Plan at any time by delivering written notice to IMSC. If all shares held by the
investor are liquidated at any time, participation in the Withdrawal Plan will
terminate automatically. The Trust or IMSC may terminate the Withdrawal Plan
option at any time after reasonable notice to shareholders.
GROUP SYSTEMATIC INVESTMENT PROGRAM
Shares of the Fund may be purchased in connection with investment
programs established by employee or other groups using systematic payroll
deductions or other systematic payment arrangements. The Trust does not itself
organize, offer or administer any such programs. However, it may, depending upon
the size of the program, waive the minimum initial and additional investment
requirements for purchases by individuals in conjunction with programs organized
and offered by others. Unless shares of the Fund are purchased in conjunction
with IRAs (see "How to Buy Shares" in the Prospectus), such group systematic
investment programs are not entitled to special tax benefits under the Code. The
Trust reserves the right to refuse purchases at any time or suspend the offering
of shares in connection with group systematic investment programs, and to
restrict the offering of shareholder privileges, such as check writing,
simplified redemptions and other optional privileges, as described in the
Prospectus, to shareholders using group systematic investment programs.
With respect to each shareholder account established on or after
September 15, 1972 under a group systematic investment program, the Trust and
IMI each currently charge a maintenance fee of $3.00 (or portion thereof) that
for each twelve-month period (or portion thereof) that the account is
maintained. The Trust may collect such fee (and any fees due to IMI) through a
deduction from distributions to the shareholders involved or by causing on the
date the fee is assessed a redemption in each such shareholder account
sufficient to pay such fee. The Trust reserves the right to change these fees
from time to time without advance notice.
Class A shares of the Fund are made available to Merrill Lynch Daily K
Plan (the "Plan") participants at NAV without an initial sales charge if:
(i) the Plan is recordkept on a daily valuation basis by Merrill
Lynch and, on the date the Plan Sponsor signs the Merrill
Lynch Recordkeeping Service Agreement, the Plan has $3 million
or more in assets invested in broker/dealer funds not advised
or managed by Merrill Lynch Asset Management, L.P. ("MLAM")
that are made available pursuant to a Service Agreement
between Merrill Lynch and the fund's principal underwriter or
distributor and in funds advised or managed by MLAM
(collectively, the "Applicable Investments");
(ii) the Plan is recordkept on a daily valuation basis by an
independent recordkeeper whose services are provided through a
contract or alliance arrangement with Merrill Lynch, and on
the date the Plan Sponsor signs the Merrill Lynch
Recordkeeping Service Agreement, the Plan has $3 million or
more in assets, excluding money market funds, invested in
Applicable Investments; or
(iii) the Plan has 500 or more eligible employees, as determined by
Merrill Lynch plan conversion manager, on the date the Plan
Sponsor signs the Merrill Lynch Recordkeeping Service
Agreement.
Alternatively, Class B shares of the Fund are made available to Plan
participants at NAV without a CDSC if the Plan conforms with the requirements
for eligibility set forth in (i) through (iii) above but either does not meet
the $3 million asset threshold or does not have 500 or more eligible employees.
Plans recordkept on a daily basis by Merrill Lynch or an independent
recordkeeper under a contract with Merrill Lynch that are currently investing in
Class B shares of the Fund convert to Class A shares once the Plan has reached
$5 million invested in Applicable Investments, or 10 years after the date of the
initial purchase by a participant under the Plan--the Plan will receive a Plan
level share conversion.
REDEMPTIONS
Shares of the Fund are redeemed at their net asset value next
determined after a proper redemption request has been received by IMSC, less any
applicable CDSC.
Unless a shareholder requests that the proceeds of any redemption be
wired to his or her bank account, payment for shares tendered for redemption is
made by check within seven days after tender in proper form, except that the
Trust reserves the right to suspend the right of redemption or to postpone the
date of payment upon redemption beyond seven days, (i) for any period during
which the Exchange is closed (other than customary weekend and holiday closings)
or during which trading on the Exchange is restricted, (ii) for any period
during which an emergency exists as determined by the SEC as a result of which
disposal of securities owned by the Fund is not reasonably practicable or it is
not reasonably practicable for the Fund to fairly determine the value of its net
assets, or (iii) for such other periods as the SEC may by order permit for the
protection of shareholders of the Fund.
Under unusual circumstances, when the Board deems it in the best
interest of the Fund's shareholders, the Fund may make payment for shares
repurchased or redeemed in whole or in part in securities of the Fund taken at
current values. If any such redemption in kind is to be made, the Fund may make
an election pursuant to Rule 18f-1 under the 1940 Act. This will require the
Fund to redeem with cash at a shareholder's election in any case where the
redemption involves less than $250,000 (or 1% of the Fund's net asset value at
the beginning of each 90-day period during which such redemptions are in effect,
if that amount is less than $250,000). Should payment be made in securities, the
redeeming shareholder may incur brokerage costs in converting such securities to
cash.
The Trust may redeem those accounts of shareholders who have maintained
an investment, including sales charges paid, of less than $1,000 ($10,000 for
Advisor Class shareholders) in the Fund for a period of more than 12 months. All
accounts below that minimum will be redeemed simultaneously when MIMI deems it
advisable. The $1,000 balance ($10,000 for Advisor Class shareholders) will be
determined by actual dollar amounts invested by the shareholder, unaffected by
market fluctuations. The Trust will notify any such shareholder by certified
mail of its intention to redeem such account, and the shareholder shall have 60
days from the date of such letter to invest such additional sums as shall raise
the value of such account above that minimum. Should the shareholder fail to
forward such sum within 60 days of the date of the Trust's letter of
notification, the Trust will redeem the shares held in such account and transmit
the redemption in value thereof to the shareholder. However, those shareholders
who are investing pursuant to the Automatic Investment Method will not be
redeemed automatically unless they have ceased making payments pursuant to the
plan for a period of at least six consecutive months, and these shareholders
will be given six-months' notice by the Trust before such redemption.
Shareholders in a qualified retirement, pension or profit sharing plan who wish
to avoid tax consequences must "rollover" any sum so redeemed into another
qualified plan within 60 days. The Trustees of the Trust may change the minimum
account size.
If a shareholder has given authorization for telephonic redemption
privilege, shares can be redeemed and proceeds sent by Federal wire to a single
previously designated bank account. Delivery of the proceeds of a wire
redemption request of $250,000 or more may be delayed by the Fund for up to
seven days if deemed appropriate under then-current market conditions. The Trust
reserves the right to change this minimum or to terminate the telephonic
redemption privilege without prior notice. The Trust cannot be responsible for
the efficiency of the Federal wire system of the shareholder's dealer of record
or bank. The shareholder is responsible for any charges by the shareholder's
bank.
The Fund employs reasonable procedures that require personal
identification prior to acting on redemption or exchange instructions
communicated by telephone to confirm that such instructions are genuine. In the
absence of such instructions, the Fund may be liable for any losses due to
unauthorized or fraudulent telephone instructions.
CONVERSION OF CLASS B SHARES
As described in the Prospectus, Class B shares of the Fund will
automatically convert to Class A shares of the Fund, based on the relative net
asset values per share of the two classes, no later than the month following the
eighth anniversary of the initial issuance of such Class B shares of the Fund
occurs. For the purpose of calculating the holding period required for
conversion of Class B shares, the date of initial issuance shall mean: (1) the
date on which such Class B shares were issued, or (2) for Class B shares
obtained through an exchange, or a series of exchanges, (subject to the exchange
privileges for Class B shares) the date on which the original Class B shares
were issued. For purposes of conversion of Class B shares, Class B shares
purchased through the reinvestment of dividends and capital gain distributions
paid in respect of Class B shares will be held in a separate sub-account. Each
time any Class B shares in the shareholder's regular account (other than those
shares in the sub-account) convert to Class A shares, a pro rata portion of the
Class B shares in the sub-account will also convert to Class A shares. The
portion will be determined by the ratio that the shareholder's Class B shares
converting to Class A shares bears to the shareholder's total Class B shares not
acquired through the reinvestment of dividends and capital gain distributions.
NET ASSET VALUE
The net asset value per share of the Fund is computed by dividing the
value of the Fund's aggregate net assets (i.e., its total assets less its
liabilities) by the number of the Fund's shares outstanding. For purposes of
determining the Fund's aggregate net assets, receivables are valued at their
realizable amounts. The Fund's liabilities, if not identifiable as belonging to
a particular class of the Fund, are allocated among the Fund's several classes
based on their relative net asset size. Liabilities attributable to a particular
class are charged to that class directly. The total liabilities for a class are
then deducted from the class's proportionate interest in the Fund's assets, and
the resulting amount is divided by the number of shares of the class outstanding
to produce its net asset value per share.
A security listed or traded on a recognized stock exchange or The
Nasdaq Stock Market, Inc. ("Nasdaq") is valued at the security's last sale price
on the exchange on which the security is principally traded. If no sale is
reported at that time, the average between the last bid and asked price (the
"Calculated Mean") is used. Unless otherwise noted herein, the value of a
foreign security is determined in its national currency as of the normal close
of trading on the foreign exchange on which it is traded or as of the close of
regular trading on the Exchange, if that is earlier, and that value is then
converted into its U.S. dollar equivalent at the foreign exchange rate in effect
at noon, eastern time, on the day the value of the foreign security is
determined. All other securities for which OTC market quotations are readily
available are valued at the Calculated Mean.
A debt security normally is valued on the basis of quotes obtained from
at least two dealers (or one dealer who has made a market in the security) or
pricing services that take into account appropriate valuation factors. Interest
is accrued daily. Money market instruments are valued at amortized cost, which
the Board believes approximates market value.
An exchange-traded option is valued at the last sale price on the
exchange on which it is principally traded, if available, and otherwise is
valued at the last sale price on the other exchange(s). If there were no sales
on any exchange, the option shall be valued at the Calculated Mean, if possible,
and otherwise at the last offering price, in the case of a written option, and
the last bid price, in the case of a purchased option. An OTC option is valued
at the last offering price, in the case of a written option, and the last bid
price, in the case of a purchased option. Exchange listed and widely-traded OTC
futures (and options thereon) are valued at the most recent settlement price.
Securities and other assets for which market prices are not readily
available are priced at their "fair value" as determined by IMI in accordance
with procedures approved by the Board. Trading in securities on many foreign
securities exchanges is normally completed before the close of regular trading
on the Exchange. Trading on foreign exchanges may not take place on all days on
which there is regular trading on the Exchange, or may take place on days on
which there is no regular trading on the Exchange (e.g., any of the national
business holidays identified below). If events materially affecting the value of
the Fund's portfolio securities occur between the time when a foreign exchange
closes and the time when the Fund's net asset value is calculated (see following
paragraph), such securities may be valued at fair value as determined by IMI and
approved by the Board.
Portfolio securities are valued (and net asset value per share is
determined) as of the close of regular trading on the Exchange (normally 4:00
p.m., eastern time) on each day the Exchange is open for trading. The Exchange
and the Trust's offices are expected to be closed, and net asset value will not
be calculated, on the following national business holidays: New Year's Day,
Martin Luther King, Jr. Day, Presidents' Day, Good Friday, Memorial Day,
Independence Day, Labor Day, Thanksgiving Day and Christmas Day. On those days
when either or both of the Fund's Custodian or the Exchange close early as a
result of a partial holiday or otherwise, the Trust reserves the right to
advance the time on that day by which purchase and redemption requests must be
received.
The number of shares you receive when you place a purchase order, and
the payment you receive after submitting a redemption request, is based on the
Fund's net asset value next determined after your instructions are received in
proper from by IMSC or by your registered securities dealer. Each purchase and
redemption order is subject to any applicable sales charge. Since the Fund
normally invests in securities that are listed on foreign exchanges that may
trade on weekends or other days when the Fund does not price its shares, the
Fund's net asset value may change on days when shareholders will not be able to
purchase or redeem the Fund's shares. The sale of the Fund's shares will be
suspended during any period when the determination of its net asset value is
suspended pursuant to rules or orders of the SEC and may be suspended by the
Board whenever in its judgment it is in the Fund's best interest to do so.
TAXATION
The following is a general discussion of certain tax rules thought to
be applicable with respect to the Fund. It is merely a summary and is not an
exhaustive discussion of all possible situations or of all potentially
applicable taxes. Accordingly, shareholders and prospective shareholders should
consult a competent tax adviser about the tax consequences to them of investing
in the Fund.
The Fund intends to be taxed as a regulated investment company under
Subchapter M of the Code. Accordingly, the Fund must, among other things, (a)
derive in each taxable year at least 90% of its gross income from dividends,
interest, payments with respect to certain securities loans, and gains from the
sale or other disposition of stock, securities or foreign currencies, or other
income derived with respect to its business of investing in such stock,
securities or currencies; and (b) diversify its holdings so that, at the end of
each fiscal quarter, (i) at least 50% of the market value of the Fund's assets
is represented by cash, U.S. Government securities, the securities of other
regulated investment companies and other securities, with such other securities
limited, in respect of any one issuer, to an amount not greater than 5% of the
value of the Fund's total assets and 10% of the outstanding voting securities of
such issuer, and (ii) not more than 25% of the value of its total assets is
invested in the securities of any one issuer (other than U.S. Government
securities and the securities of other regulated investment companies).
As a regulated investment company, the Fund generally will not be
subject to U.S. Federal income tax on its income and gains that it distributes
to shareholders, if at least 90% of its investment company taxable income (which
includes, among other items, dividends, interest and the excess of any
short-term capital gains over long-term capital losses) for the taxable year is
distributed. The Fund intends to distribute all such income.
Amounts not distributed on a timely basis in accordance with a calendar
year distribution requirement are subject to a nondeductible 4% excise tax at
the Fund level. To avoid the tax, the Fund must distribute during each calendar
year, (1) at least 98% of its ordinary income (not taking into account any
capital gains or losses) for the calendar year (2) at least 98% of its capital
gains in excess of its capital losses (adjusted for certain ordinary losses) for
a one-year period generally ending on October 31 of the calendar year, and (3)
all ordinary income and capital gains for previous years that were not
distributed during such years. To avoid application of the excise tax, the Fund
intends to make distributions in accordance with the calendar year distribution
requirements. A distribution will be treated as paid on December 31 of the
current calendar year if it is declared by the Fund in October, November or
December of the year with a record date in such a month and paid by the Fund
during January of the following year. Such distributions will be taxable to
shareholders in the calendar year the distributions are declared, rather than
the calendar year in which the distributions are received.
OPTIONS, FUTURES AND FOREIGN CURRENCY FORWARD CONTRACTS
The taxation of equity options and OTC options on debt securities is
governed by Code section 1234. Pursuant to Code section 1234, the premium
received by the Fund for selling a put or call option is not included in income
at the time of receipt. If the option expires, the premium is short-term capital
gain to the Fund. If the Fund enters into a closing transaction, the difference
between the amount paid to close out its position and the premium received is
short-term capital gain or loss. If a call option written by the Fund is
exercised, thereby requiring the Fund to sell the underlying security, the
premium will increase the amount realized upon the sale of such security and any
resulting gain or loss will be a capital gain or loss, and will be long-term or
short-term depending upon the holding period of the security. With respect to a
put or call option that is purchased by the Fund, if the option is sold, any
resulting gain or loss will be a capital gain or loss, and will be long-term or
short-term, depending upon the holding period of the option. If the option
expires, the resulting loss is a capital loss and is long-term or short-term,
depending upon the holding period of the option. If the option is exercised, the
cost of the option, in the case of a call option, is added to the basis of the
purchased security and, in the case of a put option, reduces the amount realized
on the underlying security in determining gain or loss.
Some of the options, futures and foreign currency forward contracts in
which the Fund may invest may be "section 1256 contracts." Gains (or losses) on
these contracts generally are considered to be 60% long-term and 40% short-term
capital gains or losses; however, as described below, foreign currency gains or
losses arising from certain section 1256 contracts are ordinary in character.
Also, section 1256 contracts held by the Fund at the end of each taxable year
(and on certain other dates prescribed in the Code) are "marked-to-market" with
the result that unrealized gains or losses are treated as though they were
realized.
The transactions in options, futures and forward contracts undertaken
by the Fund may result in "straddles" for Federal income tax purposes. The
straddle rules may affect the character of gains or losses realized by the Fund.
In addition, losses realized by the Fund on positions that are part of a
straddle may be deferred under the straddle rules, rather than being taken into
account in calculating the taxable income for the taxable year in which such
losses are realized. Because only a few regulations implementing the straddle
rules have been promulgated, the consequences of such transactions to the Fund
are not entirely clear. The straddle rules may increase the amount of short-term
capital gain realized by the Fund, which is taxed as ordinary income when
distributed to shareholders.
The Fund may make one or more of the elections available under the Code
which are applicable to straddles. If the Fund makes any of the elections, the
amount, character and timing of the recognition of gains or losses from the
affected straddle positions will be determined under rules that vary according
to the election(s) made. The rules applicable under certain of the elections may
operate to accelerate the recognition of gains or losses from the affected
straddle positions.
Because application of the straddle rules may affect the character of
gains or losses, defer losses and/or accelerate the recognition of gains or
losses from the affected straddle positions, the amount which must be
distributed to shareholders as ordinary income or long-term capital gain may be
increased or decreased substantially as compared to a fund that did not engage
in such transactions.
Notwithstanding any of the foregoing, the Fund may recognize gain (but
not loss) from a constructive sale of certain "appreciated financial positions"
if the Fund enters into a short sale, offsetting notional principal contract,
futures or forward contract transaction with respect to the appreciated position
or substantially identical property. Appreciated financial positions subject to
this constructive sale treatment are interests (including options, futures and
forward contracts and short sales) in stock, partnership interests, certain
actively traded trust instruments and certain debt instruments. Constructive
sale treatment of appreciated financial positions does not apply to certain
transactions closed in the 90-day period ending with the 30th day after the
close of the Fund's taxable year, if certain conditions are met.
CURRENCY FLUCTUATIONS -- "SECTION 988" GAINS OR LOSSES
Gains or losses attributable to fluctuations in exchange rates which
occur between the time the Fund accrues receivables or liabilities denominated
in a foreign currency and the time the Fund actually collects such receivables
or pays such liabilities generally are treated as ordinary income or ordinary
loss. Similarly, on disposition of some investments, including debt securities
denominated in a foreign currency and certain options, futures and forward
contracts, gains or losses attributable to fluctuations in the value of the
foreign currency between the date of acquisition of the security or contract and
the date of disposition also are treated as ordinary gain or loss. These gains
and losses, referred to under the Code as "section 988" gains or losses,
increase or decrease the amount of the Fund's investment company taxable income
available to be distributed to its shareholders as ordinary income.
INVESTMENT IN PASSIVE FOREIGN INVESTMENT COMPANIES
The Fund may invest in shares of foreign corporations which may be
classified under the Code as passive foreign investment companies ("PFICs"). In
general, a foreign corporation is classified as a PFIC if at least one-half of
its assets constitute investment-type assets, or 75% or more of its gross income
is investment-type income. If the Fund receives a so-called "excess
distribution" with respect to PFIC stock, the Fund itself may be subject to a
tax on a portion of the excess distribution, whether or not the corresponding
income is distributed by the Fund to shareholders. In general, under the PFIC
rules, an excess distribution is treated as having been realized ratably over
the period during which a Fund held the PFIC shares. The Fund itself will be
subject to tax on the portion, if any, of an excess distribution that is so
allocated to prior Fund taxable years and an interest factor will be added to
the tax, as if the tax had been payable in such prior taxable years. Certain
distributions from a PFIC as well as gain from the sale of PFIC shares are
treated as excess distributions. Excess distributions are characterized as
ordinary income even though, absent application of the PFIC rules, certain
excess distributions might have been classified as capital gain.
The Fund may be eligible to elect alternative tax treatment with
respect to PFIC shares. The Fund may elect to mark to market its PFIC shares,
resulting in the shares being treated as sold at fair market value on the last
business day of each taxable year. Any resulting gain would be reported as
ordinary income; any resulting loss and any loss from an actual disposition of
the shares would be reported as ordinary loss to the extent of any net gains
reported in prior years. Under another election that currently is available in
some circumstances, the Fund generally would be required to include in its gross
income its share of the earnings of a PFIC on a current basis, regardless of
whether distributions are received from the PFIC in a given year.
DEBT SECURITIES ACQUIRED AT A DISCOUNT
Some of the debt securities (with a fixed maturity date of more than
one year from the date of issuance) that may be acquired by the Fund may be
treated as debt securities that are issued originally at a discount. Generally,
the amount of the original issue discount ("OID") is treated as interest income
and is included in income over the term of the debt security, even though
payment of that amount is not received until a later time, usually when the debt
security matures.
Some of the debt securities (with a fixed maturity date of more than
one year from the date of issuance) that may be acquired by the Fund in the
secondary market may be treated as having market discount. Generally, gain
recognized on the disposition of, and any partial payment of principal on, a
debt security having market discount is treated as ordinary income to the extent
the gain, or principal payment, does not exceed the "accrued market discount" on
such debt security. In addition, the deduction of any interest expenses
attributable to debt securities having market discount may be deferred. Market
discount generally accrues in equal daily installments. The Fund may make one or
more of the elections applicable to debt securities having market discount,
which could affect the character and timing of recognition of income.
Some debt securities (with a fixed maturity date of one year or less
from the date of issuance) that may be acquired by the Fund may be treated as
having acquisition discount, or OID in the case of certain types of debt
securities. Generally, the Fund will be required to include the acquisition
discount, or OID, in income over the term of the debt security, even though
payment of that amount is not received until a later time, usually when the debt
security matures. The Fund may make one or more of the elections applicable to
debt securities having acquisition discount, or OID, which could affect the
character and timing of recognition of income.
The Fund generally will be required to distribute dividends to
shareholders representing discount on debt securities that is currently
includable in income, even though cash representing such income may not have
been received by the Fund. Cash to pay such dividends may be obtained from sales
proceeds of securities held by the Fund.
DISTRIBUTIONS
Distributions of investment company taxable income are taxable to a
U.S. shareholder as ordinary income, whether paid in cash or shares. Dividends
paid by the Fund to a corporate shareholder, to the extent such dividends are
attributable to dividends received from U.S. corporations by the Fund, may
qualify for the dividends received deduction. However, the revised alternative
minimum tax applicable to corporations may reduce the value of the dividends
received deduction. Distributions of net capital gains (the excess of net
long-term capital gains over net short-term capital losses), if any, designated
by the Fund as capital gain dividends, are taxable to shareholders as long-term
capital gains whether paid in cash or in shares, and regardless of how long the
shareholder has held the Fund's shares; such distributions are not eligible for
the dividends received deduction. Shareholders receiving distributions in the
form of newly issued shares will have a cost basis in each share received equal
to the net asset value of a share of the Fund on the distribution date. A
distribution of an amount in excess of the Fund's current and accumulated
earnings and profits will be treated by a shareholder as a return of capital
which is applied against and reduces the shareholder's basis in his or her
shares. To the extent that the amount of any such distribution exceeds the
shareholder's basis in his or her shares, the excess will be treated by the
shareholder as gain from a sale or exchange of the shares. Shareholders will be
notified annually as to the U.S. Federal tax status of distributions and
shareholders receiving distributions in the form of newly issued shares will
receive a report as to the net asset value of the shares received.
If the net asset value of shares is reduced below a shareholder's cost
as a result of a distribution by the Fund, such distribution generally will be
taxable even though it represents a return of invested capital. Shareholders
should be careful to consider the tax implications of buying shares just prior
to a distribution. The price of shares purchased at this time may reflect the
amount of the forthcoming distribution. Those purchasing just prior to a
distribution will receive a distribution which generally will be taxable to
them.
DISPOSITION OF SHARES
Upon a redemption, sale or exchange of his or her shares, a shareholder
will realize a taxable gain or loss depending upon his or her basis in the
shares. Such gain or loss will be treated as capital gain or loss if the shares
are capital assets in the shareholder's hands and, if so, will be long-term or
short-term, depending upon the shareholder's holding period for the shares. Any
loss realized on a redemption sale or exchange will be disallowed to the extent
the shares disposed of are replaced (including through reinvestment of
dividends) within a period of 61 days beginning 30 days before and ending 30
days after the shares are disposed of. In such a case, the basis of the shares
acquired will be adjusted to reflect the disallowed loss. Any loss realized by a
shareholder on the sale of Fund shares held by the shareholder for six-months or
less will be treated for tax purposes as a long-term capital loss to the extent
of any distributions of capital gain dividends received or treated as having
been received by the shareholder with respect to such shares.
In some cases, shareholders will not be permitted to take all or
portion of their sales loads into account for purposes of determining the amount
of gain or loss realized on the disposition of their shares. This prohibition
generally applies where (1) the shareholder incurs a sales load in acquiring the
shares of the Fund, (2) the shares are disposed of before the 91st day after the
date on which they were acquired, and (3) the shareholder subsequently acquires
shares in the Fund or another regulated investment company and the otherwise
applicable sales charge is reduced under a "reinvestment right" received upon
the initial purchase of Fund shares. The term "reinvestment right" means any
right to acquire shares of one or more regulated investment companies without
the payment of a sales load or with the payment of a reduced sales charge. Sales
charges affected by this rule are treated as if they were incurred with respect
to the shares acquired under the reinvestment right. This provision may be
applied to successive acquisitions of fund shares.
FOREIGN WITHHOLDING TAXES
Income received by the Fund from sources within a foreign country may
be subject to withholding and other taxes imposed by that country.
If more than 50% of the value of the Fund's total assets at the close
of its taxable year consists of securities of foreign corporations, the Fund
will be eligible and may elect to "pass-through" to the Fund's shareholders the
amount of foreign income and similar taxes paid by the Fund. Pursuant to this
election, a shareholder will be required to include in gross income (in addition
to taxable dividends actually received) his or her pro rata share of the foreign
income and similar taxes paid by the Fund, and will be entitled either to deduct
his or her pro rata share of foreign income and similar taxes in computing his
or her taxable income or to use it as a foreign tax credit against his or her
U.S. Federal income taxes, subject to limitations. No deduction for foreign
taxes may be claimed by a shareholder who does not itemize deductions. Foreign
taxes generally may not be deducted by a shareholder that is an individual in
computing the alternative minimum tax. Each shareholder will be notified within
60 days after the close of the Fund's taxable year whether the foreign taxes
paid by the Fund will "pass-through" for that year and, if so, such notification
will designate (1) the shareholder's portion of the foreign taxes paid to each
such country and (2) the portion of the dividend which represents income derived
from sources within each such country.
Generally, except in the case of certain electing individual taxpayers
who have limited creditable foreign taxes and no foreign source income other
than passive investment-type income, a credit for foreign taxes is subject to
the limitation that it may not exceed the shareholder's U.S. tax attributable to
his or her total foreign source taxable income. For this purpose, if the Fund
makes the election described in the preceding paragraph, the source of the
Fund's income flows through to its shareholders. With respect to the Fund, gains
from the sale of securities generally will be treated as derived from U.S.
sources and section 988 gains will be treated as ordinary income derived from
U.S. sources. The limitation on the foreign tax credit is applied separately to
foreign source passive income, including foreign source passive income received
from the Fund. In addition, the foreign tax credit may offset only 90% of the
revised alternative minimum tax imposed on corporations and individuals.
Furthermore, the foreign tax credit is eliminated with respect to foreign taxes
withheld on dividends if the dividend-paying shares or the shares of the Fund
are held by the Fund or the shareholder, as the case may be, for less than 16
days (46 days in the case of preferred shares) during the 30-day period (90-day
period for preferred shares) beginning 15 days (45 days for preferred shares)
before the shares become ex-dividend. In addition, if the Fund fails to satisfy
these holding period requirements, it cannot elect to pass through to
shareholders the ability to claim a deduction for related foreign taxes.
The foregoing is only a general description of the foreign tax credit
under current law. Because application of the credit depends on the particular
circumstances of each shareholder, shareholders are advised to consult their own
tax advisers.
BACKUP WITHHOLDING
The Fund will be required to report to the Internal Revenue Service
("IRS") all taxable distributions as well as gross proceeds from the redemption
of the Fund's shares, except in the case of certain exempt shareholders. All
such distributions and proceeds will be subject to withholding of Federal income
tax at a rate of 31% ("backup withholding") in the case of non-exempt
shareholders if (1) the shareholder fails to furnish the Fund with and to
certify the shareholder's correct taxpayer identification number or social
security number, (2) the IRS notifies the shareholder or the Fund that the
shareholder has failed to report properly certain interest and dividend income
to the IRS and to respond to notices to that effect, or (3) when required to do
so, the shareholder fails to certify that he or she is not subject to backup
withholding. If the withholding provisions are applicable, any such
distributions or proceeds, whether reinvested in additional shares or taken in
cash, will be reduced by the amounts required to be withheld.
Distributions may also be subject to additional state, local and
foreign taxes depending on each shareholder's particular situation. Non-U.S.
shareholders may be subject to U.S. tax rules that differ significantly from
those summarized above. This discussion does not purport to deal with all of the
tax consequences applicable to the Fund or shareholders. Shareholders are
advised to consult their own tax advisers with respect to the particular tax
consequences to them of an investment in the Fund.
PERFORMANCE INFORMATION
Performance information for the classes of shares of the Fund may be
compared, in reports and promotional literature, to: (i) the S&P 500 Index, the
Dow Jones Industrial Average ("DJIA"), or other unmanaged indices so that
investors may compare the Fund's results with those of a group of unmanaged
securities widely regarded by investors as representative of the securities
markets in general; (ii) other groups of mutual funds tracked by Lipper
Analytical Services, a widely used independent research firm that ranks mutual
funds by overall performance, investment objectives and assets, or tracked by
other services, companies, publications or other criteria; and (iii) the
Consumer Price Index (measure for inflation) to assess the real rate of return
from an investment in the Fund. Unmanaged indices may assume the reinvestment of
dividends but generally do not reflect deductions or administrative and
management costs and expenses. Performance rankings are based on historical
information and are not intended to indicate future performance.
YIELD. Quotations of yield for a specific class of shares of the Fund
will be based on all investment income attributable to that class earned during
a particular 30-day (or one month) period (including dividends and interest),
less expenses attributable to that class accrued during the period ("net
investment income"), and will be computed by dividing the net investment income
per share of that class earned during the period by the maximum offering price
per share (in the case of Class A shares) or the net asset value per share (in
the case of Class B and Class C shares) on the last day of the period, according
to the following formula:
YIELD = 2[({(a-b)/cd} + 1){superscript 6}-1]
Where: a = dividends and interest earned
during the period attributable to a
specific class of shares,
b = expenses accrued for the period
attributable to that class (net of
reimbursements),
c = the average daily number of shares
of that class outstanding during the
period that were entitled to receive
dividends, and
d = the maximum offering price per
share (in the case of Class A
shares) or the net asset value per
share (in the case of Class B
shares, Class C shares and Class I
shares) on the last day of the
period.
AVERAGE ANNUAL TOTAL RETURN. Quotations of standardized average annual
total return ("Standardized Return") for a specific class of shares of the Fund
will be expressed in terms of the average annual compounded rate of return that
would cause a hypothetical investment in that class of the Fund made on the
first day of a designated period to equal the ending redeemable value ("ERV") of
such hypothetical investment on the last day of the designated period, according
to the following formula:
P(1 + T){superscript n} = ERV
Where: P = a hypothetical initial payment of
$1,000 to purchase shares of a
specific class
T = the average annual total return of
shares of that class
n = the number of years
ERV = the ending redeemable value of a
hypothetical $1,000 payment made at
the beginning of the period.
For purposes of the above computation for the Fund, it is assumed that
all dividends and capital gains distributions made by the Fund are reinvested at
net asset value in additional shares of the same class during the designated
period. In calculating the ending redeemable value for Class A shares and
assuming complete redemption at the end of the applicable period, the maximum
4.75% sales charge is deducted from the initial $1,000 payment and, for Class B
and Class C shares, the applicable CDSC imposed upon redemption of Class B or
Class C shares held for the period is deducted. Standardized Return quotations
for the Fund do not take into account any required payments for federal or state
income taxes. Standardized Return quotations for Class B shares for periods of
over eight years will reflect conversion of the Class B shares to Class A shares
at the end of the eighth year. Standardized Return quotations are determined to
the nearest 1/100 of 1%.
The Fund may, from time to time, include in advertisements, promotional
literature or reports to shareholders or prospective investors total return data
that are not calculated according to the formula set forth above
("Non-Standardized Return"). Neither initial nor CDSCs are taken into account in
calculating Non-Standardized Return; a sales charge, if deducted, would reduce
the return.
The following table summarizes the calculation of Standardized and
Non-Standardized Return for the Class A, Class B, Class, C, Class I and Advisor
Class shares of the Fund for the periods indicated. In determining the average
annual total return for a specific class of shares of the Fund, recurring fees,
if any, that are charged to all shareholder accounts are taken into
consideration. For any account fees that vary with the size of the account of
the Fund, the account fee used for purposes of the following computations is
assumed to be the fee that would be charged to the mean account size of the
Fund.
CUMULATIVE TOTAL RETURN. Cumulative total return is the cumulative rate
of return on a hypothetical initial investment of $1,000 in a specific class of
shares of the Fund for a specified period. Cumulative total return quotations
reflect changes in the price of the Fund's shares and assume that all dividends
and capital gains distributions during the period were reinvested in the Fund
shares. Cumulative total return is calculated by computing the cumulative rates
of return of a hypothetical investment in a specific class of shares of the Fund
over such periods, according to the following formula (cumulative total return
is then expressed as a percentage):
C = (ERV/P) - 1
Where: C = cumulative total return
P = a hypothetical initial investment of
$1,000 to purchase shares of a
specific class
ERV = ending redeemable value: ERV is
the value, at the end of the
applicable period, of a hypothetical
$1,000 investment made at the
beginning of the applicable period.
OTHER QUOTATIONS, COMPARISONS AND GENERAL INFORMATION. The foregoing
computation methods are prescribed for advertising and other communications
subject to SEC Rule 482. Communications not subject to this rule may contain a
number of different measures of performance, computation methods and
assumptions, including but not limited to: historical total returns; results of
actual or hypothetical investments; changes in dividends, distributions or share
values; or any graphic illustration of such data. These data may cover any
period of the Trust's existence and may or may not include the impact of sales
charges, taxes or other factors.
Performance quotations for the Fund will vary from time to time
depending on market conditions, the composition of the Fund's portfolio and
operating expenses of the Fund. These factors and possible differences in the
methods used in calculating performance quotations should be considered when
comparing performance information regarding the Fund's shares with information
published for other investment companies and other investment vehicles.
Performance quotations should also be considered relative to changes in the
value of the Fund's shares and the risks associated with the Fund's investment
objectives and policies. At any time in the future, performance quotations may
be higher or lower than past performance quotations and there can be no
assurance that any historical performance quotation will continue in the future.
The Fund may also cite endorsements or use for comparison its
performance rankings and listings reported in such newspapers or business or
consumer publications as, among others: AAII Journal, Barron's, Boston Business
Journal, Boston Globe, Boston Herald, Business Week, Consumer's Digest, Consumer
Guide Publications, Changing Times, Financial Planning, Financial World, Forbes,
Fortune, Growth Fund Guide, Houston Post, Institutional Investor, International
Fund Monitor, Investor's Daily, Los Angeles Times, Medical Economics, Miami
Herald, Money Mutual Fund Forecaster, Mutual Fund Letter, Mutual Fund Source
Book, Mutual Fund Values, National Underwriter, Nelson's Directory of Investment
Managers, New York Times, Newsweek, No Load Fund Investor, No Load Fund* X,
Oakland Tribune, Pension World, Pensions and Investment Age, Personal Investor,
Rugg and Steele, Time, U.S. News and World Report, USA Today, The Wall Street
Journal, and Washington Post.
FINANCIAL STATEMENTS
The Fund's Statement of Assets and Liabilities as of _____________,
1999 and the Notes thereto are attached hereto as Appendix B.
<PAGE>
APPENDIX A
DESCRIPTION OF STANDARD & POOR'S RATINGS GROUP ("S&P") AND MOODY'S
INVESTORS SERVICE, INC. ("MOODY'S") CORPORATE BOND AND COMMERCIAL PAPER
RATINGS
[From "Moody's Bond Record," November 1994 Issue (Moody's Investors
Service, New York, 1994), and "Standard & Poor's Municipal Ratings
Handbook," October 1997 Issue (McGraw Hill, New York, 1997).]
MOODY'S:
(a) CORPORATE BONDS. Bonds rated Aaa by Moody's are judged by Moody's
to be of the best quality, carrying the smallest degree of investment risk.
Interest payments are protected by a large or exceptionally stable margin and
principal is secure. While the various protective elements are likely to change,
such changes as can be visualized are most unlikely to impair the fundamentally
strong position of such issues. Bonds rated Aa are judged by Moody's to be of
high quality by all standards. Aa bonds are rated lower than Aaa bonds because
margins of protection may not be as large as those of Aaa bonds, or fluctuations
of protective elements may be of greater amplitude, or there may be other
elements present which make the long-term risks appear somewhat larger than
those applicable to Aaa securities. Bonds which are rated A by Moody's possess
many favorable investment attributes and are to be considered as upper
medium-grade obligations. Factors giving security to principal and interest are
considered adequate, but elements may be present which suggest a susceptibility
to impairment sometime in the future. Bonds rated Baa by Moody's are considered
medium-grade obligations (i.e., they are neither highly protected nor poorly
secured). Interest payments and principal security appear adequate for the
present, but certain protective elements may be lacking or may be
characteristically unreliable over any great length of time. Such bonds lack
outstanding investment characteristics and in fact have speculative
characteristics as well. Bonds which are rated Ba are judged to have speculative
elements; their future cannot be considered well-assured. Often the protection
of interest and principal payments may be very moderate and thereby not well
safeguarded during both good and bad times over the future. Uncertainty of
position characterizes bonds in this class. Bonds which are rated B generally
lack characteristics of the desirable investment. Assurance of interest and
principal payments of or maintenance of other terms of the contract over any
long period of time may be small. Bonds which are rated Caa are of poor
standing. Such issues may be in default or there may be present elements of
danger with respect to principal or interest. Bonds which are rated Ca represent
obligations which are speculative in a high degree. Such issues are often in
default or have other marked shortcomings. Bonds which are rated C are the
lowest rated class of bonds and issues so rated can be regarded as having
extremely poor prospects of ever attaining any real investment standing.
(b) COMMERCIAL PAPER. The Prime rating is the highest commercial paper
rating assigned by Moody's. Among the factors considered by Moody's in assigning
ratings are the following: (1) evaluation of the management of the issuer; (2)
economic evaluation of the issuer's industry or industries and an appraisal of
speculative-type risks which may be inherent in certain areas; (3) evaluation of
the issuer's products in relation to competition and customer acceptance; (4)
liquidity; (5) amount and quality of long-term debt; (6) trend of earnings over
a period of ten years; (7) financial strength of a parent company and the
relationships which exist with the issuer; and (8) recognition by management of
obligations which may be present or may arise as a result of public interest
questions and preparations to meet such obligations. Issuers within this Prime
category may be given ratings 1, 2 or 3, depending on the relative strengths of
these factors. The designation of Prime-1 indicates the highest quality
repayment capacity of the rated issue. Issuers rated Prime-2 are deemed to have
a strong ability for repayment while issuers voted Prime-3 are deemed to have an
acceptable ability for repayment. Issuers rated Not Prime do not fall within any
of the Prime rating categories.
S&P:
(a) CORPORATE BONDS. An S&P corporate debt rating is a current
assessment of the creditworthiness of an obligor with respect to a specific
obligation. The ratings are based on current information furnished by the issuer
or obtained by S&P from other sources it considers reliable. The ratings
described below may be modified by the addition of a plus or minus sign to show
relative standing within the major rating categories.
Debt rated AAA has the highest rating assigned by S&P. Capacity to pay
interest and repay principal is extremely strong. Debt rated AA is judged by S&P
to have a very strong capacity to pay interest and repay principal and differs
from the highest rated issues only in small degree. Debt rated A by S&P has a
strong capacity to pay interest and repay principal, although it is somewhat
more susceptible to the adverse effects of changes in circumstances and economic
conditions than debt in higher rated categories.
Debt rated BBB by S&P is regarded by S&P as having an adequate capacity
to pay interest and repay principal. Although such bonds normally exhibit
adequate protection parameters, adverse economic conditions or changing
circumstances are more likely to lead to a weakened capacity to pay interest and
repay principal than debt in higher rated categories.
Debt rated BB, B, CCC, CC and C is regarded as having predominately
speculative characteristics with respect to capacity to pay interest and repay
principal. BB indicates the least degree of speculation and C the highest. While
such debt will likely have some quality and protective characteristics, these
are outweighed by large uncertainties or exposures to adverse conditions. Debt
rated BB has less near-term vulnerability to default than other speculative
issues. However, it faces major ongoing uncertainties or exposure to adverse
business, financial or economic conditions which could lead to inadequate
capacity to meet timely interest and principal payments. The BB rating category
is also used for debt subordinated to senior debt that is assigned an actual or
implied BBB- rating. Debt rated B has a greater vulnerability to default but
currently has the capacity to meet interest payments and principal repayments.
Adverse business, financial, or economic conditions will likely impair capacity
or willingness to pay interest and repay principal. The B rating category is
also used for debt subordinated to senior debt that is assigned an actual or
implied BB or BB- rating. Debt rated CCC has a currently identifiable
vulnerability to default, and is dependent upon favorable business, financial,
and economic conditions to meet timely payment of interest and repayment of
principal. In the event of adverse business, financial or economic conditions,
it is not likely to have the capacity to pay interest and repay principal. The
CCC rating category is also used for debt subordinated to senior debt that is
assigned an actual or implied B or B- rating. The rating CC typically is applied
to debt subordinated to senior debt which is assigned an actual or implied CCC
debt rating. The rating C typically is applied to debt subordinated to senior
debt which is assigned an actual or implied CCC- debt rating. The C rating may
be used to cover a situation where a bankruptcy petition has been filed, but
debt service payments are continued.
The rating CI is reserved for income bonds on which no interest is
being paid. Debt rated D is in payment default. The D rating category is used
when interest payments or principal payments are not made on the date due, even
if the applicable grace period has not expired, unless S&P believes that such
payments will be made during such grace period. The D rating also will be used
upon the filing of a bankruptcy petition if debt service payments are
jeopardized.
(b) COMMERCIAL PAPER. An S&P commercial paper rating is a current
assessment of the likelihood of timely payment of debt considered short-term in
the relevant market.
The commercial paper rating A-1 by S&P indicates that the degree of
safety regarding timely payment is strong. Those issues determined to possess
extremely strong safety characteristics are denoted with a plus sign (+)
designation. For commercial paper with an A-2 rating, the capacity for timely
payment on issues is satisfactory, but not as high as for issues designated A-1.
Issues rated A-3 have adequate capacity for timely payment, but are more
vulnerable to the adverse effects of changes in circumstances than obligations
carrying higher designations.
Issues rated B are regarded as having only speculative capacity for
timely payment. The C rating is assigned to short-term debt obligations with a
doubtful capacity for payment. Debt rated D is in payment default. The D rating
category is used when interest payments or principal payments are not made on
the date due, even if the applicable grace period has not expired, unless S&P
believes such payments will be made during such grace period.
<PAGE>
APPENDIX B
STATEMENT OF ASSETS AND LIABILITIES
AS OF _____________, 1999
AND REPORT OF INDEPENDENT ACCOUNTANTS
<PAGE>
IVY MONEY MARKET FUND
a series of
IVY FUND
Via Mizner Financial Plaza, Suite 300
700 South Federal Highway
Boca Raton, Florida 33432
STATEMENT OF ADDITIONAL INFORMATION
April __, 1999
- ----------------------------------------------------------
Ivy Fund (the "Trust") is an open-end management investment company
that currently consists of nineteen fully managed portfolios, each of which
(except for Ivy South America Fund and Ivy International Strategic Bond Fund) is
diversified. This Statement of Additional Information ("SAI") relates to Ivy
Money Market Fund (the "Fund"). The other eighteen portfolios of the Trust are
described in separate SAIs.
This SAI is not a prospectus, and should be read in conjunction with
the Prospectus for the Fund dated April __, 1999 (the "Prospectus"), which may
be obtained upon request and without charge from the Trust at the Distributor's
address and telephone number printed below.
INVESTMENT MANAGER
Ivy Management, Inc. ("IMI")
Via Mizner Financial Plaza, Suite 300
700 South Federal Highway
Boca Raton, Florida 33432
Telephone: (800) 777-6472
DISTRIBUTOR
Ivy Mackenzie Distributors, Inc. ("IMDI")
Via Mizner Financial Plaza, Suite 300
700 South Federal Highway
Boca Raton, Florida 33432
Telephone: (800) 456-5111
<PAGE>
i
TABLE OF CONTENTS
INVESTMENT OBJECTIVE AND POLICIES..........................................
U.S. GOVERNMENT SECURITIES.................................................
COMMERCIAL PAPER...........................................................
BANKING INDUSTRY AND SAVINGS AND LOAN OBLIGATIONS..........................
INVESTMENT RESTRICTIONS....................................................
ADDITIONAL RESTRICTIONS....................................................
ADDITIONAL RIGHTS AND PRIVILEGES...........................................
AUTOMATIC INVESTMENT METHOD................................................
EXCHANGE OF SHARES.........................................................
RETIREMENT PLANS...........................................................
INDIVIDUAL RETIREMENT ACCOUNTS....................................
ROTH IRAS.........................................................
QUALIFIED PLANS...................................................
DEFERRED COMPENSATION FOR PUBLIC SCHOOLS AND
CHARITABLE ORGANIZATIONS ("403(B)(7) ACCOUNT")..............
SIMPLIFIED EMPLOYEE PENSION ("SEP") IRAS..........................
SIMPLE PLANS......................................................
SYSTEMATIC WITHDRAWAL PLAN.................................................
GROUP SYSTEMATIC INVESTMENT PROGRAM........................................
BROKERAGE ALLOCATION.......................................................
TRUSTEES AND OFFICERS......................................................
PERSONAL INVESTMENTS BY EMPLOYEES OF IMI...................................
COMPENSATION TABLE.........................................................
INVESTMENT ADVISORY AND OTHER SERVICES.....................................
BUSINESS MANAGEMENT AND INVESTMENT ADVISORY SERVICES.......................
DISTRIBUTION SERVICES......................................................
RULE 18F-3 PLAN...................................................
CUSTODIAN..................................................................
FUND ACCOUNTING SERVICES...................................................
TRANSFER AND DIVIDEND PAYING AGENT.........................................
ADMINISTRATOR..............................................................
AUDITORS 20
CAPITALIZATION AND VOTING RIGHTS...........................................
NET ASSET VALUE............................................................
REDEMPTIONS................................................................
TAXATION...................................................................
GENERAL...........................................................
DEBT SECURITIES ACQUIRED AT A DISCOUNT............................
DISTRIBUTIONS.....................................................
DISPOSITION OF SHARES.............................................
BACKUP WITHHOLDING................................................
OTHER INFORMATION.................................................
CALCULATION OF YIELD.......................................................
STANDARDIZED YIELD QUOTATIONS.....................................
OTHER QUOTATIONS, COMPARISONS AND GENERAL INFORMATION.............
FINANCIAL STATEMENTS.......................................................
APPENDIX A.................................................................
<PAGE>
21
INVESTMENT OBJECTIVE AND POLICIES
The Trust is a diversified open-end management investment company
organized as a Massachusetts business trust on December 21, 1983. The Fund's
investment objective and general investment policies are described in the
Prospectus. Additional information concerning the Fund's investments is set
forth below.
U.S. GOVERNMENT SECURITIES
U.S. Government securities are obligations of, or guaranteed by, the U.S.
Government, its agencies or instrumentalities. Securities guaranteed by the U.S.
Government include: (1) direct obligations of the U.S. Treasury (such as
Treasury bills, notes, and bonds) and (2) Federal agency obligations guaranteed
as to principal and interest by the U.S. Treasury (such as GNMA certificates,
which are mortgage-backed securities). When such securities are held to
maturity, the payment of principal and interest is unconditionally guaranteed by
the U.S. Government, and thus they are of the highest possible credit quality.
U.S. Government securities that are not held to maturity are subject to
variations in market value due to fluctuations in interest rates.
Mortgage-backed securities are securities representing part ownership
of a pool of mortgage loans. For example, GNMA certificates are such securities
in which the timely payment of principal and interest is guaranteed by the full
faith and credit of the U.S. Government. Although the mortgage loans in the pool
will have maturities of up to 30 years, the actual average life of the loans
typically will be substantially less because the mortgages will be subject to
principal amortization and may be prepaid prior to maturity. Prepayment rates
vary widely and may be affected by changes in market interest rates. In periods
of falling interest rates, the rate of prepayments tends to increase, thereby
shortening the actual average life of the security. Conversely, rising interest
rates tend to decrease the rate of prepayment, thereby lengthening the actual
average life of the security (and increasing the security's price volatility).
Accordingly, it is not possible to predict accurately the average life of a
particular pool. Reinvestment of prepayment may occur at higher or lower rates
than the original yield on the certificates. Due to the prepayment feature and
the need to reinvest prepayments of principal at current rates, mortgage-backed
securities can be less effective than typical bonds of similar maturities at
"locking in" yields during periods of declining interest rates and may involve
significantly greater price and yield volatility than traditional debt
securities. Such securities may appreciate or decline in market value during
periods of declining or rising interest rates, respectively.
Securities issued by U.S. Government instrumentalities and certain
federal agencies are neither direct obligations of nor guaranteed by the U.S.
Treasury; however, they involve Federal sponsorship in one way or another. Some
are backed by specific types of collateral, some are supported by the issuer's
right to borrow from the Treasury, some are supported by the discretionary
authority of the Treasury to purchase certain obligations of the issuer, others
are supported only by the credit of the issuing government agency or
instrumentality. These agencies and instrumentalities include, but are not
limited to, Federal Land Banks, Farmers Home Administration, Central Bank for
Cooperatives, Federal Intermediate Credit Banks, Federal Home Loan Banks,
Federal National Mortgage Association, Federal Home Loan Mortgage Association,
and Student Loan Marketing Association.
COMMERCIAL PAPER
Commercial paper represents short-term unsecured promissory notes
issued in bearer form by bank holding companies, corporations and finance
companies. The Fund may invest in commercial paper that is rated Prime-1 by
Moody's or A-1 by S&P or, if not rated by Moody's or S&P, is issued by companies
having an outstanding debt issue rated Aaa or Aa by Moody's or AAA or AA by S&P.
BANKING INDUSTRY AND SAVINGS AND LOAN OBLIGATIONS
The Fund may invest in bank obligations, which may include certificates
of deposit, bankers' acceptances and other short-term debt obligations.
Certificates of deposit are negotiable certificates issued against funds
deposited in a commercial bank for a definite period of time and earning a
specified return. Bankers' acceptances are negotiable drafts or bills of
exchange, normally drawn by an importer or exporter to pay for specific
merchandise, that are "accepted" by a bank, meaning, in effect, that the bank
unconditionally agrees to pay the face value of the instrument on maturity.
The Fund may invest in certificates of deposit of large domestic banks
(i.e., banks that at the time of their most recent annual financial statements
show total assets in excess of $1 billion), including foreign branches of such
domestic banks, and of smaller banks as described below. The Fund will not
invest in certificates of deposit of foreign banks. Investment in certificates
of deposit issued by foreign branches of domestic banks involves investment
risks that are different in some respects from those associated with investment
in certificates of deposit issued by domestic banks, including the possible
imposition of withholding taxes on interest income, the possible adoption of
foreign governmental restrictions which might adversely affect the payment of
principal and interest on such certificates of deposit, or other adverse
political or economic developments. In addition, it might be more difficult to
obtain and enforce a judgment against a foreign branch of a domestic bank.
Although the Trust recognizes that the size of a bank is important, this fact
alone is not necessarily indicative of its creditworthiness. The Fund may invest
in certificates of deposit issued by banks and savings and loan institutions
that at the time of their most recent annual financial statements had total
assets of less than $1 billion, provided that (i) the principal amounts of such
certificates of deposit are insured by an agency of the U.S. Government, (ii) at
no time will the Fund hold more than $100,000 principal amount of certificates
of deposit of any one such bank, and (iii) at the time of acquisition, no more
than 10% of the Fund's assets (taken at current value) are invested in
certificates of deposit of such banks having total assets not in excess of $1
billion.
INVESTMENT RESTRICTIONS
The Fund's investment objectives as set forth in the Prospectus under
"Investment Objective and Policies," together with the investment restrictions
set forth below, are fundamental policies of the Fund and may not be changed
without the approval of a majority (as defined in the Investment Company Act of
1940, as amended (the "1940 Act")) of the Fund's outstanding voting shares.
Under these restrictions, the Fund may not:
(i) borrow money, except for temporary purposes where investment
transactions might advantageously require it. Any such loan
may not be for a period in excess of 60 days, and the
aggregate amount of all outstanding loans may not at any time
exceed 10% of the value of the total assets of the Fund at the
time any such loan is made;
(ii) purchase securities on margin;
(iii) sell securities short;
(iv) lend any funds or other assets, except that this restriction shall
not prohibit (a) the entry into repurchase agreements or (b)
the purchase of publicly distributed bonds, debentures and
other securities of a similar type, or privately placed
municipal or corporate bonds, debentures and other securities
of a type customarily purchased by institutional investors or
publicly traded in the securities markets;
(v) participate in an underwriting or selling group in connection with the
public distribution of securities except for its own capital stock;
(vi) invest more than 5% of the value of its total assets in the securities of
any one issuer (except obligations of domestic banks or the U.S. Government, its
agencies, authorities and instrumentalities);
(vii) hold more than 10% of the voting securities of any one issuer (except
obligations of domestic banks or the U.S. Government, its agencies, authorities
and instrumentalities);
(viii) purchase from or sell to any of its officers or trustees, or firms of
which any of them are members or which they control, any securities (other than
capital stock of the Fund), but such persons or firms may act as brokers for the
Fund for customary commissions to the extent permitted by the 1940 Act;
(ix) purchase or sell real estate or commodities and commodity contracts;
(x) purchase the securities of any other open-end investment company, except as
part of a plan of merger or consolidation;
(xi) make an investment in securities of companies in any one industry (except
obligations of domestic banks or the U.S. Government, its agencies, authorities,
or instrumentalities) if such investment would cause investments in such
industry to exceed 25% of the market value of the Fund's total assets at the
time of such investment; or
(xii) issue senior securities, except as appropriate to evidence indebtedness
which it is permitted to incur, and except to the extent that shares of the
separate classes or series of the Trust may be deemed to be senior securities.
Under the 1940 Act, the Fund is permitted, subject to the above
investment restrictions, to borrow money only from banks. The Trust has no
current intention of borrowing amounts in excess of 5% of the Fund's assets. The
Fund will continue to interpret fundamental investment restriction (ix) as
prohibiting investment in real estate limited partnership interests; this
restriction shall not, however, prohibit investment in readily marketable
securities of companies that invest in real estate or interests therein,
including real estate investment trusts.
ADDITIONAL RESTRICTIONS
The Fund has adopted the following additional restrictions, which are
not fundamental and which may be changed without shareholder approval to the
extent permitted by applicable law, regulation or regulatory policy. Under these
restrictions, the Fund may not:
(i invest in oil, gas or other mineral leases or exploration or
development programs;
(ii) invest more than 5% of the value of its total assets in the securities
of unseasoned issuers, including their predecessors, which have been in
operation for less than three years;
(iii) invest more than 5% of the value of its total assets in the
securities of issuers which are not readily marketable;
(iv) engage in the purchase and sale of puts, calls, straddles or spreads
(except to the extent described in the Prospectus and in this SAI);
(v) invest in companies for the purpose of exercising control of
management;
(vi) purchase any security which it is restricted from selling to the
public without registration under the Securities Act of 1933; or
(vii) invest more than 5% of its total assets in warrants, valued at the
lower of cost or market, or more than 2% of its total assets in warrants, so
valued, which are not listed on either the New York or American Stock Exchanges.
Whenever an investment objective, policy or restriction set forth in
the Prospectus or this SAI states a maximum percentage of assets that may be
invested in any security or other asset or describes a policy regarding quality
standards, such percentage limitation or standard shall, unless otherwise
indicated, apply to the Fund only at the time a transaction is entered into.
Accordingly, if a percentage limitation is adhered to at the time of investment,
a later increase or decrease in the percentage which results from circumstances
not involving any affirmative action by the Fund (such as a change in market
conditions or a change in the Fund's asset level or other circumstances beyond
the Fund's control) will not be considered a violation.
ADDITIONAL RIGHTS AND PRIVILEGES
The Trust offers and (except as noted below) bears the cost of
providing to investors the following rights and privileges. The Trust reserves
the right to amend or terminate any one or more of these rights and privileges.
Notice of amendments to or terminations of rights and privileges will be
provided to shareholders in accordance with applicable law.
Certain of the rights and privileges described below refer to funds,
other than the Fund, whose shares are also distributed by Ivy Mackenzie
Distributors, Inc. ("IMDI"), which funds are not described in this SAI. These
funds are: Ivy Asia Pacific Fund, Ivy Bond Fund, Ivy China Region Fund, Ivy
Developing Nations Fund, Ivy European Opportunities Fund, Ivy Global Fund, Ivy
Global Natural Resources Fund, Ivy Global Science & Technology Fund, Ivy Growth
Fund, Ivy Growth with Income Fund, Ivy International Fund II, Ivy International
Fund, Ivy International Small Companies Fund, Ivy International Strategic Bond
Fund, Ivy Pan-Europe Fund, Ivy South America Fund, Ivy US Blue Chip Fund and Ivy
US Emerging Growth Fund. (Effective April 18, 1997, Ivy International Fund
suspended the offer of its shares to new investors.) Shareholders should obtain
a current prospectus before exercising any right or privilege that may relate to
these funds.
AUTOMATIC INVESTMENT METHOD
The Automatic Investment Method, which enables a Fund shareholder to
have specified amounts automatically drawn each month from his or her bank for
investment in Fund shares, is available for Class A, Class B and Class C
shareholders. The minimum initial and subsequent investment under this method is
$50 per month (except in the case of a tax-qualified retirement plan for which
the minimum initial and subsequent investment is $25 per month). A shareholder
may terminate the Automatic Investment Method at any time upon delivery to Ivy
Mackenzie Services Corp. ("IMSC") of telephone instructions or written notice.
See "Automatic Investment Method" in the Prospectus. To begin the plan, complete
Sections 6A and 7B of the Account Application.
EXCHANGE OF SHARES
As described in the Fund's Prospectus, shareholders of the Fund have an
exchange privilege with certain other Ivy funds (except Ivy International Fund
unless they have an existing Ivy International Fund account). Before effecting
an exchange, shareholders of the Fund should obtain and read the currently
effective prospectus for the Ivy fund into which the exchange is to be made.
The minimum amount which may be exchanged into an Ivy fund in which
shares are not already held is $1,000. No exchange out of the Fund (other than
by a complete exchange of all Fund shares) may be made if it would reduce the
shareholder's interest in the Fund to less than $1,000.
Each exchange of Fund shares will be made on the basis of the relative
net asset value per share of each Ivy fund (into which the exchange is being
made) next computed following receipt by IMSC of telephone instructions by IMSC
or a properly executed request. An exchange from the Fund into any other funds
into which exchanges are permitted may be subject to a sales charge, unless such
sales charge has already been paid. Exchanges, whether written or telephonic,
must be received by IMSC by the close of regular trading on the New York Stock
Exchange, Inc. (the "Exchange") (normally 4:00 p.m., eastern time) to receive
the price computed on the day of receipt. Exchange requests received after that
time will receive the price next determined following receipt of the request.
The exchange privilege may be modified or terminated at any time, upon at least
60 days' notice to the extent required by applicable law. See "Redemptions."
An exchange of shares between any of the Ivy funds will result in a
taxable gain or loss. Generally, this will be a capital gain or loss (long-term
or short-term, depending on the holding period of the shares) in the amount of
the difference between the net asset value of the shares surrendered and the
shareholder's tax basis for those shares. However, in certain circumstances,
shareholders will be ineligible to take sales charges into account in computing
taxable gain or loss on an exchange. See "Taxation."
With limited exceptions, gain realized by a tax-deferred retirement
plan will not be taxable to the plan and will not be taxed to the participant
until distribution. Each investor should consult his or her tax adviser
regarding the tax consequences of an exchange transaction.
RETIREMENT PLANS
Shares may be purchased in connection with several types of
tax-deferred retirement plans. Shares of more than one fund distributed by IMDI
may be purchased in a single application establishing a single plan account, and
shares held in such an account may be exchanged among the funds of Ivy Funds in
accordance with the terms of the applicable plan and the exchange privilege
available to all shareholders. Initial and subsequent purchase payments in
connection with tax-deferred retirement plans must be at least $25 per
participant.
The following fees will be charged to individual shareholder accounts
as described in the retirement prototype plan document:
Retirement Plan New Account Fee no fee
Retirement Plan Annual Maintenance Fee $10.00 per account
For shareholders whose retirement accounts are diversified across
several funds of Ivy Funds, the annual maintenance fee will be limited to not
more than $20.
The following discussion describes the tax treatment of certain
tax-deferred retirement plans under current Federal income tax law. State income
tax consequences may vary. An individual considering the establishment of a
retirement plan should consult with an attorney and/or an accountant with
respect to the terms and tax aspects of the plan.
INDIVIDUAL RETIREMENT ACCOUNTS. Shares of the Trust may be used as a
funding medium for an Individual Retirement Account ("IRA"). Eligible
individuals may establish an IRA by adopting a model custodial account available
from IMSC, who may impose a charge for establishing the account. Individuals
should consult their tax advisers before investing IRA assets in an Ivy fund (if
that fund primarily distributes exempt-interest dividends).
An individual who has not reached age 70-1/2 and who receives
compensation or earned income is eligible to contribute to an IRA, whether or
not he or she is an active participant in a retirement plan. An individual who
receives a distribution from another IRA, a qualified retirement plan, a
qualified annuity plan or a tax-sheltered annuity or custodial account ("403(b)
plan") that qualifies for "rollover" treatment is also eligible to establish an
IRA by rolling over the distribution either directly or within 60 days after its
receipt. Tax advice should be obtained in connection with planning a rollover
contribution to an IRA.
In general, an eligible individual may contribute up to the lesser of
$2,000 or 100% of his or her compensation or earned income to an IRA each year.
If a husband and wife are both employed, and both are under age 70-1/2, each may
set up his or her own IRA within these limits. If both earn at least $2,000 per
year, the maximum potential contribution is $4,000 per year for both. For years
after 1996, the result is similar even if one spouse has no earned income; if
the joint earned income of the spouses is at least $4,000, a contribution of up
to $2,000 may be made to each spouse's IRA. Rollover contributions are not
subject to these limits.
An individual may deduct his or her annual contributions to an IRA in
computing his or her Federal income tax within the limits described above,
provided he or she (or his or her spouse, if they file a joint Federal income
tax return) is not an active participant in a qualified retirement plan (such as
a qualified corporate, sole proprietorship, or partnership pension, profit
sharing, 401(k) or stock bonus plan), qualified annuity plan, 403(b) plan,
simplified employee pension, or governmental plan. If he or she (or his or her
spouse) is an active participant, whether the individual's contribution to an
IRA is fully deductible, partially deductible or not deductible depends on (i)
adjusted gross income and (ii) whether it is the individual or the individual's
spouse who is an active participant, in the case of married individuals filing
jointly. Contributions may be made up to the maximum permissible amount even if
they are not deductible. Rollover contributions are not includible in income for
Federal income tax purposes and, therefore, are not deductible from it.
Generally, earnings on an IRA are not subject to current Federal income
tax until distributed. Distributions attributable to tax-deductible
contributions and to IRA earnings are taxed as ordinary income. Distributions of
non-deductible contributions are not subject to Federal income tax. In general,
distributions from an IRA to an individual before he or she reaches age 59-1/2
are subject to a nondeductible penalty tax equal to 10% of the taxable amount of
the distribution. The 10% penalty tax does not apply to amounts withdrawn from
an IRA after the individual reaches age 59-1/2, becomes disabled or dies, or if
withdrawn in the form of substantially equal payments over the life or life
expectancy of the individual and his or her designated beneficiary, if any, or
rolled over into another IRA, amounts withdrawn and used to pay for deductible
medical expenses amounts withdrawn by certain unemployed individuals not in
excess of amounts paid for certain health insurance premiums amounts used to pay
certain qualified higher education expenses, and amounts used within 120 days of
the date the distribution is received to pay for certain first-time homebuyer
expenses. Distributions must begin to be withdrawn not later than April 1 of the
calendar year following the calendar year in which the individual reaches age
70-1/2. Failure to take certain minimum required distributions will result in
the imposition of a 50% non-deductible penalty tax.
ROTH IRAS: Shares of the Trust also may be used as a funding medium for
a Roth Individual Retirement Account ("Roth IRA"). A Roth IRA is similar in
numerous ways to the regular (traditional) IRA, described above. Some of the
primary differences are as follows.
A single individual earning below $95,000 can contribute up to $2,000
per year to a Roth IRA. The maximum contribution amount diminishes and gradually
falls to zero for single filers with adjusted gross incomes ranging from $95,000
to $110,000. Married couples earning less than $150,000 combined, and filing
jointly, can contribute a full $4,000 per year ($2,000 per IRA). The maximum
contribution amount for married couples filing jointly phases out from $150,000
to $160,000. An individual whose adjusted gross income exceeds the maximum
phase-out amount cannot contribute to a Roth IRA.
An eligible individual can contribute money to a traditional IRA and a
Roth IRA as long as the total contribution to all IRAs does not exceed $2,000.
Contributions to a Roth IRA are not deductible. Contributions to a Roth IRA may
be made even after the individual for whom the account is maintained has
attained age 70 1/2.
No distributions are required to be taken prior to the death of the
original account holder. If a Roth IRA has been established for a minimum of
five years, distributions can be taken tax-free after reaching age 59 1/2, for a
first-time home purchase ($10,000 maximum, one time use), or upon death or
disability. All other distributions from a Roth IRA are taxable and subject to a
10% tax penalty unless an exception applies. Exceptions to the 10% penalty
include: disability, excess medical expenses, the purchase of health insurance
for an unemployed individual and education expenses.
An individual with an income of less than $100,000 (who is not married
filing separately) can roll his or her existing IRA into a Roth IRA. However,
the individual must pay taxes on the taxable amount in his or her traditional
IRA. Individuals who complete the rollover in 1998 will be allowed to spread the
tax payments over a four-year period. After 1998, all taxes on such a rollover
will have to be paid in the tax year in which the rollover is made.
QUALIFIED PLANS. For those self-employed individuals who wish to
purchase shares of one or more of the funds of Ivy Fund through a qualified
retirement plan, a Custodial Agreement and a Retirement Plan are available from
IMSC. The Retirement Plan may be adopted as a profit sharing plan or a money
purchase pension plan. A profit sharing plan permits an annual contribution to
be made in an amount determined each year by the self-employed individual within
certain limits prescribed by law. A money purchase pension plan requires annual
contributions at the level specified in the Custodial Agreement. There is no
set-up fee for qualified plans and the annual maintenance fee is $20.00 per
account.
In general, if a self-employed individual has any common law employees,
employees who have met certain minimum age and service requirements must be
covered by the Retirement Plan. A self-employed individual generally must
contribute the same percentage of income for common law employees as for himself
or herself.
A self-employed individual may contribute up to the lesser of $30,000
or 25% of compensation or earned income to a money purchase pension plan or to a
combination profit sharing and money purchase pension plan arrangement each year
on behalf of each participant. To be deductible, total contributions to a profit
sharing plan generally may not exceed 15% of the total compensation or earned
income of all participants in the plan, and total contributions to a combination
money purchase-profit sharing arrangement generally may not exceed 25% of the
total compensation or earned income of all participants. The amount of
compensation or earned income of any one participant that may be included in
computing the deduction is limited (generally to $150,000 for benefits accruing
in plan years beginning after 1993, with annual inflation adjustments). A
self-employed individual's contributions to a retirement plan on his or her own
behalf must be deducted in computing his or her earned income.
Corporate employers may also adopt the Custodial Agreement and
Retirement Plan for the benefit of their eligible employees. Similar
contribution and deduction rules apply to corporate employers.
Distributions from the Retirement Plan generally are made after a
participant's separation from service. A 10% penalty tax generally applies to
distributions to an individual before he or she reaches age 59 1/2, unless the
individual (1) has reached age 55 and separated from service; (2) dies; (3)
becomes disabled; (4) uses the withdrawal to pay tax-deductible medical
expenses; (5) takes the withdrawal as part of a series of substantially equal
payments over his or her life expectancy or the joint life expectancy of himself
or herself and a designated beneficiary; or (6) rolls over the distribution.
The Transfer Agent will arrange for Investors Bank & Trust to furnish
custodial services to the employer and any participating employees.
DEFERRED COMPENSATION FOR PUBLIC SCHOOLS AND CHARITABLE ORGANIZATIONS
("403(B)(7) ACCOUNT"). Section 403(b)(7) of the Internal Revenue Code of 1986,
as amended (the "Code"), permits public school systems and certain charitable
organizations to use mutual fund shares held in a custodial account to fund
deferred compensation arrangements with their employees. A custodial account
agreement is available for those employers whose employees wish to purchase
shares of the Trust in conjunction with such an arrangement. The special
application for a 403(b)(7) Account is available from IMSC.
Distributions from the 403(b)(7) Account may be made only following
death, disability, separation from service, attainment of age 59-1/2, or
incurring a financial hardship. A 10% penalty tax generally applies to
distributions to an individual before he or she reaches age 59-1/2, unless the
individual (1) has reached age 55 and separated from service; (2) dies or
becomes disabled; (3) uses the withdrawal to pay tax-deductible medical
expenses; (4) takes the withdrawal as part of a series of substantially equal
payments over his or her life expectancy or the joint life expectancy of himself
or herself and a designated beneficiary; or (5) rolls over the distribution.
There is no set-up fee for 403(b)(7) Accounts and the annual maintenance fee is
$20.00 per account.
SIMPLIFIED EMPLOYEE PENSION ("SEP") IRAS: An employer may deduct
contributions to a SEP up to the lesser of $30,000 or 15% of compensation. SEP
accounts generally are subject to all rules applicable to IRA accounts, except
the deduction limits, and are subject to certain employee participation
requirements. No new salary reduction SEPs ("SARSEPs") may be established after
1996, but existing SARSEPs may continue to be maintained, and non-salary
reduction SEPs may continue to be established as well as maintained after 1996.
SIMPLE PLANS: An employer may establish a SIMPLE IRA or a SIMPLE 401(k)
for years after 1996. An employee can make pre-tax salary reduction
contributions to a SIMPLE Plan, up to $6,000 a year. Subject to certain limits,
the employer will either match a portion of employee contributions, or will make
a contribution equal to 2% of each employee's compensation without regard to the
amount the employee contributes. An employer cannot maintain a SIMPLE Plan for
its employees if any contributions or benefits are credited to those employees
under any other qualified retirement plan maintained by the employer.
SYSTEMATIC WITHDRAWAL PLAN
A shareholder may establish a Systematic Withdrawal Plan (a "Withdrawal
Plan") by telephone instructions to IMSC or by delivery to IMSC of a written
election to have his or her shares withdrawn periodically, accompanied by a
surrender to IMSC of all share certificates then outstanding in such
shareholder's name of, properly endorsed by the shareholder. To be eligible to
elect a Withdrawal Plan, a shareholder must have at least $5,000 in his or her
account. A Withdrawal Plan may not be established if the investor is currently
participating in the Automatic Investment Method. A Withdrawal Plan may involve
the depletion of a shareholder's principal, depending on the amount withdrawn.
A redemption under a Withdrawal Plan is a taxable event. Shareholders
contemplating participating in a Withdrawal Plan should consult their tax
advisers.
Additional investments made by investors participating in the
Withdrawal Plan must equal at least $1,000 each while the Withdrawal Plan is in
effect.
An investor may terminate his or her participation in the Withdrawal
Plan at any time, by delivering written notice to IMSC. If all shares held by
the investor are liquidated at any time, participation in the Withdrawal Plan
will terminate automatically. The Trust or IMSC may terminate the Withdrawal
Plan option at any time after reasonable notice to shareholders.
GROUP SYSTEMATIC INVESTMENT PROGRAM
Shares may be purchased in connection with investment programs
established by employee or other groups using systematic payroll deductions or
other systematic payment arrangements. The Trust does not itself organize, offer
or administer any such programs. However, it may, depending upon the size of the
program, waive the minimum initial and additional investment requirements for
purchases by individuals in conjunction with programs organized and offered by
others. Unless shares of the Fund are purchased in conjunction with IRAs (see
"How to Buy Shares" in the Prospectus), such group systematic investment
programs are not entitled to special tax benefits under the Code. The Trust
reserves the right to refuse purchases at any time or suspend the offering of
shares in connection with group systematic investment programs, and to restrict
the offering of shareholder privileges, such as check writing, simplified
redemptions and other optional privileges, as described in the Prospectus, to
shareholders using group systematic investment programs.
With respect to each shareholder account established on or after
September 15, 1972 under a group systematic investment program, the Trust and
IMI each currently charge a maintenance fee of $3.00 (or portion thereof) for
each twelve-month period (or portion thereof) that the account is maintained.
The Trust may collect such fee (and any fees due to IMI) through a deduction
from distributions to the shareholders involved or by causing on the date the
fee is assessed a redemption in each such shareholder account sufficient to pay
such fee. The Trust reserves the right to change these fees from time to time
without advance notice.
BROKERAGE ALLOCATION
Subject to the overall supervision of the President and the Board, IMI
places orders for the purchase and sale of the Fund's portfolio securities. All
portfolio transactions are effected at the best price and execution obtainable.
Purchases and sales of debt securities are usually principal transactions and
therefore, brokerage commissions are usually not required to be paid by the Fund
for such purchases and sales (although the price paid generally includes
undisclosed compensation to the dealer). The prices paid to underwriters of
newly-issued securities usually include a concession paid by the issuer to the
underwriter, and purchases of after-market securities from dealers normally
reflect the spread between the bid and asked prices. In connection with OTC
transactions, IMI attempts to deal directly with the principal market makers,
except in those circumstances where IMI believes that a better price and
execution are available elsewhere.
IMI selects broker-dealers to execute transactions and evaluates the
reasonableness of commissions on the basis of quality, quantity, and the nature
of the firms' professional services. Commissions to be charged and the rendering
of investment services, including statistical, research, and counseling services
by brokerage firms, are factors to be considered in the placing of brokerage
business. The types of research services provided by brokers may include general
economic and industry data, and information on securities of specific companies.
Research services furnished by brokers through whom the Trust effects securities
transactions may be used by IMI in servicing all of its accounts. In addition,
not all of these services may be used by IMI in connection with the services it
provides to a particular Fund or the Trust. IMI may consider sales of shares of
Ivy funds as a factor in the selection of broker-dealers and may select
broker-dealers who provide it with research services. IMI will not, however,
execute brokerage transactions other than at the best price and execution.
The Fund may, under some circumstances, accept securities in lieu of
cash as payment for Fund shares. The Fund will accept securities only to
increase its holdings in a portfolio security or to take a new portfolio
position in a security that IMI deems to be a desirable investment for the Fund.
While no minimum has been established, it is expected that the Fund will not
accept securities having an aggregate value of less than $1 million. The Trust
may reject in whole or in part any or all offers to pay for Fund shares with
securities and may discontinue accepting securities as payment for Fund shares
at any time without notice. The Trust will value accepted securities in the
manner and at the same time provided for valuing portfolio securities of the
Fund, and Fund shares will be sold for net asset value determined at the same
time the accepted securities are valued. The Trust will only accept securities
delivered in proper form and will not accept securities subject to legal
restrictions on transfer. The acceptance of securities by the Trust must comply
with the applicable laws of certain states.
During the fiscal years ended December 31, 1996, 1997, and 1998, the Fund
paid $0, $0 and [ ] in brokerage commissions.
<PAGE>
The Fund's Board of Trustees (the "Board") is responsible for the
overall management of the Fund, including general supervision and review of the
Fund's investment activities. The Board, in turn, elects the officers who are
responsible for administering the Fund's day-to-day operations.
The Trustees and Executive Officers of the Trust, their business
addresses and principal occupations during the past five years are:
POSITION WITH BUSINESS AFFILIATIONS
NAME, ADDRESS, AGE THE TRUST AND PRINCIPAL OCCUPATIONS
John S. Anderegg, Jr. Trustee Chairman, Dynamics Research
60 Concord Street Corp. (instruments and controls);
Wilmington, MA 01887 Director, Burr-Brown Corp.
Age: 74 (operational amplifiers); Director,
Metritage Incorporated (level
measuring instruments); Trustee of
Mackenzie Series Trust (1992-1998).
Paul H. Broyhill Trustee Chairman, BMC Fund, Inc.
800 Hickory Blvd. (1983-present); Chairman,
Golfview Park-Box 500 Broyhill Family Foundation,
Lenoir, NC 28645 Inc. (1983-Present); Chairman and
Age: 74 President, Broyhill Investments,
Inc. (1983-present); Chairman,
Broyhill Timber Resources (1983-
present); Management of a personal
portfolio of fixed-income and equity
investments (1983-present); Trustee
of Mackenzie Series Trust (1988-
1998); Director of The Mackenzie
Funds Inc. (1988-1995).
Stanley Channick Trustee President and Chief
11 Bala Avenue Executive Officer, The
Bala Cynwyd, PA 19004 Whitestone Corporation
Age: 75 (insurance agency); Chairman, Scott
Management Company (administrative
services for insurance companies);
President, The Channick Group
(consultants to insurance companies
and national trade associations);
Trustee of Mackenzie Series Trust
(1994-1998); Director of The
Mackenzie Funds Inc. (1994-1995).
Frank W. DeFriece, Jr. Trustee Director, Manager and Vice
The Landmark Centre President, Director and
113 Landmark Lane, Fund Manager, Massengill-
Suite B DeFriece Foundation
Bristol, TN 37620-2285 (charitable organization)
Age: 77 (1950-present); Trustee and Vice
Chairman, East Tennessee Public
Communications Corp. (WSJK-TV)
(1984-present); Trustee of Mackenzie
Series Trust (1985-1998); Director
of The Mackenzie Funds Inc. (1987-
1995).
Roy J. Glauber Trustee Mallinckrodt Professor of
Lyman Laboratory Physics, Harvard
of Physics University (1974-present);
Harvard University Trustee of Mackenzie Series
Cambridge, MA 02138 Trust (1994-1997).
Age: 72
Michael G. Landry Trustee President, Chief Executive
700 South Federal Hwy. And Officer and Director of
Suite 300 Chairman Mackenzie Investment
Boca Raton, FL 33432 Management Inc. (1987-
Age: 51 present); President,
[*Deemed to be an Director and Chairman of
"interested person" Ivy Management Inc. (1992-
of the Trust, as present); Chairman and
defined under the Director of Ivy Mackenzie
1940 Act.] Services Corp.(1993-present);
Chairman and Director of Ivy
Mackenzie Distributors, Inc.
(1994-present); Director and
President of Ivy Mackenzie
Distributors, Inc. (1993-1994);
Director and President of The
Mackenzie Funds Inc. (1987-1995);
Trustee of Mackenzie Series Trust
(1987-1998); President of Mackenzie
Series Trust (1987-1996); Chairman
of Mackenzie Series Trust (1996-
1998).
Joseph G. Rosenthal Trustee Chartered Accountant
110 Jardin Drive (1958-present); Trustee of
Unit #12 Mackenzie Series Trust
Concord, Ontario Canada (1985-1998); Director of
L4K 2T7 The Mackenzie Funds Inc.
Age: 63 (1987-1995).
Richard N. Silverman Trustee Director, Newton-Wellesley
18 Bonnybrook Road Hospital; Director, Beth
Waban, MA 02168 Israel Hospital; Director,
Age: 74 Boston Ballet; Director, Boston
Children's Museum; Director, Brimmer
and May School.
J. Brendan Swan Trustee President, Airspray
4701 North Federal Hwy. International, Inc.;
Suite 465 Joint Managing Director,
Pompano Beach, FL 33064 Airspray International
Age: 67 B.V. (an environmentally sensitive
packaging company); Director of
Polyglass LTD.; Director, The
Mackenzie Funds Inc. (1992-1995);
Trustee of Mackenzie Series Trust
(1992-1998).
Keith J. Carlson Trustee Senior Vice President of Mackenzie
700 South Federal Hwy. And Investment Management, Inc. (1996 -
Suite 300 President -present); Senior Vice President and
Boca Raton, FL 33432 Director of Mackenzie Investment
Age: 41 Management, Inc. (1994 - 1996);
[*Deemed to be an Senior Vice President and Treasurer
"interested person" of Mackenzie Investment Management,
of the Trust, Inc. (1989-1994); Senior Vice President
as defined under President and Director of Ivy
the 1940 Act.] Management Inc. (1994-present);
Senior Vice President, Treasurer and
Director of Ivy Management Inc.
(1992-1994); Vice President of The
Mackenzie Funds Inc. (1987-1995);
Senior Vice President and Director,
Ivy Mackenzie Services Corp. (1996-
present); President and Director of
Ivy Mackenzie Services Corp. (1993-
1996); Trustee and President of
Mackenzie Series Trust (1996-1998);
Vice President of Mackenzie Series
Trust (1994-1998); Treasurer of
Mackenzie Series Trust (1985-1994);
President, Chief Executive Officer
and Director of Ivy Mackenzie
Distributors, Inc. (1994-present);
Executive Vice President and
Director of Ivy Mackenzie
Distributors, Inc. (1993-1994);
Trustee of Mackenzie Series Trust
(1996-1998).
C. William Ferris Secretary/ Senior Vice President,
700 South Federal Hwy. Treasurer Chief Financial Officer
Suite 300 and Secretary/Treasurer
Boca Raton, FL 33432 of Mackenzie Investment
Age: 53 Management Inc. (1995-present);
Senior Vice President, Finance and
Administration/Compliance Officer of
Mackenzie Investment Management Inc.
(1989-1994); Senior Vice President,
Secretary/ Treasurer and Clerk of
Ivy Management Inc. (1994-present);
Vice President, Finance/
Administration and Compliance
Officer of Ivy Management Inc.
(1992-1994); Senior Vice President,
Secretary/Treasurer and Director of
Ivy Mackenzie Distributors, Inc.
(1994-present); Secretary/Treasurer
and Director of Ivy Mackenzie
Distributors, Inc. (1993-1994);
President and Director of Ivy
Mackenzie Services Corp.
(1996-present); Secretary/Treasurer
and Director of Ivy Mackenzie
Services Corp. (1993-1996);
Secretary/Treasurer
of The Mackenzie Funds Inc.
(1993-1995); Secretary/Treasurer of
Mackenzie Series Trust (1994-1998).
James W. Broadfoot Vice Executive Vice President,
700 South Federal Hwy. President Ivy Management Inc. (1996-
Suite 300 present); Senior Vice
Boca Raton, FL 33432 President, Ivy Management,
Age: 56 Inc. (1992-1996); Director and
Senior Vice President, Mackenzie
Investment Management Inc. (1995-
present); Senior Vice President,
Mackenzie Investment Management Inc.
(1990-1995).
COMPENSATION TABLE
IVY FUND
(FISCAL YEAR ENDED DECEMBER 31, 1998)
PENSION OR TOTAL COMPENSA-
AGGREGATE RETIREMENT ESTIMATED TION FROM TRUST
NAME, COMPENSATION BENEFITS ACCRUED ANNUAL AND FUND
POSITION FROM TRUST AS PART OF BENEFITS UPON COMPLEX PAID TO
FUND EXPENSES RETIREMENT TRUSTEES
John S. N/A N/A
Anderegg, Jr.
(Trustee)
Paul H. N/A N/A
Broyhill
(Trustee)
Keith J. $0 N/A N/A $0
Carlson
(Trustee and
President)
Stanley N/A N/A
Channick
(Trustee)
Frank W. N/A N/A
DeFriece, Jr.
(Trustee)
Roy J. N/A N/A
Glauber
(Trustee)
Michael G. $0 N/A N/A $0
Landry
(Trustee and
Chairman of
the Board)
Joseph G. N/A N/A
Rosenthal
(Trustee)
Richard N. N/A N/A
Silverman
(Trustee)
J. Brendan N/A N/A
Swan
(Trustee)
C. William $0 N/A N/A $0
Ferris
(Secretary/
Treasurer)
INVESTMENT ADVISORY AND OTHER SERVICES
BUSINESS MANAGEMENT AND INVESTMENT ADVISORY SERVICES
Ivy Management, Inc. provides business management and investment
advisory services to the Fund pursuant to a Business Management and Investment
Advisory Agreement with the Trust (the "Agreement"), which was approved by the
shareholders of the Fund on December 30, 1991. Prior to approval by
shareholders, the Agreement was approved on October 28, 1991 by the Board,
including a majority of the Trustees who are neither "interested persons" (as
defined in the 1940 Act) of the Trust nor have any direct or indirect financial
interest in the operation of the distribution plan (see "Distribution Services")
or in any related agreement (the "Independent Trustees"). IMI also acts as
manager to Ivy Global Natural Resources Fund and as manager and investment
adviser to the following investment companies registered under the 1940 Act: Ivy
Asia Pacific Fund, Ivy Bond Fund, Ivy China Region Fund, Ivy Developing Nations
Fund, Ivy European Opportunities Fund, Ivy Global Fund, Ivy Global Science &
Technology Fund, Ivy Growth Fund, Ivy Growth with Income Fund, Ivy International
Fund II, Ivy International Fund, Ivy International Small Companies Fund, Ivy
International Strategic Bond Fund, Ivy Pan-Europe Fund, Ivy South America Fund,
Ivy US Blue Chip Fund and Ivy US Emerging Growth Fund. IMI also provides
business management services to Ivy Global Natural Resources Fund. IMI is a
wholly owned subsidiary of MIMI. MIMI, a Delaware corporation, has approximately
10% of its outstanding common stock listed for trading on the Toronto Stock
Exchange ("TSE"). MIMI is a subsidiary of Mackenzie Financial Corporation
("MFC"), 150 Bloor Street West, Toronto, Ontario, Canada, a public corporation
organized under the laws of Ontario and registered in Ontario as a mutual fund
dealer whose shares are listed for trading on the TSE. MFC provides investment
advisory services to Ivy Global Natural Resources Fund.
The Agreement obligates IMI to make investments for the account of the
Fund in accordance with its best judgment and within the investment objectives
and restrictions set forth in the Fund's current Prospectus, the 1940 Act and
the provisions of the Code relating to regulated investment companies, subject
to policy decisions adopted by the Board. IMI also determines the securities to
be purchased or sold by the Fund and places orders with brokers or dealers who
deal in such securities.
Under the Agreement, IMI also provides certain business management
services. IMI is obligated to (1) coordinate with the Fund's Custodian and
monitor the services it provides to the Fund; (2) coordinate with and monitor
any other third parties furnishing services to the Fund; (3) provide the Fund
with the necessary office space, telephones and other communications facilities
as are adequate for the Fund's needs; (4) provide the services of individuals
competent to perform administrative and clerical functions which are not
performed by employees or other agents engaged by the Fund or by IMI acting in
some other capacity pursuant to a separate agreement or arrangement with the
Fund; (5) maintain or supervise the maintenance by third parties of such books
and records of the Trust as may be required by applicable Federal or state law;
(6) authorize and permit IMI's directors, officers and employees who may be
elected or appointed as trustees or officers of the Trust to serve in such
capacities; and (7) take such other action with respect to the Trust, after
approval by the Trust, as may be required by applicable law, including without
limitation the rules and regulations of the Securities and Exchange Commission
(the "SEC") and of state securities commissions and other regulatory agencies.
For business management and investment advisory services, the Fund pays
IMI a monthly fee based on the Fund's average daily net assets during the
preceding month at an annual rate of 0.40%. For the fiscal years ended December
31, 1996, 1997 and 1998, the Fund paid IMI $80,302, $83,294 and [ ],
respectively (of which IMI reimbursed $199,546, $83,294 and [ ], respectively,
pursuant to expense limitations).
Under the Agreement, the Trust pays the following expenses: (1) the
fees and expenses of the Trust's Independent Trustees; (2) the salaries and
expenses of any of the Trust's officers or employees who are not affiliated with
IMI; (3) interest expenses; (4) taxes and governmental fees, including any
original issue taxes or transfer taxes applicable to the sale or delivery of
shares or certificates therefor; (5) brokerage commissions and other expenses
incurred in acquiring or disposing of portfolio securities; (6) the expenses of
registering and qualifying shares for sale with the SEC and with various state
securities commissions; (7) accounting and legal costs; (8) insurance premiums;
(9) fees and expenses of the Trust's Custodian and Transfer Agent and any
related services; (10) expenses of obtaining quotations of portfolio securities
and of pricing shares; (11) expenses of maintaining the Trust's legal existence
and of shareholders' meetings; (12) expenses of preparation and distribution to
existing shareholders of periodic reports, proxy materials and prospectuses; and
(13) fees and expenses of membership in industry organizations.
IMI currently limits the Fund's total operating expenses (excluding
interest, taxes, brokerage commissions, litigation, indemnification expenses,
and extraordinary expenses) to an annual rate of 0.85% of the Fund's average net
assets, which may lower the Fund's expenses and increase its yield.
The Agreement will continue in effect with respect to the Fund from
year to year, or for more than the initial period, as the case may be, only so
long as the continuance is specifically approved at least annually (i) by the
vote of a majority of the Independent Trustees and (ii) either (a) by the vote
of a majority of the outstanding voting securities (as defined in the 1940 Act)
of the Fund or (b) by the vote of a majority of the entire Board. If the
question of continuance of the Agreement (or adoption of any new agreement) is
presented to shareholders, continuance (or adoption) shall be effected only if
approved by the affirmative vote of a majority of the outstanding voting
securities of the Fund. See "Capitalization and Voting Rights."
The Agreement may be terminated with respect to the Fund at any time,
without payment of any penalty, by the vote of a majority of the Board, or by a
vote of a majority of the outstanding voting securities of the Fund, on 60 days'
written notice to IMI, or by IMI on 60 days' written notice to the Trust. The
Agreement shall terminate automatically in the event of its assignment.
DISTRIBUTION SERVICES
IMDI, a wholly owned subsidiary of MIMI, serves as the exclusive
distributor of Ivy Fund's shares pursuant to an Amended and Restated
Distribution Agreement with the Trust dated October 23, 1991, as amended from
time to time (the "Distribution Agreement"). The Distribution Agreement was last
approved by the Board on ______________. IMDI distributes Fund shares through
broker-dealers who are members of the National Association of Securities
Dealers, Inc. and who have executed dealer agreements with IMDI. IMDI
distributes shares of the Fund on a continuous basis, but reserves the right to
suspend or discontinue distribution on that basis. IMDI is not obligated to sell
any specific amount of Fund shares. Pursuant to the Distribution Agreement, the
Fund bears, among other expenses, the expenses of registering and qualifying its
shares for sale under federal and state securities laws and preparing and
distributing to existing shareholders periodic reports, proxy materials and
Prospectuses. Shares of the Fund are sold at the Fund's net asset value per
share without a sales load.
The Distribution Agreement will continue in effect for successive
one-year periods, provided that such continuance is specifically approved at
least annually by the vote of a majority of the Independent Trustees, cast in
person at a meeting called for that purpose and by the vote of either a majority
of the entire Board or a majority of the outstanding voting securities of the
Fund. The Distribution Agreement may be terminated with respect to the Fund at
any time, without payment of any penalty, by IMDI on 60 days' written notice to
the Fund or by the Fund by the vote of either a majority of the outstanding
voting securities of the Fund or a majority of the Independent Trustees on 60
days' written notice to IMDI. The Distribution Agreement shall terminate
automatically in the event of its assignment.
If the Distribution Agreement is terminated (or not renewed) with
respect to one or more funds of the Trust, it may continue in effect with
respect to any fund as to which it has not been terminated (or has been
renewed).
RULE 18F-3 PLAN. On February 23, 1995, the SEC adopted Rule 18f-3 under
the 1940 Act, which permits a registered open-end investment company to issue
multiple classes of shares in accordance with a written plan approved by the
investment company's board of directors/trustees and filed with the SEC. At a
meeting held on December 1-2, 1995, the Board of the Trust adopted a multi-class
plan on behalf of the Fund and authorized the redesignation of the Fund's shares
into Class A and Class B, respectively. On February 29, 1996, the Trustees
resolved by written consent to establish a new class of shares, designated as
"Class C," for all Ivy Fund portfolios. The purpose of the Class B redesignation
(and the Class C designation) of shares for the Fund is primarily to enable the
transfer agent for the Ivy funds to track the contingent deferred sales charge
period that applies to Class B and Class C shares of Ivy funds (other than the
Fund) that are being exchanged for shares of the Fund. In all other relevant
respects, the Fund's Class A, Class B and Class C shares are identical (i.e.,
having the same arrangement for shareholder services and the distribution of
securities).
CUSTODIAN
Pursuant to a Custodian Agreement with the Trust, Brown Brothers
Harriman & Co. (the "Custodian"), a private bank and member of the principal
securities exchanges, located at 40 Water Street, Boston, Massachusetts 02109,
maintains custody of the assets of the Fund. Rules adopted under the 1940 Act
permit the Trust to maintain its foreign securities and cash in the custody of
certain eligible foreign banks and securities depositories. Pursuant to those
rules, the Custodian has entered into subcustodial agreements for the holding of
the Fund's foreign securities. The Custodian may receive, as partial payment for
its services to the Fund, a portion of the Trust's brokerage business, subject
to its ability to provide best price and execution.
FUND ACCOUNTING SERVICES
Pursuant to a Fund Accounting Services Agreement that became effective
March 1, 1992, MIMI provides certain accounting and pricing services for the
Fund, including bookkeeping and computation of daily net asset value. As
compensation for those services, the Fund pays MIMI a monthly fee of 0.10% of
the Fund's average net assets, plus out-of-pocket expenses as incurred. For the
fiscal year ended December 31, 1998, the Fund paid MIMI [ ] for such services.
TRANSFER AND DIVIDEND PAYING AGENT
IMSC, a wholly owned subsidiary of MIMI, acts as the Fund's transfer
agent pursuant to a Transfer Agency and Shareholder Services Agreement. For
transfer agency and shareholder services, the Fund pays IMSC an annual fee of
$22.00 per open account and $4.58 for each account that is closed. The Fund also
reimburses IMSC monthly for out-of-pocket expenses. For the fiscal year ended
December 31, 1998, such fees and expenses for the Fund totaled [ ]. Certain
broker-dealers that maintain shareholder accounts with the Fund through an
omnibus account provide transfer agent and other shareholder-related services
that would otherwise be provided by IMSC if the individual accounts that
comprise the omnibus account were opened by their beneficial owners directly.
IMSC pays such broker-dealers a per account fee for each open account within the
omnibus account, or a fixed rate (e.g., .10%) fee, based on the average daily
net asset value of the omnibus account (or a combination thereof).
ADMINISTRATOR
MIMI provides certain administrative services to the Fund pursuant to
an Administrative Services Agreement, in exchange for a monthly fee at the
annual rate of .10% of the Fund's average daily net assets. For the fiscal year
ended December 31, 1998, the Fund paid MIMI [ ] for such services.
AUDITORS
[ ], independent certified public accountants, has been selected as
auditors for the Trust. The audit services performed by [ ] include audits of
the annual financial statements of each of the funds of the Trust. Other
services provided principally relate to filings with the SEC and the preparation
of the funds' tax returns.
Year 2000 Risks. The services provided to the Fund by IMI, MIMI and the
Fund's other service providers are dependent on those service providers'
computer systems. Many computer software and hardware systems in use today
cannot distinguish between the year 2000 and the year 1900 because of the way
dates are encoded and calculated (the "Year 2000 Problem"). The failure to make
this distinction could have a negative implication on handling securities
trades, pricing and account services. IMI, MIMI and the Fund's other service
providers are taking steps that each believes are reasonably designed to address
the Year 2000 Problem with respect to the computer systems that they use. The
Fund believes these steps will be sufficient to avoid any material adverse
impact on the Fund. At this time, however, there can be no assurance that these
steps will be sufficient to avoid any adverse impact on the Fund.
CAPITALIZATION AND VOTING RIGHTS
When issued, shares of each class of the Fund are fully paid,
non-assessable, redeemable and fully transferable. No class of shares of the
Fund has preemptive rights or subscription rights.
The Amended and Restated Declaration of Trust permits the Trustees to
create separate series or portfolios and to divide any series or portfolio into
one or more classes. The Trustees have authorized eighteen series, each of which
represents a fund. The Trustees have further authorized the issuance of Class A,
Class B, and Class C shares for the Fund and Ivy International Fund and Class A,
Class B, Class C and Advisor Class shares for Ivy Asia Pacific Fund, Ivy Bond
Fund, Ivy China Region Fund, Ivy Developing Nations Fund, Ivy European
Opportunities Fund, Ivy Global Fund, Ivy Global Natural Resources Fund, Ivy
Global Science & Technology Fund, Ivy Growth Fund, Ivy Growth with Income Fund,
Ivy International Fund II, Ivy International Small Companies Fund, Ivy
International Strategic Bond Fund, Ivy Pan-Europe Fund, Ivy South America Fund,
Ivy US Blue Chip Fund and Ivy US Emerging Growth Fund, as well as Class I shares
for Ivy Bond Fund, Ivy European Opportunities Fund, Ivy Global Science &
Technology Fund, Ivy International Fund II, Ivy International Fund, Ivy
International Small Companies Fund, Ivy International Strategic Bond Fund and
Ivy US Blue Chip Fund.
Shareholders have the right to vote for the election of Trustees of the
Trust and on any and all matters on which they may be entitled to vote by law or
by the provisions of the Trust's By-Laws. The Trust is not required to hold a
regular annual meeting of shareholders, and it does not intend to do so. Shares
of each class of the Fund entitle their holders to one vote per share (with
proportionate voting for fractional shares). Shareholders of the Fund are
entitled to vote alone on matters that only affect the Fund. All classes of
shares of the Fund will vote together, except when a class vote is required by
the 1940 Act. On matters relating to all funds of the Trust, but affecting the
funds differently, separate votes by the shareholders of each fund are required.
Approval of an investment advisory agreement and a change in fundamental
policies would be regarded as matters requiring separate voting by the
shareholders of each fund of the Trust. If the Trustees determine that a matter
does not affect the interests of a fund, then the shareholders of that fund will
not be entitled to vote on that matter. Matters that affect the Trust in
general, such as ratification of the selection of independent public
accountants, will be voted upon collectively by the shareholders of all funds of
the Trust.
As used in this SAI and the Fund's Prospectus, the phrase "majority
vote of the outstanding shares" of the Fund means the vote of the lesser of: (1)
67% of the shares of the Fund (or of the Trust) present at a meeting if the
holders of more than 50% of the outstanding shares are present in person or by
proxy; or (2) more than 50% of the outstanding shares of the Fund (or of the
Trust). With respect to the submission to shareholder vote of a matter requiring
separate voting by the Fund, the matter shall have been effectively acted upon
with respect to the Fund if a majority of the outstanding voting securities of
the Fund votes for the approval of the matter, notwithstanding that: (1) the
matter has not been approved by a majority of the outstanding voting securities
of any other fund of the Trust; or (2) the matter has not been approved by a
majority of the outstanding voting securities of the Trust.
The Amended and Restated Declaration of Trust provides that the holders
of not less than two-thirds of the outstanding shares of the Trust may remove a
person serving as trustee either by declaration in writing or at a meeting
called for such purpose. The Trustees are required to call a meeting for the
purpose of considering the removal of a person serving as Trustee if requested
in writing to do so by the holders of not less than 10% of the outstanding
shares of the Trust. Shareholders will be assisted in communicating with other
shareholders in connection with the removal of a Trustee as if Section 26(c) of
the Act were applicable.
Under Massachusetts law, the Trust's shareholders could, under certain
circumstances, be held personally liable for the obligations of the Trust.
However, the Amended and Restated Declaration of Trust disclaims liability of
the shareholders, Trustees or officers of the Trust for acts or obligations of
the Trust, which are binding only on the assets and property of the Trust, and
requires that notice of the disclaimer be given in each contract or obligation
entered into or executed by the Trust or its Trustees. The Amended and Restated
Declaration of Trust provides for indemnification out of Fund property for all
loss and expense of any shareholder of the Fund held personally liable for the
obligations of the Fund. The risk of a shareholder of the Trust incurring
financial loss on account of shareholder liability is limited to circumstances
in which the Trust itself would be unable to meet its obligations and, thus,
should be considered remote. No series of the Trust is liable for the
obligations of any other series of the Trust.
The Trust's shares do not have cumulative voting rights and accordingly
the holders of more than 50% of the outstanding shares could elect the entire
Board, in which case the holders of the remaining shares would not be able to
elect any Trustees.
To the knowledge of the Trust, as of [ ], no shareholder owned
beneficially or of record 5% or more of the Fund's outstanding shares, except
that [to be completed by amendment].
NET ASSET VALUE
The share price, or value, for the separate classes of shares of the
Fund is called the net asset value per share. The Fund's net asset value per
share is computed by dividing the value of the assets of the Fund, less its
liabilities, by the total number of shares of the Fund outstanding. For purposes
of determining the aggregate net assets of the Fund, receivables are valued at
their realizable amounts. Pursuant to SEC rules, the Fund's portfolio securities
are valued using the amortized cost method of valuation in an effort to maintain
a constant net asset value of $1.00 per share, which the Trustees has determined
to be in the best interest of the Fund and its shareholders. The amortized cost
method involves valuing a security at cost on the date of acquisition and
thereafter assuming a constant rate of accretion of discount or amortization of
premium. While this method provides certainty in valuation, it may result in
periods during which value, as determined by amortized cost, is higher or lower
than the price the Fund would receive if it sold the instrument. During such
periods, the yield to an investor in the Fund may differ somewhat from that
obtained in a similar investment company which uses available market quotations
to value all of its portfolio securities.
Portfolio securities are valued and net asset value per share of the
Fund is determined as of the close of regular trading on the Exchange (normally
4:00 p.m., eastern time) every Monday through Friday (exclusive of national
business holidays). The Trust's offices will be closed, and net asset value will
not be calculated, on the following national business holidays: New Year's Day,
Martin Luther King, Jr. Day, Presidents Day, Good Friday, Memorial Day,
Independence Day, Labor Day, Thanksgiving Day and Christmas Day. On those days
when either or both of the Fund's Custodian or the Exchange close early as a
result of such day being a partial holiday or otherwise, the Trust reserves the
right to advance the time on that day by which purchase and redemption requests
must be received.
The sale of shares of the Fund will be suspended during any period when
the determination of its net asset value is suspended pursuant to rules or
orders of the SEC and may be suspended by the Board whenever in its judgment it
is in the best interest of the Fund to do so.
REDEMPTIONS
Shares of the Fund are redeemed at their net asset value next
determined after a proper redemption request has been received by IMSC. The Fund
does not assess a contingent deferred sales charge. However, if shares of
another Ivy fund that are subject to a contingent deferred sales charge are
exchanged for shares of the Fund, the contingent deferred sales charge will
carry over to the investment in the Fund and may be assessed upon redemption.
Unless a shareholder requests that the proceeds of any redemption be
wired to his or her bank account, payment for shares tendered for redemption is
made by check within seven days after tender in proper form, except that the
Trust reserves the right to suspend the right of redemption or to postpone the
date of payment upon redemption beyond seven days, (i) for any period during
which the Exchange is closed (other than customary weekend and holiday closings)
or during which trading on the Exchange is restricted, (ii) for any period
during which an emergency exists as determined by the SEC as a result of which
disposal of securities owned by the Fund is not reasonably practicable or it is
not reasonably practicable for the Fund to fairly determine the value of its net
assets, or (iii) for such other periods as the SEC may by order permit for the
protection of shareholders of the Fund.
Under unusual circumstances, when the Board deems it in the best
interest of the Fund's shareholders, the Fund may make payment for shares
repurchased or redeemed in whole or in part, in securities of the Fund taken at
current values. If any such redemption in kind is to be made, the Fund may make
an election pursuant to Rule 18f-1 under the 1940 Act. This will require the
Fund to redeem with cash at a shareholder's election in any case where the
redemption involves less than $250,000 (or 1% of the Fund's net asset value at
the beginning of each 90-day period during which such redemptions are in effect,
if that amount is less than $250,000). Should payment be made in securities, the
redeeming shareholder may incur brokerage costs in converting such securities to
cash.
The Trust may redeem those accounts of shareholders who have maintained
an investment of less than $1,000 in the Fund for a period of more than 12
months. All accounts below that minimum will be redeemed simultaneously when
MIMI deems it advisable. The $1,000 balance will be determined by actual dollar
amounts invested by the shareholder, unaffected by market fluctuations. The
Trust will notify any such shareholder by certified mail of its intention to
redeem such account, and the shareholder shall have 60 days from the date of
such letter to invest such additional sums as shall raise the value of such
account above that minimum. Should the shareholder fail to forward such sum
within 60 days of the date of the Trust's letter of notification, the Trust will
redeem the shares held in such account and transmit the redemption in value
thereof to the shareholder. However, those shareholders who are investing
pursuant to the Automatic Investment Method will not be redeemed automatically
unless they have ceased making payments pursuant to the plan for a period of at
least six consecutive months, and these shareholders will be given six months'
notice by the Trust before such redemption. Shareholders in a qualified
retirement, pension or profit sharing plan who wish to avoid tax consequences
must "rollover" any sum so redeemed into another qualified plan within 60 days.
The Trustees of the Trust may change the minimum account size.
If a shareholder has given authorization for telephonic redemption
privilege, shares can be redeemed and proceeds sent by Federal wire to a single
previously designated bank account. Delivery of the proceeds of a wire
redemption request of $250,000 or more may be delayed by the Fund for up to
seven days if deemed appropriate under then-current market conditions. The Trust
reserves the right to change this minimum or to terminate the telephonic
redemption privilege without prior notice. The Trust cannot be responsible for
the efficiency of the Federal wire system of the shareholder's dealer of record
or bank. The shareholder is responsible for any charges by the shareholder's
bank.
The Fund employs reasonable procedures that require personal
identification prior to acting on redemption or exchange instructions
communicated by telephone to confirm that such instructions are genuine. In the
absence of such instructions, the Fund may be liable for any losses due to
unauthorized or fraudulent telephone instructions.
TAXATION
The following is a general discussion of certain tax rules thought to
be applicable with respect to the Fund. It is merely a summary and is not an
exhaustive discussion of all possible situations or of all potentially
applicable taxes. Accordingly, shareholders and prospective shareholders should
consult a competent tax adviser about the tax consequences to them of investing
in the Fund.
GENERAL. The Fund intends to be taxed as a regulated investment company
under Subchapter M of the Code. Accordingly, the Fund must, among other things,
(a) derive in each taxable year at least 90% of its gross income from dividends,
interest, payments with respect to certain securities loans, and gains from the
sale or other disposition of stock, securities or foreign currencies, or other
income derived with respect to its business of investing in such stock,
securities or currencies; and (b) diversify its holdings so that, at the end of
each fiscal quarter, (i) at least 50% of the market value of the Fund's assets
is represented by cash, U.S. Government securities, the securities of other
regulated investment companies and other securities, with such other securities
limited, in respect of any one issuer, to an amount not greater than 5% of the
value of the Fund's total assets and 10% of the outstanding voting securities of
such issuer, and (ii) not more than 25% of the value of its total assets is
invested in the securities of any one issuer (other than U.S. Government
securities and the securities of other regulated investment companies).
As a regulated investment company, the Fund generally will not be
subject to U.S. Federal income tax on its income and gains that it distributes
to shareholders, if at least 90% of its investment company taxable income (which
includes, among other items, dividends, interest and the excess of any
short-term capital gains over long-term capital losses) for the taxable year is
distributed. The Fund intends to distribute all such income.
Amounts not distributed on a timely basis in accordance with a calendar
year distribution requirement are subject to a nondeductible 4% excise tax at
the Fund level. To avoid the tax, the Fund must distribute during each calendar
year (1) at least 98% of its ordinary income (not taking into account any
capital gains or losses) for the calendar year, (2) at least 98% of its capital
gains in excess of its capital losses (adjusted for certain ordinary losses) for
a one-year period generally ending on October 31 of the calendar year, and (3)
all ordinary income and capital gains for previous years that were not
distributed during such years. To avoid application of the excise tax, the Fund
intends to make distributions in accordance with the calendar year distribution
requirements. A distribution will be treated as paid on December 31 of the
current calendar year if it is declared by the Fund in October, November or
December of the year with a record date in such a month and paid by the Fund
during January of the following year. Such distributions will be taxable to
shareholders in the calendar year the distributions are declared, rather than
the calendar year in which the distributions are received.
DEBT SECURITIES ACQUIRED AT A DISCOUNT. Some of the debt securities
(with a fixed maturity date of more than one year from the date of issuance)
that may be acquired by the Fund may be treated as debt securities that are
issued originally at a discount. Generally, the amount of the original issue
discount ("OID") is treated as interest income and is included in income over
the term of the debt security, even though payment of that amount is not
received until a later time, usually when the debt security matures.
Some of the debt securities (with a fixed maturity date of more than
one year from the date of issuance) that may be acquired by the Fund in the
secondary market may be treated as having market discount. Generally, gain
recognized on the disposition of, and any partial payment of principal on, a
debt security having market discount is treated as ordinary income to the extent
the gain, or principal payment, does not exceed the "accrued market discount" on
such debt security. In addition, the deduction of any interest expenses
attributable to debt securities having market discount may be deferred. Market
discount generally accrues in equal daily installments. The Fund may make one or
more of the elections applicable to debt securities having market discount,
which could affect the character and timing of recognition of income.
Some debt securities (with a fixed maturity date of one year or less
from the date of issuance) that may be acquired by the Fund may be treated as
having acquisition discount, or OID in the case of certain types of debt
securities. Generally, the Fund will be required to include the acquisition
discount, or OID, in income over the term of the debt security, even though
payment of that amount is not received until a later time, usually when the debt
security matures. The Fund may make one or more of the elections applicable to
debt securities having acquisition discount, or OID, which could affect the
character and timing of recognition of income.
The Fund generally will be required to distribute dividends to
shareholders representing discount on debt securities that is currently
includible in income, even though cash representing such income may not have
been received by the Fund. Cash to pay such dividends may be obtained from sales
proceeds of securities held by the Fund.
DISTRIBUTIONS. Distributions of investment company taxable income are
taxable to a U.S. shareholder as ordinary income, whether paid in cash or
shares. Dividends paid by the Fund to a corporate shareholder, to the extent
such dividends are attributable to dividends received from U.S. corporations by
the Fund, may qualify for the dividends received deduction. However, the revised
alternative minimum tax applicable to corporations may reduce the value of the
dividends received deduction. Distributions of net capital gains (the excess of
net long-term capital gains over net short-term capital losses), if any,
designated by the Fund as capital gain dividends, are taxable to individual
shareholders at a maximum 20% to 28% capital gains rate (depending on the Fund's
holding period for the assets giving rise to the gain), whether paid in cash or
in shares, and regardless of how long the shareholder has held the Fund's
shares; such distributions are not eligible for the dividends received
deduction. Shareholders receiving distributions in the form of newly issued
shares will have a cost basis in each share received equal to the net asset
value of a share of the Fund on the distribution date. A distribution of an
amount in excess of the Fund's current and accumulated earnings and profits will
be treated by a shareholder as a return of capital which is applied against and
reduces the shareholder's basis in his or her shares. To the extent that the
amount of any such distribution exceeds the shareholder's basis in his or her
shares, the excess will be treated by the shareholder as gain from a sale or
exchange of the shares. Shareholders will be notified annually as to the U.S.
Federal tax status of distributions and shareholders receiving distributions in
the form of newly issued shares will receive a report as to the net asset value
of the shares received.
If the net asset value of shares is reduced below a shareholder's cost
as a result of a distribution by the Fund, such distribution generally will be
taxable even though it represents a return of invested capital. Shareholders
should be careful to consider the tax implications of buying shares just prior
to a distribution. The price of shares purchased at this time may reflect the
amount of the forthcoming distribution. Those purchasing just prior to a
distribution will receive a distribution which generally will be taxable to
them.
DISPOSITION OF SHARES. Upon a redemption, sale or exchange of his or
her shares, a shareholder generally will realize a taxable gain or loss
depending upon his or her basis in the shares. Such gain or loss will be treated
as capital gain or loss if the shares are capital assets in the shareholder's
hands and, if so, may be eligible for reduced federal tax rates, depending upon
the shareholder's holding period for the shares. Any loss realized on a
redemption, sale or exchange will be disallowed to the extent the shares
disposed of are replaced (including through reinvestment of dividends) within a
period of 61 days beginning 30 days before and ending 30 days after the shares
are disposed of. In such a case, the basis of the shares acquired will be
adjusted to reflect the disallowed loss. Any loss realized by a shareholder on
the sale of Fund shares held by the shareholder for six months or less will be
treated for tax purposes as a long-term capital loss to the extent of any
distributions of capital gain dividends received or treated as having been
received by the shareholder with respect to such shares.
In some cases, shareholders will not be permitted to take all or a
portion of their sales loads into account for purposes of determining the amount
of gain or loss realized on the disposition of their shares. This prohibition
generally applies where (1) the shareholder incurs a sales load in acquiring the
shares of the Fund, (2) the shares are disposed of before the 91st day after the
date on which they were acquired, and (3) the shareholder subsequently acquires
shares in the Fund or another regulated investment company and the otherwise
applicable sales charge is reduced under a "reinvestment right" received upon
the initial purchase of Fund shares. The term "reinvestment right" means any
right to acquire shares of one or more regulated investment companies without
the payment of a sales load or with the payment of a reduced sales charge. Sales
charges affected by this rule are treated as if they were incurred with respect
to the shares acquired under the reinvestment right. This provision may be
applied to successive acquisitions of Fund shares.
BACKUP WITHHOLDING. The Fund will be required to report to the Internal
Revenue Service (the "IRS") all taxable distributions, as well as gross proceeds
from the redemption of the Fund's shares, except in the case of certain exempt
shareholders. All such distributions and proceeds will be subject to withholding
of Federal income tax at a rate of 31% ("backup withholding") in the case of
non-exempt shareholders if (1) the shareholder fails to furnish the Fund with
and to certify the shareholder's correct taxpayer identification number or
social security number, (2) the IRS notifies the shareholder or the Fund that
the shareholder has failed to report properly certain interest and dividend
income to the IRS and to respond to notices to that effect, or (3) when required
to do so, the shareholder fails to certify that he or she is not subject to
backup withholding. If the withholding provisions are applicable, any such
distributions or proceeds, whether reinvested in additional shares or taken in
cash, will be reduced by the amounts required to be withheld.
OTHER INFORMATION. Distributions may also be subject to additional
state, local and foreign taxes depending on each shareholder's particular
situation. [In many states, Fund distributions which are derived from interest
in certain U.S. Government obligations are exempt from taxation.] Non-U.S.
shareholders may be subject to U.S. tax rules that differ significantly from
those summarized above. This discussion does not purport to deal with all of the
tax consequences applicable to the Fund or its shareholders. Shareholders are
advised to consult their own tax advisers with respect to the particular tax
consequences to them of an investment in the Fund.
CALCULATION OF YIELD
The Fund's yield quotations as they may appear in the Prospectus, this
SAI, advertising or sales literature are calculated by standard methods
prescribed by the SEC.
STANDARDIZED YIELD QUOTATIONS. The Fund's current yield quotation is
computed by determining the net change, exclusive of capital changes (i.e.,
realized gains and losses from the sale of securities and unrealized
appreciation and depreciation) and income other than investment income, in the
value of a hypothetical pre-existing account having a balance of one share at
the beginning of the base period, subtracting a hypothetical charge reflecting
expense deductions from the hypothetical account, and dividing the difference by
the value of the account at the beginning of the base period to obtain the base
period return. This base period return is then multiplied by 365/7 with the
resulting yield figure carried to the nearest 100th of 1%. The determination of
net change in account value reflects the value of additional shares purchased
with dividends from the original share, dividends declared on both the original
share and any such additional shares, and all fees, other than non-recurring
account or sales charges, that are charged to all shareholder accounts in the
Fund in proportion to the length of the base period. For any account fees that
vary with the size of the account in the Fund, the account fee used for purposes
of the yield computation is assumed to be the fee that would be charged to the
mean account size of the Fund. The distribution rate will differ from the
current yield computation because it may include distributions to shareholders
from sources other than dividends and interest, short-term capital gains and net
equalization credits.
The Fund's current yield for the seven-day period ended December 31,
1998 was [ ]. IMI currently reimburses the Fund to limit ordinary operating
expenses to 0.85% of average net assets. Without reimbursement, the Fund's
current yield for this period would have been [ ].
OTHER QUOTATIONS, COMPARISONS AND GENERAL INFORMATION. The foregoing
computation methods are prescribed for advertising and other communications
subject to SEC Rule 482. Communications not subject to this rule may contain a
number of different measures of performance, computation methods and
assumptions, including but not limited to: historical total returns; results of
actual or hypothetical investments; changes in dividends, distributions or share
values; or any graphic illustration of such data. These data may cover any
period of the Trust's existence and may or may not include the impact of sales
charges, taxes or other factors.
Performance quotations for the Fund will vary from time to time
depending on market conditions, the composition of the Fund's portfolio and
operating expenses of the Fund. The voluntary expense reimbursement by IMI with
respect to the Fund has the effect of increasing yields of the Fund. These
factors and possible differences in the methods used in calculating yields
should be considered when comparing performance information regarding the Fund
to information published for other investment companies and other investment
vehicles. Yields should also be considered relative to changes in the value of
the Fund's shares and the risk associated with the Fund's investment objective
and policies. At any time in the future, yields may be higher or lower than past
yields and there can be no assurance that any historical yield quotation will
continue in the future.
The Fund may also cite endorsements or use for comparison its
performance rankings and listings reported in such newspapers or business or
consumer publications as, among others: AAII Journal, Barron's, Boston Business
Journal, Boston Globe, Boston Herald, Business Week, Consumer's Digest, Consumer
Guide Publications, Changing Times, Financial Planning, Financial World, Forbes,
Fortune, Growth Fund Guide, Houston Post, Institutional Investor, International
Fund Monitor, Investor's Daily, Los Angeles Times, Medical Economics, Miami
Herald, Money Mutual Fund Forecaster, Mutual Fund Letter, Mutual Fund Source
Book, Mutual Fund Values, National Underwriter, Nelson's Directory of Investment
Managers, New York Times, Newsweek, No Load Fund Investor, No Load Fund* X,
Oakland Tribune, Pension World, Pensions and Investment Age, Personal Investor,
Rugg and Steele, Time, U.S. News and World Report, USA Today, The Wall Street
Journal, and Washington Post.
FINANCIAL STATEMENTS
The Fund's Portfolio of Investments as of December 31, 1998, the
Statement of Assets and Liabilities as of December 31, 1998, the Statement of
Operations for the fiscal year ended December 31, 1998, the Statement of Changes
in Net Assets for the fiscal year ended December 31, 1998, the Financial
Highlights, Notes to Financial Statements, and Report of Independent Accountants
are included in the Fund's December 31, 1998 Annual Report to Shareholders,
which is incorporated by reference into this SAI.
<PAGE>
APPENDIX A
DESCRIPTION OF STANDARD & POOR'S CORPORATION ("S&P") AND
MOODY'S INVESTORS SERVICE, INC. ("MOODY'S") CORPORATE BOND AND
COMMERCIAL PAPER RATINGS
[From "Moody's Bond Record," November 1994 Issue (Moody's Investors
Service, New York, 1994), and "Standard & Poor's Municipal Ratings Handbook,"
October 1997 Issue (McGraw Hill, New York, 1997).]
MOODY'S:
(a) CORPORATE BONDS. Bonds rated Aaa by Moody's are judged by Moody's
to be of the best quality, carrying the smallest degree of investment risk.
Interest payments are protected by a large or exceptionally stable margin and
principal is secure. While the various protective elements are likely to change,
such changes as can be visualized are most unlikely to impair the fundamentally
strong position of such issues. Bonds rated Aa are judged by Moody's to be of
high quality by all standards. Aa bonds are rated lower than Aaa bonds because
margins of protection may not be as large as those of Aaa bonds, or fluctuations
of protective elements may be of greater amplitude, or there may be other
elements present which make the long-term risks appear somewhat larger than
those applicable to Aaa securities. Bonds which are rated A by Moody's possess
many favorable investment attributes and are to be considered as upper
medium-grade obligations. Factors giving security to principal and interest are
considered adequate, but elements may be present which suggest a susceptibility
to impairment sometime in the future.
Bonds rated Baa by Moody's are considered medium-grade obligations, i.e., they
are neither highly protected nor poorly secured. Interest payments and principal
security appear adequate for the present, but certain protective elements may be
lacking or may be characteristically unreliable over any great length of time.
Such bonds lack outstanding investment characteristics and in fact have
speculative characteristics as well.
(b) COMMERCIAL PAPER. The Prime rating is the highest commercial paper
rating assigned by Moody's. Among the factors considered by Moody's in assigning
ratings are the following: (1) evaluation of the management of the issuer; (2)
economic evaluation of the issuer's industry or industries and an appraisal of
speculative-type risks which may be inherent in certain areas; (3) evaluation of
the issuer's products in relation to competition and customer acceptance; (4)
liquidity; (5) amount and quality of long-term debt; (6) trend of earnings over
a period of ten years; (7) financial strength of a parent company and the
relationships which exist with the issuer; and (8) recognition by management of
obligations which may be present or may arise as a result of public interest
questions and preparations to meet such obligations. Issuers within this Prime
category may be given ratings 1, 2 or 3, depending on the relative strengths of
these factors. The designation of Prime-1 indicates the highest quality
repayment capacity of the rated issue. Issuers rated Prime-2 are deemed to have
a strong ability for repayment while issuers voted Prime-3 are deemed to have an
acceptable ability for repayment. Issuers rated Not Prime do not fall within any
of the Prime rating categories.
S&P:
(a) CORPORATE BONDS. An S&P corporate debt rating is a current
assessment of the creditworthiness of an obligor with respect to a specific
obligation. The ratings are based on current information furnished by the issuer
or obtained by S&P from other sources it considers reliable. The ratings
described below may be modified by the addition of a plus or minus sign to show
relative standing within the major rating categories.
Debt rated AAA has the highest rating assigned by S&P. Capacity to pay
interest and repay principal is extremely strong. Debt rated AA is judged by S&P
to have a very strong capacity to pay interest and repay principal and differs
from the highest rated issues only in small degree. Debt rated A by S&P has a
strong capacity to pay interest and repay principal, although it is somewhat
more susceptible to the adverse effects of changes in circumstances and economic
conditions than debt in higher rated categories.
Debt rated BBB by S&P is regarded by S&P as having an adequate capacity
to pay interest and repay principal. Although such bonds normally exhibit
adequate protection parameters, adverse economic conditions or changing
circumstances are more likely to lead to a weakened capacity to pay interest and
repay principal than debt in higher rated categories.
(b) COMMERCIAL PAPER. An S&P commercial paper rating is a current
assessment of the likelihood of timely payment of debt considered short-term in
the relevant market.
The commercial paper rating A-1 by S&P indicates that the degree of
safety regarding timely payment is strong. Those issues determined to possess
extremely strong safety characteristics are denoted with a plus sign (+)
designation. For commercial paper with an A-2 rating, the capacity for timely
payment on issues is satisfactory, but not as high as for issues designated A-1.
Issues rated A-3 have adequate capacity for timely payment, but are more
vulnerable to the adverse effects of changes in circumstances than obligations
carrying higher designations.
<PAGE>
IVY PAN-EUROPE FUND
a series of
IVY FUND
Via Mizner Financial Plaza, Suite 300
700 South Federal Highway
Boca Raton, Florida 33432
STATEMENT OF ADDITIONAL INFORMATION
April , 1999
Ivy Fund (the "Trust") is an open-end management investment company
that currently consists of nineteen fully managed portfolios, each of which
(except for Ivy South America Fund and Ivy International Strategic Bond Fund) is
diversified. This Statement of Additional Information ("SAI") relates to the
Class A, B, C and Advisor Class shares of Ivy Pan-Europe Fund (the "Fund"). The
other eighteen portfolios of the Trust are described in separate prospectuses
and SAIs.
This SAI is not a prospectus and should be read in conjunction with the
prospectus for the Fund dated April , 1999 (the "Prospectus"), which may be
obtained upon request and without charge from the Trust at the Distributor's
address and telephone number printed below.
INVESTMENT MANAGER
Ivy Management, Inc. ("IMI")
Via Mizner Financial Plaza, Suite 300
700 South Federal Highway
Boca Raton, Florida 33432
Telephone: (800) 777-6472
DISTRIBUTOR
Ivy Mackenzie Distributors, Inc. ("IMDI")
Via Mizner Financial Plaza, Suite 300
700 South Federal Highway
Boca Raton, Florida 33432
Telephone: (800) 456-5111
<PAGE>
iii
TABLE OF CONTENTS
GENERAL INFORMATION..........................................................
INVESTMENT OBJECTIVES, STRATEGIES AND RISKS..................................
COMMON STOCKS.......................................................
CONVERTIBLE SECURITIES..............................................
DEBT SECURITIES.....................................................
IN GENERAL.................................................
INVESTMENT-GRADE DEBT SECURITIES...........................
LOW-RATED DEBT SECURITIES..................................
U.S. GOVERNMENT SECURITIES.................................
ZERO COUPON BONDS..........................................
"WHEN-ISSUED" SECURITIES AND FIRM COMMITMENTS..............
ILLIQUID SECURITIES.................................................
FOREIGN SECURITIES..................................................
DEPOSITORY RECEIPTS.................................................
EMERGING MARKETS....................................................
FOREIGN CURRENCIES..................................................
FOREIGN CURRENCY EXCHANGE TRANSACTIONS..............................
OTHER INVESTMENT COMPANIES..........................................
REPURCHASE AGREEMENTS...............................................
BANKING INDUSTRY AND SAVINGS AND LOAN OBLIGATIONS...................
COMMERCIAL PAPER....................................................
BORROWING...........................................................
WARRANTS............................................................
OPTIONS TRANSACTIONS................................................
IN GENERAL.................................................
WRITING OPTIONS ON INDIVIDUAL SECURITIES...................
PURCHASING OPTIONS ON INDIVIDUAL SECURITIES................
PURCHASING AND WRITING OPTIONS ON SECURITIES INDICES.......
RISKS OF OPTIONS TRANSACTIONS..............................
FUTURES CONTRACTS AND OPTIONS ON FUTURES CONTRACTS..................
IN GENERAL.................................................
FOREIGN CURRENCY FUTURES CONTRACTS AND RELATED OPTIONS.....
RISKS ASSOCIATED WITH FUTURES AND RELATED OPTIONS..........
SECURITIES INDEX FUTURES CONTRACTS..................................
RISKS OF SECURITIES INDEX FUTURES..........................
COMBINED TRANSACTIONS......................................
INVESTMENT RESTRICTIONS......................................................
PORTFOLIO TURNOVER...........................................................
TRUSTEES AND OFFICERS........................................................
PERSONAL INVESTMENTS BY EMPLOYEES OF IMI...................
INVESTMENT ADVISORY AND OTHER SERVICES.......................................
BUSINESS MANAGEMENT AND INVESTMENT ADVISORY SERVICES................
DISTRIBUTION SERVICES...............................................
RULE 18F-3 PLAN............................................
RULE 12B-1 DISTRIBUTION PLANS..............................
CUSTODIAN...........................................................
FUND ACCOUNTING SERVICES............................................
TRANSFER AGENT AND DIVIDEND PAYING AGENT............................
ADMINISTRATOR.......................................................
AUDITORS............................................................
BROKERAGE ALLOCATION.........................................................
CAPITALIZATION AND VOTING RIGHTS.............................................
SPECIAL RIGHTS AND PRIVILEGES................................................
AUTOMATIC INVESTMENT METHOD.........................................
EXCHANGE OF SHARES..................................................
INITIAL SALES CHARGE SHARES................................
CONTINGENT DEFERRED SALES CHARGE SHARES CLASS A............
CLASS B....................................................
CLASS C....................................................
ADVISOR CLASS..............................................
ALL CLASSES................................................
LETTER OF INTENT....................................................
RETIREMENT PLANS....................................................
INDIVIDUAL RETIREMENT ACCOUNTS.............................
ROTH IRAS..................................................
QUALIFIED PLANS............................................
DEFERRED COMPENSATION FOR PUBLIC SCHOOLS AND CHARITABLE
ORGANIZATIONS ("403(B)(7) ACCOUNT")....
SIMPLIFIED EMPLOYEE PENSION ("SEP") IRAS...................
SIMPLE PLANS...............................................
REINVESTMENT PRIVILEGE..............................................
RIGHTS OF ACCUMULATION..............................................
SYSTEMATIC WITHDRAWAL PLAN..........................................
GROUP SYSTEMATIC INVESTMENT PROGRAM.................................
REDEMPTIONS..................................................................
CONVERSION OF CLASS B SHARES.................................................
NET ASSET VALUE..............................................................
TAXATION 42
OPTIONS, FUTURES AND FOREIGN CURRENCY FORWARD CONTRACTS.............
CURRENCY FLUCTUATIONS -- "SECTION 988" GAINS OR LOSSES..............
INVESTMENT IN PASSIVE FOREIGN INVESTMENT COMPANIES..................
DEBT SECURITIES ACQUIRED AT A DISCOUNT..............................
DISTRIBUTIONS.......................................................
DISPOSITION OF SHARES...............................................
FOREIGN WITHHOLDING TAXES...........................................
BACKUP WITHHOLDING..................................................
PERFORMANCE INFORMATION......................................................
YIELD......................................................
AVERAGE ANNUAL TOTAL RETURN................................
CUMULATIVE TOTAL RETURN....................................
OTHER QUOTATIONS, COMPARISONS AND GENERAL INFORMATION......
FINANCIAL STATEMENTS.........................................................
APPENDIX A...................................................................
<PAGE>
GENERAL INFORMATION
The Fund is organized as a separate, diversified portfolio of the
Trust, an open-end management investment company organized as a Massachusetts
business trust on December 21, 1983. The Fund commenced operations on May 13,
1997, Advisor Class shares were first offered on January 1, 1998.
Descriptions in this Statement of a particular investment practice or
technique in which the Fund may engage or a financial instrument which the Fund
may purchase are meant to describe the spectrum of investments that IMI, in its
discretion, might, but is not required to, use in managing the Fund's portfolio
assets. IMI may, in its discretion, at any time employ such practice, technique
or instrument for one or more funds but not for all funds advised by it.
Furthermore, it is possible that certain types of financial instruments or
investment techniques described herein may not be available, permissible,
economically feasible or effective for their intended purposes in all markets.
Certain practices, techniques, or instruments may not be principal activities of
the Fund but, to the extent employed, could from time to time have a material
impact on the Fund's performance.
INVESTMENT OBJECTIVES, STRATEGIES AND RISKS
The Fund has its own investment objectives and policies, which are
described in the Prospectus under the captions "Summary" and "Additional
Information About Strategies and Risks." Additional information regarding the
characteristics and risks associated with the Fund's investment techniques is
set forth below.
The Fund's principal investment objective is long-term capital growth.
Consideration of current income is secondary to this principal objective. The
Fund seeks to achieve its investment objective by investing primarily in the
equity securities of companies domiciled or otherwise doing business (as
described below) in European countries. Under normal circumstances, the Fund
will invest at least 65% of its total assets in the equity securities of
"European companies," which include any issuer (a) that is organized under the
laws of a European country; (b) that derives 50% or more of its total revenues
from goods produced or sold investments made or services performed in Europe; or
(c) for which the principal trading market is in Europe. The Fund may also
invest up to 35% of its total assets in the equity securities of issuers
domiciled outside of Europe. The equity securities in which the Fund may invest
include common stock, preferred stock and common stock equivalents such as
warrants and convertible debt securities. The Fund may also invest in sponsored
or unsponsored ADRs, European Depository Receipts ("EDRs"), GDRs, ADSs, European
Depository Shares ("EDSs") and GDSs. The Fund does not expect to concentrate its
investments in any particular industry.
The Fund may invest up to 35% of its net assets in debt securities, but
will not invest more than 20% of its net assets in debt securities rated Ba or
below by Moody's or BB or below by S&P, or if unrated, considered by IMI to be
of comparable quality (commonly referred to as "high yield" or "junk" bonds).
The Fund will not invest in debt securities rated less than C by either Moody's
or S&P. [As of December 31, 1998, the Fund held no low-rated debt securities.]
The Fund may also purchase securities on a "when issued" or firm commitment
basis, engage in foreign currency exchange transactions and enter into forward
foreign currency contracts. In addition, the Fund may invest up to 5% of its net
assets in zero coupon bonds.
For temporary defensive purposes or when IMI believes that
circumstances warrant, the Fund may invest without limit in U.S. Government
securities, investment-grade debt securities (i.e., those rated Baa or higher by
Moody's or BBB or higher by S&P, or if unrated, considered by IMI to be of
comparable quality), warrants, and cash or cash equivalents such as domestic or
foreign bank obligations (including certificates of deposit, time deposits and
bankers' acceptances), short-term notes, repurchase agreements, and domestic or
foreign commercial paper (which, if issued by a corporation, must be rated
Prime-1 by Moody's or A-1 by S&P, or if unrated has been issued by a company
that at the time of investment has an outstanding debt issue rated Aaa or Aa by
Moody's or AAA or AA by S&P).
For temporary or emergency purposes, the Fund may borrow up to
one-third of its total assets from banks, but may not purchase securities at any
time during which the value of the Fund's outstanding loans exceeds 10% of the
value of the Fund's total assets. The Fund may also invest (i) up to 10% of its
total assets in other investment companies, and (ii) up to 15% of its net assets
in illiquid securities.
The Fund may purchase put and call options on securities and stock
indices, provided the premium paid for such options does not exceed 5% of the
Fund's net assets. The Fund may also sell covered put options with respect to up
to 10% of the value of its net assets, and may write covered call options so
long as not more than 25% of the Fund's net assets is subject to being purchased
upon the exercise of the calls. For hedging purposes only, the Fund may engage
in transactions in (and options on) stock index and foreign currency futures
contracts, provided that the Fund's equivalent exposure in such contracts does
not exceed 15% of its total assets.
COMMON STOCKS
Common stock can be issued by companies to raise cash; all common stock
shares represent a proportionate ownership interest in a company. As a result,
the value of common stock rises and falls with a company's success or failure.
The market value of common stock can fluctuate significantly, with smaller
companies being particularly susceptible to price swings. Transaction costs in
smaller company stocks may also be higher than those of larger companies.
CONVERTIBLE SECURITIES
The convertible securities in which the Fund may invest include
corporate bonds, notes, debentures, preferred stock and other securities that
may be converted or exchanged at a stated or determinable exchange ratio into
underlying shares of common stock. Investments in convertible securities can
provide income through interest and dividend payments as well as an opportunity
for capital appreciation by virtue of their conversion or exchange features.
Because convertible securities can be converted into equity securities, their
values will normally vary in some proportion with those of the underlying equity
securities. Convertible securities usually provide a higher yield than the
underlying equity, however, so that the price decline of a convertible security
may sometimes be less substantial than that of the underlying equity security.
The exchange ratio for any particular convertible security may be adjusted from
time to time due to stock splits, dividends, spin-offs, other corporate
distributions or scheduled changes in the exchange ratio. Convertible debt
securities and convertible preferred stocks, until converted, have general
characteristics similar to both debt and equity securities. Although to a lesser
extent than with debt securities generally, the market value of convertible
securities tends to decline as interest rates increase and, conversely, tends to
increase as interest rates decline. In addition, because of the conversion or
exchange feature, the market value of convertible securities typically changes
as the market value of the underlying common stock changes, and, therefore, also
tends to follow movements in the general market for equity securities. When the
market price of the underlying common stock increases, the price of a
convertible security tends to rise as a reflection of the value of the
underlying common stock, although typically not as much as the price of the
underlying common stock. While no securities investments are without risk,
investments in convertible securities generally entail less risk than
investments in common stock of the same issuer.
As debt securities, convertible securities are investments that provide
for a stream of income. Like all debt securities, there can be no assurance of
income or principal payments because the issuers of the convertible securities
may default on their obligations. Convertible securities generally offer lower
yields than non-convertible securities of similar quality because of their
conversion or exchange features.
Convertible securities generally are subordinated to other similar but
non-convertible securities of the same issuer, although convertible bonds, as
corporate debt obligations, are senior in right of payment to all equity
securities, and convertible preferred stock is senior to common stock, of the
same issuer. However, convertible bonds and convertible preferred stock
typically have lower coupon rates than similar non-convertible securities.
Convertible securities may be issued as fixed income obligations that pay
current income.
DEBT SECURITIES
IN GENERAL. Investment in debt securities involves both interest rate
and credit risk. Generally, the value of debt instruments rises and falls
inversely with fluctuations in interest rates. As interest rates decline, the
value of debt securities generally increases. Conversely, rising interest rates
tend to cause the value of debt securities to decrease. Bonds with longer
maturities generally are more volatile than bonds with shorter maturities. The
market value of debt securities also varies according to the relative financial
condition of the issuer. In general, lower-quality bonds offer higher yields due
to the increased risk that the issuer will be unable to meet its obligations on
interest or principal payments at the time called for by the debt instrument.
INVESTMENT-GRADE DEBT SECURITIES. Bonds rated Aaa by Moody's Investors
Service, Inc. ("Moody's") and AAA by Standard & Poor's Ratings Group ("S&P") are
judged to be of the best quality (i.e., capacity to pay interest and repay
principal is extremely strong). Bonds rated Aa/AA are considered to be of high
quality (i.e., capacity to pay interest and repay principal is very strong and
differs from the highest rated issues only to a small degree). Bonds rated A are
viewed as having many favorable investment attributes, but elements may be
present that suggest a susceptibility to the adverse effects of changes in
circumstances and economic conditions than debt in higher rated categories.
Bonds rated Baa/BBB (considered by Moody's to be "medium grade" obligations) are
considered to have an adequate capacity to pay interest and repay principal, but
certain protective elements may be lacking (i.e., such bonds lack outstanding
investment characteristics and have some speculative characteristics). The Fund
may invest in debt securities that are given an investment-grade rating by
Moody's or S&P, and may also invest in unrated debt securities that are
considered by IMI to be of comparable quality.
LOW-RATED DEBT SECURITIES. Securities rated lower than Baa by Moody's
or BBB by S&P, and comparable unrated securities (commonly referred to as "high
yield" or "junk" bonds), including many emerging markets bonds, are considered
to be predominantly speculative with respect to the issuer's continuing ability
to meet principal and interest payments. The lower the ratings of corporate debt
securities, the more their risks render them like equity securities. Such
securities carry a high degree of risk (including the possibility of default or
bankruptcy of the issuers of such securities), and generally involve greater
volatility of price and risk of principal and income (and may be less liquid)
than securities in the higher rating categories. (See Appendix A for a more
complete description of the ratings assigned by Moody's and S&P and their
respective characteristics.)
Lower rated and unrated securities are especially subject to adverse
changes in general economic conditions and to changes in the financial condition
of their issuers. Economic downturns may disrupt the high yield market and
impair the ability of issuers to repay principal and interest. Also, an increase
in interest rates would likely have an adverse impact on the value of such
obligations. During an economic downturn or period of rising interest rates,
highly leveraged issuers may experience financial stress which could adversely
affect their ability to service their principal and interest payment
obligations. Prices and yields of high yield securities will fluctuate over time
and, during periods of economic uncertainty, volatility of high yield securities
may adversely affect the Fund's net asset value. In addition, investments in
high yield zero coupon or pay-in-kind bonds, rather than income-bearing high
yield securities, may be more speculative and may be subject to greater
fluctuations in value due to changes in interest rates.
Changes in interest rates may have a less direct or dominant impact on
high yield bonds than on higher quality issues of similar maturities. However,
the price of high yield bonds can change significantly or suddenly due to a host
of factors including changes in interest rates, fundamental credit quality,
market psychology, government regulations, U.S. economic growth and, at times,
stock market activity. High yield bonds may contain redemption or call
provisions. If an issuer exercises these provisions in a declining interest rate
market, the Fund may have to replace the security with a lower yielding
security.
The trading market for high yield securities may be thin to the extent
that there is no established retail secondary market or because of a decline in
the value of such securities. A thin trading market may limit the ability of the
Fund to accurately value high yield securities in the Fund's portfolio, could
adversely affect the price at which the Fund could sell such securities, and
cause large fluctuations in the daily net asset value of the Fund's shares.
Adverse publicity and investor perceptions, whether or not based on fundamental
analysis, may decrease the value and liquidity of low-rated debt securities,
especially in a thinly traded market. When secondary markets for high yield
securities become relatively less liquid, it may be more difficult to value the
securities, requiring additional research and elements of judgment. These
securities may also involve special registration responsibilities, liabilities
and costs, and liquidity and valuation difficulties.
Credit quality in the high yield securities market can change suddenly
and unexpectedly, and even recently issued credit ratings may not fully reflect
the actual risks posed by a particular high yield security. For these reasons,
it is the policy of IMI not to rely exclusively on ratings issued by established
credit rating agencies, but to supplement such ratings with its own independent
and on-going review of credit quality. The achievement of the Fund's investment
objectives by investment in such securities may be more dependent on IMI's
credit analysis than is the case for higher quality bonds. Should the rating of
a portfolio security be downgraded, IMI will determine whether it is in the best
interest of the Fund to retain or dispose of such security. However, should any
individual bond held by the Fund be downgraded below a rating of C, IMI
currently intends to dispose of such bond based on then existing market
conditions.
Prices for high yield securities may be affected by legislative and
regulatory developments. For example, Federal rules require savings and loan
institutions to gradually reduce their holdings of this type of security. Also,
Congress has from time to time considered legislation that would restrict or
eliminate the corporate tax deduction for interest payments in these securities
and regulate corporate restructurings. Such legislation may significantly
depress the prices of outstanding securities of this type.
U.S. GOVERNMENT SECURITIES. U.S. Government securities are obligations of,
or guaranteed by, the U.S. Government, its agencies or instrumentalities.
Securities guaranteed by the U.S. Government include: (1) direct obligations of
the U.S. Treasury (such as Treasury bills, notes, and bonds) and (2) Federal
agency obligations guaranteed as to principal and interest by the U.S. Treasury
(such as GNMA certificates, which are mortgage-backed securities). When such
securities are held to maturity, the payment of principal and interest is
unconditionally guaranteed by the U.S. Government, and thus they are of the
highest possible credit quality. U.S. Government securities that are not held to
maturity are subject to variations in market value due to fluctuations in
interest rates.
Mortgage-backed securities are securities representing part ownership
of a pool of mortgage loans. For example, GNMA certificates are such securities
in which the timely payment of principal and interest is guaranteed by the full
faith and credit of the U.S. Government. Although the mortgage loans in the pool
will have maturities of up to 30 years, the actual average life of the loans
typically will be substantially less because the mortgages will be subject to
principal amortization and may be prepaid prior to maturity. Prepayment rates
vary widely and may be affected by changes in market interest rates. In periods
of falling interest rates, the rate of prepayment tends to increase, thereby
shortening the actual average life of the security. Conversely, rising interest
rates tend to decrease the rate of prepayments, thereby lengthening the actual
average life of the security (and increasing the security's price volatility).
Accordingly, it is not possible to predict accurately the average life of a
particular pool. Reinvestment of prepayment may occur at higher or lower rates
than the original yield on the certificates. Due to the prepayment feature and
the need to reinvest prepayments of principal at current rates, mortgage-backed
securities can be less effective than typical bonds of similar maturities at
"locking in" yields during periods of declining interest rates, and may involve
significantly greater price and yield volatility than traditional debt
securities. Such securities may appreciate or decline in market value during
periods of declining or rising interest rates, respectively.
Securities issued by U.S. Government instrumentalities and certain
Federal agencies are neither direct obligations of nor guaranteed by the U.S.
Treasury; however, they involve Federal sponsorship in one way or another. Some
are backed by specific types of collateral, some are supported by the issuer's
right to borrow from the Treasury, some are supported by the discretionary
authority of the Treasury to purchase certain obligations of the issuer, others
are supported only by the credit of the issuing government agency or
instrumentality. These agencies and instrumentalities include, but are not
limited to, Federal Land Banks, Farmers Home Administration, Central Bank for
Cooperatives, Federal Intermediate Credit Banks, Federal Home Loan Banks,
Federal National Mortgage Association, Federal Home Loan Mortgage Association,
and Student Loan Marketing Association.
ZERO COUPON BONDS. Zero coupon bonds are debt obligations issued
without any requirement for the periodic payment of interest. Zero coupon bonds
are issued at a significant discount from face value. The discount approximates
the total amount of interest the bonds would accrue and compound over the period
until maturity at a rate of interest reflecting the market rate at the time of
issuance. If the Fund holds zero coupon bonds in its portfolio, it would
recognize income currently for Federal income tax purposes in the amount of the
unpaid, accrued interest and generally would be required to distribute dividends
representing such income to shareholders currently, even though funds
representing such income would not have been received by the Fund. Cash to pay
dividends representing unpaid, accrued interest may be obtained from, for
example, sales proceeds of portfolio securities and Fund shares and from loan
proceeds. The potential sale of portfolio securities to pay cash distributions
from income earned on zero coupon bonds may result in the Fund being forced to
sell portfolio securities at a time when it might otherwise choose not to sell
these securities and when the Fund might incur a capital loss on such sales.
Because interest on zero coupon obligations is not distributed to the Fund on a
current basis, but is in effect compounded, the value of the securities of this
type is subject to greater fluctuations in response to changing interest rates
than the value of debt obligations which distribute income regularly.
"WHEN-ISSUED" SECURITIES AND FIRM COMMITMENTS. New issues of certain
debt securities are often offered on a "when-issued" basis, meaning the payment
obligation and the interest rate are fixed at the time the buyer enters into the
commitment, but delivery and payment for the securities normally take place
after the date of the commitment to purchase. Firm commitment agreements call
for the purchase of securities at an agreed-upon price on a specified future
date. The Fund uses such investment techniques in order to secure what is
considered to be an advantageous price and yield to the Fund and not for
purposes of leveraging the Fund's assets. In either instance, the Fund will
maintain in a segregated account with its Custodian cash or liquid securities
equal (on a daily marked-to-market basis) to the amount of its commitment to
purchase the underlying securities.
ILLIQUID SECURITIES
The Fund may purchase securities other than in the open market. While
such purchases may often offer attractive opportunities for investment not
otherwise available on the open market, the securities so purchased are often
"restricted securities" or "not readily marketable" (i.e., they cannot be sold
to the public without registration under the Securities Act of 1933, as amended
(the "1933 Act"), or the availability of an exemption from registration (such as
Rule 144A) or because they are subject to other legal or contractual delays in
or restrictions on resale). This investment practice, therefore, could have the
effect of increasing the level of illiquidity of the Fund. It is the Fund's
policy that illiquid securities (including repurchase agreements of more than
seven days duration, certain restricted securities, and other securities which
are not readily marketable) may not constitute, at the time of purchase, more
than 15% of the value of the Fund's net assets. The Trust's Board of Trustees
has approved guidelines for use by IMI in determining whether a security is
illiquid.
Generally speaking, restricted securities may be sold (i) only to
qualified institutional buyers; (ii) in a privately negotiated transaction to a
limited number of purchasers; (iii) in limited quantities after they have been
held for a specified period of time and other conditions are met pursuant to an
exemption from registration; or (iv) in a public offering for which a
registration statement is in effect under the 1933 Act. Issuers of restricted
securities may not be subject to the disclosure and other investor protection
requirements that would be applicable if their securities were publicly traded.
If adverse market conditions were to develop during the period between the
Fund's decision to sell a restricted or illiquid security and the point at which
the Fund is permitted or able to sell such security, the Fund might obtain a
price less favorable than the price that prevailed when it decided to sell.
Where a registration statement is required for the resale of restricted
securities, the Fund may be required to bear all or part of the registration
expenses. The Fund may be deemed to be an "underwriter" for purposes of the 1933
Act when selling restricted securities to the public and, in such event, the
Fund may be liable to purchasers of such securities if the registration
statement prepared by the issuer is materially inaccurate or misleading.
Since it is not possible to predict with assurance that the market for
securities eligible for resale under Rule 144A will continue to be liquid, IMI
will monitor such restricted securities subject to the supervision of the Board
of Trustees. Among the factors IMI may consider in reaching liquidity decisions
relating to Rule 144A securities are: (1) the frequency of trades and quotes for
the security; (2) the number of dealers wishing to purchase or sell the security
and the number of other potential purchasers; (3) dealer undertakings to make a
market in the security; and (4) the nature of the security and the nature of the
market for the security (i.e., the time needed to dispose of the security, the
method of soliciting offers, and the mechanics of the transfer).
FOREIGN SECURITIES
The securities of foreign issuers in which the Fund may invest include
non-U.S. dollar-denominated debt securities, Euro dollar securities, sponsored
and unsponsored American Depository Receipts ("ADRs"), Global Depository
Receipts ("GDRs"), American Depository Shares ("ADSs"), Global Depository Shares
("GDSs") and related depository instruments, and debt securities issued, assumed
or guaranteed by foreign governments or political subdivisions or
instrumentalities thereof. Shareholders should consider carefully the
substantial risks involved in investing in securities issued by companies and
governments of foreign nations, which are in addition to the usual risks
inherent in the Fund's domestic investments.
Although IMI intends to invest the Fund's assets only in nations that
are generally considered to have relatively stable and friendly governments,
there is the possibility of expropriation, nationalization, repatriation or
confiscatory taxation, taxation on income earned in a foreign country and other
foreign taxes, foreign exchange controls (which may include suspension of the
ability to transfer currency from a given country), default on foreign
government securities, political or social instability or diplomatic
developments which could affect investments in securities of issuers in those
nations. In addition, in many countries there is less publicly available
information about issuers than is available for U.S. companies. Moreover,
foreign companies are not generally subject to uniform accounting, auditing and
financial reporting standards, and auditing practices and requirements may not
be comparable to those applicable to U.S. companies. In many foreign countries,
there is less governmental supervision and regulation of business and industry
practices, stock exchanges, brokers, and listed companies than in the United
States. Foreign securities transactions may also be subject to higher brokerage
costs than domestic securities transactions. The foreign securities markets of
many of the countries in which the Fund may invest may also be smaller, less
liquid and subject to greater price volatility than those in the United States.
In addition, the Fund may encounter difficulties or be unable to pursue legal
remedies and obtain judgment in foreign courts.
Foreign bond markets have different clearance and settlement procedures
and in certain markets there have been times when settlements have been unable
to keep pace with the volume of securities transactions, making it difficult to
conduct such transactions. Delays in settlement could result in temporary
periods when assets of the Fund are uninvested and no return is earned thereon.
The inability of the Fund to make intended security purchases due to settlement
problems could cause the Fund to miss attractive investment opportunities.
Further, the inability to dispose of portfolio securities due to settlement
problems could result either in losses to the Fund because of subsequent
declines in the value of the portfolio security or, if the Fund has entered into
a contract to sell the security, in possible liability to the purchaser. It may
be more difficult for the Fund's agents to keep currently informed about
corporate actions such as stock dividends or other matters that may affect the
prices of portfolio securities. Communications between the United States and
foreign countries may be less reliable than within the United States, thus
increasing the risk of delayed settlements of portfolio transactions or loss of
certificates for portfolio securities. Moreover, individual foreign economies
may differ favorably or unfavorably from the United States economy in such
respects as growth of gross national product, rate of inflation, capital
reinvestment, resource self-sufficiency and balance of payments position. IMI
seeks to mitigate the risks to the Fund associated with the foregoing
considerations through investment variation and continuous professional
management.
DEPOSITORY RECEIPTS
ADRs, GDRs, ADSs, GDSs and related securities are depository
instruments, the issuance of which is typically administered by a U.S. or
foreign bank or trust company. These instruments evidence ownership of
underlying securities issued by a U.S. or foreign corporation. ADRs are publicly
traded on exchanges or over-the-counter ("OTC") in the United States.
Unsponsored programs are organized independently and without the cooperation of
the issuer of the underlying securities. As a result, information concerning the
issuer may not be as current or as readily available as in the case of sponsored
depository instruments, and their prices may be more volatile than if they were
sponsored by the issuers of the underlying securities.
EMERGING MARKETS
The Fund could have significant investments in securities traded in
emerging markets. Investors should recognize that investing in such countries
involves special considerations, in addition to those set forth above, that are
not typically associated with investing in United States securities and that may
affect the Fund's performance favorably or unfavorably.
In recent years, many emerging market countries around the world have
undergone political changes that have reduced government's role in economic and
personal affairs and have stimulated investment and growth. Historically, there
is a strong direct correlation between economic growth and stock market returns.
While this is no guarantee of future performance, IMI believes that investment
opportunities (particularly in the energy, environmental services, natural
resources, basic materials, power, telecommunications and transportation
industries) may result within the evolving economies of emerging market
countries from which the Fund and its shareholders will benefit.
Investments in companies domiciled in developing countries may be
subject to potentially higher risks than investments in developed countries.
Such risks include (i) less social, political and economic stability; (ii) a
small market for securities and/or a low or nonexistent volume of trading, which
result in a lack of liquidity and in greater price volatility; (iii) certain
national policies that may restrict the Fund's investment opportunities,
including restrictions on investment in issuers or industries deemed sensitive
to national interests; (iv) foreign taxation; (v) the absence of developed
structures governing private or foreign investment or allowing for judicial
redress for injury to private property; (vi) the absence, until relatively
recently in certain Eastern European countries, of a capital market structure or
market-oriented economy; (vii) the possibility that recent favorable economic
developments in Eastern Europe may be slowed or reversed by unanticipated
political or social events in such countries; and (viii) the possibility that
currency devaluations could adversely affect the value of the Fund's
investments. Further, many emerging markets have experienced and continue to
experience high rates of inflation.
Despite the dissolution of the Soviet Union, the Communist Party may
continue to exercise a significant role in certain Eastern European countries.
To the extent of the Communist Party's influence, investments in such countries
will involve risks of nationalization, expropriation and confiscatory taxation.
The communist governments of a number of Eastern European countries expropriated
large amounts of private property in the past, in many cases without adequate
compensation, and there can be no assurance that such expropriation will not
occur in the future. In the event of such expropriation, the Fund could lose a
substantial portion of any investments it has made in the affected countries.
Further, few (if any) accounting standards exist in Eastern European countries.
Finally, even though certain Eastern European currencies may be convertible into
U.S. dollars, the conversion rates may be artificial in relation to the actual
market values and may be adverse to the Fund's net asset value.
Certain Eastern European countries that do not have well-established
trading markets are characterized by an absence of developed legal structures
governing private and foreign investments and private property. In addition,
certain countries require governmental approval prior to investments by foreign
persons, or limit the amount of investment by foreign persons in a particular
company, or limit the investment of foreign persons to only a specific class of
securities of a company that may have less advantageous terms than securities of
the company available for purchase by nationals.
Authoritarian governments in certain Eastern European countries may
require that a governmental or quasi-governmental authority act as custodian of
the Fund's assets invested in such country. To the extent such governmental or
quasi-governmental authorities do not satisfy the requirements of the Investment
Company Act of 1940, as amended (the "1940 Act"), with respect to the custody of
the Fund's cash and securities, the Fund's investment in such countries may be
limited or may be required to be effected through intermediaries. The risk of
loss through governmental confiscation may be increased in such countries.
FOREIGN CURRENCIES
Investment in foreign securities usually will involve currencies of
foreign countries. Moreover, the Fund may temporarily hold funds in bank
deposits in foreign currencies during the completion of investment programs and
may purchase forward foreign currency contracts. Because of these factors, the
value of the assets of the Fund as measured in U.S. dollars may be affected
favorably or unfavorably by changes in foreign currency exchange rates and
exchange control regulations, and the Fund may incur costs in connection with
conversions between various currencies. Although the Fund's custodian values the
Fund's assets daily in terms of U.S. dollars, the Fund does not intend to
convert its holdings of foreign currencies into U.S. dollars on a daily basis.
The Fund will do so from time to time, however, and investors should be aware of
the costs of currency conversion. Although foreign exchange dealers do not
charge a fee for conversion, they do realize a profit based on the difference
(the "spread") between the prices at which they are buying and selling various
currencies. Thus, a dealer may offer to sell a foreign currency to the Fund at
one rate, while offering a lesser rate of exchange should the Fund desire to
resell that currency to the dealer. The Fund will conduct its foreign currency
exchange transactions either on a spot (i.e., cash) basis at the spot rate
prevailing in the foreign currency exchange market, or through entering into
forward contracts to purchase or sell foreign currencies.
Because the Fund normally will be invested in both U.S. and foreign
securities markets, changes in the Fund's share price may have a low correlation
with movements in U.S. markets. The Fund's share price will reflect the
movements of the different stock and bond markets in which it is invested (both
U.S. and foreign), and of the currencies in which the investments are
denominated. Thus, the strength or weakness of the U.S. dollar against foreign
currencies may account for part of the Fund's investment performance. U.S. and
foreign securities markets do not always move in step with each other, and the
total returns from different markets may vary significantly. In addition,
significant uncertainty surrounds the proposed introduction of the euro (a
common currency for the European Union) in January 1999 and its effect on the
value of securities denominated in local European currencies. These and other
currencies in which the Fund's assets are denominated may be devalued against
the U.S. dollar, resulting in a loss to the Fund.
FOREIGN CURRENCY EXCHANGE TRANSACTIONS
The Fund may enter into forward foreign currency contracts in order to
protect against uncertainty in the level of future foreign exchange rates in the
purchase and sale of securities. A forward contract is an obligation to purchase
or sell a specific currency for an agreed price at a future date (usually less
than a year), and typically is individually negotiated and privately traded by
currency traders and their customers. A forward contract generally has no
deposit requirement, and no commissions are charged at any stage for trades.
Although foreign exchange dealers do not charge a fee for commissions, they do
realize a profit based on the difference between the price at which they are
buying and selling various currencies. Although these contracts are intended to
minimize the risk of loss due to a decline in the value of the hedged
currencies, at the same time, they tend to limit any potential gain which might
result should the value of such currencies increase.
While the Fund may enter into forward contracts to reduce currency
exchange risks, changes in currency exchange rates may result in poorer overall
performance for the Fund than if it had not engaged in such transactions.
Moreover, there may be an imperfect correlation between the Fund's portfolio
holdings of securities denominated in a particular currency and forward
contracts entered into by the Fund. An imperfect correlation of this type may
prevent the Fund from achieving the intended hedge or expose the Fund to the
risk of currency exchange loss.
The Fund may purchase currency forwards and combine such purchases with
sufficient cash or short-term securities to create unleveraged substitutes for
investments in foreign markets when deemed advantageous. The Fund may also
combine the foregoing with bond futures or interest rate futures contracts to
create the economic equivalent of an unhedged foreign bond position.
The Fund may also cross-hedge currencies by entering into transactions
to purchase or sell one or more currencies that are expected to decline in value
relative to other currencies to which the Fund has or in which the Fund expects
to have portfolio exposure.
Currency transactions are subject to risks different from those of
other portfolio transactions. Because currency control is of great importance to
the issuing governments and influences economic planning and policy, purchases
and sales of currency and related instruments can be negatively affected by
government exchange controls, blockages, and manipulations or exchange
restrictions imposed by governments. These can result in losses to the Fund if
it is unable to deliver or receive currency or funds in settlement of
obligations and could also cause hedges it has entered into to be rendered
useless, resulting in full currency exposure as well as incurring transactions
costs. Buyers and sellers of currency futures are subject to the same risks that
apply to the use of futures generally. Further, settlement of a currency futures
contract for the purchase of most currencies must occur at a bank based in the
issuing nation. Trading options on currency futures is relatively new, and the
ability to establish and close out positions on such options is subject to the
maintenance of a liquid market which may not always be available. Currency
exchange rates may fluctuate based on factors extrinsic to that country's
economy.
OTHER INVESTMENT COMPANIES
The Fund may invest up to 10% of its total assets in the shares of
other investment companies. As a shareholder of an investment company, the Fund
would bear its ratable shares of the fund's expenses (which often include an
asset-based management fee). The Fund could also lose money by investing in
other investment companies, since the value of their respective investments and
the income they generate will vary daily based on prevailing market conditions.
REPURCHASE AGREEMENTS
Repurchase agreements are contracts under which the Fund buys a money
market instrument and obtains a simultaneous commitment from the seller to
repurchase the instrument at a specified time and at an agreed-upon yield. Under
guidelines approved by the Board, the Fund is permitted to enter into repurchase
agreements only if the repurchase agreements are at least fully collateralized
with U.S. Government securities or other securities that IMI has approved for
use as collateral for repurchase agreements and the collateral must be
marked-to-market daily. The Fund will enter into repurchase agreements only with
banks and broker-dealers deemed to be creditworthy by IMI under the
above-referenced guidelines. In the unlikely event of failure of the executing
bank or broker-dealer, the Fund could experience some delay in obtaining direct
ownership of the underlying collateral and might incur a loss if the value of
the security should decline, as well as costs in disposing of the security.
BANKING INDUSTRY AND SAVINGS AND LOAN OBLIGATIONS
Certificates of deposit are negotiable certificates issued against
funds deposited in a commercial bank for a definite period of time and earning a
specified return. Bankers' acceptances are negotiable drafts or bills of
exchange, normally drawn by an importer or exporter to pay for specific
merchandise, which are "accepted" by a bank (meaning, in effect, that the bank
unconditionally agrees to pay the face value of the instrument at maturity). In
addition to investing in certificates of deposit and bankers' acceptances, the
Fund may invest in time deposits in banks or savings and loan associations. Time
deposits are generally similar to certificates of deposit, but are
uncertificated. The Fund's investments in certificates of deposit, time
deposits, and bankers' acceptance are limited to obligations of (i) banks having
total assets in excess of $1 billion, (ii) U.S. banks which do not meet the $1
billion asset requirement, if the principal amount of such obligation is fully
insured by the Federal Deposit Insurance Corporation (the "FDIC"), (iii) savings
and loan association which have total assets in excess of $1 billion and which
are members of the FDIC, and (iv) foreign banks if the obligation is, in IMI's
opinion, of an investment quality comparable to other debt securities which may
be purchased by the Fund. The Fund's investments in certificates of deposit of
savings associations are limited to obligations of Federal and state-chartered
institutions whose total assets exceed $1 billion and whose deposits are insured
by the FDIC.
COMMERCIAL PAPER
Commercial paper represents short-term unsecured promissory notes
issued in bearer form by bank holding companies, corporations and finance
companies. The Fund may invest in commercial paper that is rated Prime-1 by
Moody's Investors Service, Inc. ("Moody's") or A-1 by Standard & Poor's
Corporation ("S&P") or, if not rated by Moody's or S&P, is issued by companies
having an outstanding debt issue rated Aaa or Aa by Moody's or AAA or AA by S&P.
BORROWING
Borrowing may exaggerate the effect on the Fund's net asset value of
any increase or decrease in the value of the Fund's portfolio securities. Money
borrowed will be subject to interest costs (which may include commitment fees
and/or the cost of maintaining minimum average balances). Although the principal
of the Fund's borrowings will be fixed, the Fund's assets may change in value
during the time a borrowing is outstanding, thus increasing exposure to capital
risk.
WARRANTS
The holder of a warrant has the right, until the warrant expires, to
purchase a given number of shares of a particular issuer at a specified price.
Such investments can provide a greater potential for profit or loss than an
equivalent investment in the underlying security. However, prices of warrants do
not necessarily move in a tandem with the prices of the underlying securities,
and are, therefore, considered speculative investments. Warrants pay no
dividends and confer no rights other than a purchase option. Thus, if a warrant
held by the Fund were not exercised by the date of its expiration, the Fund
would lose the entire purchase price of the warrant.
OPTIONS TRANSACTIONS
IN GENERAL. A call option is a short-term contract (having a duration
of less than one year) pursuant to which the purchaser, in return for the
premium paid, has the right to buy the security underlying the option at the
specified exercise price at any time during the term of the option. The writer
of the call option, who receives the premium, has the obligation, upon exercise
of the option, to deliver the underlying security against payment of the
exercise price. A put option is a similar contract pursuant to which the
purchaser, in return for the premium paid, has the right to sell the security
underlying the option at the specified exercise price at any time during the
term of the option. The writer of the put option, who receives the premium, has
the obligation, upon exercise of the option, to buy the underlying security at
the exercise price. The premium paid by the purchaser of an option will reflect,
among other things, the relationship of the exercise price to the market price
and volatility of the underlying security, the time remaining to expiration of
the option, supply and demand, and interest rates.
If the writer of an option wishes to terminate the obligation, the
writer may effect a "closing purchase transaction." This is accomplished by
buying an option of the same series as the option previously written. The effect
of the purchase is that the writer's position will be canceled by the Options
Clearing Corporation. However, a writer may not effect a closing purchase
transaction after it has been notified of the exercise of an option. Likewise,
an investor who is the holder of an option may liquidate his or her position by
effecting a "closing sale transaction." This is accomplished by selling an
option of the same series as the option previously purchased. There is no
guarantee that either a closing purchase or a closing sale transaction can be
effected at any particular time or at any acceptable price. If any call or put
option is not exercised or sold, it will become worthless on its expiration
date.
The Fund will realize a gain (or a loss) on a closing purchase
transaction with respect to a call or a put previously written by the Fund if
the premium, plus commission costs, paid by the Fund to purchase the call or the
put is less (or greater) than the premium, less commission costs, received by
the Fund on the sale of the call or the put. A gain also will be realized if a
call or a put that the Fund has written lapses unexercised, because the Fund
would retain the premium. Any such gains (or losses) are considered short-term
capital gains (or losses) for Federal income tax purposes. Net short-term
capital gains, when distributed by the Fund, are taxable as ordinary income. See
"Taxation."
The Fund will realize a gain (or a loss) on a closing sale transaction
with respect to a call or a put previously purchased by the Fund if the premium,
less commission costs, received by the Fund on the sale of the call or the put
is greater (or less) than the premium, plus commission costs, paid by the Fund
to purchase the call or the put. If a put or a call expires unexercised, it will
become worthless on the expiration date, and the Fund will realize a loss in the
amount of the premium paid, plus commission costs. Any such gain or loss will be
long-term or short-term gain or loss, depending upon the Fund's holding period
for the option.
Exchange-traded options generally have standardized terms and are
issued by a regulated clearing organization (such as the Options Clearing
Corporation), which, in effect, guarantees the completion of every
exchange-traded option transaction. In contrast, the terms of OTC options are
negotiated by the Fund and its counterparty (usually a securities dealer or a
financial institution) with no clearing organization guarantee. When the Fund
purchases an OTC option, it relies on the party from whom it has purchased the
option (the "counterparty") to make delivery of the instrument underlying the
option. If the counterparty fails to do so, the Fund will lose any premium paid
for the option, as well as any expected benefit of the transaction. Accordingly,
IMI will assess the creditworthiness of each counterparty to determine the
likelihood that the terms of the OTC option will be satisfied.
WRITING OPTIONS ON INDIVIDUAL SECURITIES. The Fund may write (sell)
covered call options on the Fund's securities in an attempt to realize a greater
current return than would be realized on the securities alone. The Fund may also
write covered call options to hedge a possible stock or bond market decline
(only to the extent of the premium paid to the Fund for the options). In view of
the investment objectives of the Fund, the Fund generally would write call
options only in circumstances where the investment adviser to the Fund does not
anticipate significant appreciation of the underlying security in the near
future or has otherwise determined to dispose of the security.
A "covered" call option means generally that so long as the Fund is
obligated as the writer of a call option, the Fund will (i) own the underlying
securities subject to the option, or (ii) have the right to acquire the
underlying securities through immediate conversion or exchange of convertible
preferred stocks or convertible debt securities owned by the Fund. Although the
Fund receives premium income from these activities, any appreciation realized on
an underlying security will be limited by the terms of the call option. The Fund
may purchase call options on individual securities only to effect a "closing
purchase transaction."
As the writer of a call option, the Fund receives a premium for
undertaking the obligation to sell the underlying security at a fixed price
during the option period, if the option is exercised. So long as the Fund
remains obligated as a writer of a call option, it forgoes the opportunity to
profit from increases in the market price of the underlying security above the
exercise price of the option, except insofar as the premium represents such a
profit (and retains the risk of loss should the value of the underlying security
decline).
PURCHASING OPTIONS ON INDIVIDUAL SECURITIES. The Fund may purchase a
put option on an underlying security owned by the Fund as a defensive technique
in order to protect against an anticipated decline in the value of the security.
The Fund, as the holder of the put option, may sell the underlying security at
the exercise price regardless of any decline in its market price. In order for a
put option to be profitable, the market price of the underlying security must
decline sufficiently below the exercise price to cover the premium and
transaction costs that the Fund must pay. These costs will reduce any profit the
Fund might have realized had it sold the underlying security instead of buying
the put option. The premium paid for the put option would reduce any capital
gain otherwise available for distribution when the security is eventually sold.
The purchase of put options will not be used by the Fund for leverage purposes.
The Fund may also purchase a put option on an underlying security that
it owns and at the same time write a call option on the same security with the
same exercise price and expiration date. Depending on whether the underlying
security appreciates or depreciates in value, the Fund would sell the underlying
security for the exercise price either upon exercise of the call option written
by it or by exercising the put option held by it. The Fund would enter into such
transactions in order to profit from the difference between the premium received
by the Fund for the writing of the call option and the premium paid by the Fund
for the purchase of the put option, thereby increasing the Fund's current
return. The Fund may write (sell) put options on individual securities only to
effect a "closing sale transaction."
PURCHASING AND WRITING OPTIONS ON SECURITIES INDICES. The Fund may
purchase and sell (write) put and call options on securities indices. An index
assigns relative values to the securities included in the index and the index
fluctuates with changes in the market values of the securities so included.
Options on indices are similar to options on individual securities, except that,
rather than giving the purchaser the right to take delivery of an individual
security at a specified price, they give the purchaser the right to receive
cash. The amount of cash is equal to the difference between the closing price of
the index and the exercise price of the option, expressed in dollars, times a
specified multiple (the "multiplier"). The writer of the option is obligated, in
return for the premium received, to make delivery of this amount.
The multiplier for an index option performs a function similar to the
unit of trading for a stock option. It determines the total dollar value per
contract of each point in the difference between the exercise price of an option
and the current level of the underlying index. A multiplier of 100 means that a
one-point difference will yield $100. Options on different indices have
different multipliers.
When the Fund writes a call or put option on a stock index, the option
is "covered", in the case of a call, or "secured", in the case of a put, if the
Fund maintains in a segregated account with the Custodian cash or liquid
securities equal to the contract value. A call option is also covered if the
Fund holds a call on the same index as the call written where the exercise price
of the call held is (i) equal to or less than the exercise price of the call
written or (ii) greater than the exercise price of the call written, provided
that the Fund maintains in a segregated account with the Custodian the
difference in cash or liquid securities. A put option is also "secured" if the
Fund holds a put on the same index as the put written where the exercise price
of the put held is (i) equal to or greater than the exercise price of the put
written or (ii) less than the exercise price of the put written, provided that
the Fund maintains in a segregated account with the Custodian the difference in
cash or liquid securities.
RISKS OF OPTIONS TRANSACTIONS. The purchase and writing of options
involves certain risks. During the option period, the covered call writer has,
in return for the premium on the option, given up the opportunity to profit from
a price increase in the underlying securities above the exercise price, but, as
long as its obligation as a writer continues, has retained the risk of loss
should the price of the underlying security decline. The writer of a U.S. option
has no control over the time when it may be required to fulfill its obligation
as a writer of the option. Once an option writer has received an exercise
notice, it cannot effect a closing purchase transaction in order to terminate
its obligation under the option and must deliver the underlying securities (or
cash in the case of an index option) at the exercise price. If a put or call
option purchased by the Fund is not sold when it has remaining value, and if the
market price of the underlying security (or index), in the case of a put,
remains equal to or greater than the exercise price or, in the case of a call,
remains less than or equal to the exercise price, the Fund will lose its entire
investment in the option. Also, where a put or call option on a particular
security (or index) is purchased to hedge against price movements in a related
security (or securities), the price of the put or call option may move more or
less than the price of the related security (or securities). In this regard,
there are differences between the securities and options markets that could
result in an imperfect correlation between these markets, causing a given
transaction not to achieve its objective.
There can be no assurance that a liquid market will exist when the Fund
seeks to close out an option position. Furthermore, if trading restrictions or
suspensions are imposed on the options markets, the Fund may be unable to close
out a position. Finally, trading could be interrupted, for example, because of
supply and demand imbalances arising from a lack of either buyers or sellers, or
the options exchange could suspend trading after the price has risen or fallen
more than the maximum amount specified by the exchange. Closing transactions can
be made for OTC options only by negotiating directly with the counterparty or by
a transaction in the secondary market, if any such market exists. There is no
assurance that the Fund will be able to close out an OTC option position at a
favorable price prior to its expiration. In the event of insolvency of the
counterparty, the Fund might be unable to close out an OTC option position at
any time prior to its expiration. Although the Fund may be able to offset to
some extent any adverse effects of being unable to liquidate an option position,
the Fund may experience losses in some cases as a result of such inability.
When conducted outside the U.S., options transactions may not be
regulated as rigorously as in the U.S., may not involve a clearing mechanism and
related guarantees, and are subject to the risk of governmental actions
affecting trading in, or the prices of, foreign securities, currencies and other
instruments. The value of such positions also could be adversely affected by:
(i) other complex foreign political, legal and economic factors, (ii) lesser
availability than in the U.S. of data on which to make trading decisions, (iii)
delays in the Fund's ability to act upon economic events occurring in foreign
markets during non-business hours in the U.S., (iv) the imposition of different
exercise and settlement terms and procedures and margin requirements than in the
U.S., and (v) lower trading volume and liquidity.
The Fund's options activities also may have an impact upon the level of its
portfolio turnover and brokerage commissions. See "Portfolio Turnover."
The Fund's success in using options techniques depends, among other
things, on IMI's ability to predict accurately the direction and volatility of
price movements in the options and securities markets, and to select the proper
type, time and duration of options.
FUTURES CONTRACTS AND OPTIONS ON FUTURES CONTRACTS
IN GENERAL. The Fund may enter into futures contracts and options on
futures contracts for hedging purposes. A futures contract provides for the
future sale by one party and purchase by another party of a specified quantity
of a commodity at a specified price and time. When a purchase or sale of a
futures contract is made by the Fund, the Fund is required to deposit with its
custodian (or broker, if legally permitted) a specified amount of cash or liquid
securities ("initial margin"). The margin required for a futures contract is set
by the exchange on which the contract is traded and may be modified during the
term of the contract. The initial margin is in the nature of a performance bond
or good faith deposit on the futures contract which is returned to the Fund upon
termination of the contract, assuming all contractual obligations have been
satisfied. A futures contract held by the Fund is valued daily at the official
settlement price of the exchange on which it is traded. Each day the Fund pays
or receives cash, called "variation margin," equal to the daily change in value
of the futures contract. This process is known as "marking to market." Variation
margin does not represent a borrowing or loan by the Fund but is instead a
settlement between the Fund and the broker of the amount one would owe the other
if the futures contract expired. In computing daily net asset value, the Fund
will mark-to-market its open futures position.
The Fund is also required to deposit and maintain margin with respect
to put and call options on futures contracts written by it. Such margin deposits
will vary depending on the nature of the underlying futures contract (and the
related initial margin requirements), the current market value of the option,
and other futures positions held by the Fund.
Although some futures contracts call for making or taking delivery of
the underlying securities, generally these obligations are closed out prior to
delivery of offsetting purchases or sales of matching futures contracts (same
exchange, underlying security or index, and delivery month). If an offsetting
purchase price is less than the original sale price, the Fund generally realizes
a capital gain, or if it is more, the Fund generally realizes a capital loss.
Conversely, if an offsetting sale price is more than the original purchase
price, the Fund generally realizes a capital gain, or if it is less, the Fund
generally realizes a capital loss.
The transaction costs must also be included in these calculations.
When purchasing a futures contract, the Fund will maintain with its
Custodian (and mark-to-market on a daily basis) cash or liquid securities that,
when added to the amounts deposited with a futures commission merchant ("FCM")
as margin, are equal to the market value of the futures contract. Alternatively,
the Fund may "cover" its position by purchasing a put option on the same futures
contract with a strike price as high as or higher than the price of the contract
held by the Fund, or, if lower, may cover the difference with cash or short-term
securities.
When selling a futures contract, the Fund will maintain with its
Custodian in a segregated account (and mark-to-market on a daily basis) cash or
liquid securities that, when added to the amounts deposited with an FCM as
margin, are equal to the market value of the instruments underlying the
contract. Alternatively, the Fund may "cover" its position by owning the
instruments underlying the contract (or, in the case of an index futures
contract, a portfolio with a volatility substantially similar to that of the
index on which the futures contract is based), or by holding a call option
permitting the Fund to purchase the same futures contract at a price no higher
than the price of the contract written by the Fund (or at a higher price if the
difference is maintained in liquid assets with the Fund's custodian).
When selling a call option on a futures contract, the Fund will
maintain with its Custodian in a segregated account (and mark-to-market on a
daily basis) cash or liquid securities that, when added to the amounts deposited
with an FCM as margin, equal the total market value of the futures contract
underlying the call option. Alternatively, the Fund may cover its position by
entering into a long position in the same futures contract at a price no higher
than the strike price of the call option, by owning the instruments underlying
the futures contract, or by holding a separate call option permitting the Fund
to purchase the same futures contract at a price not higher than the strike
price of the call option sold by the Fund, or covering the difference if the
price is higher.
When selling a put option on a futures contract, the Fund will maintain
with its Custodian (and mark-to-market on a daily basis) cash or liquid
securities that equal the purchase price of the futures contract less any margin
on deposit. Alternatively, the Fund may cover the position either by entering
into a short position in the same futures contract, or by owning a separate put
option permitting it to sell the same futures contract so long as the strike
price of the purchased put option is the same or higher than the strike price of
the put option sold by the Fund, or, if lower, the Fund may hold securities to
cover the difference.
FOREIGN CURRENCY FUTURES CONTRACTS AND RELATED OPTIONS. The Fund may
engage in foreign currency futures contracts and related options transactions
for hedging purposes. A foreign currency futures contract provides for the
future sale by one party and purchase by another party of a specified quantity
of a foreign currency at a specified price and time.
An option on a foreign currency futures contract gives the holder the
right, in return for the premium paid, to assume a long position (call) or short
position (put) in a futures contract at a specified exercise price at any time
during the period of the option. Upon the exercise of a call option, the holder
acquires a long position in the futures contract and the writer is assigned the
opposite short position. In the case of a put option, the opposite is true.
The Fund may purchase call and put options on foreign currencies as a
hedge against changes in the value of the U.S. dollar (or another currency) in
relation to a foreign currency in which portfolio securities of the Fund may be
denominated. A call option on a foreign currency gives the buyer the right to
buy, and a put option the right to sell, a certain amount of foreign currency at
a specified price during a fixed period of time. The Fund may invest in options
on foreign currency which are either listed on a domestic securities exchange or
traded on a recognized foreign exchange.
In those situations where foreign currency options may not be readily
purchased (or where such options may be deemed illiquid) in the currency in
which the hedge is desired, the hedge may be obtained by purchasing an option on
a "surrogate" currency, i.e., a currency where there is tangible evidence of a
direct correlation in the trading value of the two currencies. A surrogate
currency's exchange rate movements parallel that of the primary currency.
Surrogate currencies are used to hedge an illiquid currency risk, when no liquid
hedge instruments exist in world currency markets for the primary currency.
The Fund will only enter into futures contracts and futures options
which are standardized and traded on a U.S. or foreign exchange, board of trade,
or similar entity or quoted on an automated quotation system. The Fund will not
enter into a futures contract or purchase an option thereon if, immediately
thereafter, the aggregate initial margin deposits for futures contracts held by
the Fund plus premiums paid by it for open futures option positions, less the
amount by which any such positions are "in-the-money," would exceed 5% of the
liquidation value of the Fund's portfolio (or the Fund's net asset value), after
taking into account unrealized profits and unrealized losses on any such
contracts the Fund has entered into. A call option is "in-the-money" if the
value of the futures contract that is the subject of the option exceeds the
exercise price. A put option is "in-the-money" if the exercise price exceeds the
value of the futures contract that is the subject of the option. For additional
information about margin deposits required with respect to futures contracts and
options thereon, see "Futures Contracts and Options on Futures Contracts."
RISKS ASSOCIATED WITH FUTURES AND RELATED OPTIONS. There can be no
guarantee that there will be a correlation between price movements in the
hedging vehicle and in the Fund's portfolio securities being hedged. In
addition, there are significant differences between the securities and futures
markets that could result in an imperfect correlation between the markets,
causing a given hedge not to achieve its objectives. The degree of imperfection
of correlation depends on circumstances such as variations in speculative market
demand for futures and futures options on securities, including technical
influences in futures trading and futures options, and differences between the
financial instruments being hedged and the instruments underlying the standard
contracts available for trading in such respects as interest rate levels,
maturities, and creditworthiness of issuers. A decision as to whether, when and
how to hedge involves the exercise of skill and judgment, and even a
well-conceived hedge may be unsuccessful to some degree because of market
behavior or unexpected interest rate trends.
Futures exchanges may limit the amount of fluctuation permitted in
certain futures contract prices during a single trading day. The daily limit
establishes the maximum amount that the price of a futures contract may vary
either up or down from the previous day's settlement price at the end of the
current trading session. Once the daily limit has been reached in a futures
contract subject to the limit, no more trades may be made on that day at a price
beyond that limit. The daily limit governs only price movements during a
particular trading day and therefore does not limit potential losses because the
limit may work to prevent the liquidation of unfavorable positions. For example,
futures prices have occasionally moved to the daily limit for several
consecutive trading days with little or no trading, thereby preventing prompt
liquidation of positions and subjecting some holders of futures contracts to
substantial losses.
There can be no assurance that a liquid market will exist at a time
when the Fund seeks to close out a futures or a futures option position, and the
Fund would remain obligated to meet margin requirements until the position is
closed. In addition, there can be no assurance that an active secondary market
will continue to exist.
Currency futures contracts and options thereon may be traded on foreign
exchanges. Such transactions may not be regulated as effectively as similar
transactions in the United States; may not involve a clearing mechanism and
related guarantees; and are subject to the risk of governmental actions
affecting trading in, or the prices of, foreign securities. The value of such
position also could be adversely affected by (i) other complex foreign
political, legal and economic factors, (ii) lesser availability than in the
United States of data on which to make trading decisions, (iii) delays in the
Fund's ability to act upon economic events occurring in foreign markets during
non business hours in the United States, (iv) the imposition of different
exercise and settlement terms and procedures and margin requirements than in the
United States, and (v) lesser trading volume.
SECURITIES INDEX FUTURES CONTRACTS
The Fund may enter into securities index futures contracts as an
efficient means of regulating the Fund's exposure to the equity markets. The
Fund will not engage in transactions in futures contracts for speculation, but
only as a hedge against changes resulting from market conditions in the values
of securities held in the Fund's portfolio or which it intends to purchase. An
index futures contract is a contract to buy or sell units of an index at a
specified future date at a price agreed upon when the contract is made. Entering
into a contract to buy units of an index is commonly referred to as purchasing a
contract or holding a long position in the index. Entering into a contract to
sell units of an index is commonly referred to as selling a contract or holding
a short position. The value of a unit is the current value of the stock index.
For example, the S&P 500 Index is composed of 500 selected common stocks, most
of which are listed on the New York Stock Exchange (the "Exchange"). The S&P 500
Index assigns relative weightings to the 500 common stocks included in the
Index, and the Index fluctuates with changes in the market values of the shares
of those common stocks. In the case of the S&P 500 Index, contracts are to buy
or sell 500 units. Thus, if the value of the S&P 500 Index were $150, one
contract would be worth $75,000 (500 units x $150). The index futures contract
specifies that no delivery of the actual securities making up the index will
take place. Instead, settlement in cash must occur upon the termination of the
contract, with the settlement being the difference between the contract price
and the actual level of the stock index at the expiration of the contract. For
example, if the Fund enters into a futures contract to buy 500 units of the S&P
500 Index at a specified future date at a contract price of $150 and the S&P 500
Index is at $154 on that future date, the Fund will gain $2,000 (500 units x
gain of $4). If the Fund enters into a futures contract to sell 500 units of the
stock index at a specified future date at a contract price of $150 and the S&P
500 Index is at $154 on that future date, the Fund will lose $2,000 (500 units x
loss of $4).
RISKS OF SECURITIES INDEX FUTURES. The Fund's success in using hedging
techniques depends, among other things, on IMI's ability to predict correctly
the direction and volatility of price movements in the futures and options
markets as well as in the securities markets and to select the proper type, time
and duration of hedges. The skills necessary for successful use of hedges are
different from those used in the selection of individual stocks.
The Fund's ability to hedge effectively all or a portion of its
securities through transactions in index futures (and therefore the extent of
its gain or loss on such transactions) depends on the degree to which price
movements in the underlying index correlate with price movements in the Fund's
securities. Inasmuch as such securities will not duplicate the components of an
index, the correlation probably will not be perfect. Consequently, the Fund will
bear the risk that the prices of the securities being hedged will not move in
the same amount as the hedging instrument. This risk will increase as the
composition of the Fund's portfolio diverges from the composition of the hedging
instrument.
Although the Fund intends to establish positions in these instruments
only when there appears to be an active market, there is no assurance that a
liquid market will exist at a time when the Fund seeks to close a particular
option or futures position. Trading could be interrupted, for example, because
of supply and demand imbalances arising from a lack of either buyers or sellers.
In addition, the futures exchanges may suspend trading after the price has risen
or fallen more than the maximum amount specified by the exchange. In some cases,
the Fund may experience losses as a result of its inability to close out a
position, and it may have to liquidate other investments to meet its cash needs.
Although some index futures contracts call for making or taking
delivery of the underlying securities, generally these obligations are closed
out prior to delivery by offsetting purchases or sales of matching futures
contracts (same exchange, underlying security or index, and delivery month). If
an offsetting purchase price is less than the original sale price, the Fund
generally realizes a capital gain, or if it is more, the Fund generally realizes
a capital loss. Conversely, if an offsetting sale price is more than the
original purchase price, the Fund generally realizes a capital gain, or if it is
less, the Fund generally realizes a capital loss.
The transaction costs must also be included in these calculations.
The Fund will only enter into index futures contracts or futures
options that are standardized and traded on a U.S. or foreign exchange or board
of trade, or similar entity, or quoted on an automated quotation system. The
Fund will use futures contracts and related options only for "bona fide hedging"
purposes, as such term is defined in applicable regulations of the CFTC.
When purchasing an index futures contract, the Fund will maintain with
its Custodian (and mark-to-market on a daily basis) cash or liquid securities
that, when added to the amounts deposited with a futures commission merchant
("FCM") as margin, are equal to the market value of the futures contract.
Alternatively, the Fund may "cover" its position by purchasing a put option on
the same futures contract with a strike price as high as or higher than the
price of the contract held by the Fund.
When selling an index futures contract, the Fund will maintain with its
Custodian (and mark-to-market on a daily basis) cash or liquid securities that,
when added to the amounts deposited with an FCM as margin, are equal to the
market value of the instruments underlying the contract. Alternatively, the Fund
may "cover" its position by owning the instruments underlying the contract (or,
in the case of an index futures contract, a portfolio with a volatility
substantially similar to that of the index on which the futures contract is
based), or by holding a call option permitting the Fund to purchase the same
futures contract at a price no higher than the price of the contract written by
the Fund (or at a higher price if the difference is maintained in cash or liquid
assets in a segregated account with the Fund's custodian).
COMBINED TRANSACTIONS. The Fund may enter into multiple transactions,
including multiple options transactions, multiple futures transactions and
multiple currency transactions (including forward currency contracts) and some
combination of futures, options, and currency transactions ("component"
transactions), instead of a single transaction, as part of a single or combined
strategy when, in the opinion of IMI, it is in the best interests of the Fund to
do so. A combined transaction will usually contain elements of risk that are
present in each of its component transactions. Although combined transactions
are normally entered into based on IMI's judgment that the combined strategies
will reduce risk or otherwise more effectively achieve the desired portfolio
management goal, it is possible that the combination will instead increase such
risks or hinder achievement of the management objective.
INVESTMENT RESTRICTIONS
The Fund's investment objectives as set forth in the "Summary" section
of the Prospectus, together with the investment restrictions set forth below,
are fundamental policies of the Fund and may not be changed without the approval
of a majority of the outstanding voting shares of the Fund. Under these
restrictions, the Fund may not:
(i) Invest in real estate, real estate mortgage loans, commodities
or interests in oil, gas and/or mineral exploration or
development programs, although (a) the Fund may purchase and
sell marketable securities of issuers which are secured by
real estate, (b) the Fund may purchase and sell securities of
issuers which invest or deal in real estate, (c) the Fund may
enter into forward foreign currency contracts as described in
the Fund's prospectus, and (d) the Fund may write or buy puts,
calls, straddles or spreads and may invest in commodity
futures contracts and options on futures contracts.
(ii) Make investments in securities for the purpose of exercising control over
or management of the issuer;
(iii) Purchase securities on margin, except such short-term credits
as are necessary for the clearance of transactions, but the
Fund may make margin deposits in connection with transactions
in options, futures and options on futures;
(iv) Make loans, except that this restriction shall not prohibit
(a) the purchase and holding of a portion of an issue of
publicly distributed debt securities, (b) the entry into
repurchase agreements with banks or broker-dealers, or (c) the
lending of portfolio securities in accordance with applicable
guidelines established by the Securities and Exchange
Commission ("SEC") and any guidelines established by the
Trust's Trustees;
(v) Borrow money, except as a temporary measure for extraordinary
or emergency purposes, and provided that the Fund maintains
asset coverage of 300% for all borrowings;
(vi) Purchase securities of any one issuer (except U.S. Government
securities) if as a result more than 5% of the Fund's total
assets would be invested in such issuer or the Fund would own
or hold more than 10% of the outstanding voting securities of
that issuer; provided, however, that up to 25% of the value of
the Fund's total assets may be invested without regard to
these limitations;
(vii) Make an investment in securities of companies in any one
industry (except obligations of domestic banks or the U.S.
Government, its agencies, authorities, or instrumentalities),
if such investment would cause investments in such industry to
exceed 25% of the market value of the Fund's total assets at
the time of such investment;
(viii) Act as an underwriter of securities, except to the extent
that, in connection with the sale of securities, it may be
deemed to be an underwriter under applicable securities laws;
or
(ix) Issue senior securities, except as appropriate to evidence
indebtedness which it is permitted to incur, and except to the
extent that shares of the separate classes or series of the
Trust may be deemed to be senior securities; provided that
collateral arrangements with respect to currency-related
contracts, futures contracts, options or other permitted
investments, including deposits of initial and variation
margin, are not considered to be the issuance of senior
securities for purposes of this restriction.
ADDITIONAL RESTRICTIONS
The Fund has adopted the following additional restrictions, which are
not fundamental and which may be changed without shareholder approval, to the
extent permitted by applicable law, regulation or regulatory policy.
Under these restrictions, the Fund may not:
(i) purchase or sell real estate limited partnership interests;
(ii) purchase or sell interests in oil, gas and mineral leases
(other than securities of companies that invest in or sponsor
such programs);
(iii) invest more than 15% of its net assets taken at market value at the
time of the investment in "illiquid securities." Illiquid securities may include
securities subject to legal or contractual restrictions on resale (including
private placements), repurchase agreements maturing in more than seven days,
certain options traded over the counter that the Fund has purchased, securities
being used to cover certain options that the Fund has written, securities for
which market quotations are not readily available, or other securities which
legally or in IMI's opinion, subject to the Board's supervision, may be deemed
illiquid, but shall not include any instrument that, due to the existence of a
trading market, to the Fund's compliance with certain conditions intended to
provide liquidity, or to other factors, is liquid;
(iv) purchase securities of other investment companies, except in
connection with a merger, consolidation or sale of assets, and
except that it may purchase shares of other investment
companies subject to such restrictions as may be imposed by
the Investment Company Act of 1940 and rules thereunder;
(v) sell securities short, except for short sales "against the box;" or
(vi) participate on a joint or a joint and several basis in any
trading account in securities. The "bunching" of orders of the
Fund and of other accounts under the investment management of
the Fund's Investment Manager, for the sale or purchase of
portfolio securities shall not be considered participation in
a joint securities trading account.
Whenever an investment objective, policy or restriction set forth in
the Prospectus or this SAI states a maximum percentage of assets that may be
invested in any security or other asset or describes a policy regarding quality
standards, such percentage limitation or standard shall, unless otherwise
indicated, apply to the Fund only at the time a transaction is entered into.
Accordingly, if a percentage limitation is adhered to at the time of investment,
a later increase or decrease in the percentage which results from circumstances
not involving any affirmative action by the Fund, such as a change in market
conditions or a change in the Fund's asset level or other circumstances beyond
the Fund's control, will not be considered a violation.
PORTFOLIO TURNOVER
The Fund purchases securities that are believed by IMI to have above
average potential for capital appreciation. Common stocks are disposed of in
situations where it is believed that potential for such appreciation has
lessened or that other common stocks have a greater potential. Therefore, the
Fund may purchase and sell securities without regard to the length of time the
security is to be, or has been, held. A change in securities held by the Fund is
known as "portfolio turnover" and may involve the payment by the Fund of dealer
markup or underwriting commission and other transaction costs on the sale of
securities, as well as on the reinvestment of the proceeds in other securities.
The Fund's portfolio turnover rate is calculated by dividing the lesser of
purchases or sales of portfolio securities for the most recently completed
fiscal year by the monthly average of the value of the portfolio securities
owned by the Fund during that year. For purposes of determining the Fund's
portfolio turnover rate, all securities whose maturities at the time of
acquisition were one year or less are excluded.
TRUSTEES AND OFFICERS
The Fund's Board of Trustees (the "Board") is responsible for the
overall management of the Fund, including general supervision and review of the
Fund's investment activities. The Board, in turn, elects the officers who are
responsible for administering the Fund's day-to-day operations.
The Trustees and Executive Officers of the Trust, their business
addresses and principal occupations during the past five years are:
POSITION WITH BUSINESS AFFILIATIONS
NAME, ADDRESS, AGE THE TRUST AND PRINCIPAL OCCUPATIONS
John S. Anderegg, Jr. Trustee Chairman, Dynamics Research
60 Concord Street Corp. (instruments and controls);
Wilmington, MA 01887 Director, Burr-Brown Corp.
Age: 74 (operational amplifiers); Director,
Metritage Incorporated (level
measuring instruments); Trustee of
Mackenzie Series Trust (1992-1998).
Paul H. Broyhill Trustee Chairman, BMC Fund, Inc.
800 Hickory Blvd. (1983-present); Chairman,
Golfview Park-Box 500 Broyhill Family Foundation,
Lenoir, NC 28645 Inc. (1983-Present); Chairman and
Age: 74 President, Broyhill Investments,
Inc. (1983-present); Chairman,
Broyhill Timber Resources (1983-
present); Management of a personal
portfolio of fixed-income and equity
investments (1983-present); Trustee
of Mackenzie Series Trust (1988-
1998); Director of The Mackenzie
Funds Inc. (1988-1995).
Stanley Channick Trustee President and Chief
11 Bala Avenue Executive Officer, The
Bala Cynwyd, PA 19004 Whitestone Corporation
Age: 75 (insurance agency); Chairman, Scott
Management Company (administrative
services for insurance companies);
President, The Channick Group
(consultants to insurance companies
and national trade associations);
Trustee of Mackenzie Series Trust
(1994-1998); Director of The
Mackenzie Funds Inc. (1994-1995).
Frank W. DeFriece, Jr. Trustee Director, Manager and Vice
The Landmark Centre President, Director and
113 Landmark Lane, Fund Manager, Massengill-
Suite B DeFriece Foundation
Bristol, TN 37620-2285 (charitable organization)
Age: 77 (1950-present); Trustee and Vice
Chairman, East Tennessee Public
Communications Corp. (WSJK-TV)
(1984-present); Trustee of Mackenzie
Series Trust (1985-1998); Director
of The Mackenzie Funds Inc. (1987-
1995).
Roy J. Glauber Trustee Mallinckrodt Professor of
Lyman Laboratory Physics, Harvard
of Physics University (1974-present);
Harvard University Trustee of Mackenzie Series
Cambridge, MA 02138 Trust (1994-1997).
Age: 72
Michael G. Landry Trustee President, Chief Executive
700 South Federal Hwy. And Officer and Director of
Suite 300 Chairman Mackenzie Investment
Boca Raton, FL 33432 Management Inc. (1987-
Age: 51 present); President,
[*Deemed to be an Director and Chairman of
"interested person" Ivy Management Inc. (1992-
of the Trust, as present); Chairman and
defined under the Director of Ivy Mackenzie
1940 Act.] Services Corp.(1993-present);
Chairman and Director of Ivy
Mackenzie Distributors, Inc.
(1994-present); Director and
President of Ivy Mackenzie
Distributors, Inc. (1993-1994);
Director and President of The
Mackenzie Funds Inc. (1987-1995);
Trustee of Mackenzie Series Trust
(1987-1998); President of Mackenzie
Series Trust (1987-1996); Chairman
of Mackenzie Series Trust (1996-
1998).
Joseph G. Rosenthal Trustee Chartered Accountant
110 Jardin Drive (1958-present); Trustee of
Unit #12 Mackenzie Series Trust
Concord, Ontario Canada (1985-1998); Director of
L4K 2T7 The Mackenzie Funds Inc.
Age: 63 (1987-1995).
Richard N. Silverman Trustee Director, Newton-Wellesley
18 Bonnybrook Road Hospital; Director, Beth
Waban, MA 02168 Israel Hospital; Director,
Age: 74 Boston Ballet; Director, Boston
Children's Museum; Director, Brimmer
and May School.
J. Brendan Swan Trustee President, Airspray
4701 North Federal Hwy. International, Inc.;
Suite 465 Joint Managing Director,
Pompano Beach, FL 33064 Airspray International
Age: 67 B.V. (an environmentally sensitive
packaging company); Director of
Polyglass LTD.; Director, The
Mackenzie Funds Inc. (1992-1995);
Trustee of Mackenzie Series Trust
(1992-1998).
Keith J. Carlson Trustee Senior Vice President of Mackenzie
700 South Federal Hwy. And Investment Management, Inc. (1996 -
Suite 300 President -present); Senior Vice President and
Boca Raton, FL 33432 Director of Mackenzie Investment
Age: 41 Management, Inc. (1994 - 1996);
[*Deemed to be an Senior Vice President and Treasurer
"interested person" of Mackenzie Investment Management,
of the Trust, Inc. (1989-1994); Senior Vice President
as defined under President and Director of Ivy
the 1940 Act.] Management Inc. (1994-present);
Senior Vice President, Treasurer and
Director of Ivy Management Inc.
(1992-1994); Vice President of The
Mackenzie Funds Inc. (1987-1995);
Senior Vice President and Director,
Ivy Mackenzie Services Corp. (1996-
present); President and Director of
Ivy Mackenzie Services Corp. (1993-
1996); Trustee and President of
Mackenzie Series Trust (1996-1998);
Vice President of Mackenzie Series
Trust (1994-1998); Treasurer of
Mackenzie Series Trust (1985-1994);
President, Chief Executive Officer
and Director of Ivy Mackenzie
Distributors, Inc. (1994-present);
Executive Vice President and
Director of Ivy Mackenzie
Distributors, Inc. (1993-1994);
Trustee of Mackenzie Series Trust
(1996-1998).
C. William Ferris Secretary/ Senior Vice President,
700 South Federal Hwy. Treasurer Chief Financial Officer
Suite 300 and Secretary/Treasurer
Boca Raton, FL 33432 of Mackenzie Investment
Age: 53 Management Inc. (1995-present);
Senior Vice President, Finance and
Administration/Compliance Officer of
Mackenzie Investment Management Inc.
(1989-1994); Senior Vice President,
Secretary/ Treasurer and Clerk of
Ivy Management Inc. (1994-present);
Vice President, Finance/
Administration and Compliance
Officer of Ivy Management Inc.
(1992-1994); Senior Vice President,
Secretary/Treasurer and Director of
Ivy Mackenzie Distributors, Inc.
(1994-present); Secretary/Treasurer
and Director of Ivy Mackenzie
Distributors, Inc. (1993-1994);
President and Director of Ivy
Mackenzie Services Corp.
(1996-present); Secretary/Treasurer
and Director of Ivy Mackenzie
Services Corp. (1993-1996);
Secretary/Treasurer
of The Mackenzie Funds Inc.
(1993-1995); Secretary/Treasurer of
Mackenzie Series Trust (1994-1998).
James W. Broadfoot Vice Executive Vice President,
700 South Federal Hwy. President Ivy Management Inc. (1996-
Suite 300 present); Senior Vice
Boca Raton, FL 33432 President, Ivy Management,
Age: 56 Inc. (1992-1996); Director and
Senior Vice President, Mackenzie
Investment Management Inc. (1995-
present); Senior Vice President,
Mackenzie Investment Management Inc.
(1990-1995).
COMPENSATION TABLE
IVY FUND
(FISCAL YEAR ENDED DECEMBER 31, 1998)
PENSION OR TOTAL COMPENSA-
AGGREGATE RETIREMENT ESTIMATED TION FROM TRUST
NAME, COMPENSATION BENEFITS ACCRUED ANNUAL AND FUND
POSITION FROM TRUST AS PART OF BENEFITS UPON COMPLEX PAID TO
FUND EXPENSES RETIREMENT TRUSTEES
John S. N/A N/A
Anderegg, Jr.
(Trustee)
Paul H. N/A N/A
Broyhill
(Trustee)
Keith J. $0 N/A N/A $0
Carlson
(Trustee and
President)
Stanley N/A N/A
Channick
(Trustee)
Frank W. N/A N/A
DeFriece, Jr.
(Trustee)
Roy J. N/A N/A
Glauber
(Trustee)
Michael G. $0 N/A N/A $0
Landry
(Trustee and
Chairman of
the Board)
Joseph G. N/A N/A
Rosenthal
(Trustee)
Richard N. N/A N/A
Silverman
(Trustee)
J. Brendan N/A N/A
Swan
(Trustee)
C. William $0 N/A N/A $0
Ferris
(Secretary/
Treasurer)
To the knowledge of the Trust, as of [ ], no shareholder owned
beneficially or of record 5% or more of the Fund's outstanding shares of any
class, except that [to be completed by amendment].
As of [ ], the Officers and Trustees of the Trust as a group owned
beneficially or of record less than 1% of the outstanding Class A, Class B,
Class C, and Advisor Class shares of the Fund.
PERSONAL INVESTMENTS BY EMPLOYEES OF IMI. Employees of IMI are
permitted to make personal securities transactions, subject to the requirements
and restrictions set forth in IMI's Code of Ethics and Business Conduct Policy
(the "Code of Ethics"). The Code of Ethics is designed to identify and address
certain conflicts of interest between personal investment activities and the
interests of investment advisory clients such as the Fund. Among other things,
the Code of Ethics, which generally complies with standards recommended by the
Investment Company Institute's Advisory Group on Personal Investing, prohibits
certain types of transactions absent prior approval, applies to portfolio
managers, traders, research analysts and others involved in the investment
advisory process, and imposes time periods during which personal transactions
may not be made in certain securities, and requires the submission of duplicate
broker confirmations and monthly reporting of securities transactions.
Exceptions to these and other provisions of the Code of Ethics may be granted in
particular circumstances after review by appropriate personnel.
INVESTMENT ADVISORY AND OTHER SERVICES
BUSINESS MANAGEMENT AND INVESTMENT ADVISORY SERVICES
IMI provides business management and investment advisory services to
the Fund pursuant to a Business Management and Investment Advisory Agreement
(the "Agreement"). The Agreement was approved by the sole shareholder of the
Fund on April 30, 1997. Prior to shareholder approval, the Agreement was
approved with respect to the Fund by the Board, including a majority of the
Trustees who are neither "interested persons" (as defined in the 1940 Act) of
the Trust nor have any direct or indirect financial interest in the operation of
the distribution plan (see "Distribution Services") or in any related agreement
(the "Independent Trustees") at a meeting held on February 8, 1997.
IMI is a wholly owned subsidiary of Mackenzie Investment Management
Inc. ("MIMI"). MIMI, a Delaware corporation, has approximately 10% of its
outstanding common stock listed for trading on the Toronto Stock Exchange
("TSE"). MIMI is a subsidiary of Mackenzie Financial Corporation ("MFC"), 150
Bloor Street West, Toronto, Ontario, Canada, a public corporation organized
under the laws of Ontario whose shares are listed for trading on the TSE. MFC is
registered in Ontario as a mutual fund dealer and advises Ivy Global Natural
Resources Fund. IMI currently acts as manager and investment adviser to the
following additional investment companies registered under the 1940 Act (other
than the Fund): Ivy Asia Pacific Fund, Ivy Bond Fund, Ivy China Region Fund, Ivy
Developing Nations Fund, Ivy European Opportunities Fund, Ivy Global Fund, Ivy
Global Science & Technology Fund, Ivy Growth Fund, Ivy Growth with Income Fund,
Ivy International Fund II, Ivy International Fund, Ivy International Small
Companies Fund, Ivy International Strategic Bond Fund, Ivy Money Market Fund,
Ivy South America Fund, Ivy US Blue Chip Fund, and Ivy US Emerging Growth Fund.
IMI also provides business management services to Ivy Global Natural Resource
Fund.
The Agreement obligates IMI to make investments for the account of the
Fund in accordance with its best judgment and within the investment objectives
and restrictions set forth in the Prospectus, the 1940 Act and the provisions of
the Code relating to regulated investment companies, subject to policy decisions
adopted by the Board. IMI also determines the securities to be purchased or sold
by the Fund and places orders with brokers or dealers who deal in such
securities.
Under the Agreement, IMI also provides certain business management
services. IMI is obligated to (1) coordinate with the Fund's Custodian and
monitor the services it provides to the Fund; (2) coordinate with and monitor
any other third parties furnishing services to the Fund; (3) provide the Fund
with necessary office space, telephones and other communications facilities as
are adequate for the Fund's needs; (4) provide the services of individuals
competent to perform administrative and clerical functions that are not
performed by employees or other agents engaged by the Fund or by IMI acting in
some other capacity pursuant to a separate agreement or arrangements with the
Fund; (5) maintain or supervise the maintenance by third parties of such books
and records of the Trust as may be required by applicable Federal or state law;
(6) authorize and permit IMI's directors, officers and employees who may be
elected or appointed as trustees or officers of the Trust to serve in such
capacities; and (7) take such other action with respect to the Trust, after
approval by the Trust as may be required by applicable law, including without
limitation the rules and regulations of the SEC and of state securities
commissions and other regulatory agencies.
The Fund pays IMI a monthly fee for providing business management and
investment advisory services at an annual rate of 1.00% of the Fund's average
net assets.
During the period from May 13, 1997 (commencement of operations) to
December 31, 1997 and the fiscal year ended December 31, 1998, the Fund paid IMI
fees of $1,974 and [ ], respectively (of which IMI reimbursed $1,974 and [ ],
respectively, pursuant to expense limitations).
Under the Agreement, the Trust pays the following expenses: (1) the
fees and expenses of the Trust's Independent Trustees; (2) the salaries and
expenses of any of the Trust's officers or employees who are not affiliated with
IMI; (3) interest expenses; (4) taxes and governmental fees, including any
original issue taxes or transfer taxes applicable to the sale or delivery of
shares or certificates therefor; (5) brokerage commissions and other expenses
incurred in acquiring or disposing of portfolio securities; (6) the expenses of
registering and qualifying shares for sale with the SEC and with various state
securities commissions; (7) accounting and legal costs; (8) insurance premiums;
(9) fees and expenses of the Trust's Custodian and Transfer Agent and any
related services; (10) expenses of obtaining quotations of portfolio securities
and of pricing shares; (11) expenses of maintaining the Trust's legal existence
and of shareholders' meetings; (12) expenses of preparation and distribution to
existing shareholders of periodic reports, proxy materials and prospectuses; and
(13) fees and expenses of membership in industry organizations.
IMI currently limits the Fund's total operating expenses (excluding
Rule 12b-1 fees, interest, taxes, brokerage commissions, litigation,
class-specific expenses, indemnification expenses, and extraordinary expenses)
to an annual rate of 1.95% of the Fund's average net assets, which may lower the
Fund's expenses and increase its yield.
The Agreement will continue in effect with respect to the Fund from
year to year, only so long as the continuance is specifically approved at least
annually (i) by the vote of a majority of the Independent Trustees and (ii)
either (a) by the vote of a majority of the outstanding voting securities (as
defined in the 1940 Act) of the Fund or (b) by the vote of a majority of the
entire Board. If the question of continuance of the Agreement (or adoption of
any new agreement) is presented to the shareholders, continuance (or adoption)
shall be effected only if approved by the affirmative vote of a majority of the
outstanding voting securities of the Fund. See "Capitalization and Voting
Rights."
The Agreement may be terminated with respect to the Fund at any time,
without payment of any penalty, by the vote of a majority of the Board, or by a
vote of a majority of the outstanding voting securities of the Fund, on 60 days'
written notice to IMI, or by IMI on 60 days' written notice to the Trust. The
Agreement shall terminate automatically in the event of its assignment.
DISTRIBUTION SERVICES
IMDI, a wholly owned subsidiary of MIMI, serves as the exclusive
distributor of Ivy Fund's shares pursuant to an Amended and Restated
Distribution Agreement with the Trust dated , 1999, as amended from time to time
(the "Distribution Agreement"). The Distribution Agreement was approved by the
Board on September 17, 1998. IMDI distributes shares of the Fund through
broker-dealers who are members of the National Association of Securities
Dealers, Inc. and who have executed dealer agreements with IMDI. IMDI
distributes shares of the Fund on a continuous basis, but reserves the right to
suspend or discontinue distribution on that basis. IMDI is not obligated to sell
any specific amount of Fund shares.
Pursuant to the Distribution Agreement, IMDI is entitled to deduct a
commission on all Class A Fund shares sold equal to the difference, if any,
between the public offering price, as set forth in the Fund's then-current
prospectus, and the net asset value on which such price is based. Out of that
commission, IMDI may reallow to dealers such concession as IMDI may determine
from time to time. In addition, IMDI is entitled to deduct a CDSC on the
redemption of Class A shares sold without an initial sales charge and Class B
and Class C shares, in accordance with, and in the manner set forth in, the
Prospectus.
Under the Distribution Agreement, the Fund bears, among other expenses,
the expenses of registering and qualifying its shares for sale under Federal and
state securities laws and preparing and distributing to existing shareholders
periodic reports, proxy materials and prospectuses.
During the fiscal year ended December 31, 1998, IMDI received from
sales of Class A shares of the Fund [ ] in sales commissions, of which [ ] was
retained after dealer allowances. During the fiscal year ended December 31,
1998, IMDI received [ ] in CDSCs on redemptions of Class B shares of the Fund.
During the fiscal year ended December 31, 1998, IMDI received [ ] in CDSCs on
redemptions of Class C shares of the Fund.
The Distribution Agreement will continue in effect for successive
one-year periods, provided that such continuance is specifically approved at
least annually by the vote of a majority of the Independent Trustees, cast in
person at a meeting called for that purpose and by the vote of either a majority
of the entire Board or a majority of the outstanding voting securities of the
Fund. The Distribution Agreement may be terminated with respect to the Fund at
any time, without payment of any penalty, by IMDI on 60 days' written notice to
the Fund or by the Fund by vote of either a majority of the outstanding voting
securities of the Fund or a majority of the Independent Trustees on 60 days'
written notice to IMDI. The Distribution Agreement shall terminate automatically
in the event of its assignment.
RULE 18F-3 PLAN. On February 23, 1995, the SEC adopted Rule 18f-3 under
the 1940 Act, which permits a registered open-end investment company to issue
multiple classes of shares in accordance with a written plan approved by the
investment company's board of directors/trustees and filed with the SEC. At a
meeting held on February 8, 1997, the Board adopted a Rule 18f-3 plan on behalf
of the Fund. The Board last approved the Rule 18f-3 plan at a meeting held of
December 5-6, 1997. The key features of the Rule 18f-3 plan are as follows: (i)
shares of each class of the Fund represent an equal pro rata interest in the
Fund and generally have identical voting, dividend, liquidation, and other
rights, preferences, powers, restrictions, limitations, qualifications, terms
and conditions, except that each class bears certain class-specific expenses and
has separate voting rights on certain matters that relate solely to that class
or in which the interests of shareholders of one class differ from the interests
of shareholders of another class; (ii) subject to certain limitations described
in the Prospectus, shares of a particular class of the Fund may be exchanged for
shares of the same class of another Ivy fund; and (iii) the Fund's Class B
shares will convert automatically into Class A shares of the Fund after a period
of eight years, based on the relative net asset value of such shares at the time
of conversion.
RULE 12B-1 DISTRIBUTION PLANS. The Trust has adopted on behalf of the
Fund, in accordance with Rule 12b-1 under the 1940 Act, separate Rule 12b-1
distribution plans pertaining to the Fund's Class A, Class B and Class C shares
(each, a "Plan"). In adopting each Plan, a majority of the Independent Trustees
have concluded in accordance with the requirements of Rule 12b-1 that there is a
reasonable likelihood that each Plan will benefit the Fund and its shareholders.
The Trustees of the Trust believe that the Plans should result in greater sales
and/or fewer redemptions of the Fund's shares, although it is impossible to know
for certain the level of sales and redemptions of the Fund's shares in the
absence of a Plan or under an alternative distribution arrangement.
Under each Plan, the Fund pays IMDI a service fee, accrued daily and
paid monthly, at the annual rate of up to 0.25% of the average daily net assets
attributable to its Class A, Class B or Class C shares, as the case may be. The
services for which service fees may be paid include, among other things,
advising clients or customers regarding the purchase, sale or retention of
shares of the Fund, answering routine inquiries concerning the Fund and
assisting shareholders in changing options or enrolling in specific plans.
Pursuant to each Plan, service fee payments made out of or charged against the
assets attributable to the Fund's Class A, Class B or Class C shares must be in
reimbursement for services rendered for or on behalf of the affected class. The
expenses not reimbursed in any one month may be reimbursed in a subsequent
month. The Class A Plan does not provide for the payment of interest or carrying
charges as distribution expenses.
Under the Fund's Class B and Class C Plans, the Fund also pays IMDI a
distribution fee, accrued daily and paid monthly, at the annual rate of 0.75% of
the average daily net assets attributable to its Class B or Class C shares. IMDI
may reallow to dealers all or a portion of the service and distribution fees as
IMDI may determine from time to time. The distribution fee compensates IMDI for
expenses incurred in connection with activities primarily intended to result in
the sale of the Fund's Class B or Class C shares, including the printing of
prospectuses and reports for persons other than existing shareholders and the
preparation, printing and distribution of sales literature and advertising
materials. Pursuant to each Class B and Class C Plan, IMDI may include interest,
carrying or other finance charges in its calculation of distribution expenses,
if not prohibited from doing so pursuant to an order of or a regulation adopted
by the SEC.
Among other things, each Plan provides that (1) IMDI will submit to the
Board at least quarterly, and the Trustees will review, written reports
regarding all amounts expended under the Plan and the purposes for which such
expenditures were made; (2) each Plan will continue in effect only so long as
such continuance is approved at least annually, and any material amendment
thereto is approved, by the votes of a majority of the Board, including the
Independent Trustees, cast in person at a meeting called for that purpose; (3)
payments by the Fund under each Plan shall not be materially increased without
the affirmative vote of the holders of a majority of the outstanding shares of
the relevant class; and (4) while each Plan is in effect, the selection and
nomination of Independent Trustees shall be committed to the discretion of the
Trustees who are not "interested persons" of the Trust.
IMDI may make payments for distribution assistance and for
administrative and accounting services from resources that may include the
management fees paid by the Fund. IMDI also may make payments (such as the
service fee payments described above) to unaffiliated broker-dealers for
services rendered in the distribution of the Fund's shares. To qualify for such
payments, shares may be subject to a minimum holding period. However, no such
payments will be made to any dealer or broker if at the end of each year the
amount of shares held does not exceed a minimum amount. The minimum holding
period and minimum level of holdings will be determined from time to time by
IMDI.
A report of the amount expended pursuant to each Plan, and the purposes
for which such expenditures were incurred, must be made to the Board for its
review at least quarterly.
During the fiscal year ended December 31, 1998, the Fund paid IMDI [ ]
pursuant to its Class A plan. During the fiscal year ended December 31, 1998 the
Fund paid IMDI [ ] pursuant to its Class B plan. During the fiscal year ended
December 31, 1998, the Fund paid IMDI [ ] pursuant to its Class C plan.
During the fiscal year ended December 31, 1998, IMDI expended the
following amounts in marketing Class A shares of the Fund: advertising [$ ;]
printing and mailing of prospectuses to persons other than current shareholders,
[$ ;] compensation to dealers, [$ ;] compensation to sales personnel [$ ;]
seminars and meetings, [$ ;] travel and entertainment, [$ ;] general and
administrative, [$ ;] telephone, [$ ;] and occupancy and equipment rental, [$ ]
During the fiscal year ended December 31, 1998, IMDI expended the
following amounts in marketing Class B shares of the Fund: advertising, [$ ;]
printing and mailing of prospectuses to persons other than current shareholders,
[$ ;] compensation to dealers, [$ ;] compensation to sales personnel, [$ ;]
seminars and meetings, [$ ;] travel and entertainment, [$ ;] general and
administrative, [$ ;] telephone, [$ ;] and occupancy and equipment rental [$ .]
During the fiscal year ended December 31, 1998, IMDI expended the
following amounts in marketing Class C shares of the Fund: advertising, [$ ;]
printing and mailing of prospectuses to persons other than current shareholders,
[$ ;] compensation to dealers, [$ ] compensation to sales personnel, [$ ;]
seminars and meetings, [$ ;] travel and entertainment, [$ ;] general
administrative, [$ ;] telephone, [$ ;] and occupancy and equipment rental, [$ .]
Each Plan may be amended at any time with respect to the class of
shares of the Fund to which the Plan relates by vote of the Trustees, including
a majority of the Independent Trustees, cast in person at a meeting called for
the purpose of considering such amendment. Each Plan may be terminated at any
time with respect to the class of shares of the Fund to which the Plan relates,
without payment of any penalty, by vote of a majority of the Independent
Trustees, or by vote of a majority of the outstanding voting securities of that
class.
If the Distribution Agreement or the Distribution Plans are terminated
(or not renewed) with respect to any of the Ivy funds (or class of shares
thereof), each may continue in effect with respect to any other fund (or Class
of shares thereof) as to which they have not been terminated (or have been
renewed).
CUSTODIAN
Pursuant to a Custodian Agreement with the Trust, Brown Brothers
Harriman & Co. (the "Custodian"), a private bank and member of the principal
securities exchanges, located at 40 Water Street, Boston, Massachusetts 02109
(the "Custodian"), maintains custody of the assets of the Fund held in the
United States. Rules adopted under the 1940 Act permit the Trust to maintain its
foreign securities and cash in the custody of certain eligible foreign banks and
securities depositories. Pursuant to those rules, the Custodian has entered into
subcustodial agreements for the holding of the Fund's foreign securities. With
respect to the Fund, the Custodian may receive, as partial payment for its
services to the Fund, a portion of the Trust's brokerage business, subject to
its ability to provide best price and execution.
FUND ACCOUNTING SERVICES
Pursuant to a Fund Accounting Services Agreement, MIMI provides certain
accounting and pricing services for the Fund. As compensation for those
services, the Fund pays MIMI a monthly fee plus out-of-pocket expenses as
incurred. The monthly fee is based upon the net assets of the Fund at the
preceding month end at the following rates: $1,250 when net assets are $10
million and under; $2,500 when net assets are over $10 million to $40 million;
$5,000 when net assets are over $40 million to $75 million; and $6,500 when net
assets are over $75 million.
During the fiscal year ended December 31, 1998, the Fund paid MIMI
[ ] under the agreement.
TRANSFER AGENT AND DIVIDEND PAYING AGENT
Pursuant to a Transfer Agency and Shareholder Service Agreement, Ivy
Mackenzie Service Corp. ("IMSC"), a wholly owned subsidiary of MIMI, is the
transfer agent for the Fund. Under the Agreement, the Fund pays a monthly fee at
an annual rate of $20.00 for each open Class A, Class B, Class C and Advisor
Class account. In addition, the Fund pays a monthly fee at an annual rate of
$4.58 per account that is closed plus certain out-of-pocket expenses. Such fees
and expenses for the fiscal year ended December 31, 1998 for the Fund totaled [$
]. Certain broker-dealers that maintain shareholder accounts with the Fund
through an omnibus account provide transfer agent and other shareholder-related
services that would otherwise be provided by IMSC if the individual accounts
that comprise the omnibus account were opened by their beneficial owners
directly. IMSC pays such broker-dealers a per account fee for each open account
within the omnibus account, or a fixed rate (e.g., 0.10%) fee, based on the
average daily net asset value of the omnibus account (or a combination thereof).
ADMINISTRATOR
Pursuant to an Administrative Services Agreement, MIMI provides certain
administrative services to the Fund. As compensation for these services, the
Fund pays MIMI a monthly fee at the annual rate of 0.10% of the Fund's average
daily net assets. Such fees for the fiscal year ended December 31, 1998 for the
Fund totaled [$ ].
Outside of providing administrative services to the Trust, as described
above, MIMI may also act on behalf of IMDI in paying commissions to
broker-dealers with respect to sales of Class B and Class C shares of the Fund.
AUDITORS
[ ], independent public accountants, has been selected as auditors for
the Trust. The audit services performed by [ ] include audits of the annual
financial statements of each of the funds of the Trust. Other services provided
principally relate to filings with the SEC and the preparation of the funds' tax
returns.
BROKERAGE ALLOCATION
Subject to the overall supervision of the President and the Board, IMI
places orders for the purchase and sale of the Fund's portfolio securities. All
portfolio transactions are effected at the best price and execution obtainable.
Purchases and sales of debt securities are usually principal transactions and
therefore, brokerage commissions are usually not required to be paid by the Fund
for such purchases and sales (although the price paid generally includes
undisclosed compensation to the dealer). The prices paid to underwriters of
newly-issued securities usually include a concession paid by the issuer to the
underwriter, and purchases of after-market securities from dealers normally
reflect the spread between the bid and asked prices. In connection with OTC
transactions, IMI attempts to deal directly with the principal market makers,
except in those circumstances where IMI believes that a better price and
execution are available elsewhere.
IMI selects broker-dealers to execute transactions and evaluates the
reasonableness of commissions on the basis of quality, quantity, and the nature
of the firms' professional services. Commissions to be charged and the rendering
of investment services, including statistical, research, and counseling services
by brokerage firms, are factors to be considered in the placing of brokerage
business. The types of research services provided by brokers may include general
economic and industry data, and information on securities of specific companies.
Research services furnished by brokers through whom the Trust effects securities
transactions may be used by IMI in servicing all of its accounts. In addition,
not all of these services may be used by IMI in connection with the services it
provides to the Fund or the Trust. IMI may consider sales of shares of Ivy funds
as a factor in the selection of broker-dealers and may select broker-dealers who
provide it with research services. IMI will not, however, execute brokerage
transactions other than at the best price and execution.
During the period from May 13, 1997 (commencement of operations) to
December 31, 1997, and the fiscal year ended December 31, 1998, the Fund paid
brokerage commissions of $406,191 and [ ], respectively.
The Fund may, under some circumstances, accept securities in lieu of
cash as payment for Fund shares. The Fund will accept securities only to
increase its holdings in a portfolio security or to take a new portfolio
position in a security that IMI deems to be a desirable investment for the Fund.
While no minimum has been established, it is expected that the Fund will not
accept securities having an aggregate value of less than $1 million. The Trust
may reject in whole or in part any or all offers to pay for the Fund shares with
securities and may discontinue accepting securities as payment for the Fund
shares at any time without notice. The Trust will value accepted securities in
the manner and at the same time provided for valuing portfolio securities of the
Fund, and the Fund shares will be sold for net asset value determined at the
same time the accepted securities are valued. The Trust will only accept
securities delivered in proper form and will not accept securities subject to
legal restrictions on transfer. The acceptance of securities by the Trust must
comply with the applicable laws of certain states.
CAPITALIZATION AND VOTING RIGHTS
The capitalization of the Trust consists of an unlimited number of
shares of beneficial interest (no par value per share). When issued, shares of
each class of the Fund are fully paid, non-assessable, redeemable and fully
transferable. No class of shares of the Fund has preemptive rights or
subscription rights.
The Amended and Restated Declaration of Trust permits the Trustees to
create separate series or portfolios and to divide any series or portfolio into
one or more classes. The Trustees have authorized nineteen series, each of which
represents a fund. The Trustees have further authorized the issuance of Class A,
Class B, and Class C shares for Ivy International Fund and Ivy Money Market Fund
and Class A, Class B, Class C and Advisor Class shares for the Fund, Ivy Asia
Pacific Fund, Ivy Bond Fund, Ivy China Region Fund, Ivy Developing Nations Fund,
Ivy European Opportunities Fund Ivy Global Fund, Ivy Global Natural Resources
Fund, Ivy Global Science & Technology Fund, Ivy Growth Fund, Ivy Growth with
Income Fund, Ivy International Fund II, Ivy International Small Companies Fund,
Ivy International Strategic Bond Fund, Ivy South America Fund, Ivy US Blue Chip
Fund, and Ivy US Emerging Growth Fund, as well as Class I shares for Ivy
International Small Companies Fund, Ivy US Blue Chip Fund, Ivy Bond Fund, Ivy
European Opportunities Fund, Ivy Global Science & Technology Fund, Ivy
International Fund II, Ivy International Fund, and Ivy International Strategic
Bond Fund.
Shareholders have the right to vote for the election of Trustees of the
Trust and on any and all matters on which they may be entitled to vote by law or
by the provisions of the Trust's By-Laws. The Trust is not required to hold a
regular annual meeting of shareholders, and it does not intend to do so. Shares
of each class of the Fund entitle their holders to one vote per share (with
proportionate voting for fractional shares). Shareholders of the Fund are
entitled to vote alone on matters that only affect the Fund. All classes of
shares of the Fund will vote together, except with respect to the distribution
plan applicable to the Fund's Class A, Class B or Class C shares or when a class
vote is required by the 1940 Act. On matters relating to all funds of the Trust,
but affecting the funds differently, separate votes by the shareholders of each
fund are required. Approval of an investment advisory agreement and a change in
fundamental policies would be regarded as matters requiring separate voting by
the shareholders of each fund of the Trust. If the Trustees determine that a
matter does not affect the interests of the Fund, then the shareholders of the
Fund will not be entitled to vote on that matter. Matters that affect the Trust
in general, such as ratification of the selection of independent public
accountants, will be voted upon collectively by the shareholders of all funds of
the Trust.
As used in this SAI and the Prospectus, the phrase "majority vote of
the outstanding shares" of the Fund means the vote of the lesser of: (1) 67% of
the shares of the Fund (or of the Trust) present at a meeting if the holders of
more than 50% of the outstanding shares are present in person or by proxy; or
(2) more than 50% of the outstanding shares of the Fund (or of the Trust).
With respect to the submission to shareholder vote of a matter
requiring separate voting by the Fund, the matter shall have been effectively
acted upon with respect to the Fund if a majority of the outstanding voting
securities of the Fund votes for the approval of the matter, notwithstanding
that: (1) the matter has not been approved by a majority of the outstanding
voting securities of any other fund of the Trust; or (2) the matter has not been
approved by a majority of the outstanding voting securities of the Trust.
The Amended and Restated Declaration of Trust provides that the holders
of not less than two-thirds of the outstanding shares of the Trust may remove a
person serving as trustee either by declaration in writing or at a meeting
called for such purpose. The Trustees are required to call a meeting for the
purpose of considering the removal of a person serving as Trustee if requested
in writing to do so by the holders of not less than 10% of the outstanding
shares of the Trust. Shareholders will be assisted in communicating with other
shareholders in connection with the removal of a Trustee as if Section 26(c) of
the Act were applicable.
The Trust's shares do not have cumulative voting rights and accordingly
the holders of more than 50% of the outstanding shares could elect the entire
Board, in which case the holders of the remaining shares would not be able to
elect any Trustees.
Under Massachusetts law, the Trust's shareholders could, under certain
circumstances, be held personally liable for the obligations of the Trust.
However, the Amended and Restated Declaration of Trust disclaims liability of
the shareholders, Trustees or officers of the Trust for acts or obligations of
the Trust, which are binding only on the assets and property of the Trust, and
requires that notice of the disclaimer be given in each contract or obligation
entered into or executed by the Trust or its Trustees. The Amended and Restated
Declaration of Trust provides for indemnification out of Fund property for all
loss and expense of any shareholder of the Fund held personally liable for the
obligations of the Fund. The risk of a shareholder of the Trust incurring
financial loss on account of shareholder liability is limited to circumstances
in which the Trust itself would be unable to meet its obligations and, thus,
should be considered remote. No series of the Trust is liable for the
obligations of any other series of the Trust.
SPECIAL RIGHTS AND PRIVILEGES
The Trust offers, and (except as noted below) bears the cost of
providing, to investors the following rights and privileges. The Trust reserves
the right to amend or terminate any one or more of these rights and privileges.
Notice of amendments to or terminations of rights and privileges will be
provided to shareholders in accordance with applicable law.
Certain of the rights and privileges described below refer to funds,
other than the Fund, whose shares are also distributed by IMDI. These funds are:
Ivy Asia Pacific Fund, Ivy Bond Fund, Ivy China Region Fund, Ivy Developing
Nations Fund, Ivy European Opportunities Fund, Ivy Global Fund, Ivy Global
Natural Resources Fund, Ivy Global Science & Technology Fund, Ivy Growth Fund,
Ivy Growth with Income Fund, Ivy International Fund II, Ivy International Fund,
Ivy International Small Companies Fund, Ivy International Strategic Bond Fund,
Ivy Money Market Fund, Ivy South America Fund, Ivy US Blue Chip Fund, and Ivy US
Emerging Growth Fund, (the other eighteen series of the Trust). (Effective April
18, 1997, Ivy International Fund suspended the offer of its shares to new
investors). Shareholders should obtain a current prospectus before exercising
any right or privilege that may relate to these funds.
AUTOMATIC INVESTMENT METHOD
The Automatic Investment Method, which enables a Fund shareholder to
have specified amounts automatically drawn each month from his or her bank for
investment in Fund shares, is available for all classes of shares. The minimum
initial and subsequent investment under this method is $50 per month ($250 for
Advisor Class shares), (except in the case of a tax qualified retirement plan
for which the minimum initial and subsequent investment is $25 per month). A
shareholder may terminate the Automatic Investment Method at any time upon
delivery to IMSC of telephone instructions or written notice. See "Automatic
Investment Method" in the Prospectus. To begin the plan, complete Sections 6A
and 7B of the Account Application.
EXCHANGE OF SHARES
As described in the Prospectus, shareholders of the Fund have an
exchange privilege with other Ivy funds (except Ivy International Fund unless
they have an existing Ivy International Fund account). Before effecting an
exchange, shareholders of the Fund should obtain and read the currently
effective prospectus for the Ivy fund into which the exchange is to be made.
INITIAL SALES CHARGE SHARES. Class A shareholders may exchange their
Class A shares ("outstanding Class A shares") for Class A shares of another Ivy
fund ("new Class A Shares") on the basis of the relative net asset value per
Class A share, plus an amount equal to the difference, if any, between the sales
charge previously paid on the outstanding Class A shares and the sales charge
payable at the time of the exchange on the new Class A shares. (The additional
sales charge will be waived for Class A shares that have been invested for a
period of 12 months or longer.) Class A shareholders may also exchange their
shares for shares of Ivy Money Market Fund (no initial sales charge will be
assessed at the time of such an exchange).
CONTINGENT DEFERRED SALES CHARGE SHARES CLASS A: Class A shareholders
may exchange their Class A shares that are subject to a contingent deferred
sales charge ("CDSC"), as described in the Prospectus ("outstanding Class A
shares"), for Class A shares of another Ivy fund ("new Class A shares") on the
basis of the relative net asset value per Class A share, without the payment of
any CDSC that would otherwise be due upon the redemption of the outstanding
Class A shares. Class A shareholders of the Fund exercising the exchange
privilege will continue to be subject to that Fund's CDSC period following an
exchange if such period is longer than the CDSC period, if any, applicable to
the new Class A shares.
For purposes of computing the CDSC that may be payable upon the
redemption of the new Class A shares, the holding period of the outstanding
Class A shares is "tacked" onto the holding period of the new Class A shares.
CLASS B: Class B shareholders may exchange their Class B shares
("outstanding Class B shares") for Class B shares of another Ivy fund ("new
Class B shares") on the basis of the relative net asset value per Class B share,
without the payment of any CDSC that would otherwise be due upon the redemption
of the outstanding Class B shares. Class B shareholders of the Fund exercising
the exchange privilege will continue to be subject to that Fund's CDSC schedule
(or period) following an exchange if such schedule is higher (or such period is
longer) than the CDSC schedule (or period) applicable to the new Class B shares.
Class B shares of the Fund acquired through an exchange of Class B
shares of another Ivy fund will be subject to that Fund's CDSC schedule (or
period) if such schedule is higher (or such period is longer) than the CDSC
schedule (or period) applicable to the Ivy fund from which the exchange was
made.
For purposes of both the conversion feature and computing the CDSC that
may be payable upon the redemption of the new Class B shares (prior to
conversion), the holding period of the outstanding Class B shares is "tacked"
onto the holding period of the new Class B shares.
The following CDSC table applies to Class B shares of Ivy Asia Pacific
Fund, Ivy Bond Fund, Ivy China Region Fund, Ivy US Emerging Growth Fund, Ivy
Global Fund, Ivy Global Natural Resources Fund, Ivy Global Science & Technology
Fund, Ivy Growth Fund, Ivy Growth with Income Fund, Ivy US Blue Chip Fund, Ivy
International Strategic Bond Fund, Ivy International Fund, Ivy International
Fund II, Ivy International Small Companies Fund, Ivy South America Fund, Ivy
Developing Nations Fund, Ivy European Opportunities Fund, and Ivy Pan-Europe
Fund:
CONTINGENT DEFERRED SALES CHARGE AS A PERCENTAGE OF
DOLLAR AMOUNT SUBJECT TO CHARGE
YEAR SINCE PURCHASE
First 5%
Second 4%
Third 3%
Fourth 3%
Fifth 2%
Sixth 1%
Seventh and thereafter 0%
CLASS C: Class C shareholders may exchange their Class C shares
("outstanding Class C shares") for Class C shares of another Ivy fund ("new
Class C shares") on the basis of the relative net asset value per Class C share,
without the payment of any CDSC that would otherwise be due upon redemption.
(Class C shares are subject to a CDSC of 1.00% if redeemed within one year of
the date of purchase.)
ADVISOR CLASS: Subject to the restrictions set forth in the following
paragraph, Advisor Class shareholders may exchange their outstanding Advisor
Class shares for Advisor Class shares of another Ivy fund on the basis of the
relative net asset value per share.
ALL CLASSES: The minimum value of shares which may be exchanged into an
Ivy fund in which shares are not already held is $1,000 ($5,000,000 in the case
of Advisor Class shares and $10,000 in the case of Advisor Class shares). No
exchange out of the Fund (other than by a complete exchange of all Fund shares)
may be made if it would reduce the shareholder's interest in the Fund to less
than $1,000 ($10,000 in the case of Advisor Class shares).
Each exchange will be made on the basis of the relative net asset value
per share of the Ivy funds involved in the exchange next computed following
receipt by IMSC of telephone instructions by IMSC or a properly executed
request. Exchanges, whether written or telephonic, must be received by IMSC by
the close of regular trading on the Exchange (normally 4:00 p.m., eastern time)
to receive the price computed on the day of receipt. Exchange requests received
after that time will receive the price next determined following receipt of the
request. The exchange privilege may be modified or terminated at any time, upon
at least 60 days' notice to the extent required by applicable law. See
"Redemptions."
An exchange of shares between any of the Ivy funds will result in a
taxable gain or loss. Generally, this will be a capital gain or loss (long-term
or short-term, depending on the holding period of the shares) in the amount of
the difference between the net asset value of the shares surrendered and the
shareholder's tax basis for those shares. However, in certain circumstances,
shareholders will be ineligible to take sales charges into account in computing
taxable gain or loss on an exchange. See "Taxation."
With limited exceptions, gain realized by a tax-deferred retirement
plan will not be taxable to the plan and will not be taxed to the participant
until distribution. Each investor should consult his or her tax adviser
regarding the tax consequences of an exchange transaction.
LETTER OF INTENT
Reduced sales charges apply to initial investments in Class A shares of
the Fund made pursuant to a non-binding Letter of Intent. A Letter of Intent may
be submitted by an individual, his or her spouse and children under the age of
21, or a trustee or other fiduciary of a single trust estate or single fiduciary
account. See the Account Application in the Prospectus. Any investor may submit
a Letter of Intent stating that he or she will invest, over a period of 13
months, at least $50,000 in Class A shares of the Fund. A Letter of Intent may
be submitted at the time of an initial purchase of Class A shares of the Fund or
within 90 days of the initial purchase, in which case the Letter of Intent will
be back dated. A shareholder may include, as an accumulation credit, the value
(at the applicable offering price) of all Class A shares of Ivy Asia Pacific
Fund, Ivy Bond Fund, Ivy China Region Fund, Ivy Developing Nations Fund, Ivy
European Opportunities Fund, Ivy Global Fund, Ivy Global Natural Resources Fund,
Ivy Global Science & Technology Fund, Ivy Growth Fund, Ivy Growth with Income
Fund, Ivy International Fund II, Ivy International Fund, Ivy International Small
Companies Fund, Ivy International Strategic Bond Fund, Ivy Pan-Europe Fund, Ivy
South America Fund, Ivy US Blue Chip Fund, and Ivy US Emerging Growth Fund, (and
shares that have been exchanged into Ivy Money Market Fund from any of the other
funds in the Ivy funds) held of record by him or her as of the date of his or
her Letter of Intent. During the term of the Letter of Intent, the Transfer
Agent will hold Class A shares representing 5% of the indicated amount (less any
accumulation credit value) in escrow. The escrowed Class A shares will be
released when the full indicated amount has been purchased. If the full
indicated amount is not purchased during the term of the Letter of Intent, the
investor is required to pay IMDI an amount equal to the difference between the
dollar amount of sales charge that he or she has paid and that which he or she
would have paid on his or her aggregate purchases if the total of such purchases
had been made at a single time. Such payment will be made by an automatic
liquidation of Class A shares in the escrow account. A Letter of Intent does not
obligate the investor to buy or the Trust to sell the indicated amount of Class
A shares, and the investor should read carefully all the provisions of such
letter before signing.
RETIREMENT PLANS
Shares may be purchased in connection with several types of
tax-deferred retirement plans. Shares of more than one fund distributed by IMDI
may be purchased in a single application establishing a single account under the
plan, and shares held in such an account may be exchanged among the Ivy funds in
accordance with the terms of the applicable plan and the exchange privilege
available to all shareholders. Initial and subsequent purchase payments in
connection with tax-deferred retirement plans must be at least $25 per
participant.
The following fees will be charged to individual shareholder accounts
as described in the retirement prototype plan document:
Retirement Plan New Account Fee no fee
Retirement Plan Annual Maintenance Fee $10.00 per fund account
For shareholders whose retirement accounts are diversified across
several Ivy funds, the annual maintenance fee will be limited to not more than
$20.
The following discussion describes the tax treatment of certain
tax-deferred retirement plans under current Federal income tax law. State income
tax consequences may vary. An individual considering the establishment of a
retirement plan should consult with an attorney and/or an accountant with
respect to the terms and tax aspects of the plan.
INDIVIDUAL RETIREMENT ACCOUNTS: Shares of the Fund may be used as a
funding medium for an Individual Retirement Account ("IRA"). Eligible
individuals may establish an IRA by adopting a model custodial account available
from IMSC, who may impose a charge for establishing the account. Individuals
should consult their tax advisers before investing IRA assets in an Ivy fund if
that fund primarily distributes exempt-interest dividends.
An individual who has not reached age 70-1/2 and who receives
compensation or earned income is eligible to contribute to an IRA, whether or
not he or she is an active participant in a retirement plan. An individual who
receives a distribution from another IRA, a qualified retirement plan, a
qualified annuity plan or a tax-sheltered annuity or custodial account ("403(b)
plan") that qualifies for "rollover" treatment is also eligible to establish an
IRA by rolling over the distribution either directly or within 60 days after its
receipt. Tax advice should be obtained in connection with planning a rollover
contribution to an IRA.
In general, an eligible individual may contribute up to the lesser of
$2,000 or 100% of his or her compensation or earned income to an IRA each year.
If a husband and wife are both employed, and both are under age 70-1/2, each may
set up his or her own IRA within these limits. If both earn at least $2,000 per
year, the maximum potential contribution is $4,000 per year for both. For years
after 1996, the result is similar even if one spouse has no earned income; if
the joint earned income of the spouses is at least $4,000, a contribution of up
to $2,000 may be made to each spouse's IRA. Rollover contributions are not
subject to these limits.
An individual may deduct his or her annual contributions to an IRA in
computing his or her Federal income tax within the limits described above,
provided he or she (or his or her spouse, if they file a joint Federal income
tax return) is not an active participant in a qualified retirement plan (such as
a qualified corporate, sole proprietorship, or partnership pension, profit
sharing, 401(k) or stock bonus plan), qualified annuity plan, 403(b) plan,
simplified employee pension, or governmental plan. If he or she (or his or her
spouse) is an active participant, whether the individual's contribution to an
IRA is fully deductible, partially deductible or not deductible depends on (i)
adjusted gross income and (ii) whether it is the individual or the individual's
spouse who is an active participant, in the case of married individuals filing
jointly. Contributions may be made up to the maximum permissible amount even if
they are not deductible. Rollover contributions are not includable in income for
Federal income tax purposes and therefore are not deductible from it.
Generally, earnings on an IRA are not subject to current Federal income
tax until distributed. Distributions attributable to tax-deductible
contributions and to IRA earnings are taxed as ordinary income. Distributions of
non-deductible contributions are not subject to Federal income tax. In general,
distributions from an IRA to an individual before he or she reaches age 59-1/2
are subject to a nondeductible penalty tax equal to 10% of the taxable amount of
the distribution. The 10% penalty tax does not apply to amounts withdrawn from
an IRA after the individual reaches age 59-1/2, becomes disabled or dies, or if
withdrawn in the form of substantially equal payments over the life or life
expectancy of the individual and his or her designated beneficiary, if any, or
rolled over into another IRA, amounts withdrawn and used to pay for deductible
medical expenses and amounts withdrawn by certain unemployed individuals not in
excess of amounts paid for certain health insurance premiums, amounts used to
pay certain qualified higher education expenses, and amounts used within 120
days of the date the distribution is received to pay for certain first-time
homebuyer expenses. Distributions must begin to be withdrawn not later than
April 1 of the calendar year following the calendar year in which the individual
reaches age 70-1/2. Failure to take certain minimum required distributions will
result in the imposition of a 50% non-deductible penalty tax.
ROTH IRAS: Shares of the Fund also may be used as a funding medium for
a Roth Individual Retirement Account ("Roth IRA"). A Roth IRA is similar in
numerous ways to the regular (traditional) IRA, described above.
Some of the primary differences are as follows.
A single individual earning below $95,000 can contribute up to $2,000
per year to a Roth IRA. The maximum contribution amount diminishes and gradually
falls to zero for single filers with adjusted gross incomes ranging from $95,000
to $110,000. Married couples earning less than $150,000 combined, and filing
jointly, can contribute a full $4,000 per year ($2,000 per IRA). The maximum
contribution amount for married couples filing jointly phases out from $150,000
to $160,000. An individual whose adjusted gross income exceeds the maximum
phase-out amount cannot contribute to a Roth IRA.
An eligible individual can contribute money to a traditional IRA and a
Roth IRA as long as the total contribution to all IRAs does not exceed $2,000.
Contributions to a Roth IRA are not deductible. Contributions to a Roth IRA may
be made even after the individual for whom the account is maintained has
attained age 70 1/2.
No distributions are required to be taken prior to the death of the
original account holder. If a Roth IRA has been established for a minimum of
five years, distributions can be taken tax-free after reaching age 59 1/2, for a
first-time home purchase ($10,000 maximum, one time use), or upon death or
disability. All other distributions from a Roth IRA (other than the amount of
nondeductible contributions) are taxable and subject to a 10% tax penalty unless
an exception applies. Exceptions to the 10% penalty include: reaching age 59
1/2, death, disability, deductible medical expenses, the purchase of health
insurance for certain unemployed individual and qualified higher education
expenses.
An individual with an income of less than $100,000 (who is not married
filing separately) can roll his or her existing IRA into a Roth IRA. However,
the individual must pay taxes on the taxable amount in his or her traditional
IRA. After 1998, all taxes on such a rollover will have to be paid in the tax
year in which the rollover is made.
QUALIFIED PLANS: For those self-employed individuals who wish to
purchase shares of one or more Ivy funds through a qualified retirement plan, a
Custodial Agreement and a Retirement Plan are available from IMSC. The
Retirement Plan may be adopted as a profit sharing plan or a money purchase
pension plan. A profit sharing plan permits an annual contribution to be made in
an amount determined each year by the self-employed individual within certain
limits prescribed by law. A money purchase pension plan requires annual
contributions at the level specified in the Custodial Agreement. There is no
set-up fee for qualified plans and the annual maintenance fee is $20.00 per
account.
In general, if a self-employed individual has any common law employees,
employees who have met certain minimum age and service requirements must be
covered by the Retirement Plan. A self-employed individual generally must
contribute the same percentage of income for common law employees as for himself
or herself.
A self-employed individual may contribute up to the lesser of $30,000
or 25% of compensation or earned income to a money purchase pension plan or to a
combination profit sharing and money purchase pension plan arrangement each year
on behalf of each participant. To be deductible, total contributions to a profit
sharing plan generally may not exceed 15% of the total compensation or earned
income of all participants in the plan, and total contributions to a combination
money purchase-profit sharing arrangement generally may not exceed 25% of the
total compensation or earned income of all participants. The amount of
compensation or earned income of any one participant that may be included in
computing the deduction is limited (generally to $150,000 for benefits accruing
in plan years beginning after 1993, with annual inflation adjustments). A
self-employed individual's contributions to a retirement plan on his or her own
behalf must be deducted in computing his or her earned income.
Corporate employers may also adopt the Custodial Agreement and
Retirement Plan for the benefit of their eligible employees. Similar
contribution and deduction rules apply to corporate employers.
Distributions from the Retirement Plan generally are made after a
participant's separation from service. A 10% penalty tax generally applies to
distributions to an individual before he or she reaches age 59-1/2, unless the
individual (1) has reached age 55 and separated from service; (2) dies; (3)
becomes disabled; (4) uses the withdrawal to pay tax-deductible medical
expenses; (5) takes the withdrawal as part of a series of substantially equal
payments over his or her life expectancy or the joint life expectancy of himself
or herself and a designated beneficiary; or (6) rolls over the distribution.
The Transfer Agent will arrange for Investors Bank & Trust to furnish
custodial services to the employer and any participating employees.
DEFERRED COMPENSATION FOR PUBLIC SCHOOLS AND CHARITABLE ORGANIZATIONS
("403(B)(7) ACCOUNT"): Section 403(b)(7) of the Internal Revenue Code of 1986,
as amended (the "Code") permits public school systems and certain charitable
organizations to use mutual fund shares held in a custodial account to fund
deferred compensation arrangements with their employees. A custodial account
agreement is available for those employers whose employees wish to purchase
shares of the Trust in conjunction with such an arrangement. The special
application for a 403(b)(7) Account is available from IMSC.
Distributions from the 403(b)(7) Account may be made only following
death, disability, separation from service, attainment of age 59-1/2, or
incurring a financial hardship. A 10% penalty tax generally applies to
distributions to an individual before he or she reaches age 59-1/2, unless the
individual (1) has reached age 55 and separated from service; (2) dies or
becomes disabled; (3) uses the withdrawal to pay tax-deductible medical
expenses; (4) takes the withdrawal as part of a series of substantially equal
payments over his or her life expectancy or the joint life expectancy of himself
or herself and a designated beneficiary; or (5) rolls over the distribution.
There is no set-up fee for 403(b)(7) Accounts and the annual maintenance fee is
$20.00 per account.
SIMPLIFIED EMPLOYEE PENSION ("SEP") IRAS: An employer may deduct
contributions to a SEP up to the lesser of $30,000 or 15% of compensation. SEP
accounts generally are subject to all rules applicable to IRA accounts, except
the deduction limits, and are subject to certain employee participation
requirements. No new salary reduction SEPs ("SARSEPs") may be established after
1996, but existing SARSEPs may continue to be maintained, and non-salary
reduction SEPs may continue to be established as well as maintained after 1996.
SIMPLE PLANS: An employer may establish a SIMPLE IRA or a SIMPLE 401(k)
for years after 1996. An employee can make pre-tax salary reduction
contributions to a SIMPLE Plan, up to $6,000 a year (as indexed). Subject to
certain limits, the employer will either match a portion of employee
contributions, or will make a contribution equal to 2% of each employee's
compensation without regard to the amount the employee contributes. An employer
cannot maintain a SIMPLE Plan for its employees if the employer maintains or
maintained any other qualified retirement plan with respect to which any
contributions or benefits have been credited.
REINVESTMENT PRIVILEGE
Shareholders who have redeemed Class A shares of the Fund may reinvest
all or a part of the proceeds of the redemption back into Class A shares of the
Fund at net asset value (without a sales charge) within 60 days from the date of
redemption. This privilege may be exercised only once. The reinvestment will be
made at the net asset value next determined after receipt by IMSC of the
reinvestment order accompanied by the funds to be reinvested. No compensation
will be paid to any sales personnel or dealer in connection with the
transaction.
Any redemption is a taxable event. A loss realized on a redemption
generally may be disallowed for tax purposes if the reinvestment privilege is
exercised within 30 days after the redemption. In certain circumstances,
shareholders will be ineligible to take sales charges into account in computing
taxable gain or loss on a redemption if the reinvestment privilege is exercised.
See "Taxation."
RIGHTS OF ACCUMULATION
A scale of reduced sales charges applies to any investment of $50,000
or more in Class A shares of the Fund. See "Initial Sales Charge Alternative --
Class A Shares" in the Prospectus. The reduced sales charge is applicable to
investments made at one time by an individual, his or her spouse and children
under the age of 21, or a trustee or other fiduciary of a single trust estate or
single fiduciary account (including a pension, profit sharing or other employee
benefit trust created pursuant to a plan qualified under Section 401 of the
Code). Rights of Accumulation is also applicable to current purchases of all of
the funds of Ivy Fund (except Ivy Money Market Fund) by any of the persons
enumerated above, where the aggregate quantity of Class A shares of such funds
(and shares that have been exchanged into Ivy Money Market Fund from any of the
other funds in the Ivy funds) and of any other investment company distributed by
IMDI, previously purchased or acquired and currently owned, determined at the
higher of current offering price or amount invested, plus the Class A shares
being purchased, amounts to $50,000 or more for all funds other than Ivy Bond
Fund; or $100,000 or more for Ivy Bond Fund.
At the time an investment takes place, IMSC must be notified by the
investor or his or her dealer that the investment qualifies for the reduced
sales charge on the basis of previous investments. The reduced sales charge is
subject to confirmation of the investor's holdings through a check of the
particular fund's records.
SYSTEMATIC WITHDRAWAL PLAN
A shareholder (except shareholders with accounts in Class I) may
establish a Systematic Withdrawal Plan (a "Withdrawal Plan"), by telephone
instructions or by delivery to IMSC of a written election to have his or her
shares withdrawn periodically (minimum distribution amount $50 for Advisor Class
shares), accompanied by a surrender to IMSC of all share certificates then
outstanding in such shareholder's name, properly endorsed by the shareholder. To
be eligible to elect a Withdrawal Plan, a shareholder must have at least $5,000
in his or her account (except Advisor Class shareholders, who must continually
maintain an account balance of at least $10,000). A Withdrawal Plan may not be
established if the investor is currently participating in the Automatic
Investment Method. A Withdrawal Plan may involve the depletion of a
shareholder's principal, depending on the amount withdrawn.
A redemption under a Withdrawal Plan is a taxable event. Shareholders
contemplating participating in a Withdrawal Plan should consult their tax
advisers.
Additional investments made by investors participating in a Withdrawal
Plan must equal at least $1,000 each ($250 for Advisor Class shareholders) while
the Withdrawal Plan is in effect. Making additional purchases while a Withdrawal
Plan is in effect may be disadvantageous to the investor because of applicable
initial sales charges or CDSCs.
An investor may terminate his or her participation in the Withdrawal
Plan at any time by delivering written notice to IMSC. If all shares held by the
investor are liquidated at any time, participation in the Withdrawal Plan will
terminate automatically. The Trust or IMSC may terminate the Withdrawal Plan
option at any time after reasonable notice to shareholders.
GROUP SYSTEMATIC INVESTMENT PROGRAM
Shares of the Fund may be purchased in connection with investment
programs established by employee or other groups using systematic payroll
deductions or other systematic payment arrangements. The Trust does not itself
organize, offer or administer any such programs. However, it may, depending upon
the size of the program, waive the minimum initial and additional investment
requirements for purchases by individuals in conjunction with programs organized
and offered by others. Unless shares of the Fund are purchased in conjunction
with IRAs (see "How to Buy Shares" in the Prospectus), such group systematic
investment programs are not entitled to special tax benefits under the Code. The
Trust reserves the right to refuse purchases at any time or suspend the offering
of shares in connection with group systematic investment programs, and to
restrict the offering of shareholder privileges, such as check writing,
simplified redemptions and other optional privileges, as described in the
Prospectus, to shareholders using group systematic investment programs.
With respect to each shareholder account established on or after
September 15, 1972 under a group systematic investment program, the Trust and
IMI each currently charge a maintenance fee of $3.00 (or portion thereof) that
for each twelve-month period (or portion thereof) that the account is
maintained. The Trust may collect such fee (and any fees due to IMI) through a
deduction from distributions to the shareholders involved or by causing on the
date the fee is assessed a redemption in each such shareholder account
sufficient to pay such fee. The Trust reserves the right to change these fees
from time to time without advance notice.
Class A shares of the Fund are made available to Merrill Lynch Daily K
Plan (the "Plan") participants at NAV without an initial sales charge if:
(i) the Plan is recordkept on a daily valuation basis by Merrill
Lynch and, on the date the Plan Sponsor signs the Merrill
Lynch Recordkeeping Service Agreement, the Plan has $3 million
or more in assets invested in broker/dealer funds not advised
or managed by Merrill Lynch Asset Management, L.P. ("MLAM")
that are made available pursuant to a Service Agreement
between Merrill Lynch and the fund's principal underwriter or
distributor and in funds advised or managed by MLAM
(collectively, the "Applicable Investments");
(ii) the Plan is recordkept on a daily valuation basis by an
independent recordkeeper whose services are provided through a
contract or alliance arrangement with Merrill Lynch, and on
the date the Plan Sponsor signs the Merrill Lynch
Recordkeeping Service Agreement, the Plan has $3 million or
more in assets, excluding money market funds, invested in
Applicable Investments; or
(iii) the Plan has 500 or more eligible employees, as determined by
Merrill Lynch plan conversion manager, on the date the Plan
Sponsor signs the Merrill Lynch Recordkeeping Service
Agreement.
Alternatively, Class B shares of the Fund are made available to Plan
participants at NAV without a CDSC if the Plan conforms with the requirements
for eligibility set forth in (i) through (iii) above but either does not meet
the $3 million asset threshold or does not have 500 or more eligible employees.
Plans recordkept on a daily basis by Merrill Lynch or an independent
recordkeeper under a contract with Merrill Lynch that are currently investing in
Class B shares of the Fund convert to Class A shares once the Plan has reached
$5 million invested in Applicable Investments, or 10 years after the date of the
initial purchase by a participant under the Plan--the Plan will receive a Plan
level share conversion.
REDEMPTIONS
Shares of the Fund are redeemed at their net asset value next
determined after a proper redemption request has been received by IMSC, less any
applicable CDSC.
Unless a shareholder requests that the proceeds of any redemption be
wired to his or her bank account, payment for shares tendered for redemption is
made by check within seven days after tender in proper form, except that the
Trust reserves the right to suspend the right of redemption or to postpone the
date of payment upon redemption beyond seven days, (i) for any period during
which the Exchange is closed (other than customary weekend and holiday closings)
or during which trading on the Exchange is restricted, (ii) for any period
during which an emergency exists as determined by the SEC as a result of which
disposal of securities owned by the Fund is not reasonably practicable or it is
not reasonably practicable for the Fund to fairly determine the value of its net
assets, or (iii) for such other periods as the SEC may by order permit for the
protection of shareholders of the Fund.
Under unusual circumstances, when the Board deems it in the best
interest of the Fund's shareholders, the Fund may make payment for shares
repurchased or redeemed in whole or in part in securities of the Fund taken at
current values. If any such redemption in kind is to be made, the Fund may make
an election pursuant to Rule 18f-1 under the 1940 Act. This will require the
Fund to redeem with cash at a shareholder's election in any case where the
redemption involves less than $250,000 (or 1% of the Fund's net asset value at
the beginning of each 90-day period during which such redemptions are in effect,
if that amount is less than $250,000). Should payment be made in securities, the
redeeming shareholder may incur brokerage costs in converting such securities to
cash.
The Trust may redeem those accounts of shareholders who have maintained
an investment, including sales charges paid, of less than $1,000 ($10,000 for
Advisor Class shareholders) in the Fund for a period of more than 12 months. All
accounts below that minimum will be redeemed simultaneously when MIMI deems it
advisable. The $1,000 balance ($10,000 for Advisor Class shareholders) will be
determined by actual dollar amounts invested by the shareholder, unaffected by
market fluctuations. The Trust will notify any such shareholder by certified
mail of its intention to redeem such account, and the shareholder shall have 60
days from the date of such letter to invest such additional sums as shall raise
the value of such account above that minimum. Should the shareholder fail to
forward such sum within 60 days of the date of the Trust's letter of
notification, the Trust will redeem the shares held in such account and transmit
the redemption in value thereof to the shareholder. However, those shareholders
who are investing pursuant to the Automatic Investment Method will not be
redeemed automatically unless they have ceased making payments pursuant to the
plan for a period of at least six consecutive months, and these shareholders
will be given six-months' notice by the Trust before such redemption.
Shareholders in a qualified retirement, pension or profit sharing plan who wish
to avoid tax consequences must "rollover" any sum so redeemed into another
qualified plan within 60 days. The Trustees of the Trust may change the minimum
account size.
If a shareholder has given authorization for telephonic redemption
privilege, shares can be redeemed and proceeds sent by Federal wire to a single
previously designated bank account. Delivery of the proceeds of a wire
redemption request of $250,000 or more may be delayed by the Fund for up to
seven days if deemed appropriate under then-current market conditions. The Trust
reserves the right to change this minimum or to terminate the telephonic
redemption privilege without prior notice. The Trust cannot be responsible for
the efficiency of the Federal wire system of the shareholder's dealer of record
or bank. The shareholder is responsible for any charges by the shareholder's
bank.
The Fund employs reasonable procedures that require personal
identification prior to acting on redemption or exchange instructions
communicated by telephone to confirm that such instructions are genuine. In the
absence of such instructions, the Fund may be liable for any losses due to
unauthorized or fraudulent telephone instructions.
CONVERSION OF CLASS B SHARES
As described in the Prospectus, Class B shares of the Fund will
automatically convert to Class A shares of the Fund, based on the relative net
asset values per share of the two classes, no later than the month following the
eighth anniversary of the initial issuance of such Class B shares of the Fund
occurs. For the purpose of calculating the holding period required for
conversion of Class B shares, the date of initial issuance shall mean: (1) the
date on which such Class B shares were issued, or (2) for Class B shares
obtained through an exchange, or a series of exchanges, (subject to the exchange
privileges for Class B shares) the date on which the original Class B shares
were issued. For purposes of conversion of Class B shares, Class B shares
purchased through the reinvestment of dividends and capital gain distributions
paid in respect of Class B shares will be held in a separate sub-account. Each
time any Class B shares in the shareholder's regular account (other than those
shares in the sub-account) convert to Class A shares, a pro rata portion of the
Class B shares in the sub-account will also convert to Class A shares. The
portion will be determined by the ratio that the shareholder's Class B shares
converting to Class A shares bears to the shareholder's total Class B shares not
acquired through the reinvestment of dividends and capital gain distributions.
NET ASSET VALUE
The net asset value per share of the Fund is computed by dividing the
value of the Fund's aggregate net assets (i.e., its total assets less its
liabilities) by the number of the Fund's shares outstanding. For purposes of
determining the Fund's aggregate net assets, receivables are valued at their
realizable amounts. The Fund's liabilities, if not identifiable as belonging to
a particular class of the Fund, are allocated among the Fund's several classes
based on their relative net asset size. Liabilities attributable to a particular
class are charged to that class directly. The total liabilities for a class are
then deducted from the class's proportionate interest in the Fund's assets, and
the resulting amount is divided by the number of shares of the class outstanding
to produce its net asset value per share.
A security listed or traded on a recognized stock exchange or The
Nasdaq Stock Market, Inc. ("Nasdaq") is valued at the security's last sale price
on the exchange on which the security is principally traded. If no sale is
reported at that time, the average between the last bid and asked price (the
"Calculated Mean") is used. Unless otherwise noted herein, the value of a
foreign security is determined in its national currency as of the normal close
of trading on the foreign exchange on which it is traded or as of the close of
regular trading on the Exchange, if that is earlier, and that value is then
converted into its U.S. dollar equivalent at the foreign exchange rate in effect
at noon, eastern time, on the day the value of the foreign security is
determined. All other securities for which OTC market quotations are readily
available are valued at the Calculated Mean.
A debt security normally is valued on the basis of quotes obtained from
at least two dealers (or one dealer who has made a market in the security) or
pricing services that take into account appropriate valuation factors. Interest
is accrued daily. Money market instruments are valued at amortized cost, which
the Board believes approximates market value.
An exchange-traded option is valued at the last sale price on the
exchange on which it is principally traded, if available, and otherwise is
valued at the last sale price on the other exchange(s). If there were no sales
on any exchange, the option shall be valued at the Calculated Mean, if possible,
and otherwise at the last offering price, in the case of a written option, and
the last bid price, in the case of a purchased option. An OTC option is valued
at the last offering price, in the case of a written option, and the last bid
price, in the case of a purchased option. Exchange listed and widely-traded OTC
futures (and options thereon) are valued at the most recent settlement price.
Securities and other assets for which market prices are not readily
available are priced at their "fair value" as determined by IMI in accordance
with procedures approved by the Board. Trading in securities on many foreign
securities exchanges is normally completed before the close of regular trading
on the Exchange. Trading on foreign exchanges may not take place on all days on
which there is regular trading on the Exchange, or may take place on days on
which there is no regular trading on the Exchange (e.g., any of the national
business holidays identified below). If events materially affecting the value of
the Fund's portfolio securities occur between the time when a foreign exchange
closes and the time when the Fund's net asset value is calculated (see following
paragraph), such securities may be valued at fair value as determined by IMI and
approved by the Board.
Portfolio securities are valued (and net asset value per share is
determined) as of the close of regular trading on the Exchange (normally 4:00
p.m., eastern time) on each day the Exchange is open for trading. The Exchange
and the Trust's offices are expected to be closed, and net asset value will not
be calculated, on the following national business holidays: New Year's Day,
Martin Luther King, Jr. Day, Presidents' Day, Good Friday, Memorial Day,
Independence Day, Labor Day, Thanksgiving Day and Christmas Day. On those days
when either or both of the Fund's Custodian or the Exchange close early as a
result of a partial holiday or otherwise, the Trust reserves the right to
advance the time on that day by which purchase and redemption requests must be
received.
The number of shares you receive when you place a purchase order, and
the payment you receive after submitting a redemption request, is based on the
Fund's net asset value next determined after your instructions are received in
proper form by IMSC or by your registered securities dealer. Each purchase and
redemption order is subject to any applicable sales charge. Since the Fund
normally invests in securities that are listed on foreign exchanges that may
trade on weekends or other days when the Fund does not price its shares, the
Fund's net asset value may change on days when shareholders will not be able to
purchase or redeem the Fund's shares. The sale of the Fund's shares will be
suspended during any period when the determination of its net asset value is
suspended pursuant to rules or orders of the SEC and may be suspended by the
Board whenever in its judgment it is in the Fund's best interest to do so.
TAXATION
The following is a general discussion of certain tax rules thought to
be applicable with respect to the Fund. It is merely a summary and is not an
exhaustive discussion of all possible situations or of all potentially
applicable taxes. Accordingly, shareholders and prospective shareholders should
consult a competent tax adviser about the tax consequences to them of investing
in the Fund.
The Fund intends to be taxed as a regulated investment company under
Subchapter M of the Code. Accordingly, the Fund must, among other things, (a)
derive in each taxable year at least 90% of its gross income from dividends,
interest, payments with respect to certain securities loans, and gains from the
sale or other disposition of stock, securities or foreign currencies, or other
income derived with respect to its business of investing in such stock,
securities or currencies; and (b) diversify its holdings so that, at the end of
each fiscal quarter, (i) at least 50% of the market value of the Fund's assets
is represented by cash, U.S. Government securities, the securities of other
regulated investment companies and other securities, with such other securities
limited, in respect of any one issuer, to an amount not greater than 5% of the
value of the Fund's total assets and 10% of the outstanding voting securities of
such issuer, and (ii) not more than 25% of the value of its total assets is
invested in the securities of any one issuer (other than U.S. Government
securities and the securities of other regulated investment companies).
As a regulated investment company, the Fund generally will not be
subject to U.S. Federal income tax on its income and gains that it distributes
to shareholders, if at least 90% of its investment company taxable income (which
includes, among other items, dividends, interest and the excess of any
short-term capital gains over long-term capital losses) for the taxable year is
distributed. The Fund intends to distribute all such income.
Amounts not distributed on a timely basis in accordance with a calendar
year distribution requirement are subject to a nondeductible 4% excise tax at
the Fund level. To avoid the tax, the Fund must distribute during each calendar
year, (1) at least 98% of its ordinary income (not taking into account any
capital gains or losses) for the calendar year (2) at least 98% of its capital
gains in excess of its capital losses (adjusted for certain ordinary losses) for
a one-year period generally ending on October 31 of the calendar year, and (3)
all ordinary income and capital gains for previous years that were not
distributed during such years. To avoid application of the excise tax, the Fund
intends to make distributions in accordance with the calendar year distribution
requirements. A distribution will be treated as paid on December 31 of the
current calendar year if it is declared by the Fund in October, November or
December of the year with a record date in such a month and paid by the Fund
during January of the following year. Such distributions will be taxable to
shareholders in the calendar year the distributions are declared, rather than
the calendar year in which the distributions are received.
OPTIONS, FUTURES AND FOREIGN CURRENCY FORWARD CONTRACTS
The taxation of equity options and OTC options on debt securities is
governed by Code section 1234. Pursuant to Code section 1234, the premium
received by the Fund for selling a put or call option is not included in income
at the time of receipt. If the option expires, the premium is short-term capital
gain to the Fund. If the Fund enters into a closing transaction, the difference
between the amount paid to close out its position and the premium received is
short-term capital gain or loss. If a call option written by the Fund is
exercised, thereby requiring the Fund to sell the underlying security, the
premium will increase the amount realized upon the sale of such security and any
resulting gain or loss will be a capital gain or loss, and will be long-term or
short-term depending upon the holding period of the security. With respect to a
put or call option that is purchased by the Fund, if the option is sold, any
resulting gain or loss will be a capital gain or loss, and will be long-term or
short-term, depending upon the holding period of the option. If the option
expires, the resulting loss is a capital loss and is long-term or short-term,
depending upon the holding period of the option. If the option is exercised, the
cost of the option, in the case of a call option, is added to the basis of the
purchased security and, in the case of a put option, reduces the amount realized
on the underlying security in determining gain or loss.
Some of the options, futures and foreign currency forward contracts in
which the Fund may invest may be "section 1256 contracts." Gains (or losses) on
these contracts generally are considered to be 60% long-term and 40% short-term
capital gains or losses; however, as described below, foreign currency gains or
losses arising from certain section 1256 contracts are ordinary in character.
Also, section 1256 contracts held by the Fund at the end of each taxable year
(and on certain other dates prescribed in the Code) are "marked-to-market" with
the result that unrealized gains or losses are treated as though they were
realized.
The transactions in options, futures and forward contracts undertaken
by the Fund may result in "straddles" for Federal income tax purposes. The
straddle rules may affect the character of gains or losses realized by the Fund.
In addition, losses realized by the Fund on positions that are part of a
straddle may be deferred under the straddle rules, rather than being taken into
account in calculating the taxable income for the taxable year in which such
losses are realized. Because only a few regulations implementing the straddle
rules have been promulgated, the consequences of such transactions to the Fund
are not entirely clear. The straddle rules may increase the amount of short-term
capital gain realized by the Fund, which is taxed as ordinary income when
distributed to shareholders.
The Fund may make one or more of the elections available under the Code
which are applicable to straddles. If the Fund makes any of the elections, the
amount, character and timing of the recognition of gains or losses from the
affected straddle positions will be determined under rules that vary according
to the election(s) made. The rules applicable under certain of the elections may
operate to accelerate the recognition of gains or losses from the affected
straddle positions.
Because application of the straddle rules may affect the character of
gains or losses, defer losses and/or accelerate the recognition of gains or
losses from the affected straddle positions, the amount which must be
distributed to shareholders as ordinary income or long-term capital gain may be
increased or decreased substantially as compared to a fund that did not engage
in such transactions.
Notwithstanding any of the foregoing, the Fund may recognize gain (but
not loss) from a constructive sale of certain "appreciated financial positions"
if the Fund enters into a short sale, offsetting notional principal contract,
futures or forward contract transaction with respect to the appreciated position
or substantially identical property. Appreciated financial positions subject to
this constructive sale treatment are interests (including options, futures and
forward contracts and short sales) in stock, partnership interests, certain
actively traded trust instruments and certain debt instruments. Constructive
sale treatment of appreciated financial positions does not apply to certain
transactions closed in the 90-day period ending with the 30th day after the
close of the Fund's taxable year, if certain conditions are met.
CURRENCY FLUCTUATIONS -- "SECTION 988" GAINS OR LOSSES
Gains or losses attributable to fluctuations in exchange rates which
occur between the time the Fund accrues receivables or liabilities denominated
in a foreign currency and the time the Fund actually collects such receivables
or pays such liabilities generally are treated as ordinary income or ordinary
loss. Similarly, on disposition of some investments, including debt securities
denominated in a foreign currency and certain options, futures and forward
contracts, gains or losses attributable to fluctuations in the value of the
foreign currency between the date of acquisition of the security or contract and
the date of disposition also are treated as ordinary gain or loss. These gains
and losses, referred to under the Code as "section 988" gains or losses,
increase or decrease the amount of the Fund's investment company taxable income
available to be distributed to its shareholders as ordinary income.
INVESTMENT IN PASSIVE FOREIGN INVESTMENT COMPANIES
The Fund may invest in shares of foreign corporations which may be
classified under the Code as passive foreign investment companies ("PFICs"). In
general, a foreign corporation is classified as a PFIC if at least one-half of
its assets constitute investment-type assets, or 75% or more of its gross income
is investment-type income. If the Fund receives a so-called "excess
distribution" with respect to PFIC stock, the Fund itself may be subject to a
tax on a portion of the excess distribution, whether or not the corresponding
income is distributed by the Fund to shareholders. In general, under the PFIC
rules, an excess distribution is treated as having been realized ratably over
the period during which a Fund held the PFIC shares. The Fund itself will be
subject to tax on the portion, if any, of an excess distribution that is so
allocated to prior Fund taxable years and an interest factor will be added to
the tax, as if the tax had been payable in such prior taxable years. Certain
distributions from a PFIC as well as gain from the sale of PFIC shares are
treated as excess distributions. Excess distributions are characterized as
ordinary income even though, absent application of the PFIC rules, certain
excess distributions might have been classified as capital gain.
The Fund may be eligible to elect alternative tax treatment with
respect to PFIC shares. The Fund may elect to mark to market its PFIC shares,
resulting in the shares being treated as sold at fair market value on the last
business day of each taxable year. Any resulting gain would be reported as
ordinary income; any resulting loss and any loss from an actual disposition of
the shares would be reported as ordinary loss to the extent of any net gains
reported in prior years. Under another election that currently is available in
some circumstances, the Fund generally would be required to include in its gross
income its share of the earnings of a PFIC on a current basis, regardless of
whether distributions are received from the PFIC in a given year.
DEBT SECURITIES ACQUIRED AT A DISCOUNT
Some of the debt securities (with a fixed maturity date of more than
one year from the date of issuance) that may be acquired by the Fund may be
treated as debt securities that are issued originally at a discount. Generally,
the amount of the original issue discount ("OID") is treated as interest income
and is included in income over the term of the debt security, even though
payment of that amount is not received until a later time, usually when the debt
security matures.
Some of the debt securities (with a fixed maturity date of more than
one year from the date of issuance) that may be acquired by the Fund in the
secondary market may be treated as having market discount. Generally, gain
recognized on the disposition of, and any partial payment of principal on, a
debt security having market discount is treated as ordinary income to the extent
the gain, or principal payment, does not exceed the "accrued market discount" on
such debt security. In addition, the deduction of any interest expenses
attributable to debt securities having market discount may be deferred. Market
discount generally accrues in equal daily installments. The Fund may make one or
more of the elections applicable to debt securities having market discount,
which could affect the character and timing of recognition of income.
Some debt securities (with a fixed maturity date of one year or less
from the date of issuance) that may be acquired by the Fund may be treated as
having acquisition discount, or OID in the case of certain types of debt
securities. Generally, the Fund will be required to include the acquisition
discount, or OID, in income over the term of the debt security, even though
payment of that amount is not received until a later time, usually when the debt
security matures. The Fund may make one or more of the elections applicable to
debt securities having acquisition discount, or OID, which could affect the
character and timing of recognition of income.
The Fund generally will be required to distribute dividends to
shareholders representing discount on debt securities that is currently
includable in income, even though cash representing such income may not have
been received by the Fund. Cash to pay such dividends may be obtained from sales
proceeds of securities held by the Fund.
DISTRIBUTIONS
Distributions of investment company taxable income are taxable to a
U.S. shareholder as ordinary income, whether paid in cash or shares. Dividends
paid by the Fund to a corporate shareholder, to the extent such dividends are
attributable to dividends received from U.S. corporations by the Fund, may
qualify for the dividends received deduction. However, the revised alternative
minimum tax applicable to corporations may reduce the value of the dividends
received deduction. Distributions of net capital gains (the excess of net
long-term capital gains over net short-term capital losses), if any, designated
by the Fund as capital gain dividends, are taxable to shareholders as long-term
capital gains whether paid in cash or in shares, and regardless of how long the
shareholder has held the Fund's shares; such distributions are not eligible for
the dividends received deduction. Shareholders receiving distributions in the
form of newly issued shares will have a cost basis in each share received equal
to the net asset value of a share of the Fund on the distribution date. A
distribution of an amount in excess of the Fund's current and accumulated
earnings and profits will be treated by a shareholder as a return of capital
which is applied against and reduces the shareholder's basis in his or her
shares. To the extent that the amount of any such distribution exceeds the
shareholder's basis in his or her shares, the excess will be treated by the
shareholder as gain from a sale or exchange of the shares. Shareholders will be
notified annually as to the U.S. Federal tax status of distributions and
shareholders receiving distributions in the form of newly issued shares will
receive a report as to the net asset value of the shares received.
If the net asset value of shares is reduced below a shareholder's cost
as a result of a distribution by the Fund, such distribution generally will be
taxable even though it represents a return of invested capital. Shareholders
should be careful to consider the tax implications of buying shares just prior
to a distribution. The price of shares purchased at this time may reflect the
amount of the forthcoming distribution. Those purchasing just prior to a
distribution will receive a distribution which generally will be taxable to
them.
DISPOSITION OF SHARES
Upon a redemption, sale or exchange of his or her shares, a shareholder
will realize a taxable gain or loss depending upon his or her basis in the
shares. Such gain or loss will be treated as capital gain or loss if the shares
are capital assets in the shareholder's hands and, if so, will be long-term or
short-term, depending upon the shareholder's holding period for the shares. Any
loss realized on a redemption sale or exchange will be disallowed to the extent
the shares disposed of are replaced (including through reinvestment of
dividends) within a period of 61 days beginning 30 days before and ending 30
days after the shares are disposed of. In such a case, the basis of the shares
acquired will be adjusted to reflect the disallowed loss. Any loss realized by a
shareholder on the sale of Fund shares held by the shareholder for six-months or
less will be treated for tax purposes as a long-term capital loss to the extent
of any distributions of capital gain dividends received or treated as having
been received by the shareholder with respect to such shares.
In some cases, shareholders will not be permitted to take all or
portion of their sales loads into account for purposes of determining the amount
of gain or loss realized on the disposition of their shares. This prohibition
generally applies where (1) the shareholder incurs a sales load in acquiring the
shares of the Fund, (2) the shares are disposed of before the 91st day after the
date on which they were acquired, and (3) the shareholder subsequently acquires
shares in the Fund or another regulated investment company and the otherwise
applicable sales charge is reduced under a "reinvestment right" received upon
the initial purchase of Fund shares. The term "reinvestment right" means any
right to acquire shares of one or more regulated investment companies without
the payment of a sales load or with the payment of a reduced sales charge. Sales
charges affected by this rule are treated as if they were incurred with respect
to the shares acquired under the reinvestment right. This provision may be
applied to successive acquisitions of fund shares.
FOREIGN WITHHOLDING TAXES
Income received by the Fund from sources within a foreign country may
be subject to withholding and other taxes imposed by that country.
If more than 50% of the value of the Fund's total assets at the close
of its taxable year consists of securities of foreign corporations, the Fund
will be eligible and may elect to "pass-through" to the Fund's shareholders the
amount of foreign income and similar taxes paid by the Fund. Pursuant to this
election, a shareholder will be required to include in gross income (in addition
to taxable dividends actually received) his or her pro rata share of the foreign
income and similar taxes paid by the Fund, and will be entitled either to deduct
his or her pro rata share of foreign income and similar taxes in computing his
or her taxable income or to use it as a foreign tax credit against his or her
U.S. Federal income taxes, subject to limitations. No deduction for foreign
taxes may be claimed by a shareholder who does not itemize deductions. Foreign
taxes generally may not be deducted by a shareholder that is an individual in
computing the alternative minimum tax. Each shareholder will be notified within
60 days after the close of the Fund's taxable year whether the foreign taxes
paid by the Fund will "pass-through" for that year and, if so, such notification
will designate (1) the shareholder's portion of the foreign taxes paid to each
such country and (2) the portion of the dividend which represents income derived
from sources within each such country.
Generally, except in the case of certain electing individual taxpayers
who have limited creditable foreign taxes and no foreign source income other
than passive investment-type income, a credit for foreign taxes is subject to
the limitation that it may not exceed the shareholder's U.S. tax attributable to
his or her total foreign source taxable income. For this purpose, if the Fund
makes the election described in the preceding paragraph, the source of the
Fund's income flows through to its shareholders. With respect to the Fund, gains
from the sale of securities generally will be treated as derived from U.S.
sources and section 988 gains will be treated as ordinary income derived from
U.S. sources. The limitation on the foreign tax credit is applied separately to
foreign source passive income, including foreign source passive income received
from the Fund. In addition, the foreign tax credit may offset only 90% of the
revised alternative minimum tax imposed on corporations and individuals.
Furthermore, the foreign tax credit is eliminated with respect to foreign taxes
withheld on dividends if the dividend-paying shares or the shares of the Fund
are held by the Fund or the shareholder, as the case may be, for less than 16
days (46 days in the case of preferred shares) during the 30-day period (90-day
period for preferred shares) beginning 15 days (45 days for preferred shares)
before the shares become ex-dividend. In addition, if the Fund fails to satisfy
these holding period requirements, it cannot elect to pass through to
shareholders the ability to claim a deduction for related foreign taxes.
The foregoing is only a general description of the foreign tax credit
under current law. Because application of the credit depends on the particular
circumstances of each shareholder, shareholders are advised to consult their own
tax advisers.
BACKUP WITHHOLDING
The Fund will be required to report to the Internal Revenue Service
("IRS") all taxable distributions as well as gross proceeds from the redemption
of the Fund's shares, except in the case of certain exempt shareholders. All
such distributions and proceeds will be subject to withholding of Federal income
tax at a rate of 31% ("backup withholding") in the case of non-exempt
shareholders if (1) the shareholder fails to furnish the Fund with and to
certify the shareholder's correct taxpayer identification number or social
security number, (2) the IRS notifies the shareholder or the Fund that the
shareholder has failed to report properly certain interest and dividend income
to the IRS and to respond to notices to that effect, or (3) when required to do
so, the shareholder fails to certify that he or she is not subject to backup
withholding. If the withholding provisions are applicable, any such
distributions or proceeds, whether reinvested in additional shares or taken in
cash, will be reduced by the amounts required to be withheld.
Distributions may also be subject to additional state, local and
foreign taxes depending on each shareholder's particular situation. Non-U.S.
shareholders may be subject to U.S. tax rules that differ significantly from
those summarized above. This discussion does not purport to deal with all of the
tax consequences applicable to the Fund or shareholders. Shareholders are
advised to consult their own tax advisers with respect to the particular tax
consequences to them of an investment in the Fund.
PERFORMANCE INFORMATION
Performance information for the classes of shares of the Fund may be
compared, in reports and promotional literature, to: (i) the S&P 500 Index, the
Dow Jones Industrial Average ("DJIA"), or other unmanaged indices so that
investors may compare the Fund's results with those of a group of unmanaged
securities widely regarded by investors as representative of the securities
markets in general; (ii) other groups of mutual funds tracked by Lipper
Analytical Services, a widely used independent research firm that ranks mutual
funds by overall performance, investment objectives and assets, or tracked by
other services, companies, publications or other criteria; and (iii) the
Consumer Price Index (measure for inflation) to assess the real rate of return
from an investment in the Fund. Unmanaged indices may assume the reinvestment of
dividends but generally do not reflect deductions or administrative and
management costs and expenses. Performance rankings are based on historical
information and are not intended to indicate future performance.
YIELD. Quotations of yield for a specific class of shares of the Fund
will be based on all investment income attributable to that class earned during
a particular 30-day (or one month) period (including dividends and interest),
less expenses attributable to that class accrued during the period ("net
investment income"), and will be computed by dividing the net investment income
per share of that class earned during the period by the maximum offering price
per share (in the case of Class A shares) or the net asset value per share (in
the case of Class B and Class C shares) on the last day of the period, according
to the following formula:
YIELD = 2[({(a-b)/cd} + 1){superscript 6}-1]
Where: a = dividends and interest earned
during the period attributable to a
specific class of shares,
b = expenses accrued for the period
attributable to that class (net of
reimbursements),
c = the average daily number of shares
of that class outstanding during the
period that were entitled to receive
dividends, and
d = the maximum offering price per
share (in the case of Class A
shares) or the net asset value per
share (in the case of Class B shares
and Class C shares) on the last day
of the period.
AVERAGE ANNUAL TOTAL RETURN. Quotations of standardized average annual
total return ("Standardized Return") for a specific class of shares of the Fund
will be expressed in terms of the average annual compounded rate of return that
would cause a hypothetical investment in that class of the Fund made on the
first day of a designated period to equal the ending redeemable value ("ERV") of
such hypothetical investment on the last day of the designated period, according
to the following formula:
P(1 + T){superscript n} = ERV
Where: P = a hypothetical initial payment of
$1,000 to purchase shares of a
specific class
T = the average annual total return of
shares of that class
n = the number of years
ERV = the ending redeemable value of a
hypothetical $1,000 payment made at
the beginning of the period.
For purposes of the above computation for the Fund, it is assumed that
all dividends and capital gains distributions made by the Fund are reinvested at
net asset value in additional shares of the same class during the designated
period. In calculating the ending redeemable value for Class A shares and
assuming complete redemption at the end of the applicable period, the maximum
5.75% sales charge is deducted from the initial $1,000 payment and, for Class B
and Class C shares, the applicable CDSC imposed upon redemption of Class B or
Class C shares held for the period is deducted. Standardized Return quotations
for the Fund do not take into account any required payments for federal or state
income taxes. Standardized Return quotations for Class B shares for periods of
over eight years will reflect conversion of the Class B shares to Class A shares
at the end of the eighth year. Standardized Return quotations are determined to
the nearest 1/100 of 1%.
The Fund may, from time to time, include in advertisements, promotional
literature or reports to shareholders or prospective investors total return data
that are not calculated according to the formula set forth above
("Non-Standardized Return"). Neither initial nor CDSCs are taken into account in
calculating Non-Standardized Return; a sales charge, if deducted, would reduce
the return.
The following table summarizes the calculation of Standardized and
Non-Standardized Return for the Class A, Class B, Class C, and Advisor Class
shares of the Fund for the periods indicated. In determining the average annual
total return for a specific class of shares of the Fund, recurring fees, if any,
that are charged to all shareholder accounts are taken into consideration. For
any account fees that vary with the size of the account of the Fund, the account
fee used for purposes of the following computations is assumed to be the fee
that would be charged to the mean account size of the Fund.
STANDARDIZED RETURN[*]
<TABLE>
CLASS A[1] CLASS B[2] CLASS C[3] ADVISOR CLASS
<S> <C> <C> <C> <C>
Year ended December 31, 1998:
%
% % %
Inception [#] to year
ended December 31,
1998[7]: %
% % %
NON-STANDARDIZED RETURN[**]
CLASS A[4] CLASS B[5] CLASS C[6] ADVISOR CLASS
Year ended December 31, 1998:
%
% % %
Inception [#] to year
ended December 31,
1998[7]: %
% % %
- ------------------------- ----------------- ------------------ -------------------
</TABLE>
[*] The Standardized Return figures for Class A shares reflect the
deduction of the maximum initial sales charge of 5.75%. The Standardized Return
figures for Class B and C shares reflect the deduction of the applicable CDSC
imposed on redemption of Class B or C shares held for the period.
[**] The Non-Standardized Return figures do not reflect the deduction of
any initial sales charge or CDSC.
[#] The inception date for the Fund (and Class A, Class B, and Class C
and shares of the Fund) was May 13, 1997. Advisor Class shares were first
offered January 1, 1998.
[1] The Standardized Return figures for the Class A shares reflect
expense reimbursement. Without expense reimbursement, the Standardized Return
for Class A shares for the period from inception through and the one year ended
December 31, 1998 would have been [ ].
[2] The Standardized Return figures for the Class B shares reflect
expense reimbursement. Without expense reimbursement, the Standardized Return
for Class B shares for the period from inception through and the one year ended
December 31, 1998 would have been [ ]
[3] The Standardized Return figures for the Class C shares reflect
expense reimbursement. Without expense reimbursement, the Standardized Return
for Class C shares for the period from inception through and the one year ended
December 31, 1998 would have been [ ]
[4] The Non-Standardized Return figures for Class A shares reflect
expense reimbursement. Without expense reimbursement, the Non-Standardized
Return for Class A shares for the period from inception through and the one year
ended December 31, 1998 would have been [ ].
[5] The Non-Standardized Return figures for Class B shares reflect
expense reimbursement. Without expense reimbursement, the Non-Standardized
Return for Class B shares for the period from inception through and the one year
ended December 31, 1998 would have been [ ].
[6] The Non-Standardized Return figures for Class C shares reflect
expense reimbursement. Without expense reimbursement, the Non-Standardized
Return for Class C shares for the period from inception through and the one year
ended December 31, 1998 would have been [ ].
[7] The total return for a period less than a full year is calculated
on an aggregate basis and is not annualized.
CUMULATIVE TOTAL RETURN. Cumulative total return is the cumulative rate
of return on a hypothetical initial investment of $1,000 in a specific class of
shares of the Fund for a specified period. Cumulative total return quotations
reflect changes in the price of the Fund's shares and assume that all dividends
and capital gains distributions during the period were reinvested in the Fund
shares. Cumulative total return is calculated by computing the cumulative rates
of return of a hypothetical investment in a specific class of shares of the Fund
over such periods, according to the following formula (cumulative total return
is then expressed as a percentage):
C = (ERV/P) - 1
Where: C = cumulative total return
P = a hypothetical initial investment of
$1,000 to purchase shares of a
specific class
ERV = ending redeemable value: ERV is
the value, at the end of the
applicable period, of a hypothetical
$1,000 investment made at the
beginning of the applicable period.
The following table summarizes the calculation of Cumulative Total
Return for the periods indicated through December 31, 1998, assuming the maximum
5.75% sales charge has been assessed.
ONE YEAR SINCE
INCEPTION[*]
Class A
Class B
Class C
Advisor Class
The following table summarizes the calculation of Cumulative Total
Return for the periods indicated through December 31, 1998, assuming the maximum
5.75% sales charge has not been assessed.
ONE YEAR SINCE
INCEPTION[*]
Class A
Class B
Class C
Advisor Class
- ---------------------------
[*] The inception date for the Ivy Pan-Europe Fund (Class, Class B and
Class C shares) was May 13, 1997. Adviser Class shares were first offered on
January 1, 1998.
OTHER QUOTATIONS, COMPARISONS AND GENERAL INFORMATION. The foregoing
computation methods are prescribed for advertising and other communications
subject to SEC Rule 482. Communications not subject to this rule may contain a
number of different measures of performance, computation methods and
assumptions, including but not limited to: historical total returns; results of
actual or hypothetical investments; changes in dividends, distributions or share
values; or any graphic illustration of such data. These data may cover any
period of the Trust's existence and may or may not include the impact of sales
charges, taxes or other factors.
Performance quotations for the Fund will vary from time to time
depending on market conditions, the composition of the Fund's portfolio and
operating expenses of the Fund. These factors and possible differences in the
methods used in calculating performance quotations should be considered when
comparing performance information regarding the Fund's shares with information
published for other investment companies and other investment vehicles.
Performance quotations should also be considered relative to changes in the
value of the Fund's shares and the risks associated with the Fund's investment
objectives and policies. At any time in the future, performance quotations may
be higher or lower than past performance quotations and there can be no
assurance that any historical performance quotation will continue in the future.
The Fund may also cite endorsements or use for comparison its
performance rankings and listings reported in such newspapers or business or
consumer publications as, among others: AAII Journal, Barron's, Boston Business
Journal, Boston Globe, Boston Herald, Business Week, Consumer's Digest, Consumer
Guide Publications, Changing Times, Financial Planning, Financial World, Forbes,
Fortune, Growth Fund Guide, Houston Post, Institutional Investor, International
Fund Monitor, Investor's Daily, Los Angeles Times, Medical Economics, Miami
Herald, Money Mutual Fund Forecaster, Mutual Fund Letter, Mutual Fund Source
Book, Mutual Fund Values, National Underwriter, Nelson's Directory of Investment
Managers, New York Times, Newsweek, No Load Fund Investor, No Load Fund* X,
Oakland Tribune, Pension World, Pensions and Investment Age, Personal Investor,
Rugg and Steele, Time, U.S. News and World Report, USA Today, The Wall Street
Journal, and Washington Post.
FINANCIAL STATEMENTS
The Fund's Portfolio of Investments as of December 31, 1998, Statement
of Assets and Liabilities as of December 31, 1998, Statement of Operations for
the fiscal year ended December 31, 1998, Statement of Changes in Net Assets for
the fiscal year ended December 31, 1998, Financial Highlights, Notes to
Financial Statements, and Report of Independent Accountants, which are included
in the Fund's December 31, 1998 Annual Report to shareholders, are incorporated
by reference into this SAI.
<PAGE>
APPENDIX A
DESCRIPTION OF STANDARD & POOR'S RATINGS GROUP ("S&P") AND MOODY'S
INVESTORS SERVICE, INC. ("MOODY'S") CORPORATE BOND AND COMMERCIAL PAPER RATINGS
[From "Moody's Bond Record," November 1994 Issue (Moody's Investors
Service, New York, 1994), and "Standard & Poor's Municipal Ratings Handbook,"
October 1997 Issue (McGraw Hill, New York, 1997).]
MOODY'S:
(a) CORPORATE BONDS. Bonds rated Aaa by Moody's are judged by Moody's
to be of the best quality, carrying the smallest degree of investment risk.
Interest payments are protected by a large or exceptionally stable margin and
principal is secure. While the various protective elements are likely to change,
such changes as can be visualized are most unlikely to impair the fundamentally
strong position of such issues. Bonds rated Aa are judged by Moody's to be of
high quality by all standards. Aa bonds are rated lower than Aaa bonds because
margins of protection may not be as large as those of Aaa bonds, or fluctuations
of protective elements may be of greater amplitude, or there may be other
elements present which make the long-term risks appear somewhat larger than
those applicable to Aaa securities. Bonds which are rated A by Moody's possess
many favorable investment attributes and are to be considered as upper
medium-grade obligations. Factors giving security to principal and interest are
considered adequate, but elements may be present which suggest a susceptibility
to impairment sometime in the future. Bonds rated Baa by Moody's are considered
medium-grade obligations (i.e., they are neither highly protected nor poorly
secured). Interest payments and principal security appear adequate for the
present, but certain protective elements may be lacking or may be
characteristically unreliable over any great length of time. Such bonds lack
outstanding investment characteristics and in fact have speculative
characteristics as well. Bonds which are rated Ba are judged to have speculative
elements; their future cannot be considered well-assured. Often the protection
of interest and principal payments may be very moderate and thereby not well
safeguarded during both good and bad times over the future. Uncertainty of
position characterizes bonds in this class. Bonds which are rated B generally
lack characteristics of the desirable investment. Assurance of interest and
principal payments of or maintenance of other terms of the contract over any
long period of time may be small. Bonds which are rated Caa are of poor
standing. Such issues may be in default or there may be present elements of
danger with respect to principal or interest. Bonds which are rated Ca represent
obligations which are speculative in a high degree. Such issues are often in
default or have other marked shortcomings. Bonds which are rated C are the
lowest rated class of bonds and issues so rated can be regarded as having
extremely poor prospects of ever attaining any real investment standing.
(b) COMMERCIAL PAPER. The Prime rating is the highest commercial paper
rating assigned by Moody's. Among the factors considered by Moody's in assigning
ratings are the following: (1) evaluation of the management of the issuer; (2)
economic evaluation of the issuer's industry or industries and an appraisal of
speculative-type risks which may be inherent in certain areas; (3) evaluation of
the issuer's products in relation to competition and customer acceptance; (4)
liquidity; (5) amount and quality of long-term debt; (6) trend of earnings over
a period of ten years; (7) financial strength of a parent company and the
relationships which exist with the issuer; and (8) recognition by management of
obligations which may be present or may arise as a result of public interest
questions and preparations to meet such obligations. Issuers within this Prime
category may be given ratings 1, 2 or 3, depending on the relative strengths of
these factors. The designation of Prime-1 indicates the highest quality
repayment capacity of the rated issue. Issuers rated Prime-2 are deemed to have
a strong ability for repayment while issuers voted Prime-3 are deemed to have an
acceptable ability for repayment. Issuers rated Not Prime do not fall within any
of the Prime rating categories.
S&P:
(a) CORPORATE BONDS. An S&P corporate debt rating is a current
assessment of the creditworthiness of an obligor with respect to a specific
obligation. The ratings are based on current information furnished by the issuer
or obtained by S&P from other sources it considers reliable. The ratings
described below may be modified by the addition of a plus or minus sign to show
relative standing within the major rating categories.
Debt rated AAA has the highest rating assigned by S&P. Capacity to pay
interest and repay principal is extremely strong. Debt rated AA is judged by S&P
to have a very strong capacity to pay interest and repay principal and differs
from the highest rated issues only in small degree. Debt rated A by S&P has a
strong capacity to pay interest and repay principal, although it is somewhat
more susceptible to the adverse effects of changes in circumstances and economic
conditions than debt in higher rated categories.
Debt rated BBB by S&P is regarded by S&P as having an adequate capacity
to pay interest and repay principal. Although such bonds normally exhibit
adequate protection parameters, adverse economic conditions or changing
circumstances are more likely to lead to a weakened capacity to pay interest and
repay principal than debt in higher rated categories.
Debt rated BB, B, CCC, CC and C is regarded as having predominately
speculative characteristics with respect to capacity to pay interest and repay
principal. BB indicates the least degree of speculation and C the highest. While
such debt will likely have some quality and protective characteristics, these
are outweighed by large uncertainties or exposures to adverse conditions. Debt
rated BB has less near-term vulnerability to default than other speculative
issues. However, it faces major ongoing uncertainties or exposure to adverse
business, financial or economic conditions which could lead to inadequate
capacity to meet timely interest and principal payments. The BB rating category
is also used for debt subordinated to senior debt that is assigned an actual or
implied BBB- rating. Debt rated B has a greater vulnerability to default but
currently has the capacity to meet interest payments and principal repayments.
Adverse business, financial, or economic conditions will likely impair capacity
or willingness to pay interest and repay principal. The B rating category is
also used for debt subordinated to senior debt that is assigned an actual or
implied BB or BB- rating. Debt rated CCC has a currently identifiable
vulnerability to default, and is dependent upon favorable business, financial,
and economic conditions to meet timely payment of interest and repayment of
principal. In the event of adverse business, financial or economic conditions,
it is not likely to have the capacity to pay interest and repay principal. The
CCC rating category is also used for debt subordinated to senior debt that is
assigned an actual or implied B or B- rating. The rating CC typically is applied
to debt subordinated to senior debt which is assigned an actual or implied CCC
debt rating. The rating C typically is applied to debt subordinated to senior
debt which is assigned an actual or implied CCC- debt rating. The C rating may
be used to cover a situation where a bankruptcy petition has been filed, but
debt service payments are continued.
The rating CI is reserved for income bonds on which no interest is
being paid. Debt rated D is in payment default. The D rating category is used
when interest payments or principal payments are not made on the date due, even
if the applicable grace period has not expired, unless S&P believes that such
payments will be made during such grace period. The D rating also will be used
upon the filing of a bankruptcy petition if debt service payments are
jeopardized.
(b) COMMERCIAL PAPER. An S&P commercial paper rating is a current
assessment of the likelihood of timely payment of debt considered short-term in
the relevant market.
The commercial paper rating A-1 by S&P indicates that the degree of
safety regarding timely payment is strong. Those issues determined to possess
extremely strong safety characteristics are denoted with a plus sign (+)
designation. For commercial paper with an A-2 rating, the capacity for timely
payment on issues is satisfactory, but not as high as for issues designated A-1.
Issues rated A-3 have adequate capacity for timely payment, but are more
vulnerable to the adverse effects of changes in circumstances than obligations
carrying higher designations.
Issues rated B are regarded as having only speculative capacity for
timely payment. The C rating is assigned to short-term debt obligations with a
doubtful capacity for payment. Debt rated D is in payment default. The D rating
category is used when interest payments or principal payments are not made on
the date due, even if the applicable grace period has not expired, unless S&P
believes such payments will be made during such grace period.
<PAGE>
IVY SOUTH AMERICA FUND
a series of
IVY FUND
Via Mizner Financial Plaza, Suite 300
700 South Federal Highway
Boca Raton, Florida 33432
STATEMENT OF ADDITIONAL INFORMATION
April , 1999
Ivy Fund (the "Trust") is an open-end management investment company
that currently consists of nineteen fully managed portfolios, each of which
(except for Ivy South America Fund and Ivy International Strategic Bond Fund) is
diversified. This Statement of Additional Information ("SAI") relates to Class
A, B, C and Advisor Class shares of Ivy South America Fund (the "Fund"). The
other eighteen portfolios of the Trust are described in separate prospectuses
and SAIs.
This SAI is not a prospectus and should be read in conjunction with the
prospectus for the Fund dated April , 1999 (the "Prospectus"), which may be
obtained upon request and without charge from the Trust at the Distributor's
address and telephone number printed below.
INVESTMENT MANAGER
Ivy Management, Inc. ("IMI")
Via Mizner Financial Plaza, Suite 300
700 South Federal Highway
Boca Raton, Florida 33432
Telephone: (800) 777-6472
DISTRIBUTOR
Ivy Mackenzie Distributors, Inc. ("IMDI")
Via Mizner Financial Plaza, Suite 300
700 South Federal Highway
Boca Raton, Florida 33432
Telephone: (800) 456-5111
<PAGE>
i
TABLE OF CONTENTS
GENERAL INFORMATION.........................................................
INVESTMENT OBJECTIVES, STRATEGIES AND RISKS.................................
COMMON STOCKS......................................................
CONVERTIBLE SECURITIES.............................................
SOUTH AMERICAN SECURITIES..........................................
DEBT SECURITIES....................................................
IN GENERAL................................................
INVESTMENT-GRADE DEBT SECURITIES..........................
LOW-RATED DEBT SECURITIES.................................
"WHEN-ISSUED"SECURITIES AND FIRM COMMITMENTS..............
ZERO COUPON BONDS.........................................
ILLIQUID SECURITIES................................................
FOREIGN SECURITIES.................................................
DEPOSITORY RECEIPTS................................................
EMERGING MARKETS...................................................
FOREIGN CURRENCIES.................................................
FOREIGN CURRENCY EXCHANGE TRANSACTIONS.............................
OTHER INVESTMENT COMPANIES.........................................
REPURCHASE AGREEMENTS..............................................
BANKING INDUSTRY AND SAVINGS AND LOAN OBLIGATIONS..................
COMMERCIAL PAPER...................................................
BORROWING..........................................................
WARRANTS...........................................................
OPTIONS TRANSACTIONS...............................................
IN GENERAL................................................
WRITING OPTIONS ON INDIVIDUAL SECURITIES..................
PURCHASING OPTIONS ON INDIVIDUAL SECURITIES...............
PURCHASING AND WRITING OPTIONS ON SECURITIES INDICES......
RISKS OF OPTIONS TRANSACTIONS.............................
FUTURES CONTRACTS AND OPTIONS ON FUTURES CONTRACTS.................
IN GENERAL................................................
FOREIGN CURRENCY FUTURES CONTRACTS AND RELATED OPTIONS....
RISKS ASSOCIATED WITH FUTURES AND RELATED OPTIONS.........
SECURITIES INDEX FUTURES CONTRACTS.................................
RISKS OF SECURITIES INDEX FUTURES.........................
COMBINED TRANSACTIONS.....................................
INVESTMENT RESTRICTIONS.....................................................
PORTFOLIO TURNOVER..........................................................
TRUSTEES AND OFFICERS.......................................................
PERSONAL INVESTMENTS BY EMPLOYEES OF IMI..................
INVESTMENT ADVISORY AND OTHER SERVICES......................................
BUSINESS MANAGEMENT AND INVESTMENT ADVISORY SERVICES...............
DISTRIBUTION SERVICES..............................................
RULE 18F-3 PLAN...........................................
RULE 12B-1 DISTRIBUTION PLANS.............................
CUSTODIAN..........................................................
FUND ACCOUNTING SERVICES...........................................
TRANSFER AGENT AND DIVIDEND PAYING AGENT...........................
ADMINISTRATOR......................................................
AUDITORS...........................................................
BROKERAGE ALLOCATION........................................................
CAPITALIZATION AND VOTING RIGHTS............................................
SPECIAL RIGHTS AND PRIVILEGES...............................................
AUTOMATIC INVESTMENT METHOD........................................
EXCHANGE OF SHARES.................................................
INITIAL SALES CHARGE SHARES...............................
CONTINGENT DEFERRED SALES CHARGE SHARES CLASS A...........
CLASS B...................................................
CLASS C...................................................
ADVISOR CLASS.............................................
ALL CLASSES...............................................
LETTER OF INTENT...................................................
RETIREMENT PLANS...................................................
INDIVIDUAL RETIREMENT ACCOUNTS............................
ROTH IRAS.................................................
QUALIFIED PLANS...........................................
DEFERRED COMPENSATION FOR PUBLIC SCHOOLS AND CHARITABLE
ORGANIZATIONS ("403(B)(7) ACCOUNT")....
SIMPLIFIED EMPLOYEE PENSION ("SEP") IRAS..................
SIMPLE PLANS..............................................
REINVESTMENT PRIVILEGE.............................................
RIGHTS OF ACCUMULATION.............................................
SYSTEMATIC WITHDRAWAL PLAN.........................................
GROUP SYSTEMATIC INVESTMENT PROGRAM................................
REDEMPTIONS.................................................................
CONVERSION OF CLASS B SHARES................................................
NET ASSET VALUE.............................................................
TAXATION 44
OPTIONS, FUTURES AND FOREIGN CURRENCY FORWARD CONTRACTS............
CURRENCY FLUCTUATIONS -- "SECTION 988" GAINS OR LOSSES.............
INVESTMENT IN PASSIVE FOREIGN INVESTMENT COMPANIES.................
DEBT SECURITIES ACQUIRED AT A DISCOUNT.............................
DISTRIBUTIONS......................................................
DISPOSITION OF SHARES..............................................
FOREIGN WITHHOLDING TAXES..........................................
BACKUP WITHHOLDING.................................................
PERFORMANCE INFORMATION.....................................................
YIELD.....................................................
AVERAGE ANNUAL TOTAL RETURN...............................
CUMULATIVE TOTAL RETURN...................................
OTHER QUOTATIONS, COMPARISONS AND GENERAL INFORMATION.....
FINANCIAL STATEMENTS........................................................
APPENDIX A..................................................................
<PAGE>
GENERAL INFORMATION
The Fund is organized as a separate, non-diversified portfolio of the
Trust, an open-end management investment company organized as a Massachusetts
business trust on December 21, 1983. The inception date for the Fund's Class A
and Class B shares was November 1, 1994. The inception dates for the Fund's
Class C and Advisor Class shares were April 30, 1996 and January 1, 1998,
respectively.
Descriptions in this Statement of a particular investment practice or
technique in which the Fund may engage or a financial instrument which the Fund
may purchase are meant to describe the spectrum of investments that IMI, in its
discretion, might, but is not required to, use in managing the Fund's portfolio
assets. IMI may, in its discretion, at any time employ such practice, technique
or instrument for one or more funds but not for all funds advised by it.
Furthermore, it is possible that certain types of financial instruments or
investment techniques described herein may not be available, permissible,
economically feasible or effective for their intended purposes in all markets.
Certain practices, techniques, or instruments may not be principal activities of
the Fund but, to the extent employed, could from time to time have a material
impact on the Fund's performance.
INVESTMENT OBJECTIVES, STRATEGIES AND RISKS
The Fund has its own investment objectives and policies, which are
described in the Prospectus under the captions "Summary" and "Additional
Information About Strategies and Risks." Additional information regarding the
characteristics and risks associated with the Fund's investment techniques is
set forth below.
The Fund's principal investment objective is long-term capital growth.
Consideration of current income is secondary to this principal objective. Under
normal conditions the Fund invests at least 65% of its total assets in
securities issued in South America. Securities of South American issuers include
(a) securities of companies organized under the laws of a South American country
or for which the principal securities trading market is in South America; (b)
securities that are issued or guaranteed by the government of a South American
country, its agencies or instrumentalities, political subdivisions or the
country's central bank; (c) securities of a company, wherever organized, where
at least 50% of the company's non-current assets, capitalization, gross revenue
or profit in any one of the two most recent fiscal years represents (directly or
indirectly through subsidiaries) assets or activities located in South America;
or (d) any of the preceding types of securities in the form of depository
shares. The Fund may participate, however, in markets throughout Latin America,
which for purposes of this Prospectus is defined as Mexico, Central America,
South America and the Spanish-speaking islands of the Caribbean, and it is
expected that the Fund will be invested at all times in at least three
countries. Under present conditions, the Fund expects to focus its investments
in Argentina, Brazil, Chile, Columbia, Peru and Venezuela, which IMI believes
are the most developed capital markets in South America. The Fund does not
expect to concentrate its investments in any particular industry.
The Fund's equity investments consist of common stock, preferred stock
(either convertible or non-convertible), sponsored or unsponsored ADRs, GDRs,
ADSs and GDSs, and warrants (any of which may be purchased through rights). The
Fund's equity securities may be listed on securities exchanges, traded
over-the-counter, or have no organized market.
The Fund may invest in debt securities (including zero coupon bonds)
when IMI anticipates that the potential for capital appreciation from debt
securities is likely to equal or exceed that of equity securities (e.g., a
favorable change in relative foreign exchange rates, interest rate levels or the
creditworthiness of issuers). These include debt securities issued by South
American Governments ("Sovereign Debt"). Most of the debt securities in which
the Fund may invest are not rated, and those that are rated are expected to be
below investment-grade (i.e., rated Ba or below by Moody's or BB or below by
S&P, or considered by IMI to be of comparable quality), and are commonly
referred to as "high yield" or "junk" bonds. [As of December 31, 1998, the Fund
held no low-rated debt securities.]
To meet redemptions, or while the Fund is anticipating investments in
South American securities, the Fund may hold cash or cash equivalents such as
bank obligations (including certificates of deposit and bankers' acceptances),
commercial paper, short-term notes and repurchase agreements. For temporary
defensive or emergency purposes, the Fund may (i) invest without limitation in
such instruments, and (ii) borrow up to one-third of the value of its total
assets from banks (but may not purchase securities at any time during which the
value of the Fund's outstanding loans exceeds 10% of the value of the Fund's
total assets).
The fund may purchase securities on a "when-issued" or firm commitment
basis, engage in foreign currency exchange transactions and enter into forward
foreign currency contracts. The Fund may also invest up to 10% of its total
assets in other investment companies, and up to 15% of its net assets in
illiquid securities. The Fund will treat as illiquid any South American
securities that are subject to restrictions on repatriation for more than seven
days, as well as any securities issued in connection with South American debt
conversion programs that are restricted to remittance of invested capital or
profits.
The Fund may purchase put and call options on securities and stock
indices, provided the premium paid for such options does not exceed 5% of the
Fund's net assets. The Fund may also sell covered put options with respect to up
to 10% of the value of its net assets, and may write covered call options so
long as not more than 25% of the Fund's net assets is subject to being purchased
upon the exercise of the calls. For hedging purposes only, the Fund may engage
in transactions in (and options on) stock index and foreign currency futures
contracts, provided that the Fund's equivalent exposure in such contracts does
not exceed 15% of its total assets.
COMMON STOCKS
Common stock can be issued by companies to raise cash; all common stock
shares represent a proportionate ownership interest in a company. As a result,
the value of common stock rises and falls with a company's success or failure.
The market value of common stock can fluctuate significantly, with smaller
companies being particularly susceptible to price swings. Transaction costs in
smaller company stocks may also be higher than those of larger companies.
CONVERTIBLE SECURITIES
The convertible securities in which the Fund may invest include
corporate bonds, notes, debentures, preferred stock and other securities that
may be converted or exchanged at a stated or determinable exchange ratio into
underlying shares of common stock. Investments in convertible securities can
provide income through interest and dividend payments as well as an opportunity
for capital appreciation by virtue of their conversion or exchange features.
Because convertible securities can be converted into equity securities, their
values will normally vary in some proportion with those of the underlying equity
securities. Convertible securities usually provide a higher yield than the
underlying equity, however, so that the price decline of a convertible security
may sometimes be less substantial than that of the underlying equity security.
The exchange ratio for any particular convertible security may be adjusted from
time to time due to stock splits, dividends, spin-offs, other corporate
distributions or scheduled changes in the exchange ratio. Convertible debt
securities and convertible preferred stocks, until converted, have general
characteristics similar to both debt and equity securities. Although to a lesser
extent than with debt securities generally, the market value of convertible
securities tends to decline as interest rates increase and, conversely, tends to
increase as interest rates decline. In addition, because of the conversion or
exchange feature, the market value of convertible securities typically changes
as the market value of the underlying common stock changes, and, therefore, also
tends to follow movements in the general market for equity securities. When the
market price of the underlying common stock increases, the price of a
convertible security tends to rise as a reflection of the value of the
underlying common stock, although typically not as much as the price of the
underlying common stock. While no securities investments are without risk,
investments in convertible securities generally entail less risk than
investments in common stock of the same issuer.
As debt securities, convertible securities are investments that provide
for a stream of income. Like all debt securities, there can be no assurance of
income or principal payments because the issuers of the convertible securities
may default on their obligations. Convertible securities generally offer lower
yields than non-convertible securities of similar quality because of their
conversion or exchange features.
Convertible securities generally are subordinated to other similar but
non-convertible securities of the same issuer, although convertible bonds, as
corporate debt obligations, are senior in right of payment to all equity
securities, and convertible preferred stock is senior to common stock, of the
same issuer. However, convertible bonds and convertible preferred stock
typically have lower coupon rates than similar non-convertible securities.
Convertible securities may be issued as fixed income obligations that pay
current income.
SOUTH AMERICAN SECURITIES.
Investors in the Fund should be aware that investing in the securities
of South American issuers may entail risks relating to the potential political
and economic instability of certain South American countries and the risks of
expropriation, nationalization, confiscation or the imposition of restrictions
on foreign investment and on repatriation of capital invested. In the event of
expropriation, nationalization or other confiscation by any country, the Fund
could lose its entire investment in any such country.
The securities markets of South American countries are substantially
smaller, less developed, less liquid and more volatile than the major securities
markets in the U.S. Disclosure and regulatory standards are in many respects
less stringent than U.S. standards. Furthermore, there is a lower level of
monitoring and regulation of the markets and the activities of investors in such
markets.
The limited size of many South American securities markets and limited
trading volume in the securities of South American issuers compared to volume of
trading in the securities of U.S. issuers could cause prices to be erratic for
reasons apart from factors that affect the soundness and competitiveness of the
securities issuers. For example, limited market size may cause prices to be
unduly influenced by traders who control large positions. Adverse publicity and
investors' perceptions, whether or not based on in-depth fundamental analysis,
may decrease the value and liquidity of portfolio securities.
The Fund invests in securities denominated in currencies of South
American countries. Accordingly, changes in the value of these currencies
against the U.S. dollar will result in corresponding changes in the U.S.
dollar value of the Fund's assets denominated in those currencies.
Some South American countries also may have managed currencies, which
are not free floating against the U.S. dollar. In addition, there is risk that
certain South American countries may restrict the free conversion of their
currencies into other countries. Further, certain South American currencies may
not be internationally traded. Certain of these currencies have experienced a
steep devaluation relative to the U.S. dollar. Any devaluations in the
currencies in which the Fund's portfolio securities are denominated may have a
detrimental impact on the Fund's net asset value.
The economies of individual South American countries may differ
favorably or unfavorably from the U.S. economy in such respects as the rate of
growth of gross domestic product, the rate of inflation, capital reinvestment,
resource self-sufficiency and balance of payments position. Certain South
American countries have experienced high levels of inflation which can have a
debilitating effect on the economy. Furthermore, certain South American
countries may impose withholding taxes on dividends payable to a Fund at a
higher rate than those imposed by other foreign countries. This may reduce the
Fund's investment income available for distribution to shareholders.
Certain South American countries such as Argentina, Brazil and Mexico
are among the world's largest debtors to commercial banks and foreign
governments. At times, certain South American countries have declared moratoria
on the payment of principal and/or interest on outstanding debt. Investment in
sovereign debt can involve a high degree of risk. The governmental entity that
controls the repayment of sovereign debt may not be able or willing to repay the
principal and/or interest when due in accordance with the terms of such debt. A
governmental entity's willingness or ability to repay principal and interest due
in a timely manner may be affected by, among other factors, its cash flow
situation, the extent of its foreign reserves, the availability of sufficient
foreign exchange on the date a payment is due, the relative size of the debt
service burden to the economy as a whole, the governmental entity's policy
towards the International Monetary Fund, and the political constraints to which
a governmental entity may be subject. Governmental entities may also be
dependent on expected disbursements from foreign governments, multilateral
agencies and others abroad to reduce principal and interest arrearages on their
debt. The commitment on the part of these governments, agencies and others to
make such disbursements may be conditioned on a governmental entity's
implementation of economic reforms and/or economic performance and the timely
service of such debtor's obligations. Failure to implement such reforms, achieve
such levels of economic performance or repay principal or interest when due may
result in the cancellation of such third parties' commitments to lend funds to
the governmental entity, which may further impair such debtor's ability or
willingness to service its debts in a timely manner. Consequently, governmental
entities may default on their sovereign debt.
Holders of sovereign debt, may be requested to participate in the
rescheduling of such debt and to extend further loans to governmental entities.
There is no bankruptcy proceeding by which defaulted sovereign debt may be
collected in whole or in part.
Governments of many South American countries have exercised and
continue to exercise substantial influence over many aspects of the private
sector through the ownership or control of many companies, including some of the
largest in those countries. As a result, government actions in the future could
have a significant effect on economic conditions which may adversely affect
prices of certain portfolio securities. Expropriation, confiscatory taxation,
nationalization, political, economic or social instability or other similar
developments, such as military coups, have occurred in the past and could also
adversely affect a Fund's investments in this region.
Changes in political leadership, the implementation of market oriented
economic policies, such as privatization, trade reform and fiscal and monetary
reform are among the recent steps taken to renew economic growth. External debt
is being restructured and flight capital (domestic capital that has left home
country) has begun to return. Inflation control efforts have also been
implemented. South American equity markets can be extremely volatile and in the
past have shown little correlation with the U.S. market. Currencies are
typically weak, but most are now relatively free floating, and it is not unusual
for the currencies to undergo wide fluctuations in value over short periods of
time due to changes in the market.
DEBT SECURITIES
IN GENERAL. Investment in debt securities involves both interest rate
and credit risk. Generally, the value of debt instruments rises and falls
inversely with fluctuations in interest rates. As interest rates decline, the
value of debt securities generally increases. Conversely, rising interest rates
tend to cause the value of debt securities to decrease. Bonds with longer
maturities generally are more volatile than bonds with shorter maturities. The
market value of debt securities also varies according to the relative financial
condition of the issuer. In general, lower-quality bonds offer higher yields due
to the increased risk that the issuer will be unable to meet its obligations on
interest or principal payments at the time called for by the debt instrument.
INVESTMENT-GRADE DEBT SECURITIES. Bonds rated Aaa by Moody's Investors
Service, Inc. ("Moody's") and AAA by Standard & Poor's Ratings Group ("S&P") are
judged to be of the best quality (i.e., capacity to pay interest and repay
principal is extremely strong). Bonds rated Aa/AA are considered to be of high
quality (i.e., capacity to pay interest and repay principal is very strong and
differs from the highest rated issues only to a small degree). Bonds rated A are
viewed as having many favorable investment attributes, but elements may be
present that suggest a susceptibility to the adverse effects of changes in
circumstances and economic conditions than debt in higher rated categories.
Bonds rated Baa/BBB (considered by Moody's to be "medium grade" obligations) are
considered to have an adequate capacity to pay interest and repay principal, but
certain protective elements may be lacking (i.e., such bonds lack outstanding
investment characteristics and have some speculative characteristics). The Fund
may invest in debt securities that are given an investment-grade rating by
Moody's or S&P, and may also invest in unrated debt securities that are
considered by IMI to be of comparable quality.
LOW-RATED DEBT SECURITIES. Securities rated lower than Baa by Moody's
or BBB by S&P, and comparable unrated securities (commonly referred to as "high
yield" or "junk" bonds), including many emerging markets bonds, are considered
to be predominantly speculative with respect to the issuer's continuing ability
to meet principal and interest payments. The lower the ratings of corporate debt
securities, the more their risks render them like equity securities. Such
securities carry a high degree of risk (including the possibility of default or
bankruptcy of the issuers of such securities), and generally involve greater
volatility of price and risk of principal and income (and may be less liquid)
than securities in the higher rating categories. (See Appendix A for a more
complete description of the ratings assigned by Moody's and S&P and their
respective characteristics.)
Lower rated and unrated securities are especially subject to adverse
changes in general economic conditions and to changes in the financial condition
of their issuers. Economic downturns may disrupt the high yield market and
impair the ability of issuers to repay principal and interest. Also, an increase
in interest rates would likely have an adverse impact on the value of such
obligations. During an economic downturn or period of rising interest rates,
highly leveraged issuers may experience financial stress which could adversely
affect their ability to service their principal and interest payment
obligations. Prices and yields of high yield securities will fluctuate over time
and, during periods of economic uncertainty, volatility of high yield securities
may adversely affect the Fund's net asset value. In addition, investments in
high yield zero coupon or pay-in-kind bonds, rather than income-bearing high
yield securities, may be more speculative and may be subject to greater
fluctuations in value due to changes in interest rates.
Changes in interest rates may have a less direct or dominant impact on
high yield bonds than on higher quality issues of similar maturities. However,
the price of high yield bonds can change significantly or suddenly due to a host
of factors including changes in interest rates, fundamental credit quality,
market psychology, government regulations, U.S. economic growth and, at times,
stock market activity. High yield bonds may contain redemption or call
provisions. If an issuer exercises these provisions in a declining interest rate
market, the Fund may have to replace the security with a lower yielding
security.
The trading market for high yield securities may be thin to the extent
that there is no established retail secondary market or because of a decline in
the value of such securities. A thin trading market may limit the ability of the
Fund to accurately value high yield securities in the Fund's portfolio, could
adversely affect the price at which the Fund could sell such securities, and
cause large fluctuations in the daily net asset value of the Fund's shares.
Adverse publicity and investor perceptions, whether or not based on fundamental
analysis, may decrease the value and liquidity of low-rated debt securities,
especially in a thinly traded market. When secondary markets for high yield
securities become relatively less liquid, it may be more difficult to value the
securities, requiring additional research and elements of judgment. These
securities may also involve special registration responsibilities, liabilities
and costs, and liquidity and valuation difficulties.
Credit quality in the high yield securities market can change suddenly
and unexpectedly, and even recently issued credit ratings may not fully reflect
the actual risks posed by a particular high yield security. For these reasons,
it is the policy of IMI not to rely exclusively on ratings issued by established
credit rating agencies, but to supplement such ratings with its own independent
and on-going review of credit quality. The achievement of the Fund's investment
objectives by investment in such securities may be more dependent on IMI's
credit analysis than is the case for higher quality bonds. Should the rating of
a portfolio security be downgraded, IMI will determine whether it is in the best
interest of the Fund to retain or dispose of such security. However, should any
individual bond held by the Fund be downgraded below a rating of C, IMI
currently intends to dispose of such bond based on then existing market
conditions.
Prices for high yield securities may be affected by legislative and
regulatory developments. For example, Federal rules require savings and loan
institutions to gradually reduce their holdings of this type of security. Also,
Congress has from time to time considered legislation that would restrict or
eliminate the corporate tax deduction for interest payments in these securities
and regulate corporate restructurings. Such legislation may significantly
depress the prices of outstanding securities of this type.
"WHEN-ISSUED" SECURITIES AND FIRM COMMITMENTS. New issues of certain
debt securities are often offered on a "when-issued" basis, meaning the payment
obligation and the interest rate are fixed at the time the buyer enters into the
commitment, but delivery and payment for the securities normally take place
after the date of the commitment to purchase. Firm commitment agreements call
for the purchase of securities at an agreed-upon price on a specified future
date. The Fund uses such investment techniques in order to secure what is
considered to be an advantageous price and yield to the Fund and not for
purposes of leveraging the Fund's assets. In either instance, the Fund will
maintain in a segregated account with its Custodian cash or liquid securities
equal (on a daily marked-to-market basis) to the amount of its commitment to
purchase the underlying securities.
ZERO COUPON BONDS. Zero coupon bonds are debt obligations issued
without any requirement for the periodic payment of interest. Zero coupon bonds
are issued at a significant discount from face value. The discount approximates
the total amount of interest the bonds would accrue and compound over the period
until maturity at a rate of interest reflecting the market rate at the time of
issuance. If the Fund holds zero coupon bonds in its portfolio, it would
recognize income currently for Federal income tax purposes in the amount of the
unpaid, accrued interest and generally would be required to distribute dividends
representing such income to shareholders currently, even though funds
representing such income would not have been received by the Fund. Cash to pay
dividends representing unpaid, accrued interest may be obtained from, for
example, sales proceeds of portfolio securities and Fund shares and from loan
proceeds. The potential sale of portfolio securities to pay cash distributions
from income earned on zero coupon bonds may result in the Fund being forced to
sell portfolio securities at a time when it might otherwise choose not to sell
these securities and when the Fund might incur a capital loss on such sales.
Because interest on zero coupon obligations is not distributed to the Fund on a
current basis, but is in effect compounded, the value of the securities of this
type is subject to greater fluctuations in response to changing interest rates
than the value of debt obligations which distribute income regularly.
ILLIQUID SECURITIES
The Fund may purchase securities other than in the open market. While
such purchases may often offer attractive opportunities for investment not
otherwise available on the open market, the securities so purchased are often
"restricted securities" or "not readily marketable" (i.e., they cannot be sold
to the public without registration under the Securities Act of 1933, as amended
(the "1933 Act"), or the availability of an exemption from registration (such as
Rule 144A) or because they are subject to other legal or contractual delays in
or restrictions on resale). This investment practice, therefore, could have the
effect of increasing the level of illiquidity of the Fund. It is the Fund's
policy that illiquid securities (including repurchase agreements of more than
seven days duration, certain restricted securities, and other securities which
are not readily marketable) may not constitute, at the time of purchase, more
than 15% of the value of the Fund's net assets. The Trust's Board of Trustees
has approved guidelines for use by IMI in determining whether a security is
illiquid.
Generally speaking, restricted securities may be sold (i) only to
qualified institutional buyers; (ii) in a privately negotiated transaction to a
limited number of purchasers; (iii) in limited quantities after they have been
held for a specified period of time and other conditions are met pursuant to an
exemption from registration; or (iv) in a public offering for which a
registration statement is in effect under the 1933 Act. Issuers of restricted
securities may not be subject to the disclosure and other investor protection
requirements that would be applicable if their securities were publicly traded.
If adverse market conditions were to develop during the period between the
Fund's decision to sell a restricted or illiquid security and the point at which
the Fund is permitted or able to sell such security, the Fund might obtain a
price less favorable than the price that prevailed when it decided to sell.
Where a registration statement is required for the resale of restricted
securities, the Fund may be required to bear all or part of the registration
expenses. The Fund may be deemed to be an "underwriter" for purposes of the 1933
Act when selling restricted securities to the public and, in such event, the
Fund may be liable to purchasers of such securities if the registration
statement prepared by the issuer is materially inaccurate or misleading.
Since it is not possible to predict with assurance that the market for
securities eligible for resale under Rule 144A will continue to be liquid, IMI
will monitor such restricted securities subject to the supervision of the Board
of Trustees. Among the factors IMI may consider in reaching liquidity decisions
relating to Rule 144A securities are: (1) the frequency of trades and quotes for
the security; (2) the number of dealers wishing to purchase or sell the security
and the number of other potential purchasers; (3) dealer undertakings to make a
market in the security; and (4) the nature of the security and the nature of the
market for the security (i.e., the time needed to dispose of the security, the
method of soliciting offers, and the mechanics of the transfer).
FOREIGN SECURITIES
The securities of foreign issuers in which the Fund may invest include
non-U.S. dollar-denominated debt securities, Euro dollar securities, sponsored
and unsponsored American Depository Receipts ("ADRs"), Global Depository
Receipts ("GDRs"), American Depository Shares ("ADSs"), Global Depository Shares
("GDSs") and related depository instruments, and debt securities issued, assumed
or guaranteed by foreign governments or political subdivisions or
instrumentalities thereof. Shareholders should consider carefully the
substantial risks involved in investing in securities issued by companies and
governments of foreign nations, which are in addition to the usual risks
inherent in the Fund's domestic investments.
Although IMI intends to invest the Fund's assets only in nations that
are generally considered to have relatively stable and friendly governments,
there is the possibility of expropriation, nationalization, repatriation or
confiscatory taxation, taxation on income earned in a foreign country and other
foreign taxes, foreign exchange controls (which may include suspension of the
ability to transfer currency from a given country), default on foreign
government securities, political or social instability or diplomatic
developments which could affect investments in securities of issuers in those
nations. In addition, in many countries there is less publicly available
information about issuers than is available for U.S. companies. Moreover,
foreign companies are not generally subject to uniform accounting, auditing and
financial reporting standards, and auditing practices and requirements may not
be comparable to those applicable to U.S. companies. In many foreign countries,
there is less governmental supervision and regulation of business and industry
practices, stock exchanges, brokers, and listed companies than in the United
States. Foreign securities transactions may also be subject to higher brokerage
costs than domestic securities transactions. The foreign securities markets of
many of the countries in which the Fund may invest may also be smaller, less
liquid and subject to greater price volatility than those in the United States.
In addition, the Fund may encounter difficulties or be unable to pursue legal
remedies and obtain judgment in foreign courts.
Foreign bond markets have different clearance and settlement procedures
and in certain markets there have been times when settlements have been unable
to keep pace with the volume of securities transactions, making it difficult to
conduct such transactions. Delays in settlement could result in temporary
periods when assets of the Fund are uninvested and no return is earned thereon.
The inability of the Fund to make intended security purchases due to settlement
problems could cause the Fund to miss attractive investment opportunities.
Further, the inability to dispose of portfolio securities due to settlement
problems could result either in losses to the Fund because of subsequent
declines in the value of the portfolio security or, if the Fund has entered into
a contract to sell the security, in possible liability to the purchaser. It may
be more difficult for the Fund's agents to keep currently informed about
corporate actions such as stock dividends or other matters that may affect the
prices of portfolio securities. Communications between the United States and
foreign countries may be less reliable than within the United States, thus
increasing the risk of delayed settlements of portfolio transactions or loss of
certificates for portfolio securities. Moreover, individual foreign economies
may differ favorably or unfavorably from the United States economy in such
respects as growth of gross national product, rate of inflation, capital
reinvestment, resource self-sufficiency and balance of payments position. IMI
seeks to mitigate the risks to the Fund associated with the foregoing
considerations through investment variation and continuous professional
management.
DEPOSITORY RECEIPTS
ADRs, GDRs, ADSs, GDSs and related securities are depository
instruments, the issuance of which is typically administered by a U.S. or
foreign bank or trust company. These instruments evidence ownership of
underlying securities issued by a U.S. or foreign corporation. ADRs are publicly
traded on exchanges or over-the-counter ("OTC") in the United States.
Unsponsored programs are organized independently and without the cooperation of
the issuer of the underlying securities. As a result, information concerning the
issuer may not be as current or as readily available as in the case of sponsored
depository instruments, and their prices may be more volatile than if they were
sponsored by the issuers of the underlying securities.
EMERGING MARKETS
The Fund could have significant investments in securities traded in
emerging markets. Investors should recognize that investing in such countries
involves special considerations, in addition to those set forth above, that are
not typically associated with investing in United States securities and that may
affect the Fund's performance favorably or unfavorably.
In recent years, many emerging market countries around the world have
undergone political changes that have reduced government's role in economic and
personal affairs and have stimulated investment and growth. Historically, there
is a strong direct correlation between economic growth and stock market returns.
While this is no guarantee of future performance, IMI believes that investment
opportunities (particularly in the energy, environmental services, natural
resources, basic materials, power, telecommunications and transportation
industries) may result within the evolving economies of emerging market
countries from which the Fund and its shareholders will benefit.
Investments in companies domiciled in developing countries may be
subject to potentially higher risks than investments in developed countries.
Such risks include (i) less social, political and economic stability; (ii) a
small market for securities and/or a low or nonexistent volume of trading, which
result in a lack of liquidity and in greater price volatility; (iii) certain
national policies that may restrict the Fund's investment opportunities,
including restrictions on investment in issuers or industries deemed sensitive
to national interests; (iv) foreign taxation; (v) the absence of developed
structures governing private or foreign investment or allowing for judicial
redress for injury to private property; (vi) the absence, until relatively
recently in certain Eastern European countries, of a capital market structure or
market-oriented economy; (vii) the possibility that recent favorable economic
developments in Eastern Europe may be slowed or reversed by unanticipated
political or social events in such countries; and (viii) the possibility that
currency devaluations could adversely affect the value of the Fund's
investments. Further, many emerging markets have experienced and continue to
experience high rates of inflation.
Despite the dissolution of the Soviet Union, the Communist Party may
continue to exercise a significant role in certain Eastern European countries.
To the extent of the Communist Party's influence, investments in such countries
will involve risks of nationalization, expropriation and confiscatory taxation.
The communist governments of a number of Eastern European countries expropriated
large amounts of private property in the past, in many cases without adequate
compensation, and there can be no assurance that such expropriation will not
occur in the future. In the event of such expropriation, the Fund could lose a
substantial portion of any investments it has made in the affected countries.
Further, few (if any) accounting standards exist in Eastern European countries.
Finally, even though certain Eastern European currencies may be convertible into
U.S. dollars, the conversion rates may be artificial in relation to the actual
market values and may be adverse to the Fund's net asset value.
Certain Eastern European countries that do not have well-established
trading markets are characterized by an absence of developed legal structures
governing private and foreign investments and private property. In addition,
certain countries require governmental approval prior to investments by foreign
persons, or limit the amount of investment by foreign persons in a particular
company, or limit the investment of foreign persons to only a specific class of
securities of a company that may have less advantageous terms than securities of
the company available for purchase by nationals.
Authoritarian governments in certain Eastern European countries may
require that a governmental or quasi-governmental authority act as custodian of
the Fund's assets invested in such country. To the extent such governmental or
quasi-governmental authorities do not satisfy the requirements of the Investment
Company Act of 1940, as amended (the "1940 Act"), with respect to the custody of
the Fund's cash and securities, the Fund's investment in such countries may be
limited or may be required to be effected through intermediaries. The risk of
loss through governmental confiscation may be increased in such countries.
FOREIGN CURRENCIES
Investment in foreign securities usually will involve currencies of
foreign countries. Moreover, the Fund may temporarily hold funds in bank
deposits in foreign currencies during the completion of investment programs and
may purchase forward foreign currency contracts. Because of these factors, the
value of the assets of the Fund as measured in U.S. dollars may be affected
favorably or unfavorably by changes in foreign currency exchange rates and
exchange control regulations, and the Fund may incur costs in connection with
conversions between various currencies. Although the Fund's custodian values the
Fund's assets daily in terms of U.S. dollars, the Fund does not intend to
convert its holdings of foreign currencies into U.S. dollars on a daily basis.
The Fund will do so from time to time, however, and investors should be aware of
the costs of currency conversion. Although foreign exchange dealers do not
charge a fee for conversion, they do realize a profit based on the difference
(the "spread") between the prices at which they are buying and selling various
currencies. Thus, a dealer may offer to sell a foreign currency to the Fund at
one rate, while offering a lesser rate of exchange should the Fund desire to
resell that currency to the dealer. The Fund will conduct its foreign currency
exchange transactions either on a spot (i.e., cash) basis at the spot rate
prevailing in the foreign currency exchange market, or through entering into
forward contracts to purchase or sell foreign currencies.
Because the Fund normally will be invested in both U.S. and foreign
securities markets, changes in the Fund's share price may have a low correlation
with movements in U.S. markets. The Fund's share price will reflect the
movements of the different stock and bond markets in which it is invested (both
U.S. and foreign), and of the currencies in which the investments are
denominated. Thus, the strength or weakness of the U.S. dollar against foreign
currencies may account for part of the Fund's investment performance. U.S. and
foreign securities markets do not always move in step with each other, and the
total returns from different markets may vary significantly. In addition,
significant uncertainty surrounds the proposed introduction of the euro (a
common currency for the European Union) in January 1999 and its effect on the
value of securities denominated in local European currencies. These and other
currencies in which the Fund's assets are denominated may be devalued against
the U.S. dollar, resulting in a loss to the Fund.
FOREIGN CURRENCY EXCHANGE TRANSACTIONS
The Fund may enter into forward foreign currency contracts in order to
protect against uncertainty in the level of future foreign exchange rates in the
purchase and sale of securities. A forward contract is an obligation to purchase
or sell a specific currency for an agreed price at a future date (usually less
than a year), and typically is individually negotiated and privately traded by
currency traders and their customers. A forward contract generally has no
deposit requirement, and no commissions are charged at any stage for trades.
Although foreign exchange dealers do not charge a fee for commissions, they do
realize a profit based on the difference between the price at which they are
buying and selling various currencies. Although these contracts are intended to
minimize the risk of loss due to a decline in the value of the hedged
currencies, at the same time, they tend to limit any potential gain which might
result should the value of such currencies increase.
While the Fund may enter into forward contracts to reduce currency
exchange risks, changes in currency exchange rates may result in poorer overall
performance for the Fund than if it had not engaged in such transactions.
Moreover, there may be an imperfect correlation between the Fund's portfolio
holdings of securities denominated in a particular currency and forward
contracts entered into by the Fund. An imperfect correlation of this type may
prevent the Fund from achieving the intended hedge or expose the Fund to the
risk of currency exchange loss.
The Fund may purchase currency forwards and combine such purchases with
sufficient cash or short-term securities to create unleveraged substitutes for
investments in foreign markets when deemed advantageous. The Fund may also
combine the foregoing with bond futures or interest rate futures contracts to
create the economic equivalent of an unhedged foreign bond position.
The Fund may also cross-hedge currencies by entering into transactions
to purchase or sell one or more currencies that are expected to decline in value
relative to other currencies to which the Fund has or in which the Fund expects
to have portfolio exposure.
Currency transactions are subject to risks different from those of
other portfolio transactions. Because currency control is of great importance to
the issuing governments and influences economic planning and policy, purchases
and sales of currency and related instruments can be negatively affected by
government exchange controls, blockages, and manipulations or exchange
restrictions imposed by governments. These can result in losses to the Fund if
it is unable to deliver or receive currency or funds in settlement of
obligations and could also cause hedges it has entered into to be rendered
useless, resulting in full currency exposure as well as incurring transactions
costs. Buyers and sellers of currency futures are subject to the same risks that
apply to the use of futures generally. Further, settlement of a currency futures
contract for the purchase of most currencies must occur at a bank based in the
issuing nation. Trading options on currency futures is relatively new, and the
ability to establish and close out positions on such options is subject to the
maintenance of a liquid market which may not always be available. Currency
exchange rates may fluctuate based on factors extrinsic to that country's
economy.
OTHER INVESTMENT COMPANIES
The Fund may invest up to 10% of its total assets in the shares of
other investment companies. As a shareholder of an investment company, the Fund
would bear its ratable shares of the fund's expenses (which often include an
asset-based management fee). The Fund could also lose money by investing in
other investment companies, since the value of their respective investments and
the income they generate will vary daily based on prevailing market conditions.
REPURCHASE AGREEMENTS
Repurchase agreements are contracts under which the Fund buys a money
market instrument and obtains a simultaneous commitment from the seller to
repurchase the instrument at a specified time and at an agreed-upon yield. Under
guidelines approved by the Board, the Fund is permitted to enter into repurchase
agreements only if the repurchase agreements are at least fully collateralized
with U.S. Government securities or other securities that IMI has approved for
use as collateral for repurchase agreements and the collateral must be
marked-to-market daily. The Fund will enter into repurchase agreements only with
banks and broker-dealers deemed to be creditworthy by IMI under the
above-referenced guidelines. In the unlikely event of failure of the executing
bank or broker-dealer, the Fund could experience some delay in obtaining direct
ownership of the underlying collateral and might incur a loss if the value of
the security should decline, as well as costs in disposing of the security.
BANKING INDUSTRY AND SAVINGS AND LOAN OBLIGATIONS
Certificates of deposit are negotiable certificates issued against
funds deposited in a commercial bank for a definite period of time and earning a
specified return. Bankers' acceptances are negotiable drafts or bills of
exchange, normally drawn by an importer or exporter to pay for specific
merchandise, which are "accepted" by a bank (meaning, in effect, that the bank
unconditionally agrees to pay the face value of the instrument at maturity). In
addition to investing in certificates of deposit and bankers' acceptances, the
Fund may invest in time deposits in banks or savings and loan associations. Time
deposits are generally similar to certificates of deposit, but are
uncertificated. The Fund's investments in certificates of deposit, time
deposits, and bankers' acceptance are limited to obligations of (i) banks having
total assets in excess of $1 billion, (ii) U.S. banks which do not meet the $1
billion asset requirement, if the principal amount of such obligation is fully
insured by the Federal Deposit Insurance Corporation (the "FDIC"), (iii) savings
and loan association which have total assets in excess of $1 billion and which
are members of the FDIC, and (iv) foreign banks if the obligation is, in IMI's
opinion, of an investment quality comparable to other debt securities which may
be purchased by the Fund. The Fund's investments in certificates of deposit of
savings associations are limited to obligations of Federal and state-chartered
institutions whose total assets exceed $1 billion and whose deposits are insured
by the FDIC.
COMMERCIAL PAPER
Commercial paper represents short-term unsecured promissory notes
issued in bearer form by bank holding companies, corporations and finance
companies. The Fund may invest in commercial paper that is rated Prime-1 by
Moody's Investors Service, Inc. ("Moody's") or A-1 by Standard & Poor's
Corporation ("S&P") or, if not rated by Moody's or S&P, is issued by companies
having an outstanding debt issue rated Aaa or Aa by Moody's or AAA or AA by S&P.
BORROWING
Borrowing may exaggerate the effect on the Fund's net asset value of
any increase or decrease in the value of the Fund's portfolio securities. Money
borrowed will be subject to interest costs (which may include commitment fees
and/or the cost of maintaining minimum average balances). Although the principal
of the Fund's borrowings will be fixed, the Fund's assets may change in value
during the time a borrowing is outstanding, thus increasing exposure to capital
risk.
WARRANTS
The holder of a warrant has the right, until the warrant expires, to
purchase a given number of shares of a particular issuer at a specified price.
Such investments can provide a greater potential for profit or loss than an
equivalent investment in the underlying security. However, prices of warrants do
not necessarily move in a tandem with the prices of the underlying securities,
and are, therefore, considered speculative investments. Warrants pay no
dividends and confer no rights other than a purchase option. Thus, if a warrant
held by the Fund were not exercised by the date of its expiration, the Fund
would lose the entire purchase price of the warrant.
OPTIONS TRANSACTIONS
IN GENERAL. A call option is a short-term contract (having a duration
of less than one year) pursuant to which the purchaser, in return for the
premium paid, has the right to buy the security underlying the option at the
specified exercise price at any time during the term of the option. The writer
of the call option, who receives the premium, has the obligation, upon exercise
of the option, to deliver the underlying security against payment of the
exercise price. A put option is a similar contract pursuant to which the
purchaser, in return for the premium paid, has the right to sell the security
underlying the option at the specified exercise price at any time during the
term of the option. The writer of the put option, who receives the premium, has
the obligation, upon exercise of the option, to buy the underlying security at
the exercise price. The premium paid by the purchaser of an option will reflect,
among other things, the relationship of the exercise price to the market price
and volatility of the underlying security, the time remaining to expiration of
the option, supply and demand, and interest rates.
If the writer of an option wishes to terminate the obligation, the
writer may effect a "closing purchase transaction." This is accomplished by
buying an option of the same series as the option previously written. The effect
of the purchase is that the writer's position will be canceled by the Options
Clearing Corporation. However, a writer may not effect a closing purchase
transaction after it has been notified of the exercise of an option. Likewise,
an investor who is the holder of an option may liquidate his or her position by
effecting a "closing sale transaction." This is accomplished by selling an
option of the same series as the option previously purchased. There is no
guarantee that either a closing purchase or a closing sale transaction can be
effected at any particular time or at any acceptable price. If any call or put
option is not exercised or sold, it will become worthless on its expiration
date.
The Fund will realize a gain (or a loss) on a closing purchase
transaction with respect to a call or a put previously written by the Fund if
the premium, plus commission costs, paid by the Fund to purchase the call or the
put is less (or greater) than the premium, less commission costs, received by
the Fund on the sale of the call or the put. A gain also will be realized if a
call or a put that the Fund has written lapses unexercised, because the Fund
would retain the premium. Any such gains (or losses) are considered short-term
capital gains (or losses) for Federal income tax purposes. Net short-term
capital gains, when distributed by the Fund, are taxable as ordinary income. See
"Taxation."
The Fund will realize a gain (or a loss) on a closing sale transaction
with respect to a call or a put previously purchased by the Fund if the premium,
less commission costs, received by the Fund on the sale of the call or the put
is greater (or less) than the premium, plus commission costs, paid by the Fund
to purchase the call or the put. If a put or a call expires unexercised, it will
become worthless on the expiration date, and the Fund will realize a loss in the
amount of the premium paid, plus commission costs. Any such gain or loss will be
long-term or short-term gain or loss, depending upon the Fund's holding period
for the option.
Exchange-traded options generally have standardized terms and are
issued by a regulated clearing organization (such as the Options Clearing
Corporation), which, in effect, guarantees the completion of every
exchange-traded option transaction. In contrast, the terms of OTC options are
negotiated by the Fund and its counterparty (usually a securities dealer or a
financial institution) with no clearing organization guarantee. When the Fund
purchases an OTC option, it relies on the party from whom it has purchased the
option (the "counterparty") to make delivery of the instrument underlying the
option. If the counterparty fails to do so, the Fund will lose any premium paid
for the option, as well as any expected benefit of the transaction. Accordingly,
IMI will assess the creditworthiness of each counterparty to determine the
likelihood that the terms of the OTC option will be satisfied.
WRITING OPTIONS ON INDIVIDUAL SECURITIES. The Fund may write (sell)
covered call options on the Fund's securities in an attempt to realize a greater
current return than would be realized on the securities alone. The Fund may also
write covered call options to hedge a possible stock or bond market decline
(only to the extent of the premium paid to the Fund for the options). In view of
the investment objectives of the Fund, the Fund generally would write call
options only in circumstances where the investment adviser to the Fund does not
anticipate significant appreciation of the underlying security in the near
future or has otherwise determined to dispose of the security.
A "covered" call option means generally that so long as the Fund is
obligated as the writer of a call option, the Fund will (i) own the underlying
securities subject to the option, or (ii) have the right to acquire the
underlying securities through immediate conversion or exchange of convertible
preferred stocks or convertible debt securities owned by the Fund. Although the
Fund receives premium income from these activities, any appreciation realized on
an underlying security will be limited by the terms of the call option. The Fund
may purchase call options on individual securities only to effect a "closing
purchase transaction."
As the writer of a call option, the Fund receives a premium for
undertaking the obligation to sell the underlying security at a fixed price
during the option period, if the option is exercised. So long as the Fund
remains obligated as a writer of a call option, it forgoes the opportunity to
profit from increases in the market price of the underlying security above the
exercise price of the option, except insofar as the premium represents such a
profit (and retains the risk of loss should the value of the underlying security
decline).
PURCHASING OPTIONS ON INDIVIDUAL SECURITIES. The Fund may purchase a
put option on an underlying security owned by the Fund as a defensive technique
in order to protect against an anticipated decline in the value of the security.
The Fund, as the holder of the put option, may sell the underlying security at
the exercise price regardless of any decline in its market price. In order for a
put option to be profitable, the market price of the underlying security must
decline sufficiently below the exercise price to cover the premium and
transaction costs that the Fund must pay. These costs will reduce any profit the
Fund might have realized had it sold the underlying security instead of buying
the put option. The premium paid for the put option would reduce any capital
gain otherwise available for distribution when the security is eventually sold.
The purchase of put options will not be used by the Fund for leverage purposes.
The Fund may also purchase a put option on an underlying security that
it owns and at the same time write a call option on the same security with the
same exercise price and expiration date. Depending on whether the underlying
security appreciates or depreciates in value, the Fund would sell the underlying
security for the exercise price either upon exercise of the call option written
by it or by exercising the put option held by it. The Fund would enter into such
transactions in order to profit from the difference between the premium received
by the Fund for the writing of the call option and the premium paid by the Fund
for the purchase of the put option, thereby increasing the Fund's current
return. The Fund may write (sell) put options on individual securities only to
effect a "closing sale transaction."
PURCHASING AND WRITING OPTIONS ON SECURITIES INDICES. The Fund may
purchase and sell (write) put and call options on securities indices. An index
assigns relative values to the securities included in the index and the index
fluctuates with changes in the market values of the securities so included.
Options on indices are similar to options on individual securities, except that,
rather than giving the purchaser the right to take delivery of an individual
security at a specified price, they give the purchaser the right to receive
cash. The amount of cash is equal to the difference between the closing price of
the index and the exercise price of the option, expressed in dollars, times a
specified multiple (the "multiplier"). The writer of the option is obligated, in
return for the premium received, to make delivery of this amount.
The multiplier for an index option performs a function similar to the
unit of trading for a stock option. It determines the total dollar value per
contract of each point in the difference between the exercise price of an option
and the current level of the underlying index. A multiplier of 100 means that a
one-point difference will yield $100. Options on different indices have
different multipliers.
When the Fund writes a call or put option on a stock index, the option
is "covered", in the case of a call, or "secured", in the case of a put, if the
Fund maintains in a segregated account with the Custodian cash or liquid
securities equal to the contract value. A call option is also covered if the
Fund holds a call on the same index as the call written where the exercise price
of the call held is (i) equal to or less than the exercise price of the call
written or (ii) greater than the exercise price of the call written, provided
that the Fund maintains in a segregated account with the Custodian the
difference in cash or liquid securities. A put option is also "secured" if the
Fund holds a put on the same index as the put written where the exercise price
of the put held is (i) equal to or greater than the exercise price of the put
written or (ii) less than the exercise price of the put written, provided that
the Fund maintains in a segregated account with the Custodian the difference in
cash or liquid securities.
RISKS OF OPTIONS TRANSACTIONS. The purchase and writing of options
involves certain risks. During the option period, the covered call writer has,
in return for the premium on the option, given up the opportunity to profit from
a price increase in the underlying securities above the exercise price, but, as
long as its obligation as a writer continues, has retained the risk of loss
should the price of the underlying security decline. The writer of a U.S. option
has no control over the time when it may be required to fulfill its obligation
as a writer of the option. Once an option writer has received an exercise
notice, it cannot effect a closing purchase transaction in order to terminate
its obligation under the option and must deliver the underlying securities (or
cash in the case of an index option) at the exercise price. If a put or call
option purchased by the Fund is not sold when it has remaining value, and if the
market price of the underlying security (or index), in the case of a put,
remains equal to or greater than the exercise price or, in the case of a call,
remains less than or equal to the exercise price, the Fund will lose its entire
investment in the option. Also, where a put or call option on a particular
security (or index) is purchased to hedge against price movements in a related
security (or securities), the price of the put or call option may move more or
less than the price of the related security (or securities). In this regard,
there are differences between the securities and options markets that could
result in an imperfect correlation between these markets, causing a given
transaction not to achieve its objective.
There can be no assurance that a liquid market will exist when the Fund
seeks to close out an option position. Furthermore, if trading restrictions or
suspensions are imposed on the options markets, the Fund may be unable to close
out a position. Finally, trading could be interrupted, for example, because of
supply and demand imbalances arising from a lack of either buyers or sellers, or
the options exchange could suspend trading after the price has risen or fallen
more than the maximum amount specified by the exchange. Closing transactions can
be made for OTC options only by negotiating directly with the counterparty or by
a transaction in the secondary market, if any such market exists. There is no
assurance that the Fund will be able to close out an OTC option position at a
favorable price prior to its expiration. In the event of insolvency of the
counterparty, the Fund might be unable to close out an OTC option position at
any time prior to its expiration. Although the Fund may be able to offset to
some extent any adverse effects of being unable to liquidate an option position,
the Fund may experience losses in some cases as a result of such inability.
When conducted outside the U.S., options transactions may not be
regulated as rigorously as in the U.S., may not involve a clearing mechanism and
related guarantees, and are subject to the risk of governmental actions
affecting trading in, or the prices of, foreign securities, currencies and other
instruments. The value of such positions also could be adversely affected by:
(i) other complex foreign political, legal and economic factors, (ii) lesser
availability than in the U.S. of data on which to make trading decisions, (iii)
delays in the Fund's ability to act upon economic events occurring in foreign
markets during non-business hours in the U.S., (iv) the imposition of different
exercise and settlement terms and procedures and margin requirements than in the
U.S., and (v) lower trading volume and liquidity.
The Fund's options activities also may have an impact upon the level of its
portfolio turnover and brokerage commissions. See "Portfolio Turnover."
The Fund's success in using options techniques depends, among other
things, on IMI's ability to predict accurately the direction and volatility of
price movements in the options and securities markets, and to select the proper
type, time and duration of options.
FUTURES CONTRACTS AND OPTIONS ON FUTURES CONTRACTS
IN GENERAL. The Fund may enter into futures contracts and options on
futures contracts for hedging purposes. A futures contract provides for the
future sale by one party and purchase by another party of a specified quantity
of a commodity at a specified price and time. When a purchase or sale of a
futures contract is made by the Fund, the Fund is required to deposit with its
custodian (or broker, if legally permitted) a specified amount of cash or liquid
securities ("initial margin"). The margin required for a futures contract is set
by the exchange on which the contract is traded and may be modified during the
term of the contract. The initial margin is in the nature of a performance bond
or good faith deposit on the futures contract which is returned to the Fund upon
termination of the contract, assuming all contractual obligations have been
satisfied. A futures contract held by the Fund is valued daily at the official
settlement price of the exchange on which it is traded. Each day the Fund pays
or receives cash, called "variation margin," equal to the daily change in value
of the futures contract. This process is known as "marking to market." Variation
margin does not represent a borrowing or loan by the Fund but is instead a
settlement between the Fund and the broker of the amount one would owe the other
if the futures contract expired. In computing daily net asset value, the Fund
will mark-to-market its open futures position.
The Fund is also required to deposit and maintain margin with respect
to put and call options on futures contracts written by it. Such margin deposits
will vary depending on the nature of the underlying futures contract (and the
related initial margin requirements), the current market value of the option,
and other futures positions held by the Fund.
Although some futures contracts call for making or taking delivery of
the underlying securities, generally these obligations are closed out prior to
delivery of offsetting purchases or sales of matching futures contracts (same
exchange, underlying security or index, and delivery month). If an offsetting
purchase price is less than the original sale price, the Fund generally realizes
a capital gain, or if it is more, the Fund generally realizes a capital loss.
Conversely, if an offsetting sale price is more than the original purchase
price, the Fund generally realizes a capital gain, or if it is less, the Fund
generally realizes a capital loss.
The transaction costs must also be included in these calculations.
When purchasing a futures contract, the Fund will maintain with its
Custodian (and mark-to-market on a daily basis) cash or liquid securities that,
when added to the amounts deposited with a futures commission merchant ("FCM")
as margin, are equal to the market value of the futures contract. Alternatively,
the Fund may "cover" its position by purchasing a put option on the same futures
contract with a strike price as high as or higher than the price of the contract
held by the Fund, or, if lower, may cover the difference with cash or short-term
securities.
When selling a futures contract, the Fund will maintain with its
Custodian in a segregated account (and mark-to-market on a daily basis) cash or
liquid securities that, when added to the amounts deposited with an FCM as
margin, are equal to the market value of the instruments underlying the
contract. Alternatively, the Fund may "cover" its position by owning the
instruments underlying the contract (or, in the case of an index futures
contract, a portfolio with a volatility substantially similar to that of the
index on which the futures contract is based), or by holding a call option
permitting the Fund to purchase the same futures contract at a price no higher
than the price of the contract written by the Fund (or at a higher price if the
difference is maintained in liquid assets with the Fund's custodian).
When selling a call option on a futures contract, the Fund will
maintain with its Custodian in a segregated account (and mark-to-market on a
daily basis) cash or liquid securities that, when added to the amounts deposited
with an FCM as margin, equal the total market value of the futures contract
underlying the call option. Alternatively, the Fund may cover its position by
entering into a long position in the same futures contract at a price no higher
than the strike price of the call option, by owning the instruments underlying
the futures contract, or by holding a separate call option permitting the Fund
to purchase the same futures contract at a price not higher than the strike
price of the call option sold by the Fund, or covering the difference if the
price is higher.
When selling a put option on a futures contract, the Fund will maintain
with its Custodian (and mark-to-market on a daily basis) cash or liquid
securities that equal the purchase price of the futures contract less any margin
on deposit. Alternatively, the Fund may cover the position either by entering
into a short position in the same futures contract, or by owning a separate put
option permitting it to sell the same futures contract so long as the strike
price of the purchased put option is the same or higher than the strike price of
the put option sold by the Fund, or, if lower, the Fund may hold securities to
cover the difference.
FOREIGN CURRENCY FUTURES CONTRACTS AND RELATED OPTIONS. The Fund may
engage in foreign currency futures contracts and related options transactions
for hedging purposes. A foreign currency futures contract provides for the
future sale by one party and purchase by another party of a specified quantity
of a foreign currency at a specified price and time.
An option on a foreign currency futures contract gives the holder the
right, in return for the premium paid, to assume a long position (call) or short
position (put) in a futures contract at a specified exercise price at any time
during the period of the option. Upon the exercise of a call option, the holder
acquires a long position in the futures contract and the writer is assigned the
opposite short position. In the case of a put option, the opposite is true.
The Fund may purchase call and put options on foreign currencies as a
hedge against changes in the value of the U.S. dollar (or another currency) in
relation to a foreign currency in which portfolio securities of the Fund may be
denominated. A call option on a foreign currency gives the buyer the right to
buy, and a put option the right to sell, a certain amount of foreign currency at
a specified price during a fixed period of time. The Fund may invest in options
on foreign currency which are either listed on a domestic securities exchange or
traded on a recognized foreign exchange.
In those situations where foreign currency options may not be readily
purchased (or where such options may be deemed illiquid) in the currency in
which the hedge is desired, the hedge may be obtained by purchasing an option on
a "surrogate" currency, i.e., a currency where there is tangible evidence of a
direct correlation in the trading value of the two currencies. A surrogate
currency's exchange rate movements parallel that of the primary currency.
Surrogate currencies are used to hedge an illiquid currency risk, when no liquid
hedge instruments exist in world currency markets for the primary currency.
The Fund will only enter into futures contracts and futures options
which are standardized and traded on a U.S. or foreign exchange, board of trade,
or similar entity or quoted on an automated quotation system. The Fund will not
enter into a futures contract or purchase an option thereon if, immediately
thereafter, the aggregate initial margin deposits for futures contracts held by
the Fund plus premiums paid by it for open futures option positions, less the
amount by which any such positions are "in-the-money," would exceed 5% of the
liquidation value of the Fund's portfolio (or the Fund's net asset value), after
taking into account unrealized profits and unrealized losses on any such
contracts the Fund has entered into. A call option is "in-the-money" if the
value of the futures contract that is the subject of the option exceeds the
exercise price. A put option is "in-the-money" if the exercise price exceeds the
value of the futures contract that is the subject of the option. For additional
information about margin deposits required with respect to futures contracts and
options thereon, see "Futures Contracts and Options on Futures Contracts."
RISKS ASSOCIATED WITH FUTURES AND RELATED OPTIONS. There can be no
guarantee that there will be a correlation between price movements in the
hedging vehicle and in the Fund's portfolio securities being hedged. In
addition, there are significant differences between the securities and futures
markets that could result in an imperfect correlation between the markets,
causing a given hedge not to achieve its objectives. The degree of imperfection
of correlation depends on circumstances such as variations in speculative market
demand for futures and futures options on securities, including technical
influences in futures trading and futures options, and differences between the
financial instruments being hedged and the instruments underlying the standard
contracts available for trading in such respects as interest rate levels,
maturities, and creditworthiness of issuers. A decision as to whether, when and
how to hedge involves the exercise of skill and judgment, and even a
well-conceived hedge may be unsuccessful to some degree because of market
behavior or unexpected interest rate trends.
Futures exchanges may limit the amount of fluctuation permitted in
certain futures contract prices during a single trading day. The daily limit
establishes the maximum amount that the price of a futures contract may vary
either up or down from the previous day's settlement price at the end of the
current trading session. Once the daily limit has been reached in a futures
contract subject to the limit, no more trades may be made on that day at a price
beyond that limit. The daily limit governs only price movements during a
particular trading day and therefore does not limit potential losses because the
limit may work to prevent the liquidation of unfavorable positions. For example,
futures prices have occasionally moved to the daily limit for several
consecutive trading days with little or no trading, thereby preventing prompt
liquidation of positions and subjecting some holders of futures contracts to
substantial losses.
There can be no assurance that a liquid market will exist at a time
when the Fund seeks to close out a futures or a futures option position, and the
Fund would remain obligated to meet margin requirements until the position is
closed. In addition, there can be no assurance that an active secondary market
will continue to exist.
Currency futures contracts and options thereon may be traded on foreign
exchanges. Such transactions may not be regulated as effectively as similar
transactions in the United States; may not involve a clearing mechanism and
related guarantees; and are subject to the risk of governmental actions
affecting trading in, or the prices of, foreign securities. The value of such
position also could be adversely affected by (i) other complex foreign
political, legal and economic factors, (ii) lesser availability than in the
United States of data on which to make trading decisions, (iii) delays in the
Fund's ability to act upon economic events occurring in foreign markets during
non business hours in the United States, (iv) the imposition of different
exercise and settlement terms and procedures and margin requirements than in the
United States, and (v) lesser trading volume.
SECURITIES INDEX FUTURES CONTRACTS
The Fund may enter into securities index futures contracts as an
efficient means of regulating the Fund's exposure to the equity markets. The
Fund will not engage in transactions in futures contracts for speculation, but
only as a hedge against changes resulting from market conditions in the values
of securities held in the Fund's portfolio or which it intends to purchase. An
index futures contract is a contract to buy or sell units of an index at a
specified future date at a price agreed upon when the contract is made. Entering
into a contract to buy units of an index is commonly referred to as purchasing a
contract or holding a long position in the index. Entering into a contract to
sell units of an index is commonly referred to as selling a contract or holding
a short position. The value of a unit is the current value of the stock index.
For example, the S&P 500 Index is composed of 500 selected common stocks, most
of which are listed on the New York Stock Exchange (the "Exchange"). The S&P 500
Index assigns relative weightings to the 500 common stocks included in the
Index, and the Index fluctuates with changes in the market values of the shares
of those common stocks. In the case of the S&P 500 Index, contracts are to buy
or sell 500 units. Thus, if the value of the S&P 500 Index were $150, one
contract would be worth $75,000 (500 units x $150). The index futures contract
specifies that no delivery of the actual securities making up the index will
take place. Instead, settlement in cash must occur upon the termination of the
contract, with the settlement being the difference between the contract price
and the actual level of the stock index at the expiration of the contract. For
example, if the Fund enters into a futures contract to buy 500 units of the S&P
500 Index at a specified future date at a contract price of $150 and the S&P 500
Index is at $154 on that future date, the Fund will gain $2,000 (500 units x
gain of $4). If the Fund enters into a futures contract to sell 500 units of the
stock index at a specified future date at a contract price of $150 and the S&P
500 Index is at $154 on that future date, the Fund will lose $2,000 (500 units x
loss of $4).
RISKS OF SECURITIES INDEX FUTURES. The Fund's success in using hedging
techniques depends, among other things, on IMI's ability to predict correctly
the direction and volatility of price movements in the futures and options
markets as well as in the securities markets and to select the proper type, time
and duration of hedges. The skills necessary for successful use of hedges are
different from those used in the selection of individual stocks.
The Fund's ability to hedge effectively all or a portion of its
securities through transactions in index futures (and therefore the extent of
its gain or loss on such transactions) depends on the degree to which price
movements in the underlying index correlate with price movements in the Fund's
securities. Inasmuch as such securities will not duplicate the components of an
index, the correlation probably will not be perfect. Consequently, the Fund will
bear the risk that the prices of the securities being hedged will not move in
the same amount as the hedging instrument. This risk will increase as the
composition of the Fund's portfolio diverges from the composition of the hedging
instrument.
Although the Fund intends to establish positions in these instruments
only when there appears to be an active market, there is no assurance that a
liquid market will exist at a time when the Fund seeks to close a particular
option or futures position. Trading could be interrupted, for example, because
of supply and demand imbalances arising from a lack of either buyers or sellers.
In addition, the futures exchanges may suspend trading after the price has risen
or fallen more than the maximum amount specified by the exchange. In some cases,
the Fund may experience losses as a result of its inability to close out a
position, and it may have to liquidate other investments to meet its cash needs.
Although some index futures contracts call for making or taking
delivery of the underlying securities, generally these obligations are closed
out prior to delivery by offsetting purchases or sales of matching futures
contracts (same exchange, underlying security or index, and delivery month). If
an offsetting purchase price is less than the original sale price, the Fund
generally realizes a capital gain, or if it is more, the Fund generally realizes
a capital loss. Conversely, if an offsetting sale price is more than the
original purchase price, the Fund generally realizes a capital gain, or if it is
less, the Fund generally realizes a capital loss.
The transaction costs must also be included in these calculations.
The Fund will only enter into index futures contracts or futures
options that are standardized and traded on a U.S. or foreign exchange or board
of trade, or similar entity, or quoted on an automated quotation system. The
Fund will use futures contracts and related options only for "bona fide hedging"
purposes, as such term is defined in applicable regulations of the CFTC.
When purchasing an index futures contract, the Fund will maintain with
its Custodian (and mark-to-market on a daily basis) cash or liquid securities
that, when added to the amounts deposited with a futures commission merchant
("FCM") as margin, are equal to the market value of the futures contract.
Alternatively, the Fund may "cover" its position by purchasing a put option on
the same futures contract with a strike price as high as or higher than the
price of the contract held by the Fund.
When selling an index futures contract, the Fund will maintain with its
Custodian (and mark-to-market on a daily basis) cash or liquid securities that,
when added to the amounts deposited with an FCM as margin, are equal to the
market value of the instruments underlying the contract. Alternatively, the Fund
may "cover" its position by owning the instruments underlying the contract (or,
in the case of an index futures contract, a portfolio with a volatility
substantially similar to that of the index on which the futures contract is
based), or by holding a call option permitting the Fund to purchase the same
futures contract at a price no higher than the price of the contract written by
the Fund (or at a higher price if the difference is maintained in cash or liquid
assets in a segregated account with the Fund's custodian).
COMBINED TRANSACTIONS. The Fund may enter into multiple transactions,
including multiple options transactions, multiple futures transactions, and
multiple currency transactions (including forward currency contracts) and some
combination of futures, options and currency transactions ("component"
transactions), instead of a single transaction, as part of a single or combined
strategy when, in the opinion of IMI, it is in the best interests of the Fund to
do so. A combined transaction will usually contain elements of risk that are
present in each of its component transactions. Although combined transactions
are normally entered into based on IMI's judgment that the combined strategies
will reduce risk or otherwise more effectively achieve the desired portfolio
management goal, it is possible that the combination will instead increase such
risks or hinder achievement of the management objective.
INVESTMENT RESTRICTIONS
The Fund's investment objectives as set forth in the "Summary" section
of the Prospectus, together with the investment restrictions set forth below,
are fundamental policies of the Fund and may not be changed without the approval
of a majority of the outstanding voting shares of the Fund. Under these
restrictions, the Fund may not:
(i) borrow money, except for temporary or emergency purposes;
provided that the Fund maintains asset coverage of 300% for
all borrowings;
(ii) purchase securities on margin;
(iii) sell securities short;
(iv) lend any funds or other assets, except that this restriction
shall not prohibit (a) the entry into repurchase agreements,
(b) the purchase of publicly distributed bonds, debentures and
other securities of a similar type customarily purchased by
institutional investors or publicly traded in the securities
markets, or (c) the lending of portfolio securities (provided
that the loan is secured continuously by collateral consisting
of U.S. Government securities or cash or cash equivalents
maintained on a daily marked-to-market basis in an amount at
least equal to the market value of the securities loaned);
(v) participate in an underwriting or selling group in connection
with the public distribution of securities except for its own
capital stock;
(vi) purchase from or sell to any of its officers or trustees, or
firms of which any of them are members or which they control,
any securities (other than capital stock of the Fund) but such
persons or firms may act as brokers for the Fund for customary
commissions to the extent permitted by the Investment Company
Act of 1940;
(vii) purchase or sell real estate or commodities and commodity contracts;
(viii) make an investment in securities of companies in any one
industry (except obligations of domestic banks or the U.S.
Government, its agencies, authorities, or instrumentalities)
if such investment would cause investments in such industry to
exceed 25% of the market value of the Fund's total assets at
the time of such investment; or
(ix) issue senior securities, except as appropriate to evidence
indebtedness which it is permitted to incur, and except to the
extent that shares of the separate classes or series of the
Trust may be deemed to be senior securities; provided that
collateral agreements with respect to currency-related
contracts, futures contracts, options or other permitted
investments, including deposits of initial and variation
margin, are not considered to be the issuance of senior
securities for purposes of this restriction.
The Fund will continue to interpret fundamental investment restriction
(vii) to prohibit investment in real estate limited partnership interests; this
restriction shall not, however, prohibit investment in readily marketable
securities of companies that invest in real estate or interests therein,
including real estate investment trusts.
ADDITIONAL RESTRICTIONS
The Fund has adopted the following additional restrictions, which are
not fundamental and which may be changed without shareholder approval to the
extent permitted by applicable law, regulation or regulatory policy.
Under these restrictions, the Fund may not:
(i) invest in oil, gas or other mineral leases or exploration or
development programs;
(ii) invest in companies for the purpose of exercising control of
management;
(iii) invest more than 5% of its total assets in warrants,
valued at the lower of cost or market, or more than
2% of its total assets in warrants, so valued, which
are not listed on either the New York or American
Stock Exchanges;
(iv) purchase securities of other investment companies,
except in connection with a merger, consolidation or
sale of assets, and except that it may purchase
shares of other investment companies subject to such
restrictions as may be imposed by the Investment
Company Act of 1940 and rules thereunder;
(v) invest more than 15% of its net assets taken at market value at the
time of investment in "illiquid securities." Illiquid securities may include
securities subject to legal or contractual restrictions on resale (including
private placements), repurchase agreements maturing in more than seven days,
certain options traded over the counter that the Fund has purchased, securities
being used to cover certain options that the Fund has written, securities for
which market quotations are not readily available, or other securities which
legally or in IMI's opinion, subject to the Board's supervision, may be deemed
illiquid, but shall not include any instrument that, due to the existence of a
trading market, to the Fund's compliance with certain conditions intended to
provide liquidity, or to other factors, is liquid; or
(vi) purchase or retain securities of an issuer if, with
respect to 75% of the Fund's total assets, such
purchase would result in more than 10% of the
outstanding voting securities of such issuer being
held by the Fund.
Whenever an investment objective, policy or restriction set forth in
the Prospectus or this SAI states a maximum percentage of assets that may be
invested in any security or other asset or describes a policy regarding quality
standards, such percentage limitation or standard shall, unless otherwise
indicated, apply to the Fund only at the time a transaction is entered into.
Accordingly, if a percentage limitation is adhered to at the time of investment,
a later increase or decrease in the percentage which results from circumstances
not involving any affirmative action by the Fund, such as a change in market
conditions or a change in the Fund's asset level or other circumstances beyond
the Fund's control, will not be considered a violation.
PORTFOLIO TURNOVER
The Fund purchases securities that are believed by IMI to have above
average potential for capital appreciation. Common stocks are disposed of in
situations where it is believed that potential for such appreciation has
lessened or that other common stocks have a greater potential. Therefore, the
Fund may purchase and sell securities without regard to the length of time the
security is to be, or has been, held. A change in securities held by the Fund is
known as "portfolio turnover" and may involve the payment by the Fund of dealer
markup or underwriting commission and other transaction costs on the sale of
securities, as well as on the reinvestment of the proceeds in other securities.
The Fund's portfolio turnover rate is calculated by dividing the lesser of
purchases or sales of portfolio securities for the most recently completed
fiscal year by the monthly average of the value of the portfolio securities
owned by the Fund during that year. For purposes of determining the Fund's
portfolio turnover rate, all securities whose maturities at the time of
acquisition were one year or less are excluded.
TRUSTEES AND OFFICERS
The Fund's Board of Trustees (the "Board") is responsible for the
overall management of the Fund, including general supervision and review of the
Fund's investment activities. The Board, in turn, elects the officers who are
responsible for administering the Fund's day-to-day operations.
The Trustees and Executive Officers of the Trust, their business
addresses and principal occupations during the past five years are:
POSITION WITH BUSINESS AFFILIATIONS
NAME, ADDRESS, AGE THE TRUST AND PRINCIPAL OCCUPATIONS
John S. Anderegg, Jr. Trustee Chairman, Dynamics Research
60 Concord Street Corp. (instruments and controls);
Wilmington, MA 01887 Director, Burr-Brown Corp.
Age: 74 (operational amplifiers); Director,
Metritage Incorporated (level
measuring instruments); Trustee of
Mackenzie Series Trust (1992-1998).
Paul H. Broyhill Trustee Chairman, BMC Fund, Inc.
800 Hickory Blvd. (1983-present); Chairman,
Golfview Park-Box 500 Broyhill Family Foundation,
Lenoir, NC 28645 Inc. (1983-Present); Chairman and
Age: 74 President, Broyhill Investments,
Inc. (1983-present); Chairman,
Broyhill Timber Resources (1983-
present); Management of a personal
portfolio of fixed-income and equity
investments (1983-present); Trustee
of Mackenzie Series Trust (1988-
1998); Director of The Mackenzie
Funds Inc. (1988-1995).
Stanley Channick Trustee President and Chief
11 Bala Avenue Executive Officer, The
Bala Cynwyd, PA 19004 Whitestone Corporation
Age: 75 (insurance agency); Chairman, Scott
Management Company (administrative
services for insurance companies);
President, The Channick Group
(consultants to insurance companies
and national trade associations);
Trustee of Mackenzie Series Trust
(1994-1998); Director of The
Mackenzie Funds Inc. (1994-1995).
Frank W. DeFriece, Jr. Trustee Director, Manager and Vice
The Landmark Centre President, Director and
113 Landmark Lane, Fund Manager, Massengill-
Suite B DeFriece Foundation
Bristol, TN 37620-2285 (charitable organization)
Age: 77 (1950-present); Trustee and Vice
Chairman, East Tennessee Public
Communications Corp. (WSJK-TV)
(1984-present); Trustee of Mackenzie
Series Trust (1985-1998); Director
of The Mackenzie Funds Inc. (1987-
1995).
Roy J. Glauber Trustee Mallinckrodt Professor of
Lyman Laboratory Physics, Harvard
of Physics University (1974-present);
Harvard University Trustee of Mackenzie Series
Cambridge, MA 02138 Trust (1994-1997).
Age: 72
Michael G. Landry Trustee President, Chief Executive
700 South Federal Hwy. And Officer and Director of
Suite 300 Chairman Mackenzie Investment
Boca Raton, FL 33432 Management Inc. (1987-
Age: 51 present); President,
[*Deemed to be an Director and Chairman of
"interested person" Ivy Management Inc. (1992-
of the Trust, as present); Chairman and
defined under the Director of Ivy Mackenzie
1940 Act.] Services Corp.(1993-present);
Chairman and Director of Ivy
Mackenzie Distributors, Inc.
(1994-present); Director and
President of Ivy Mackenzie
Distributors, Inc. (1993-1994);
Director and President of The
Mackenzie Funds Inc. (1987-1995);
Trustee of Mackenzie Series Trust
(1987-1998); President of Mackenzie
Series Trust (1987-1996); Chairman
of Mackenzie Series Trust (1996-
1998).
Joseph G. Rosenthal Trustee Chartered Accountant
110 Jardin Drive (1958-present); Trustee of
Unit #12 Mackenzie Series Trust
Concord, Ontario Canada (1985-1998); Director of
L4K 2T7 The Mackenzie Funds Inc.
Age: 63 (1987-1995).
Richard N. Silverman Trustee Director, Newton-Wellesley
18 Bonnybrook Road Hospital; Director, Beth
Waban, MA 02168 Israel Hospital; Director,
Age: 74 Boston Ballet; Director, Boston
Children's Museum; Director, Brimmer
and May School.
J. Brendan Swan Trustee President, Airspray
4701 North Federal Hwy. International, Inc.;
Suite 465 Joint Managing Director,
Pompano Beach, FL 33064 Airspray International
Age: 67 B.V. (an environmentally sensitive
packaging company); Director of
Polyglass LTD.; Director, The
Mackenzie Funds Inc. (1992-1995);
Trustee of Mackenzie Series Trust
(1992-1998).
Keith J. Carlson Trustee Senior Vice President of Mackenzie
700 South Federal Hwy. And Investment Management, Inc. (1996 -
Suite 300 President -present); Senior Vice President and
Boca Raton, FL 33432 Director of Mackenzie Investment
Age: 41 Management, Inc. (1994 - 1996);
[*Deemed to be an Senior Vice President and Treasurer
"interested person" of Mackenzie Investment Management,
of the Trust, Inc. (1989-1994); Senior Vice President
as defined under President and Director of Ivy
the 1940 Act.] Management Inc. (1994-present);
Senior Vice President, Treasurer and
Director of Ivy Management Inc.
(1992-1994); Vice President of The
Mackenzie Funds Inc. (1987-1995);
Senior Vice President and Director,
Ivy Mackenzie Services Corp. (1996-
present); President and Director of
Ivy Mackenzie Services Corp. (1993-
1996); Trustee and President of
Mackenzie Series Trust (1996-1998);
Vice President of Mackenzie Series
Trust (1994-1998); Treasurer of
Mackenzie Series Trust (1985-1994);
President, Chief Executive Officer
and Director of Ivy Mackenzie
Distributors, Inc. (1994-present);
Executive Vice President and
Director of Ivy Mackenzie
Distributors, Inc. (1993-1994);
Trustee of Mackenzie Series Trust
(1996-1998).
C. William Ferris Secretary/ Senior Vice President,
700 South Federal Hwy. Treasurer Chief Financial Officer
Suite 300 and Secretary/Treasurer
Boca Raton, FL 33432 of Mackenzie Investment
Age: 53 Management Inc. (1995-present);
Senior Vice President, Finance and
Administration/Compliance Officer of
Mackenzie Investment Management Inc.
(1989-1994); Senior Vice President,
Secretary/ Treasurer and Clerk of
Ivy Management Inc. (1994-present);
Vice President, Finance/
Administration and Compliance
Officer of Ivy Management Inc.
(1992-1994); Senior Vice President,
Secretary/Treasurer and Director of
Ivy Mackenzie Distributors, Inc.
(1994-present); Secretary/Treasurer
and Director of Ivy Mackenzie
Distributors, Inc. (1993-1994);
President and Director of Ivy
Mackenzie Services Corp.
(1996-present); Secretary/Treasurer
and Director of Ivy Mackenzie
Services Corp. (1993-1996);
Secretary/Treasurer
of The Mackenzie Funds Inc.
(1993-1995); Secretary/Treasurer of
Mackenzie Series Trust (1994-1998).
James W. Broadfoot Vice Executive Vice President,
700 South Federal Hwy. President Ivy Management Inc. (1996-
Suite 300 present); Senior Vice
Boca Raton, FL 33432 President, Ivy Management,
Age: 56 Inc. (1992-1996); Director and
Senior Vice President, Mackenzie
Investment Management Inc. (1995-
present); Senior Vice President,
Mackenzie Investment Management Inc.
(1990-1995).
COMPENSATION TABLE
IVY FUND
(FISCAL YEAR ENDED DECEMBER 31, 1998)
PENSION OR TOTAL COMPENSA-
AGGREGATE RETIREMENT ESTIMATED TION FROM TRUST
NAME, COMPENSATION BENEFITS ACCRUED ANNUAL AND FUND
POSITION FROM TRUST AS PART OF BENEFITS UPON COMPLEX PAID TO
FUND EXPENSES RETIREMENT TRUSTEES
John S. N/A N/A
Anderegg, Jr.
(Trustee)
Paul H. N/A N/A
Broyhill
(Trustee)
Keith J. $0 N/A N/A $0
Carlson
(Trustee and
President)
Stanley N/A N/A
Channick
(Trustee)
Frank W. N/A N/A
DeFriece, Jr.
(Trustee)
Roy J. N/A N/A
Glauber
(Trustee)
Michael G. $0 N/A N/A $0
Landry
(Trustee and
Chairman of
the Board)
Joseph G. N/A N/A
Rosenthal
(Trustee)
Richard N. N/A N/A
Silverman
(Trustee)
J. Brendan N/A N/A
Swan
(Trustee)
C. William $0 N/A N/A $0
Ferris
(Secretary/
Treasurer)
To the knowledge of the Trust, as of [ ], no shareholder owned
beneficially or of record 5% or more of the Fund's outstanding shares of any
class, except that [to be completed by amendment.]
As of [.. ], the Officers and Trustees of the Trust as a group owned
beneficially or of record less than 1% of the outstanding Class A, Class B,
Class C and Advisor Class shares of the Fund.
PERSONAL INVESTMENTS BY EMPLOYEES OF IMI. Employees of IMI are
permitted to make personal securities transactions, subject to the requirements
and restrictions set forth in IMI's Code of Ethics and Business Conduct Policy
(the "Code of Ethics"). The Code of Ethics is designed to identify and address
certain conflicts of interest between personal investment activities and the
interests of investment advisory clients such as the Fund. Among other things,
the Code of Ethics, which generally complies with standards recommended by the
Investment Company Institute's Advisory Group on Personal Investing, prohibits
certain types of transactions absent prior approval, applies to portfolio
managers, traders, research analysts and others involved in the investment
advisory process, and imposes time periods during which personal transactions
may not be made in certain securities, and requires the submission of duplicate
broker confirmations and monthly reporting of securities transactions.
Exceptions to these and other provisions of the Code of Ethics may be granted in
particular circumstances after review by appropriate personnel.
INVESTMENT ADVISORY AND OTHER SERVICES
BUSINESS MANAGEMENT AND INVESTMENT ADVISORY SERVICES
IMI provides business management and investment advisory services to
the Fund pursuant to a Business Management and Investment Advisory Agreement
(the "Agreement"). The Agreement was approved by the sole shareholder of the
Fund on October 28, 1994. Prior to shareholder approval, the Agreement was
approved with respect to the Fund by the Board, including a majority of the
Trustees who are neither "interested persons" (as defined in the 1940 Act) of
the Trust nor have any direct or indirect financial interest in the operation of
the distribution plan (see "Distribution Services") or in any related agreement
(the "Independent Trustees") at a meeting held on September 17, 1994.
IMI is a wholly owned subsidiary of Mackenzie Investment Management
Inc. ("MIMI"). MIMI, a Delaware corporation, has approximately 10% of its
outstanding common stock listed for trading on the Toronto Stock Exchange
("TSE"). MIMI is a subsidiary of Mackenzie Financial Corporation ("MFC"), 150
Bloor Street West, Toronto, Ontario, Canada, a public corporation organized
under the laws of Ontario whose shares are listed for trading on the TSE. MFC is
registered in Ontario as a mutual fund dealer and advises Ivy Global Natural
Resources Fund. IMI currently acts as manager and investment adviser to the
following additional investment companies registered under the 1940 Act (other
than the Fund): Ivy Asia Pacific Fund, Ivy Bond Fund, Ivy China Region Fund, Ivy
Developing Nations Fund, Ivy European Opportunities Fund, Ivy Global Fund, Ivy
Global Science & Technology Fund, Ivy Growth Fund, Ivy Growth with Income Fund,
Ivy International Fund, Ivy International Fund II, Ivy International Small
Companies Fund, Ivy International Strategic Bond Fund, Ivy Money Market Fund,
Ivy Pan-Europe Fund, Ivy US Blue Chip Fund and Ivy US Emerging Growth Fund. IMI
also provides business management services to Ivy Global Natural Resources Fund.
The Agreement obligates IMI to make investments for the account of the
Fund in accordance with its best judgment and within the investment objectives
and restrictions set forth in the Prospectus, the 1940 Act and the provisions of
the Code relating to regulated investment companies, subject to policy decisions
adopted by the Board. IMI also determines the securities to be purchased or sold
by the Fund and places orders with brokers or dealers who deal in such
securities.
Under the Agreement, IMI also provides certain business management
services. IMI is obligated to (1) coordinate with the Fund's Custodian and
monitor the services it provides to the Fund; (2) coordinate with and monitor
any other third parties furnishing services to the Fund; (3) provide the Fund
with necessary office space, telephones and other communications facilities as
are adequate for the Fund's needs; (4) provide the services of individuals
competent to perform administrative and clerical functions that are not
performed by employees or other agents engaged by the Fund or by IMI acting in
some other capacity pursuant to a separate agreement or arrangements with the
Fund; (5) maintain or supervise the maintenance by third parties of such books
and records of the Trust as may be required by applicable Federal or state law;
(6) authorize and permit IMI's directors, officers and employees who may be
elected or appointed as trustees or officers of the Trust to serve in such
capacities; and (7) take such other action with respect to the Trust, after
approval by the Trust as may be required by applicable law, including without
limitation the rules and regulations of the SEC and of state securities
commissions and other regulatory agencies.
The Fund pays IMI a monthly fee for providing business management and
investment advisory services at an annual rate of 1.00% of the Fund's average
net assets.
During the fiscal years ended December 31, 1996, 1997 and 1998, the
Fund paid IMI fees of $42,550, $94,278 and [..... ], respectively (of which IMI
reimbursed $99,630, $68,548 and [ ], respectively, pursuant to expense
limitations).
Under the Agreement, the Trust pays the following expenses: (1) the
fees and expenses of the Trust's Independent Trustees; (2) the salaries and
expenses of any of the Trust's officers or employees who are not affiliated with
IMI; (3) interest expenses; (4) taxes and governmental fees, including any
original issue taxes or transfer taxes applicable to the sale or delivery of
shares or certificates therefor; (5) brokerage commissions and other expenses
incurred in acquiring or disposing of portfolio securities; (6) the expenses of
registering and qualifying shares for sale with the SEC and with various state
securities commissions; (7) accounting and legal costs; (8) insurance premiums;
(9) fees and expenses of the Trust's Custodian and Transfer Agent and any
related services; (10) expenses of obtaining quotations of portfolio securities
and of pricing shares; (11) expenses of maintaining the Trust's legal existence
and of shareholders' meetings; (12) expenses of preparation and distribution to
existing shareholders of periodic reports, proxy materials and prospectuses; and
(13) fees and expenses of membership in industry organizations.
IMI currently limits the Fund's total operating expenses (excluding
Rule 12b-1 fees, interest, taxes, brokerage commissions, litigation,
class-specific expenses, indemnification expenses, and extraordinary expenses)
to an annual rate of 1.95% of the Fund's average net assets, which may lower the
Fund's expenses and increase its yield.
The Agreement will continue in effect with respect to the Fund from
year to year, only so long as the continuance is specifically approved at least
annually (i) by the vote of a majority of the Independent Trustees and (ii)
either (a) by the vote of a majority of the outstanding voting securities (as
defined in the 1940 Act) of the Fund or (b) by the vote of a majority of the
entire Board. If the question of continuance of the Agreement (or adoption of
any new agreement) is presented to the shareholders, continuance (or adoption)
shall be effected only if approved by the affirmative vote of a majority of the
outstanding voting securities of the Fund. See "Capitalization and Voting
Rights."
The Agreement may be terminated with respect to the Fund at any time,
without payment of any penalty, by the vote of a majority of the Board, or by a
vote of a majority of the outstanding voting securities of the Fund, on 60 days'
written notice to IMI, or by IMI on 60 days' written notice to the Trust. The
Agreement shall terminate automatically in the event of its assignment.
DISTRIBUTION SERVICES
IMDI, a wholly owned subsidiary of MIMI, serves as the exclusive
distributor of Ivy Fund's shares pursuant to an Amended and Restated
Distribution Agreement with the Trust dated ______________, 1999, as amended
from time to time (the "Distribution Agreement"). The Distribution Agreement was
approved by the Board on September 17, 1998. IMDI distributes shares of the Fund
through broker-dealers who are members of the National Association of Securities
Dealers, Inc. and who have executed dealer agreements with IMDI. IMDI
distributes shares of the Fund on a continuous basis, but reserves the right to
suspend or discontinue distribution on that basis. IMDI is not obligated to sell
any specific amount of Fund shares.
Pursuant to the Distribution Agreement, IMDI is entitled to deduct a
commission on all Class A Fund shares sold equal to the difference, if any,
between the public offering price, as set forth in the Fund's then-current
prospectus, and the net asset value on which such price is based. Out of that
commission, IMDI may reallow to dealers such concession as IMDI may determine
from time to time. In addition, IMDI is entitled to deduct a CDSC on the
redemption of Class A shares sold without an initial sales charge and Class B
and Class C shares, in accordance with, and in the manner set forth in, the
Prospectus.
Under the Distribution Agreement, the Fund bears, among other expenses,
the expenses of registering and qualifying its shares for sale under Federal and
state securities laws and preparing and distributing to existing shareholders
periodic reports, proxy materials and prospectuses.
During the fiscal year ended December 31, 1998, IMDI received from
sales of Class A shares of the Fund [ ] in sales commissions, of which [ ] was
retained after dealer allowances. During the fiscal year ended December 31,
1998, IMDI received [ ] in CDSCs on redemptions of Class B shares of the Fund.
During the fiscal year ended December 31, 1998, IMDI received [ ] in CDSCs on
redemptions of Class C shares of the Fund.
The Distribution Agreement will continue in effect for successive
one-year periods, provided that such continuance is specifically approved at
least annually by the vote of a majority of the Independent Trustees, cast in
person at a meeting called for that purpose and by the vote of either a majority
of the entire Board or a majority of the outstanding voting securities of the
Fund. The Distribution Agreement may be terminated with respect to the Fund at
any time, without payment of any penalty, by IMDI on 60 days' written notice to
the Fund or by the Fund by vote of either a majority of the outstanding voting
securities of the Fund or a majority of the Independent Trustees on 60 days'
written notice to IMDI. The Distribution Agreement shall terminate automatically
in the event of its assignment.
RULE 18F-3 PLAN. On February 23, 1995, the SEC adopted Rule 18f-3 under
the 1940 Act, which permits a registered open-end investment company to issue
multiple classes of shares in accordance with a written plan approved by the
investment company's board of directors/trustees and filed with the SEC. At a
meeting held on December 1-2, 1995, the Board adopted a Rule 18f-3 plan on
behalf of the Fund. The Board last approved the Rule 18f-3 plan at a meeting
held of December 5-6, 1997. The key features of the Rule 18f-3 plan are as
follows: (i) shares of each class of the Fund represent an equal pro rata
interest in the Fund and generally have identical voting, dividend, liquidation,
and other rights, preferences, powers, restrictions, limitations,
qualifications, terms and conditions, except that each class bears certain
class-specific expenses and has separate voting rights on certain matters that
relate solely to that class or in which the interests of shareholders of one
class differ from the interests of shareholders of another class; (ii) subject
to certain limitations described in the Prospectus, shares of a particular class
of the Fund may be exchanged for shares of the same class of another Ivy fund;
and (iii) the Fund's Class B shares will convert automatically into Class A
shares of the Fund after a period of eight years, based on the relative net
asset value of such shares at the time of conversion.
RULE 12B-1 DISTRIBUTION PLANS. The Trust has adopted on behalf of the
Fund, in accordance with Rule 12b-1 under the 1940 Act, separate Rule 12b-1
distribution plans pertaining to the Fund's Class A, Class B and Class C shares
(each, a "Plan"). In adopting each Plan, a majority of the Independent Trustees
have concluded in accordance with the requirements of Rule 12b-1 that there is a
reasonable likelihood that each Plan will benefit the Fund and its shareholders.
The Trustees of the Trust believe that the Plans should result in greater sales
and/or fewer redemptions of the Fund's shares, although it is impossible to know
for certain the level of sales and redemptions of the Fund's shares in the
absence of a Plan or under an alternative distribution arrangement.
Under each Plan, the Fund pays IMDI a service fee, accrued daily and
paid monthly, at the annual rate of up to 0.25% of the average daily net assets
attributable to its Class A, Class B or Class C shares, as the case may be. The
services for which service fees may be paid include, among other things,
advising clients or customers regarding the purchase, sale or retention of
shares of the Fund, answering routine inquiries concerning the Fund and
assisting shareholders in changing options or enrolling in specific plans.
Pursuant to each Plan, service fee payments made out of or charged against the
assets attributable to the Fund's Class A, Class B or Class C shares must be in
reimbursement for services rendered for or on behalf of the affected class. The
expenses not reimbursed in any one month may be reimbursed in a subsequent
month. The Class A Plan does not provide for the payment of interest or carrying
charges as distribution expenses.
Under the Fund's Class B and Class C Plans, the Fund also pays IMDI a
distribution fee, accrued daily and paid monthly, at the annual rate of 0.75% of
the average daily net assets attributable to its Class B or Class C shares. IMDI
may reallow to dealers all or a portion of the service and distribution fees as
IMDI may determine from time to time. The distribution fee compensates IMDI for
expenses incurred in connection with activities primarily intended to result in
the sale of the Fund's Class B or Class C shares, including the printing of
prospectuses and reports for persons other than existing shareholders and the
preparation, printing and distribution of sales literature and advertising
materials. Pursuant to each Class B and Class C Plan, IMDI may include interest,
carrying or other finance charges in its calculation of distribution expenses,
if not prohibited from doing so pursuant to an order of or a regulation adopted
by the SEC.
Among other things, each Plan provides that (1) IMDI will submit to the
Board at least quarterly, and the Trustees will review, written reports
regarding all amounts expended under the Plan and the purposes for which such
expenditures were made; (2) each Plan will continue in effect only so long as
such continuance is approved at least annually, and any material amendment
thereto is approved, by the votes of a majority of the Board, including the
Independent Trustees, cast in person at a meeting called for that purpose; (3)
payments by the Fund under each Plan shall not be materially increased without
the affirmative vote of the holders of a majority of the outstanding shares of
the relevant class; and (4) while each Plan is in effect, the selection and
nomination of Independent Trustees shall be committed to the discretion of the
Trustees who are not "interested persons" of the Trust.
IMDI may make payments for distribution assistance and for
administrative and accounting services from resources that may include the
management fees paid by the Fund. IMDI also may make payments (such as the
service fee payments described above) to unaffiliated broker-dealers for
services rendered in the distribution of the Fund's shares. To qualify for such
payments, shares may be subject to a minimum holding period. However, no such
payments will be made to any dealer or broker if at the end of each year the
amount of shares held does not exceed a minimum amount. The minimum holding
period and minimum level of holdings will be determined from time to time by
IMDI.
A report of the amount expended pursuant to each Plan, and the purposes
for which such expenditures were incurred, must be made to the Board for its
review at least quarterly.
During the fiscal year ended December 31, 1998, the Fund paid IMDI [ ]
pursuant to its Class A plan. During the fiscal year ended December 31, 1998 the
Fund paid IMDI [ ] pursuant to its Class B plan. During the fiscal year ended
December 31, 1998, the Fund paid IMDI [ ] pursuant to its Class C plan.
During the fiscal year ended December 31, 1998, IMDI expended the
following amounts in marketing Class A shares of the Fund: advertising [$ ;]
printing and mailing of prospectuses to persons other than current shareholders,
[$.. ;] compensation to dealers, [$ ;] compensation to sales personnel [$ ;]
seminars and meetings, [$ ;] travel and entertainment, [$ ;] general and
administrative, [$ ;] telephone, [$.. ;] and occupancy and equipment rental, [$
]
During the fiscal year ended December 31, 1998, IMDI expended the
following amounts in marketing Class B shares of the Fund: advertising, [$ ;]
printing and mailing of prospectuses to persons other than current shareholders,
[$.. ;] compensation to dealers, [$ ;] compensation to sales personnel, [$ ;]
seminars and meetings, [$ ;] travel and entertainment, [$ ;] general and
administrative, [$ ;] telephone, [$..;] and occupancy and equipment rental [$ .]
During the fiscal year ended December 31, 1998, IMDI expended the
following amounts in marketing Class C shares of the Fund: advertising, [$ ;]
printing and mailing of prospectuses to persons other than current shareholders,
[$..;] compensation to dealers, [$ ] compensation to sales personnel, [$ ;]
seminars and meetings, [$ ;] travel and entertainment, [$ ;] general
administrative, [$ ;] telephone, [$.. ;] and occupancy and equipment rental, [$
.]
Each Plan may be amended at any time with respect to the class of
shares of the Fund to which the Plan relates by vote of the Trustees, including
a majority of the Independent Trustees, cast in person at a meeting called for
the purpose of considering such amendment. Each Plan may be terminated at any
time with respect to the class of shares of the Fund to which the Plan relates,
without payment of any penalty, by vote of a majority of the Independent
Trustees, or by vote of a majority of the outstanding voting securities of that
class.
If the Distribution Agreement or the Distribution Plans are terminated
(or not renewed) with respect to any of the Ivy funds (or class of shares
thereof), each may continue in effect with respect to any other fund (or Class
of shares thereof) as to which they have not been terminated (or have been
renewed).
CUSTODIAN
Pursuant to a Custodian Agreement with the Trust, Brown Brothers
Harriman & Co. (the "Custodian"), a private bank and member of the principal
securities exchanges, located at 40 Water Street, Boston, Massachusetts 02109
(the "Custodian"), maintains custody of the assets of the Fund held in the
United States. Rules adopted under the 1940 Act permit the Trust to maintain its
foreign securities and cash in the custody of certain eligible foreign banks and
securities depositories. Pursuant to those rules, the Custodian has entered into
subcustodial agreements for the holding of the Fund's foreign securities. With
respect to the Fund, the Custodian may receive, as partial payment for its
services to the Fund, a portion of the Trust's brokerage business, subject to
its ability to provide best price and execution.
FUND ACCOUNTING SERVICES
Pursuant to a Fund Accounting Services Agreement, MIMI provides certain
accounting and pricing services for the Fund. As compensation for those
services, the Fund pays MIMI a monthly fee plus out-of-pocket expenses as
incurred. The monthly fee is based upon the net assets of the Fund at the
preceding month end at the following rates: $1,250 when net assets are $10
million and under; $2,500 when net assets are over $10 million to $40 million;
$5,000 when net assets are over $40 million to $75 million; and $6,500 when net
assets are over $75 million.
During the fiscal year ended December 31, 1998, the Fund paid MIMI [ ]
under the
agreement.
TRANSFER AGENT AND DIVIDEND PAYING AGENT
Pursuant to a Transfer Agency and Shareholder Service Agreement, Ivy
Mackenzie Services Corp. ("IMSC"), a wholly owned subsidiary of MIMI, is the
transfer agent for the Fund. Under the Agreement, the Fund pays a monthly fee at
an annual rate of $20.00 for each open Class A, Class B , Class C and Advisor
Class account. In addition, the Fund pays a monthly fee at an annual rate of
$4.58 per account that is closed plus certain out-of-pocket expenses. Such fees
and expenses for the fiscal year ended December 31, 1998 for the Fund totaled [$
.........]. Certain broker-dealers that maintain shareholder accounts with the
Fund through an omnibus account provide transfer agent and other
shareholder-related services that would otherwise be provided by IMSC if the
individual accounts that comprise the omnibus account were opened by their
beneficial owners directly. IMSC pays such broker-dealers a per account fee for
each open account within the omnibus account, or a fixed rate (e.g., 0.10%) fee,
based on the average daily net asset value of the omnibus account (or a
combination thereof).
ADMINISTRATOR
Pursuant to an Administrative Services Agreement, MIMI provides certain
administrative services to the Fund. As compensation for these services, the
Fund pays MIMI a monthly fee at the annual rate of 0.10% of the Fund's average
daily net assets. Such fees for the fiscal year ended December 31, 1998 for the
Fund totaled [$ ].
Outside of providing administrative services to the Trust, as described
above, MIMI may also act on behalf of IMDI in paying commissions to
broker-dealers with respect to sales of Class B and Class C shares of the Fund.
AUDITORS
[ ], independent public accountants, has been selected as auditors for the
Trust. The audit services performed by [ ] include audits of the annual
financial statements of each of the funds of the Trust. Other services provided
principally relate to filings with the SEC and the preparation of the funds' tax
returns.
BROKERAGE ALLOCATION
Subject to the overall supervision of the President and the Board, IMI
places orders for the purchase and sale of the Fund's portfolio securities. All
portfolio transactions are effected at the best price and execution obtainable.
Purchases and sales of debt securities are usually principal transactions and
therefore, brokerage commissions are usually not required to be paid by the Fund
for such purchases and sales (although the price paid generally includes
undisclosed compensation to the dealer). The prices paid to underwriters of
newly-issued securities usually include a concession paid by the issuer to the
underwriter, and purchases of after-market securities from dealers normally
reflect the spread between the bid and asked prices. In connection with OTC
transactions, IMI attempts to deal directly with the principal market makers,
except in those circumstances where IMI believes that a better price and
execution are available elsewhere.
IMI selects broker-dealers to execute transactions and evaluates the
reasonableness of commissions on the basis of quality, quantity, and the nature
of the firms' professional services. Commissions to be charged and the rendering
of investment services, including statistical, research, and counseling services
by brokerage firms, are factors to be considered in the placing of brokerage
business. The types of research services provided by brokers may include general
economic and industry data, and information on securities of specific companies.
Research services furnished by brokers through whom the Trust effects securities
transactions may be used by IMI in servicing all of its accounts. In addition,
not all of these services may be used by IMI in connection with the services it
provides to the Fund or the Trust. IMI may consider sales of shares of Ivy funds
as a factor in the selection of broker-dealers and may select broker-dealers who
provide it with research services. IMI will not, however, execute brokerage
transactions other than at the best price and execution.
During the fiscal years ended December 31, 1996, 1997 and 1998, the
Fund paid brokerage commissions of $15,756, $17,213 and [ ], respectively.
The Fund may, under some circumstances, accept securities in lieu of
cash as payment for Fund shares. The Fund will accept securities only to
increase its holdings in a portfolio security or to take a new portfolio
position in a security that IMI deems to be a desirable investment for the Fund.
While no minimum has been established, it is expected that the Fund will not
accept securities having an aggregate value of less than $1 million. The Trust
may reject in whole or in part any or all offers to pay for the Fund shares with
securities and may discontinue accepting securities as payment for the Fund
shares at any time without notice. The Trust will value accepted securities in
the manner and at the same time provided for valuing portfolio securities of the
Fund, and the Fund shares will be sold for net asset value determined at the
same time the accepted securities are valued. The Trust will only accept
securities delivered in proper form and will not accept securities subject to
legal restrictions on transfer. The acceptance of securities by the Trust must
comply with the applicable laws of certain states.
CAPITALIZATION AND VOTING RIGHTS
The capitalization of the Trust consists of an unlimited number of
shares of beneficial interest (no par value per share). When issued, shares of
each class of the Fund are fully paid, non-assessable, redeemable and fully
transferable. No class of shares of the Fund has preemptive rights or
subscription rights.
The Amended and Restated Declaration of Trust permits the Trustees to
create separate series or portfolios and to divide any series or portfolio into
one or more classes. The Trustees have authorized nineteen series, each of which
represents a fund. The Trustees have further authorized the issuance of Class A,
Class B, and Class C shares for Ivy International Fund and Ivy Money Market Fund
and Class A, Class B, Class C and Advisor Class shares for the Fund, Ivy Asia
Pacific Fund, Ivy Bond Fund, Ivy China Region Fund, Ivy Developing Nations Fund,
Ivy European Opportunities Fund, Ivy Global Fund, Ivy Global Natural Resources
Fund, Ivy Global Science & Technology Fund, Ivy Growth Fund, Ivy Growth with
Income Fund, Ivy International Fund II, Ivy International Small Companies Fund,
Ivy International Strategic Bond Fund, Ivy Pan-Europe Fund, Ivy US Blue Chip
Fund, and Ivy US Emerging Growth Fund, as well as Class I shares for Ivy Bond
Fund, Ivy European Opportunities Fund, Ivy Global Science & Technology Fund, Ivy
International Fund II, Ivy International Fund, Ivy International Small Companies
Fund, Ivy International Strategic Bond Fund, and Ivy US Blue Chip Fund.
Shareholders have the right to vote for the election of Trustees of the
Trust and on any and all matters on which they may be entitled to vote by law or
by the provisions of the Trust's By-Laws. The Trust is not required to hold a
regular annual meeting of shareholders, and it does not intend to do so. Shares
of each class of the Fund entitle their holders to one vote per share (with
proportionate voting for fractional shares). Shareholders of the Fund are
entitled to vote alone on matters that only affect the Fund. All classes of
shares of the Fund will vote together, except with respect to the distribution
plan applicable to the Fund's Class A, Class B or Class C shares or when a class
vote is required by the 1940 Act. On matters relating to all funds of the Trust,
but affecting the funds differently, separate votes by the shareholders of each
fund are required. Approval of an investment advisory agreement and a change in
fundamental policies would be regarded as matters requiring separate voting by
the shareholders of each fund of the Trust. If the Trustees determine that a
matter does not affect the interests of the Fund, then the shareholders of the
Fund will not be entitled to vote on that matter. Matters that affect the Trust
in general, such as ratification of the selection of independent public
accountants, will be voted upon collectively by the shareholders of all funds of
the Trust.
As used in this SAI and the Prospectus, the phrase "majority vote of
the outstanding shares" of the Fund means the vote of the lesser of: (1) 67% of
the shares of the Fund (or of the Trust) present at a meeting if the holders of
more than 50% of the outstanding shares are present in person or by proxy; or
(2) more than 50% of the outstanding shares of the Fund (or of the Trust).
With respect to the submission to shareholder vote of a matter
requiring separate voting by the Fund, the matter shall have been effectively
acted upon with respect to the Fund if a majority of the outstanding voting
securities of the Fund votes for the approval of the matter, notwithstanding
that: (1) the matter has not been approved by a majority of the outstanding
voting securities of any other fund of the Trust; or (2) the matter has not been
approved by a majority of the outstanding voting securities of the Trust.
The Amended and Restated Declaration of Trust provides that the holders
of not less than two-thirds of the outstanding shares of the Trust may remove a
person serving as trustee either by declaration in writing or at a meeting
called for such purpose. The Trustees are required to call a meeting for the
purpose of considering the removal of a person serving as Trustee if requested
in writing to do so by the holders of not less than 10% of the outstanding
shares of the Trust. Shareholders will be assisted in communicating with other
shareholders in connection with the removal of a Trustee as if Section 26(c) of
the Act were applicable.
The Trust's shares do not have cumulative voting rights and accordingly
the holders of more than 50% of the outstanding shares could elect the entire
Board, in which case the holders of the remaining shares would not be able to
elect any Trustees.
Under Massachusetts law, the Trust's shareholders could, under certain
circumstances, be held personally liable for the obligations of the Trust.
However, the Amended and Restated Declaration of Trust disclaims liability of
the shareholders, Trustees or officers of the Trust for acts or obligations of
the Trust, which are binding only on the assets and property of the Trust, and
requires that notice of the disclaimer be given in each contract or obligation
entered into or executed by the Trust or its Trustees. The Amended and Restated
Declaration of Trust provides for indemnification out of Fund property for all
loss and expense of any shareholder of the Fund held personally liable for the
obligations of the Fund. The risk of a shareholder of the Trust incurring
financial loss on account of shareholder liability is limited to circumstances
in which the Trust itself would be unable to meet its obligations and, thus,
should be considered remote. No series of the Trust is liable for the
obligations of any other series of the Trust.
SPECIAL RIGHTS AND PRIVILEGES
The Trust offers, and (except as noted below) bears the cost of
providing, to investors the following rights and privileges. The Trust reserves
the right to amend or terminate any one or more of these rights and privileges.
Notice of amendments to or terminations of rights and privileges will be
provided to shareholders in accordance with applicable law.
Certain of the rights and privileges described below refer to funds,
other than the Fund, whose shares are also distributed by IMDI. These funds are:
Ivy Asia Pacific Fund, Ivy Bond Fund, Ivy China Region Fund, Ivy Developing
Nations Fund, Ivy European Opportunities Fund, Ivy Global Science & Technology
Fund, Ivy Global Fund, Ivy Global Natural Resources Fund, Ivy Growth Fund, Ivy
Growth with Income Fund, Ivy International Fund, Ivy International Fund II, Ivy
International Small Companies Fund, Ivy International Strategic Bond Fund, Ivy
Money Market Fund, Ivy Pan-Europe Fund, Ivy US Blue Chip Fund, and Ivy US
Emerging Growth Fund (the other eighteen series of the Trust). (Effective April
18, 1997, Ivy International Fund suspended the offer of its shares to new
investors). Shareholders should obtain a current prospectus before exercising
any right or privilege that may relate to these funds.
AUTOMATIC INVESTMENT METHOD
The Automatic Investment Method, which enables a Fund shareholder to
have specified amounts automatically drawn each month from his or her bank for
investment in Fund shares, is available for all classes of shares. The minimum
initial and subsequent investment under this method is $50 per month ($250 for
Advisor Class shares), (except in the case of a tax qualified retirement plan
for which the minimum initial and subsequent investment is $25 per month). A
shareholder may terminate the Automatic Investment Method at any time upon
delivery to IMSC of telephone instructions or written notice. See "Automatic
Investment Method" in the Prospectus. To begin the plan, complete Sections 6A
and 7B of the Account Application.
EXCHANGE OF SHARES
As described in the Prospectus, shareholders of the Fund have an
exchange privilege with other Ivy funds (except Ivy International Fund unless
they have an existing Ivy International Fund account). Before effecting an
exchange, shareholders of the Fund should obtain and read the currently
effective prospectus for the Ivy fund into which the exchange is to be made.
INITIAL SALES CHARGE SHARES. Class A shareholders may exchange their
Class A shares ("outstanding Class A shares") for Class A shares of another Ivy
fund ("new Class A Shares") on the basis of the relative net asset value per
Class A share, plus an amount equal to the difference, if any, between the sales
charge previously paid on the outstanding Class A shares and the sales charge
payable at the time of the exchange on the new Class A shares. (The additional
sales charge will be waived for Class A shares that have been invested for a
period of 12 months or longer.) Class A shareholders may also exchange their
shares for shares of Ivy Money Market Fund (no initial sales charge will be
assessed at the time of such an exchange).
CONTINGENT DEFERRED SALES CHARGE SHARES CLASS A: Class A shareholders
may exchange their Class A shares that are subject to a contingent deferred
sales charge ("CDSC"), as described in the Prospectus ("outstanding Class A
shares"), for Class A shares of another Ivy fund ("new Class A shares") on the
basis of the relative net asset value per Class A share, without the payment of
any CDSC that would otherwise be due upon the redemption of the outstanding
Class A shares. Class A shareholders of the Fund exercising the exchange
privilege will continue to be subject to that Fund's CDSC period following an
exchange if such period is longer than the CDSC period, if any, applicable to
the new Class A shares.
For purposes of computing the CDSC that may be payable upon the
redemption of the new Class A shares, the holding period of the outstanding
Class A shares is "tacked" onto the holding period of the new Class A shares.
CLASS B: Class B shareholders may exchange their Class B shares
("outstanding Class B shares") for Class B shares of another Ivy fund ("new
Class B shares") on the basis of the relative net asset value per Class B share,
without the payment of any CDSC that would otherwise be due upon the redemption
of the outstanding Class B shares. Class B shareholders of the Fund exercising
the exchange privilege will continue to be subject to that Fund's CDSC schedule
(or period) following an exchange if such schedule is higher (or such period is
longer) than the CDSC schedule (or period) applicable to the new Class B shares.
Class B shares of the Fund acquired through an exchange of Class B
shares of another Ivy fund will be subject to that Fund's CDSC schedule (or
period) if such schedule is higher (or such period is longer) than the CDSC
schedule (or period) applicable to the Ivy fund from which the exchange was
made.
For purposes of both the conversion feature and computing the CDSC that
may be payable upon the redemption of the new Class B shares (prior to
conversion), the holding period of the outstanding Class B shares is "tacked"
onto the holding period of the new Class B shares.
The following CDSC table applies to Class B shares of Ivy Asia Pacific
Fund, Ivy Bond Fund, Ivy China Region Fund, Ivy Developing Nations Fund, Ivy
European Opportunities Fund, Ivy Global Fund, Ivy Global Natural Resources Fund,
Ivy Global Science & Technology Fund, Ivy Growth Fund, Ivy Growth with Income
Fund, Ivy International Fund, Ivy International Fund II, Ivy International Small
Companies Fund, Ivy International Strategic Bond Fund, Ivy Pan-Europe Fund, Ivy
South America Fund, Ivy US Blue Chip Fund, and Ivy US Emerging Growth Fund:
CONTINGENT DEFERRED SALES CHARGE AS A PERCENTAGE OF
DOLLAR AMOUNT SUBJECT TO CHARGE
YEAR SINCE PURCHASE
First 5%
Second 4%
Third 3%
Fourth 3%
Fifth 2%
Sixth 1%
Seventh and thereafter 0%
CLASS C: Class C shareholders may exchange their Class C shares
("outstanding Class C shares") for Class C shares of another Ivy fund ("new
Class C shares") on the basis of the relative net asset value per Class C share,
without the payment of any CDSC that would otherwise be due upon redemption.
(Class C shares are subject to a CDSC of 1.00% if redeemed within one year of
the date of purchase.)
ADVISOR CLASS: Subject to the restrictions set forth in the following
paragraph, Advisor Class shareholders may exchange their outstanding Advisor
Class shares for Advisor Class shares of another Ivy fund on the basis of the
relative net asset value per share.
ALL CLASSES: The minimum value of shares which may be exchanged into an
Ivy fund in which shares are not already held is $1,000 ($10,000 in the case of
Advisor Class shares). No exchange out of the Fund (other than by a complete
exchange of all Fund shares) may be made if it would reduce the shareholder's
interest in the Fund to less than $1,000 ($10,000 in the case of Advisor Class
shares).
Each exchange will be made on the basis of the relative net asset value
per share of the Ivy funds involved in the exchange next computed following
receipt by IMSC of telephone instructions by IMSC or a properly executed
request. Exchanges, whether written or telephonic, must be received by IMSC by
the close of regular trading on the Exchange (normally 4:00 p.m., eastern time)
to receive the price computed on the day of receipt. Exchange requests received
after that time will receive the price next determined following receipt of the
request. The exchange privilege may be modified or terminated at any time, upon
at least 60 days' notice to the extent required by applicable law. See
"Redemptions."
An exchange of shares between any of the Ivy funds will result in a
taxable gain or loss. Generally, this will be a capital gain or loss (long-term
or short-term, depending on the holding period of the shares) in the amount of
the difference between the net asset value of the shares surrendered and the
shareholder's tax basis for those shares. However, in certain circumstances,
shareholders will be ineligible to take sales charges into account in computing
taxable gain or loss on an exchange. See "Taxation."
With limited exceptions, gain realized by a tax-deferred retirement
plan will not be taxable to the plan and will not be taxed to the participant
until distribution. Each investor should consult his or her tax adviser
regarding the tax consequences of an exchange transaction.
LETTER OF INTENT
Reduced sales charges apply to initial investments in Class A shares of
the Fund made pursuant to a non-binding Letter of Intent. A Letter of Intent may
be submitted by an individual, his or her spouse and children under the age of
21, or a trustee or other fiduciary of a single trust estate or single fiduciary
account. See the Account Application in the Prospectus. Any investor may submit
a Letter of Intent stating that he or she will invest, over a period of 13
months, at least $50,000 in Class A shares of the Fund. A Letter of Intent may
be submitted at the time of an initial purchase of Class A shares of the Fund or
within 90 days of the initial purchase, in which case the Letter of Intent will
be back dated. A shareholder may include, as an accumulation credit, the value
(at the applicable offering price) of all Class A shares of Ivy Asia Pacific
Fund, Ivy Bond Fund, Ivy China Region Fund, Ivy Developing Nations Fund, Ivy
European Opportunities Fund, Ivy Global Fund, Ivy Global Natural Resources Fund,
Ivy Global Science & Technology Fund, Ivy Growth Fund, Ivy Growth with Income
Fund, Ivy International Fund, Ivy International Fund II, Ivy International Small
Companies Fund, Ivy International Strategic Bond Fund, Ivy Pan-Europe Fund, Ivy
South America Fund, Ivy US Blue Chip Fund, and Ivy US Emerging Growth Fund (and
shares that have been exchanged into Ivy Money Market Fund from any of the other
funds in the Ivy funds) held of record by him or her as of the date of his or
her Letter of Intent. During the term of the Letter of Intent, the Transfer
Agent will hold Class A shares representing 5% of the indicated amount (less any
accumulation credit value) in escrow. The escrowed Class A shares will be
released when the full indicated amount has been purchased. If the full
indicated amount is not purchased during the term of the Letter of Intent, the
investor is required to pay IMDI an amount equal to the difference between the
dollar amount of sales charge that he or she has paid and that which he or she
would have paid on his or her aggregate purchases if the total of such purchases
had been made at a single time. Such payment will be made by an automatic
liquidation of Class A shares in the escrow account. A Letter of Intent does not
obligate the investor to buy or the Trust to sell the indicated amount of Class
A shares, and the investor should read carefully all the provisions of such
letter before signing.
RETIREMENT PLANS
Shares may be purchased in connection with several types of
tax-deferred retirement plans. Shares of more than one fund distributed by IMDI
may be purchased in a single application establishing a single account under the
plan, and shares held in such an account may be exchanged among the Ivy funds in
accordance with the terms of the applicable plan and the exchange privilege
available to all shareholders. Initial and subsequent purchase payments in
connection with tax-deferred retirement plans must be at least $25 per
participant.
The following fees will be charged to individual shareholder accounts
as described in the retirement prototype plan document:
Retirement Plan New Account Fee no fee
Retirement Plan Annual Maintenance Fee $10.00 per fund account
For shareholders whose retirement accounts are diversified across
several Ivy funds, the annual maintenance fee will be limited to not more than
$20.
The following discussion describes the tax treatment of certain
tax-deferred retirement plans under current Federal income tax law. State income
tax consequences may vary. An individual considering the establishment of a
retirement plan should consult with an attorney and/or an accountant with
respect to the terms and tax aspects of the plan.
INDIVIDUAL RETIREMENT ACCOUNTS: Shares of the Fund may be used as a
funding medium for an Individual Retirement Account ("IRA"). Eligible
individuals may establish an IRA by adopting a model custodial account available
from IMSC, who may impose a charge for establishing the account. Individuals
should consult their tax advisers before investing IRA assets in an Ivy fund if
that fund primarily distributes exempt-interest dividends.
An individual who has not reached age 70-1/2 and who receives
compensation or earned income is eligible to contribute to an IRA, whether or
not he or she is an active participant in a retirement plan. An individual who
receives a distribution from another IRA, a qualified retirement plan, a
qualified annuity plan or a tax-sheltered annuity or custodial account ("403(b)
plan") that qualifies for "rollover" treatment is also eligible to establish an
IRA by rolling over the distribution either directly or within 60 days after its
receipt. Tax advice should be obtained in connection with planning a rollover
contribution to an IRA.
In general, an eligible individual may contribute up to the lesser of
$2,000 or 100% of his or her compensation or earned income to an IRA each year.
If a husband and wife are both employed, and both are under age 70-1/2, each may
set up his or her own IRA within these limits. If both earn at least $2,000 per
year, the maximum potential contribution is $4,000 per year for both. For years
after 1996, the result is similar even if one spouse has no earned income; if
the joint earned income of the spouses is at least $4,000, a contribution of up
to $2,000 may be made to each spouse's IRA. Rollover contributions are not
subject to these limits.
An individual may deduct his or her annual contributions to an IRA in
computing his or her Federal income tax within the limits described above,
provided he or she (or his or her spouse, if they file a joint Federal income
tax return) is not an active participant in a qualified retirement plan (such as
a qualified corporate, sole proprietorship, or partnership pension, profit
sharing, 401(k) or stock bonus plan), qualified annuity plan, 403(b) plan,
simplified employee pension, or governmental plan. If he or she (or his or her
spouse) is an active participant, whether the individual's contribution to an
IRA is fully deductible, partially deductible or not deductible depends on (i)
adjusted gross income and (ii) whether it is the individual or the individual's
spouse who is an active participant, in the case of married individuals filing
jointly. Contributions may be made up to the maximum permissible amount even if
they are not deductible. Rollover contributions are not includable in income for
Federal income tax purposes and therefore are not deductible from it.
Generally, earnings on an IRA are not subject to current Federal income
tax until distributed. Distributions attributable to tax-deductible
contributions and to IRA earnings are taxed as ordinary income. Distributions of
non-deductible contributions are not subject to Federal income tax. In general,
distributions from an IRA to an individual before he or she reaches age 59-1/2
are subject to a nondeductible penalty tax equal to 10% of the taxable amount of
the distribution. The 10% penalty tax does not apply to amounts withdrawn from
an IRA after the individual reaches age 59-1/2, becomes disabled or dies, or if
withdrawn in the form of substantially equal payments over the life or life
expectancy of the individual and his or her designated beneficiary, if any, or
rolled over into another IRA, amounts withdrawn and used to pay for deductible
medical expenses and amounts withdrawn by certain unemployed individuals not in
excess of amounts paid for certain health insurance premiums, amounts used to
pay certain qualified higher education expenses, and amounts used within 120
days of the date the distribution is received to pay for certain first-time
homebuyer expenses. Distributions must begin to be withdrawn not later than
April 1 of the calendar year following the calendar year in which the individual
reaches age 70-1/2. Failure to take certain minimum required distributions will
result in the imposition of a 50% non-deductible penalty tax.
ROTH IRAS: Shares of the Fund also may be used as a funding medium for
a Roth Individual Retirement Account ("Roth IRA"). A Roth IRA is similar in
numerous ways to the regular (traditional) IRA, described above.
Some of the primary differences are as follows.
A single individual earning below $95,000 can contribute up to $2,000
per year to a Roth IRA. The maximum contribution amount diminishes and gradually
falls to zero for single filers with adjusted gross incomes ranging from $95,000
to $110,000. Married couples earning less than $150,000 combined, and filing
jointly, can contribute a full $4,000 per year ($2,000 per IRA). The maximum
contribution amount for married couples filing jointly phases out from $150,000
to $160,000. An individual whose adjusted gross income exceeds the maximum
phase-out amount cannot contribute to a Roth IRA.
An eligible individual can contribute money to a traditional IRA and a
Roth IRA as long as the total contribution to all IRAs does not exceed $2,000.
Contributions to a Roth IRA are not deductible. Contributions to a Roth IRA may
be made even after the individual for whom the account is maintained has
attained age 70 1/2.
No distributions are required to be taken prior to the death of the
original account holder. If a Roth IRA has been established for a minimum of
five years, distributions can be taken tax-free after reaching age 59 1/2, for a
first-time home purchase ($10,000 maximum, one time use), or upon death or
disability. All other distributions from a Roth IRA (other than the amount of
nondeductible contributions) are taxable and subject to a 10% tax penalty unless
an exception applies. Exceptions to the 10% penalty include: reaching age 59
1/2, death, disability, deductible medical expenses, the purchase of health
insurance for certain unemployed individual and qualified higher education
expenses.
An individual with an income of less than $100,000 (who is not married
filing separately) can roll his or her existing IRA into a Roth IRA. However,
the individual must pay taxes on the taxable amount in his or her traditional
IRA. After 1998, all taxes on such a rollover will have to be paid in the tax
year in which the rollover is made.
QUALIFIED PLANS: For those self-employed individuals who wish to
purchase shares of one or more Ivy funds through a qualified retirement plan, a
Custodial Agreement and a Retirement Plan are available from IMSC. The
Retirement Plan may be adopted as a profit sharing plan or a money purchase
pension plan. A profit sharing plan permits an annual contribution to be made in
an amount determined each year by the self-employed individual within certain
limits prescribed by law. A money purchase pension plan requires annual
contributions at the level specified in the Custodial Agreement. There is no
set-up fee for qualified plans and the annual maintenance fee is $20.00 per
account.
In general, if a self-employed individual has any common law employees,
employees who have met certain minimum age and service requirements must be
covered by the Retirement Plan. A self-employed individual generally must
contribute the same percentage of income for common law employees as for himself
or herself.
A self-employed individual may contribute up to the lesser of $30,000
or 25% of compensation or earned income to a money purchase pension plan or to a
combination profit sharing and money purchase pension plan arrangement each year
on behalf of each participant. To be deductible, total contributions to a profit
sharing plan generally may not exceed 15% of the total compensation or earned
income of all participants in the plan, and total contributions to a combination
money purchase-profit sharing arrangement generally may not exceed 25% of the
total compensation or earned income of all participants. The amount of
compensation or earned income of any one participant that may be included in
computing the deduction is limited (generally to $150,000 for benefits accruing
in plan years beginning after 1993, with annual inflation adjustments). A
self-employed individual's contributions to a retirement plan on his or her own
behalf must be deducted in computing his or her earned income.
Corporate employers may also adopt the Custodial Agreement and
Retirement Plan for the benefit of their eligible employees. Similar
contribution and deduction rules apply to corporate employers.
Distributions from the Retirement Plan generally are made after a
participant's separation from service. A 10% penalty tax generally applies to
distributions to an individual before he or she reaches age 59-1/2, unless the
individual (1) has reached age 55 and separated from service; (2) dies; (3)
becomes disabled; (4) uses the withdrawal to pay tax-deductible medical
expenses; (5) takes the withdrawal as part of a series of substantially equal
payments over his or her life expectancy or the joint life expectancy of himself
or herself and a designated beneficiary; or (6) rolls over the distribution.
The Transfer Agent will arrange for Investors Bank & Trust to furnish
custodial services to the employer and any participating employees.
DEFERRED COMPENSATION FOR PUBLIC SCHOOLS AND CHARITABLE ORGANIZATIONS
("403(B)(7) ACCOUNT"): Section 403(b)(7) of the Internal Revenue Code of 1986,
as amended (the "Code") permits public school systems and certain charitable
organizations to use mutual fund shares held in a custodial account to fund
deferred compensation arrangements with their employees. A custodial account
agreement is available for those employers whose employees wish to purchase
shares of the Trust in conjunction with such an arrangement. The special
application for a 403(b)(7) Account is available from IMSC.
Distributions from the 403(b)(7) Account may be made only following
death, disability, separation from service, attainment of age 59-1/2, or
incurring a financial hardship. A 10% penalty tax generally applies to
distributions to an individual before he or she reaches age 59-1/2, unless the
individual (1) has reached age 55 and separated from service; (2) dies or
becomes disabled; (3) uses the withdrawal to pay tax-deductible medical
expenses; (4) takes the withdrawal as part of a series of substantially equal
payments over his or her life expectancy or the joint life expectancy of himself
or herself and a designated beneficiary; or (5) rolls over the distribution.
There is no set-up fee for 403(b)(7) Accounts and the annual maintenance fee is
$20.00 per account.
SIMPLIFIED EMPLOYEE PENSION ("SEP") IRAS: An employer may deduct
contributions to a SEP up to the lesser of $30,000 or 15% of compensation. SEP
accounts generally are subject to all rules applicable to IRA accounts, except
the deduction limits, and are subject to certain employee participation
requirements. No new salary reduction SEPs ("SARSEPs") may be established after
1996, but existing SARSEPs may continue to be maintained, and non-salary
reduction SEPs may continue to be established as well as maintained after 1996.
SIMPLE PLANS: An employer may establish a SIMPLE IRA or a SIMPLE 401(k)
for years after 1996. An employee can make pre-tax salary reduction
contributions to a SIMPLE Plan, up to $6,000 a year (as indexed). Subject to
certain limits, the employer will either match a portion of employee
contributions, or will make a contribution equal to 2% of each employee's
compensation without regard to the amount the employee contributes. An employer
cannot maintain a SIMPLE Plan for its employees if the employer maintains or
maintained any other qualified retirement plan with respect to which any
contributions or benefits have been credited.
REINVESTMENT PRIVILEGE
Shareholders who have redeemed Class A shares of the Fund may reinvest
all or a part of the proceeds of the redemption back into Class A shares of the
Fund at net asset value (without a sales charge) within 60 days from the date of
redemption. This privilege may be exercised only once. The reinvestment will be
made at the net asset value next determined after receipt by IMSC of the
reinvestment order accompanied by the funds to be reinvested. No compensation
will be paid to any sales personnel or dealer in connection with the
transaction.
Any redemption is a taxable event. A loss realized on a redemption
generally may be disallowed for tax purposes if the reinvestment privilege is
exercised within 30 days after the redemption. In certain circumstances,
shareholders will be ineligible to take sales charges into account in computing
taxable gain or loss on a redemption if the reinvestment privilege is exercised.
See "Taxation."
RIGHTS OF ACCUMULATION
A scale of reduced sales charges applies to any investment of $50,000
or more in Class A shares of the Fund. See "Initial Sales Charge Alternative --
Class A Shares" in the Prospectus. The reduced sales charge is applicable to
investments made at one time by an individual, his or her spouse and children
under the age of 21, or a trustee or other fiduciary of a single trust estate or
single fiduciary account (including a pension, profit sharing or other employee
benefit trust created pursuant to a plan qualified under Section 401 of the
Code). Rights of Accumulation is also applicable to current purchases of all of
the funds of Ivy Fund (except Ivy Money Market Fund) by any of the persons
enumerated above, where the aggregate quantity of Class A shares of such funds
(and shares that have been exchanged into Ivy Money Market Fund from any of the
other funds in the Ivy funds) and of any other investment company distributed by
IMDI, previously purchased or acquired and currently owned, determined at the
higher of current offering price or amount invested, plus the Class A shares
being purchased, amounts to $50,000 or more for all funds other than Ivy Bond
Fund; or $100,000 or more for Ivy Bond Fund.
At the time an investment takes place, IMSC must be notified by the
investor or his or her dealer that the investment qualifies for the reduced
sales charge on the basis of previous investments. The reduced sales charge is
subject to confirmation of the investor's holdings through a check of the
particular fund's records.
SYSTEMATIC WITHDRAWAL PLAN
A shareholder (except shareholders with accounts in Class I) may
establish a Systematic Withdrawal Plan (a "Withdrawal Plan"), by telephone
instructions or by delivery to IMSC of a written election to have his or her
shares withdrawn periodically (minimum distribution amount $50 for Advisor Class
shares), accompanied by a surrender to IMSC of all share certificates then
outstanding in such shareholder's name, properly endorsed by the shareholder. To
be eligible to elect a Withdrawal Plan, a shareholder must have at least $5,000
in his or her account (except Advisor Class shareholders, who must continually
maintain an account balance of at least $10,000). A Withdrawal Plan may not be
established if the investor is currently participating in the Automatic
Investment Method. A Withdrawal Plan may involve the depletion of a
shareholder's principal, depending on the amount withdrawn.
A redemption under a Withdrawal Plan is a taxable event. Shareholders
contemplating participating in a Withdrawal Plan should consult their tax
advisers.
Additional investments made by investors participating in a Withdrawal
Plan must equal at least $1,000 each ($250 for Advisor Class shareholders) while
the Withdrawal Plan is in effect. Making additional purchases while a Withdrawal
Plan is in effect may be disadvantageous to the investor because of applicable
initial sales charges or CDSCs.
An investor may terminate his or her participation in the Withdrawal
Plan at any time by delivering written notice to IMSC. If all shares held by the
investor are liquidated at any time, participation in the Withdrawal Plan will
terminate automatically. The Trust or IMSC may terminate the Withdrawal Plan
option at any time after reasonable notice to shareholders.
GROUP SYSTEMATIC INVESTMENT PROGRAM
Shares of the Fund may be purchased in connection with investment
programs established by employee or other groups using systematic payroll
deductions or other systematic payment arrangements. The Trust does not itself
organize, offer or administer any such programs. However, it may, depending upon
the size of the program, waive the minimum initial and additional investment
requirements for purchases by individuals in conjunction with programs organized
and offered by others. Unless shares of the Fund are purchased in conjunction
with IRAs (see "How to Buy Shares" in the Prospectus), such group systematic
investment programs are not entitled to special tax benefits under the Code. The
Trust reserves the right to refuse purchases at any time or suspend the offering
of shares in connection with group systematic investment programs, and to
restrict the offering of shareholder privileges, such as check writing,
simplified redemptions and other optional privileges, as described in the
Prospectus, to shareholders using group systematic investment programs.
With respect to each shareholder account established on or after
September 15, 1972 under a group systematic investment program, the Trust and
IMI each currently charge a maintenance fee of $3.00 (or portion thereof) that
for each twelve-month period (or portion thereof) that the account is
maintained. The Trust may collect such fee (and any fees due to IMI) through a
deduction from distributions to the shareholders involved or by causing on the
date the fee is assessed a redemption in each such shareholder account
sufficient to pay such fee. The Trust reserves the right to change these fees
from time to time without advance notice.
Class A shares of the Fund are made available to Merrill Lynch Daily K
Plan (the "Plan") participants at NAV without an initial sales charge if:
(i) the Plan is recordkept on a daily valuation basis by Merrill
Lynch and, on the date the Plan Sponsor signs the Merrill
Lynch Recordkeeping Service Agreement, the Plan has $3 million
or more in assets invested in broker/dealer funds not advised
or managed by Merrill Lynch Asset Management, L.P. ("MLAM")
that are made available pursuant to a Service Agreement
between Merrill Lynch and the fund's principal underwriter or
distributor and in funds advised or managed by MLAM
(collectively, the "Applicable Investments");
(ii) the Plan is recordkept on a daily valuation basis by an
independent recordkeeper whose services are provided through a
contract or alliance arrangement with Merrill Lynch, and on
the date the Plan Sponsor signs the Merrill Lynch
Recordkeeping Service Agreement, the Plan has $3 million or
more in assets, excluding money market funds, invested in
Applicable Investments; or
(iii) the Plan has 500 or more eligible employees, as determined by
Merrill Lynch plan conversion manager, on the date the Plan
Sponsor signs the Merrill Lynch Recordkeeping Service
Agreement.
Alternatively, Class B shares of the Fund are made available to Plan
participants at NAV without a CDSC if the Plan conforms with the requirements
for eligibility set forth in (i) through (iii) above but either does not meet
the $3 million asset threshold or does not have 500 or more eligible employees.
Plans recordkept on a daily basis by Merrill Lynch or an independent
recordkeeper under a contract with Merrill Lynch that are currently investing in
Class B shares of the Fund convert to Class A shares once the Plan has reached
$5 million invested in Applicable Investments, or 10 years after the date of the
initial purchase by a participant under the Plan--the Plan will receive a Plan
level share conversion.
REDEMPTIONS
Shares of the Fund are redeemed at their net asset value next
determined after a proper redemption request has been received by IMSC, less any
applicable CDSC.
Unless a shareholder requests that the proceeds of any redemption be
wired to his or her bank account, payment for shares tendered for redemption is
made by check within seven days after tender in proper form, except that the
Trust reserves the right to suspend the right of redemption or to postpone the
date of payment upon redemption beyond seven days, (i) for any period during
which the Exchange is closed (other than customary weekend and holiday closings)
or during which trading on the Exchange is restricted, (ii) for any period
during which an emergency exists as determined by the SEC as a result of which
disposal of securities owned by the Fund is not reasonably practicable or it is
not reasonably practicable for the Fund to fairly determine the value of its net
assets, or (iii) for such other periods as the SEC may by order permit for the
protection of shareholders of the Fund.
Under unusual circumstances, when the Board deems it in the best
interest of the Fund's shareholders, the Fund may make payment for shares
repurchased or redeemed in whole or in part in securities of the Fund taken at
current values. If any such redemption in kind is to be made, the Fund may make
an election pursuant to Rule 18f-1 under the 1940 Act. This will require the
Fund to redeem with cash at a shareholder's election in any case where the
redemption involves less than $250,000 (or 1% of the Fund's net asset value at
the beginning of each 90-day period during which such redemptions are in effect,
if that amount is less than $250,000). Should payment be made in securities, the
redeeming shareholder may incur brokerage costs in converting such securities to
cash.
The Trust may redeem those accounts of shareholders who have maintained
an investment, including sales charges paid, of less than $1,000 ($10,000 for
Advisor Class shareholders) in the Fund for a period of more than 12 months. All
accounts below that minimum will be redeemed simultaneously when MIMI deems it
advisable. The $1,000 balance ($10,000 for Advisor Class shareholders) will be
determined by actual dollar amounts invested by the shareholder, unaffected by
market fluctuations. The Trust will notify any such shareholder by certified
mail of its intention to redeem such account, and the shareholder shall have 60
days from the date of such letter to invest such additional sums as shall raise
the value of such account above that minimum. Should the shareholder fail to
forward such sum within 60 days of the date of the Trust's letter of
notification, the Trust will redeem the shares held in such account and transmit
the redemption in value thereof to the shareholder. However, those shareholders
who are investing pursuant to the Automatic Investment Method will not be
redeemed automatically unless they have ceased making payments pursuant to the
plan for a period of at least six consecutive months, and these shareholders
will be given six-months' notice by the Trust before such redemption.
Shareholders in a qualified retirement, pension or profit sharing plan who wish
to avoid tax consequences must "rollover" any sum so redeemed into another
qualified plan within 60 days. The Trustees of the Trust may change the minimum
account size.
If a shareholder has given authorization for telephonic redemption
privilege, shares can be redeemed and proceeds sent by Federal wire to a single
previously designated bank account. Delivery of the proceeds of a wire
redemption request of $250,000 or more may be delayed by the Fund for up to
seven days if deemed appropriate under then-current market conditions. The Trust
reserves the right to change this minimum or to terminate the telephonic
redemption privilege without prior notice. The Trust cannot be responsible for
the efficiency of the Federal wire system of the shareholder's dealer of record
or bank. The shareholder is responsible for any charges by the shareholder's
bank.
The Fund employs reasonable procedures that require personal
identification prior to acting on redemption or exchange instructions
communicated by telephone to confirm that such instructions are genuine. In the
absence of such instructions, the Fund may be liable for any losses due to
unauthorized or fraudulent telephone instructions.
CONVERSION OF CLASS B SHARES
As described in the Prospectus, Class B shares of the Fund will
automatically convert to Class A shares of the Fund, based on the relative net
asset values per share of the two classes, no later than the month following the
eighth anniversary of the initial issuance of such Class B shares of the Fund
occurs. For the purpose of calculating the holding period required for
conversion of Class B shares, the date of initial issuance shall mean: (1) the
date on which such Class B shares were issued, or (2) for Class B shares
obtained through an exchange, or a series of exchanges, (subject to the exchange
privileges for Class B shares) the date on which the original Class B shares
were issued. For purposes of conversion of Class B shares, Class B shares
purchased through the reinvestment of dividends and capital gain distributions
paid in respect of Class B shares will be held in a separate sub-account. Each
time any Class B shares in the shareholder's regular account (other than those
shares in the sub-account) convert to Class A shares, a pro rata portion of the
Class B shares in the sub-account will also convert to Class A shares. The
portion will be determined by the ratio that the shareholder's Class B shares
converting to Class A shares bears to the shareholder's total Class B shares not
acquired through the reinvestment of dividends and capital gain distributions.
NET ASSET VALUE
The net asset value per share of the Fund is computed by dividing the
value of the Fund's aggregate net assets (i.e., its total assets less its
liabilities) by the number of the Fund's shares outstanding. For purposes of
determining the Fund's aggregate net assets, receivables are valued at their
realizable amounts. The Fund's liabilities, if not identifiable as belonging to
a particular class of the Fund, are allocated among the Fund's several classes
based on their relative net asset size. Liabilities attributable to a particular
class are charged to that class directly. The total liabilities for a class are
then deducted from the class's proportionate interest in the Fund's assets, and
the resulting amount is divided by the number of shares of the class outstanding
to produce its net asset value per share.
A security listed or traded on a recognized stock exchange or The
Nasdaq Stock Market, Inc. ("Nasdaq") is valued at the security's last sale price
on the exchange on which the security is principally traded. If no sale is
reported at that time, the average between the last bid and asked price (the
"Calculated Mean") is used. Unless otherwise noted herein, the value of a
foreign security is determined in its national currency as of the normal close
of trading on the foreign exchange on which it is traded or as of the close of
regular trading on the Exchange, if that is earlier, and that value is then
converted into its U.S. dollar equivalent at the foreign exchange rate in effect
at noon, eastern time, on the day the value of the foreign security is
determined. All other securities for which OTC market quotations are readily
available are valued at the Calculated Mean.
A debt security normally is valued on the basis of quotes obtained from
at least two dealers (or one dealer who has made a market in the security) or
pricing services that take into account appropriate valuation factors. Interest
is accrued daily. Money market instruments are valued at amortized cost, which
the Board believes approximates market value.
An exchange-traded option is valued at the last sale price on the
exchange on which it is principally traded, if available, and otherwise is
valued at the last sale price on the other exchange(s). If there were no sales
on any exchange, the option shall be valued at the Calculated Mean, if possible,
and otherwise at the last offering price, in the case of a written option, and
the last bid price, in the case of a purchased option. An OTC option is valued
at the last offering price, in the case of a written option, and the last bid
price, in the case of a purchased option. Exchange listed and widely-traded OTC
futures (and options thereon) are valued at the most recent settlement price.
Securities and other assets for which market prices are not readily
available are priced at their "fair value" as determined by IMI in accordance
with procedures approved by the Board. Trading in securities on many foreign
securities exchanges is normally completed before the close of regular trading
on the Exchange. Trading on foreign exchanges may not take place on all days on
which there is regular trading on the Exchange, or may take place on days on
which there is no regular trading on the Exchange (e.g., any of the national
business holidays identified below). If events materially affecting the value of
the Fund's portfolio securities occur between the time when a foreign exchange
closes and the time when the Fund's net asset value is calculated (see following
paragraph), such securities may be valued at fair value as determined by IMI and
approved by the Board.
Portfolio securities are valued (and net asset value per share is
determined) as of the close of regular trading on the Exchange (normally 4:00
p.m., eastern time) on each day the Exchange is open for trading. The Exchange
and the Trust's offices are expected to be closed, and net asset value will not
be calculated, on the following national business holidays: New Year's Day,
Martin Luther King, Jr. Day, Presidents' Day, Good Friday, Memorial Day,
Independence Day, Labor Day, Thanksgiving Day and Christmas Day. On those days
when either or both of the Fund's Custodian or the Exchange close early as a
result of a partial holiday or otherwise, the Trust reserves the right to
advance the time on that day by which purchase and redemption requests must be
received.
The number of shares you receive when you place a purchase order, and
the payment you receive after submitting a redemption request, is based on the
Fund's net asset value next determined after your instructions are received in
proper form by IMSC or by your registered securities dealer. Each purchase and
redemption order is subject to any applicable sales charge. Since the Fund
normally invests in securities that are listed on foreign exchanges that may
trade on weekends or other days when the Fund does not price it shares, the
Fund's net asset value may change on days when shareholders will not be able to
purchase or redeem the Fund's shares. The sale of the Fund's shares will be
suspended during any period when the determination of its net asset value is
suspended pursuant to rules or orders of the SEC and may be suspended by the
Board whenever in its judgment it is in the Fund's best interest to do so.
TAXATION
The following is a general discussion of certain tax rules thought to
be applicable with respect to the Fund. It is merely a summary and is not an
exhaustive discussion of all possible situations or of all potentially
applicable taxes. Accordingly, shareholders and prospective shareholders should
consult a competent tax adviser about the tax consequences to them of investing
in the Fund.
The Fund intends to be taxed as a regulated investment company under
Subchapter M of the Code. Accordingly, the Fund must, among other things, (a)
derive in each taxable year at least 90% of its gross income from dividends,
interest, payments with respect to certain securities loans, and gains from the
sale or other disposition of stock, securities or foreign currencies, or other
income derived with respect to its business of investing in such stock,
securities or currencies; and (b) diversify its holdings so that, at the end of
each fiscal quarter, (i) at least 50% of the market value of the Fund's assets
is represented by cash, U.S. Government securities, the securities of other
regulated investment companies and other securities, with such other securities
limited, in respect of any one issuer, to an amount not greater than 5% of the
value of the Fund's total assets and 10% of the outstanding voting securities of
such issuer, and (ii) not more than 25% of the value of its total assets is
invested in the securities of any one issuer (other than U.S. Government
securities and the securities of other regulated investment companies).
As a regulated investment company, the Fund generally will not be
subject to U.S. Federal income tax on its income and gains that it distributes
to shareholders, if at least 90% of its investment company taxable income (which
includes, among other items, dividends, interest and the excess of any
short-term capital gains over long-term capital losses) for the taxable year is
distributed. The Fund intends to distribute all such income.
Amounts not distributed on a timely basis in accordance with a calendar
year distribution requirement are subject to a nondeductible 4% excise tax at
the Fund level. To avoid the tax, the Fund must distribute during each calendar
year, (1) at least 98% of its ordinary income (not taking into account any
capital gains or losses) for the calendar year (2) at least 98% of its capital
gains in excess of its capital losses (adjusted for certain ordinary losses) for
a one-year period generally ending on October 31 of the calendar year, and (3)
all ordinary income and capital gains for previous years that were not
distributed during such years. To avoid application of the excise tax, the Fund
intends to make distributions in accordance with the calendar year distribution
requirements. A distribution will be treated as paid on December 31 of the
current calendar year if it is declared by the Fund in October, November or
December of the year with a record date in such a month and paid by the Fund
during January of the following year. Such distributions will be taxable to
shareholders in the calendar year the distributions are declared, rather than
the calendar year in which the distributions are received.
OPTIONS, FUTURES AND FOREIGN CURRENCY FORWARD CONTRACTS
The taxation of equity options and OTC options on debt securities is
governed by Code section 1234. Pursuant to Code section 1234, the premium
received by the Fund for selling a put or call option is not included in income
at the time of receipt. If the option expires, the premium is short-term capital
gain to the Fund. If the Fund enters into a closing transaction, the difference
between the amount paid to close out its position and the premium received is
short-term capital gain or loss. If a call option written by the Fund is
exercised, thereby requiring the Fund to sell the underlying security, the
premium will increase the amount realized upon the sale of such security and any
resulting gain or loss will be a capital gain or loss, and will be long-term or
short-term depending upon the holding period of the security. With respect to a
put or call option that is purchased by the Fund, if the option is sold, any
resulting gain or loss will be a capital gain or loss, and will be long-term or
short-term, depending upon the holding period of the option. If the option
expires, the resulting loss is a capital loss and is long-term or short-term,
depending upon the holding period of the option. If the option is exercised, the
cost of the option, in the case of a call option, is added to the basis of the
purchased security and, in the case of a put option, reduces the amount realized
on the underlying security in determining gain or loss.
Some of the options, futures and foreign currency forward contracts in
which the Fund may invest may be "section 1256 contracts." Gains (or losses) on
these contracts generally are considered to be 60% long-term and 40% short-term
capital gains or losses; however, as described below, foreign currency gains or
losses arising from certain section 1256 contracts are ordinary in character.
Also, section 1256 contracts held by the Fund at the end of each taxable year
(and on certain other dates prescribed in the Code) are "marked-to-market" with
the result that unrealized gains or losses are treated as though they were
realized.
The transactions in options, futures and forward contracts undertaken
by the Fund may result in "straddles" for Federal income tax purposes. The
straddle rules may affect the character of gains or losses realized by the Fund.
In addition, losses realized by the Fund on positions that are part of a
straddle may be deferred under the straddle rules, rather than being taken into
account in calculating the taxable income for the taxable year in which such
losses are realized. Because only a few regulations implementing the straddle
rules have been promulgated, the consequences of such transactions to the Fund
are not entirely clear. The straddle rules may increase the amount of short-term
capital gain realized by the Fund, which is taxed as ordinary income when
distributed to shareholders.
The Fund may make one or more of the elections available under the Code
which are applicable to straddles. If the Fund makes any of the elections, the
amount, character and timing of the recognition of gains or losses from the
affected straddle positions will be determined under rules that vary according
to the election(s) made. The rules applicable under certain of the elections may
operate to accelerate the recognition of gains or losses from the affected
straddle positions.
Because application of the straddle rules may affect the character of
gains or losses, defer losses and/or accelerate the recognition of gains or
losses from the affected straddle positions, the amount which must be
distributed to shareholders as ordinary income or long-term capital gain may be
increased or decreased substantially as compared to a fund that did not engage
in such transactions.
Notwithstanding any of the foregoing, the Fund may recognize gain (but
not loss) from a constructive sale of certain "appreciated financial positions"
if the Fund enters into a short sale, offsetting notional principal contract,
futures or forward contract transaction with respect to the appreciated position
or substantially identical property. Appreciated financial positions subject to
this constructive sale treatment are interests (including options, futures and
forward contracts and short sales) in stock, partnership interests, certain
actively traded trust instruments and certain debt instruments. Constructive
sale treatment of appreciated financial positions does not apply to certain
transactions closed in the 90-day period ending with the 30th day after the
close of the Fund's taxable year, if certain conditions are met.
CURRENCY FLUCTUATIONS -- "SECTION 988" GAINS OR LOSSES
Gains or losses attributable to fluctuations in exchange rates which
occur between the time the Fund accrues receivables or liabilities denominated
in a foreign currency and the time the Fund actually collects such receivables
or pays such liabilities generally are treated as ordinary income or ordinary
loss. Similarly, on disposition of some investments, including debt securities
denominated in a foreign currency and certain options, futures and forward
contracts, gains or losses attributable to fluctuations in the value of the
foreign currency between the date of acquisition of the security or contract and
the date of disposition also are treated as ordinary gain or loss. These gains
and losses, referred to under the Code as "section 988" gains or losses,
increase or decrease the amount of the Fund's investment company taxable income
available to be distributed to its shareholders as ordinary income.
INVESTMENT IN PASSIVE FOREIGN INVESTMENT COMPANIES
The Fund may invest in shares of foreign corporations which may be
classified under the Code as passive foreign investment companies ("PFICs"). In
general, a foreign corporation is classified as a PFIC if at least one-half of
its assets constitute investment-type assets, or 75% or more of its gross income
is investment-type income. If the Fund receives a so-called "excess
distribution" with respect to PFIC stock, the Fund itself may be subject to a
tax on a portion of the excess distribution, whether or not the corresponding
income is distributed by the Fund to shareholders. In general, under the PFIC
rules, an excess distribution is treated as having been realized ratably over
the period during which a Fund held the PFIC shares. The Fund itself will be
subject to tax on the portion, if any, of an excess distribution that is so
allocated to prior Fund taxable years and an interest factor will be added to
the tax, as if the tax had been payable in such prior taxable years. Certain
distributions from a PFIC as well as gain from the sale of PFIC shares are
treated as excess distributions. Excess distributions are characterized as
ordinary income even though, absent application of the PFIC rules, certain
excess distributions might have been classified as capital gain.
The Fund may be eligible to elect alternative tax treatment with
respect to PFIC shares. The Fund may elect to mark to market its PFIC shares,
resulting in the shares being treated as sold at fair market value on the last
business day of each taxable year. Any resulting gain would be reported as
ordinary income; any resulting loss and any loss from an actual disposition of
the shares would be reported as ordinary loss to the extent of any net gains
reported in prior years. Under another election that currently is available in
some circumstances, the Fund generally would be required to include in its gross
income its share of the earnings of a PFIC on a current basis, regardless of
whether distributions are received from the PFIC in a given year.
DEBT SECURITIES ACQUIRED AT A DISCOUNT
Some of the debt securities (with a fixed maturity date of more than
one year from the date of issuance) that may be acquired by the Fund may be
treated as debt securities that are issued originally at a discount. Generally,
the amount of the original issue discount ("OID") is treated as interest income
and is included in income over the term of the debt security, even though
payment of that amount is not received until a later time, usually when the debt
security matures.
Some of the debt securities (with a fixed maturity date of more than
one year from the date of issuance) that may be acquired by the Fund in the
secondary market may be treated as having market discount. Generally, gain
recognized on the disposition of, and any partial payment of principal on, a
debt security having market discount is treated as ordinary income to the extent
the gain, or principal payment, does not exceed the "accrued market discount" on
such debt security. In addition, the deduction of any interest expenses
attributable to debt securities having market discount may be deferred. Market
discount generally accrues in equal daily installments. The Fund may make one or
more of the elections applicable to debt securities having market discount,
which could affect the character and timing of recognition of income.
Some debt securities (with a fixed maturity date of one year or less
from the date of issuance) that may be acquired by the Fund may be treated as
having acquisition discount, or OID in the case of certain types of debt
securities. Generally, the Fund will be required to include the acquisition
discount, or OID, in income over the term of the debt security, even though
payment of that amount is not received until a later time, usually when the debt
security matures. The Fund may make one or more of the elections applicable to
debt securities having acquisition discount, or OID, which could affect the
character and timing of recognition of income.
The Fund generally will be required to distribute dividends to
shareholders representing discount on debt securities that is currently
includable in income, even though cash representing such income may not have
been received by the Fund. Cash to pay such dividends may be obtained from sales
proceeds of securities held by the Fund.
DISTRIBUTIONS
Distributions of investment company taxable income are taxable to a
U.S. shareholder as ordinary income, whether paid in cash or shares. Dividends
paid by the Fund to a corporate shareholder, to the extent such dividends are
attributable to dividends received from U.S. corporations by the Fund, may
qualify for the dividends received deduction. However, the revised alternative
minimum tax applicable to corporations may reduce the value of the dividends
received deduction. Distributions of net capital gains (the excess of net
long-term capital gains over net short-term capital losses), if any, designated
by the Fund as capital gain dividends, are taxable to shareholders as long-term
capital gains whether paid in cash or in shares, and regardless of how long the
shareholder has held the Fund's shares; such distributions are not eligible for
the dividends received deduction. Shareholders receiving distributions in the
form of newly issued shares will have a cost basis in each share received equal
to the net asset value of a share of the Fund on the distribution date. A
distribution of an amount in excess of the Fund's current and accumulated
earnings and profits will be treated by a shareholder as a return of capital
which is applied against and reduces the shareholder's basis in his or her
shares. To the extent that the amount of any such distribution exceeds the
shareholder's basis in his or her shares, the excess will be treated by the
shareholder as gain from a sale or exchange of the shares. Shareholders will be
notified annually as to the U.S. Federal tax status of distributions and
shareholders receiving distributions in the form of newly issued shares will
receive a report as to the net asset value of the shares received.
If the net asset value of shares is reduced below a shareholder's cost
as a result of a distribution by the Fund, such distribution generally will be
taxable even though it represents a return of invested capital. Shareholders
should be careful to consider the tax implications of buying shares just prior
to a distribution. The price of shares purchased at this time may reflect the
amount of the forthcoming distribution. Those purchasing just prior to a
distribution will receive a distribution which generally will be taxable to
them.
DISPOSITION OF SHARES
Upon a redemption, sale or exchange of his or her shares, a shareholder
will realize a taxable gain or loss depending upon his or her basis in the
shares. Such gain or loss will be treated as capital gain or loss if the shares
are capital assets in the shareholder's hands and, if so, will be long-term or
short-term, depending upon the shareholder's holding period for the shares. Any
loss realized on a redemption sale or exchange will be disallowed to the extent
the shares disposed of are replaced (including through reinvestment of
dividends) within a period of 61 days beginning 30 days before and ending 30
days after the shares are disposed of. In such a case, the basis of the shares
acquired will be adjusted to reflect the disallowed loss. Any loss realized by a
shareholder on the sale of Fund shares held by the shareholder for six-months or
less will be treated for tax purposes as a long-term capital loss to the extent
of any distributions of capital gain dividends received or treated as having
been received by the shareholder with respect to such shares.
In some cases, shareholders will not be permitted to take all or
portion of their sales loads into account for purposes of determining the amount
of gain or loss realized on the disposition of their shares. This prohibition
generally applies where (1) the shareholder incurs a sales load in acquiring the
shares of the Fund, (2) the shares are disposed of before the 91st day after the
date on which they were acquired, and (3) the shareholder subsequently acquires
shares in the Fund or another regulated investment company and the otherwise
applicable sales charge is reduced under a "reinvestment right" received upon
the initial purchase of Fund shares. The term "reinvestment right" means any
right to acquire shares of one or more regulated investment companies without
the payment of a sales load or with the payment of a reduced sales charge. Sales
charges affected by this rule are treated as if they were incurred with respect
to the shares acquired under the reinvestment right. This provision may be
applied to successive acquisitions of fund shares.
FOREIGN WITHHOLDING TAXES
Income received by the Fund from sources within a foreign country may
be subject to withholding and other taxes imposed by that country.
If more than 50% of the value of the Fund's total assets at the close
of its taxable year consists of securities of foreign corporations, the Fund
will be eligible and may elect to "pass-through" to the Fund's shareholders the
amount of foreign income and similar taxes paid by the Fund. Pursuant to this
election, a shareholder will be required to include in gross income (in addition
to taxable dividends actually received) his or her pro rata share of the foreign
income and similar taxes paid by the Fund, and will be entitled either to deduct
his or her pro rata share of foreign income and similar taxes in computing his
or her taxable income or to use it as a foreign tax credit against his or her
U.S. Federal income taxes, subject to limitations. No deduction for foreign
taxes may be claimed by a shareholder who does not itemize deductions. Foreign
taxes generally may not be deducted by a shareholder that is an individual in
computing the alternative minimum tax. Each shareholder will be notified within
60 days after the close of the Fund's taxable year whether the foreign taxes
paid by the Fund will "pass-through" for that year and, if so, such notification
will designate (1) the shareholder's portion of the foreign taxes paid to each
such country and (2) the portion of the dividend which represents income derived
from sources within each such country.
Generally, except in the case of certain electing individual taxpayers
who have limited creditable foreign taxes and no foreign source income other
than passive investment-type income, a credit for foreign taxes is subject to
the limitation that it may not exceed the shareholder's U.S. tax attributable to
his or her total foreign source taxable income. For this purpose, if the Fund
makes the election described in the preceding paragraph, the source of the
Fund's income flows through to its shareholders. With respect to the Fund, gains
from the sale of securities generally will be treated as derived from U.S.
sources and section 988 gains will be treated as ordinary income derived from
U.S. sources. The limitation on the foreign tax credit is applied separately to
foreign source passive income, including foreign source passive income received
from the Fund. In addition, the foreign tax credit may offset only 90% of the
revised alternative minimum tax imposed on corporations and individuals.
Furthermore, the foreign tax credit is eliminated with respect to foreign taxes
withheld on dividends if the dividend-paying shares or the shares of the Fund
are held by the Fund or the shareholder, as the case may be, for less than 16
days (46 days in the case of preferred shares) during the 30-day period (90-day
period for preferred shares) beginning 15 days (45 days for preferred shares)
before the shares become ex-dividend. In addition, if the Fund fails to satisfy
these holding period requirements, it cannot elect to pass through to
shareholders the ability to claim a deduction for related foreign taxes.
The foregoing is only a general description of the foreign tax credit
under current law. Because application of the credit depends on the particular
circumstances of each shareholder, shareholders are advised to consult their own
tax advisers.
BACKUP WITHHOLDING
The Fund will be required to report to the Internal Revenue Service
("IRS") all taxable distributions as well as gross proceeds from the redemption
of the Fund's shares, except in the case of certain exempt shareholders. All
such distributions and proceeds will be subject to withholding of Federal income
tax at a rate of 31% ("backup withholding") in the case of non-exempt
shareholders if (1) the shareholder fails to furnish the Fund with and to
certify the shareholder's correct taxpayer identification number or social
security number, (2) the IRS notifies the shareholder or the Fund that the
shareholder has failed to report properly certain interest and dividend income
to the IRS and to respond to notices to that effect, or (3) when required to do
so, the shareholder fails to certify that he or she is not subject to backup
withholding. If the withholding provisions are applicable, any such
distributions or proceeds, whether reinvested in additional shares or taken in
cash, will be reduced by the amounts required to be withheld.
Distributions may also be subject to additional state, local and
foreign taxes depending on each shareholder's particular situation. Non-U.S.
shareholders may be subject to U.S. tax rules that differ significantly from
those summarized above. This discussion does not purport to deal with all of the
tax consequences applicable to the Fund or shareholders. Shareholders are
advised to consult their own tax advisers with respect to the particular tax
consequences to them of an investment in the Fund.
PERFORMANCE INFORMATION
Performance information for the classes of shares of the Fund may be
compared, in reports and promotional literature, to: (i) the S&P 500 Index, the
Dow Jones Industrial Average ("DJIA"), or other unmanaged indices so that
investors may compare the Fund's results with those of a group of unmanaged
securities widely regarded by investors as representative of the securities
markets in general; (ii) other groups of mutual funds tracked by Lipper
Analytical Services, a widely used independent research firm that ranks mutual
funds by overall performance, investment objectives and assets, or tracked by
other services, companies, publications or other criteria; and (iii) the
Consumer Price Index (measure for inflation) to assess the real rate of return
from an investment in the Fund. Unmanaged indices may assume the reinvestment of
dividends but generally do not reflect deductions or administrative and
management costs and expenses. Performance rankings are based on historical
information and are not intended to indicate future performance.
YIELD. Quotations of yield for a specific class of shares of the Fund
will be based on all investment income attributable to that class earned during
a particular 30-day (or one month) period (including dividends and interest),
less expenses attributable to that class accrued during the period ("net
investment income"), and will be computed by dividing the net investment income
per share of that class earned during the period by the maximum offering price
per share (in the case of Class A shares) or the net asset value per share (in
the case of Class B and Class C shares) on the last day of the period, according
to the following formula:
YIELD = 2[({(a-b)/cd} + 1){superscript 6}-1]
Where: a = dividends and interest earned
during the period attributable to a
specific class of shares,
b = expenses accrued for the period
attributable to that class (net of
reimbursements),
c = the average daily number of shares
of that class outstanding during the
period that were entitled to receive
dividends, and
d = the maximum offering price per
share (in the case of Class A
shares) or the net asset value per
share (in the case of Class B shares
and Class C shares) on the last day
of the period.
AVERAGE ANNUAL TOTAL RETURN. Quotations of standardized average annual
total return ("Standardized Return") for a specific class of shares of the Fund
will be expressed in terms of the average annual compounded rate of return that
would cause a hypothetical investment in that class of the Fund made on the
first day of a designated period to equal the ending redeemable value ("ERV") of
such hypothetical investment on the last day of the designated period, according
to the following formula:
P(1 + T){superscript n} = ERV
Where: P = a hypothetical initial payment of
$1,000 to purchase shares of a
specific class
T = the average annual total return of
shares of that class
n = the number of years
ERV = the ending redeemable value of a
hypothetical $1,000 payment made at
the beginning of the period.
For purposes of the above computation for the Fund, it is assumed that
all dividends and capital gains distributions made by the Fund are reinvested at
net asset value in additional shares of the same class during the designated
period. In calculating the ending redeemable value for Class A shares and
assuming complete redemption at the end of the applicable period, the maximum
5.75% sales charge is deducted from the initial $1,000 payment and, for Class B
and Class C shares, the applicable CDSC imposed upon redemption of Class B or
Class C shares held for the period is deducted. Standardized Return quotations
for the Fund do not take into account any required payments for federal or state
income taxes. Standardized Return quotations for Class B shares for periods of
over eight years will reflect conversion of the Class B shares to Class A shares
at the end of the eighth year. Standardized Return quotations are determined to
the nearest 1/100 of 1%.
The Fund may, from time to time, include in advertisements, promotional
literature or reports to shareholders or prospective investors total return data
that are not calculated according to the formula set forth above
("Non-Standardized Return"). Neither initial nor CDSCs are taken into account in
calculating Non-Standardized Return; a sales charge, if deducted, would reduce
the return.
The following table summarizes the calculation of Standardized and
Non-Standardized Return for the Class A, Class B, Class C and Advisor Class
shares of the Fund for the periods indicated. In determining the average annual
total return for a specific class of shares of the Fund, recurring fees, if any,
that are charged to all shareholder accounts are taken into consideration. For
any account fees that vary with the size of the account of the Fund, the account
fee used for purposes of the following computations is assumed to be the fee
that would be charged to the mean account size of the Fund.
STANDARDIZED RETURN[*]
<TABLE>
CLASS A[1] CLASS B[2] CLASS C[3] ADVISOR CLASS
<S> <C> <C> <C> <C>
Year ended December 31,
1998
Inception [#] to year
ended December 31,
1998[7]:
NON-STANDARDIZED RETURN[**]
CLASS A[4] CLASS B[5] CLASS C[6] ADVISOR CLASS
Year ended December 31,
1998
Inception [#] to year
ended December 31,
1998[7]:
- ------------------------- ----------------------- ----------------------- -------------------------
</TABLE>
[*] The Standardized Return figures for Class A shares reflect the
deduction of the maximum initial sales charge of 5.75%. The Standardized Return
figures for Class B and C shares reflect the deduction of the applicable CDSC
imposed on redemption of Class B or C shares held for the period.
[**] The Non-Standardized Return figures do not reflect the deduction of
any initial sales charge or CDSC.
[#] The inception date for the Fund (Class A and Class B shares) was
November 1, 1994. The inception dates for Class C and Advisor Class shares were
April 30, 1996 and January 1, 1998, respectively.
[1] The Standardized Return figures for the Class A shares reflect
expense reimbursement. Without expense reimbursement, the Standardized Return
for Class A shares for the period from inception through and the one year ended
December 31, 1998 would have been [ ].
[2] The Standardized Return figures for the Class B shares reflect
expense reimbursement. Without expense reimbursement, the Standardized Return
for Class B shares for the period from inception through and the one year ended
December 31, 1998 would have been [ ].
[3] The Standardized Return figures for the Class C shares reflect
expense reimbursement. Without expense reimbursement, the Standardized Return
for Class C shares for the period from inception through and the one year ended
December 31, 1998 would have been [ ].
[4] The Non-Standardized Return figures for Class A shares reflect
expense reimbursement. Without expense reimbursement, the Non-Standardized
Return for Class A shares for the period from inception through and the one year
ended December 31, 1998 would have been [ ].
[5] The Non-Standardized Return figures for Class B shares reflect
expense reimbursement. Without expense reimbursement, the Non-Standardized
Return for Class B shares for the period from inception through and the one year
ended December 31, 1998 would have been [ ].
[6] The Non-Standardized Return figures for Class C shares reflect
expense reimbursement. Without expense reimbursement, the Non-Standardized
Return for Class C shares for the period from inception through and the one year
ended December 31, 1998 would have been [ ].
[7] The total return for a period less than a full year is calculated
on an aggregate basis and is not annualized.
CUMULATIVE TOTAL RETURN. Cumulative total return is the cumulative rate
of return on a hypothetical initial investment of $1,000 in a specific class of
shares of the Fund for a specified period. Cumulative total return quotations
reflect changes in the price of the Fund's shares and assume that all dividends
and capital gains distributions during the period were reinvested in the Fund
shares. Cumulative total return is calculated by computing the cumulative rates
of return of a hypothetical investment in a specific class of shares of the Fund
over such periods, according to the following formula (cumulative total return
is then expressed as a percentage):
C = (ERV/P) - 1
Where: C = cumulative total return
P = a hypothetical initial investment
of $1,000 to purchase shares of a
specific class
ERV = ending redeemable value: ERV is
the value, at the end of the
applicable period, of a hypothetical
$1,000 investment made at the
beginning of the applicable period.
The following table summarizes the calculation of Cumulative Total
Return for the periods indicated through December 31, 1998, assuming the maximum
5.75% sales charge has been assessed.
ONE YEAR SINCE
INCEPTION[*]
Class A
Class B
Class C
Advisor Class
The following table summarizes the calculation of Cumulative Total
Return for the periods indicated through December 31, 1998, assuming the maximum
5.75% sales charge has not been assessed.
ONE YEAR SINCE
INCEPTION[*]
Class A
Class B
Class C
Advisor Class
- ---------------------------
[*] The inception date for the Fund (Class A and Class B shares) was
November 1, 1994. The inception date for Class C shares of the Fund was April
30, 1996. The inception date for Advisor Class shares was January 1, 1998.
OTHER QUOTATIONS, COMPARISONS AND GENERAL INFORMATION. The foregoing
computation methods are prescribed for advertising and other communications
subject to SEC Rule 482. Communications not subject to this rule may contain a
number of different measures of performance, computation methods and
assumptions, including but not limited to: historical total returns; results of
actual or hypothetical investments; changes in dividends, distributions or share
values; or any graphic illustration of such data. These data may cover any
period of the Trust's existence and may or may not include the impact of sales
charges, taxes or other factors.
Performance quotations for the Fund will vary from time to time
depending on market conditions, the composition of the Fund's portfolio and
operating expenses of the Fund. These factors and possible differences in the
methods used in calculating performance quotations should be considered when
comparing performance information regarding the Fund's shares with information
published for other investment companies and other investment vehicles.
Performance quotations should also be considered relative to changes in the
value of the Fund's shares and the risks associated with the Fund's investment
objectives and policies. At any time in the future, performance quotations may
be higher or lower than past performance quotations and there can be no
assurance that any historical performance quotation will continue in the future.
The Fund may also cite endorsements or use for comparison its
performance rankings and listings reported in such newspapers or business or
consumer publications as, among others: AAII Journal, Barron's, Boston Business
Journal, Boston Globe, Boston Herald, Business Week, Consumer's Digest, Consumer
Guide Publications, Changing Times, Financial Planning, Financial World, Forbes,
Fortune, Growth Fund Guide, Houston Post, Institutional Investor, International
Fund Monitor, Investor's Daily, Los Angeles Times, Medical Economics, Miami
Herald, Money Mutual Fund Forecaster, Mutual Fund Letter, Mutual Fund Source
Book, Mutual Fund Values, National Underwriter, Nelson's Directory of Investment
Managers, New York Times, Newsweek, No Load Fund Investor, No Load Fund* X,
Oakland Tribune, Pension World, Pensions and Investment Age, Personal Investor,
Rugg and Steele, Time, U.S. News and World Report, USA Today, The Wall Street
Journal, and Washington Post.
FINANCIAL STATEMENTS
The Fund's Portfolio of Investments as of December 31, 1998, Statement
of Assets and Liabilities as of December 31, 1998, Statement of Operations for
the fiscal year ended December 31, 1998, Statement of Changes in Net Assets for
the fiscal year ended December 31, 1998, Financial Highlights, Notes to
Financial Statements, and Report of Independent Accountants, which are included
in the Fund's December 31, 1998 Annual Report to shareholders, are incorporated
by reference into this SAI.
<PAGE>
APPENDIX A
DESCRIPTION OF STANDARD & POOR'S RATINGS GROUP ("S&P") AND MOODY'S
INVESTORS SERVICE, INC. ("MOODY'S") CORPORATE BOND AND COMMERCIAL PAPER RATINGS
[From "Moody's Bond Record," November 1994 Issue (Moody's Investors
Service, New York, 1994), and "Standard & Poor's Municipal Ratings Handbook,"
October 1997 Issue (McGraw Hill, New York, 1997).]
MOODY'S:
(a) CORPORATE BONDS. Bonds rated Aaa by Moody's are judged by Moody's
to be of the best quality, carrying the smallest degree of investment risk.
Interest payments are protected by a large or exceptionally stable margin and
principal is secure. While the various protective elements are likely to change,
such changes as can be visualized are most unlikely to impair the fundamentally
strong position of such issues. Bonds rated Aa are judged by Moody's to be of
high quality by all standards. Aa bonds are rated lower than Aaa bonds because
margins of protection may not be as large as those of Aaa bonds, or fluctuations
of protective elements may be of greater amplitude, or there may be other
elements present which make the long-term risks appear somewhat larger than
those applicable to Aaa securities. Bonds which are rated A by Moody's possess
many favorable investment attributes and are to be considered as upper
medium-grade obligations. Factors giving security to principal and interest are
considered adequate, but elements may be present which suggest a susceptibility
to impairment sometime in the future. Bonds rated Baa by Moody's are considered
medium-grade obligations (i.e., they are neither highly protected nor poorly
secured). Interest payments and principal security appear adequate for the
present, but certain protective elements may be lacking or may be
characteristically unreliable over any great length of time. Such bonds lack
outstanding investment characteristics and in fact have speculative
characteristics as well. Bonds which are rated Ba are judged to have speculative
elements; their future cannot be considered well-assured. Often the protection
of interest and principal payments may be very moderate and thereby not well
safeguarded during both good and bad times over the future. Uncertainty of
position characterizes bonds in this class. Bonds which are rated B generally
lack characteristics of the desirable investment. Assurance of interest and
principal payments of or maintenance of other terms of the contract over any
long period of time may be small. Bonds which are rated Caa are of poor
standing. Such issues may be in default or there may be present elements of
danger with respect to principal or interest. Bonds which are rated Ca represent
obligations which are speculative in a high degree. Such issues are often in
default or have other marked shortcomings. Bonds which are rated C are the
lowest rated class of bonds and issues so rated can be regarded as having
extremely poor prospects of ever attaining any real investment standing.
(b) COMMERCIAL PAPER. The Prime rating is the highest commercial paper
rating assigned by Moody's. Among the factors considered by Moody's in assigning
ratings are the following: (1) evaluation of the management of the issuer; (2)
economic evaluation of the issuer's industry or industries and an appraisal of
speculative-type risks which may be inherent in certain areas; (3) evaluation of
the issuer's products in relation to competition and customer acceptance; (4)
liquidity; (5) amount and quality of long-term debt; (6) trend of earnings over
a period of ten years; (7) financial strength of a parent company and the
relationships which exist with the issuer; and (8) recognition by management of
obligations which may be present or may arise as a result of public interest
questions and preparations to meet such obligations. Issuers within this Prime
category may be given ratings 1, 2 or 3, depending on the relative strengths of
these factors. The designation of Prime-1 indicates the highest quality
repayment capacity of the rated issue. Issuers rated Prime-2 are deemed to have
a strong ability for repayment while issuers voted Prime-3 are deemed to have an
acceptable ability for repayment. Issuers rated Not Prime do not fall within any
of the Prime rating categories.
S&P:
(a) CORPORATE BONDS. An S&P corporate debt rating is a current
assessment of the creditworthiness of an obligor with respect to a specific
obligation. The ratings are based on current information furnished by the issuer
or obtained by S&P from other sources it considers reliable. The ratings
described below may be modified by the addition of a plus or minus sign to show
relative standing within the major rating categories.
Debt rated AAA has the highest rating assigned by S&P. Capacity to pay
interest and repay principal is extremely strong. Debt rated AA is judged by S&P
to have a very strong capacity to pay interest and repay principal and differs
from the highest rated issues only in small degree. Debt rated A by S&P has a
strong capacity to pay interest and repay principal, although it is somewhat
more susceptible to the adverse effects of changes in circumstances and economic
conditions than debt in higher rated categories.
Debt rated BBB by S&P is regarded by S&P as having an adequate capacity
to pay interest and repay principal. Although such bonds normally exhibit
adequate protection parameters, adverse economic conditions or changing
circumstances are more likely to lead to a weakened capacity to pay interest and
repay principal than debt in higher rated categories.
Debt rated BB, B, CCC, CC and C is regarded as having predominately
speculative characteristics with respect to capacity to pay interest and repay
principal. BB indicates the least degree of speculation and C the highest. While
such debt will likely have some quality and protective characteristics, these
are outweighed by large uncertainties or exposures to adverse conditions. Debt
rated BB has less near-term vulnerability to default than other speculative
issues. However, it faces major ongoing uncertainties or exposure to adverse
business, financial or economic conditions which could lead to inadequate
capacity to meet timely interest and principal payments. The BB rating category
is also used for debt subordinated to senior debt that is assigned an actual or
implied BBB- rating. Debt rated B has a greater vulnerability to default but
currently has the capacity to meet interest payments and principal repayments.
Adverse business, financial, or economic conditions will likely impair capacity
or willingness to pay interest and repay principal. The B rating category is
also used for debt subordinated to senior debt that is assigned an actual or
implied BB or BB- rating. Debt rated CCC has a currently identifiable
vulnerability to default, and is dependent upon favorable business, financial,
and economic conditions to meet timely payment of interest and repayment of
principal. In the event of adverse business, financial or economic conditions,
it is not likely to have the capacity to pay interest and repay principal. The
CCC rating category is also used for debt subordinated to senior debt that is
assigned an actual or implied B or B- rating. The rating CC typically is applied
to debt subordinated to senior debt which is assigned an actual or implied CCC
debt rating. The rating C typically is applied to debt subordinated to senior
debt which is assigned an actual or implied CCC- debt rating. The C rating may
be used to cover a situation where a bankruptcy petition has been filed, but
debt service payments are continued.
The rating CI is reserved for income bonds on which no interest is
being paid. Debt rated D is in payment default. The D rating category is used
when interest payments or principal payments are not made on the date due, even
if the applicable grace period has not expired, unless S&P believes that such
payments will be made during such grace period. The D rating also will be used
upon the filing of a bankruptcy petition if debt service payments are
jeopardized.
(b) COMMERCIAL PAPER. An S&P commercial paper rating is a current
assessment of the likelihood of timely payment of debt considered short-term in
the relevant market.
The commercial paper rating A-1 by S&P indicates that the degree of
safety regarding timely payment is strong. Those issues determined to possess
extremely strong safety characteristics are denoted with a plus sign (+)
designation. For commercial paper with an A-2 rating, the capacity for timely
payment on issues is satisfactory, but not as high as for issues designated A-1.
Issues rated A-3 have adequate capacity for timely payment, but are more
vulnerable to the adverse effects of changes in circumstances than obligations
carrying higher designations.
Issues rated B are regarded as having only speculative capacity for
timely payment. The C rating is assigned to short-term debt obligations with a
doubtful capacity for payment. Debt rated D is in payment default. The D rating
category is used when interest payments or principal payments are not made on
the date due, even if the applicable grace period has not expired, unless S&P
believes such payments will be made during such grace period.
<PAGE>
IVY US BLUE CHIP FUND
a series of
IVY FUND
Via Mizner Financial Plaza, Suite 300
700 South Federal Highway
Boca Raton, Florida 33432
STATEMENT OF ADDITIONAL INFORMATION
April , 1999
Ivy Fund (the "Trust") is an open-end management investment company
that currently consists of nineteen fully managed portfolios, each of which
(except for Ivy South America Fund and Ivy International Strategic Bond Fund) is
diversified. This Statement of Additional Information ("SAI") relates to the
Class A, B, C and I and Advisor Class shares of Ivy US Blue Chip Fund (the
"Fund"). The other eighteen portfolios of the Trust are described in separate
prospectuses and SAIs.
This SAI is not a prospectus and should be read in conjunction with the
prospectus for the Fund dated April , 1999 (the "Prospectus"), which may be
obtained upon request and without charge from the Trust at the Distributor's
address and telephone number printed below.
INVESTMENT MANAGER
Ivy Management, Inc. ("IMI")
Via Mizner Financial Plaza, Suite 300
700 South Federal Highway
Boca Raton, Florida 33432
Telephone: (800) 777-6472
DISTRIBUTOR
Ivy Mackenzie Distributors, Inc. ("IMDI")
Via Mizner Financial Plaza, Suite 300
700 South Federal Highway
Boca Raton, Florida 33432
Telephone: (800) 456-5111
<PAGE>
ii
TABLE OF CONTENTS
INVESTMENT OBJECTIVES AND POLICIES...........................................
RISK FACTORS.................................................................
ADJUSTABLE RATE PREFERRED STOCKS....................................
BANKING INDUSTRY AND SAVINGS AND LOAN OBLIGATIONS...................
BORROWING...........................................................
COMMERCIAL PAPER....................................................
CONVERTIBLE SECURITIES..............................................
DEBT SECURITIES.....................................................
IN GENERAL.................................................
U.S. GOVERNMENT SECURITIES.................................
INVESTMENT-GRADE DEBT SECURITIES...........................
ZERO COUPON BONDS..........................................
FIRM COMMITMENT AGREEMENTS AND "WHEN-ISSUED" SECURITIES.............
ILLIQUID SECURITIES.................................................
REAL ESTATE INVESTMENT TRUSTS (REITS)...............................
REPURCHASE AGREEMENTS...............................................
WARRANTS............................................................
OPTIONS TRANSACTIONS................................................
IN GENERAL.................................................
WRITING OPTIONS ON INDIVIDUAL SECURITIES...................
PURCHASING OPTIONS ON INDIVIDUAL SECURITIES................
PURCHASING AND WRITING OPTIONS ON SECURITIES INDICES.......
RISKS OF OPTIONS TRANSACTIONS..............................
FUTURES CONTRACTS AND OPTIONS ON FUTURES CONTRACTS..................
IN GENERAL.................................................
RISKS ASSOCIATED WITH FUTURES AND RELATED OPTIONS..........
SECURITIES INDEX FUTURES CONTRACTS..................................
RISKS OF SECURITIES INDEX FUTURES..........................
COMBINED TRANSACTIONS...............................................
INVESTMENT RESTRICTIONS......................................................
ADDITIONAL RESTRICTIONS......................................................
PORTFOLIO TURNOVER...........................................................
TRUSTEES AND OFFICERS........................................................
PERSONAL INVESTMENTS BY EMPLOYEES OF IMI...................
INVESTMENT ADVISORY AND OTHER SERVICES.......................................
BUSINESS MANAGEMENT AND INVESTMENT ADVISORY SERVICES................
DISTRIBUTION SERVICES...............................................
RULE 18F-3 PLAN............................................
RULE 12B-1 DISTRIBUTION PLANS..............................
CUSTODIAN...........................................................
FUND ACCOUNTING SERVICES............................................
TRANSFER AGENT AND DIVIDEND PAYING AGENT............................
ADMINISTRATOR.......................................................
AUDITORS............................................................
BROKERAGE ALLOCATION.........................................................
CAPITALIZATION AND VOTING RIGHTS.............................................
SPECIAL RIGHTS AND PRIVILEGES................................................
AUTOMATIC INVESTMENT METHOD.........................................
EXCHANGE OF SHARES..................................................
INITIAL SALES CHARGE SHARES................................
CONTINGENT DEFERRED SALES CHARGE SHARES CLASS A............
CLASS B....................................................
CLASS C....................................................
CLASS I AND ADVISOR CLASS..................................
ALL CLASSES................................................
LETTER OF INTENT....................................................
RETIREMENT PLANS....................................................
INDIVIDUAL RETIREMENT ACCOUNTS.............................
ROTH IRAS..................................................
QUALIFIED PLANS............................................
DEFERRED COMPENSATION FOR PUBLIC SCHOOLS AND
CHARITABLE ORGANIZATIONS ("403(B)(7) ACCOUNT")....
SIMPLIFIED EMPLOYEE PENSION ("SEP") IRAS...................
SIMPLE PLANS...............................................
REINVESTMENT PRIVILEGE..............................................
RIGHTS OF ACCUMULATION..............................................
SYSTEMATIC WITHDRAWAL PLAN..........................................
GROUP SYSTEMATIC INVESTMENT PROGRAM.................................
REDEMPTIONS..................................................................
CONVERSION OF CLASS B SHARES.................................................
NET ASSET VALUE..............................................................
TAXATION 39
OPTIONS, FUTURES AND FOREIGN CURRENCY FORWARD CONTRACTS.............
CURRENCY FLUCTUATIONS -- "SECTION 988" GAINS OR LOSSES..............
INVESTMENT IN PASSIVE FOREIGN INVESTMENT COMPANIES..................
DEBT SECURITIES ACQUIRED AT A DISCOUNT..............................
DISTRIBUTIONS.......................................................
DISPOSITION OF SHARES...............................................
FOREIGN WITHHOLDING TAXES...........................................
BACKUP WITHHOLDING..................................................
PERFORMANCE INFORMATION......................................................
YIELD......................................................
AVERAGE ANNUAL TOTAL RETURN................................
CUMULATIVE TOTAL RETURN....................................
OTHER QUOTATIONS, COMPARISONS AND GENERAL INFORMATION......
FINANCIAL STATEMENTS.........................................................
APPENDIX A...................................................................
<PAGE>
INVESTMENT OBJECTIVES AND POLICIES
The Fund has its own investment objective and policies, which are
described in the Prospectus under the captions "Investment Objectives and
Policies" and "Risk Factors and Investment Techniques." Additional information
regarding the characteristics and risks associated with the Fund's investment
techniques is set forth below.
RISK FACTORS
ADJUSTABLE RATE PREFERRED STOCKS
Adjustable rate preferred stocks have a variable dividend, generally
determined on a quarterly basis according to a formula based upon a specified
premium or discount to the yield on a particular U.S. Treasury security rather
than a dividend which is set for the life of the issue. Although the dividend
rates on these stocks are adjusted quarterly and their market value should
therefore be less sensitive to interest rate fluctuations than are other fixed
income securities and preferred stocks, the market values of adjustable rate
preferred stocks have fluctuated and can be expected to continue to do so in the
future.
BANKING INDUSTRY AND SAVINGS AND LOAN OBLIGATIONS
Certificates of deposit are negotiable certificates issued against
funds deposited in a commercial bank for a definite period of time and earning a
specified return. Bankers' acceptances are negotiable drafts or bills of
exchange, normally drawn by an importer or exporter to pay for specific
merchandise, which are "accepted" by a bank (meaning, in effect, that the bank
unconditionally agrees to pay the face value of the instrument at maturity). In
addition to investing in certificates of deposit and bankers' acceptances, the
Fund may invest in time deposits in banks or savings and loan associations. Time
deposits are generally similar to certificates of deposit, but are
uncertificated. The Fund's investments in certificates of deposit, time
deposits, and bankers' acceptances are limited to obligations of (i) banks
having total assets in excess of $1 billion, (ii) U.S. banks which do not meet
the $1 billion asset requirement, if the principal amount of such obligation is
fully insured by the Federal Deposit Insurance Corporation (the "FDIC"), (iii)
savings and loan associations which have total assets in excess of $1 billion
and which are members of the FDIC, and (iv) foreign banks if the obligation is,
in IMI's opinion, of an investment quality comparable to other debt securities
which may be purchased by the Fund. The Fund's investments in certificates of
deposit of savings associations are limited to obligations of Federal and
state-chartered institutions whose total assets exceed $1 billion and whose
deposits are insured by the FDIC.
BORROWING
Borrowing may exaggerate the effect on the Fund's net asset value of
any increase or decrease in the value of the Fund's portfolio securities. Money
borrowed will be subject to interest costs (which may include commitment fees
and/or the cost of maintaining minimum average balances). Although the principal
of the Fund's borrowings will be fixed, the Fund's assets may change in value
during the time a borrowing is outstanding, thus increasing exposure to capital
risk. All borrowings will be repaid before any additional investments are made.
COMMERCIAL PAPER
Commercial paper represents short-term unsecured promissory notes
issued in bearer form by bank holding companies, corporations and finance
companies. The Fund may invest in commercial paper that is rated Prime-1 by
Moody's Investors Service, Inc. ("Moody's") or A-1 by Standard & Poor's
Corporation ("S&P") or, if not rated by Moody's or S&P, is issued by companies
having an outstanding debt issue rated Aaa or Aa by Moody's or AAA or AA by S&P.
CONVERTIBLE SECURITIES
The convertible securities in which the Fund may invest include
corporate bonds, notes, debentures, preferred stock and other securities that
may be converted or exchanged at a stated or determinable exchange ratio into
underlying shares of common stock. Investments in convertible securities can
provide income through interest and dividend payments as well as an opportunity
for capital appreciation by virtue of their conversion or exchange features.
Because convertible securities can be converted into equity securities, their
values will normally vary in some proportion with those of the underlying equity
securities. Convertible securities usually provide a higher yield than the
underlying equity, however, so that the price decline of a convertible security
may sometimes be less substantial than that of the underlying equity security.
The exchange ratio for any particular convertible security may be adjusted from
time to time due to stock splits, dividends, spin-offs, other corporate
distributions or scheduled changes in the exchange ratio. Convertible debt
securities and convertible preferred stocks, until converted, have general
characteristics similar to both debt and equity securities. Although to a lesser
extent than with debt securities generally, the market value of convertible
securities tends to decline as interest rates increase and, conversely, tends to
increase as interest rates decline. In addition, because of the conversion or
exchange feature, the market value of convertible securities typically changes
as the market value of the underlying common stock changes, and, therefore, also
tends to follow movements in the general market for equity securities. When the
market price of the underlying common stock increases, the price of a
convertible security tends to rise as a reflection of the value of the
underlying common stock, although typically not as much as the price of the
underlying common stock. While no securities investments are without risk,
investments in convertible securities generally entail less risk than
investments in common stock of the same issuer.
As debt securities, convertible securities are investments that provide
for a stream of income. Like all debt securities, there can be no assurance of
income or principal payments because the issuers of the convertible securities
may default on their obligations (see following section). Convertible securities
generally offer lower yields than non-convertible securities of similar quality
because of their conversion or exchange features.
Convertible securities generally are subordinated to other similar but
non-convertible securities of the same issuer, although convertible bonds, as
corporate debt obligations, are senior in right of payment to all equity
securities, and convertible preferred stock is senior to common stock, of the
same issuer. However, convertible bonds and convertible preferred stock
typically have lower coupon rates than similar non-convertible securities.
Convertible securities may be issued as fixed income obligations that pay
current income.
DEBT SECURITIES
IN GENERAL. Investing in debt securities involves both interest rate
and credit risk. Generally, the value of debt instruments rises and falls
inversely with fluctuations in interest rates. As interest rates decline, the
value of debt securities generally increases. Conversely, rising interest rates
tend to cause the value of debt securities to decrease. Bonds with longer
maturities generally are more volatile than bonds with shorter maturities. The
market value of debt securities also varies according to the relative financial
condition of the issuer. In general, lower-quality bonds offer higher yields due
to the increased risk that the issuer will be unable to meet its obligations on
interest or principal payments at the time called for by the debt instrument.
U.S. GOVERNMENT SECURITIES. U.S. Government securities are obligations of,
or guaranteed by, the U.S. Government, its agencies or instrumentalities.
Securities guaranteed by the U.S. Government include: (1) direct obligations of
the U.S. Treasury (such as Treasury bills, notes, and bonds) and (2) Federal
agency obligations guaranteed as to principal and interest by the U.S. Treasury
(such as GNMA certificates, which are mortgage-backed securities). When such
securities are held to maturity, the payment of principal and interest is
unconditionally guaranteed by the U.S. Government, and thus they are of the
highest possible credit quality. U.S. Government securities that are not held to
maturity are subject to variations in market value due to fluctuations in
interest rates.
Mortgage-backed securities are securities representing part ownership
of a pool of mortgage loans. For example, GNMA certificates are such securities
in which the timely payment of principal and interest is guaranteed by the full
faith and credit of the U.S. Government. Although the mortgage loans in the pool
will have maturities of up to 30 years, the actual average life of the loans
typically will be substantially less because the mortgages will be subject to
principal amortization and may be prepaid prior to maturity. Prepayment rates
vary widely and may be affected by changes in market interest rates. In periods
of falling interest rates, the rate of prepayments tends to increase, thereby
shortening the actual average life of the security. Conversely, rising interest
rates tend to decrease the rate of prepayment, thereby lengthening the actual
average life of the security (and increasing the security's price volatility).
Accordingly, it is not possible to predict accurately the average life of a
particular pool. Reinvestment of prepayment may occur at higher or lower rates
than the original yield on the certificates. Due to the prepayment feature and
the need to reinvest prepayments of principal at current rates, mortgage-backed
securities can be less effective than typical bonds of similar maturities at
"locking in" yields during periods of declining interest rates, and may involve
significantly greater price and yield volatility than traditional debt
securities. Such securities may appreciate or decline in market value during
periods of declining or rising interest rates, respectively.
Securities issued by U.S. Government instrumentalities and certain
federal agencies are neither direct obligations of nor guaranteed by the U.S.
Treasury; however, they involve Federal sponsorship in one way or another. Some
are backed by specific types of collateral, some are supported by the issuer's
right to borrow from the Treasury, some are supported by the discretionary
authority of the Treasury to purchase certain obligations of the issuer, others
are supported only by the credit of the issuing government agency or
instrumentality. These agencies and instrumentalities include, but are not
limited to, Federal Land Banks, Farmers Home Administration, Central Bank for
Cooperatives, Federal Intermediate Credit Banks, Federal Home Loan Banks,
Federal National Mortgage Association, Federal Home Loan Mortgage Association
and Student Loan Marketing Association.
INVESTMENT-GRADE DEBT SECURITIES. Bonds rated Aaa by Moody's and AAA by
S&P are judged to be of the best quality (i.e., capacity to pay interest and
repay principal is extremely strong). Bonds rated Aa/AA are considered to be of
high quality (i.e., capacity to pay interest and repay principal is very strong
and differs from the highest rated issues only to a small degree). Bonds rated A
are viewed as having many favorable investment attributes, but elements may be
present that suggest a susceptibility to the adverse effects of changes in
circumstances and economic conditions than debt in higher rated categories.
Bonds rated Baa/BBB (considered by Moody's to be "medium grade" obligations) are
considered to have an adequate capacity to pay interest and repay principal, but
certain protective elements may be lacking (i.e., such bonds lack outstanding
investment characteristics and have some speculative characteristics). The Fund
may invest in debt securities that are given an investment-grade rating by
Moody's or S&P, and may also invest in unrated debt securities that are
considered by IMI to be of comparable quality.
ZERO COUPON BONDS. Zero coupon bonds are debt obligations issued
without any requirement for the periodic payment of interest. Zero coupon bonds
are issued at a significant discount from face value. The discount approximates
the total amount of interest the bonds would accrue and compound over the period
until maturity at a rate of interest reflecting the market rate at the time of
issuance. If the Fund holds zero coupon bonds in its portfolio, it would
recognize income currently for Federal income tax purposes in the amount of the
unpaid, accrued interest and generally would be required to distribute dividends
representing such income to shareholders currently, even though funds
representing such income would not have been received by the Fund. Cash to pay
dividends representing unpaid, accrued interest may be obtained from, for
example, sales proceeds of portfolio securities and Fund shares and from loan
proceeds. The potential sale of portfolio securities to pay cash distributions
from income earned on zero coupon bonds may result in the Fund being forced to
sell portfolio securities at a time when it might otherwise choose not to sell
these securities and when the Fund might incur a capital loss on such sales.
Because interest on zero coupon obligations is not distributed to the Fund on a
current basis, but is in effect compounded, the value of such securities of this
type is subject to greater fluctuations in response to changing interest rates
than the value of debt obligations which distribute income regularly.
FIRM COMMITMENT AGREEMENTS AND "WHEN-ISSUED" SECURITIES. New issues of
certain debt securities are often offered on a "when-issued" basis, meaning the
payment obligation and the interest rate are fixed at the time the buyer enters
into the commitment, but delivery and payment for the securities normally take
place after the date of the commitment to purchase. Firm commitment agreements
call for the purchase of securities at an agreed-upon price on a specified
future date. The Fund uses such investment techniques in order to secure what is
considered to be an advantageous price and yield to the Fund and not for
purposes of leveraging the Fund's assets. In either instance, the Fund will
maintain in a segregated account with its Custodian cash or liquid securities
equal (on a daily marked-to-market basis) to the amount of its commitment to
purchase the underlying securities.
ILLIQUID SECURITIES
The Fund may purchase securities other than in the open market. While
such purchases may often offer attractive opportunities for investment not
otherwise available on the open market, the securities so purchased are often
"restricted securities" or "not readily marketable" (i.e., they cannot be sold
to the public without registration under the Securities Act of 1933, as amended
(the "1933 Act"), or the availability of an exemption from registration (such as
Rule 144A) or because they are subject to other legal or contractual delays in
or restrictions on resale). This investment practice, therefore, could have the
effect of increasing the level of illiquidity of the Fund. It is the Fund's
policy that illiquid securities (including repurchase agreements of more than
seven days duration, certain restricted securities, and other securities which
are not readily marketable) may not constitute, at the time of purchase, more
than 15% of the value of the Fund's net assets. The Trust's Board of Trustees
has approved guidelines for use by IMI in determining whether a security is
illiquid.
Generally speaking, restricted securities may be sold (i) only to
qualified institutional buyers; (ii) in a privately negotiated transaction to a
limited number of purchasers; (iii) in limited quantities after they have been
held for a specified period of time and other conditions are met pursuant to an
exemption from registration; or (iv) in a public offering for which a
registration statement is in effect under the 1933 Act. Issuers of restricted
securities may not be subject to the disclosure and other investor protection
requirements that would be applicable if their securities were publicly traded.
If adverse market conditions were to develop during the period between the
Fund's decision to sell a restricted or illiquid security and the point at which
the Fund is permitted or able to sell such security, the Fund might obtain a
price less favorable than the price that prevailed when it decided to sell.
Where a registration statement is required for the resale of restricted
securities, the Fund may be required to bear all or part of the registration
expenses. The Fund may be deemed to be an "underwriter" for purposes of the 1933
Act when selling restricted securities to the public and, in such event, the
Fund may be liable to purchasers of such securities if the registration
statement prepared by the issuer is materially inaccurate or misleading.
Since it is not possible to predict with assurance that the market for
securities eligible for resale under Rule 144A will continue to be liquid, IMI
will monitor such restricted securities subject to the supervision of the Board
of Trustees. Among the factors IMI may consider in reaching liquidity decisions
relating to Rule 144A securities are: (1) the frequency of trades and quotes for
the security; (2) the number of dealers wishing to purchase or sell the security
and the number of other potential purchasers; (3) dealer undertakings to make a
market in the security; and (4) the nature of the security and the nature of the
market for the security (i.e., the time needed to dispose of the security, the
method of soliciting offers, and the mechanics of the transfer).
REAL ESTATE INVESTMENT TRUSTS (REITS)
A REIT is a corporation, trust or association that invests in real
estate mortgages or equities for the benefit of its investors. REITs are
dependent upon management skill, may not be diversified and are subject to the
risks of financing projects. Such entities are also subject to heavy cash flow
dependency, defaults by borrowers, self-liquidation and the possibility of
failing to qualify for tax-free pass-through of income under the Internal
Revenue Code of 1986, as amended (the "Code"), and to maintain exemption from
the Investment Company Act of 1940 (the "1940 Act"). By investing in REITs
indirectly through the Fund, a shareholder will bear not only his or her
proportionate share of the expenses of the Fund, but also, indirectly, similar
expenses of the REITs.
REPURCHASE AGREEMENTS
Repurchase agreements are contracts under which the Fund buys a money
market instrument and obtains a simultaneous commitment from the seller to
repurchase the instrument at a specified time and at an agreed-upon yield. Under
guidelines approved by the Board, the Fund is permitted to enter into repurchase
agreements only if the repurchase agreements are at least fully collateralized
with U.S. Government securities or other securities that IMI has approved for
use as collateral for repurchase agreements and the collateral must be
marked-to-market daily. The Fund will enter into repurchase agreements only with
banks and broker-dealers deemed to be creditworthy by its Adviser under the
above-referenced guidelines. In the unlikely event of failure of the executing
bank or broker-dealer, the Fund could experience some delay in obtaining direct
ownership of the underlying collateral and might incur a loss if the value of
the security should decline, as well as costs in disposing of the security.
WARRANTS
The holder of a warrant has the right, until the warrant expires, to
purchase a given number of shares of a particular issuer at a specified price.
Such investments can provide a greater potential for profit or loss than an
equivalent investment in the underlying security. However, prices of warrants do
not necessarily move in a tandem with the prices of the underlying securities,
and are, therefore, considered speculative investments. Warrants pay no
dividends and confer no rights other than a purchase option. Thus, if a warrant
held by the Fund were not exercised by the date of its expiration, the Fund
would lose the entire purchase price of the warrant.
OPTIONS TRANSACTIONS
IN GENERAL. The Fund may engage in transactions in options on
securities and stock indices in accordance with its stated investment objective
and policies. The Fund may also purchase put options on securities and may
purchase and sell (write) put and call options on stock indices. Options on
securities and stock indices purchased or written by the Fund will be limited to
options traded on national securities exchanges, boards of trade or similar
entities, or in the OTC markets.
A call option is a short-term contract (having a duration of less than
one year) pursuant to which the purchaser, in return for a premium paid, has the
right to buy the security underlying the option at a specified exercise price at
any time during the term of the option. The writer of the call option, who
receives the premium, has the obligation, upon exercise of the option, to
deliver the underlying security against payment of the exercise price. A put
option is a similar contract pursuant to which the purchaser, in return for a
premium paid, has the right to sell the security underlying the option at a
specified exercise price at any time during the term of the option. The writer
of the put option, who receives the premium, has the obligation, upon exercise
of the option, to buy the underlying security at the exercise price. The premium
paid by the purchaser of an option will reflect, among other things, the
relationship of the exercise price to the market price and volatility of the
underlying security, the time remaining to expiration of the option, supply and
demand, and interest rates.
If the writer of an option wishes to terminate the obligation, the
writer may effect a "closing purchase transaction." This is accomplished by
buying an option of the same series as the option previously written. The effect
of the purchase is that the writer's position will be canceled by the Options
Clearing Corporation. However, a writer may not effect a closing purchase
transaction after it has been notified of the exercise of an option. Likewise,
an investor who is the holder of an option may liquidate his or her position by
effecting a "closing sale transaction." This is accomplished by selling an
option of the same series as the option previously purchased. There is no
guarantee that either a closing purchase or a closing sale transaction can be
effected at any particular time or at any acceptable price. If any call or put
option is not exercised or sold, it will become worthless on its expiration
date.
The Fund will realize a gain (or a loss) on a closing purchase
transaction with respect to a call or a put previously written by the Fund if
the premium, plus commission costs, paid by the Fund to purchase the call or the
put is less (or greater) than the premium, less commission costs, received by
the Fund on the sale of the call or the put. A gain also will be realized if a
call or a put that the Fund has written lapses unexercised, because the Fund
would retain the premium. Any such gains (or losses) are considered short-term
capital gains (or losses) for Federal income tax purposes. Net short-term
capital gains, when distributed by the Fund, are taxable as ordinary income. See
"Taxation."
The Fund will realize a gain (or a loss) on a closing sale transaction
with respect to a call or a put previously purchased by the Fund if the premium,
less commission costs, received by the Fund on the sale of the call or the put
is greater (or less) than the premium, plus commission costs, paid by the Fund
to purchase the call or the put. If a put or a call expires unexercised, it will
become worthless on the expiration date, and the Fund will realize a loss in the
amount of the premium paid, plus commission costs. Any such gain or loss will be
long-term or short-term gain or loss, depending upon the Fund's holding period
for the option.
Exchange-traded options generally have standardized terms and are
issued by a regulated clearing organization (such as the Options Clearing
Corporation), which, in effect, guarantees the completion of every
exchange-traded option transaction. In contrast, the terms of OTC options are
negotiated by the Fund and its counterparty (usually a securities dealer or a
financial institution) with no clearing organization guarantee. When the Fund
purchases an OTC option, it relies on the party from whom it has purchased the
option (the "counterparty") to make delivery of the instrument underlying the
option. If the counterparty fails to do so, the Fund will lose any premium paid
for the option, as well as any expected benefit of the transaction. Accordingly,
IMI will assess the creditworthiness of each counterparty to determine the
likelihood that the terms of the OTC option will be satisfied.
WRITING OPTIONS ON INDIVIDUAL SECURITIES. The Fund may write (sell)
covered call options on the Fund's securities in an attempt to realize a greater
current return than would be realized on the securities alone. The Fund may also
write covered call options to hedge a possible stock or bond market decline
(only to the extent of the premium paid to the Fund for the options). In view of
the investment objectives of the Fund, the Fund generally would write call
options only in circumstances where the investment adviser to the Fund does not
anticipate significant appreciation of the underlying security in the near
future or has otherwise determined to dispose of the security.
The Fund may write covered call options as described in the Fund's
Prospectus. A "covered" call option means generally that so long as the Fund is
obligated as the writer of a call option, the Fund will (i) own the underlying
securities subject to the option, or (ii) have the right to acquire the
underlying securities through immediate conversion or exchange of convertible
preferred stocks or convertible debt securities owned by the Fund. Although the
Fund receives premium income from these activities, any appreciation realized on
an underlying security will be limited by the terms of the call option. The Fund
may purchase call options on individual securities only to effect a "closing
purchase transaction."
As the writer of a call option, the Fund receives a premium for
undertaking the obligation to sell the underlying security at a fixed price
during the option period, if the option is exercised. So long as the Fund
remains obligated as a writer of a call option, it forgoes the opportunity to
profit from increases in the market price of the underlying security above the
exercise price of the option, except insofar as the premium represents such a
profit (and retains the risk of loss should the value of the underlying security
decline).
PURCHASING OPTIONS ON INDIVIDUAL SECURITIES. The Fund may purchase a
put option on an underlying security owned by the Fund as a defensive technique
in order to protect against an anticipated decline in the value of the security.
The Fund, as the holder of the put option, may sell the underlying security at
the exercise price regardless of any decline in its market price. In order for a
put option to be profitable, the market price of the underlying security must
decline sufficiently below the exercise price to cover the premium and
transaction costs that the Fund must pay. These costs will reduce any profit the
Fund might have realized had it sold the underlying security instead of buying
the put option. The premium paid for the put option would reduce any capital
gain otherwise available for distribution when the security is eventually sold.
The purchase of put options will not be used by the Fund for leveraging
purposes.
The Fund may also purchase a put option on an underlying security that
it owns and at the same time write a call option on the same security with the
same exercise price and expiration date. Depending on whether the underlying
security appreciates or depreciates in value, the Fund would sell the underlying
security for the exercise price either upon exercise of the call option written
by it or by exercising the put option held by it. The Fund would enter into such
transactions in order to profit from the difference between the premium received
by the Fund for the writing of the call option and the premium paid by the Fund
for the purchase of the put option, thereby increasing the Fund's current
return. The Fund may write (sell) put options on individual securities only to
effect a "closing sale transaction."
PURCHASING AND WRITING OPTIONS ON SECURITIES INDICES. The Fund may
purchase and sell (write) put and call options on securities indices. An index
assigns relative values to the securities included in the index and the index
fluctuates with changes in the market values of the securities so included.
Options on indices are similar to options on individual securities, except that,
rather than giving the purchaser the right to take delivery of an individual
security at a specified price, they give the purchaser the right to receive
cash. The amount of cash is equal to the difference between the closing price of
the index and the exercise price of the option, expressed in dollars, times a
specified multiple (the "multiplier"). The writer of the option is obligated, in
return for the premium received, to make delivery of this amount.
The multiplier for an index option performs a function similar to the
unit of trading for a stock option. It determines the total dollar value per
contract of each point in the difference between the exercise price of an option
and the current level of the underlying index. A multiplier of 100 means that a
one-point difference will yield $100. Options on different indices have
different multipliers.
When the Fund writes a call or put option on a stock index, the option
is "covered", in the case of a call, or "secured", in the case of a put, if the
Fund maintains in a segregated account with the Custodian cash or liquid
securities equal to the contract value. A call option is also covered if the
Fund holds a call on the same index as the call written where the exercise price
of the call held is (i) equal to or less than the exercise price of the call
written or (ii) greater than the exercise price of the call written, provided
that the Fund maintains in a segregated account with the Custodian the
difference in cash or liquid securities. A put option is also "secured" if the
Fund holds a put on the same index as the put written where the exercise price
of the put held is (i) equal to or greater than the exercise price of the put
written or (ii) less than the exercise price of the put written, provided that
the Fund maintains in a segregated account with the Custodian the difference in
cash or liquid securities.
RISKS OF OPTIONS TRANSACTIONS. The purchase and writing of options
involves certain special risks. During the option period, the covered call
writer, in return for the premium on the option, has given up the opportunity to
profit from a price increase in the underlying securities above the exercise
price, but, as long as its obligation as a writer continues, has retained the
risk of loss should the price of the underlying security decline. The writer of
an option has no control over the time when it may be required to fulfill its
obligation as a writer of the option. Once an option writer has received an
exercise notice, it cannot effect a closing purchase transaction in order to
terminate its obligation under the option and must deliver the underlying
securities (or cash in the case of an index option) at the exercise price. If a
put or call option purchased by the Fund is not sold when it has remaining
value, and if the market price of the underlying security (or index), in the
case of a put, remains equal to or greater than the exercise price or, in the
case of a call, remains less than or equal to the exercise price, the Fund will
lose its entire investment in the option. Also, where a put or call option on a
particular security (or index) is purchased to hedge against price movements in
a related security (or securities), the price of the put or call option may move
more or less than the price of the related security (or securities). In this
regard, there are differences between the securities and options markets that
could result in an imperfect correlation between these markets, causing a given
transaction not to achieve its objective.
There can be no assurance that a liquid market will exist when the Fund
seeks to close out an option position. Furthermore, if trading restrictions or
suspensions are imposed on the options markets, the Fund may be unable to close
out a position. Finally, trading could be interrupted, for example, because of
supply and demand imbalances arising from a lack of either buyers or sellers, or
the options exchange could suspend trading after the price has risen or fallen
more than the maximum amount specified by the exchange. Closing transactions can
be made for OTC options only by negotiating directly with the counterparty or by
a transaction in the secondary market, if any such market exists. There is no
assurance that the Fund will be able to close out an OTC option position at a
favorable price prior to its expiration. In the event of insolvency of the
counterparty, the Fund might be unable to close out an OTC option position at
any time prior to its expiration. Although the Fund may be able to offset to
some extent any adverse effects of being unable to liquidate an option position,
the Fund may experience losses in some cases as a result of such inability.
The Fund's options activities may impact the level of its portfolio
turnover and brokerage commissions. See "Portfolio Turnover."
The Fund's success in using options techniques depends, among other things,
on the Advisor's ability to predict accurately the direction and volatility of
price movements in the options and securities markets, and to select the proper
type, time and duration of options. FUTURES CONTRACTS AND OPTIONS ON FUTURES
CONTRACTS
IN GENERAL. The Fund may enter into futures contracts and options on
futures contracts for hedging purposes. A futures contract provides for the
future sale by one party and purchase by another party of a specified quantity
of a commodity at a specified price and time. When a purchase or sale of a
futures contract is made by the Fund, the Fund is required to deposit with its
Custodian (or broker, if legally permitted) in a segregated account a specified
amount of cash or liquid securities ("initial margin"). The margin required for
a futures contract is set by the exchange on which the contract is traded and
may be modified during the term of the contract. The initial margin is in the
nature of a performance bond or good faith deposit on the futures contract which
is returned to the Fund upon termination of the contract, assuming all
contractual obligations have been satisfied. A futures contract held by the Fund
is valued daily at the official settlement price of the exchange on which it is
traded. Each day the Fund pays or receives cash, called "variation margin,"
equal to the daily change in value of the futures contract. This process is
known as "marking to market." Variation margin does not represent a borrowing or
loan by the Fund but is instead a settlement between the Fund and the broker of
the amount one would owe the other if the futures contract expired. In computing
daily net asset value, the Fund will mark-to-market its open futures position.
The Fund is also required to deposit and maintain margin with respect
to put and call options on futures contracts it has written. Such margin
deposits will vary depending on the nature of the underlying futures contract
(and the related initial margin requirements), the current market value of the
option, and other futures positions held by the Fund.
Although some futures contracts call for making or taking delivery of
the underlying securities, generally these obligations are closed out prior to
delivery of offsetting purchases or sales of matching futures contracts (same
exchange, underlying security or index, and delivery month). If an offsetting
purchase price is less than the original sale price, the Fund generally realizes
a capital gain, or if it is more, the Fund generally realizes a capital loss.
Conversely, if an offsetting sale price is more than the original purchase
price, the Fund generally realizes a capital gain, or if it is less, the Fund
generally realizes a capital loss.
The transaction costs must also be included in these calculations.
When purchasing a futures contract, the Fund will maintain in a
segregated account with its Custodian (and mark-to-market on a daily basis) cash
or liquid securities that, when added to the amounts deposited with a futures
commission merchant ("FCM") as margin, are equal to the market value of the
futures contract. Alternatively, the Fund may "cover" its position by purchasing
a put option on the same futures contract with a strike price as high as or
higher than the price of the contract held by the Fund.
When selling a futures contact, the Fund will maintain with its
Custodian in a segregated account (and mark-to-market on a daily basis) cash or
liquid securities that, when added to the amounts deposited with an FCM as
margin, are equal to the market value of the instruments underlying the
contract. Alternatively, the Fund may "cover" its position by owning the
instruments underlying the contract (or, in the case of an index futures
contract, a portfolio with a volatility substantially similar to that of the
index on which the futures contract is based), or by holding a call option
permitting the Fund to purchase the same futures contract at a price no higher
than the price of the contract written by the Fund (or at a higher price if the
difference is maintained in cash or liquid assets in a segregated account with
the Fund's Custodian).
When selling a call option on a futures contract, the Fund will
maintain with its Custodian in a segregated account (and mark-to-market on a
daily basis) cash or liquid securities that, when added to the amounts deposited
with an FCM as margin, equal the total market value of the futures contract
underlying the call option. Alternatively, the Fund may cover its position by
entering into a long position in the same futures contract at a price no higher
than the strike price of the call option, by owning the instruments underlying
the futures contract, or by holding a separate call option permitting the Fund
to purchase the same futures contract at a price not higher than the strike
price of the call option sold by the Fund.
When selling a put option on a futures contract, the Fund will maintain
with its Custodian in a segregated account (and mark-to-market on a daily basis)
cash or liquid securities that equal the purchase price of the futures contract
less any margin on deposit. Alternatively, the Fund may cover the position
either by entering into a short position in the same futures contract, or by
owning a separate put option permitting it to sell the same futures contract so
long as the strike price of the purchased put option is the same or higher than
the strike price of the put option sold by the Fund.
RISKS ASSOCIATED WITH FUTURES AND RELATED OPTIONS. A purchase or sale
of a futures contract may result in losses in excess of the amount invested in
the futures contract. There can be no guarantee that there will be a correlation
between price movements in the hedging vehicle and in the Fund's portfolio
securities being hedged. In addition, there are significant differences between
the securities and futures markets that could result in an imperfect correlation
between the markets, causing a given hedge not to achieve its objectives. The
degree of imperfection of correlation depends on circumstances such as
variations in speculative market demand for futures and futures options on
securities, including technical influences in futures trading and futures
options, and differences between the financial instruments being hedged and the
instruments underlying the standard contracts available for trading in such
respects as interest rate levels, maturities, and creditworthiness of issuers. A
decision as to whether, when and how to hedge involves the exercise of skill and
judgment, and even a well-conceived hedge may be unsuccessful to some degree
because of market behavior or unexpected interest rate trends.
Futures exchanges may limit the amount of fluctuation permitted in
certain futures contract prices during a single trading day. The daily limit
establishes the maximum amount that the price of a futures contract may vary
either up or down from the previous day's settlement price at the end of the
current trading session. Once the daily limit has been reached in a futures
contract subject to the limit, no more trades may be made on that day at a price
beyond that limit. The daily limit governs only price movements during a
particular trading day and therefore does not limit potential losses because the
limit may work to prevent the liquidation of unfavorable positions. For example,
futures prices have occasionally moved to the daily limit for several
consecutive trading days with little or no trading, thereby preventing prompt
liquidation of positions and subjecting some holders of futures contracts to
substantial losses.
There can be no assurance that a liquid market will exist at a time
when the Fund seeks to close out a futures or a futures option position, and the
Fund would remain obligated to meet margin requirements until the position is
closed. In addition, there can be no assurance that an active secondary market
will continue to exist.
SECURITIES INDEX FUTURES CONTRACTS
The Fund may enter into securities index futures contracts as an
efficient means of regulating the Fund's exposure to the equity markets. The
Fund will not engage in transactions in futures contracts for speculation but
only as a hedge against changes resulting from market conditions in the values
of securities held in the Fund's portfolio or which it intends to purchase. An
index futures contract is a contract to buy or sell units of an index at a
specified future date at a price agreed upon when the contract is made. Entering
into a contract to buy units of an index is commonly referred to as purchasing a
contract or holding a long position in the index. Entering into a contract to
sell units of an index is commonly referred to as selling a contract or holding
a short position. The value of a unit is the current value of the stock index.
For example, the S&P 500 Index is composed of 500 selected common stocks, most
of which are listed on the New York Stock Exchange, Inc. (the "Exchange"). The
S&P 500 Index assigns relative weightings to the 500 common stocks included in
the Index, and the Index fluctuates with changes in the market values of the
shares of those common stocks. In the case of the S&P 500 Index, contracts are
to buy or sell 500 units. Thus, if the value of the S&P 500 Index were $150, one
contract would be worth $75,000 (500 units x $150). The index futures contract
specifies that no delivery of the actual securities making up the index will
take place. Instead, settlement in cash must occur upon the termination of the
contract, with the settlement being the difference between the contract price
and the actual level of the stock index at the expiration of the contract. For
example, if the Fund enters into a futures contract to buy 500 units of the S&P
500 Index at a specified future date at a contract price of $150 and the S&P 500
Index is at $154 on that future date, the Fund will gain $2,000 (500 units x
gain of $4). If the Fund enters into a futures contract to sell 500 units of the
stock index at a specified future date at a contract price of $150 and the S&P
500 Index is at $154 on that future date, the Fund will lose $2,000 (500 units x
loss of $4).
RISKS OF SECURITIES INDEX FUTURES. The Fund's success in using hedging
techniques depends, among other things, on IMI's ability to predict correctly
the direction and volatility of price movements in the futures and options
markets as well as in the securities markets and to select the proper type, time
and duration of hedges. The skills necessary for successful use of hedges are
different from those used in the selection of individual stocks.
The Fund's ability to hedge effectively all or a portion of its
securities through transactions in index futures (and therefore the extent of
its gain or loss on such transactions) depends on the degree to which price
movements in the underlying index correlate with price movements in the Fund's
securities. Insofar as such securities do not duplicate the components of an
index, the correlation probably will not be perfect. Consequently, the Fund will
bear the risk that the prices of the securities being hedged will not move in
the same amount as the hedging instrument. This risk will increase as the
composition of the Fund's portfolio diverges from the composition of the hedging
instrument.
Although the Fund intends to establish positions in these instruments
only when there appears to be an active market, there is no assurance that a
liquid market will exist at a time when the Fund seeks to close a particular
option or futures position. Trading could be interrupted, for example, because
of supply and demand imbalances arising from a lack of either buyers or sellers.
In addition, the futures exchanges may suspend trading after the price has risen
or fallen more than the maximum amount specified by the exchange. In some cases,
the Fund may experience losses as a result of its inability to close out a
position, and it may have to liquidate other investments to meet its cash needs.
Although some index futures contracts call for making or taking
delivery of the underlying securities, generally these obligations are closed
out prior to delivery by offsetting purchases or sales of matching futures
contracts (same exchange, underlying security or index, and delivery month). If
an offsetting purchase price is less than the original sale price, the Fund
generally realizes a capital gain, or if it is more, the Fund generally realizes
a capital loss. Conversely, if an offsetting sale price is more than the
original purchase price, the Fund generally realizes a capital gain, or if it is
less, the Fund generally realizes a capital loss.
The transaction costs must also be included in these calculations.
The Fund will only enter into index futures contracts or futures
options that are standardized and traded on a U.S. or foreign exchange or board
of trade, or similar entity, or quoted on an automated quotation system. The
Fund will use futures contracts and related options only for "bona fide hedging"
purposes, as such term is defined in applicable regulations of the CFTC.
When purchasing an index futures contract, the Fund will maintain with
its Custodian in a segregated account (and mark-to-market on a daily basis) cash
or liquid securities that, when added to the amounts deposited with a futures
commission merchant ("FCM") as margin, are equal to the market value of the
futures contract. Alternatively, the Fund may "cover" its position by purchasing
a put option on the same futures contract with a strike price as high as or
higher than the price of the contract held by the Fund.
When selling an index futures contract, the Fund will maintain with its
Custodian in a segregated account (and mark-to-market on a daily basis) cash or
liquid securities that, when added to the amounts deposited with an FCM as
margin, are equal to the market value of the instruments underlying the
contract. Alternatively, the Fund may "cover" its position by owning the
instruments underlying the contract (or, in the case of an index futures
contract, a portfolio with a volatility substantially similar to that of the
index on which the futures contract is based), or by holding a call option
permitting the Fund to purchase the same futures contract at a price no higher
than the price of the contract written by the Fund (or at a higher price if the
difference is maintained in cash or liquid assets in a segregated account with
the Fund's Custodian).
COMBINED TRANSACTIONS
The Fund may enter into multiple transactions, including multiple
options transactions, multiple futures transactions and some combination of
futures and options transactions ("component" transactions), instead of a single
transaction, as part of a single or combined strategy when, in the opinion of
IMI, it is in the best interests of the Fund to do so. A combined transaction
will usually contain elements of risk that are present in each of its component
transactions. Although combined transactions are normally entered into based on
IMI's judgment that the combined strategies will reduce risk or otherwise more
effectively achieve the desired portfolio management goal, it is possible that
the combination will instead increase such risks or hinder achievement of the
management objective.
INVESTMENT RESTRICTIONS
The Fund's investment objective, as set forth in the Prospectus under
"Investment Objectives and Policies," and the investment restrictions set forth
below are fundamental policies of the Fund and may not be changed with respect
to the approval of a majority (as defined in the 1940 Act) of the outstanding
voting shares of the Fund. Under these restrictions, the Fund may not:
(i) invest in real estate, real estate mortgage loans, commodities
and commodity futures contracts although the Fund may purchase
and sell (a) securities which are secured by real estate, (b)
securities of issuers which invest or deal in real estate, and
(c) interest rate and other financial futures contracts and
related options;
(ii) purchase securities on margin, except such short-term credits
as are necessary for the clearance of transactions; the
deposit or payment by the Fund of initial or variation margins
in connection with futures contracts or related options
transactions is not considered the purchase of a security on
margin;
(iii) sell securities short;
(iv) participate in an underwriting or selling group in connection
with the public distribution of securities except for its own
shares;
(v) purchase from or sell to any of its officers or trustees, or
firms of which any of them are members or which they control,
any securities (other than shares of the Fund), but such
persons or firms may act as brokers for the Fund for customary
commissions to the extent permitted by the 1940 Act;
(vi) invest in securities of companies in any one industry (except
obligations of domestic banks or the U.S. Government, its
agencies, authorities, or instrumentalities) if such
investment would cause investments in such industry to exceed
25% of the market value of the Fund's total assets at the time
of such investment;
(vii) issue senior securities, except as appropriate to evidence
indebtedness which it is permitted to incur, and except to the
extent that shares of the separate classes or series of the
Trust may be deemed to be senior securities; provided that
collateral arrangements with respect to currency-related
contracts, futures contracts, options or other permitted
investments, including deposits of initial and variation
margin, are not considered to be the issuance of senior
securities for purposes of this restriction;
(viii) lend any funds or other assets, except that this restriction
shall not prohibit (a) the entry into repurchase agreements or
(b) the purchase of publicly distributed bonds, debentures and
other securities of a similar type, or privately placed
municipal or corporate bonds, debentures and other securities
of a type customarily purchased by institutional investors or
publicly traded in the securities markets;
(ix) borrow amounts in excess of 10% of its total assets, taken at
the lower of cost or market value, as a temporary measure for
extraordinary or emergency purposes or where investment
transactions might advantageously require it; or except in
connection with reverse repurchase agreements, provided that
the Fund maintains net asset coverage of at least 300% for all
borrowings;
(x) purchase securities of any one issuer (except obligations of
domestic banks or the U.S. Government, its agencies,
authorities and instrumentalities) if as a result, more than
5% of the Fund's total assets would be invested in such issuer
or the Fund would own or hold more than 10% of the outstanding
voting securities of that issuer; provided, however, that up
to 25% of the value of the Fund's total assets may be invested
without regard to these limitations; or
(xi) purchase securities of another investment company, except in
connection with a merger, consolidation, reorganization or
acquisition of assets, and except that the Fund may invest in
securities of other investment companies subject to the
restrictions set forth in Section 12(d)(1) of the 1940 Act and
(viii) of Additional Restrictions, below.
Under the 1940 Act, the Fund is permitted, subject to the Fund's
investment restrictions, to borrow money only from banks. The Trust has no
current intention of borrowing amounts in excess of 5% of the Fund's assets. The
Fund will continue to interpret fundamental investment restriction (i) above to
prohibit investment in real estate limited partnership interests; this
restriction shall not, however, prohibit investment in readily marketable
securities of companies that invest in real estate or interests therein,
including REITs.
ADDITIONAL RESTRICTIONS
The Fund has adopted the following additional restrictions, which are
not fundamental and which may be changed without shareholder approval, to the
extent permitted by applicable law, regulation or regulatory policy. Under these
restrictions, the Fund may not:
(i) purchase any security if, as a result, the Fund would then
have more than 5% of its total assets (taken at current value)
invested in securities of companies (including predecessors)
less than three years old;
(ii) invest in oil, gas or other mineral leases or exploration or development
programs;
(iii) engage in the purchase and sale of puts, calls, straddles or
spreads (except to the extent described in the Prospectus and
in this SAI);
(iv) invest in companies for the purpose of exercising control of
management;
(v) invest more than 5% of its total assets in warrants, valued at
the lower of cost or market, or more than 2% of its total
assets in warrants, so valued, which are not listed on either
the New York or American Stock Exchanges;
(vi) purchase or retain securities of any company if officers and
Trustees of the Trust and officers and directors of IMI, MIMI
or Mackenzie Financial Corporation who individually own more
than 1/2 of 1% of the securities of that company together own
beneficially more than 5% of such securities;
(vii) invest more than 15% of its net assets in "illiquid securities;"
illiquid securities may include securities subject to legal or contractual
restrictions on resale (including private placements), repurchase agreements
maturing in more than seven days, certain options traded over the counter that
the Fund has purchased, securities being used to cover certain options that the
Fund has written, securities for which market quotations are not readily
available, or other securities which legally or in IMI's opinion, subject to the
Board's supervision, may be deemed illiquid, but shall not include any such
instrument that, due to the existence of a trading market or to other factors,
is liquid; or
(viii) acquire any securities of registered open-end investment
companies or registered unit investment trusts in reliance on
subparagraphs (f) and (g) of Section 12(d)(1) of the 1940 Act.
Whenever an investment objective, policy or restriction set forth in
the Prospectus or this SAI states a maximum percentage of assets that may be
invested in any security or other asset or describes a policy regarding quality
standards, such percentage limitation or standard shall, unless otherwise
indicated, apply to the Fund only at the time a transaction is entered into.
Accordingly, if a percentage limitation is adhered to at the time of investment,
a later increase or decrease in the percentage which results from circumstances
not involving any affirmative action by the Fund, such as a change in market
conditions or a change in the Fund's asset level or other circumstances beyond
the Fund's control, will not be considered a violation.
<PAGE>
PORTFOLIO TURNOVER
The Fund purchases securities that are believed by IMI to have above
average potential for capital appreciation. Common stocks are disposed of in
situations where it is believed that potential for such appreciation has
lessened or that other common stocks have a greater potential. Therefore, the
Fund may purchase and sell securities without regard to the length of time the
security is to be, or has been, held. A change in securities held by the Fund is
known as "portfolio turnover" and may involve the payment by the Fund of dealer
markup or underwriting commission and other transaction costs on the sale of
securities, as well as on the reinvestment of the proceeds in other securities.
The Fund's portfolio turnover rate is calculated by dividing the lesser of
purchases or sales of portfolio securities for the most recently completed
fiscal year by the monthly average of the value of the portfolio securities
owned by the Fund during that year. For purposes of determining the Fund's
portfolio turnover rate, all securities whose maturities at the time of
acquisition were one year or less are excluded.
TRUSTEES AND OFFICERS
The Fund's Board of Trustees (the "Board") is responsible for the
overall management of the Fund, including general supervision and review of the
Fund's investment activities. The Board, in turn, elects the officers who are
responsible for administering the Fund's day-to-day operations.
The Trustees and Executive Officers of the Trust, their business
addresses and principal occupations during the past five years are:
POSITION WITH BUSINESS AFFILIATIONS
NAME, ADDRESS, AGE THE TRUST AND PRINCIPAL OCCUPATIONS
John S. Anderegg, Jr. Trustee Chairman, Dynamics Research
60 Concord Street Corp. (instruments and controls);
Wilmington, MA 01887 Director, Burr-Brown Corp.
Age: 74 (operational amplifiers); Director,
Metritage Incorporated (level
measuring instruments); Trustee of
Mackenzie Series Trust (1992-1998).
Paul H. Broyhill Trustee Chairman, BMC Fund, Inc.
800 Hickory Blvd. (1983-present); Chairman,
Golfview Park-Box 500 Broyhill Family Foundation,
Lenoir, NC 28645 Inc. (1983-Present); Chairman and
Age: 74 President, Broyhill Investments,
Inc. (1983-present); Chairman,
Broyhill Timber Resources (1983-
present); Management of a personal
portfolio of fixed-income and equity
investments (1983-present); Trustee
of Mackenzie Series Trust (1988-
1998); Director of The Mackenzie
Funds Inc. (1988-1995).
Stanley Channick Trustee President and Chief
11 Bala Avenue Executive Officer, The
Bala Cynwyd, PA 19004 Whitestone Corporation
Age: 75 (insurance agency); Chairman, Scott
Management Company (administrative
services for insurance companies);
President, The Channick Group
(consultants to insurance companies
and national trade associations);
Trustee of Mackenzie Series Trust
(1994-1998); Director of The
Mackenzie Funds Inc. (1994-1995).
Frank W. DeFriece, Jr. Trustee Director, Manager and Vice
The Landmark Centre President, Director and
113 Landmark Lane, Fund Manager, Massengill-
Suite B DeFriece Foundation
Bristol, TN 37620-2285 (charitable organization)
Age: 77 (1950-present); Trustee and Vice
Chairman, East Tennessee Public
Communications Corp. (WSJK-TV)
(1984-present); Trustee of Mackenzie
Series Trust (1985-1998); Director
of The Mackenzie Funds Inc. (1987-
1995).
Roy J. Glauber Trustee Mallinckrodt Professor of
Lyman Laboratory Physics, Harvard
of Physics University (1974-present);
Harvard University Trustee of Mackenzie Series
Cambridge, MA 02138 Trust (1994-1997).
Age: 72
Michael G. Landry Trustee President, Chief Executive
700 South Federal Hwy. And Officer and Director of
Suite 300 Chairman Mackenzie Investment
Boca Raton, FL 33432 Management Inc. (1987-
Age: 51 present); President,
[*Deemed to be an Director and Chairman of
"interested person" Ivy Management Inc. (1992-
of the Trust, as present); Chairman and
defined under the Director of Ivy Mackenzie
1940 Act.] Services Corp.(1993-present);
Chairman and Director of Ivy
Mackenzie Distributors, Inc.
(1994-present); Director and
President of Ivy Mackenzie
Distributors, Inc. (1993-1994);
Director and President of The
Mackenzie Funds Inc. (1987-1995);
Trustee of Mackenzie Series Trust
(1987-1998); President of Mackenzie
Series Trust (1987-1996); Chairman
of Mackenzie Series Trust (1996-
1998).
Joseph G. Rosenthal Trustee Chartered Accountant
110 Jardin Drive (1958-present); Trustee of
Unit #12 Mackenzie Series Trust
Concord, Ontario Canada (1985-1998); Director of
L4K 2T7 The Mackenzie Funds Inc.
Age: 63 (1987-1995).
Richard N. Silverman Trustee Director, Newton-Wellesley
18 Bonnybrook Road Hospital; Director, Beth
Waban, MA 02168 Israel Hospital; Director,
Age: 74 Boston Ballet; Director, Boston
Children's Museum; Director, Brimmer
and May School.
J. Brendan Swan Trustee President, Airspray
4701 North Federal Hwy. International, Inc.;
Suite 465 Joint Managing Director,
Pompano Beach, FL 33064 Airspray International
Age: 67 B.V. (an environmentally sensitive
packaging company); Director of
Polyglass LTD.; Director, The
Mackenzie Funds Inc. (1992-1995);
Trustee of Mackenzie Series Trust
(1992-1998).
Keith J. Carlson Trustee Senior Vice President of Mackenzie
700 South Federal Hwy. And Investment Management, Inc. (1996 -
Suite 300 President -present); Senior Vice President and
Boca Raton, FL 33432 Director of Mackenzie Investment
Age: 41 Management, Inc. (1994 - 1996);
[*Deemed to be an Senior Vice President and Treasurer
"interested person" of Mackenzie Investment Management,
of the Trust, Inc. (1989-1994); Senior Vice President
as defined under President and Director of Ivy
the 1940 Act.] Management Inc. (1994-present);
Senior Vice President, Treasurer and
Director of Ivy Management Inc.
(1992-1994); Vice President of The
Mackenzie Funds Inc. (1987-1995);
Senior Vice President and Director,
Ivy Mackenzie Services Corp. (1996-
present); President and Director of
Ivy Mackenzie Services Corp. (1993-
1996); Trustee and President of
Mackenzie Series Trust (1996-1998);
Vice President of Mackenzie Series
Trust (1994-1998); Treasurer of
Mackenzie Series Trust (1985-1994);
President, Chief Executive Officer
and Director of Ivy Mackenzie
Distributors, Inc. (1994-present);
Executive Vice President and
Director of Ivy Mackenzie
Distributors, Inc. (1993-1994);
Trustee of Mackenzie Series Trust
(1996-1998).
C. William Ferris Secretary/ Senior Vice President,
700 South Federal Hwy. Treasurer Chief Financial Officer
Suite 300 and Secretary/Treasurer
Boca Raton, FL 33432 of Mackenzie Investment
Age: 53 Management Inc. (1995-present);
Senior Vice President, Finance and
Administration/Compliance Officer of
Mackenzie Investment Management Inc.
(1989-1994); Senior Vice President,
Secretary/ Treasurer and Clerk of
Ivy Management Inc. (1994-present);
Vice President, Finance/
Administration and Compliance
Officer of Ivy Management Inc.
(1992-1994); Senior Vice President,
Secretary/Treasurer and Director of
Ivy Mackenzie Distributors, Inc.
(1994-present); Secretary/Treasurer
and Director of Ivy Mackenzie
Distributors, Inc. (1993-1994);
President and Director of Ivy
Mackenzie Services Corp.
(1996-present); Secretary/Treasurer
and Director of Ivy Mackenzie
Services Corp. (1993-1996);
Secretary/Treasurer
of The Mackenzie Funds Inc.
(1993-1995); Secretary/Treasurer of
Mackenzie Series Trust (1994-1998).
James W. Broadfoot Vice Executive Vice President,
700 South Federal Hwy. President Ivy Management Inc. (1996-
Suite 300 present); Senior Vice
Boca Raton, FL 33432 President, Ivy Management,
Age: 56 Inc. (1992-1996); Director and
Senior Vice President, Mackenzie
Investment Management Inc. (1995-
present); Senior Vice President,
Mackenzie Investment Management Inc.
(1990-1995).
COMPENSATION TABLE
IVY FUND
(FISCAL YEAR ENDED DECEMBER 31, 1998)
PENSION OR TOTAL COMPENSA-
AGGREGATE RETIREMENT ESTIMATED TION FROM TRUST
NAME, COMPENSATION BENEFITS ACCRUED ANNUAL AND FUND
POSITION FROM TRUST AS PART OF BENEFITS UPON COMPLEX PAID TO
FUND EXPENSES RETIREMENT TRUSTEES
John S. N/A N/A
Anderegg, Jr.
(Trustee)
Paul H. N/A N/A
Broyhill
(Trustee)
Keith J. $0 N/A N/A $0
Carlson
(Trustee and
President)
Stanley N/A N/A
Channick
(Trustee)
Frank W. N/A N/A
DeFriece, Jr.
(Trustee)
Roy J. N/A N/A
Glauber
(Trustee)
Michael G. $0 N/A N/A $0
Landry
(Trustee and
Chairman of
the Board)
Joseph G. N/A N/A
Rosenthal
(Trustee)
Richard N. N/A N/A
Silverman
(Trustee)
J. Brendan N/A N/A
Swan
(Trustee)
C. William $0 N/A N/A $0
Ferris
(Secretary/
Treasurer)
To the knowledge of the Trust, as of [ ], no shareholder owned
beneficially or of record 5% or more of the Fund's outstanding shares of any
class, except that [to be completed by amendment].
As of [.. ], the Officers and Trustees of the Trust as a group owned
beneficially or of record less than 1% of the outstanding Class A, Class B,
Class C, Class I and Advisor Class shares of the Fund.
PERSONAL INVESTMENTS BY EMPLOYEES OF IMI. Employees of IMI are
permitted to make personal securities transactions, subject to the requirements
and restrictions set forth in IMI's Code of Ethics and Business Conduct Policy
(the "Code of Ethics"). The Code of Ethics is designed to identify and address
certain conflicts of interest between personal investment activities and the
interests of investment advisory clients such as the Fund. Among other things,
the Code of Ethics, which generally complies with standards recommended by the
Investment Company Institute's Advisory Group on Personal Investing, prohibits
certain types of transactions absent prior approval, applies to portfolio
managers, traders, research analysts and others involved in the investment
advisory process, and imposes time periods during which personal transactions
may not be made in certain securities, and requires the submission of duplicate
broker confirmations and monthly reporting of securities transactions.
Exceptions to these and other provisions of the Code of Ethics may be granted in
particular circumstances after review by appropriate personnel.
INVESTMENT ADVISORY AND OTHER SERVICES
BUSINESS MANAGEMENT AND INVESTMENT ADVISORY SERVICES
IMI provides business management and investment advisory services to
the Fund pursuant to a Business Management and Investment Advisory Agreement
(the "Agreement"). The Agreement was approved by the sole shareholder of the
Fund on October 19, 1998. Prior to shareholder approval, the Agreement was
approved with respect to the Fund by the Board, including a majority of the
Trustees who are neither "interested persons" (as defined in the 1940 Act) of
the Trust nor have any direct or indirect financial interest in the operation of
the distribution plan (see "Distribution Services") or in any related agreement
(the "Independent Trustees") at a meeting held on September 19, 1998.
IMI is a wholly owned subsidiary of Mackenzie Investment Management
Inc. ("MIMI"). MIMI, a Delaware corporation, has approximately 10% of its
outstanding common stock listed for trading on the Toronto Stock Exchange
("TSE"). MIMI is a subsidiary of Mackenzie Financial Corporation ("MFC"), 150
Bloor Street West, Toronto, Ontario, Canada, a public corporation organized
under the laws of Ontario whose shares are listed for trading on the TSE. MFC is
registered in Ontario as a mutual fund dealer and advises Ivy Global Natural
Resources Fund. IMI currently acts as manager and investment adviser to the
following additional investment companies registered under the 1940 Act (other
than the Fund): Ivy Asia Pacific Fund, Ivy Bond Fund, Ivy China Region Fund, Ivy
Developing Nations Fund, Ivy European Opportunities Fund, Ivy Global Fund, Ivy
Global Science & Technology Fund, Ivy Growth Fund, Ivy Growth with Income Fund,
Ivy International Fund II, Ivy International Fund, Ivy International Small
Companies Fund, Ivy International Strategic Bond Fund, Ivy Money Market Fund,
Ivy Pan-Europe Fund, Ivy South America Fund and Ivy US Emerging Growth Fund. IMI
also provides business management service to Ivy Global Natural Resources Fund.
The Agreement obligates IMI to make investments for the account of the
Fund in accordance with its best judgment and within the investment objectives
and restrictions set forth in the Prospectus, the 1940 Act and the provisions of
the Code relating to regulated investment companies, subject to policy decisions
adopted by the Board. IMI also determines the securities to be purchased or sold
by the Fund and places orders with brokers or dealers who deal in such
securities.
Under the Agreement, IMI also provides certain business management
services. IMI is obligated to (1) coordinate with the Fund's Custodian and
monitor the services it provides to the Fund; (2) coordinate with and monitor
any other third parties furnishing services to the Fund; (3) provide the Fund
with necessary office space, telephones and other communications facilities as
are adequate for the Fund's needs; (4) provide the services of individuals
competent to perform administrative and clerical functions that are not
performed by employees or other agents engaged by the Fund or by IMI acting in
some other capacity pursuant to a separate agreement or arrangements with the
Fund; (5) maintain or supervise the maintenance by third parties of such books
and records of the Trust as may be required by applicable Federal or state law;
(6) authorize and permit IMI's directors, officers and employees who may be
elected or appointed as trustees or officers of the Trust to serve in such
capacities; and (7) take such other action with respect to the Trust, after
approval by the Trust as may be required by applicable law, including without
limitation the rules and regulations of the SEC and of state securities
commissions and other regulatory agencies.
The Fund pays IMI a monthly fee for providing business management and
investment advisory services at an annual rate of 1.00% of the Fund's average
net assets.
During the fiscal year ended December 31, 1998, the Fund paid IMI fees
of [ ] (of which IMI reimbursed [ ] pursuant to expense limitations).
Under the Agreement, the Trust pays the following expenses: (1) the
fees and expenses of the Trust's Independent Trustees; (2) the salaries and
expenses of any of the Trust's officers or employees who are not affiliated with
IMI; (3) interest expenses; (4) taxes and governmental fees, including any
original issue taxes or transfer taxes applicable to the sale or delivery of
shares or certificates therefor; (5) brokerage commissions and other expenses
incurred in acquiring or disposing of portfolio securities; (6) the expenses of
registering and qualifying shares for sale with the SEC and with various state
securities commissions; (7) accounting and legal costs; (8) insurance premiums;
(9) fees and expenses of the Trust's Custodian and Transfer Agent and any
related services; (10) expenses of obtaining quotations of portfolio securities
and of pricing shares; (11) expenses of maintaining the Trust's legal existence
and of shareholders' meetings; (12) expenses of preparation and distribution to
existing shareholders of periodic reports, proxy materials and prospectuses; and
(13) fees and expenses of membership in industry organizations.
IMI currently limits the Fund's total operating expenses (excluding
Rule 12b-1 fees, interest, taxes, brokerage commissions, litigation,
class-specific expenses, indemnification expenses, and extraordinary expenses)
to an annual rate of 1.95% of the Fund's average net assets, which may lower the
Fund's expenses and increase its yield.
The Agreement will continue in effect with respect to the Fund from
year to year, only so long as the continuance is specifically approved at least
annually (i) by the vote of a majority of the Independent Trustees and (ii)
either (a) by the vote of a majority of the outstanding voting securities (as
defined in the 1940 Act) of the Fund or (b) by the vote of a majority of the
entire Board. If the question of continuance of the Agreement (or adoption of
any new agreement) is presented to the shareholders, continuance (or adoption)
shall be effected only if approved by the affirmative vote of a majority of the
outstanding voting securities of the Fund. See "Capitalization and Voting
Rights."
The Agreement may be terminated with respect to the Fund at any time,
without payment of any penalty, by the vote of a majority of the Board, or by a
vote of a majority of the outstanding voting securities of the Fund, on 60 days'
written notice to IMI, or by IMI on 60 days' written notice to the Trust. The
Agreement shall terminate automatically in the event of its assignment.
DISTRIBUTION SERVICES
IMDI, a wholly owned subsidiary of MIMI, serves as the exclusive
distributor of Ivy Fund's shares pursuant to an Amended and Restated
Distribution Agreement with the Trust dated , 1999, as amended from time to time
(the "Distribution Agreement"). The Distribution Agreement was approved by the
Board on September 17, 1998. IMDI distributes shares of the Fund through
broker-dealers who are members of the National Association of Securities
Dealers, Inc. and who have executed dealer agreements with IMDI. IMDI
distributes shares of the Fund on a continuous basis, but reserves the right to
suspend or discontinue distribution on that basis. IMDI is not obligated to sell
any specific amount of Fund shares.
The Fund has authorized IMDI to accept on its behalf purchase and
redemption orders for its Advisor Class shares. IMDI is also authorized to
designate other intermediaries to accept purchase and redemption orders for the
Fund's Advisor Class shares on the Fund's behalf. The Fund will be deemed to
have received a purchase or redemption order for Advisor Class shares when an
authorized intermediary or, if applicable, an intermediary's authorized
designee, accepts the order. Client orders will be priced at the Fund's Net
Asset Value next computed after an authorized intermediary or the intermediary's
authorized designee accepts them.
Pursuant to the Distribution Agreement, IMDI is entitled to deduct a
commission on all Class A Fund shares sold equal to the difference, if any,
between the public offering price, as set forth in the Fund's then-current
prospectus, and the net asset value on which such price is based. Out of that
commission, IMDI may reallow to dealers such concession as IMDI may determine
from time to time. In addition, IMDI is entitled to deduct a CDSC on the
redemption of Class A shares sold without an initial sales charge and Class B
and Class C shares, in accordance with, and in the manner set forth in, the
Prospectus.
Under the Distribution Agreement, the Fund bears, among other expenses,
the expenses of registering and qualifying its shares for sale under Federal and
state securities laws and preparing and distributing to existing shareholders
periodic reports, proxy materials and prospectuses.
During the fiscal year ended December 31, 1998, IMDI received from
sales of Class A shares of the Fund [ ] in sales commissions, of which [ ] was
retained after dealer allowances. During the fiscal year ended December 31,
1998, IMDI received [ ] in CDSCs on redemptions of Class B shares of the Fund.
During the fiscal year ended December 31, 1998, IMDI received [ ] in CDSCs on
redemptions of Class C shares of the Fund.
The Distribution Agreement will continue in effect for successive
one-year periods, provided that such continuance is specifically approved at
least annually by the vote of a majority of the Independent Trustees, cast in
person at a meeting called for that purpose and by the vote of either a majority
of the entire Board or a majority of the outstanding voting securities of the
Fund. The Distribution Agreement may be terminated with respect to the Fund at
any time, without payment of any penalty, by IMDI on 60 days' written notice to
the Fund or by the Fund by vote of either a majority of the outstanding voting
securities of the Fund or a majority of the Independent Trustees on 60 days'
written notice to IMDI. The Distribution Agreement shall terminate automatically
in the event of its assignment.
RULE 18F-3 PLAN. On February 23, 1995, the SEC adopted Rule 18f-3 under
the 1940 Act, which permits a registered open-end investment company to issue
multiple classes of shares in accordance with a written plan approved by the
investment company's board of directors/trustees and filed with the SEC. At a
meeting held on September 19, 1998, the Board adopted a Rule 18f-3 plan on
behalf of the Fund. The Board last approved the Rule 18f-3 plan at a meeting
held of December 5-6, 1997. The key features of the Rule 18f-3 plan are as
follows: (i) shares of each class of the Fund represent an equal pro rata
interest in the Fund and generally have identical voting, dividend, liquidation,
and other rights, preferences, powers, restrictions, limitations,
qualifications, terms and conditions, except that each class bears certain
class-specific expenses and has separate voting rights on certain matters that
relate solely to that class or in which the interests of shareholders of one
class differ from the interests of shareholders of another class; (ii) subject
to certain limitations described in the Prospectus, shares of a particular class
of the Fund may be exchanged for shares of the same class of another Ivy fund;
and (iii) the Fund's Class B shares will convert automatically into Class A
shares of the Fund after a period of eight years, based on the relative net
asset value of such shares at the time of conversion.
RULE 12B-1 DISTRIBUTION PLANS. The Trust has adopted on behalf of the
Fund, in accordance with Rule 12b-1 under the 1940 Act, separate Rule 12b-1
distribution plans pertaining to the Fund's Class A, Class B and Class C shares
(each, a "Plan"). In adopting each Plan, a majority of the Independent Trustees
have concluded in accordance with the requirements of Rule 12b-1 that there is a
reasonable likelihood that each Plan will benefit the Fund and its shareholders.
The Trustees of the Trust believe that the Plans should result in greater sales
and/or fewer redemptions of the Fund's shares, although it is impossible to know
for certain the level of sales and redemptions of the Fund's shares in the
absence of a Plan or under an alternative distribution arrangement.
Under each Plan, the Fund pays IMDI a service fee, accrued daily and
paid monthly, at the annual rate of up to 0.25% of the average daily net assets
attributable to its Class A, Class B or Class C shares, as the case may be. The
services for which service fees may be paid include, among other things,
advising clients or customers regarding the purchase, sale or retention of
shares of the Fund, answering routine inquiries concerning the Fund and
assisting shareholders in changing options or enrolling in specific plans.
Pursuant to each Plan, service fee payments made out of or charged against the
assets attributable to the Fund's Class A, Class B or Class C shares must be in
reimbursement for services rendered for or on behalf of the affected class. The
expenses not reimbursed in any one month may be reimbursed in a subsequent
month. The Class A Plan does not provide for the payment of interest or carrying
charges as distribution expenses.
Under the Fund's Class B and Class C Plans, the Fund also pays IMDI a
distribution fee, accrued daily and paid monthly, at the annual rate of 0.75% of
the average daily net assets attributable to its Class B or Class C shares. IMDI
may reallow to dealers all or a portion of the service and distribution fees as
IMDI may determine from time to time. The distribution fee compensates IMDI for
expenses incurred in connection with activities primarily intended to result in
the sale of the Fund's Class B or Class C shares, including the printing of
prospectuses and reports for persons other than existing shareholders and the
preparation, printing and distribution of sales literature and advertising
materials. Pursuant to each Class B and Class C Plan, IMDI may include interest,
carrying or other finance charges in its calculation of distribution expenses,
if not prohibited from doing so pursuant to an order of or a regulation adopted
by the SEC.
Among other things, each Plan provides that (1) IMDI will submit to the
Board at least quarterly, and the Trustees will review, written reports
regarding all amounts expended under the Plan and the purposes for which such
expenditures were made; (2) each Plan will continue in effect only so long as
such continuance is approved at least annually, and any material amendment
thereto is approved, by the votes of a majority of the Board, including the
Independent Trustees, cast in person at a meeting called for that purpose; (3)
payments by the Fund under each Plan shall not be materially increased without
the affirmative vote of the holders of a majority of the outstanding shares of
the relevant class; and (4) while each Plan is in effect, the selection and
nomination of Independent Trustees shall be committed to the discretion of the
Trustees who are not "interested persons" of the Trust.
IMDI may make payments for distribution assistance and for
administrative and accounting services from resources that may include the
management fees paid by the Fund. IMDI also may make payments (such as the
service fee payments described above) to unaffiliated broker-dealers for
services rendered in the distribution of the Fund's shares. To qualify for such
payments, shares may be subject to a minimum holding period. However, no such
payments will be made to any dealer or broker if at the end of each year the
amount of shares held does not exceed a minimum amount. The minimum holding
period and minimum level of holdings will be determined from time to time by
IMDI.
A report of the amount expended pursuant to each Plan, and the purposes
for which such expenditures were incurred, must be made to the Board for its
review at least quarterly.
During the fiscal year ended December 31, 1998, the Fund paid IMDI [ ]
pursuant to its Class A plan. During the fiscal year ended December 31, 1998 the
Fund paid IMDI [ ] pursuant to its Class B plan. During the fiscal year ended
December 31, 1998, the Fund paid IMDI [ ] pursuant to its Class C plan.
During the fiscal year ended December 31, 1998, IMDI expended the
following amounts in marketing Class A shares of the Fund: advertising [$ ;]
printing and mailing of prospectuses to persons other than current shareholders,
[$.. ;] compensation to dealers, [$ ;] compensation to sales personnel [$ ;]
seminars and meetings, [$ ;] travel and entertainment, [$ ;] general and
administrative, [$ ;] telephone, [$.. ;] and occupancy and equipment rental, [$
]
During the fiscal year ended December 31, 1998, IMDI expended the
following amounts in marketing Class B shares of the Fund: advertising, [$ ;]
printing and mailing of prospectuses to persons other than current shareholders,
[$.. ;] compensation to dealers, [$ ;] compensation to sales personnel, [$ ;]
seminars and meetings, [$ ;] travel and entertainment, [$ ;] general and
administrative, [$ ;] telephone, [$..;] and occupancy and equipment rental [$ .]
During the fiscal year ended December 31, 1998, IMDI expended the
following amounts in marketing Class C shares of the Fund: advertising, [$ ;]
printing and mailing of prospectuses to persons other than current shareholders,
[$..;] compensation to dealers, [$ ] compensation to sales personnel, [$ ;]
seminars and meetings, [$ ;] travel and entertainment, [$ ;] general
administrative, [$ ;] telephone, [$.. ;] and occupancy and equipment rental, [$
.]
Each Plan may be amended at any time with respect to the class of
shares of the Fund to which the Plan relates by vote of the Trustees, including
a majority of the Independent Trustees, cast in person at a meeting called for
the purpose of considering such amendment. Each Plan may be terminated at any
time with respect to the class of shares of the Fund to which the Plan relates,
without payment of any penalty, by vote of a majority of the Independent
Trustees, or by vote of a majority of the outstanding voting securities of that
class.
If the Distribution Agreement or the Distribution Plans are terminated
(or not renewed) with respect to any of the Ivy funds (or class of shares
thereof), each may continue in effect with respect to any other fund (or Class
of shares thereof) as to which they have not been terminated (or have been
renewed).
CUSTODIAN
Pursuant to a Custodian Agreement with the Trust, Brown Brothers
Harriman & Co. (the "Custodian"), a private bank and member of the principal
securities exchanges, located at 40 Water Street, Boston, Massachusetts 02109
(the "Custodian"), maintains custody of the assets of the Fund held in the
United States. Rules adopted under the 1940 Act permit the Trust to maintain its
foreign securities and cash in the custody of certain eligible foreign banks and
securities depositories. Pursuant to those rules, the Custodian has entered into
subcustodial agreements for the holding of the Fund's foreign securities. With
respect to the Fund, the Custodian may receive, as partial payment for its
services to the Fund, a portion of the Trust's brokerage business, subject to
its ability to provide best price and execution.
FUND ACCOUNTING SERVICES
Pursuant to a Fund Accounting Services Agreement, MIMI provides certain
accounting and pricing services for the Fund. As compensation for those
services, the Fund pays MIMI a monthly fee plus out-of-pocket expenses as
incurred. The monthly fee is based upon the net assets of the Fund at the
preceding month end at the following rates: $1,250 when net assets are $10
million and under; $2,500 when net assets are over $10 million to $40 million;
$5,000 when net assets are over $40 million to $75 million; and $6,500 when net
assets are over $75 million.
During the fiscal year ended December 31, 1998, the Fund paid MIMI
[ ] under the agreement.
TRANSFER AGENT AND DIVIDEND PAYING AGENT
Pursuant to a Transfer Agency and Shareholder Service Agreement, Ivy
Mackenzie Services Corp. ("IMSC"), a wholly owned subsidiary of MIMI, is the
transfer agent for the Fund. Under the Agreement, the Fund pays a monthly fee at
an annual rate of $20.00 for each open Class A, Class B, Class C and Advisor
Class account. The Fund pays $10.25 per open Class I account. In addition, the
Fund pays a monthly fee at an annual rate of $4.58 per account that is closed
plus certain out-of-pocket expenses. Such fees and expenses for the fiscal year
ended December 31, 1998 for the Fund totaled [$ ]. Certain broker-dealers that
maintain shareholder accounts with the Fund through an omnibus account provide
transfer agent and other shareholder-related services that would otherwise be
provided by IMSC if the individual accounts that comprise the omnibus account
were opened by their beneficial owners directly. IMSC pays such broker-dealers a
per account fee for each open account within the omnibus account, or a fixed
rate (e.g., 0.10%) fee, based on the average daily net asset value of the
omnibus account (or a combination thereof).
ADMINISTRATOR
Pursuant to an Administrative Services Agreement, MIMI provides certain
administrative services to the Fund. As compensation for these services, the
Fund (except with respect to its Class I shares) pays MIMI a monthly fee at the
annual rate of 0.10% of the Fund's average daily net assets. The Fund pays MIMI
a monthly fee at the annual rate of 0.01% of its average daily net assets for
Class I. Such fees for the fiscal year ended December 31, 1998 for the Fund
totaled [$ ].
Outside of providing administrative services to the Trust, as described
above, MIMI may also act on behalf of IMDI in paying commissions to
broker-dealers with respect to sales of Class B and Class C shares of the Fund.
AUDITORS
[........ ], independent public accountants, has been selected as
auditors for the Trust. The audit services performed by [ ] include audits of
the annual financial statements of each of the funds of the Trust. Other
services provided principally relate to filings with the SEC and the preparation
of the funds' tax returns.
BROKERAGE ALLOCATION
Subject to the overall supervision of the President and the Board, IMI
places orders for the purchase and sale of the Fund's portfolio securities. All
portfolio transactions are effected at the best price and execution obtainable.
Purchases and sales of debt securities are usually principal transactions and
therefore, brokerage commissions are usually not required to be paid by the Fund
for such purchases and sales (although the price paid generally includes
undisclosed compensation to the dealer). The prices paid to underwriters of
newly-issued securities usually include a concession paid by the issuer to the
underwriter, and purchases of after-market securities from dealers normally
reflect the spread between the bid and asked prices. In connection with OTC
transactions, IMI attempts to deal directly with the principal market makers,
except in those circumstances where IMI believes that a better price and
execution are available elsewhere.
IMI selects broker-dealers to execute transactions and evaluates the
reasonableness of commissions on the basis of quality, quantity, and the nature
of the firms' professional services. Commissions to be charged and the rendering
of investment services, including statistical, research, and counseling services
by brokerage firms, are factors to be considered in the placing of brokerage
business. The types of research services provided by brokers may include general
economic and industry data, and information on securities of specific companies.
Research services furnished by brokers through whom the Trust effects securities
transactions may be used by IMI in servicing all of its accounts. In addition,
not all of these services may be used by IMI in connection with the services it
provides to the Fund or the Trust. IMI may consider sales of shares of Ivy funds
as a factor in the selection of broker-dealers and may select broker-dealers who
provide it with research services. IMI will not, however, execute brokerage
transactions other than at the best price and execution.
During the fiscal year ended December 31, 1998, the Fund paid brokerage
commissions of [ ].
The Fund may, under some circumstances, accept securities in lieu of
cash as payment for Fund shares. The Fund will accept securities only to
increase its holdings in a portfolio security or to take a new portfolio
position in a security that IMI deems to be a desirable investment for the Fund.
While no minimum has been established, it is expected that the Fund will not
accept securities having an aggregate value of less than $1 million. The Trust
may reject in whole or in part any or all offers to pay for the Fund shares with
securities and may discontinue accepting securities as payment for the Fund
shares at any time without notice. The Trust will value accepted securities in
the manner and at the same time provided for valuing portfolio securities of the
Fund, and the Fund shares will be sold for net asset value determined at the
same time the accepted securities are valued. The Trust will only accept
securities delivered in proper form and will not accept securities subject to
legal restrictions on transfer. The acceptance of securities by the Trust must
comply with the applicable laws of certain states.
CAPITALIZATION AND VOTING RIGHTS
The capitalization of the Trust consists of an unlimited number of
shares of beneficial interest (no par value per share). When issued, shares of
each class of the Fund are fully paid, non-assessable, redeemable and fully
transferable. No class of shares of the Fund has preemptive rights or
subscription rights.
The Amended and Restated Declaration of Trust permits the Trustees to
create separate series or portfolios and to divide any series or portfolio into
one or more classes. The Trustees have authorized nineteen series, each of which
represents a fund. The Trustees have further authorized the issuance of Class A,
Class B, and Class C shares for Ivy International Fund and Ivy Money Market Fund
and Class A, Class B, Class C and Advisor Class shares for the Fund, Ivy Asia
Pacific Fund, Ivy Bond Fund, Ivy China Region Fund, Ivy Developing Nations Fund,
Ivy European Opportunities Fund, Ivy Global Fund, Ivy Global Natural Resources
Fund, Ivy Global Science & Technology Fund, Ivy Growth Fund, Ivy Growth with
Income Fund, Ivy International Fund II, Ivy International Small Companies Fund,
Ivy International Strategic Bond Fund, Ivy Pan-Europe Fund, Ivy South America
Fund and Ivy US Emerging Growth Fund, as well as Class I shares for the Fund,
Ivy Bond Fund, Ivy European Opportunities Fund, Ivy Global Science & Technology
Fund, Ivy International Fund II, Ivy International Fund, Ivy International Small
Companies Fund, and Ivy International Strategic Bond Fund.
Shareholders have the right to vote for the election of Trustees of the
Trust and on any and all matters on which they may be entitled to vote by law or
by the provisions of the Trust's By-Laws. The Trust is not required to hold a
regular annual meeting of shareholders, and it does not intend to do so. Shares
of each class of the Fund entitle their holders to one vote per share (with
proportionate voting for fractional shares). Shareholders of the Fund are
entitled to vote alone on matters that only affect the Fund. All classes of
shares of the Fund will vote together, except with respect to the distribution
plan applicable to the Fund's Class A, Class B or Class C shares or when a class
vote is required by the 1940 Act. On matters relating to all funds of the Trust,
but affecting the funds differently, separate votes by the shareholders of each
fund are required. Approval of an investment advisory agreement and a change in
fundamental policies would be regarded as matters requiring separate voting by
the shareholders of each fund of the Trust. If the Trustees determine that a
matter does not affect the interests of the Fund, then the shareholders of the
Fund will not be entitled to vote on that matter. Matters that affect the Trust
in general, such as ratification of the selection of independent public
accountants, will be voted upon collectively by the shareholders of all funds of
the Trust.
As used in this SAI and the Prospectus, the phrase "majority vote of
the outstanding shares" of the Fund means the vote of the lesser of: (1) 67% of
the shares of the Fund (or of the Trust) present at a meeting if the holders of
more than 50% of the outstanding shares are present in person or by proxy; or
(2) more than 50% of the outstanding shares of the Fund (or of the Trust).
With respect to the submission to shareholder vote of a matter
requiring separate voting by the Fund, the matter shall have been effectively
acted upon with respect to the Fund if a majority of the outstanding voting
securities of the Fund votes for the approval of the matter, notwithstanding
that: (1) the matter has not been approved by a majority of the outstanding
voting securities of any other fund of the Trust; or (2) the matter has not been
approved by a majority of the outstanding voting securities of the Trust.
The Amended and Restated Declaration of Trust provides that the holders
of not less than two-thirds of the outstanding shares of the Trust may remove a
person serving as trustee either by declaration in writing or at a meeting
called for such purpose. The Trustees are required to call a meeting for the
purpose of considering the removal of a person serving as Trustee if requested
in writing to do so by the holders of not less than 10% of the outstanding
shares of the Trust. Shareholders will be assisted in communicating with other
shareholders in connection with the removal of a Trustee as if Section 26(c) of
the Act were applicable.
The Trust's shares do not have cumulative voting rights and accordingly
the holders of more than 50% of the outstanding shares could elect the entire
Board, in which case the holders of the remaining shares would not be able to
elect any Trustees.
Under Massachusetts law, the Trust's shareholders could, under certain
circumstances, be held personally liable for the obligations of the Trust.
However, the Amended and Restated Declaration of Trust disclaims liability of
the shareholders, Trustees or officers of the Trust for acts or obligations of
the Trust, which are binding only on the assets and property of the Trust, and
requires that notice of the disclaimer be given in each contract or obligation
entered into or executed by the Trust or its Trustees. The Amended and Restated
Declaration of Trust provides for indemnification out of Fund property for all
loss and expense of any shareholder of the Fund held personally liable for the
obligations of the Fund. The risk of a shareholder of the Trust incurring
financial loss on account of shareholder liability is limited to circumstances
in which the Trust itself would be unable to meet its obligations and, thus,
should be considered remote. No series of the Trust is liable for the
obligations of any other series of the Trust.
SPECIAL RIGHTS AND PRIVILEGES
The Trust offers, and (except as noted below) bears the cost of
providing, to investors the following rights and privileges. The Trust reserves
the right to amend or terminate any one or more of these rights and privileges.
Notice of amendments to or terminations of rights and privileges will be
provided to shareholders in accordance with applicable law.
Certain of the rights and privileges described below refer to funds,
other than the Fund, whose shares are also distributed by IMDI. These funds are:
Ivy Asia Pacific Fund, Ivy Bond Fund, Ivy China Region Fund, Ivy Developing
Nations Fund, Ivy European Opportunities Fund, Ivy Global Fund, Ivy Global
Natural Resources Fund, Ivy Global Science & Technology Fund, Ivy Growth Fund,
Ivy Growth with Income Fund, Ivy International Fund II, Ivy International Fund,
Ivy International Small Companies Fund, Ivy International Strategic Bond Fund,
Ivy Money Market Fund, Ivy Pan-Europe Fund, Ivy South America Fund and Ivy US
Emerging Growth Fund, (the other eighteen series of the Trust). (Effective April
18, 1997, Ivy International Fund suspended the offer of its shares to new
investors). Shareholders should obtain a current prospectus before exercising
any right or privilege that may relate to these funds.
AUTOMATIC INVESTMENT METHOD
The Automatic Investment Method, which enables a Fund shareholder to
have specified amounts automatically drawn each month from his or her bank for
investment in Fund shares, is available for all classes of shares, except Class
I. The minimum initial and subsequent investment under this method is $50 per
month ($250 for Advisor Class shares), (except in the case of a tax qualified
retirement plan for which the minimum initial and subsequent investment is $25
per month). A shareholder may terminate the Automatic Investment Method at any
time upon delivery to IMSC of telephone instructions or written notice. See
"Automatic Investment Method" in the Prospectus. To begin the plan, complete
Sections 6A and 7B of the Account Application.
EXCHANGE OF SHARES
As described in the Prospectus, shareholders of the Fund have an
exchange privilege with other Ivy funds (except Ivy International Fund unless
they have an existing Ivy International Fund account). Before effecting an
exchange, shareholders of the Fund should obtain and read the currently
effective prospectus for the Ivy fund into which the exchange is to be made.
INITIAL SALES CHARGE SHARES. Class A shareholders may exchange their
Class A shares ("outstanding Class A shares") for Class A shares of another Ivy
fund ("new Class A Shares") on the basis of the relative net asset value per
Class A share, plus an amount equal to the difference, if any, between the sales
charge previously paid on the outstanding Class A shares and the sales charge
payable at the time of the exchange on the new Class A shares. (The additional
sales charge will be waived for Class A shares that have been invested for a
period of 12 months or longer.) Class A shareholders may also exchange their
shares for shares of Ivy Money Market Fund (no initial sales charge will be
assessed at the time of such an exchange).
CONTINGENT DEFERRED SALES CHARGE SHARES CLASS A: Class A shareholders
may exchange their Class A shares that are subject to a contingent deferred
sales charge ("CDSC"), as described in the Prospectus ("outstanding Class A
shares"), for Class A shares of another Ivy fund ("new Class A shares") on the
basis of the relative net asset value per Class A share, without the payment of
any CDSC that would otherwise be due upon the redemption of the outstanding
Class A shares. Class A shareholders of the Fund exercising the exchange
privilege will continue to be subject to that Fund's CDSC period following an
exchange if such period is longer than the CDSC period, if any, applicable to
the new Class A shares.
For purposes of computing the CDSC that may be payable upon the
redemption of the new Class A shares, the holding period of the outstanding
Class A shares is "tacked" onto the holding period of the new Class A shares.
CLASS B: Class B shareholders may exchange their Class B shares
("outstanding Class B shares") for Class B shares of another Ivy fund ("new
Class B shares") on the basis of the relative net asset value per Class B share,
without the payment of any CDSC that would otherwise be due upon the redemption
of the outstanding Class B shares. Class B shareholders of the Fund exercising
the exchange privilege will continue to be subject to that Fund's CDSC schedule
(or period) following an exchange if such schedule is higher (or such period is
longer) than the CDSC schedule (or period) applicable to the new Class B shares.
Class B shares of the Fund acquired through an exchange of Class B
shares of another Ivy fund will be subject to that Fund's CDSC schedule (or
period) if such schedule is higher (or such period is longer) than the CDSC
schedule (or period) applicable to the Ivy fund from which the exchange was
made.
For purposes of both the conversion feature and computing the CDSC that
may be payable upon the redemption of the new Class B shares (prior to
conversion), the holding period of the outstanding Class B shares is "tacked"
onto the holding period of the new Class B shares.
The following CDSC table applies to Class B shares of Ivy Asia Pacific
Fund, Ivy Bond Fund, Ivy China Region Fund, Ivy Developing Nations Fund, Ivy
European Opportunities Fund, Ivy Global Fund, Ivy Global Natural Resources Fund,
Ivy Global Science & Technology Fund, Ivy Growth Fund, Ivy Growth with Income
Fund, Ivy International Fund II, Ivy International Fund, Ivy International Small
Companies Fund, Ivy International Strategic Bond Fund, Ivy Pan-Europe Fund, Ivy
South America Fund, Ivy US Blue Chip Fund and Ivy US Emerging Growth Fund:
CONTINGENT DEFERRED SALES CHARGE AS A PERCENTAGE OF
DOLLAR AMOUNT SUBJECT TO CHARGE
YEAR SINCE PURCHASE
First 5%
Second 4%
Third 3%
Fourth 3%
Fifth 2%
Sixth 1%
Seventh and thereafter 0%
CLASS C: Class C shareholders may exchange their Class C shares
("outstanding Class C shares") for Class C shares of another Ivy fund ("new
Class C shares") on the basis of the relative net asset value per Class C share,
without the payment of any CDSC that would otherwise be due upon redemption.
(Class C shares are subject to a CDSC of 1.00% if redeemed within one year of
the date of purchase.)
CLASS I AND ADVISOR CLASS: Subject to the restrictions set forth in the
following paragraph, Class I and Advisor Class shareholders may exchange their
outstanding Class I (or Advisor Class) shares for Class I (or Advisor Class)
shares of another Ivy fund on the basis of the relative net asset value per
share.
ALL CLASSES: The minimum value of shares which may be exchanged into an
Ivy fund in which shares are not already held is $1,000 ($5,000,000 in the case
of Class I shares and $10,000 in the case of Advisor Class shares). No exchange
out of the Fund (other than by a complete exchange of all Fund shares) may be
made if it would reduce the shareholder's interest in the Fund to less than
$1,000 ($250,000 in the case of Class I shares and $10,000 in the case of
Advisor Class shares).
Each exchange will be made on the basis of the relative net asset value
per share of the Ivy funds involved in the exchange next computed following
receipt by IMSC of telephone instructions by IMSC or a properly executed
request. Exchanges, whether written or telephonic, must be received by IMSC by
the close of regular trading on the Exchange (normally 4:00 p.m., eastern time)
to receive the price computed on the day of receipt. Exchange requests received
after that time will receive the price next determined following receipt of the
request. The exchange privilege may be modified or terminated at any time, upon
at least 60 days' notice to the extent required by applicable law. See
"Redemptions."
An exchange of shares between any of the Ivy funds will result in a
taxable gain or loss. Generally, this will be a capital gain or loss (long-term
or short-term, depending on the holding period of the shares) in the amount of
the difference between the net asset value of the shares surrendered and the
shareholder's tax basis for those shares. However, in certain circumstances,
shareholders will be ineligible to take sales charges into account in computing
taxable gain or loss on an exchange. See "Taxation."
With limited exceptions, gain realized by a tax-deferred retirement
plan will not be taxable to the plan and will not be taxed to the participant
until distribution. Each investor should consult his or her tax adviser
regarding the tax consequences of an exchange transaction.
LETTER OF INTENT
Reduced sales charges apply to initial investments in Class A shares of
the Fund made pursuant to a non-binding Letter of Intent. A Letter of Intent may
be submitted by an individual, his or her spouse and children under the age of
21, or a trustee or other fiduciary of a single trust estate or single fiduciary
account. See the Account Application in the Prospectus. Any investor may submit
a Letter of Intent stating that he or she will invest, over a period of 13
months, at least $50,000 in Class A shares of the Fund. A Letter of Intent may
be submitted at the time of an initial purchase of Class A shares of the Fund or
within 90 days of the initial purchase, in which case the Letter of Intent will
be back dated. A shareholder may include, as an accumulation credit, the value
(at the applicable offering price) of all Class A shares of Ivy Asia Pacific
Fund, Ivy Bond Fund, Ivy China Region Fund, Ivy Developing Nations Fund, Ivy
European Opportunities Fund, Ivy Global Fund, Ivy Global Natural Resources Fund,
Ivy Global Science & Technology Fund, Ivy Growth Fund, Ivy Growth with Income
Fund, Ivy International Fund II, Ivy International Fund, Ivy International Small
Companies Fund, Ivy International Strategic Bond Fund, Ivy Pan-Europe Fund, Ivy
South America Fund, Ivy US Blue Chip Fund and Ivy US Emerging Growth Fund (and
shares that have been exchanged into Ivy Money Market Fund from any of the other
funds in the Ivy funds) held of record by him or her as of the date of his or
her Letter of Intent. During the term of the Letter of Intent, the Transfer
Agent will hold Class A shares representing 5% of the indicated amount (less any
accumulation credit value) in escrow. The escrowed Class A shares will be
released when the full indicated amount has been purchased. If the full
indicated amount is not purchased during the term of the Letter of Intent, the
investor is required to pay IMDI an amount equal to the difference between the
dollar amount of sales charge that he or she has paid and that which he or she
would have paid on his or her aggregate purchases if the total of such purchases
had been made at a single time. Such payment will be made by an automatic
liquidation of Class A shares in the escrow account. A Letter of Intent does not
obligate the investor to buy or the Trust to sell the indicated amount of Class
A shares, and the investor should read carefully all the provisions of such
letter before signing.
RETIREMENT PLANS
Shares may be purchased in connection with several types of
tax-deferred retirement plans. Shares of more than one fund distributed by IMDI
may be purchased in a single application establishing a single account under the
plan, and shares held in such an account may be exchanged among the Ivy funds in
accordance with the terms of the applicable plan and the exchange privilege
available to all shareholders. Initial and subsequent purchase payments in
connection with tax-deferred retirement plans must be at least $25 per
participant.
The following fees will be charged to individual shareholder accounts
as described in the retirement prototype plan document:
Retirement Plan New Account Fee no fee
Retirement Plan Annual Maintenance Fee $10.00 per fund account
For shareholders whose retirement accounts are diversified across
several Ivy funds, the annual maintenance fee will be limited to not more than
$20.
The following discussion describes the tax treatment of certain
tax-deferred retirement plans under current Federal income tax law. State income
tax consequences may vary. An individual considering the establishment of a
retirement plan should consult with an attorney and/or an accountant with
respect to the terms and tax aspects of the plan.
INDIVIDUAL RETIREMENT ACCOUNTS: Shares of the Fund may be used as a
funding medium for an Individual Retirement Account ("IRA"). Eligible
individuals may establish an IRA by adopting a model custodial account available
from IMSC, who may impose a charge for establishing the account. Individuals
should consult their tax advisers before investing IRA assets in an Ivy fund if
that fund primarily distributes exempt-interest dividends.
An individual who has not reached age 70-1/2 and who receives
compensation or earned income is eligible to contribute to an IRA, whether or
not he or she is an active participant in a retirement plan. An individual who
receives a distribution from another IRA, a qualified retirement plan, a
qualified annuity plan or a tax-sheltered annuity or custodial account ("403(b)
plan") that qualifies for "rollover" treatment is also eligible to establish an
IRA by rolling over the distribution either directly or within 60 days after its
receipt. Tax advice should be obtained in connection with planning a rollover
contribution to an IRA.
In general, an eligible individual may contribute up to the lesser of
$2,000 or 100% of his or her compensation or earned income to an IRA each year.
If a husband and wife are both employed, and both are under age 70-1/2, each may
set up his or her own IRA within these limits. If both earn at least $2,000 per
year, the maximum potential contribution is $4,000 per year for both. For years
after 1996, the result is similar even if one spouse has no earned income; if
the joint earned income of the spouses is at least $4,000, a contribution of up
to $2,000 may be made to each spouse's IRA. Rollover contributions are not
subject to these limits.
An individual may deduct his or her annual contributions to an IRA in
computing his or her Federal income tax within the limits described above,
provided he or she (or his or her spouse, if they file a joint Federal income
tax return) is not an active participant in a qualified retirement plan (such as
a qualified corporate, sole proprietorship, or partnership pension, profit
sharing, 401(k) or stock bonus plan), qualified annuity plan, 403(b) plan,
simplified employee pension, or governmental plan. If he or she (or his or her
spouse) is an active participant, whether the individual's contribution to an
IRA is fully deductible, partially deductible or not deductible depends on (i)
adjusted gross income and (ii) whether it is the individual or the individual's
spouse who is an active participant, in the case of married individuals filing
jointly. Contributions may be made up to the maximum permissible amount even if
they are not deductible. Rollover contributions are not includable in income for
Federal income tax purposes and therefore are not deductible from it.
Generally, earnings on an IRA are not subject to current Federal income
tax until distributed. Distributions attributable to tax-deductible
contributions and to IRA earnings are taxed as ordinary income. Distributions of
non-deductible contributions are not subject to Federal income tax. In general,
distributions from an IRA to an individual before he or she reaches age 59-1/2
are subject to a nondeductible penalty tax equal to 10% of the taxable amount of
the distribution. The 10% penalty tax does not apply to amounts withdrawn from
an IRA after the individual reaches age 59-1/2, becomes disabled or dies, or if
withdrawn in the form of substantially equal payments over the life or life
expectancy of the individual and his or her designated beneficiary, if any, or
rolled over into another IRA, amounts withdrawn and used to pay for deductible
medical expenses and amounts withdrawn by certain unemployed individuals not in
excess of amounts paid for certain health insurance premiums, amounts used to
pay certain qualified higher education expenses, and amounts used within 120
days of the date the distribution is received to pay for certain first-time
homebuyer expenses. Distributions must begin to be withdrawn not later than
April 1 of the calendar year following the calendar year in which the individual
reaches age 70-1/2. Failure to take certain minimum required distributions will
result in the imposition of a 50% non-deductible penalty tax.
ROTH IRAS: Shares of the Fund also may be used as a funding medium for
a Roth Individual Retirement Account ("Roth IRA"). A Roth IRA is similar in
numerous ways to the regular (traditional) IRA, described above.
Some of the primary differences are as follows.
A single individual earning below $95,000 can contribute up to $2,000
per year to a Roth IRA. The maximum contribution amount diminishes and gradually
falls to zero for single filers with adjusted gross incomes ranging from $95,000
to $110,000. Married couples earning less than $150,000 combined, and filing
jointly, can contribute a full $4,000 per year ($2,000 per IRA). The maximum
contribution amount for married couples filing jointly phases out from $150,000
to $160,000. An individual whose adjusted gross income exceeds the maximum
phase-out amount cannot contribute to a Roth IRA.
An eligible individual can contribute money to a traditional IRA and a
Roth IRA as long as the total contribution to all IRAs does not exceed $2,000.
Contributions to a Roth IRA are not deductible. Contributions to a Roth IRA may
be made even after the individual for whom the account is maintained has
attained age 70 1/2.
No distributions are required to be taken prior to the death of the
original account holder. If a Roth IRA has been established for a minimum of
five years, distributions can be taken tax-free after reaching age 59 1/2, for a
first-time home purchase ($10,000 maximum, one time use), or upon death or
disability. All other distributions from a Roth IRA (other than the amount of
nondeductible contributions) are taxable and subject to a 10% tax penalty unless
an exception applies. Exceptions to the 10% penalty include: reaching age 59
1/2, death, disability, deductible medical expenses, the purchase of health
insurance for certain unemployed individual and qualified higher education
expenses.
An individual with an income of less than $100,000 (who is not married
filing separately) can roll his or her existing IRA into a Roth IRA. However,
the individual must pay taxes on the taxable amount in his or her traditional
IRA. After 1998, all taxes on such a rollover will have to be paid in the tax
year in which the rollover is made.
QUALIFIED PLANS: For those self-employed individuals who wish to
purchase shares of one or more Ivy funds through a qualified retirement plan, a
Custodial Agreement and a Retirement Plan are available from IMSC. The
Retirement Plan may be adopted as a profit sharing plan or a money purchase
pension plan. A profit sharing plan permits an annual contribution to be made in
an amount determined each year by the self-employed individual within certain
limits prescribed by law. A money purchase pension plan requires annual
contributions at the level specified in the Custodial Agreement. There is no
set-up fee for qualified plans and the annual maintenance fee is $20.00 per
account.
In general, if a self-employed individual has any common law employees,
employees who have met certain minimum age and service requirements must be
covered by the Retirement Plan. A self-employed individual generally must
contribute the same percentage of income for common law employees as for himself
or herself.
A self-employed individual may contribute up to the lesser of $30,000
or 25% of compensation or earned income to a money purchase pension plan or to a
combination profit sharing and money purchase pension plan arrangement each year
on behalf of each participant. To be deductible, total contributions to a profit
sharing plan generally may not exceed 15% of the total compensation or earned
income of all participants in the plan, and total contributions to a combination
money purchase-profit sharing arrangement generally may not exceed 25% of the
total compensation or earned income of all participants. The amount of
compensation or earned income of any one participant that may be included in
computing the deduction is limited (generally to $150,000 for benefits accruing
in plan years beginning after 1993, with annual inflation adjustments). A
self-employed individual's contributions to a retirement plan on his or her own
behalf must be deducted in computing his or her earned income.
Corporate employers may also adopt the Custodial Agreement and
Retirement Plan for the benefit of their eligible employees. Similar
contribution and deduction rules apply to corporate employers.
Distributions from the Retirement Plan generally are made after a
participant's separation from service. A 10% penalty tax generally applies to
distributions to an individual before he or she reaches age 59-1/2, unless the
individual (1) has reached age 55 and separated from service; (2) dies; (3)
becomes disabled; (4) uses the withdrawal to pay tax-deductible medical
expenses; (5) takes the withdrawal as part of a series of substantially equal
payments over his or her life expectancy or the joint life expectancy of himself
or herself and a designated beneficiary; or (6) rolls over the distribution.
The Transfer Agent will arrange for Investors Bank & Trust to furnish
custodial services to the employer and any participating employees.
DEFERRED COMPENSATION FOR PUBLIC SCHOOLS AND CHARITABLE ORGANIZATIONS
("403(B)(7) ACCOUNT"): Section 403(b)(7) of the Internal Revenue Code of 1986,
as amended (the "Code") permits public school systems and certain charitable
organizations to use mutual fund shares held in a custodial account to fund
deferred compensation arrangements with their employees. A custodial account
agreement is available for those employers whose employees wish to purchase
shares of the Trust in conjunction with such an arrangement. The special
application for a 403(b)(7) Account is available from IMSC.
Distributions from the 403(b)(7) Account may be made only following
death, disability, separation from service, attainment of age 59-1/2, or
incurring a financial hardship. A 10% penalty tax generally applies to
distributions to an individual before he or she reaches age 59-1/2, unless the
individual (1) has reached age 55 and separated from service; (2) dies or
becomes disabled; (3) uses the withdrawal to pay tax-deductible medical
expenses; (4) takes the withdrawal as part of a series of substantially equal
payments over his or her life expectancy or the joint life expectancy of himself
or herself and a designated beneficiary; or (5) rolls over the distribution.
There is no set-up fee for 403(b)(7) Accounts and the annual maintenance fee is
$20.00 per account.
SIMPLIFIED EMPLOYEE PENSION ("SEP") IRAS: An employer may deduct
contributions to a SEP up to the lesser of $30,000 or 15% of compensation. SEP
accounts generally are subject to all rules applicable to IRA accounts, except
the deduction limits, and are subject to certain employee participation
requirements. No new salary reduction SEPs ("SARSEPs") may be established after
1996, but existing SARSEPs may continue to be maintained, and non-salary
reduction SEPs may continue to be established as well as maintained after 1996.
SIMPLE PLANS: An employer may establish a SIMPLE IRA or a SIMPLE 401(k)
for years after 1996. An employee can make pre-tax salary reduction
contributions to a SIMPLE Plan, up to $6,000 a year (as indexed). Subject to
certain limits, the employer will either match a portion of employee
contributions, or will make a contribution equal to 2% of each employee's
compensation without regard to the amount the employee contributes. An employer
cannot maintain a SIMPLE Plan for its employees if the employer maintains or
maintained any other qualified retirement plan with respect to which any
contributions or benefits have been credited.
REINVESTMENT PRIVILEGE
Shareholders who have redeemed Class A shares of the Fund may reinvest
all or a part of the proceeds of the redemption back into Class A shares of the
Fund at net asset value (without a sales charge) within 60 days from the date of
redemption. This privilege may be exercised only once. The reinvestment will be
made at the net asset value next determined after receipt by IMSC of the
reinvestment order accompanied by the funds to be reinvested. No compensation
will be paid to any sales personnel or dealer in connection with the
transaction.
Any redemption is a taxable event. A loss realized on a redemption
generally may be disallowed for tax purposes if the reinvestment privilege is
exercised within 30 days after the redemption. In certain circumstances,
shareholders will be ineligible to take sales charges into account in computing
taxable gain or loss on a redemption if the reinvestment privilege is exercised.
See "Taxation."
RIGHTS OF ACCUMULATION
A scale of reduced sales charges applies to any investment of $50,000
or more in Class A shares of the Fund. See "Initial Sales Charge Alternative --
Class A Shares" in the Prospectus. The reduced sales charge is applicable to
investments made at one time by an individual, his or her spouse and children
under the age of 21, or a trustee or other fiduciary of a single trust estate or
single fiduciary account (including a pension, profit sharing or other employee
benefit trust created pursuant to a plan qualified under Section 401 of the
Code). Rights of Accumulation is also applicable to current purchases of all of
the funds of Ivy Fund (except Ivy Money Market Fund) by any of the persons
enumerated above, where the aggregate quantity of Class A shares of such funds
(and shares that have been exchanged into Ivy Money Market Fund from any of the
other funds in the Ivy funds) and of any other investment company distributed by
IMDI, previously purchased or acquired and currently owned, determined at the
higher of current offering price or amount invested, plus the Class A shares
being purchased, amounts to $50,000 or more for all funds other than Ivy Bond
Fund; or $100,000 or more for Ivy Bond Fund.
At the time an investment takes place, IMSC must be notified by the
investor or his or her dealer that the investment qualifies for the reduced
sales charge on the basis of previous investments. The reduced sales charge is
subject to confirmation of the investor's holdings through a check of the
particular fund's records.
SYSTEMATIC WITHDRAWAL PLAN
A shareholder (except shareholders with accounts in Class I) may
establish a Systematic Withdrawal Plan (a "Withdrawal Plan"), by telephone
instructions or by delivery to IMSC of a written election to have his or her
shares withdrawn periodically (minimum distribution amount $50 for Advisor Class
shares), accompanied by a surrender to IMSC of all share certificates then
outstanding in such shareholder's name, properly endorsed by the shareholder. To
be eligible to elect a Withdrawal Plan, a shareholder must have at least $5,000
in his or her account (except Advisor Class shareholders, who must continually
maintain an account balance of at least $10,000). A Withdrawal Plan may not be
established if the investor is currently participating in the Automatic
Investment Method. A Withdrawal Plan may involve the depletion of a
shareholder's principal, depending on the amount withdrawn.
A redemption under a Withdrawal Plan is a taxable event. Shareholders
contemplating participating in a Withdrawal Plan should consult their tax
advisers.
Additional investments made by investors participating in a Withdrawal
Plan must equal at least $1,000 each ($250 for Advisor Class shareholders) while
the Withdrawal Plan is in effect. Making additional purchases while a Withdrawal
Plan is in effect may be disadvantageous to the investor because of applicable
initial sales charges or CDSCs.
An investor may terminate his or her participation in the Withdrawal
Plan at any time by delivering written notice to IMSC. If all shares held by the
investor are liquidated at any time, participation in the Withdrawal Plan will
terminate automatically. The Trust or IMSC may terminate the Withdrawal Plan
option at any time after reasonable notice to shareholders.
GROUP SYSTEMATIC INVESTMENT PROGRAM
Shares of the Fund may be purchased in connection with investment
programs established by employee or other groups using systematic payroll
deductions or other systematic payment arrangements. The Trust does not itself
organize, offer or administer any such programs. However, it may, depending upon
the size of the program, waive the minimum initial and additional investment
requirements for purchases by individuals in conjunction with programs organized
and offered by others. Unless shares of the Fund are purchased in conjunction
with IRAs (see "How to Buy Shares" in the Prospectus), such group systematic
investment programs are not entitled to special tax benefits under the Code. The
Trust reserves the right to refuse purchases at any time or suspend the offering
of shares in connection with group systematic investment programs, and to
restrict the offering of shareholder privileges, such as check writing,
simplified redemptions and other optional privileges, as described in the
Prospectus, to shareholders using group systematic investment programs.
With respect to each shareholder account established on or after
September 15, 1972 under a group systematic investment program, the Trust and
IMI each currently charge a maintenance fee of $3.00 (or portion thereof) that
for each twelve-month period (or portion thereof) that the account is
maintained. The Trust may collect such fee (and any fees due to IMI) through a
deduction from distributions to the shareholders involved or by causing on the
date the fee is assessed a redemption in each such shareholder account
sufficient to pay such fee. The Trust reserves the right to change these fees
from time to time without advance notice.
Class A shares of the Fund are made available to Merrill Lynch Daily K
Plan (the "Plan") participants at NAV without an initial sales charge if:
(i) the Plan is recordkept on a daily valuation basis by Merrill
Lynch and, on the date the Plan Sponsor signs the Merrill
Lynch Recordkeeping Service Agreement, the Plan has $3 million
or more in assets invested in broker/dealer funds not advised
or managed by Merrill Lynch Asset Management, L.P. ("MLAM")
that are made available pursuant to a Service Agreement
between Merrill Lynch and the fund's principal underwriter or
distributor and in funds advised or managed by MLAM
(collectively, the "Applicable Investments");
(ii) the Plan is recordkept on a daily valuation basis by an
independent recordkeeper whose services are provided through a
contract or alliance arrangement with Merrill Lynch, and on
the date the Plan Sponsor signs the Merrill Lynch
Recordkeeping Service Agreement, the Plan has $3 million or
more in assets, excluding money market funds, invested in
Applicable Investments; or
(iii) the Plan has 500 or more eligible employees, as determined by
Merrill Lynch plan conversion manager, on the date the Plan
Sponsor signs the Merrill Lynch Recordkeeping Service
Agreement.
Alternatively, Class B shares of the Fund are made available to Plan
participants at NAV without a CDSC if the Plan conforms with the requirements
for eligibility set forth in (i) through (iii) above but either does not meet
the $3 million asset threshold or does not have 500 or more eligible employees.
Plans recordkept on a daily basis by Merrill Lynch or an independent
recordkeeper under a contract with Merrill Lynch that are currently investing in
Class B shares of the Fund convert to Class A shares once the Plan has reached
$5 million invested in Applicable Investments, or 10 years after the date of the
initial purchase by a participant under the Plan--the Plan will receive a Plan
level share conversion.
REDEMPTIONS
Shares of the Fund are redeemed at their net asset value next
determined after a proper redemption request has been received by IMSC, less any
applicable CDSC.
Unless a shareholder requests that the proceeds of any redemption be
wired to his or her bank account, payment for shares tendered for redemption is
made by check within seven days after tender in proper form, except that the
Trust reserves the right to suspend the right of redemption or to postpone the
date of payment upon redemption beyond seven days, (i) for any period during
which the Exchange is closed (other than customary weekend and holiday closings)
or during which trading on the Exchange is restricted, (ii) for any period
during which an emergency exists as determined by the SEC as a result of which
disposal of securities owned by the Fund is not reasonably practicable or it is
not reasonably practicable for the Fund to fairly determine the value of its net
assets, or (iii) for such other periods as the SEC may by order permit for the
protection of shareholders of the Fund.
Under unusual circumstances, when the Board deems it in the best
interest of the Fund's shareholders, the Fund may make payment for shares
repurchased or redeemed in whole or in part in securities of the Fund taken at
current values. If any such redemption in kind is to be made, the Fund may make
an election pursuant to Rule 18f-1 under the 1940 Act. This will require the
Fund to redeem with cash at a shareholder's election in any case where the
redemption involves less than $250,000 (or 1% of the Fund's net asset value at
the beginning of each 90-day period during which such redemptions are in effect,
if that amount is less than $250,000). Should payment be made in securities, the
redeeming shareholder may incur brokerage costs in converting such securities to
cash.
The Trust may redeem those accounts of shareholders who have maintained
an investment, including sales charges paid, of less than $1,000 ($10,000 for
Advisor Class shareholders) in the Fund for a period of more than 12 months. All
accounts below that minimum will be redeemed simultaneously when MIMI deems it
advisable. The $1,000 balance ($10,000 for Advisor Class shareholders) will be
determined by actual dollar amounts invested by the shareholder, unaffected by
market fluctuations. The Trust will notify any such shareholder by certified
mail of its intention to redeem such account, and the shareholder shall have 60
days from the date of such letter to invest such additional sums as shall raise
the value of such account above that minimum. Should the shareholder fail to
forward such sum within 60 days of the date of the Trust's letter of
notification, the Trust will redeem the shares held in such account and transmit
the redemption in value thereof to the shareholder. However, those shareholders
who are investing pursuant to the Automatic Investment Method will not be
redeemed automatically unless they have ceased making payments pursuant to the
plan for a period of at least six consecutive months, and these shareholders
will be given six-months' notice by the Trust before such redemption.
Shareholders in a qualified retirement, pension or profit sharing plan who wish
to avoid tax consequences must "rollover" any sum so redeemed into another
qualified plan within 60 days. The Trustees of the Trust may change the minimum
account size.
If a shareholder has given authorization for telephonic redemption
privilege, shares can be redeemed and proceeds sent by Federal wire to a single
previously designated bank account. Delivery of the proceeds of a wire
redemption request of $250,000 or more may be delayed by the Fund for up to
seven days if deemed appropriate under then-current market conditions. The Trust
reserves the right to change this minimum or to terminate the telephonic
redemption privilege without prior notice. The Trust cannot be responsible for
the efficiency of the Federal wire system of the shareholder's dealer of record
or bank. The shareholder is responsible for any charges by the shareholder's
bank.
The Fund employs reasonable procedures that require personal
identification prior to acting on redemption or exchange instructions
communicated by telephone to confirm that such instructions are genuine. In the
absence of such instructions, the Fund may be liable for any losses due to
unauthorized or fraudulent telephone instructions.
CONVERSION OF CLASS B SHARES
As described in the Prospectus, Class B shares of the Fund will
automatically convert to Class A shares of the Fund, based on the relative net
asset values per share of the two classes, no later than the month following the
eighth anniversary of the initial issuance of such Class B shares of the Fund
occurs. For the purpose of calculating the holding period required for
conversion of Class B shares, the date of initial issuance shall mean: (1) the
date on which such Class B shares were issued, or (2) for Class B shares
obtained through an exchange, or a series of exchanges, (subject to the exchange
privileges for Class B shares) the date on which the original Class B shares
were issued. For purposes of conversion of Class B shares, Class B shares
purchased through the reinvestment of dividends and capital gain distributions
paid in respect of Class B shares will be held in a separate sub-account. Each
time any Class B shares in the shareholder's regular account (other than those
shares in the sub-account) convert to Class A shares, a pro rata portion of the
Class B shares in the sub-account will also convert to Class A shares. The
portion will be determined by the ratio that the shareholder's Class B shares
converting to Class A shares bears to the shareholder's total Class B shares not
acquired through the reinvestment of dividends and capital gain distributions.
NET ASSET VALUE
The net asset value per share of the Fund is computed by dividing the
value of the Fund's aggregate net assets (i.e., its total assets less its
liabilities) by the number of the Fund's shares outstanding. For purposes of
determining the Fund's aggregate net assets, receivables are valued at their
realizable amounts. The Fund's liabilities, if not identifiable as belonging to
a particular class of the Fund, are allocated among the Fund's several classes
based on their relative net asset size. Liabilities attributable to a particular
class are charged to that class directly. The total liabilities for a class are
then deducted from the class's proportionate interest in the Fund's assets, and
the resulting amount is divided by the number of shares of the class outstanding
to produce its net asset value per share.
A security listed or traded on a recognized stock exchange or The
Nasdaq Stock Market, Inc. ("Nasdaq") is valued at the security's last sale price
on the exchange on which the security is principally traded. If no sale is
reported at that time, the average between the last bid and asked price (the
"Calculated Mean") is used. Unless otherwise noted herein, the value of a
foreign security is determined in its national currency as of the normal close
of trading on the foreign exchange on which it is traded or as of the close of
regular trading on the Exchange, if that is earlier, and that value is then
converted into its U.S. dollar equivalent at the foreign exchange rate in effect
at noon, eastern time, on the day the value of the foreign security is
determined. All other securities for which OTC market quotations are readily
available are valued at the Calculated Mean.
A debt security normally is valued on the basis of quotes obtained from
at least two dealers (or one dealer who has made a market in the security) or
pricing services that take into account appropriate valuation factors. Interest
is accrued daily. Money market instruments are valued at amortized cost, which
the Board believes approximates market value.
An exchange-traded option is valued at the last sale price on the
exchange on which it is principally traded, if available, and otherwise is
valued at the last sale price on the other exchange(s). If there were no sales
on any exchange, the option shall be valued at the Calculated Mean, if possible,
and otherwise at the last offering price, in the case of a written option, and
the last bid price, in the case of a purchased option. An OTC option is valued
at the last offering price, in the case of a written option, and the last bid
price, in the case of a purchased option. Exchange listed and widely-traded OTC
futures (and options thereon) are valued at the most recent settlement price.
Securities and other assets for which market prices are not readily
available are priced at their "fair value" as determined by IMI in accordance
with procedures approved by the Board. Trading in securities on many foreign
securities exchanges is normally completed before the close of regular trading
on the Exchange. Trading on foreign exchanges may not take place on all days on
which there is regular trading on the Exchange, or may take place on days on
which there is no regular trading on the Exchange (e.g., any of the national
business holidays identified below). If events materially affecting the value of
the Fund's portfolio securities occur between the time when a foreign exchange
closes and the time when the Fund's net asset value is calculated (see following
paragraph), such securities may be valued at fair value as determined by IMI and
approved by the Board.
Portfolio securities are valued (and net asset value per share is
determined) as of the close of regular trading on the Exchange (normally 4:00
p.m., eastern time) on each day the Exchange is open for trading. The Exchange
and the Trust's offices are expected to be closed, and net asset value will not
be calculated, on the following national business holidays: New Year's Day,
Martin Luther King, Jr. Day, Presidents' Day, Good Friday, Memorial Day,
Independence Day, Labor Day, Thanksgiving Day and Christmas Day. On those days
when either or both of the Fund's Custodian or the Exchange close early as a
result of a partial holiday or otherwise, the Trust reserves the right to
advance the time on that day by which purchase and redemption requests must be
received.
The number of shares you receive when you place a purchase order, and
the payment you receive after submitting a redemption request, is based on the
Fund's net asset value next determined after your instructions are received in
proper from by IMSC or by your registered securities dealer. Each purchase and
redemption order is subject to any applicable sales charge. Since the Fund
normally invests in securities that are listed on foreign exchanges that may
trade on weekends or other days when the Fund does not price its shares, the
Fund's net asset value may change on days when shareholders will not be able to
purchase or redeem the Fund's shares. The sale of the Fund's shares will be
suspended during any period when the determination of its net asset value is
suspended pursuant to rules or orders of the SEC and may be suspended by the
Board whenever in its judgment it is in the Fund's best interest to do so.
TAXATION
The following is a general discussion of certain tax rules thought to
be applicable with respect to the Fund. It is merely a summary and is not an
exhaustive discussion of all possible situations or of all potentially
applicable taxes. Accordingly, shareholders and prospective shareholders should
consult a competent tax adviser about the tax consequences to them of investing
in the Fund.
The Fund intends to be taxed as a regulated investment company under
Subchapter M of the Code. Accordingly, the Fund must, among other things, (a)
derive in each taxable year at least 90% of its gross income from dividends,
interest, payments with respect to certain securities loans, and gains from the
sale or other disposition of stock, securities or foreign currencies, or other
income derived with respect to its business of investing in such stock,
securities or currencies; and (b) diversify its holdings so that, at the end of
each fiscal quarter, (i) at least 50% of the market value of the Fund's assets
is represented by cash, U.S. Government securities, the securities of other
regulated investment companies and other securities, with such other securities
limited, in respect of any one issuer, to an amount not greater than 5% of the
value of the Fund's total assets and 10% of the outstanding voting securities of
such issuer, and (ii) not more than 25% of the value of its total assets is
invested in the securities of any one issuer (other than U.S. Government
securities and the securities of other regulated investment companies).
As a regulated investment company, the Fund generally will not be
subject to U.S. Federal income tax on its income and gains that it distributes
to shareholders, if at least 90% of its investment company taxable income (which
includes, among other items, dividends, interest and the excess of any
short-term capital gains over long-term capital losses) for the taxable year is
distributed. The Fund intends to distribute all such income.
Amounts not distributed on a timely basis in accordance with a calendar
year distribution requirement are subject to a nondeductible 4% excise tax at
the Fund level. To avoid the tax, the Fund must distribute during each calendar
year, (1) at least 98% of its ordinary income (not taking into account any
capital gains or losses) for the calendar year (2) at least 98% of its capital
gains in excess of its capital losses (adjusted for certain ordinary losses) for
a one-year period generally ending on October 31 of the calendar year, and (3)
all ordinary income and capital gains for previous years that were not
distributed during such years. To avoid application of the excise tax, the Fund
intends to make distributions in accordance with the calendar year distribution
requirements. A distribution will be treated as paid on December 31 of the
current calendar year if it is declared by the Fund in October, November or
December of the year with a record date in such a month and paid by the Fund
during January of the following year. Such distributions will be taxable to
shareholders in the calendar year the distributions are declared, rather than
the calendar year in which the distributions are received.
OPTIONS, FUTURES AND FOREIGN CURRENCY FORWARD CONTRACTS
The taxation of equity options and OTC options on debt securities is
governed by Code section 1234. Pursuant to Code section 1234, the premium
received by the Fund for selling a put or call option is not included in income
at the time of receipt. If the option expires, the premium is short-term capital
gain to the Fund. If the Fund enters into a closing transaction, the difference
between the amount paid to close out its position and the premium received is
short-term capital gain or loss. If a call option written by the Fund is
exercised, thereby requiring the Fund to sell the underlying security, the
premium will increase the amount realized upon the sale of such security and any
resulting gain or loss will be a capital gain or loss, and will be long-term or
short-term depending upon the holding period of the security. With respect to a
put or call option that is purchased by the Fund, if the option is sold, any
resulting gain or loss will be a capital gain or loss, and will be long-term or
short-term, depending upon the holding period of the option. If the option
expires, the resulting loss is a capital loss and is long-term or short-term,
depending upon the holding period of the option. If the option is exercised, the
cost of the option, in the case of a call option, is added to the basis of the
purchased security and, in the case of a put option, reduces the amount realized
on the underlying security in determining gain or loss.
Some of the options, futures and foreign currency forward contracts in
which the Fund may invest may be "section 1256 contracts." Gains (or losses) on
these contracts generally are considered to be 60% long-term and 40% short-term
capital gains or losses; however, as described below, foreign currency gains or
losses arising from certain section 1256 contracts are ordinary in character.
Also, section 1256 contracts held by the Fund at the end of each taxable year
(and on certain other dates prescribed in the Code) are "marked-to-market" with
the result that unrealized gains or losses are treated as though they were
realized.
The transactions in options, futures and forward contracts undertaken
by the Fund may result in "straddles" for Federal income tax purposes. The
straddle rules may affect the character of gains or losses realized by the Fund.
In addition, losses realized by the Fund on positions that are part of a
straddle may be deferred under the straddle rules, rather than being taken into
account in calculating the taxable income for the taxable year in which such
losses are realized. Because only a few regulations implementing the straddle
rules have been promulgated, the consequences of such transactions to the Fund
are not entirely clear. The straddle rules may increase the amount of short-term
capital gain realized by the Fund, which is taxed as ordinary income when
distributed to shareholders.
The Fund may make one or more of the elections available under the Code
which are applicable to straddles. If the Fund makes any of the elections, the
amount, character and timing of the recognition of gains or losses from the
affected straddle positions will be determined under rules that vary according
to the election(s) made. The rules applicable under certain of the elections may
operate to accelerate the recognition of gains or losses from the affected
straddle positions.
Because application of the straddle rules may affect the character of
gains or losses, defer losses and/or accelerate the recognition of gains or
losses from the affected straddle positions, the amount which must be
distributed to shareholders as ordinary income or long-term capital gain may be
increased or decreased substantially as compared to a fund that did not engage
in such transactions.
Notwithstanding any of the foregoing, the Fund may recognize gain (but
not loss) from a constructive sale of certain "appreciated financial positions"
if the Fund enters into a short sale, offsetting notional principal contract,
futures or forward contract transaction with respect to the appreciated position
or substantially identical property. Appreciated financial positions subject to
this constructive sale treatment are interests (including options, futures and
forward contracts and short sales) in stock, partnership interests, certain
actively traded trust instruments and certain debt instruments. Constructive
sale treatment of appreciated financial positions does not apply to certain
transactions closed in the 90-day period ending with the 30th day after the
close of the Fund's taxable year, if certain conditions are met.
CURRENCY FLUCTUATIONS -- "SECTION 988" GAINS OR LOSSES
Gains or losses attributable to fluctuations in exchange rates which
occur between the time the Fund accrues receivables or liabilities denominated
in a foreign currency and the time the Fund actually collects such receivables
or pays such liabilities generally are treated as ordinary income or ordinary
loss. Similarly, on disposition of some investments, including debt securities
denominated in a foreign currency and certain options, futures and forward
contracts, gains or losses attributable to fluctuations in the value of the
foreign currency between the date of acquisition of the security or contract and
the date of disposition also are treated as ordinary gain or loss. These gains
and losses, referred to under the Code as "section 988" gains or losses,
increase or decrease the amount of the Fund's investment company taxable income
available to be distributed to its shareholders as ordinary income.
INVESTMENT IN PASSIVE FOREIGN INVESTMENT COMPANIES
The Fund may invest in shares of foreign corporations which may be
classified under the Code as passive foreign investment companies ("PFICs"). In
general, a foreign corporation is classified as a PFIC if at least one-half of
its assets constitute investment-type assets, or 75% or more of its gross income
is investment-type income. If the Fund receives a so-called "excess
distribution" with respect to PFIC stock, the Fund itself may be subject to a
tax on a portion of the excess distribution, whether or not the corresponding
income is distributed by the Fund to shareholders. In general, under the PFIC
rules, an excess distribution is treated as having been realized ratably over
the period during which a Fund held the PFIC shares. The Fund itself will be
subject to tax on the portion, if any, of an excess distribution that is so
allocated to prior Fund taxable years and an interest factor will be added to
the tax, as if the tax had been payable in such prior taxable years. Certain
distributions from a PFIC as well as gain from the sale of PFIC shares are
treated as excess distributions. Excess distributions are characterized as
ordinary income even though, absent application of the PFIC rules, certain
excess distributions might have been classified as capital gain.
The Fund may be eligible to elect alternative tax treatment with
respect to PFIC shares. The Fund may elect to mark to market its PFIC shares,
resulting in the shares being treated as sold at fair market value on the last
business day of each taxable year. Any resulting gain would be reported as
ordinary income; any resulting loss and any loss from an actual disposition of
the shares would be reported as ordinary loss to the extent of any net gains
reported in prior years. Under another election that currently is available in
some circumstances, the Fund generally would be required to include in its gross
income its share of the earnings of a PFIC on a current basis, regardless of
whether distributions are received from the PFIC in a given year.
DEBT SECURITIES ACQUIRED AT A DISCOUNT
Some of the debt securities (with a fixed maturity date of more than
one year from the date of issuance) that may be acquired by the Fund may be
treated as debt securities that are issued originally at a discount. Generally,
the amount of the original issue discount ("OID") is treated as interest income
and is included in income over the term of the debt security, even though
payment of that amount is not received until a later time, usually when the debt
security matures.
Some of the debt securities (with a fixed maturity date of more than
one year from the date of issuance) that may be acquired by the Fund in the
secondary market may be treated as having market discount. Generally, gain
recognized on the disposition of, and any partial payment of principal on, a
debt security having market discount is treated as ordinary income to the extent
the gain, or principal payment, does not exceed the "accrued market discount" on
such debt security. In addition, the deduction of any interest expenses
attributable to debt securities having market discount may be deferred. Market
discount generally accrues in equal daily installments. The Fund may make one or
more of the elections applicable to debt securities having market discount,
which could affect the character and timing of recognition of income.
Some debt securities (with a fixed maturity date of one year or less
from the date of issuance) that may be acquired by the Fund may be treated as
having acquisition discount, or OID in the case of certain types of debt
securities. Generally, the Fund will be required to include the acquisition
discount, or OID, in income over the term of the debt security, even though
payment of that amount is not received until a later time, usually when the debt
security matures. The Fund may make one or more of the elections applicable to
debt securities having acquisition discount, or OID, which could affect the
character and timing of recognition of income.
The Fund generally will be required to distribute dividends to
shareholders representing discount on debt securities that is currently
includable in income, even though cash representing such income may not have
been received by the Fund. Cash to pay such dividends may be obtained from sales
proceeds of securities held by the Fund.
DISTRIBUTIONS
Distributions of investment company taxable income are taxable to a
U.S. shareholder as ordinary income, whether paid in cash or shares. Dividends
paid by the Fund to a corporate shareholder, to the extent such dividends are
attributable to dividends received from U.S. corporations by the Fund, may
qualify for the dividends received deduction. However, the revised alternative
minimum tax applicable to corporations may reduce the value of the dividends
received deduction. Distributions of net capital gains (the excess of net
long-term capital gains over net short-term capital losses), if any, designated
by the Fund as capital gain dividends, are taxable to shareholders as long-term
capital gains whether paid in cash or in shares, and regardless of how long the
shareholder has held the Fund's shares; such distributions are not eligible for
the dividends received deduction. Shareholders receiving distributions in the
form of newly issued shares will have a cost basis in each share received equal
to the net asset value of a share of the Fund on the distribution date. A
distribution of an amount in excess of the Fund's current and accumulated
earnings and profits will be treated by a shareholder as a return of capital
which is applied against and reduces the shareholder's basis in his or her
shares. To the extent that the amount of any such distribution exceeds the
shareholder's basis in his or her shares, the excess will be treated by the
shareholder as gain from a sale or exchange of the shares. Shareholders will be
notified annually as to the U.S. Federal tax status of distributions and
shareholders receiving distributions in the form of newly issued shares will
receive a report as to the net asset value of the shares received.
If the net asset value of shares is reduced below a shareholder's cost
as a result of a distribution by the Fund, such distribution generally will be
taxable even though it represents a return of invested capital. Shareholders
should be careful to consider the tax implications of buying shares just prior
to a distribution. The price of shares purchased at this time may reflect the
amount of the forthcoming distribution. Those purchasing just prior to a
distribution will receive a distribution which generally will be taxable to
them.
DISPOSITION OF SHARES
Upon a redemption, sale or exchange of his or her shares, a shareholder
will realize a taxable gain or loss depending upon his or her basis in the
shares. Such gain or loss will be treated as capital gain or loss if the shares
are capital assets in the shareholder's hands and, if so, will be long-term or
short-term, depending upon the shareholder's holding period for the shares. Any
loss realized on a redemption sale or exchange will be disallowed to the extent
the shares disposed of are replaced (including through reinvestment of
dividends) within a period of 61 days beginning 30 days before and ending 30
days after the shares are disposed of. In such a case, the basis of the shares
acquired will be adjusted to reflect the disallowed loss. Any loss realized by a
shareholder on the sale of Fund shares held by the shareholder for six-months or
less will be treated for tax purposes as a long-term capital loss to the extent
of any distributions of capital gain dividends received or treated as having
been received by the shareholder with respect to such shares.
In some cases, shareholders will not be permitted to take all or
portion of their sales loads into account for purposes of determining the amount
of gain or loss realized on the disposition of their shares. This prohibition
generally applies where (1) the shareholder incurs a sales load in acquiring the
shares of the Fund, (2) the shares are disposed of before the 91st day after the
date on which they were acquired, and (3) the shareholder subsequently acquires
shares in the Fund or another regulated investment company and the otherwise
applicable sales charge is reduced under a "reinvestment right" received upon
the initial purchase of Fund shares. The term "reinvestment right" means any
right to acquire shares of one or more regulated investment companies without
the payment of a sales load or with the payment of a reduced sales charge. Sales
charges affected by this rule are treated as if they were incurred with respect
to the shares acquired under the reinvestment right. This provision may be
applied to successive acquisitions of fund shares.
FOREIGN WITHHOLDING TAXES
Income received by the Fund from sources within a foreign country may
be subject to withholding and other taxes imposed by that country.
If more than 50% of the value of the Fund's total assets at the close
of its taxable year consists of securities of foreign corporations, the Fund
will be eligible and may elect to "pass-through" to the Fund's shareholders the
amount of foreign income and similar taxes paid by the Fund. Pursuant to this
election, a shareholder will be required to include in gross income (in addition
to taxable dividends actually received) his or her pro rata share of the foreign
income and similar taxes paid by the Fund, and will be entitled either to deduct
his or her pro rata share of foreign income and similar taxes in computing his
or her taxable income or to use it as a foreign tax credit against his or her
U.S. Federal income taxes, subject to limitations. No deduction for foreign
taxes may be claimed by a shareholder who does not itemize deductions. Foreign
taxes generally may not be deducted by a shareholder that is an individual in
computing the alternative minimum tax. Each shareholder will be notified within
60 days after the close of the Fund's taxable year whether the foreign taxes
paid by the Fund will "pass-through" for that year and, if so, such notification
will designate (1) the shareholder's portion of the foreign taxes paid to each
such country and (2) the portion of the dividend which represents income derived
from sources within each such country.
Generally, except in the case of certain electing individual taxpayers
who have limited creditable foreign taxes and no foreign source income other
than passive investment-type income, a credit for foreign taxes is subject to
the limitation that it may not exceed the shareholder's U.S. tax attributable to
his or her total foreign source taxable income. For this purpose, if the Fund
makes the election described in the preceding paragraph, the source of the
Fund's income flows through to its shareholders. With respect to the Fund, gains
from the sale of securities generally will be treated as derived from U.S.
sources and section 988 gains will be treated as ordinary income derived from
U.S. sources. The limitation on the foreign tax credit is applied separately to
foreign source passive income, including foreign source passive income received
from the Fund. In addition, the foreign tax credit may offset only 90% of the
revised alternative minimum tax imposed on corporations and individuals.
Furthermore, the foreign tax credit is eliminated with respect to foreign taxes
withheld on dividends if the dividend-paying shares or the shares of the Fund
are held by the Fund or the shareholder, as the case may be, for less than 16
days (46 days in the case of preferred shares) during the 30-day period (90-day
period for preferred shares) beginning 15 days (45 days for preferred shares)
before the shares become ex-dividend. In addition, if the Fund fails to satisfy
these holding period requirements, it cannot elect to pass through to
shareholders the ability to claim a deduction for related foreign taxes.
The foregoing is only a general description of the foreign tax credit
under current law. Because application of the credit depends on the particular
circumstances of each shareholder, shareholders are advised to consult their own
tax advisers.
BACKUP WITHHOLDING
The Fund will be required to report to the Internal Revenue Service
("IRS") all taxable distributions as well as gross proceeds from the redemption
of the Fund's shares, except in the case of certain exempt shareholders. All
such distributions and proceeds will be subject to withholding of Federal income
tax at a rate of 31% ("backup withholding") in the case of non-exempt
shareholders if (1) the shareholder fails to furnish the Fund with and to
certify the shareholder's correct taxpayer identification number or social
security number, (2) the IRS notifies the shareholder or the Fund that the
shareholder has failed to report properly certain interest and dividend income
to the IRS and to respond to notices to that effect, or (3) when required to do
so, the shareholder fails to certify that he or she is not subject to backup
withholding. If the withholding provisions are applicable, any such
distributions or proceeds, whether reinvested in additional shares or taken in
cash, will be reduced by the amounts required to be withheld.
Distributions may also be subject to additional state, local and
foreign taxes depending on each shareholder's particular situation. Non-U.S.
shareholders may be subject to U.S. tax rules that differ significantly from
those summarized above. This discussion does not purport to deal with all of the
tax consequences applicable to the Fund or shareholders. Shareholders are
advised to consult their own tax advisers with respect to the particular tax
consequences to them of an investment in the Fund.
PERFORMANCE INFORMATION
Performance information for the classes of shares of the Fund may be
compared, in reports and promotional literature, to: (i) the S&P 500 Index, the
Dow Jones Industrial Average ("DJIA"), or other unmanaged indices so that
investors may compare the Fund's results with those of a group of unmanaged
securities widely regarded by investors as representative of the securities
markets in general; (ii) other groups of mutual funds tracked by Lipper
Analytical Services, a widely used independent research firm that ranks mutual
funds by overall performance, investment objectives and assets, or tracked by
other services, companies, publications or other criteria; and (iii) the
Consumer Price Index (measure for inflation) to assess the real rate of return
from an investment in the Fund. Unmanaged indices may assume the reinvestment of
dividends but generally do not reflect deductions or administrative and
management costs and expenses. Performance rankings are based on historical
information and are not intended to indicate future performance.
YIELD. Quotations of yield for a specific class of shares of the Fund
will be based on all investment income attributable to that class earned during
a particular 30-day (or one month) period (including dividends and interest),
less expenses attributable to that class accrued during the period ("net
investment income"), and will be computed by dividing the net investment income
per share of that class earned during the period by the maximum offering price
per share (in the case of Class A shares) or the net asset value per share (in
the case of Class B and Class C shares) on the last day of the period, according
to the following formula:
YIELD = 2[({(a-b)/cd} + 1){superscript 6}-1]
Where: a = dividends and interest earned
during the period attributable to a
specific class of shares,
b = expenses accrued for the period
attributable to that class (net of
reimbursements),
c = the average daily number of shares
of that class outstanding during the
period that were entitled to receive
dividends, and
d = the maximum offering price per
share (in the case of Class A
shares) or the net asset value per
share (in the case of Class B
shares, Class C shares and Class I
shares) on the last day of the
period.
AVERAGE ANNUAL TOTAL RETURN. Quotations of standardized average annual
total return ("Standardized Return") for a specific class of shares of the Fund
will be expressed in terms of the average annual compounded rate of return that
would cause a hypothetical investment in that class of the Fund made on the
first day of a designated period to equal the ending redeemable value ("ERV") of
such hypothetical investment on the last day of the designated period, according
to the following formula:
P(1 + T){superscript n} = ERV
Where: P = a hypothetical initial payment of
$1,000 to purchase shares of a
specific class
T = the average annual total return of
shares of that class
n = the number of years
ERV = the ending redeemable value of a
hypothetical $1,000 payment made at
the beginning of the period.
For purposes of the above computation for the Fund, it is assumed that
all dividends and capital gains distributions made by the Fund are reinvested at
net asset value in additional shares of the same class during the designated
period. In calculating the ending redeemable value for Class A shares and
assuming complete redemption at the end of the applicable period, the maximum
5.75% sales charge is deducted from the initial $1,000 payment and, for Class B
and Class C shares, the applicable CDSC imposed upon redemption of Class B or
Class C shares held for the period is deducted. Standardized Return quotations
for the Fund do not take into account any required payments for federal or state
income taxes. Standardized Return quotations for Class B shares for periods of
over eight years will reflect conversion of the Class B shares to Class A shares
at the end of the eighth year. Standardized Return quotations are determined to
the nearest 1/100 of 1%.
The Fund may, from time to time, include in advertisements, promotional
literature or reports to shareholders or prospective investors total return data
that are not calculated according to the formula set forth above
("Non-Standardized Return"). Neither initial nor CDSCs are taken into account in
calculating Non-Standardized Return; a sales charge, if deducted, would reduce
the return.
CUMULATIVE TOTAL RETURN. Cumulative total return is the cumulative rate
of return on a hypothetical initial investment of $1,000 in a specific class of
shares of the Fund for a specified period. Cumulative total return quotations
reflect changes in the price of the Fund's shares and assume that all dividends
and capital gains distributions during the period were reinvested in the Fund
shares. Cumulative total return is calculated by computing the cumulative rates
of return of a hypothetical investment in a specific class of shares of the Fund
over such periods, according to the following formula (cumulative total return
is then expressed as a percentage):
C = (ERV/P) - 1
Where: C = cumulative total return
P = a hypothetical initial investment of
$1,000 to purchase shares of a
specific class
ERV = ending redeemable value: ERV is
the value, at the end of the
applicable period, of a hypothetical
$1,000 investment made at the
beginning of the applicable period.
OTHER QUOTATIONS, COMPARISONS AND GENERAL INFORMATION. The foregoing
computation methods are prescribed for advertising and other communications
subject to SEC Rule 482. Communications not subject to this rule may contain a
number of different measures of performance, computation methods and
assumptions, including but not limited to: historical total returns; results of
actual or hypothetical investments; changes in dividends, distributions or share
values; or any graphic illustration of such data. These data may cover any
period of the Trust's existence and may or may not include the impact of sales
charges, taxes or other factors.
Performance quotations for the Fund will vary from time to time
depending on market conditions, the composition of the Fund's portfolio and
operating expenses of the Fund. These factors and possible differences in the
methods used in calculating performance quotations should be considered when
comparing performance information regarding the Fund's shares with information
published for other investment companies and other investment vehicles.
Performance quotations should also be considered relative to changes in the
value of the Fund's shares and the risks associated with the Fund's investment
objectives and policies. At any time in the future, performance quotations may
be higher or lower than past performance quotations and there can be no
assurance that any historical performance quotation will continue in the future.
The Fund may also cite endorsements or use for comparison its
performance rankings and listings reported in such newspapers or business or
consumer publications as, among others: AAII Journal, Barron's, Boston Business
Journal, Boston Globe, Boston Herald, Business Week, Consumer's Digest, Consumer
Guide Publications, Changing Times, Financial Planning, Financial World, Forbes,
Fortune, Growth Fund Guide, Houston Post, Institutional Investor, International
Fund Monitor, Investor's Daily, Los Angeles Times, Medical Economics, Miami
Herald, Money Mutual Fund Forecaster, Mutual Fund Letter, Mutual Fund Source
Book, Mutual Fund Values, National Underwriter, Nelson's Directory of Investment
Managers, New York Times, Newsweek, No Load Fund Investor, No Load Fund* X,
Oakland Tribune, Pension World, Pensions and Investment Age, Personal Investor,
Rugg and Steele, Time, U.S. News and World Report, USA Today, The Wall Street
Journal, and Washington Post.
FINANCIAL STATEMENTS
The Fund's Portfolio of Investments as of December 31, 1998, Statement
of Assets and Liabilities as of December 31, 1998, Statement of Operations for
the fiscal year ended December 31, 1998, Statement of Changes in Net Assets for
the fiscal year ended December 31, 1998, Financial Highlights, Notes to
Financial Statements, and Report of Independent Accountants, which are included
in the Fund's December 31, 1998 Annual Report to shareholders, are incorporated
by reference into this SAI.
<PAGE>
APPENDIX A
DESCRIPTION OF STANDARD & POOR'S RATINGS GROUP ("S&P") AND MOODY'S
INVESTORS SERVICE, INC. ("MOODY'S") CORPORATE BOND AND COMMERCIAL PAPER RATINGS
[From "Moody's Bond Record," November 1994 Issue (Moody's Investors
Service, New York, 1994), and "Standard & Poor's Municipal Ratings Handbook,"
October 1997 Issue (McGraw Hill, New York, 1997).]
MOODY'S:
(a) CORPORATE BONDS. Bonds rated Aaa by Moody's are judged by Moody's
to be of the best quality, carrying the smallest degree of investment risk.
Interest payments are protected by a large or exceptionally stable margin and
principal is secure. While the various protective elements are likely to change,
such changes as can be visualized are most unlikely to impair the fundamentally
strong position of such issues. Bonds rated Aa are judged by Moody's to be of
high quality by all standards. Aa bonds are rated lower than Aaa bonds because
margins of protection may not be as large as those of Aaa bonds, or fluctuations
of protective elements may be of greater amplitude, or there may be other
elements present which make the long-term risks appear somewhat larger than
those applicable to Aaa securities. Bonds which are rated A by Moody's possess
many favorable investment attributes and are to be considered as upper
medium-grade obligations. Factors giving security to principal and interest are
considered adequate, but elements may be present which suggest a susceptibility
to impairment sometime in the future. Bonds rated Baa by Moody's are considered
medium-grade obligations (i.e., they are neither highly protected nor poorly
secured). Interest payments and principal security appear adequate for the
present, but certain protective elements may be lacking or may be
characteristically unreliable over any great length of time. Such bonds lack
outstanding investment characteristics and in fact have speculative
characteristics as well. Bonds which are rated Ba are judged to have speculative
elements; their future cannot be considered well-assured. Often the protection
of interest and principal payments may be very moderate and thereby not well
safeguarded during both good and bad times over the future. Uncertainty of
position characterizes bonds in this class. Bonds which are rated B generally
lack characteristics of the desirable investment. Assurance of interest and
principal payments of or maintenance of other terms of the contract over any
long period of time may be small. Bonds which are rated Caa are of poor
standing. Such issues may be in default or there may be present elements of
danger with respect to principal or interest. Bonds which are rated Ca represent
obligations which are speculative in a high degree. Such issues are often in
default or have other marked shortcomings. Bonds which are rated C are the
lowest rated class of bonds and issues so rated can be regarded as having
extremely poor prospects of ever attaining any real investment standing.
(b) COMMERCIAL PAPER. The Prime rating is the highest commercial paper
rating assigned by Moody's. Among the factors considered by Moody's in assigning
ratings are the following: (1) evaluation of the management of the issuer; (2)
economic evaluation of the issuer's industry or industries and an appraisal of
speculative-type risks which may be inherent in certain areas; (3) evaluation of
the issuer's products in relation to competition and customer acceptance; (4)
liquidity; (5) amount and quality of long-term debt; (6) trend of earnings over
a period of ten years; (7) financial strength of a parent company and the
relationships which exist with the issuer; and (8) recognition by management of
obligations which may be present or may arise as a result of public interest
questions and preparations to meet such obligations. Issuers within this Prime
category may be given ratings 1, 2 or 3, depending on the relative strengths of
these factors. The designation of Prime-1 indicates the highest quality
repayment capacity of the rated issue. Issuers rated Prime-2 are deemed to have
a strong ability for repayment while issuers voted Prime-3 are deemed to have an
acceptable ability for repayment. Issuers rated Not Prime do not fall within any
of the Prime rating categories.
S&P:
(a) CORPORATE BONDS. An S&P corporate debt rating is a current
assessment of the creditworthiness of an obligor with respect to a specific
obligation. The ratings are based on current information furnished by the issuer
or obtained by S&P from other sources it considers reliable. The ratings
described below may be modified by the addition of a plus or minus sign to show
relative standing within the major rating categories.
Debt rated AAA has the highest rating assigned by S&P. Capacity to pay
interest and repay principal is extremely strong. Debt rated AA is judged by S&P
to have a very strong capacity to pay interest and repay principal and differs
from the highest rated issues only in small degree. Debt rated A by S&P has a
strong capacity to pay interest and repay principal, although it is somewhat
more susceptible to the adverse effects of changes in circumstances and economic
conditions than debt in higher rated categories.
Debt rated BBB by S&P is regarded by S&P as having an adequate capacity
to pay interest and repay principal. Although such bonds normally exhibit
adequate protection parameters, adverse economic conditions or changing
circumstances are more likely to lead to a weakened capacity to pay interest and
repay principal than debt in higher rated categories.
Debt rated BB, B, CCC, CC and C is regarded as having predominately
speculative characteristics with respect to capacity to pay interest and repay
principal. BB indicates the least degree of speculation and C the highest. While
such debt will likely have some quality and protective characteristics, these
are outweighed by large uncertainties or exposures to adverse conditions. Debt
rated BB has less near-term vulnerability to default than other speculative
issues. However, it faces major ongoing uncertainties or exposure to adverse
business, financial or economic conditions which could lead to inadequate
capacity to meet timely interest and principal payments. The BB rating category
is also used for debt subordinated to senior debt that is assigned an actual or
implied BBB- rating. Debt rated B has a greater vulnerability to default but
currently has the capacity to meet interest payments and principal repayments.
Adverse business, financial, or economic conditions will likely impair capacity
or willingness to pay interest and repay principal. The B rating category is
also used for debt subordinated to senior debt that is assigned an actual or
implied BB or BB- rating. Debt rated CCC has a currently identifiable
vulnerability to default, and is dependent upon favorable business, financial,
and economic conditions to meet timely payment of interest and repayment of
principal. In the event of adverse business, financial or economic conditions,
it is not likely to have the capacity to pay interest and repay principal. The
CCC rating category is also used for debt subordinated to senior debt that is
assigned an actual or implied B or B- rating. The rating CC typically is applied
to debt subordinated to senior debt which is assigned an actual or implied CCC
debt rating. The rating C typically is applied to debt subordinated to senior
debt which is assigned an actual or implied CCC- debt rating. The C rating may
be used to cover a situation where a bankruptcy petition has been filed, but
debt service payments are continued.
The rating CI is reserved for income bonds on which no interest is
being paid. Debt rated D is in payment default. The D rating category is used
when interest payments or principal payments are not made on the date due, even
if the applicable grace period has not expired, unless S&P believes that such
payments will be made during such grace period. The D rating also will be used
upon the filing of a bankruptcy petition if debt service payments are
jeopardized.
(b) COMMERCIAL PAPER. An S&P commercial paper rating is a current
assessment of the likelihood of timely payment of debt considered short-term in
the relevant market.
The commercial paper rating A-1 by S&P indicates that the degree of
safety regarding timely payment is strong. Those issues determined to possess
extremely strong safety characteristics are denoted with a plus sign (+)
designation. For commercial paper with an A-2 rating, the capacity for timely
payment on issues is satisfactory, but not as high as for issues designated A-1.
Issues rated A-3 have adequate capacity for timely payment, but are more
vulnerable to the adverse effects of changes in circumstances than obligations
carrying higher designations.
Issues rated B are regarded as having only speculative capacity for
timely payment. The C rating is assigned to short-term debt obligations with a
doubtful capacity for payment. Debt rated D is in payment default. The D rating
category is used when interest payments or principal payments are not made on
the date due, even if the applicable grace period has not expired, unless S&P
believes such payments will be made during such grace period.
<PAGE>
IVY US EMERGING GROWTH FUND
a series of
IVY FUND
Via Mizner Financial Plaza, Suite 300
700 South Federal Highway
Boca Raton, Florida 33432
STATEMENT OF ADDITIONAL INFORMATION
April , 1999
Ivy Fund (the "Trust") is an open-end management investment company
that currently consists of nineteen fully managed portfolios, each of which
(except for Ivy South America Fund and Ivy International Strategic Bond Fund) is
diversified. This Statement of Additional Information ("SAI") relates to the
Class A, B, C and Advisor Class shares of Ivy US Emerging Growth Fund (the
"Fund"). The other eighteen portfolios of the Trust are described in separate
prospectuses and SAIs.
This SAI is not a prospectus and should be read in conjunction with the
prospectus for the Fund dated April , 1999 (the "Prospectus"), which may be
obtained upon request and without charge from the Trust at the Distributor's
address and telephone number printed below.
INVESTMENT MANAGER
Ivy Management, Inc. ("IMI")
Via Mizner Financial Plaza, Suite 300
700 South Federal Highway
Boca Raton, Florida 33432
Telephone: (800) 777-6472
DISTRIBUTOR
Ivy Mackenzie Distributors, Inc. ("IMDI")
Via Mizner Financial Plaza, Suite 300
700 South Federal Highway
Boca Raton, Florida 33432
Telephone: (800) 456-5111
<PAGE>
iii
TABLE OF CONTENTS
GENERAL INFORMATION.........................................................1
INVESTMENT OBJECTIVES, STRATEGIES AND RISKS.................................1
COMMON STOCKS......................................................2
CONVERTIBLE SECURITIES.............................................2
SMALL COMPANIES....................................................3
DEBT SECURITIES....................................................3
IN GENERAL................................................3
INVESTMENT-GRADE DEBT SECURITIES..........................3
ILLIQUID SECURITIES................................................3
FOREIGN SECURITIES.................................................4
EMERGING MARKETS...................................................5
FOREIGN CURRENCIES.................................................6
FOREIGN CURRENCY EXCHANGE TRANSACTIONS.............................7
REPURCHASE AGREEMENTS..............................................8
BANKING INDUSTRY AND SAVINGS AND LOAN OBLIGATIONS..................8
COMMERCIAL PAPER...................................................8
BORROWING..........................................................8
WARRANTS...........................................................9
OPTIONS TRANSACTIONS...............................................9
IN GENERAL................................................9
WRITING OPTIONS ON INDIVIDUAL SECURITIES.................10
PURCHASING OPTIONS ON INDIVIDUAL SECURITIES..............10
PURCHASING AND WRITING OPTIONS ON SECURITIES INDICES.....11
RISKS OF OPTIONS TRANSACTIONS............................11
FUTURES CONTRACTS AND OPTIONS ON FUTURES CONTRACTS................12
IN GENERAL...............................................12
RISKS ASSOCIATED WITH FUTURES AND RELATED OPTIONS........14
SECURITIES INDEX FUTURES CONTRACTS................................14
RISKS OF SECURITIES INDEX FUTURES........................15
COMBINED TRANSACTIONS....................................16
INVESTMENT RESTRICTIONS....................................................16
ADDITIONAL RESTRICTIONS....................................................17
PORTFOLIO TURNOVER.........................................................18
TRUSTEES AND OFFICERS......................................................18
PERSONAL INVESTMENTS BY EMPLOYEES OF IMI.................19
INVESTMENT ADVISORY AND OTHER SERVICES.....................................19
BUSINESS MANAGEMENT AND INVESTMENT ADVISORY SERVICES..............19
DISTRIBUTION SERVICES.............................................21
RULE 18F-3 PLAN..........................................21
RULE 12B-1 DISTRIBUTION PLANS............................22
CUSTODIAN.........................................................24
FUND ACCOUNTING SERVICES..........................................24
TRANSFER AGENT AND DIVIDEND PAYING AGENT..........................24
ADMINISTRATOR.....................................................24
AUDITORS..........................................................25
BROKERAGE ALLOCATION.......................................................25
CAPITALIZATION AND VOTING RIGHTS...........................................26
SPECIAL RIGHTS AND PRIVILEGES..............................................27
AUTOMATIC INVESTMENT METHOD.......................................27
EXCHANGE OF SHARES................................................28
INITIAL SALES CHARGE SHARES..............................28
CONTINGENT DEFERRED SALES CHARGE SHARES CLASS A..........28
CLASS B..................................................28
CLASS C..................................................29
ADVISOR CLASS............................................29
ALL CLASSES..............................................29
LETTER OF INTENT..................................................30
RETIREMENT PLANS..................................................30
INDIVIDUAL RETIREMENT ACCOUNTS...........................31
ROTH IRAS................................................32
QUALIFIED PLANS..........................................32
DEFERRED COMPENSATION FOR PUBLIC SCHOOLS AND CHARITABLE
ORGANIZATIONS ("403(B)(7) ACCOUNT")........................................33
SIMPLIFIED EMPLOYEE PENSION ("SEP") IRAS.................33
SIMPLE PLANS.............................................34
REINVESTMENT PRIVILEGE............................................34
RIGHTS OF ACCUMULATION............................................34
SYSTEMATIC WITHDRAWAL PLAN........................................34
GROUP SYSTEMATIC INVESTMENT PROGRAM...............................35
REDEMPTIONS................................................................36
CONVERSION OF CLASS B SHARES...............................................37
NET ASSET VALUE............................................................37
TAXATION 39
OPTIONS, FUTURES AND FOREIGN CURRENCY FORWARD CONTRACTS...........40
CURRENCY FLUCTUATIONS -- "SECTION 988" GAINS OR LOSSES............41
INVESTMENT IN PASSIVE FOREIGN INVESTMENT COMPANIES................41
DEBT SECURITIES ACQUIRED AT A DISCOUNT............................41
DISTRIBUTIONS.....................................................42
DISPOSITION OF SHARES.............................................43
FOREIGN WITHHOLDING TAXES.........................................43
BACKUP WITHHOLDING................................................44
PERFORMANCE INFORMATION....................................................44
YIELD....................................................45
AVERAGE ANNUAL TOTAL RETURN..............................45
CUMULATIVE TOTAL RETURN..................................48
OTHER QUOTATIONS, COMPARISONS AND GENERAL INFORMATION....49
FINANCIAL STATEMENTS.......................................................50
APPENDIX A.................................................................51
<PAGE>
GENERAL INFORMATION
The Fund is organized as a separate, diversified portfolio of the
Trust, an open-end management investment company organized as a Massachusetts
business trust on December 21, 1983. The Fund commenced operations (Class A
shares) on March 3, 1993. The inception dates for the Fund's Class B, Class C
and Advisor Class shares were October 23, 1993, April 30, 1996 and January 1,
1998, respectively.
Descriptions in this Statement of a particular investment practice or
technique in which the Fund may engage or a financial instrument which the Fund
may purchase are meant to describe the spectrum of investments that IMI, in its
discretion, might, but is not required to, use in managing the Fund's portfolio
assets. IMI may, in its discretion, at any time employ such practice, technique
or instrument for one or more funds but not for all funds advised by it.
Furthermore, it is possible that certain types of financial instruments or
investment techniques described herein may not be available, permissible,
economically feasible or effective for their intended purposes in all markets.
Certain practices, techniques, or instruments may not be principal activities of
the Fund but, to the extent employed, could from time to time have a material
impact on the Fund's performance.
INVESTMENT OBJECTIVES, STRATEGIES AND RISKS
The Fund has its own investment objectives and policies, which are
described in the Prospectus under the captions "Summary" and "Additional
Information About Strategies and Risks." Additional information regarding the
characteristics and risks associated with the Fund's investment techniques is
set forth below.
The Fund's principal investment objective is long-term capital growth
primarily through investment in equity securities, with current income being a
secondary consideration. Under normal conditions, the Fund invests at least 65%
of its total assets in common stocks and securities convertible into common
stocks. The Fund invests primarily in common stocks (or securities with similar
characteristics) of small- and medium-sized companies, both domestic and
foreign, that are in the early stages of their life cycles and that IMI believes
have the potential to become major enterprises.
The Fund may invest up to 25% of its net assets in foreign equity
securities, primarily those traded in European, Pacific Basin and Latin American
markets, some of which may be emerging markets involving special risks, as
described below. Individual foreign securities are selected based on value
indicators, such as a low price-earnings ratio, and are reviewed for fundamental
financial strength.
When circumstances warrant, the Fund may invest without limit in
investment grade debt securities (e.g., U.S. Government securities or other
corporate debt securities rated as least Baa by Moody's or BBB by S&P, or, if
unrated, are considered by IMI to be of comparable quality), preferred stocks,
or cash or cash equivalents such as bank obligations (including certificates of
deposit and bankers' acceptances), commercial paper, short-term notes and
repurchase agreements.
As a fundamental policy, the Fund may borrow up to 10% of the value of
its total assets, but only for temporary purposes when it would be advantageous
to do so from an investment standpoint. The Fund may invest up to 5% of its net
assets in warrants. The Fund may not invest more than 15% of its net assets in
illiquid securities. The Fund may enter into forward foreign currency contracts.
The Fund may write put options, with respect to not more than 10% of
the value of its net assets, on securities and stock indices, and may write
covered call options with respect to not more than 25% of the value of its net
assets. The Fund may purchase options, provided the aggregate premium paid for
all options held does not exceed 5% of its net assets. For hedging purposes
only, the Fund may enter into stock index futures contracts as a means of
regulating its exposure to equity markets. The Fund's equivalent exposure in
stock index futures contracts will not exceed 15% of its total assets.
COMMON STOCKS
Common stock can be issued by companies to raise cash; all common stock
shares represent a proportionate ownership interest in a company. As a result,
the value of common stock rises and falls with a company's success or failure.
The market value of common stock can fluctuate significantly, with smaller
companies being particularly susceptible to price swings. Transaction costs in
smaller company stocks may also be higher than those of larger companies.
CONVERTIBLE SECURITIES
The convertible securities in which the Fund may invest include
corporate bonds, notes, debentures, preferred stock and other securities that
may be converted or exchanged at a stated or determinable exchange ratio into
underlying shares of common stock. Investments in convertible securities can
provide income through interest and dividend payments as well as an opportunity
for capital appreciation by virtue of their conversion or exchange features.
Because convertible securities can be converted into equity securities, their
values will normally vary in some proportion with those of the underlying equity
securities. Convertible securities usually provide a higher yield than the
underlying equity, however, so that the price decline of a convertible security
may sometimes be less substantial than that of the underlying equity security.
The exchange ratio for any particular convertible security may be adjusted from
time to time due to stock splits, dividends, spin-offs, other corporate
distributions or scheduled changes in the exchange ratio. Convertible debt
securities and convertible preferred stocks, until converted, have general
characteristics similar to both debt and equity securities. Although to a lesser
extent than with debt securities generally, the market value of convertible
securities tends to decline as interest rates increase and, conversely, tends to
increase as interest rates decline. In addition, because of the conversion or
exchange feature, the market value of convertible securities typically changes
as the market value of the underlying common stock changes, and, therefore, also
tends to follow movements in the general market for equity securities. When the
market price of the underlying common stock increases, the price of a
convertible security tends to rise as a reflection of the value of the
underlying common stock, although typically not as much as the price of the
underlying common stock. While no securities investments are without risk,
investments in convertible securities generally entail less risk than
investments in common stock of the same issuer.
As debt securities, convertible securities are investments that provide
for a stream of income. Like all debt securities, there can be no assurance of
income or principal payments because the issuers of the convertible securities
may default on their obligations. Convertible securities generally offer lower
yields than non-convertible securities of similar quality because of their
conversion or exchange features.
Convertible securities generally are subordinated to other similar but
non-convertible securities of the same issuer, although convertible bonds, as
corporate debt obligations, are senior in right of payment to all equity
securities, and convertible preferred stock is senior to common stock, of the
same issuer. However, convertible bonds and convertible preferred stock
typically have lower coupon rates than similar non-convertible securities.
Convertible securities may be issued as fixed income obligations that pay
current income.
SMALL COMPANIES
Investing in smaller company stocks involves certain special
considerations and risks that are not usually associated with investing in
larger, more established companies. For example, the securities of small or new
companies may be subject to more abrupt or erratic market movements because they
tend to be thinly traded and are subject to a greater degree to changes in the
issuer's earnings and prospects. Small companies also tend to have limited
product lines, markets or financial resources. Transaction costs in smaller
company stocks also may be higher than those of larger companies.
DEBT SECURITIES
IN GENERAL. Investment in debt securities involves both interest rate
and credit risk. Generally, the value of debt instruments rises and falls
inversely with fluctuations in interest rates. As interest rates decline, the
value of debt securities generally increases. Conversely, rising interest rates
tend to cause the value of debt securities to decrease. Bonds with longer
maturities generally are more volatile than bonds with shorter maturities. The
market value of debt securities also varies according to the relative financial
condition of the issuer. In general, lower-quality bonds offer higher yields due
to the increased risk that the issuer will be unable to meet its obligations on
interest or principal payments at the time called for by the debt instrument.
INVESTMENT-GRADE DEBT SECURITIES. Bonds rated Aaa by Moody's Investors
Service, Inc. ("Moody's") and AAA by Standard & Poor's Ratings Group ("S&P") are
judged to be of the best quality (i.e., capacity to pay interest and repay
principal is extremely strong). Bonds rated Aa/AA are considered to be of high
quality (i.e., capacity to pay interest and repay principal is very strong and
differs from the highest rated issues only to a small degree). Bonds rated A are
viewed as having many favorable investment attributes, but elements may be
present that suggest a susceptibility to the adverse effects of changes in
circumstances and economic conditions than debt in higher rated categories.
Bonds rated Baa/BBB (considered by Moody's to be "medium grade" obligations) are
considered to have an adequate capacity to pay interest and repay principal, but
certain protective elements may be lacking (i.e., such bonds lack outstanding
investment characteristics and have some speculative characteristics). The Fund
may invest in debt securities that are given an investment-grade rating by
Moody's or S&P, and may also invest in unrated debt securities that are
considered by IMI to be of comparable quality.
ILLIQUID SECURITIES
The Fund may purchase securities other than in the open market. While
such purchases may often offer attractive opportunities for investment not
otherwise available on the open market, the securities so purchased are often
"restricted securities" or "not readily marketable" (i.e., they cannot be sold
to the public without registration under the Securities Act of 1933, as amended
(the "1933 Act"), or the availability of an exemption from registration (such as
Rule 144A) or because they are subject to other legal or contractual delays in
or restrictions on resale). This investment practice, therefore, could have the
effect of increasing the level of illiquidity of the Fund. It is the Fund's
policy that illiquid securities (including repurchase agreements of more than
seven days duration, certain restricted securities, and other securities which
are not readily marketable) may not constitute, at the time of purchase, more
than 15% of the value of the Fund's net assets. The Trust's Board of Trustees
has approved guidelines for use by IMI in determining whether a security is
illiquid.
Generally speaking, restricted securities may be sold (i) only to
qualified institutional buyers; (ii) in a privately negotiated transaction to a
limited number of purchasers; (iii) in limited quantities after they have been
held for a specified period of time and other conditions are met pursuant to an
exemption from registration; or (iv) in a public offering for which a
registration statement is in effect under the 1933 Act. Issuers of restricted
securities may not be subject to the disclosure and other investor protection
requirements that would be applicable if their securities were publicly traded.
If adverse market conditions were to develop during the period between the
Fund's decision to sell a restricted or illiquid security and the point at which
the Fund is permitted or able to sell such security, the Fund might obtain a
price less favorable than the price that prevailed when it decided to sell.
Where a registration statement is required for the resale of restricted
securities, the Fund may be required to bear all or part of the registration
expenses. The Fund may be deemed to be an "underwriter" for purposes of the 1933
Act when selling restricted securities to the public and, in such event, the
Fund may be liable to purchasers of such securities if the registration
statement prepared by the issuer is materially inaccurate or misleading.
Since it is not possible to predict with assurance that the market for
securities eligible for resale under Rule 144A will continue to be liquid, IMI
will monitor such restricted securities subject to the supervision of the Board
of Trustees. Among the factors IMI may consider in reaching liquidity decisions
relating to Rule 144A securities are: (1) the frequency of trades and quotes for
the security; (2) the number of dealers wishing to purchase or sell the security
and the number of other potential purchasers; (3) dealer undertakings to make a
market in the security; and (4) the nature of the security and the nature of the
market for the security (i.e., the time needed to dispose of the security, the
method of soliciting offers, and the mechanics of the transfer).
FOREIGN SECURITIES
The securities of foreign issuers in which the Fund may invest include
non-U.S. dollar-denominated debt securities, Euro dollar securities, sponsored
and unsponsored American Depository Receipts ("ADRs"), Global Depository
Receipts ("GDRs"), American Depository Shares ("ADSs"), Global Depository Shares
("GDSs") and related depository instruments, and debt securities issued, assumed
or guaranteed by foreign governments or political subdivisions or
instrumentalities thereof. Shareholders should consider carefully the
substantial risks involved in investing in securities issued by companies and
governments of foreign nations, which are in addition to the usual risks
inherent in the Fund's domestic investments.
Although IMI intends to invest the Fund's assets only in nations that
are generally considered to have relatively stable and friendly governments,
there is the possibility of expropriation, nationalization, repatriation or
confiscatory taxation, taxation on income earned in a foreign country and other
foreign taxes, foreign exchange controls (which may include suspension of the
ability to transfer currency from a given country), default on foreign
government securities, political or social instability or diplomatic
developments which could affect investments in securities of issuers in those
nations. In addition, in many countries there is less publicly available
information about issuers than is available for U.S. companies. Moreover,
foreign companies are not generally subject to uniform accounting, auditing and
financial reporting standards, and auditing practices and requirements may not
be comparable to those applicable to U.S. companies. In many foreign countries,
there is less governmental supervision and regulation of business and industry
practices, stock exchanges, brokers, and listed companies than in the United
States. Foreign securities transactions may also be subject to higher brokerage
costs than domestic securities transactions. The foreign securities markets of
many of the countries in which the Fund may invest may also be smaller, less
liquid and subject to greater price volatility than those in the United States.
In addition, the Fund may encounter difficulties or be unable to pursue legal
remedies and obtain judgment in foreign courts.
Foreign bond markets have different clearance and settlement procedures
and in certain markets there have been times when settlements have been unable
to keep pace with the volume of securities transactions, making it difficult to
conduct such transactions. Delays in settlement could result in temporary
periods when assets of the Fund are uninvested and no return is earned thereon.
The inability of the Fund to make intended security purchases due to settlement
problems could cause the Fund to miss attractive investment opportunities.
Further, the inability to dispose of portfolio securities due to settlement
problems could result either in losses to the Fund because of subsequent
declines in the value of the portfolio security or, if the Fund has entered into
a contract to sell the security, in possible liability to the purchaser. It may
be more difficult for the Fund's agents to keep currently informed about
corporate actions such as stock dividends or other matters that may affect the
prices of portfolio securities. Communications between the United States and
foreign countries may be less reliable than within the United States, thus
increasing the risk of delayed settlements of portfolio transactions or loss of
certificates for portfolio securities. Moreover, individual foreign economies
may differ favorably or unfavorably from the United States economy in such
respects as growth of gross national product, rate of inflation, capital
reinvestment, resource self-sufficiency and balance of payments position. IMI
seeks to mitigate the risks to the Fund associated with the foregoing
considerations through investment variation and continuous professional
management.
EMERGING MARKETS
The Fund could have significant investments in securities traded in
emerging markets. Investors should recognize that investing in such countries
involves special considerations, in addition to those set forth above, that are
not typically associated with investing in United States securities and that may
affect the Fund's performance favorably or unfavorably.
In recent years, many emerging market countries around the world have
undergone political changes that have reduced government's role in economic and
personal affairs and have stimulated investment and growth. Historically, there
is a strong direct correlation between economic growth and stock market returns.
While this is no guarantee of future performance, IMI believes that investment
opportunities (particularly in the energy, environmental services, natural
resources, basic materials, power, telecommunications and transportation
industries) may result within the evolving economies of emerging market
countries from which the Fund and its shareholders will benefit.
Investments in companies domiciled in developing countries may be
subject to potentially higher risks than investments in developed countries.
Such risks include (i) less social, political and economic stability; (ii) a
small market for securities and/or a low or nonexistent volume of trading, which
result in a lack of liquidity and in greater price volatility; (iii) certain
national policies that may restrict the Fund's investment opportunities,
including restrictions on investment in issuers or industries deemed sensitive
to national interests; (iv) foreign taxation; (v) the absence of developed
structures governing private or foreign investment or allowing for judicial
redress for injury to private property; (vi) the absence, until relatively
recently in certain Eastern European countries, of a capital market structure or
market-oriented economy; (vii) the possibility that recent favorable economic
developments in Eastern Europe may be slowed or reversed by unanticipated
political or social events in such countries; and (viii) the possibility that
currency devaluations could adversely affect the value of the Fund's
investments. Further, many emerging markets have experienced and continue to
experience high rates of inflation.
Despite the dissolution of the Soviet Union, the Communist Party may
continue to exercise a significant role in certain Eastern European countries.
To the extent of the Communist Party's influence, investments in such countries
will involve risks of nationalization, expropriation and confiscatory taxation.
The communist governments of a number of Eastern European countries expropriated
large amounts of private property in the past, in many cases without adequate
compensation, and there can be no assurance that such expropriation will not
occur in the future. In the event of such expropriation, the Fund could lose a
substantial portion of any investments it has made in the affected countries.
Further, few (if any) accounting standards exist in Eastern European countries.
Finally, even though certain Eastern European currencies may be convertible into
U.S. dollars, the conversion rates may be artificial in relation to the actual
market values and may be adverse to the Fund's net asset value.
Certain Eastern European countries that do not have well-established
trading markets are characterized by an absence of developed legal structures
governing private and foreign investments and private property. In addition,
certain countries require governmental approval prior to investments by foreign
persons, or limit the amount of investment by foreign persons in a particular
company, or limit the investment of foreign persons to only a specific class of
securities of a company that may have less advantageous terms than securities of
the company available for purchase by nationals.
Authoritarian governments in certain Eastern European countries may
require that a governmental or quasi-governmental authority act as custodian of
the Fund's assets invested in such country. To the extent such governmental or
quasi-governmental authorities do not satisfy the requirements of the Investment
Company Act of 1940, as amended (the "1940 Act"), with respect to the custody of
the Fund's cash and securities, the Fund's investment in such countries may be
limited or may be required to be effected through intermediaries. The risk of
loss through governmental confiscation may be increased in such countries.
FOREIGN CURRENCIES
Investment in foreign securities usually will involve currencies of
foreign countries. Moreover, the Fund may temporarily hold funds in bank
deposits in foreign currencies during the completion of investment programs and
may purchase forward foreign currency contracts. Because of these factors, the
value of the assets of the Fund as measured in U.S. dollars may be affected
favorably or unfavorably by changes in foreign currency exchange rates and
exchange control regulations, and the Fund may incur costs in connection with
conversions between various currencies. Although the Fund's custodian values the
Fund's assets daily in terms of U.S. dollars, the Fund does not intend to
convert its holdings of foreign currencies into U.S. dollars on a daily basis.
The Fund will do so from time to time, however, and investors should be aware of
the costs of currency conversion. Although foreign exchange dealers do not
charge a fee for conversion, they do realize a profit based on the difference
(the "spread") between the prices at which they are buying and selling various
currencies. Thus, a dealer may offer to sell a foreign currency to the Fund at
one rate, while offering a lesser rate of exchange should the Fund desire to
resell that currency to the dealer. The Fund will conduct its foreign currency
exchange transactions either on a spot (i.e., cash) basis at the spot rate
prevailing in the foreign currency exchange market, or through entering into
forward contracts to purchase or sell foreign currencies.
Because the Fund normally will be invested in both U.S. and foreign
securities markets, changes in the Fund's share price may have a low correlation
with movements in U.S. markets. The Fund's share price will reflect the
movements of the different stock and bond markets in which it is invested (both
U.S. and foreign), and of the currencies in which the investments are
denominated. Thus, the strength or weakness of the U.S. dollar against foreign
currencies may account for part of the Fund's investment performance. U.S. and
foreign securities markets do not always move in step with each other, and the
total returns from different markets may vary significantly. In addition,
significant uncertainty surrounds the proposed introduction of the euro (a
common currency for the European Union) in January 1999 and its effect on the
value of securities denominated in local European currencies. These and other
currencies in which the Fund's assets are denominated may be devalued against
the U.S. dollar, resulting in a loss to the Fund.
FOREIGN CURRENCY EXCHANGE TRANSACTIONS
The Fund may enter into forward foreign currency contracts in order to
protect against uncertainty in the level of future foreign exchange rates in the
purchase and sale of securities. A forward contract is an obligation to purchase
or sell a specific currency for an agreed price at a future date (usually less
than a year), and typically is individually negotiated and privately traded by
currency traders and their customers. A forward contract generally has no
deposit requirement, and no commissions are charged at any stage for trades.
Although foreign exchange dealers do not charge a fee for commissions, they do
realize a profit based on the difference between the price at which they are
buying and selling various currencies. Although these contracts are intended to
minimize the risk of loss due to a decline in the value of the hedged
currencies, at the same time, they tend to limit any potential gain which might
result should the value of such currencies increase.
While the Fund may enter into forward contracts to reduce currency
exchange risks, changes in currency exchange rates may result in poorer overall
performance for the Fund than if it had not engaged in such transactions.
Moreover, there may be an imperfect correlation between the Fund's portfolio
holdings of securities denominated in a particular currency and forward
contracts entered into by the Fund. An imperfect correlation of this type may
prevent the Fund from achieving the intended hedge or expose the Fund to the
risk of currency exchange loss.
The Fund may purchase currency forwards and combine such purchases with
sufficient cash or short-term securities to create unleveraged substitutes for
investments in foreign markets when deemed advantageous. The Fund may also
combine the foregoing with bond futures or interest rate futures contracts to
create the economic equivalent of an unhedged foreign bond position.
The Fund may also cross-hedge currencies by entering into transactions
to purchase or sell one or more currencies that are expected to decline in value
relative to other currencies to which the Fund has or in which the Fund expects
to have portfolio exposure.
Currency transactions are subject to risks different from those of
other portfolio transactions. Because currency control is of great importance to
the issuing governments and influences economic planning and policy, purchases
and sales of currency and related instruments can be negatively affected by
government exchange controls, blockages, and manipulations or exchange
restrictions imposed by governments. These can result in losses to the Fund if
it is unable to deliver or receive currency or funds in settlement of
obligations and could also cause hedges it has entered into to be rendered
useless, resulting in full currency exposure as well as incurring transactions
costs. Buyers and sellers of currency futures are subject to the same risks that
apply to the use of futures generally. Further, settlement of a currency futures
contract for the purchase of most currencies must occur at a bank based in the
issuing nation. Trading options on currency futures is relatively new, and the
ability to establish and close out positions on such options is subject to the
maintenance of a liquid market which may not always be available. Currency
exchange rates may fluctuate based on factors extrinsic to that country's
economy.
REPURCHASE AGREEMENTS
Repurchase agreements are contracts under which the Fund buys a money
market instrument and obtains a simultaneous commitment from the seller to
repurchase the instrument at a specified time and at an agreed-upon yield. Under
guidelines approved by the Board, the Fund is permitted to enter into repurchase
agreements only if the repurchase agreements are at least fully collateralized
with U.S. Government securities or other securities that IMI has approved for
use as collateral for repurchase agreements and the collateral must be
marked-to-market daily. The Fund will enter into repurchase agreements only with
banks and broker-dealers deemed to be creditworthy by IMI under the
above-referenced guidelines. In the unlikely event of failure of the executing
bank or broker-dealer, the Fund could experience some delay in obtaining direct
ownership of the underlying collateral and might incur a loss if the value of
the security should decline, as well as costs in disposing of the security.
BANKING INDUSTRY AND SAVINGS AND LOAN OBLIGATIONS
Certificates of deposit are negotiable certificates issued against
funds deposited in a commercial bank for a definite period of time and earning a
specified return. Bankers' acceptances are negotiable drafts or bills of
exchange, normally drawn by an importer or exporter to pay for specific
merchandise, which are "accepted" by a bank (meaning, in effect, that the bank
unconditionally agrees to pay the face value of the instrument at maturity). In
addition to investing in certificates of deposit and bankers' acceptances, the
Fund may invest in time deposits in banks or savings and loan associations. Time
deposits are generally similar to certificates of deposit, but are
uncertificated. The Fund's investments in certificates of deposit, time
deposits, and bankers' acceptance are limited to obligations of (i) banks having
total assets in excess of $1 billion, (ii) U.S. banks which do not meet the $1
billion asset requirement, if the principal amount of such obligation is fully
insured by the Federal Deposit Insurance Corporation (the "FDIC"), (iii) savings
and loan association which have total assets in excess of $1 billion and which
are members of the FDIC, and (iv) foreign banks if the obligation is, in IMI's
opinion, of an investment quality comparable to other debt securities which may
be purchased by the Fund. The Fund's investments in certificates of deposit of
savings associations are limited to obligations of Federal and state-chartered
institutions whose total assets exceed $1 billion and whose deposits are insured
by the FDIC.
COMMERCIAL PAPER
Commercial paper represents short-term unsecured promissory notes
issued in bearer form by bank holding companies, corporations and finance
companies. The Fund may invest in commercial paper that is rated Prime-1 by
Moody's Investors Service, Inc. ("Moody's") or A-1 by Standard & Poor's
Corporation ("S&P") or, if not rated by Moody's or S&P, is issued by companies
having an outstanding debt issue rated Aaa or Aa by Moody's or AAA or AA by S&P.
BORROWING
Borrowing may exaggerate the effect on the Fund's net asset value of
any increase or decrease in the value of the Fund's portfolio securities. Money
borrowed will be subject to interest costs (which may include commitment fees
and/or the cost of maintaining minimum average balances). Although the principal
of the Fund's borrowings will be fixed, the Fund's assets may change in value
during the time a borrowing is outstanding, thus increasing exposure to capital
risk.
WARRANTS
The holder of a warrant has the right, until the warrant expires, to
purchase a given number of shares of a particular issuer at a specified price.
Such investments can provide a greater potential for profit or loss than an
equivalent investment in the underlying security. However, prices of warrants do
not necessarily move in a tandem with the prices of the underlying securities,
and are, therefore, considered speculative investments. Warrants pay no
dividends and confer no rights other than a purchase option. Thus, if a warrant
held by the Fund were not exercised by the date of its expiration, the Fund
would lose the entire purchase price of the warrant.
OPTIONS TRANSACTIONS
IN GENERAL. A call option is a short-term contract (having a duration
of less than one year) pursuant to which the purchaser, in return for the
premium paid, has the right to buy the security underlying the option at the
specified exercise price at any time during the term of the option. The writer
of the call option, who receives the premium, has the obligation, upon exercise
of the option, to deliver the underlying security against payment of the
exercise price. A put option is a similar contract pursuant to which the
purchaser, in return for the premium paid, has the right to sell the security
underlying the option at the specified exercise price at any time during the
term of the option. The writer of the put option, who receives the premium, has
the obligation, upon exercise of the option, to buy the underlying security at
the exercise price. The premium paid by the purchaser of an option will reflect,
among other things, the relationship of the exercise price to the market price
and volatility of the underlying security, the time remaining to expiration of
the option, supply and demand, and interest rates.
If the writer of an option wishes to terminate the obligation, the
writer may effect a "closing purchase transaction." This is accomplished by
buying an option of the same series as the option previously written. The effect
of the purchase is that the writer's position will be canceled by the Options
Clearing Corporation. However, a writer may not effect a closing purchase
transaction after it has been notified of the exercise of an option. Likewise,
an investor who is the holder of an option may liquidate his or her position by
effecting a "closing sale transaction." This is accomplished by selling an
option of the same series as the option previously purchased. There is no
guarantee that either a closing purchase or a closing sale transaction can be
effected at any particular time or at any acceptable price. If any call or put
option is not exercised or sold, it will become worthless on its expiration
date.
The Fund will realize a gain (or a loss) on a closing purchase
transaction with respect to a call or a put previously written by the Fund if
the premium, plus commission costs, paid by the Fund to purchase the call or the
put is less (or greater) than the premium, less commission costs, received by
the Fund on the sale of the call or the put. A gain also will be realized if a
call or a put that the Fund has written lapses unexercised, because the Fund
would retain the premium. Any such gains (or losses) are considered short-term
capital gains (or losses) for Federal income tax purposes. Net short-term
capital gains, when distributed by the Fund, are taxable as ordinary income. See
"Taxation."
The Fund will realize a gain (or a loss) on a closing sale transaction
with respect to a call or a put previously purchased by the Fund if the premium,
less commission costs, received by the Fund on the sale of the call or the put
is greater (or less) than the premium, plus commission costs, paid by the Fund
to purchase the call or the put. If a put or a call expires unexercised, it will
become worthless on the expiration date, and the Fund will realize a loss in the
amount of the premium paid, plus commission costs. Any such gain or loss will be
long-term or short-term gain or loss, depending upon the Fund's holding period
for the option.
Exchange-traded options generally have standardized terms and are
issued by a regulated clearing organization (such as the Options Clearing
Corporation), which, in effect, guarantees the completion of every
exchange-traded option transaction. In contrast, the terms of OTC options are
negotiated by the Fund and its counterparty (usually a securities dealer or a
financial institution) with no clearing organization guarantee. When the Fund
purchases an OTC option, it relies on the party from whom it has purchased the
option (the "counterparty") to make delivery of the instrument underlying the
option. If the counterparty fails to do so, the Fund will lose any premium paid
for the option, as well as any expected benefit of the transaction. Accordingly,
IMI will assess the creditworthiness of each counterparty to determine the
likelihood that the terms of the OTC option will be satisfied.
WRITING OPTIONS ON INDIVIDUAL SECURITIES. The Fund may write (sell)
covered call options on the Fund's securities in an attempt to realize a greater
current return than would be realized on the securities alone. The Fund may also
write covered call options to hedge a possible stock or bond market decline
(only to the extent of the premium paid to the Fund for the options). In view of
the investment objectives of the Fund, the Fund generally would write call
options only in circumstances where the investment adviser to the Fund does not
anticipate significant appreciation of the underlying security in the near
future or has otherwise determined to dispose of the security.
A "covered" call option means generally that so long as the Fund is
obligated as the writer of a call option, the Fund will (i) own the underlying
securities subject to the option, or (ii) have the right to acquire the
underlying securities through immediate conversion or exchange of convertible
preferred stocks or convertible debt securities owned by the Fund. Although the
Fund receives premium income from these activities, any appreciation realized on
an underlying security will be limited by the terms of the call option. The Fund
may purchase call options on individual securities only to effect a "closing
purchase transaction."
As the writer of a call option, the Fund receives a premium for
undertaking the obligation to sell the underlying security at a fixed price
during the option period, if the option is exercised. So long as the Fund
remains obligated as a writer of a call option, it forgoes the opportunity to
profit from increases in the market price of the underlying security above the
exercise price of the option, except insofar as the premium represents such a
profit (and retains the risk of loss should the value of the underlying security
decline).
PURCHASING OPTIONS ON INDIVIDUAL SECURITIES. The Fund may purchase a
put option on an underlying security owned by the Fund as a defensive technique
in order to protect against an anticipated decline in the value of the security.
The Fund, as the holder of the put option, may sell the underlying security at
the exercise price regardless of any decline in its market price. In order for a
put option to be profitable, the market price of the underlying security must
decline sufficiently below the exercise price to cover the premium and
transaction costs that the Fund must pay. These costs will reduce any profit the
Fund might have realized had it sold the underlying security instead of buying
the put option. The premium paid for the put option would reduce any capital
gain otherwise available for distribution when the security is eventually sold.
The purchase of put options will not be used by the Fund for leverage purposes.
The Fund may also purchase a put option on an underlying security that
it owns and at the same time write a call option on the same security with the
same exercise price and expiration date. Depending on whether the underlying
security appreciates or depreciates in value, the Fund would sell the underlying
security for the exercise price either upon exercise of the call option written
by it or by exercising the put option held by it. The Fund would enter into such
transactions in order to profit from the difference between the premium received
by the Fund for the writing of the call option and the premium paid by the Fund
for the purchase of the put option, thereby increasing the Fund's current
return. The Fund may write (sell) put options on individual securities only to
effect a "closing sale transaction."
PURCHASING AND WRITING OPTIONS ON SECURITIES INDICES. The Fund may
purchase and sell (write) put and call options on securities indices. An index
assigns relative values to the securities included in the index and the index
fluctuates with changes in the market values of the securities so included.
Options on indices are similar to options on individual securities, except that,
rather than giving the purchaser the right to take delivery of an individual
security at a specified price, they give the purchaser the right to receive
cash. The amount of cash is equal to the difference between the closing price of
the index and the exercise price of the option, expressed in dollars, times a
specified multiple (the "multiplier"). The writer of the option is obligated, in
return for the premium received, to make delivery of this amount.
The multiplier for an index option performs a function similar to the
unit of trading for a stock option. It determines the total dollar value per
contract of each point in the difference between the exercise price of an option
and the current level of the underlying index. A multiplier of 100 means that a
one-point difference will yield $100. Options on different indices have
different multipliers.
When the Fund writes a call or put option on a stock index, the option
is "covered", in the case of a call, or "secured", in the case of a put, if the
Fund maintains in a segregated account with the Custodian cash or liquid
securities equal to the contract value. A call option is also covered if the
Fund holds a call on the same index as the call written where the exercise price
of the call held is (i) equal to or less than the exercise price of the call
written or (ii) greater than the exercise price of the call written, provided
that the Fund maintains in a segregated account with the Custodian the
difference in cash or liquid securities. A put option is also "secured" if the
Fund holds a put on the same index as the put written where the exercise price
of the put held is (i) equal to or greater than the exercise price of the put
written or (ii) less than the exercise price of the put written, provided that
the Fund maintains in a segregated account with the Custodian the difference in
cash or liquid securities.
RISKS OF OPTIONS TRANSACTIONS. The purchase and writing of options
involves certain risks. During the option period, the covered call writer has,
in return for the premium on the option, given up the opportunity to profit from
a price increase in the underlying securities above the exercise price, but, as
long as its obligation as a writer continues, has retained the risk of loss
should the price of the underlying security decline. The writer of a U.S. option
has no control over the time when it may be required to fulfill its obligation
as a writer of the option. Once an option writer has received an exercise
notice, it cannot effect a closing purchase transaction in order to terminate
its obligation under the option and must deliver the underlying securities (or
cash in the case of an index option) at the exercise price. If a put or call
option purchased by the Fund is not sold when it has remaining value, and if the
market price of the underlying security (or index), in the case of a put,
remains equal to or greater than the exercise price or, in the case of a call,
remains less than or equal to the exercise price, the Fund will lose its entire
investment in the option. Also, where a put or call option on a particular
security (or index) is purchased to hedge against price movements in a related
security (or securities), the price of the put or call option may move more or
less than the price of the related security (or securities). In this regard,
there are differences between the securities and options markets that could
result in an imperfect correlation between these markets, causing a given
transaction not to achieve its objective.
There can be no assurance that a liquid market will exist when the Fund
seeks to close out an option position. Furthermore, if trading restrictions or
suspensions are imposed on the options markets, the Fund may be unable to close
out a position. Finally, trading could be interrupted, for example, because of
supply and demand imbalances arising from a lack of either buyers or sellers, or
the options exchange could suspend trading after the price has risen or fallen
more than the maximum amount specified by the exchange. Closing transactions can
be made for OTC options only by negotiating directly with the counterparty or by
a transaction in the secondary market, if any such market exists. There is no
assurance that the Fund will be able to close out an OTC option position at a
favorable price prior to its expiration. In the event of insolvency of the
counterparty, the Fund might be unable to close out an OTC option position at
any time prior to its expiration. Although the Fund may be able to offset to
some extent any adverse effects of being unable to liquidate an option position,
the Fund may experience losses in some cases as a result of such inability.
When conducted outside the U.S., options transactions may not be
regulated as rigorously as in the U.S., may not involve a clearing mechanism and
related guarantees, and are subject to the risk of governmental actions
affecting trading in, or the prices of, foreign securities, currencies and other
instruments. The value of such positions also could be adversely affected by:
(i) other complex foreign political, legal and economic factors, (ii) lesser
availability than in the U.S. of data on which to make trading decisions, (iii)
delays in the Fund's ability to act upon economic events occurring in foreign
markets during non-business hours in the U.S., (iv) the imposition of different
exercise and settlement terms and procedures and margin requirements than in the
U.S., and (v) lower trading volume and liquidity.
The Fund's options activities also may have an impact upon the level of
its portfolio turnover and brokerage commissions.
See "Portfolio Turnover."
The Fund's success in using options techniques depends, among other
things, on IMI's ability to predict accurately the direction and volatility of
price movements in the options and securities markets, and to select the proper
type, time and duration of options.
FUTURES CONTRACTS AND OPTIONS ON FUTURES CONTRACTS
IN GENERAL. The Fund may enter into futures contracts and options on
futures contracts for hedging purposes. A futures contract provides for the
future sale by one party and purchase by another party of a specified quantity
of a commodity at a specified price and time. When a purchase or sale of a
futures contract is made by the Fund, the Fund is required to deposit with its
custodian (or broker, if legally permitted) a specified amount of cash or liquid
securities ("initial margin"). The margin required for a futures contract is set
by the exchange on which the contract is traded and may be modified during the
term of the contract. The initial margin is in the nature of a performance bond
or good faith deposit on the futures contract which is returned to the Fund upon
termination of the contract, assuming all contractual obligations have been
satisfied. A futures contract held by the Fund is valued daily at the official
settlement price of the exchange on which it is traded. Each day the Fund pays
or receives cash, called "variation margin," equal to the daily change in value
of the futures contract. This process is known as "marking to market." Variation
margin does not represent a borrowing or loan by the Fund but is instead a
settlement between the Fund and the broker of the amount one would owe the other
if the futures contract expired. In computing daily net asset value, the Fund
will mark-to-market its open futures position.
The Fund is also required to deposit and maintain margin with respect
to put and call options on futures contracts written by it. Such margin deposits
will vary depending on the nature of the underlying futures contract (and the
related initial margin requirements), the current market value of the option,
and other futures positions held by the Fund.
Although some futures contracts call for making or taking delivery of
the underlying securities, generally these obligations are closed out prior to
delivery of offsetting purchases or sales of matching futures contracts (same
exchange, underlying security or index, and delivery month). If an offsetting
purchase price is less than the original sale price, the Fund generally realizes
a capital gain, or if it is more, the Fund generally realizes a capital loss.
Conversely, if an offsetting sale price is more than the original purchase
price, the Fund generally realizes a capital gain, or if it is less, the Fund
generally realizes a capital loss.
The transaction costs must also be included in these calculations.
When purchasing a futures contract, the Fund will maintain with its
Custodian (and mark-to-market on a daily basis) cash or liquid securities that,
when added to the amounts deposited with a futures commission merchant ("FCM")
as margin, are equal to the market value of the futures contract. Alternatively,
the Fund may "cover" its position by purchasing a put option on the same futures
contract with a strike price as high as or higher than the price of the contract
held by the Fund, or, if lower, may cover the difference with cash or short-term
securities.
When selling a futures contract, the Fund will maintain with its
Custodian in a segregated account (and mark-to-market on a daily basis) cash or
liquid securities that, when added to the amounts deposited with an FCM as
margin, are equal to the market value of the instruments underlying the
contract. Alternatively, the Fund may "cover" its position by owning the
instruments underlying the contract (or, in the case of an index futures
contract, a portfolio with a volatility substantially similar to that of the
index on which the futures contract is based), or by holding a call option
permitting the Fund to purchase the same futures contract at a price no higher
than the price of the contract written by the Fund (or at a higher price if the
difference is maintained in liquid assets with the Fund's custodian).
When selling a call option on a futures contract, the Fund will
maintain with its Custodian in a segregated account (and mark-to-market on a
daily basis) cash or liquid securities that, when added to the amounts deposited
with an FCM as margin, equal the total market value of the futures contract
underlying the call option. Alternatively, the Fund may cover its position by
entering into a long position in the same futures contract at a price no higher
than the strike price of the call option, by owning the instruments underlying
the futures contract, or by holding a separate call option permitting the Fund
to purchase the same futures contract at a price not higher than the strike
price of the call option sold by the Fund, or covering the difference if the
price is higher.
When selling a put option on a futures contract, the Fund will maintain
with its Custodian (and mark-to-market on a daily basis) cash or liquid
securities that equal the purchase price of the futures contract less any margin
on deposit. Alternatively, the Fund may cover the position either by entering
into a short position in the same futures contract, or by owning a separate put
option permitting it to sell the same futures contract so long as the strike
price of the purchased put option is the same or higher than the strike price of
the put option sold by the Fund, or, if lower, the Fund may hold securities to
cover the difference.
RISKS ASSOCIATED WITH FUTURES AND RELATED OPTIONS. There can be no
guarantee that there will be a correlation between price movements in the
hedging vehicle and in the Fund's portfolio securities being hedged. In
addition, there are significant differences between the securities and futures
markets that could result in an imperfect correlation between the markets,
causing a given hedge not to achieve its objectives. The degree of imperfection
of correlation depends on circumstances such as variations in speculative market
demand for futures and futures options on securities, including technical
influences in futures trading and futures options, and differences between the
financial instruments being hedged and the instruments underlying the standard
contracts available for trading in such respects as interest rate levels,
maturities, and creditworthiness of issuers. A decision as to whether, when and
how to hedge involves the exercise of skill and judgment, and even a
well-conceived hedge may be unsuccessful to some degree because of market
behavior or unexpected interest rate trends.
Futures exchanges may limit the amount of fluctuation permitted in
certain futures contract prices during a single trading day. The daily limit
establishes the maximum amount that the price of a futures contract may vary
either up or down from the previous day's settlement price at the end of the
current trading session. Once the daily limit has been reached in a futures
contract subject to the limit, no more trades may be made on that day at a price
beyond that limit. The daily limit governs only price movements during a
particular trading day and therefore does not limit potential losses because the
limit may work to prevent the liquidation of unfavorable positions. For example,
futures prices have occasionally moved to the daily limit for several
consecutive trading days with little or no trading, thereby preventing prompt
liquidation of positions and subjecting some holders of futures contracts to
substantial losses.
There can be no assurance that a liquid market will exist at a time
when the Fund seeks to close out a futures or a futures option position, and the
Fund would remain obligated to meet margin requirements until the position is
closed. In addition, there can be no assurance that an active secondary market
will continue to exist.
SECURITIES INDEX FUTURES CONTRACTS
The Fund may enter into securities index futures contracts as an
efficient means of regulating the Fund's exposure to the equity markets. The
Fund will not engage in transactions in futures contracts for speculation, but
only as a hedge against changes resulting from market conditions in the values
of securities held in the Fund's portfolio or which it intends to purchase. An
index futures contract is a contract to buy or sell units of an index at a
specified future date at a price agreed upon when the contract is made. Entering
into a contract to buy units of an index is commonly referred to as purchasing a
contract or holding a long position in the index. Entering into a contract to
sell units of an index is commonly referred to as selling a contract or holding
a short position. The value of a unit is the current value of the stock index.
For example, the S&P 500 Index is composed of 500 selected common stocks, most
of which are listed on the New York Stock Exchange (the "Exchange"). The S&P 500
Index assigns relative weightings to the 500 common stocks included in the
Index, and the Index fluctuates with changes in the market values of the shares
of those common stocks. In the case of the S&P 500 Index, contracts are to buy
or sell 500 units. Thus, if the value of the S&P 500 Index were $150, one
contract would be worth $75,000 (500 units x $150). The index futures contract
specifies that no delivery of the actual securities making up the index will
take place. Instead, settlement in cash must occur upon the termination of the
contract, with the settlement being the difference between the contract price
and the actual level of the stock index at the expiration of the contract. For
example, if the Fund enters into a futures contract to buy 500 units of the S&P
500 Index at a specified future date at a contract price of $150 and the S&P 500
Index is at $154 on that future date, the Fund will gain $2,000 (500 units x
gain of $4). If the Fund enters into a futures contract to sell 500 units of the
stock index at a specified future date at a contract price of $150 and the S&P
500 Index is at $154 on that future date, the Fund will lose $2,000 (500 units x
loss of $4).
RISKS OF SECURITIES INDEX FUTURES. The Fund's success in using hedging
techniques depends, among other things, on IMI's ability to predict correctly
the direction and volatility of price movements in the futures and options
markets as well as in the securities markets and to select the proper type, time
and duration of hedges. The skills necessary for successful use of hedges are
different from those used in the selection of individual stocks.
The Fund's ability to hedge effectively all or a portion of its
securities through transactions in index futures (and therefore the extent of
its gain or loss on such transactions) depends on the degree to which price
movements in the underlying index correlate with price movements in the Fund's
securities. Inasmuch as such securities will not duplicate the components of an
index, the correlation probably will not be perfect. Consequently, the Fund will
bear the risk that the prices of the securities being hedged will not move in
the same amount as the hedging instrument. This risk will increase as the
composition of the Fund's portfolio diverges from the composition of the hedging
instrument.
Although the Fund intends to establish positions in these instruments
only when there appears to be an active market, there is no assurance that a
liquid market will exist at a time when the Fund seeks to close a particular
option or futures position. Trading could be interrupted, for example, because
of supply and demand imbalances arising from a lack of either buyers or sellers.
In addition, the futures exchanges may suspend trading after the price has risen
or fallen more than the maximum amount specified by the exchange. In some cases,
the Fund may experience losses as a result of its inability to close out a
position, and it may have to liquidate other investments to meet its cash needs.
Although some index futures contracts call for making or taking
delivery of the underlying securities, generally these obligations are closed
out prior to delivery by offsetting purchases or sales of matching futures
contracts (same exchange, underlying security or index, and delivery month). If
an offsetting purchase price is less than the original sale price, the Fund
generally realizes a capital gain, or if it is more, the Fund generally realizes
a capital loss. Conversely, if an offsetting sale price is more than the
original purchase price, the Fund generally realizes a capital gain, or if it is
less, the Fund generally realizes a capital loss. The transaction costs must
also be included in these calculations.
The Fund will only enter into index futures contracts or futures
options that are standardized and traded on a U.S. or foreign exchange or board
of trade, or similar entity, or quoted on an automated quotation system. The
Fund will use futures contracts and related options only for "bona fide hedging"
purposes, as such term is defined in applicable regulations of the CFTC.
When purchasing an index futures contract, the Fund will maintain with
its Custodian (and mark-to-market on a daily basis) cash or liquid securities
that, when added to the amounts deposited with a futures commission merchant
("FCM") as margin, are equal to the market value of the futures contract.
Alternatively, the Fund may "cover" its position by purchasing a put option on
the same futures contract with a strike price as high as or higher than the
price of the contract held by the Fund.
When selling an index futures contract, the Fund will maintain with its
Custodian (and mark-to-market on a daily basis) cash or liquid securities that,
when added to the amounts deposited with an FCM as margin, are equal to the
market value of the instruments underlying the contract. Alternatively, the Fund
may "cover" its position by owning the instruments underlying the contract (or,
in the case of an index futures contract, a portfolio with a volatility
substantially similar to that of the index on which the futures contract is
based), or by holding a call option permitting the Fund to purchase the same
futures contract at a price no higher than the price of the contract written by
the Fund (or at a higher price if the difference is maintained in cash or liquid
assets in a segregated account with the Fund's custodian).
COMBINED TRANSACTIONS. The Fund may enter into multiple transactions,
including multiple options transactions, multiple futures transactions and
multiple currency transactions (including forward currency contracts) and some
combination of futures, options and currency transactions ("component"
transactions), instead of a single transaction, as part of a single or combined
strategy when, in the opinion of IMI, it is in the best interests of the Fund to
do so. A combined transaction will usually contain elements of risk that are
present in each of its component transactions. Although combined transactions
are normally entered into based on IMI's judgment that the combined strategies
will reduce risk or otherwise more effectively achieve the desired portfolio
management goal, it is possible that the combination will instead increase such
risks or hinder achievement of the management objective.
INVESTMENT RESTRICTIONS
The Fund's investment objectives as set forth in the "Summary" section
of the Prospectus, together with the investment restrictions set forth below,
are fundamental policies of the Fund and may not be changed without the approval
of a majority of the outstanding voting shares of the Fund. Under these
restrictions, the Fund may not:
(i) purchase or sell real estate or commodities and commodity contracts;
(ii) purchase securities on margin;
(iii) sell securities short;
(iv) participate in an underwriting or selling group in
connection with the public distribution of securities
except for its own capital stock;
(v) purchase from or sell to any of its officers or trustees,
or firms of which any of them are members or which they
control, any securities (other than capital stock of the
Fund), but such persons or firms may act as brokers for
the Fund for customary commissions to the extent permitted
by the Investment Company Act of 1940;
(vi) make an investment in securities of companies in any one
industry (except obligations of domestic banks or the U.S.
Government, its agencies, authorities, or
instrumentalities) if such investment would cause
investments in such industry to exceed 25% of the market
value of the Fund's total assets at the time of such
investment;
(vii) issue senior securities, except as appropriate to evidence
indebtedness which it is permitted to incur, and except to
the extent that shares of the separate classes or series
of the Trust may be deemed to be senior securities;
provided that collateral arrangements with respect to
currency-related contracts, futures contracts, options or
other permitted investments, including deposits of initial
and variation margin, are not considered to be the
issuance of senior securities for purposes of this
restriction;
(viii) purchase securities of any one issuer (except U.S.
Government securities) if as a result more than 5% of the
Fund's total assets would be invested in such issuer or
the Fund would own or hold more than 10% of the
outstanding voting securities of that issuer; provided,
however, that up to 25% of the value of the Fund's total
assets may be invested without regard to these
limitations;
(ix) lend any funds or other assets, except that this
restriction shall not prohibit (a) the entry into
repurchase agreement or (b) the purchase of publicly
distributed bonds, debentures and other securities of a
similar type, or privately placed municipal or corporate
bonds, debentures and other securities of a type
customarily purchased by institutional investors or
publicly traded in the securities markets; or
(x) borrow money, except for temporary purposes where
investment transactions might advantageously require it.
Any such loan may not be for a period in excess of 60
days, and the aggregate amount of all outstanding loans
may not at any time exceed 10% of the value of the total
assets of the Fund at the time any such loan is made.
Under the 1940 Act, the Fund is permitted, subject to its investment
restrictions, to borrow money only from banks. The Trust has no current
intention of borrowing amounts in excess of 5% of the Fund's assets. The Fund
will continue to interpret fundamental investment restriction (i) above to
prohibit investment in real estate limited partnership interests; this
restriction shall not, however, prohibit investment in readily marketable
securities of companies that invest in real estate or interests therein,
including REITs.
ADDITIONAL RESTRICTIONS
The Fund has adopted the following additional restrictions, which are
not fundamental and which may be changed without shareholder approval, to the
extent permitted by applicable law, regulation or regulatory policy. Under these
restrictions, the Fund may not:
(i) purchase any security if, as a result, the Fund would then
have more than 5% of its total assets (taken at current
value) invested in securities of companies (including
predecessors) less than three years old;
(ii) invest in oil, gas or other mineral leases or exploration or development
programs;
(iii) engage in the purchase and sale of puts, calls, straddles
or spreads (except to the extent described in the
Prospectus and in this SAI);
(iv) invest in companies for the purpose of exercising control of management
; or
(v) invest more than 5% of its total assets in warrants,
valued at the lower of cost or market, or more than 2% of
its total assets in warrants, so valued, which are not
listed on either the New York or American Stock Exchanges;
(vi) purchase or retain securities of any company if officers
and Trustees of the Trust and officers and directors of
Ivy Management, Inc. (the Manager, with respect to Ivy
Bond Fund), MIMI or Mackenzie Financial Corporation who
individually own more than 1/2 of 1% of the securities of
that company together own beneficially more than 5% of
such securities;
(vii) invest more than 15% of its net assets taken at market value
at the time of investment in "illiquid securities." Illiquid
securities may include securities subject to legal or
contractual restrictions on resale (including private
placements), repurchase agreements maturing in more than
seven days, certain options traded over the counter that the
Fund has purchased, securities being used to cover certain
options that a fund has written, securities for which market
quotations are not readily available, or other securities
which legally or in IMI's opinion, subject to the Board's
supervision, may be deemed illiquid, but shall not include
any instrument that, due to the existence of a trading
market, to the Fund's compliance with certain conditions
intended to provide liquidity, or to other factors, is
liquid; or
(viii) purchase securities of other investment companies, except
in connection with a merger, consolidation or sale of
assets, and except that it may purchase shares of other
investment companies subject to such restrictions as may
be imposed by the 1940 Act and rules thereunder or by any
state in which its shares are registered.
Whenever an investment objective, policy or restriction set forth in
the Prospectus or this SAI states a maximum percentage of assets that may be
invested in any security or other asset or describes a policy regarding quality
standards, such percentage limitation or standard shall, unless otherwise
indicated, apply to the Fund only at the time a transaction is entered into.
Accordingly, if a percentage limitation is adhered to at the time of investment,
a later increase or decrease in the percentage which results from circumstances
not involving any affirmative action by the Fund, such as a change in market
conditions or a change in the Fund's asset level or other circumstances beyond
the Fund's control, will not be considered a violation.
PORTFOLIO TURNOVER
The Fund purchases securities that are believed by IMI to have above
average potential for capital appreciation. Common stocks are disposed of in
situations where it is believed that potential for such appreciation has
lessened or that other common stocks have a greater potential. Therefore, the
Fund may purchase and sell securities without regard to the length of time the
security is to be, or has been, held. A change in securities held by the Fund is
known as "portfolio turnover" and may involve the payment by the Fund of dealer
markup or underwriting commission and other transaction costs on the sale of
securities, as well as on the reinvestment of the proceeds in other securities.
The Fund's portfolio turnover rate is calculated by dividing the lesser of
purchases or sales of portfolio securities for the most recently completed
fiscal year by the monthly average of the value of the portfolio securities
owned by the Fund during that year. For purposes of determining the Fund's
portfolio turnover rate, all securities whose maturities at the time of
acquisition were one year or less are excluded.
TRUSTEES AND OFFICERS
The Fund's Board of Trustees (the "Board") is responsible for the
overall management of the Fund, including general supervision and review of the
Fund's investment activities. The Board, in turn, elects the officers who are
responsible for administering the Fund's day-to-day operations.
The Trustees and Executive Officers of the Trust, their business
addresses and principal occupations during the past five years are:
POSITION WITH BUSINESS AFFILIATIONS
NAME, ADDRESS, AGE THE TRUST AND PRINCIPAL OCCUPATIONS
John S. Anderegg, Jr. Trustee Chairman, Dynamics Research
60 Concord Street Corp. (instruments and controls);
Wilmington, MA 01887 Director, Burr-Brown Corp.
Age: 74 (operational amplifiers); Director,
Metritage Incorporated (level
measuring instruments); Trustee of
Mackenzie Series Trust (1992-1998).
Paul H. Broyhill Trustee Chairman, BMC Fund, Inc.
800 Hickory Blvd. (1983-present); Chairman,
Golfview Park-Box 500 Broyhill Family Foundation,
Lenoir, NC 28645 Inc. (1983-Present); Chairman and
Age: 74 President, Broyhill Investments,
Inc. (1983-present); Chairman,
Broyhill Timber Resources (1983-
present); Management of a personal
portfolio of fixed-income and equity
investments (1983-present); Trustee
of Mackenzie Series Trust (1988-
1998); Director of The Mackenzie
Funds Inc. (1988-1995).
Stanley Channick Trustee President and Chief
11 Bala Avenue Executive Officer, The
Bala Cynwyd, PA 19004 Whitestone Corporation
Age: 75 (insurance agency); Chairman, Scott
Management Company (administrative
services for insurance companies);
President, The Channick Group
(consultants to insurance companies
and national trade associations);
Trustee of Mackenzie Series Trust
(1994-1998); Director of The
Mackenzie Funds Inc. (1994-1995).
Frank W. DeFriece, Jr. Trustee Director, Manager and Vice
The Landmark Centre President, Director and
113 Landmark Lane, Fund Manager, Massengill-
Suite B DeFriece Foundation
Bristol, TN 37620-2285 (charitable organization)
Age: 77 (1950-present); Trustee and Vice
Chairman, East Tennessee Public
Communications Corp. (WSJK-TV)
(1984-present); Trustee of Mackenzie
Series Trust (1985-1998); Director
of The Mackenzie Funds Inc. (1987-
1995).
Roy J. Glauber Trustee Mallinckrodt Professor of
Lyman Laboratory Physics, Harvard
of Physics University (1974-present);
Harvard University Trustee of Mackenzie Series
Cambridge, MA 02138 Trust (1994-1997).
Age: 72
Michael G. Landry Trustee President, Chief Executive
700 South Federal Hwy. And Officer and Director of
Suite 300 Chairman Mackenzie Investment
Boca Raton, FL 33432 Management Inc. (1987-
Age: 51 present); President,
[*Deemed to be an Director and Chairman of
"interested person" Ivy Management Inc. (1992-
of the Trust, as present); Chairman and
defined under the Director of Ivy Mackenzie
1940 Act.] Services Corp.(1993-present);
Chairman and Director of Ivy
Mackenzie Distributors, Inc.
(1994-present); Director and
President of Ivy Mackenzie
Distributors, Inc. (1993-1994);
Director and President of The
Mackenzie Funds Inc. (1987-1995);
Trustee of Mackenzie Series Trust
(1987-1998); President of Mackenzie
Series Trust (1987-1996); Chairman
of Mackenzie Series Trust (1996-
1998).
Joseph G. Rosenthal Trustee Chartered Accountant
110 Jardin Drive (1958-present); Trustee of
Unit #12 Mackenzie Series Trust
Concord, Ontario Canada (1985-1998); Director of
L4K 2T7 The Mackenzie Funds Inc.
Age: 63 (1987-1995).
Richard N. Silverman Trustee Director, Newton-Wellesley
18 Bonnybrook Road Hospital; Director, Beth
Waban, MA 02168 Israel Hospital; Director,
Age: 74 Boston Ballet; Director, Boston
Children's Museum; Director, Brimmer
and May School.
J. Brendan Swan Trustee President, Airspray
4701 North Federal Hwy. International, Inc.;
Suite 465 Joint Managing Director,
Pompano Beach, FL 33064 Airspray International
Age: 67 B.V. (an environmentally sensitive
packaging company); Director of
Polyglass LTD.; Director, The
Mackenzie Funds Inc. (1992-1995);
Trustee of Mackenzie Series Trust
(1992-1998).
Keith J. Carlson Trustee Senior Vice President of Mackenzie
700 South Federal Hwy. And Investment Management, Inc. (1996 -
Suite 300 President -present); Senior Vice President and
Boca Raton, FL 33432 Director of Mackenzie Investment
Age: 41 Management, Inc. (1994 - 1996);
[*Deemed to be an Senior Vice President and Treasurer
"interested person" of Mackenzie Investment Management,
of the Trust, Inc. (1989-1994); Senior Vice President
as defined under President and Director of Ivy
the 1940 Act.] Management Inc. (1994-present);
Senior Vice President, Treasurer and
Director of Ivy Management Inc.
(1992-1994); Vice President of The
Mackenzie Funds Inc. (1987-1995);
Senior Vice President and Director,
Ivy Mackenzie Services Corp. (1996-
present); President and Director of
Ivy Mackenzie Services Corp. (1993-
1996); Trustee and President of
Mackenzie Series Trust (1996-1998);
Vice President of Mackenzie Series
Trust (1994-1998); Treasurer of
Mackenzie Series Trust (1985-1994);
President, Chief Executive Officer
and Director of Ivy Mackenzie
Distributors, Inc. (1994-present);
Executive Vice President and
Director of Ivy Mackenzie
Distributors, Inc. (1993-1994);
Trustee of Mackenzie Series Trust
(1996-1998).
C. William Ferris Secretary/ Senior Vice President,
700 South Federal Hwy. Treasurer Chief Financial Officer
Suite 300 and Secretary/Treasurer
Boca Raton, FL 33432 of Mackenzie Investment
Age: 53 Management Inc. (1995-present);
Senior Vice President, Finance and
Administration/Compliance Officer of
Mackenzie Investment Management Inc.
(1989-1994); Senior Vice President,
Secretary/ Treasurer and Clerk of
Ivy Management Inc. (1994-present);
Vice President, Finance/
Administration and Compliance
Officer of Ivy Management Inc.
(1992-1994); Senior Vice President,
Secretary/Treasurer and Director of
Ivy Mackenzie Distributors, Inc.
(1994-present); Secretary/Treasurer
and Director of Ivy Mackenzie
Distributors, Inc. (1993-1994);
President and Director of Ivy
Mackenzie Services Corp.
(1996-present); Secretary/Treasurer
and Director of Ivy Mackenzie
Services Corp. (1993-1996);
Secretary/Treasurer
of The Mackenzie Funds Inc.
(1993-1995); Secretary/Treasurer of
Mackenzie Series Trust (1994-1998).
James W. Broadfoot Vice Executive Vice President,
700 South Federal Hwy. President Ivy Management Inc. (1996-
Suite 300 present); Senior Vice
Boca Raton, FL 33432 President, Ivy Management,
Age: 56 Inc. (1992-1996); Director and
Senior Vice President, Mackenzie
Investment Management Inc. (1995-
present); Senior Vice President,
Mackenzie Investment Management Inc.
(1990-1995).
COMPENSATION TABLE
IVY FUND
(FISCAL YEAR ENDED DECEMBER 31, 1998)
PENSION OR TOTAL COMPENSA-
AGGREGATE RETIREMENT ESTIMATED TION FROM TRUST
NAME, COMPENSATION BENEFITS ACCRUED ANNUAL AND FUND
POSITION FROM TRUST AS PART OF BENEFITS UPON COMPLEX PAID TO
FUND EXPENSES RETIREMENT TRUSTEES
John S. N/A N/A
Anderegg, Jr.
(Trustee)
Paul H. N/A N/A
Broyhill
(Trustee)
Keith J. $0 N/A N/A $0
Carlson
(Trustee and
President)
Stanley N/A N/A
Channick
(Trustee)
Frank W. N/A N/A
DeFriece, Jr.
(Trustee)
Roy J. N/A N/A
Glauber
(Trustee)
Michael G. $0 N/A N/A $0
Landry
(Trustee and
Chairman of
the Board)
Joseph G. N/A N/A
Rosenthal
(Trustee)
Richard N. N/A N/A
Silverman
(Trustee)
J. Brendan N/A N/A
Swan
(Trustee)
C. William $0 N/A N/A $0
Ferris
(Secretary/
Treasurer)
To the knowledge of the Trust, as of [ ], no shareholder owned
beneficially or of record 5% or more of the Fund's outstanding shares of any
class, except that [to be completed by amendment].
As of [ ], the Officers and Trustees of the Trust as a group owned
beneficially or of record less than 1% of the outstanding Class A, Class B,
Class C and Advisor Class shares of the Fund.
PERSONAL INVESTMENTS BY EMPLOYEES OF IMI. Employees of IMI are
permitted to make personal securities transactions, subject to the requirements
and restrictions set forth in IMI's Code of Ethics and Business Conduct Policy
(the "Code of Ethics"). The Code of Ethics is designed to identify and address
certain conflicts of interest between personal investment activities and the
interests of investment advisory clients such as the Fund. Among other things,
the Code of Ethics, which generally complies with standards recommended by the
Investment Company Institute's Advisory Group on Personal Investing, prohibits
certain types of transactions absent prior approval, applies to portfolio
managers, traders, research analysts and others involved in the investment
advisory process, and imposes time periods during which personal transactions
may not be made in certain securities, and requires the submission of duplicate
broker confirmations and monthly reporting of securities transactions.
Exceptions to these and other provisions of the Code of Ethics may be granted in
particular circumstances after review by appropriate personnel.
INVESTMENT ADVISORY AND OTHER SERVICES
BUSINESS MANAGEMENT AND INVESTMENT ADVISORY SERVICES
IMI provides business management and investment advisory services to
the Fund pursuant to a Business Management and Investment Advisory Agreement
(the "Agreement"). The Agreement was approved by the sole shareholder of the
Fund on April 30, 1993. Prior to shareholder approval, the Agreement was
approved with respect to the Fund by the Board, including a majority of the
Trustees who are neither "interested persons" (as defined in the 1940 Act) of
the Trust nor have any direct or indirect financial interest in the operation of
the distribution plan (see "Distribution Services") or in any related agreement
(the "Independent Trustees") at a meeting held on February 19, 1993.
IMI is a wholly owned subsidiary of Mackenzie Investment Management
Inc. ("MIMI"). MIMI, a Delaware corporation, has approximately 10% of its
outstanding common stock listed for trading on the Toronto Stock Exchange
("TSE"). MIMI is a subsidiary of Mackenzie Financial Corporation ("MFC"), 150
Bloor Street West, Toronto, Ontario, Canada, a public corporation organized
under the laws of Ontario whose shares are listed for trading on the TSE. MFC is
registered in Ontario as a mutual fund dealer and advises Ivy Global Natural
Resources Fund. IMI currently acts as manager and investment adviser to the
following additional investment companies registered under the 1940 Act (other
than the Fund): Ivy Asia Pacific Fund, Ivy Bond Fund, Ivy China Region Fund, Ivy
Developing Nations Fund, Ivy European Opportunities Fund, Ivy Global Fund, Ivy
Global Science & Technology Fund, Ivy Growth Fund, Ivy Growth with Income Fund,
Ivy International Fund, Ivy International Fund II, Ivy International Small
Companies Fund, Ivy International Strategic Bond Fund, Ivy Money Market Fund,
Ivy Pan-Europe Fund, Ivy South America Fund and Ivy US Blue Chip Fund. IMI also
provides business management services to Ivy Global Natural Resources Fund.
The Agreement obligates IMI to make investments for the account of the
Fund in accordance with its best judgment and within the investment objectives
and restrictions set forth in the Prospectus, the 1940 Act and the provisions of
the Code relating to regulated investment companies, subject to policy decisions
adopted by the Board. IMI also determines the securities to be purchased or sold
by the Fund and places orders with brokers or dealers who deal in such
securities.
Under the Agreement, IMI also provides certain business management
services. IMI is obligated to (1) coordinate with the Fund's Custodian and
monitor the services it provides to the Fund; (2) coordinate with and monitor
any other third parties furnishing services to the Fund; (3) provide the Fund
with necessary office space, telephones and other communications facilities as
are adequate for the Fund's needs; (4) provide the services of individuals
competent to perform administrative and clerical functions that are not
performed by employees or other agents engaged by the Fund or by IMI acting in
some other capacity pursuant to a separate agreement or arrangements with the
Fund; (5) maintain or supervise the maintenance by third parties of such books
and records of the Trust as may be required by applicable Federal or state law;
(6) authorize and permit IMI's directors, officers and employees who may be
elected or appointed as trustees or officers of the Trust to serve in such
capacities; and (7) take such other action with respect to the Trust, after
approval by the Trust as may be required by applicable law, including without
limitation the rules and regulations of the SEC and of state securities
commissions and other regulatory agencies.
The Fund pays IMI a monthly fee for providing business management and
investment advisory services at an annual rate of 1.00% of the Fund's average
net assets.
During the fiscal years ended December 31, 1996, 1997 and 1998, the
Fund paid IMI fees of $657,579, $973,756 and
[ ], respectively.
Under the Agreement, the Trust pays the following expenses: (1) the
fees and expenses of the Trust's Independent Trustees; (2) the salaries and
expenses of any of the Trust's officers or employees who are not affiliated with
IMI; (3) interest expenses; (4) taxes and governmental fees, including any
original issue taxes or transfer taxes applicable to the sale or delivery of
shares or certificates therefor; (5) brokerage commissions and other expenses
incurred in acquiring or disposing of portfolio securities; (6) the expenses of
registering and qualifying shares for sale with the SEC and with various state
securities commissions; (7) accounting and legal costs; (8) insurance premiums;
(9) fees and expenses of the Trust's Custodian and Transfer Agent and any
related services; (10) expenses of obtaining quotations of portfolio securities
and of pricing shares; (11) expenses of maintaining the Trust's legal existence
and of shareholders' meetings; (12) expenses of preparation and distribution to
existing shareholders of periodic reports, proxy materials and prospectuses; and
(13) fees and expenses of membership in industry organizations.
IMI currently limits the Fund's total operating expenses (excluding
Rule 12b-1 fees, interest, taxes, brokerage commissions, litigation,
class-specific expenses, indemnification expenses, and extraordinary expenses)
to an annual rate of 1.95% of the Fund's average net assets, which may lower the
Fund's expenses and increase its yield.
The Agreement will continue in effect with respect to the Fund from
year to year, only so long as the continuance is specifically approved at least
annually (i) by the vote of a majority of the Independent Trustees and (ii)
either (a) by the vote of a majority of the outstanding voting securities (as
defined in the 1940 Act) of the Fund or (b) by the vote of a majority of the
entire Board. If the question of continuance of the Agreement (or adoption of
any new agreement) is presented to the shareholders, continuance (or adoption)
shall be effected only if approved by the affirmative vote of a majority of the
outstanding voting securities of the Fund. See "Capitalization and Voting
Rights."
The Agreement may be terminated with respect to the Fund at any time,
without payment of any penalty, by the vote of a majority of the Board, or by a
vote of a majority of the outstanding voting securities of the Fund, on 60 days'
written notice to IMI, or by IMI on 60 days' written notice to the Trust. The
Agreement shall terminate automatically in the event of its assignment.
DISTRIBUTION SERVICES
IMDI, a wholly owned subsidiary of MIMI, serves as the exclusive
distributor of Ivy Fund's shares pursuant to an Amended and Restated
Distribution Agreement with the Trust dated _______________, 1999, as amended
from time to time (the "Distribution Agreement"). The Distribution Agreement was
approved by the Board on September 17, 1998. IMDI distributes shares of the Fund
through broker-dealers who are members of the National Association of Securities
Dealers, Inc. and who have executed dealer agreements with IMDI. IMDI
distributes shares of the Fund on a continuous basis, but reserves the right to
suspend or discontinue distribution on that basis. IMDI is not obligated to sell
any specific amount of Fund shares.
Pursuant to the Distribution Agreement, IMDI is entitled to deduct a
commission on all Class A Fund shares sold equal to the difference, if any,
between the public offering price, as set forth in the Fund's then-current
prospectus, and the net asset value on which such price is based. Out of that
commission, IMDI may reallow to dealers such concession as IMDI may determine
from time to time. In addition, IMDI is entitled to deduct a CDSC on the
redemption of Class A shares sold without an initial sales charge and Class B
and Class C shares, in accordance with, and in the manner set forth in, the
Prospectus.
Under the Distribution Agreement, the Fund bears, among other expenses,
the expenses of registering and qualifying its shares for sale under Federal and
state securities laws and preparing and distributing to existing shareholders
periodic reports, proxy materials and prospectuses.
During the fiscal year ended December 31, 1998, IMDI received from
sales of Class A shares of the Fund [ ] in sales commissions, of which [ ] was
retained after dealer allowances. During the fiscal year ended December 31,
1998, IMDI received [ ] in CDSCs on redemptions of Class B shares of the Fund.
During the fiscal year ended December 31, 1998, IMDI received [ ] in CDSCs on
redemptions of Class C shares of the Fund.
The Distribution Agreement will continue in effect for successive
one-year periods, provided that such continuance is specifically approved at
least annually by the vote of a majority of the Independent Trustees, cast in
person at a meeting called for that purpose and by the vote of either a majority
of the entire Board or a majority of the outstanding voting securities of the
Fund. The Distribution Agreement may be terminated with respect to the Fund at
any time, without payment of any penalty, by IMDI on 60 days' written notice to
the Fund or by the Fund by vote of either a majority of the outstanding voting
securities of the Fund or a majority of the Independent Trustees on 60 days'
written notice to IMDI. The Distribution Agreement shall terminate automatically
in the event of its assignment.
RULE 18F-3 PLAN. On February 23, 1995, the SEC adopted Rule 18f-3 under
the 1940 Act, which permits a registered open-end investment company to issue
multiple classes of shares in accordance with a written plan approved by the
investment company's board of directors/trustees and filed with the SEC. At a
meeting held on December 1-2, 1995, the Board adopted a Rule 18f-3 plan on
behalf of the Fund. The Board last approved the Rule 18f-3 plan at a meeting
held of December 5-6, 1997. The key features of the Rule 18f-3 plan are as
follows: (i) shares of each class of the Fund represent an equal pro rata
interest in the Fund and generally have identical voting, dividend, liquidation,
and other rights, preferences, powers, restrictions, limitations,
qualifications, terms and conditions, except that each class bears certain
class-specific expenses and has separate voting rights on certain matters that
relate solely to that class or in which the interests of shareholders of one
class differ from the interests of shareholders of another class; (ii) subject
to certain limitations described in the Prospectus, shares of a particular class
of the Fund may be exchanged for shares of the same class of another Ivy fund;
and (iii) the Fund's Class B shares will convert automatically into Class A
shares of the Fund after a period of eight years, based on the relative net
asset value of such shares at the time of conversion.
RULE 12B-1 DISTRIBUTION PLANS. The Trust has adopted on behalf of the
Fund, in accordance with Rule 12b-1 under the 1940 Act, separate Rule 12b-1
distribution plans pertaining to the Fund's Class A, Class B and Class C shares
(each, a "Plan"). In adopting each Plan, a majority of the Independent Trustees
have concluded in accordance with the requirements of Rule 12b-1 that there is a
reasonable likelihood that each Plan will benefit the Fund and its shareholders.
The Trustees of the Trust believe that the Plans should result in greater sales
and/or fewer redemptions of the Fund's shares, although it is impossible to know
for certain the level of sales and redemptions of the Fund's shares in the
absence of a Plan or under an alternative distribution arrangement.
Under each Plan, the Fund pays IMDI a service fee, accrued daily and
paid monthly, at the annual rate of up to 0.25% of the average daily net assets
attributable to its Class A, Class B or Class C shares, as the case may be. The
services for which service fees may be paid include, among other things,
advising clients or customers regarding the purchase, sale or retention of
shares of the Fund, answering routine inquiries concerning the Fund and
assisting shareholders in changing options or enrolling in specific plans.
Pursuant to each Plan, service fee payments made out of or charged against the
assets attributable to the Fund's Class A, Class B or Class C shares must be in
reimbursement for services rendered for or on behalf of the affected class. The
expenses not reimbursed in any one month may be reimbursed in a subsequent
month. The Class A Plan does not provide for the payment of interest or carrying
charges as distribution expenses.
Under the Fund's Class B and Class C Plans, the Fund also pays IMDI a
distribution fee, accrued daily and paid monthly, at the annual rate of 0.75% of
the average daily net assets attributable to its Class B or Class C shares. IMDI
may reallow to dealers all or a portion of the service and distribution fees as
IMDI may determine from time to time. The distribution fee compensates IMDI for
expenses incurred in connection with activities primarily intended to result in
the sale of the Fund's Class B or Class C shares, including the printing of
prospectuses and reports for persons other than existing shareholders and the
preparation, printing and distribution of sales literature and advertising
materials. Pursuant to each Class B and Class C Plan, IMDI may include interest,
carrying or other finance charges in its calculation of distribution expenses,
if not prohibited from doing so pursuant to an order of or a regulation adopted
by the SEC.
Among other things, each Plan provides that (1) IMDI will submit to the
Board at least quarterly, and the Trustees will review, written reports
regarding all amounts expended under the Plan and the purposes for which such
expenditures were made; (2) each Plan will continue in effect only so long as
such continuance is approved at least annually, and any material amendment
thereto is approved, by the votes of a majority of the Board, including the
Independent Trustees, cast in person at a meeting called for that purpose; (3)
payments by the Fund under each Plan shall not be materially increased without
the affirmative vote of the holders of a majority of the outstanding shares of
the relevant class; and (4) while each Plan is in effect, the selection and
nomination of Independent Trustees shall be committed to the discretion of the
Trustees who are not "interested persons" of the Trust.
IMDI may make payments for distribution assistance and for
administrative and accounting services from resources that may include the
management fees paid by the Fund. IMDI also may make payments (such as the
service fee payments described above) to unaffiliated broker-dealers for
services rendered in the distribution of the Fund's shares. To qualify for such
payments, shares may be subject to a minimum holding period. However, no such
payments will be made to any dealer or broker if at the end of each year the
amount of shares held does not exceed a minimum amount. The minimum holding
period and minimum level of holdings will be determined from time to time by
IMDI.
A report of the amount expended pursuant to each Plan, and the purposes
for which such expenditures were incurred, must be made to the Board for its
review at least quarterly.
During the fiscal year ended December 31, 1998, the Fund paid IMDI [ ]
pursuant to its Class A plan. During the fiscal year ended December 31, 1998 the
Fund paid IMDI [ ] pursuant to its Class B plan. During the fiscal year ended
December 31, 1998, the Fund paid IMDI [ ] pursuant to its Class C plan.
During the fiscal year ended December 31, 1998, IMDI expended the
following amounts in marketing Class A shares of the Fund: advertising [$ ;]
printing and mailing of prospectuses to persons other than current shareholders,
[$ ;] compensation to dealers, [$ ;] compensation to sales personnel [$ ;]
seminars and meetings, [$ ;] travel and entertainment, [$ ;] general and
administrative, [$ ;] telephone, [$ ;] and occupancy and equipment rental, [$ .]
During the fiscal year ended December 31, 1998, IMDI expended the
following amounts in marketing Class B shares of the Fund: advertising, [$ ;]
printing and mailing of prospectuses to persons other than current shareholders,
[$ ;] compensation to dealers, [$ ;] compensation to sales personnel, [$ ;]
seminars and meetings, [$ ;] travel and entertainment, [$ ;] general and
administrative, [$ ;] telephone, [$ ;] and occupancy and equipment rental [$ .]
During the fiscal year ended December 31, 1998, IMDI expended the
following amounts in marketing Class C shares of the Fund: advertising, [$ ;]
printing and mailing of prospectuses to persons other than current shareholders,
[$ ;] compensation to dealers, [$ ;] compensation to sales personnel, [$ ;]
seminars and meetings, [$ ;] travel and entertainment, [$ ;] general
administrative, [$ ;] telephone, [$ ;] and occupancy and equipment rental, [$ .]
Each Plan may be amended at any time with respect to the class of
shares of the Fund to which the Plan relates by vote of the Trustees, including
a majority of the Independent Trustees, cast in person at a meeting called for
the purpose of considering such amendment. Each Plan may be terminated at any
time with respect to the class of shares of the Fund to which the Plan relates,
without payment of any penalty, by vote of a majority of the Independent
Trustees, or by vote of a majority of the outstanding voting securities of that
class.
If the Distribution Agreement or the Distribution Plans are terminated
(or not renewed) with respect to any of the Ivy funds (or class of shares
thereof), each may continue in effect with respect to any other fund (or Class
of shares thereof) as to which they have not been terminated (or have been
renewed).
CUSTODIAN
Pursuant to a Custodian Agreement with the Trust, Brown Brothers
Harriman & Co. (the "Custodian"), a private bank and member of the principal
securities exchanges, located at 40 Water Street, Boston, Massachusetts 02109
(the "Custodian"), maintains custody of the assets of the Fund held in the
United States. Rules adopted under the 1940 Act permit the Trust to maintain its
foreign securities and cash in the custody of certain eligible foreign banks and
securities depositories. Pursuant to those rules, the Custodian has entered into
subcustodial agreements for the holding of the Fund's foreign securities. With
respect to the Fund, the Custodian may receive, as partial payment for its
services to the Fund, a portion of the Trust's brokerage business, subject to
its ability to provide best price and execution.
FUND ACCOUNTING SERVICES
Pursuant to a Fund Accounting Services Agreement, MIMI provides certain
accounting and pricing services for the Fund. As compensation for those
services, the Fund pays MIMI a monthly fee plus out-of-pocket expenses as
incurred. The monthly fee is based upon the net assets of the Fund at the
preceding month end at the following rates: $1,250 when net assets are $10
million and under; $2,500 when net assets are over $10 million to $40 million;
$5,000 when net assets are over $40 million to $75 million; and $6,500 when net
assets are over $75 million.
During the fiscal year ended December 31, 1998, the Fund paid MIMI
[ ] under the agreement.
TRANSFER AGENT AND DIVIDEND PAYING AGENT
Pursuant to a Transfer Agency and Shareholder Service Agreement, Ivy
Mackenzie Services Corp. ("IMSC"), a wholly owned subsidiary of MIMI, is the
transfer agent for the Fund. Under the Agreement, the Fund pays a monthly fee at
an annual rate of $20.00 for each open Class A, Class B, Class C and Advisor
Class account. In addition, the Fund pays a monthly fee at an annual rate of
$4.58 per account that is closed plus certain out-of-pocket expenses. Such fees
and expenses for the fiscal year ended December 31, 1998 for the Fund totaled [$
]. Certain broker-dealers that maintain shareholder accounts with the Fund
through an omnibus account provide transfer agent and other shareholder-related
services that would otherwise be provided by IMSC if the individual accounts
that comprise the omnibus account were opened by their beneficial owners
directly. IMSC pays such broker-dealers a per account fee for each open account
within the omnibus account, or a fixed rate (e.g., 0.10%) fee, based on the
average daily net asset value of the omnibus account (or a combination thereof).
ADMINISTRATOR
Pursuant to an Administrative Services Agreement, MIMI provides certain
administrative services to the Fund. As compensation for these services, the
Fund pays MIMI a monthly fee at the annual rate of 0.10% of the Fund's average
daily net assets. Such fees for the fiscal year ended December 31, 1998 for the
Fund totaled [$ ].
Outside of providing administrative services to the Trust, as described
above, MIMI may also act on behalf of IMDI in paying commissions to
broker-dealers with respect to sales of Class B and Class C shares of the Fund.
AUDITORS
[ ], independent public accountants, has been selected as auditors for
the Trust. The audit services performed by [ ] include audits of the annual
financial statements of each of the funds of the Trust. Other services provided
principally relate to filings with the SEC and the preparation of the funds' tax
returns.
BROKERAGE ALLOCATION
Subject to the overall supervision of the President and the Board, IMI
places orders for the purchase and sale of the Fund's portfolio securities. All
portfolio transactions are effected at the best price and execution obtainable.
Purchases and sales of debt securities are usually principal transactions and
therefore, brokerage commissions are usually not required to be paid by the Fund
for such purchases and sales (although the price paid generally includes
undisclosed compensation to the dealer). The prices paid to underwriters of
newly-issued securities usually include a concession paid by the issuer to the
underwriter, and purchases of after-market securities from dealers normally
reflect the spread between the bid and asked prices. In connection with OTC
transactions, IMI attempts to deal directly with the principal market makers,
except in those circumstances where IMI believes that a better price and
execution are available elsewhere.
IMI selects broker-dealers to execute transactions and evaluates the
reasonableness of commissions on the basis of quality, quantity, and the nature
of the firms' professional services. Commissions to be charged and the rendering
of investment services, including statistical, research, and counseling services
by brokerage firms, are factors to be considered in the placing of brokerage
business. The types of research services provided by brokers may include general
economic and industry data, and information on securities of specific companies.
Research services furnished by brokers through whom the Trust effects securities
transactions may be used by IMI in servicing all of its accounts. In addition,
not all of these services may be used by IMI in connection with the services it
provides to the Fund or the Trust. IMI may consider sales of shares of Ivy funds
as a factor in the selection of broker-dealers and may select broker-dealers who
provide it with research services. IMI will not, however, execute brokerage
transactions other than at the best price and execution.
During the fiscal years ended December 31, 1996, 1997 and 1998, the Fund paid
brokerage commissions of $426,676, $583,738 and [ ], respectively.
The Fund may, under some circumstances, accept securities in lieu of
cash as payment for Fund shares. The Fund will accept securities only to
increase its holdings in a portfolio security or to take a new portfolio
position in a security that IMI deems to be a desirable investment for the Fund.
While no minimum has been established, it is expected that the Fund will not
accept securities having an aggregate value of less than $1 million. The Trust
may reject in whole or in part any or all offers to pay for the Fund shares with
securities and may discontinue accepting securities as payment for the Fund
shares at any time without notice. The Trust will value accepted securities in
the manner and at the same time provided for valuing portfolio securities of the
Fund, and the Fund shares will be sold for net asset value determined at the
same time the accepted securities are valued. The Trust will only accept
securities delivered in proper form and will not accept securities subject to
legal restrictions on transfer. The acceptance of securities by the Trust must
comply with the applicable laws of certain states.
CAPITALIZATION AND VOTING RIGHTS
The capitalization of the Trust consists of an unlimited number of
shares of beneficial interest (no par value per share). When issued, shares of
each class of the Fund are fully paid, non-assessable, redeemable and fully
transferable. No class of shares of the Fund has preemptive rights or
subscription rights.
The Amended and Restated Declaration of Trust permits the Trustees to
create separate series or portfolios and to divide any series or portfolio into
one or more classes. The Trustees have authorized nineteen series, each of which
represents a fund. The Trustees have further authorized the issuance of Class A,
Class B, and Class C shares for Ivy International Fund and Ivy Money Market Fund
and Class A, Class B, Class C and Advisor Class shares for the Fund, Ivy Asia
Pacific Fund, Ivy Bond Fund, Ivy China Region Fund, Ivy Developing Nations Fund,
Ivy European Opportunities Fund, Ivy Global Fund, Ivy Global Natural Resources
Fund, Ivy Global Science & Technology Fund, Ivy Growth Fund, Ivy Growth with
Income Fund, Ivy International Fund II, Ivy International Small Companies Fund,
Ivy International Strategic Bond Fund, Ivy Pan-Europe Fund, Ivy South America
Fund and Ivy US Blue Chip Fund, as well as Class I shares for Ivy Bond Fund, Ivy
European Opportunities Fund, Ivy Global Science & Technology Fund, Ivy
International Fund, Ivy International Fund II, Ivy International Small Companies
Fund, Ivy International Strategic Bond Fund and Ivy US Blue Chip Fund.
Shareholders have the right to vote for the election of Trustees of the
Trust and on any and all matters on which they may be entitled to vote by law or
by the provisions of the Trust's By-Laws. The Trust is not required to hold a
regular annual meeting of shareholders, and it does not intend to do so. Shares
of each class of the Fund entitle their holders to one vote per share (with
proportionate voting for fractional shares). Shareholders of the Fund are
entitled to vote alone on matters that only affect the Fund. All classes of
shares of the Fund will vote together, except with respect to the distribution
plan applicable to the Fund's Class A, Class B or Class C shares or when a class
vote is required by the 1940 Act. On matters relating to all funds of the Trust,
but affecting the funds differently, separate votes by the shareholders of each
fund are required. Approval of an investment advisory agreement and a change in
fundamental policies would be regarded as matters requiring separate voting by
the shareholders of each fund of the Trust. If the Trustees determine that a
matter does not affect the interests of the Fund, then the shareholders of the
Fund will not be entitled to vote on that matter. Matters that affect the Trust
in general, such as ratification of the selection of independent public
accountants, will be voted upon collectively by the shareholders of all funds of
the Trust.
As used in this SAI and the Prospectus, the phrase "majority vote of
the outstanding shares" of the Fund means the vote of the lesser of: (1) 67% of
the shares of the Fund (or of the Trust) present at a meeting if the holders of
more than 50% of the outstanding shares are present in person or by proxy; or
(2) more than 50% of the outstanding shares of the Fund (or of the Trust).
With respect to the submission to shareholder vote of a matter
requiring separate voting by the Fund, the matter shall have been effectively
acted upon with respect to the Fund if a majority of the outstanding voting
securities of the Fund votes for the approval of the matter, notwithstanding
that: (1) the matter has not been approved by a majority of the outstanding
voting securities of any other fund of the Trust; or (2) the matter has not been
approved by a majority of the outstanding voting securities of the Trust.
The Amended and Restated Declaration of Trust provides that the holders
of not less than two-thirds of the outstanding shares of the Trust may remove a
person serving as trustee either by declaration in writing or at a meeting
called for such purpose. The Trustees are required to call a meeting for the
purpose of considering the removal of a person serving as Trustee if requested
in writing to do so by the holders of not less than 10% of the outstanding
shares of the Trust. Shareholders will be assisted in communicating with other
shareholders in connection with the removal of a Trustee as if Section 26(c) of
the Act were applicable.
The Trust's shares do not have cumulative voting rights and accordingly
the holders of more than 50% of the outstanding shares could elect the entire
Board, in which case the holders of the remaining shares would not be able to
elect any Trustees.
Under Massachusetts law, the Trust's shareholders could, under certain
circumstances, be held personally liable for the obligations of the Trust.
However, the Amended and Restated Declaration of Trust disclaims liability of
the shareholders, Trustees or officers of the Trust for acts or obligations of
the Trust, which are binding only on the assets and property of the Trust, and
requires that notice of the disclaimer be given in each contract or obligation
entered into or executed by the Trust or its Trustees. The Amended and Restated
Declaration of Trust provides for indemnification out of Fund property for all
loss and expense of any shareholder of the Fund held personally liable for the
obligations of the Fund. The risk of a shareholder of the Trust incurring
financial loss on account of shareholder liability is limited to circumstances
in which the Trust itself would be unable to meet its obligations and, thus,
should be considered remote. No series of the Trust is liable for the
obligations of any other series of the Trust.
SPECIAL RIGHTS AND PRIVILEGES
The Trust offers, and (except as noted below) bears the cost of
providing, to investors the following rights and privileges. The Trust reserves
the right to amend or terminate any one or more of these rights and privileges.
Notice of amendments to or terminations of rights and privileges will be
provided to shareholders in accordance with applicable law.
Certain of the rights and privileges described below refer to funds,
other than the Fund, whose shares are also distributed by IMDI. These funds are:
Ivy Asia Pacific Fund, Ivy Bond Fund, Ivy China Region Fund, Ivy Developing
Nations Fund, Ivy European Opportunities Fund, Ivy Global Fund, Ivy Global
Natural Resources Fund, Ivy Global Science & Technology Fund, Ivy Growth Fund,
Ivy Growth with Income Fund, Ivy International Fund, Ivy International Fund II,
Ivy International Small Companies Fund, Ivy International Strategic Bond Fund,
Ivy Money Market Fund, Ivy Pan-Europe Fund, Ivy South America Fund and Ivy US
Blue Chip Fund (the other eighteen series of the Trust). (Effective April 18,
1997, Ivy International Fund suspended the offer of its shares to new
investors). Shareholders should obtain a current prospectus before exercising
any right or privilege that may relate to these funds.
AUTOMATIC INVESTMENT METHOD
The Automatic Investment Method, which enables a Fund shareholder to
have specified amounts automatically drawn each month from his or her bank for
investment in Fund shares, is available for all classes of shares. The minimum
initial and subsequent investment under this method is $50 per month ($250 for
Advisor Class shares), (except in the case of a tax qualified retirement plan
for which the minimum initial and subsequent investment is $25 per month). A
shareholder may terminate the Automatic Investment Method at any time upon
delivery to IMSC of telephone instructions or written notice. See "Automatic
Investment Method" in the Prospectus. To begin the plan, complete Sections 6A
and 7B of the Account Application.
EXCHANGE OF SHARES
As described in the Prospectus, shareholders of the Fund have an
exchange privilege with other Ivy funds (except Ivy International Fund unless
they have an existing Ivy International Fund account). Before effecting an
exchange, shareholders of the Fund should obtain and read the currently
effective prospectus for the Ivy fund into which the exchange is to be made.
INITIAL SALES CHARGE SHARES. Class A shareholders may exchange their
Class A shares ("outstanding Class A shares") for Class A shares of another Ivy
fund ("new Class A Shares") on the basis of the relative net asset value per
Class A share, plus an amount equal to the difference, if any, between the sales
charge previously paid on the outstanding Class A shares and the sales charge
payable at the time of the exchange on the new Class A shares. (The additional
sales charge will be waived for Class A shares that have been invested for a
period of 12 months or longer.) Class A shareholders may also exchange their
shares for shares of Ivy Money Market Fund (no initial sales charge will be
assessed at the time of such an exchange).
CONTINGENT DEFERRED SALES CHARGE SHARES CLASS A: Class A shareholders
may exchange their Class A shares that are subject to a contingent deferred
sales charge ("CDSC"), as described in the Prospectus ("outstanding Class A
shares"), for Class A shares of another Ivy fund ("new Class A shares") on the
basis of the relative net asset value per Class A share, without the payment of
any CDSC that would otherwise be due upon the redemption of the outstanding
Class A shares. Class A shareholders of the Fund exercising the exchange
privilege will continue to be subject to that Fund's CDSC period following an
exchange if such period is longer than the CDSC period, if any, applicable to
the new Class A shares.
For purposes of computing the CDSC that may be payable upon the
redemption of the new Class A shares, the holding period of the outstanding
Class A shares is "tacked" onto the holding period of the new Class A shares.
CLASS B: Class B shareholders may exchange their Class B shares
("outstanding Class B shares") for Class B shares of another Ivy fund ("new
Class B shares") on the basis of the relative net asset value per Class B share,
without the payment of any CDSC that would otherwise be due upon the redemption
of the outstanding Class B shares. Class B shareholders of the Fund exercising
the exchange privilege will continue to be subject to that Fund's CDSC schedule
(or period) following an exchange if such schedule is higher (or such period is
longer) than the CDSC schedule (or period) applicable to the new Class B shares.
Class B shares of the Fund acquired through an exchange of Class B
shares of another Ivy fund will be subject to that Fund's CDSC schedule (or
period) if such schedule is higher (or such period is longer) than the CDSC
schedule (or period) applicable to the Ivy fund from which the exchange was
made.
For purposes of both the conversion feature and computing the CDSC that
may be payable upon the redemption of the new Class B shares (prior to
conversion), the holding period of the outstanding Class B shares is "tacked"
onto the holding period of the new Class B shares.
The following CDSC table applies to Class B shares of Ivy Asia Pacific
Fund, Ivy Bond Fund, Ivy China Region Fund, Ivy Developing Nations Fund, Ivy
European Opportunities Fund, Ivy Global Fund, Ivy Global Natural Resources Fund,
Ivy Global Science & Technology Fund, Ivy Growth Fund, Ivy Growth with Income
Fund, Ivy International Fund, Ivy International Fund II, Ivy International Small
Companies Fund, Ivy International Strategic Bond Fund, Ivy Pan-Europe Fund, Ivy
South America Fund, Ivy US Blue Chip Fund, and Ivy US Emerging Growth Fund.
CONTINGENT DEFERRED SALES CHARGE AS A PERCENTAGE OF
DOLLAR AMOUNT SUBJECT TO CHARGE
YEAR SINCE PURCHASE
First 5%
Second 4%
Third 3%
Fourth 3%
Fifth 2%
Sixth 1%
Seventh and thereafter 0%
CLASS C: Class C shareholders may exchange their Class C shares
("outstanding Class C shares") for Class C shares of another Ivy fund ("new
Class C shares") on the basis of the relative net asset value per Class C share,
without the payment of any CDSC that would otherwise be due upon redemption.
(Class C shares are subject to a CDSC of 1.00% if redeemed within one year of
the date of purchase.)
ADVISOR CLASS: Subject to the restrictions set forth in the following
paragraph, Advisor Class shareholders may exchange their outstanding Advisor
Class shares for Advisor Class shares of another Ivy fund on the basis of the
relative net asset value per share.
ALL CLASSES: The minimum value of shares which may be exchanged into an
Ivy fund in which shares are not already held is $1,000 ($10,000 in the case of
Advisor Class shares). No exchange out of the Fund (other than by a complete
exchange of all Fund shares) may be made if it would reduce the shareholder's
interest in the Fund to less than $1,000 ($10,000 in the case of Advisor Class
shares).
Each exchange will be made on the basis of the relative net asset value
per share of the Ivy funds involved in the exchange next computed following
receipt by IMSC of telephone instructions by IMSC or a properly executed
request. Exchanges, whether written or telephonic, must be received by IMSC by
the close of regular trading on the Exchange (normally 4:00 p.m., eastern time)
to receive the price computed on the day of receipt. Exchange requests received
after that time will receive the price next determined following receipt of the
request. The exchange privilege may be modified or terminated at any time, upon
at least 60 days' notice to the extent required by applicable law. See
"Redemptions."
An exchange of shares between any of the Ivy funds will result in a
taxable gain or loss. Generally, this will be a capital gain or loss (long-term
or short-term, depending on the holding period of the shares) in the amount of
the difference between the net asset value of the shares surrendered and the
shareholder's tax basis for those shares. However, in certain circumstances,
shareholders will be ineligible to take sales charges into account in computing
taxable gain or loss on an exchange. See "Taxation."
With limited exceptions, gain realized by a tax-deferred retirement
plan will not be taxable to the plan and will not be taxed to the participant
until distribution. Each investor should consult his or her tax adviser
regarding the tax consequences of an exchange transaction.
LETTER OF INTENT
Reduced sales charges apply to initial investments in Class A shares of
the Fund made pursuant to a non-binding Letter of Intent. A Letter of Intent may
be submitted by an individual, his or her spouse and children under the age of
21, or a trustee or other fiduciary of a single trust estate or single fiduciary
account. See the Account Application in the Prospectus. Any investor may submit
a Letter of Intent stating that he or she will invest, over a period of 13
months, at least $50,000 in Class A shares of the Fund. A Letter of Intent may
be submitted at the time of an initial purchase of Class A shares of the Fund or
within 90 days of the initial purchase, in which case the Letter of Intent will
be back dated. A shareholder may include, as an accumulation credit, the value
(at the applicable offering price) of all Class A shares of Ivy Asia Pacific
Fund, Ivy Bond Fund, Ivy China Region Fund, Ivy Developing Nations Fund, Ivy
European Opportunities Fund, Ivy Global Fund, Ivy Global Natural Resources Fund,
Ivy Global Science & Technology Fund, Ivy Growth Fund, Ivy Growth with Income
Fund, Ivy International Fund, Ivy International Fund II, Ivy International Small
Companies Fund, Ivy International Strategic Bond Fund, Ivy Pan-Europe Fund, Ivy
South America Fund, Ivy US Blue Chip Fund and Ivy US Emerging Growth Fund (and
shares that have been exchanged into Ivy Money Market Fund from any of the other
funds in the Ivy funds) held of record by him or her as of the date of his or
her Letter of Intent. During the term of the Letter of Intent, the Transfer
Agent will hold Class A shares representing 5% of the indicated amount (less any
accumulation credit value) in escrow. The escrowed Class A shares will be
released when the full indicated amount has been purchased. If the full
indicated amount is not purchased during the term of the Letter of Intent, the
investor is required to pay IMDI an amount equal to the difference between the
dollar amount of sales charge that he or she has paid and that which he or she
would have paid on his or her aggregate purchases if the total of such purchases
had been made at a single time. Such payment will be made by an automatic
liquidation of Class A shares in the escrow account. A Letter of Intent does not
obligate the investor to buy or the Trust to sell the indicated amount of Class
A shares, and the investor should read carefully all the provisions of such
letter before signing.
RETIREMENT PLANS
Shares may be purchased in connection with several types of
tax-deferred retirement plans. Shares of more than one fund distributed by IMDI
may be purchased in a single application establishing a single account under the
plan, and shares held in such an account may be exchanged among the Ivy funds in
accordance with the terms of the applicable plan and the exchange privilege
available to all shareholders. Initial and subsequent purchase payments in
connection with tax-deferred retirement plans must be at least $25 per
participant.
The following fees will be charged to individual shareholder accounts
as described in the retirement prototype plan document:
Retirement Plan New Account Fee no fee
Retirement Plan Annual Maintenance Fee $10.00 per fund account
For shareholders whose retirement accounts are diversified across
several Ivy funds, the annual maintenance fee will be limited to not more than
$20.
The following discussion describes the tax treatment of certain
tax-deferred retirement plans under current Federal income tax law. State income
tax consequences may vary. An individual considering the establishment of a
retirement plan should consult with an attorney and/or an accountant with
respect to the terms and tax aspects of the plan.
INDIVIDUAL RETIREMENT ACCOUNTS: Shares of the Fund may be used as a
funding medium for an Individual Retirement Account ("IRA"). Eligible
individuals may establish an IRA by adopting a model custodial account available
from IMSC, who may impose a charge for establishing the account. Individuals
should consult their tax advisers before investing IRA assets in an Ivy fund if
that fund primarily distributes exempt-interest dividends.
An individual who has not reached age 70-1/2 and who receives
compensation or earned income is eligible to contribute to an IRA, whether or
not he or she is an active participant in a retirement plan. An individual who
receives a distribution from another IRA, a qualified retirement plan, a
qualified annuity plan or a tax-sheltered annuity or custodial account ("403(b)
plan") that qualifies for "rollover" treatment is also eligible to establish an
IRA by rolling over the distribution either directly or within 60 days after its
receipt. Tax advice should be obtained in connection with planning a rollover
contribution to an IRA.
In general, an eligible individual may contribute up to the lesser of
$2,000 or 100% of his or her compensation or earned income to an IRA each year.
If a husband and wife are both employed, and both are under age 70-1/2, each may
set up his or her own IRA within these limits. If both earn at least $2,000 per
year, the maximum potential contribution is $4,000 per year for both. For years
after 1996, the result is similar even if one spouse has no earned income; if
the joint earned income of the spouses is at least $4,000, a contribution of up
to $2,000 may be made to each spouse's IRA. Rollover contributions are not
subject to these limits.
An individual may deduct his or her annual contributions to an IRA in
computing his or her Federal income tax within the limits described above,
provided he or she (or his or her spouse, if they file a joint Federal income
tax return) is not an active participant in a qualified retirement plan (such as
a qualified corporate, sole proprietorship, or partnership pension, profit
sharing, 401(k) or stock bonus plan), qualified annuity plan, 403(b) plan,
simplified employee pension, or governmental plan. If he or she (or his or her
spouse) is an active participant, whether the individual's contribution to an
IRA is fully deductible, partially deductible or not deductible depends on (i)
adjusted gross income and (ii) whether it is the individual or the individual's
spouse who is an active participant, in the case of married individuals filing
jointly. Contributions may be made up to the maximum permissible amount even if
they are not deductible. Rollover contributions are not includable in income for
Federal income tax purposes and therefore are not deductible from it.
Generally, earnings on an IRA are not subject to current Federal income
tax until distributed. Distributions attributable to tax-deductible
contributions and to IRA earnings are taxed as ordinary income. Distributions of
non-deductible contributions are not subject to Federal income tax. In general,
distributions from an IRA to an individual before he or she reaches age 59-1/2
are subject to a nondeductible penalty tax equal to 10% of the taxable amount of
the distribution. The 10% penalty tax does not apply to amounts withdrawn from
an IRA after the individual reaches age 59-1/2, becomes disabled or dies, or if
withdrawn in the form of substantially equal payments over the life or life
expectancy of the individual and his or her designated beneficiary, if any, or
rolled over into another IRA, amounts withdrawn and used to pay for deductible
medical expenses and amounts withdrawn by certain unemployed individuals not in
excess of amounts paid for certain health insurance premiums, amounts used to
pay certain qualified higher education expenses, and amounts used within 120
days of the date the distribution is received to pay for certain first-time
homebuyer expenses. Distributions must begin to be withdrawn not later than
April 1 of the calendar year following the calendar year in which the individual
reaches age 70-1/2. Failure to take certain minimum required distributions will
result in the imposition of a 50% non-deductible penalty tax.
ROTH IRAS: Shares of the Fund also may be used as a funding medium for
a Roth Individual Retirement Account ("Roth IRA"). A Roth IRA is similar in
numerous ways to the regular (traditional) IRA, described above. Some of the
primary differences are as follows.
A single individual earning below $95,000 can contribute up to $2,000
per year to a Roth IRA. The maximum contribution amount diminishes and gradually
falls to zero for single filers with adjusted gross incomes ranging from $95,000
to $110,000. Married couples earning less than $150,000 combined, and filing
jointly, can contribute a full $4,000 per year ($2,000 per IRA). The maximum
contribution amount for married couples filing jointly phases out from $150,000
to $160,000. An individual whose adjusted gross income exceeds the maximum
phase-out amount cannot contribute to a Roth IRA.
An eligible individual can contribute money to a traditional IRA and a
Roth IRA as long as the total contribution to all IRAs does not exceed $2,000.
Contributions to a Roth IRA are not deductible. Contributions to a Roth IRA may
be made even after the individual for whom the account is maintained has
attained age 70 1/2.
No distributions are required to be taken prior to the death of the
original account holder. If a Roth IRA has been established for a minimum of
five years, distributions can be taken tax-free after reaching age 59 1/2, for a
first-time home purchase ($10,000 maximum, one time use), or upon death or
disability. All other distributions from a Roth IRA (other than the amount of
nondeductible contributions) are taxable and subject to a 10% tax penalty unless
an exception applies. Exceptions to the 10% penalty include: reaching age 59
1/2, death, disability, deductible medical expenses, the purchase of health
insurance for certain unemployed individual and qualified higher education
expenses.
An individual with an income of less than $100,000 (who is not married
filing separately) can roll his or her existing IRA into a Roth IRA. However,
the individual must pay taxes on the taxable amount in his or her traditional
IRA. After 1998, all taxes on such a rollover will have to be paid in the tax
year in which the rollover is made.
QUALIFIED PLANS: For those self-employed individuals who wish to
purchase shares of one or more Ivy funds through a qualified retirement plan, a
Custodial Agreement and a Retirement Plan are available from IMSC. The
Retirement Plan may be adopted as a profit sharing plan or a money purchase
pension plan. A profit sharing plan permits an annual contribution to be made in
an amount determined each year by the self-employed individual within certain
limits prescribed by law. A money purchase pension plan requires annual
contributions at the level specified in the Custodial Agreement. There is no
set-up fee for qualified plans and the annual maintenance fee is $20.00 per
account.
In general, if a self-employed individual has any common law employees,
employees who have met certain minimum age and service requirements must be
covered by the Retirement Plan. A self-employed individual generally must
contribute the same percentage of income for common law employees as for himself
or herself.
A self-employed individual may contribute up to the lesser of $30,000
or 25% of compensation or earned income to a money purchase pension plan or to a
combination profit sharing and money purchase pension plan arrangement each year
on behalf of each participant. To be deductible, total contributions to a profit
sharing plan generally may not exceed 15% of the total compensation or earned
income of all participants in the plan, and total contributions to a combination
money purchase-profit sharing arrangement generally may not exceed 25% of the
total compensation or earned income of all participants. The amount of
compensation or earned income of any one participant that may be included in
computing the deduction is limited (generally to $150,000 for benefits accruing
in plan years beginning after 1993, with annual inflation adjustments). A
self-employed individual's contributions to a retirement plan on his or her own
behalf must be deducted in computing his or her earned income.
Corporate employers may also adopt the Custodial Agreement and
Retirement Plan for the benefit of their eligible employees. Similar
contribution and deduction rules apply to corporate employers.
Distributions from the Retirement Plan generally are made after a
participant's separation from service. A 10% penalty tax generally applies to
distributions to an individual before he or she reaches age 59-1/2, unless the
individual (1) has reached age 55 and separated from service; (2) dies; (3)
becomes disabled; (4) uses the withdrawal to pay tax-deductible medical
expenses; (5) takes the withdrawal as part of a series of substantially equal
payments over his or her life expectancy or the joint life expectancy of himself
or herself and a designated beneficiary; or (6) rolls over the distribution.
The Transfer Agent will arrange for Investors Bank & Trust to furnish
custodial services to the employer and any participating employees.
DEFERRED COMPENSATION FOR PUBLIC SCHOOLS AND CHARITABLE ORGANIZATIONS
("403(B)(7) ACCOUNT"): Section 403(b)(7) of the Internal Revenue Code of 1986,
as amended (the "Code") permits public school systems and certain charitable
organizations to use mutual fund shares held in a custodial account to fund
deferred compensation arrangements with their employees. A custodial account
agreement is available for those employers whose employees wish to purchase
shares of the Trust in conjunction with such an arrangement. The special
application for a 403(b)(7) Account is available from IMSC.
Distributions from the 403(b)(7) Account may be made only following
death, disability, separation from service, attainment of age 59-1/2, or
incurring a financial hardship. A 10% penalty tax generally applies to
distributions to an individual before he or she reaches age 59-1/2, unless the
individual (1) has reached age 55 and separated from service; (2) dies or
becomes disabled; (3) uses the withdrawal to pay tax-deductible medical
expenses; (4) takes the withdrawal as part of a series of substantially equal
payments over his or her life expectancy or the joint life expectancy of himself
or herself and a designated beneficiary; or (5) rolls over the distribution.
There is no set-up fee for 403(b)(7) Accounts and the annual maintenance fee is
$20.00 per account.
SIMPLIFIED EMPLOYEE PENSION ("SEP") IRAS: An employer may deduct
contributions to a SEP up to the lesser of $30,000 or 15% of compensation. SEP
accounts generally are subject to all rules applicable to IRA accounts, except
the deduction limits, and are subject to certain employee participation
requirements. No new salary reduction SEPs ("SARSEPs") may be established after
1996, but existing SARSEPs may continue to be maintained, and non-salary
reduction SEPs may continue to be established as well as maintained after 1996.
SIMPLE PLANS: An employer may establish a SIMPLE IRA or a SIMPLE 401(k)
for years after 1996. An employee can make pre-tax salary reduction
contributions to a SIMPLE Plan, up to $6,000 a year (as indexed). Subject to
certain limits, the employer will either match a portion of employee
contributions, or will make a contribution equal to 2% of each employee's
compensation without regard to the amount the employee contributes. An employer
cannot maintain a SIMPLE Plan for its employees if the employer maintains or
maintained any other qualified retirement plan with respect to which any
contributions or benefits have been credited.
REINVESTMENT PRIVILEGE
Shareholders who have redeemed Class A shares of the Fund may reinvest
all or a part of the proceeds of the redemption back into Class A shares of the
Fund at net asset value (without a sales charge) within 60 days from the date of
redemption. This privilege may be exercised only once. The reinvestment will be
made at the net asset value next determined after receipt by IMSC of the
reinvestment order accompanied by the funds to be reinvested. No compensation
will be paid to any sales personnel or dealer in connection with the
transaction.
Any redemption is a taxable event. A loss realized on a redemption generally
may be disallowed for tax purposes if the reinvestment privilege is exercised
within 30 days after the redemption. In certain circumstances, shareholders
will be ineligible to take sales charges into account in computing taxable gain
or loss on a redemption if the reinvestment privilege is exercised. See
"Taxation."
RIGHTS OF ACCUMULATION
A scale of reduced sales charges applies to any investment of $50,000
or more in Class A shares of the Fund. See "Initial Sales Charge Alternative --
Class A Shares" in the Prospectus. The reduced sales charge is applicable to
investments made at one time by an individual, his or her spouse and children
under the age of 21, or a trustee or other fiduciary of a single trust estate or
single fiduciary account (including a pension, profit sharing or other employee
benefit trust created pursuant to a plan qualified under Section 401 of the
Code). Rights of Accumulation is also applicable to current purchases of all of
the funds of Ivy Fund (except Ivy Money Market Fund) by any of the persons
enumerated above, where the aggregate quantity of Class A shares of such funds
(and shares that have been exchanged into Ivy Money Market Fund from any of the
other funds in the Ivy funds) and of any other investment company distributed by
IMDI, previously purchased or acquired and currently owned, determined at the
higher of current offering price or amount invested, plus the Class A shares
being purchased, amounts to $50,000 or more for all funds other than Ivy Bond
Fund; or $100,000 or more for Ivy Bond Fund.
At the time an investment takes place, IMSC must be notified by the
investor or his or her dealer that the investment qualifies for the reduced
sales charge on the basis of previous investments. The reduced sales charge is
subject to confirmation of the investor's holdings through a check of the
particular fund's records.
SYSTEMATIC WITHDRAWAL PLAN
A shareholder may establish a Systematic Withdrawal Plan (a "Withdrawal
Plan"), by telephone instructions or by delivery to IMSC of a written election
to have his or her shares withdrawn periodically (minimum distribution amount
$50 for Advisor Class shares), accompanied by a surrender to IMSC of all share
certificates then outstanding in such shareholder's name, properly endorsed by
the shareholder. To be eligible to elect a Withdrawal Plan, a shareholder must
have at least $5,000 in his or her account (except Advisor Class shareholders,
who must continually maintain an account balance of at least $10,000). A
Withdrawal Plan may not be established if the investor is currently
participating in the Automatic Investment Method. A Withdrawal Plan may involve
the depletion of a shareholder's principal, depending on the amount withdrawn.
A redemption under a Withdrawal Plan is a taxable event. Shareholders
contemplating participating in a Withdrawal Plan should consult their tax
advisers.
Additional investments made by investors participating in a Withdrawal
Plan must equal at least $1,000 each ($250 for Advisor Class shareholders) while
the Withdrawal Plan is in effect. Making additional purchases while a Withdrawal
Plan is in effect may be disadvantageous to the investor because of applicable
initial sales charges or CDSCs.
An investor may terminate his or her participation in the Withdrawal
Plan at any time by delivering written notice to IMSC. If all shares held by the
investor are liquidated at any time, participation in the Withdrawal Plan will
terminate automatically. The Trust or IMSC may terminate the Withdrawal Plan
option at any time after reasonable notice to shareholders.
GROUP SYSTEMATIC INVESTMENT PROGRAM
Shares of the Fund may be purchased in connection with investment
programs established by employee or other groups using systematic payroll
deductions or other systematic payment arrangements. The Trust does not itself
organize, offer or administer any such programs. However, it may, depending upon
the size of the program, waive the minimum initial and additional investment
requirements for purchases by individuals in conjunction with programs organized
and offered by others. Unless shares of the Fund are purchased in conjunction
with IRAs (see "How to Buy Shares" in the Prospectus), such group systematic
investment programs are not entitled to special tax benefits under the Code. The
Trust reserves the right to refuse purchases at any time or suspend the offering
of shares in connection with group systematic investment programs, and to
restrict the offering of shareholder privileges, such as check writing,
simplified redemptions and other optional privileges, as described in the
Prospectus, to shareholders using group systematic investment programs.
With respect to each shareholder account established on or after
September 15, 1972 under a group systematic investment program, the Trust and
IMI each currently charge a maintenance fee of $3.00 (or portion thereof) that
for each twelve-month period (or portion thereof) that the account is
maintained. The Trust may collect such fee (and any fees due to IMI) through a
deduction from distributions to the shareholders involved or by causing on the
date the fee is assessed a redemption in each such shareholder account
sufficient to pay such fee. The Trust reserves the right to change these fees
from time to time without advance notice.
Class A shares of the Fund are made available to Merrill Lynch Daily K
Plan (the "Plan") participants at NAV without an initial sales charge if:
(i) the Plan is recordkept on a daily valuation basis by Merrill
Lynch and, on the date the Plan Sponsor signs the Merrill
Lynch Recordkeeping Service Agreement, the Plan has $3 million
or more in assets invested in broker/dealer funds not advised
or managed by Merrill Lynch Asset Management, L.P. ("MLAM")
that are made available pursuant to a Service Agreement
between Merrill Lynch and the fund's principal underwriter or
distributor and in funds advised or managed by MLAM
(collectively, the "Applicable Investments");
(ii) the Plan is recordkept on a daily valuation basis by an
independent recordkeeper whose services are provided through a
contract or alliance arrangement with Merrill Lynch, and on
the date the Plan Sponsor signs the Merrill Lynch
Recordkeeping Service Agreement, the Plan has $3 million or
more in assets, excluding money market funds, invested in
Applicable Investments; or
(iii) the Plan has 500 or more eligible employees, as determined by
Merrill Lynch plan conversion manager, on the date the Plan
Sponsor signs the Merrill Lynch Recordkeeping Service
Agreement.
Alternatively, Class B shares of the Fund are made available to Plan
participants at NAV without a CDSC if the Plan conforms with the requirements
for eligibility set forth in (i) through (iii) above but either does not meet
the $3 million asset threshold or does not have 500 or more eligible employees.
Plans recordkept on a daily basis by Merrill Lynch or an independent
recordkeeper under a contract with Merrill Lynch that are currently investing in
Class B shares of the Fund convert to Class A shares once the Plan has reached
$5 million invested in Applicable Investments, or 10 years after the date of the
initial purchase by a participant under the Plan--the Plan will receive a Plan
level share conversion.
REDEMPTIONS
Shares of the Fund are redeemed at their net asset value next
determined after a proper redemption request has been received by IMSC, less any
applicable CDSC.
Unless a shareholder requests that the proceeds of any redemption be
wired to his or her bank account, payment for shares tendered for redemption is
made by check within seven days after tender in proper form, except that the
Trust reserves the right to suspend the right of redemption or to postpone the
date of payment upon redemption beyond seven days, (i) for any period during
which the Exchange is closed (other than customary weekend and holiday closings)
or during which trading on the Exchange is restricted, (ii) for any period
during which an emergency exists as determined by the SEC as a result of which
disposal of securities owned by the Fund is not reasonably practicable or it is
not reasonably practicable for the Fund to fairly determine the value of its net
assets, or (iii) for such other periods as the SEC may by order permit for the
protection of shareholders of the Fund.
Under unusual circumstances, when the Board deems it in the best
interest of the Fund's shareholders, the Fund may make payment for shares
repurchased or redeemed in whole or in part in securities of the Fund taken at
current values. If any such redemption in kind is to be made, the Fund may make
an election pursuant to Rule 18f-1 under the 1940 Act. This will require the
Fund to redeem with cash at a shareholder's election in any case where the
redemption involves less than $250,000 (or 1% of the Fund's net asset value at
the beginning of each 90-day period during which such redemptions are in effect,
if that amount is less than $250,000). Should payment be made in securities, the
redeeming shareholder may incur brokerage costs in converting such securities to
cash.
The Trust may redeem those accounts of shareholders who have maintained
an investment, including sales charges paid, of less than $1,000 ($10,000 for
Advisor Class shareholders) in the Fund for a period of more than 12 months. All
accounts below that minimum will be redeemed simultaneously when MIMI deems it
advisable. The $1,000 balance ($10,000 for Advisor Class shareholders) will be
determined by actual dollar amounts invested by the shareholder, unaffected by
market fluctuations. The Trust will notify any such shareholder by certified
mail of its intention to redeem such account, and the shareholder shall have 60
days from the date of such letter to invest such additional sums as shall raise
the value of such account above that minimum. Should the shareholder fail to
forward such sum within 60 days of the date of the Trust's letter of
notification, the Trust will redeem the shares held in such account and transmit
the redemption in value thereof to the shareholder. However, those shareholders
who are investing pursuant to the Automatic Investment Method will not be
redeemed automatically unless they have ceased making payments pursuant to the
plan for a period of at least six consecutive months, and these shareholders
will be given six-months' notice by the Trust before such redemption.
Shareholders in a qualified retirement, pension or profit sharing plan who wish
to avoid tax consequences must "rollover" any sum so redeemed into another
qualified plan within 60 days. The Trustees of the Trust may change the minimum
account size.
If a shareholder has given authorization for telephonic redemption
privilege, shares can be redeemed and proceeds sent by Federal wire to a single
previously designated bank account. Delivery of the proceeds of a wire
redemption request of $250,000 or more may be delayed by the Fund for up to
seven days if deemed appropriate under then-current market conditions. The Trust
reserves the right to change this minimum or to terminate the telephonic
redemption privilege without prior notice. The Trust cannot be responsible for
the efficiency of the Federal wire system of the shareholder's dealer of record
or bank. The shareholder is responsible for any charges by the shareholder's
bank.
The Fund employs reasonable procedures that require personal
identification prior to acting on redemption or exchange instructions
communicated by telephone to confirm that such instructions are genuine. In the
absence of such instructions, the Fund may be liable for any losses due to
unauthorized or fraudulent telephone instructions.
CONVERSION OF CLASS B SHARES
As described in the Prospectus, Class B shares of the Fund will
automatically convert to Class A shares of the Fund, based on the relative net
asset values per share of the two classes, no later than the month following the
eighth anniversary of the initial issuance of such Class B shares of the Fund
occurs. For the purpose of calculating the holding period required for
conversion of Class B shares, the date of initial issuance shall mean: (1) the
date on which such Class B shares were issued, or (2) for Class B shares
obtained through an exchange, or a series of exchanges, (subject to the exchange
privileges for Class B shares) the date on which the original Class B shares
were issued. For purposes of conversion of Class B shares, Class B shares
purchased through the reinvestment of dividends and capital gain distributions
paid in respect of Class B shares will be held in a separate sub-account. Each
time any Class B shares in the shareholder's regular account (other than those
shares in the sub-account) convert to Class A shares, a pro rata portion of the
Class B shares in the sub-account will also convert to Class A shares. The
portion will be determined by the ratio that the shareholder's Class B shares
converting to Class A shares bears to the shareholder's total Class B shares not
acquired through the reinvestment of dividends and capital gain distributions.
NET ASSET VALUE
The net asset value per share of the Fund is computed by dividing the
value of the Fund's aggregate net assets (i.e., its total assets less its
liabilities) by the number of the Fund's shares outstanding. For purposes of
determining the Fund's aggregate net assets, receivables are valued at their
realizable amounts. The Fund's liabilities, if not identifiable as belonging to
a particular class of the Fund, are allocated among the Fund's several classes
based on their relative net asset size. Liabilities attributable to a particular
class are charged to that class directly. The total liabilities for a class are
then deducted from the class's proportionate interest in the Fund's assets, and
the resulting amount is divided by the number of shares of the class outstanding
to produce its net asset value per share.
A security listed or traded on a recognized stock exchange or The
Nasdaq Stock Market, Inc. ("Nasdaq") is valued at the security's last sale price
on the exchange on which the security is principally traded. If no sale is
reported at that time, the average between the last bid and asked price (the
"Calculated Mean") is used. Unless otherwise noted herein, the value of a
foreign security is determined in its national currency as of the normal close
of trading on the foreign exchange on which it is traded or as of the close of
regular trading on the Exchange, if that is earlier, and that value is then
converted into its U.S. dollar equivalent at the foreign exchange rate in effect
at noon, eastern time, on the day the value of the foreign security is
determined. All other securities for which OTC market quotations are readily
available are valued at the Calculated Mean.
A debt security normally is valued on the basis of quotes obtained from
at least two dealers (or one dealer who has made a market in the security) or
pricing services that take into account appropriate valuation factors. Interest
is accrued daily. Money market instruments are valued at amortized cost, which
the Board believes approximates market value.
An exchange-traded option is valued at the last sale price on the
exchange on which it is principally traded, if available, and otherwise is
valued at the last sale price on the other exchange(s). If there were no sales
on any exchange, the option shall be valued at the Calculated Mean, if possible,
and otherwise at the last offering price, in the case of a written option, and
the last bid price, in the case of a purchased option. An OTC option is valued
at the last offering price, in the case of a written option, and the last bid
price, in the case of a purchased option. Exchange listed and widely-traded OTC
futures (and options thereon) are valued at the most recent settlement price.
Securities and other assets for which market prices are not readily
available are priced at their "fair value" as determined by IMI in accordance
with procedures approved by the Board. Trading in securities on many foreign
securities exchanges is normally completed before the close of regular trading
on the Exchange. Trading on foreign exchanges may not take place on all days on
which there is regular trading on the Exchange, or may take place on days on
which there is no regular trading on the Exchange (e.g., any of the national
business holidays identified below). If events materially affecting the value of
the Fund's portfolio securities occur between the time when a foreign exchange
closes and the time when the Fund's net asset value is calculated (see following
paragraph), such securities may be valued at fair value as determined by IMI and
approved by the Board.
Portfolio securities are valued (and net asset value per share is
determined) as of the close of regular trading on the Exchange (normally 4:00
p.m., eastern time) on each day the Exchange is open for trading. The Exchange
and the Trust's offices are expected to be closed, and net asset value will not
be calculated, on the following national business holidays: New Year's Day,
Martin Luther King, Jr. Day, Presidents' Day, Good Friday, Memorial Day,
Independence Day, Labor Day, Thanksgiving Day and Christmas Day. On those days
when either or both of the Fund's Custodian or the Exchange close early as a
result of a partial holiday or otherwise, the Trust reserves the right to
advance the time on that day by which purchase and redemption requests must be
received.
The number of shares you receive when you place a purchase order, and
the payment you receive after submitting a redemption request, is based on the
Fund's net asset value next determined after your instructions are received in
proper form by IMSC or by your registered securities dealer. Each purchase and
redemption order is subject to any applicable sales charge. Since the Fund
normally invests in securities that are listed on foreign exchanges that may
trade on weekends or other days when the Fund does not price its shares, the
Fund's net asset value may change on days when shareholders will not be able to
purchase or redeem the Fund's shares. The sale of the Fund's shares will be
suspended during any period when the determination of its net asset value is
suspended pursuant to rules or orders of the SEC and may be suspended by the
Board whenever in its judgment it is in the Fund's best interest to do so.
TAXATION
The following is a general discussion of certain tax rules thought to
be applicable with respect to the Fund. It is merely a summary and is not an
exhaustive discussion of all possible situations or of all potentially
applicable taxes. Accordingly, shareholders and prospective shareholders should
consult a competent tax adviser about the tax consequences to them of investing
in the Fund.
The Fund intends to be taxed as a regulated investment company under
Subchapter M of the Code. Accordingly, the Fund must, among other things, (a)
derive in each taxable year at least 90% of its gross income from dividends,
interest, payments with respect to certain securities loans, and gains from the
sale or other disposition of stock, securities or foreign currencies, or other
income derived with respect to its business of investing in such stock,
securities or currencies; and (b) diversify its holdings so that, at the end of
each fiscal quarter, (i) at least 50% of the market value of the Fund's assets
is represented by cash, U.S. Government securities, the securities of other
regulated investment companies and other securities, with such other securities
limited, in respect of any one issuer, to an amount not greater than 5% of the
value of the Fund's total assets and 10% of the outstanding voting securities of
such issuer, and (ii) not more than 25% of the value of its total assets is
invested in the securities of any one issuer (other than U.S. Government
securities and the securities of other regulated investment companies).
As a regulated investment company, the Fund generally will not be
subject to U.S. Federal income tax on its income and gains that it distributes
to shareholders, if at least 90% of its investment company taxable income (which
includes, among other items, dividends, interest and the excess of any
short-term capital gains over long-term capital losses) for the taxable year is
distributed. The Fund intends to distribute all such income.
Amounts not distributed on a timely basis in accordance with a calendar
year distribution requirement are subject to a nondeductible 4% excise tax at
the Fund level. To avoid the tax, the Fund must distribute during each calendar
year, (1) at least 98% of its ordinary income (not taking into account any
capital gains or losses) for the calendar year (2) at least 98% of its capital
gains in excess of its capital losses (adjusted for certain ordinary losses) for
a one-year period generally ending on October 31 of the calendar year, and (3)
all ordinary income and capital gains for previous years that were not
distributed during such years. To avoid application of the excise tax, the Fund
intends to make distributions in accordance with the calendar year distribution
requirements. A distribution will be treated as paid on December 31 of the
current calendar year if it is declared by the Fund in October, November or
December of the year with a record date in such a month and paid by the Fund
during January of the following year. Such distributions will be taxable to
shareholders in the calendar year the distributions are declared, rather than
the calendar year in which the distributions are received.
OPTIONS, FUTURES AND FOREIGN CURRENCY FORWARD CONTRACTS
The taxation of equity options and OTC options on debt securities is
governed by Code section 1234. Pursuant to Code section 1234, the premium
received by the Fund for selling a put or call option is not included in income
at the time of receipt. If the option expires, the premium is short-term capital
gain to the Fund. If the Fund enters into a closing transaction, the difference
between the amount paid to close out its position and the premium received is
short-term capital gain or loss. If a call option written by the Fund is
exercised, thereby requiring the Fund to sell the underlying security, the
premium will increase the amount realized upon the sale of such security and any
resulting gain or loss will be a capital gain or loss, and will be long-term or
short-term depending upon the holding period of the security. With respect to a
put or call option that is purchased by the Fund, if the option is sold, any
resulting gain or loss will be a capital gain or loss, and will be long-term or
short-term, depending upon the holding period of the option. If the option
expires, the resulting loss is a capital loss and is long-term or short-term,
depending upon the holding period of the option. If the option is exercised, the
cost of the option, in the case of a call option, is added to the basis of the
purchased security and, in the case of a put option, reduces the amount realized
on the underlying security in determining gain or loss.
Some of the options, futures and foreign currency forward contracts in
which the Fund may invest may be "section 1256 contracts." Gains (or losses) on
these contracts generally are considered to be 60% long-term and 40% short-term
capital gains or losses; however, as described below, foreign currency gains or
losses arising from certain section 1256 contracts are ordinary in character.
Also, section 1256 contracts held by the Fund at the end of each taxable year
(and on certain other dates prescribed in the Code) are "marked-to-market" with
the result that unrealized gains or losses are treated as though they were
realized.
The transactions in options, futures and forward contracts undertaken
by the Fund may result in "straddles" for Federal income tax purposes. The
straddle rules may affect the character of gains or losses realized by the Fund.
In addition, losses realized by the Fund on positions that are part of a
straddle may be deferred under the straddle rules, rather than being taken into
account in calculating the taxable income for the taxable year in which such
losses are realized. Because only a few regulations implementing the straddle
rules have been promulgated, the consequences of such transactions to the Fund
are not entirely clear. The straddle rules may increase the amount of short-term
capital gain realized by the Fund, which is taxed as ordinary income when
distributed to shareholders.
The Fund may make one or more of the elections available under the Code
which are applicable to straddles. If the Fund makes any of the elections, the
amount, character and timing of the recognition of gains or losses from the
affected straddle positions will be determined under rules that vary according
to the election(s) made. The rules applicable under certain of the elections may
operate to accelerate the recognition of gains or losses from the affected
straddle positions.
Because application of the straddle rules may affect the character of
gains or losses, defer losses and/or accelerate the recognition of gains or
losses from the affected straddle positions, the amount which must be
distributed to shareholders as ordinary income or long-term capital gain may be
increased or decreased substantially as compared to a fund that did not engage
in such transactions.
Notwithstanding any of the foregoing, the Fund may recognize gain (but
not loss) from a constructive sale of certain "appreciated financial positions"
if the Fund enters into a short sale, offsetting notional principal contract,
futures or forward contract transaction with respect to the appreciated position
or substantially identical property. Appreciated financial positions subject to
this constructive sale treatment are interests (including options, futures and
forward contracts and short sales) in stock, partnership interests, certain
actively traded trust instruments and certain debt instruments. Constructive
sale treatment of appreciated financial positions does not apply to certain
transactions closed in the 90-day period ending with the 30th day after the
close of the Fund's taxable year, if certain conditions are met.
CURRENCY FLUCTUATIONS -- "SECTION 988" GAINS OR LOSSES
Gains or losses attributable to fluctuations in exchange rates which
occur between the time the Fund accrues receivables or liabilities denominated
in a foreign currency and the time the Fund actually collects such receivables
or pays such liabilities generally are treated as ordinary income or ordinary
loss. Similarly, on disposition of some investments, including debt securities
denominated in a foreign currency and certain options, futures and forward
contracts, gains or losses attributable to fluctuations in the value of the
foreign currency between the date of acquisition of the security or contract and
the date of disposition also are treated as ordinary gain or loss. These gains
and losses, referred to under the Code as "section 988" gains or losses,
increase or decrease the amount of the Fund's investment company taxable income
available to be distributed to its shareholders as ordinary income.
INVESTMENT IN PASSIVE FOREIGN INVESTMENT COMPANIES
The Fund may invest in shares of foreign corporations which may be
classified under the Code as passive foreign investment companies ("PFICs"). In
general, a foreign corporation is classified as a PFIC if at least one-half of
its assets constitute investment-type assets, or 75% or more of its gross income
is investment-type income. If the Fund receives a so-called "excess
distribution" with respect to PFIC stock, the Fund itself may be subject to a
tax on a portion of the excess distribution, whether or not the corresponding
income is distributed by the Fund to shareholders. In general, under the PFIC
rules, an excess distribution is treated as having been realized ratably over
the period during which a Fund held the PFIC shares. The Fund itself will be
subject to tax on the portion, if any, of an excess distribution that is so
allocated to prior Fund taxable years and an interest factor will be added to
the tax, as if the tax had been payable in such prior taxable years. Certain
distributions from a PFIC as well as gain from the sale of PFIC shares are
treated as excess distributions. Excess distributions are characterized as
ordinary income even though, absent application of the PFIC rules, certain
excess distributions might have been classified as capital gain.
The Fund may be eligible to elect alternative tax treatment with
respect to PFIC shares. The Fund may elect to mark to market its PFIC shares,
resulting in the shares being treated as sold at fair market value on the last
business day of each taxable year. Any resulting gain would be reported as
ordinary income; any resulting loss and any loss from an actual disposition of
the shares would be reported as ordinary loss to the extent of any net gains
reported in prior years. Under another election that currently is available in
some circumstances, the Fund generally would be required to include in its gross
income its share of the earnings of a PFIC on a current basis, regardless of
whether distributions are received from the PFIC in a given year.
DEBT SECURITIES ACQUIRED AT A DISCOUNT
Some of the debt securities (with a fixed maturity date of more than
one year from the date of issuance) that may be acquired by the Fund may be
treated as debt securities that are issued originally at a discount. Generally,
the amount of the original issue discount ("OID") is treated as interest income
and is included in income over the term of the debt security, even though
payment of that amount is not received until a later time, usually when the debt
security matures.
Some of the debt securities (with a fixed maturity date of more than
one year from the date of issuance) that may be acquired by the Fund in the
secondary market may be treated as having market discount. Generally, gain
recognized on the disposition of, and any partial payment of principal on, a
debt security having market discount is treated as ordinary income to the extent
the gain, or principal payment, does not exceed the "accrued market discount" on
such debt security. In addition, the deduction of any interest expenses
attributable to debt securities having market discount may be deferred. Market
discount generally accrues in equal daily installments. The Fund may make one or
more of the elections applicable to debt securities having market discount,
which could affect the character and timing of recognition of income.
Some debt securities (with a fixed maturity date of one year or less
from the date of issuance) that may be acquired by the Fund may be treated as
having acquisition discount, or OID in the case of certain types of debt
securities. Generally, the Fund will be required to include the acquisition
discount, or OID, in income over the term of the debt security, even though
payment of that amount is not received until a later time, usually when the debt
security matures. The Fund may make one or more of the elections applicable to
debt securities having acquisition discount, or OID, which could affect the
character and timing of recognition of income.
The Fund generally will be required to distribute dividends to
shareholders representing discount on debt securities that is currently
includable in income, even though cash representing such income may not have
been received by the Fund. Cash to pay such dividends may be obtained from sales
proceeds of securities held by the Fund.
DISTRIBUTIONS
Distributions of investment company taxable income are taxable to a
U.S. shareholder as ordinary income, whether paid in cash or shares. Dividends
paid by the Fund to a corporate shareholder, to the extent such dividends are
attributable to dividends received from U.S. corporations by the Fund, may
qualify for the dividends received deduction. However, the revised alternative
minimum tax applicable to corporations may reduce the value of the dividends
received deduction. Distributions of net capital gains (the excess of net
long-term capital gains over net short-term capital losses), if any, designated
by the Fund as capital gain dividends, are taxable to shareholders as long-term
capital gains whether paid in cash or in shares, and regardless of how long the
shareholder has held the Fund's shares; such distributions are not eligible for
the dividends received deduction. Shareholders receiving distributions in the
form of newly issued shares will have a cost basis in each share received equal
to the net asset value of a share of the Fund on the distribution date. A
distribution of an amount in excess of the Fund's current and accumulated
earnings and profits will be treated by a shareholder as a return of capital
which is applied against and reduces the shareholder's basis in his or her
shares. To the extent that the amount of any such distribution exceeds the
shareholder's basis in his or her shares, the excess will be treated by the
shareholder as gain from a sale or exchange of the shares. Shareholders will be
notified annually as to the U.S. Federal tax status of distributions and
shareholders receiving distributions in the form of newly issued shares will
receive a report as to the net asset value of the shares received.
If the net asset value of shares is reduced below a shareholder's cost
as a result of a distribution by the Fund, such distribution generally will be
taxable even though it represents a return of invested capital. Shareholders
should be careful to consider the tax implications of buying shares just prior
to a distribution. The price of shares purchased at this time may reflect the
amount of the forthcoming distribution. Those purchasing just prior to a
distribution will receive a distribution which generally will be taxable to
them.
DISPOSITION OF SHARES
Upon a redemption, sale or exchange of his or her shares, a shareholder
will realize a taxable gain or loss depending upon his or her basis in the
shares. Such gain or loss will be treated as capital gain or loss if the shares
are capital assets in the shareholder's hands and, if so, will be long-term or
short-term, depending upon the shareholder's holding period for the shares. Any
loss realized on a redemption sale or exchange will be disallowed to the extent
the shares disposed of are replaced (including through reinvestment of
dividends) within a period of 61 days beginning 30 days before and ending 30
days after the shares are disposed of. In such a case, the basis of the shares
acquired will be adjusted to reflect the disallowed loss. Any loss realized by a
shareholder on the sale of Fund shares held by the shareholder for six-months or
less will be treated for tax purposes as a long-term capital loss to the extent
of any distributions of capital gain dividends received or treated as having
been received by the shareholder with respect to such shares.
In some cases, shareholders will not be permitted to take all or
portion of their sales loads into account for purposes of determining the amount
of gain or loss realized on the disposition of their shares. This prohibition
generally applies where (1) the shareholder incurs a sales load in acquiring the
shares of the Fund, (2) the shares are disposed of before the 91st day after the
date on which they were acquired, and (3) the shareholder subsequently acquires
shares in the Fund or another regulated investment company and the otherwise
applicable sales charge is reduced under a "reinvestment right" received upon
the initial purchase of Fund shares. The term "reinvestment right" means any
right to acquire shares of one or more regulated investment companies without
the payment of a sales load or with the payment of a reduced sales charge. Sales
charges affected by this rule are treated as if they were incurred with respect
to the shares acquired under the reinvestment right. This provision may be
applied to successive acquisitions of fund shares.
FOREIGN WITHHOLDING TAXES
Income received by the Fund from sources within a foreign country may
be subject to withholding and other taxes imposed by that country.
If more than 50% of the value of the Fund's total assets at the close
of its taxable year consists of securities of foreign corporations, the Fund
will be eligible and may elect to "pass-through" to the Fund's shareholders the
amount of foreign income and similar taxes paid by the Fund. Pursuant to this
election, a shareholder will be required to include in gross income (in addition
to taxable dividends actually received) his or her pro rata share of the foreign
income and similar taxes paid by the Fund, and will be entitled either to deduct
his or her pro rata share of foreign income and similar taxes in computing his
or her taxable income or to use it as a foreign tax credit against his or her
U.S. Federal income taxes, subject to limitations. No deduction for foreign
taxes may be claimed by a shareholder who does not itemize deductions. Foreign
taxes generally may not be deducted by a shareholder that is an individual in
computing the alternative minimum tax. Each shareholder will be notified within
60 days after the close of the Fund's taxable year whether the foreign taxes
paid by the Fund will "pass-through" for that year and, if so, such notification
will designate (1) the shareholder's portion of the foreign taxes paid to each
such country and (2) the portion of the dividend which represents income derived
from sources within each such country.
Generally, except in the case of certain electing individual taxpayers
who have limited creditable foreign taxes and no foreign source income other
than passive investment-type income, a credit for foreign taxes is subject to
the limitation that it may not exceed the shareholder's U.S. tax attributable to
his or her total foreign source taxable income. For this purpose, if the Fund
makes the election described in the preceding paragraph, the source of the
Fund's income flows through to its shareholders. With respect to the Fund, gains
from the sale of securities generally will be treated as derived from U.S.
sources and section 988 gains will be treated as ordinary income derived from
U.S. sources. The limitation on the foreign tax credit is applied separately to
foreign source passive income, including foreign source passive income received
from the Fund. In addition, the foreign tax credit may offset only 90% of the
revised alternative minimum tax imposed on corporations and individuals.
Furthermore, the foreign tax credit is eliminated with respect to foreign taxes
withheld on dividends if the dividend-paying shares or the shares of the Fund
are held by the Fund or the shareholder, as the case may be, for less than 16
days (46 days in the case of preferred shares) during the 30-day period (90-day
period for preferred shares) beginning 15 days (45 days for preferred shares)
before the shares become ex-dividend. In addition, if the Fund fails to satisfy
these holding period requirements, it cannot elect to pass through to
shareholders the ability to claim a deduction for related foreign taxes.
The foregoing is only a general description of the foreign tax credit
under current law. Because application of the credit depends on the particular
circumstances of each shareholder, shareholders are advised to consult their own
tax advisers.
BACKUP WITHHOLDING
The Fund will be required to report to the Internal Revenue Service
("IRS") all taxable distributions as well as gross proceeds from the redemption
of the Fund's shares, except in the case of certain exempt shareholders. All
such distributions and proceeds will be subject to withholding of Federal income
tax at a rate of 31% ("backup withholding") in the case of non-exempt
shareholders if (1) the shareholder fails to furnish the Fund with and to
certify the shareholder's correct taxpayer identification number or social
security number, (2) the IRS notifies the shareholder or the Fund that the
shareholder has failed to report properly certain interest and dividend income
to the IRS and to respond to notices to that effect, or (3) when required to do
so, the shareholder fails to certify that he or she is not subject to backup
withholding. If the withholding provisions are applicable, any such
distributions or proceeds, whether reinvested in additional shares or taken in
cash, will be reduced by the amounts required to be withheld.
Distributions may also be subject to additional state, local and
foreign taxes depending on each shareholder's particular situation. Non-U.S.
shareholders may be subject to U.S. tax rules that differ significantly from
those summarized above. This discussion does not purport to deal with all of the
tax consequences applicable to the Fund or shareholders. Shareholders are
advised to consult their own tax advisers with respect to the particular tax
consequences to them of an investment in the Fund.
PERFORMANCE INFORMATION
Performance information for the classes of shares of the Fund may be
compared, in reports and promotional literature, to: (i) the S&P 500 Index, the
Dow Jones Industrial Average ("DJIA"), or other unmanaged indices so that
investors may compare the Fund's results with those of a group of unmanaged
securities widely regarded by investors as representative of the securities
markets in general; (ii) other groups of mutual funds tracked by Lipper
Analytical Services, a widely used independent research firm that ranks mutual
funds by overall performance, investment objectives and assets, or tracked by
other services, companies, publications or other criteria; and (iii) the
Consumer Price Index (measure for inflation) to assess the real rate of return
from an investment in the Fund. Unmanaged indices may assume the reinvestment of
dividends but generally do not reflect deductions or administrative and
management costs and expenses. Performance rankings are based on historical
information and are not intended to indicate future performance.
YIELD. Quotations of yield for a specific class of shares of the Fund
will be based on all investment income attributable to that class earned during
a particular 30-day (or one month) period (including dividends and interest),
less expenses attributable to that class accrued during the period ("net
investment income"), and will be computed by dividing the net investment income
per share of that class earned during the period by the maximum offering price
per share (in the case of Class A shares) or the net asset value per share (in
the case of Class B and Class C shares) on the last day of the period, according
to the following formula:
YIELD = 2[({(a-b)/cd} + 1){superscript 6}-1]
Where: a = dividends and interest earned during the period attributable to
a specific class of shares,
b = expenses accrued for the period attributable to that class (net of
reimbursements),
c = the average daily number of shares of that class outstanding during the
period that were entitled to receive dividends, and
d = the maximum offering price per share (in the case of Class A shares) or
the net asset value per share (in the case of Class B and Class C shares)
on the last day of the period.
AVERAGE ANNUAL TOTAL RETURN. Quotations of standardized average annual
total return ("Standardized Return") for a specific class of shares of the Fund
will be expressed in terms of the average annual compounded rate of return that
would cause a hypothetical investment in that class of the Fund made on the
first day of a designated period to equal the ending redeemable value ("ERV") of
such hypothetical investment on the last day of the designated period, according
to the following formula:
P(1 + T){superscript n} = ERV
Where: P = a hypothetical initial payment of $1,000 to purchase shares of a
specific class
T = the average annual total return of shares of that class
n = the number of years
ERV = the ending redeemable value of a hypothetical $1,000 payment made at
the beginning of the period.
For purposes of the above computation for the Fund, it is assumed that
all dividends and capital gains distributions made by the Fund are reinvested at
net asset value in additional shares of the same class during the designated
period. In calculating the ending redeemable value for Class A shares and
assuming complete redemption at the end of the applicable period, the maximum
5.75% sales charge is deducted from the initial $1,000 payment and, for Class B
and Class C shares, the applicable CDSC imposed upon redemption of Class B or
Class C shares held for the period is deducted. Standardized Return quotations
for the Fund do not take into account any required payments for federal or state
income taxes. Standardized Return quotations for Class B shares for periods of
over eight years will reflect conversion of the Class B shares to Class A shares
at the end of the eighth year. Standardized Return quotations are determined to
the nearest 1/100 of 1%.
The Fund may, from time to time, include in advertisements, promotional
literature or reports to shareholders or prospective investors total return data
that are not calculated according to the formula set forth above
("Non-Standardized Return"). Neither initial nor CDSCs are taken into account in
calculating Non-Standardized Return; a sales charge, if deducted, would reduce
the return.
The following table summarizes the calculation of Standardized and
Non-Standardized Return for the Class A, Class B, Class C and Advisor Class
shares of the Fund for the periods indicated. In determining the average annual
total return for a specific class of shares of the Fund, recurring fees, if any,
that are charged to all shareholder accounts are taken into consideration. For
any account fees that vary with the size of the account of the Fund, the account
fee used for purposes of the following computations is assumed to be the fee
that would be charged to the mean account size of the Fund.
STANDARDIZED RETURN[*]
<TABLE>
<S> <C> <C> <C> <C>
CLASS A[1] CLASS B[2] CLASS C[3] ADVISOR CLASS
Year ended December 31,
1998
% % % %
Five years ended
December 31, 1998
% % % %
Inception [#] to year
ended December 31, 1998
[7]: % % % %
NON-STANDARDIZED RETURN[**]
CLASS A[4] CLASS B[5] CLASS C[6] ADVISOR CLASS
Year ended December 31,
1998
% % % %
Five years ended
December 31, 1998
% % % %
Inception [#] to year
ended December 31, 1998
[7]: % % % %
- ------------------------- ----------------- ------------------ -------------------
</TABLE>
[*] The Standardized Return figures for Class A shares reflect the
deduction of the maximum initial sales charge of 5.75%. The Standardized Return
figures for Class B and C shares reflect the deduction of the applicable CDSC
imposed on redemption of Class B or C shares held for the period.
[**] The Non-Standardized Return figures do not reflect the deduction of
any initial sales charge or CDSC.
[#] The inception date for the Fund was March 3, 1993. Class A shares
of the Fund were first offered for sale to the public on April 30,1993, and
Class B shares of the Fund were first offered for sale to the public on October
23, 1993. The inception date for the Class C shares of the Fund was April 30,
1996. Advisor Class shares were first offered on January 1, 1998.
[1] The Standardized Return figures for the Class A shares reflect
expense reimbursement. Without expense reimbursement, the Standardized Return
for Class A shares for the period from inception through and the one and five
year periods ended December 31, 1998 would have been [ %].
[2] The Standardized Return figures for the Class B shares reflect
expense reimbursement. Without expense reimbursement, the Standardized Return
for Class B shares for the period from inception through and the one and five
year periods ended December 31, 1998 would have been [ %].
[3] The Standardized Return figures for the Class C shares reflect
expense reimbursement. Without expense reimbursement, the Standardized Return
for Class C shares for the period from inception through and the one and five
year periods ended December 31, 1998 would have been [ %].
[4] The Non-Standardized Return figures for Class A shares reflect
expense reimbursement. Without expense reimbursement, the Non-Standardized
Return for Class A shares for the period from inception through and the one and
five year periods ended December 31, 1998 would have been [ %].
[5] The Non-Standardized Return figures for Class B shares reflect
expense reimbursement. Without expense reimbursement, the Non-Standardized
Return for Class B shares for the period from inception through and the one and
five year periods ended December 31, 1998 would have been [ %].
[6] The Non-Standardized Return figures for Class C shares reflect
expense reimbursement. Without expense reimbursement, the Non-Standardized
Return for Class C shares for the period from inception through and the one and
five year periods ended December 31, 1998 would have been [ %].
[7] The total return for a period less than a full year is calculated
on an aggregate basis and is not annualized.
CUMULATIVE TOTAL RETURN. Cumulative total return is the cumulative rate
of return on a hypothetical initial investment of $1,000 in a specific class of
shares of the Fund for a specified period. Cumulative total return quotations
reflect changes in the price of the Fund's shares and assume that all dividends
and capital gains distributions during the period were reinvested in the Fund
shares. Cumulative total return is calculated by computing the cumulative rates
of return of a hypothetical investment in a specific class of shares of the Fund
over such periods, according to the following formula (cumulative total return
is then expressed as a percentage):
C = (ERV/P) - 1
Where: C = cumulative total return
P = a hypothetical initial investment of $1,000 to purchase shares of a
specific class
ERV = ending redeemable value: ERV is the value, at the end of the
applicable period, of a hypothetical $1,000 investment made at the
beginning of the applicable period.
The following table summarizes the calculation of Cumulative Total
Return for the periods indicated through December 31, 1998, assuming the maximum
5.75% sales charge has been assessed.
ONE YEAR SINCE
INCEPTION[*]
Class A
Class B
Class C
Advisor Class
The following table summarizes the calculation of Cumulative Total
Return for the periods indicated through December 31, 1998, assuming the maximum
5.75% sales charge has not been assessed.
ONE YEAR SINCE
INCEPTION[*]
Class A
Class B
Class C
Advisor Class
- ---------------------------
[*] The inception date for the Fund was March 3, 1993. Class A shares
of the Fund were first offered for sale to the public on April 30, 1993, and
Class B shares were first offered for sale to the public on October 23, 1993.
The inception date for Class C shares was April 30, 1996. The inception date for
Advisor Class shares was January 1, 1998.
OTHER QUOTATIONS, COMPARISONS AND GENERAL INFORMATION. The foregoing
computation methods are prescribed for advertising and other communications
subject to SEC Rule 482. Communications not subject to this rule may contain a
number of different measures of performance, computation methods and
assumptions, including but not limited to: historical total returns; results of
actual or hypothetical investments; changes in dividends, distributions or share
values; or any graphic illustration of such data. These data may cover any
period of the Trust's existence and may or may not include the impact of sales
charges, taxes or other factors.
Performance quotations for the Fund will vary from time to time
depending on market conditions, the composition of the Fund's portfolio and
operating expenses of the Fund. These factors and possible differences in the
methods used in calculating performance quotations should be considered when
comparing performance information regarding the Fund's shares with information
published for other investment companies and other investment vehicles.
Performance quotations should also be considered relative to changes in the
value of the Fund's shares and the risks associated with the Fund's investment
objectives and policies. At any time in the future, performance quotations may
be higher or lower than past performance quotations and there can be no
assurance that any historical performance quotation will continue in the future.
The Fund may also cite endorsements or use for comparison its
performance rankings and listings reported in such newspapers or business or
consumer publications as, among others: AAII Journal, Barron's, Boston Business
Journal, Boston Globe, Boston Herald, Business Week, Consumer's Digest, Consumer
Guide Publications, Changing Times, Financial Planning, Financial World, Forbes,
Fortune, Growth Fund Guide, Houston Post, Institutional Investor, International
Fund Monitor, Investor's Daily, Los Angeles Times, Medical Economics, Miami
Herald, Money Mutual Fund Forecaster, Mutual Fund Letter, Mutual Fund Source
Book, Mutual Fund Values, National Underwriter, Nelson's Directory of Investment
Managers, New York Times, Newsweek, No Load Fund Investor, No Load Fund* X,
Oakland Tribune, Pension World, Pensions and Investment Age, Personal Investor,
Rugg and Steele, Time, U.S. News and World Report, USA Today, The Wall Street
Journal, and Washington Post.
FINANCIAL STATEMENTS
The Fund's Portfolio of Investments as of December 31, 1998, Statement
of Assets and Liabilities as of December 31, 1998, Statement of Operations for
the fiscal year ended December 31, 1998, Statement of Changes in Net Assets for
the fiscal year ended December 31, 1998, Financial Highlights, Notes to
Financial Statements, and Report of Independent Accountants, which are included
in the Fund's December 31, 1998 Annual Report to shareholders, are incorporated
by reference into this SAI.
<PAGE>
APPENDIX A
DESCRIPTION OF STANDARD & POOR'S RATINGS GROUP ("S&P") AND
MOODY'S INVESTORS SERVICE, INC. ("MOODY'S") CORPORATE
BOND AND COMMERCIAL PAPER RATINGS
[From "Moody's Bond Record," November 1994 Issue (Moody's Investors
Service, New York, 1994), and "Standard & Poor's Municipal Ratings
Handbook," October 1997 Issue (McGraw Hill, New York, 1997).]
MOODY'S:
(a) CORPORATE BONDS. Bonds rated Aaa by Moody's are judged by Moody's
to be of the best quality, carrying the smallest degree of investment risk.
Interest payments are protected by a large or exceptionally stable margin and
principal is secure. While the various protective elements are likely to change,
such changes as can be visualized are most unlikely to impair the fundamentally
strong position of such issues. Bonds rated Aa are judged by Moody's to be of
high quality by all standards. Aa bonds are rated lower than Aaa bonds because
margins of protection may not be as large as those of Aaa bonds, or fluctuations
of protective elements may be of greater amplitude, or there may be other
elements present which make the long-term risks appear somewhat larger than
those applicable to Aaa securities. Bonds which are rated A by Moody's possess
many favorable investment attributes and are to be considered as upper
medium-grade obligations. Factors giving security to principal and interest are
considered adequate, but elements may be present which suggest a susceptibility
to impairment sometime in the future. Bonds rated Baa by Moody's are considered
medium-grade obligations (i.e., they are neither highly protected nor poorly
secured). Interest payments and principal security appear adequate for the
present, but certain protective elements may be lacking or may be
characteristically unreliable over any great length of time. Such bonds lack
outstanding investment characteristics and in fact have speculative
characteristics as well. Bonds which are rated Ba are judged to have speculative
elements; their future cannot be considered well-assured. Often the protection
of interest and principal payments may be very moderate and thereby not well
safeguarded during both good and bad times over the future. Uncertainty of
position characterizes bonds in this class. Bonds which are rated B generally
lack characteristics of the desirable investment. Assurance of interest and
principal payments of or maintenance of other terms of the contract over any
long period of time may be small. Bonds which are rated Caa are of poor
standing. Such issues may be in default or there may be present elements of
danger with respect to principal or interest. Bonds which are rated Ca represent
obligations which are speculative in a high degree. Such issues are often in
default or have other marked shortcomings. Bonds which are rated C are the
lowest rated class of bonds and issues so rated can be regarded as having
extremely poor prospects of ever attaining any real investment standing.
(b) COMMERCIAL PAPER. The Prime rating is the highest commercial paper
rating assigned by Moody's. Among the factors considered by Moody's in assigning
ratings are the following: (1) evaluation of the management of the issuer; (2)
economic evaluation of the issuer's industry or industries and an appraisal of
speculative-type risks which may be inherent in certain areas; (3) evaluation of
the issuer's products in relation to competition and customer acceptance; (4)
liquidity; (5) amount and quality of long-term debt; (6) trend of earnings over
a period of ten years; (7) financial strength of a parent company and the
relationships which exist with the issuer; and (8) recognition by management of
obligations which may be present or may arise as a result of public interest
questions and preparations to meet such obligations. Issuers within this Prime
category may be given ratings 1, 2 or 3, depending on the relative strengths of
these factors. The designation of Prime-1 indicates the highest quality
repayment capacity of the rated issue. Issuers rated Prime-2 are deemed to have
a strong ability for repayment while issuers voted Prime-3 are deemed to have an
acceptable ability for repayment. Issuers rated Not Prime do not fall within any
of the Prime rating categories.
S&P:
(a) CORPORATE BONDS. An S&P corporate debt rating is a current
assessment of the creditworthiness of an obligor with respect to a specific
obligation. The ratings are based on current information furnished by the issuer
or obtained by S&P from other sources it considers reliable. The ratings
described below may be modified by the addition of a plus or minus sign to show
relative standing within the major rating categories.
Debt rated AAA has the highest rating assigned by S&P. Capacity to pay
interest and repay principal is extremely strong. Debt rated AA is judged by S&P
to have a very strong capacity to pay interest and repay principal and differs
from the highest rated issues only in small degree. Debt rated A by S&P has a
strong capacity to pay interest and repay principal, although it is somewhat
more susceptible to the adverse effects of changes in circumstances and economic
conditions than debt in higher rated categories.
Debt rated BBB by S&P is regarded by S&P as having an adequate capacity
to pay interest and repay principal. Although such bonds normally exhibit
adequate protection parameters, adverse economic conditions or changing
circumstances are more likely to lead to a weakened capacity to pay interest and
repay principal than debt in higher rated categories.
Debt rated BB, B, CCC, CC and C is regarded as having predominately
speculative characteristics with respect to capacity to pay interest and repay
principal. BB indicates the least degree of speculation and C the highest. While
such debt will likely have some quality and protective characteristics, these
are outweighed by large uncertainties or exposures to adverse conditions. Debt
rated BB has less near-term vulnerability to default than other speculative
issues. However, it faces major ongoing uncertainties or exposure to adverse
business, financial or economic conditions which could lead to inadequate
capacity to meet timely interest and principal payments. The BB rating category
is also used for debt subordinated to senior debt that is assigned an actual or
implied BBB- rating. Debt rated B has a greater vulnerability to default but
currently has the capacity to meet interest payments and principal repayments.
Adverse business, financial, or economic conditions will likely impair capacity
or willingness to pay interest and repay principal. The B rating category is
also used for debt subordinated to senior debt that is assigned an actual or
implied BB or BB- rating. Debt rated CCC has a currently identifiable
vulnerability to default, and is dependent upon favorable business, financial,
and economic conditions to meet timely payment of interest and repayment of
principal. In the event of adverse business, financial or economic conditions,
it is not likely to have the capacity to pay interest and repay principal. The
CCC rating category is also used for debt subordinated to senior debt that is
assigned an actual or implied B or B- rating. The rating CC typically is applied
to debt subordinated to senior debt which is assigned an actual or implied CCC
debt rating. The rating C typically is applied to debt subordinated to senior
debt which is assigned an actual or implied CCC- debt rating. The C rating may
be used to cover a situation where a bankruptcy petition has been filed, but
debt service payments are continued.
The rating CI is reserved for income bonds on which no interest is
being paid. Debt rated D is in payment default. The D rating category is used
when interest payments or principal payments are not made on the date due, even
if the applicable grace period has not expired, unless S&P believes that such
payments will be made during such grace period. The D rating also will be used
upon the filing of a bankruptcy petition if debt service payments are
jeopardized.
(b) COMMERCIAL PAPER. An S&P commercial paper rating is a current
assessment of the likelihood of timely payment of debt considered short-term in
the relevant market.
The commercial paper rating A-1 by S&P indicates that the degree of
safety regarding timely payment is strong. Those issues determined to possess
extremely strong safety characteristics are denoted with a plus sign (+)
designation. For commercial paper with an A-2 rating, the capacity for timely
payment on issues is satisfactory, but not as high as for issues designated A-1.
Issues rated A-3 have adequate capacity for timely payment, but are more
vulnerable to the adverse effects of changes in circumstances than obligations
carrying higher designations.
Issues rated B are regarded as having only speculative capacity for
timely payment. The C rating is assigned to short-term debt obligations with a
doubtful capacity for payment. Debt rated D is in payment default. The D rating
category is used when interest payments or principal payments are not made on
the date due, even if the applicable grace period has not expired, unless S&P
believes such payments will be made during such grace period.
<PAGE>
PART C. OTHER INFORMATION
Item 23: Exhibits:
(a) Articles of Incorporation:
(1) Amended and Restated Declaration of
Trust dated December 10, 1992, filed with
Post-Effective Amendment No. 102 to Registration
Statement No. 2-17613 and incorporated by reference
herein.
(2) Redesignation of Shares of Beneficial
Interest and Establishment and Designation of
Additional Series and Classes of Shares of Beneficial
Interest (No Par Value) filed with Post-Effective
Amendment No. 102 to Registration Statement No.
2-17613 and incorporated by reference herein.
(3) Amendment to Amended and Restated Declaration of
Trust, filed with Post-Effective Amendment No. 102 to
Registration Statement No. 2-17613 and incorporated
by reference herein.
(4) Amendment to Amended and Restated Declaration of
Trust, filed with Post-Effective Amendment No. 102 to
Registration Statement No. 2-17613 and incorporated
by reference herein.
(5) Establishment and Designation of Additional Series
(Ivy Emerging Growth Fund), filed with Post-Effective
Amendment No. 102 to Registration Statement No.
2-17613 and incorporated by reference herein.
(6) Redesignation of Shares (Ivy Growth with Income
Fund--Class A) and Establishment and Designation of
Additional Class (Ivy Growth with Income Fund--Class
C), filed with Post-Effective Amendment No. 102 to
Registration Statement No. 2-17613 and incorporated
by reference herein.
(7) Redesignation of Shares (Ivy Emerging Growth
Fund--Class A, Ivy Growth Fund--Class A and Ivy
International Fund--Class A), filed with
Post-Effective Amendment No. 102 to Registration
Statement No. 2-17613 and incorporated by reference
herein.
(8) Establishment and Designation of Additional Series
(Ivy China Region Fund), filed with Post-Effective
Amendment No. 102 to Registration Statement No.
2-17613 and incorporated by reference herein.
(9) Establishment and Designation of Additional Class
(Ivy China Region Fund--Class B, Ivy Emerging Growth
Fund--Class B, Ivy Growth Fund--Class B, Ivy Growth
with Income Fund--Class B and Ivy International
Fund--Class B), filed with Post-Effective Amendment
No. 102 to Registration Statement No. 2-17613 and
incorporated by reference herein.
(10) Establishment and Designation of Additional Class
(Ivy International Fund--Class I), filed with
Post-Effective Amendment No. 102 to Registration
Statement No. 2-17613 and incorporated by reference
herein.
(11) Establishment and Designation of Series and Classes
(Ivy Latin American Strategy Fund--Class A and Class
B, Ivy New Century Fund--Class A and Class B), filed
with Post-Effective Amendment No. 102 to Registration
Statement No. 2-17613 and
incorporated by reference herein.
(12) Establishment and Designation of Series and Classes
(Ivy International Bond Fund--Class A and Class B),
filed with Post-Effective Amendment No. 102 to
Registration Statement No. 2-17613 and incorporated
by reference herein.
(13) Establishment and Designation of Series and Classes
(Ivy Bond Fund, Ivy Canada Fund, Ivy Global Fund, Ivy
Short-Term US Government Securities Fund (now known
as Ivy Short-Term Bond Fund) -- Class A and Class B),
filed with Post-Effective Amendment No. 102 to
Registration Statement No. 2-17613 and incorporated
by reference herein.
(14) Redesignation of Ivy Short-Term U.S. Government
Securities Fund as Ivy Short-Term Bond Fund, filed
with Post-Effective Amendment No. 102 to Registration
Statement No. 2-17613 and incorporated by reference
herein.
(15) Redesignation of Shares (Ivy Money Market Fund--Class
A and Ivy Money Market Fund--Class B), filed with
Post-Effective Amendment No. 84 to Registration
Statement No. 2-17613 and incorporated by reference
herein.
(16) Form of Establishment and Designation of Additional
Class (Ivy Bond Fund--Class C; Ivy Canada Fund--Class
C; Ivy China Region Fund--Class C; Ivy Emerging
Growth Fund--Class C; Ivy Global Fund--Class C; Ivy
Growth Fund--Class C; Ivy Growth with Income
Fund--Class C; Ivy International Fund--Class C; Ivy
Latin America Strategy Fund--Class C; Ivy
International Bond Fund--Class C; Ivy Money Market
Fund--Class C; Ivy New Century Fund--Class C), filed
with Post-Effective Amendment No. 84 to Registration
Statement No. 2-17613 and incorporated by reference
herein.
(17) Establishment and Designation of Series and Classes
(Ivy Global Science & Technology Fund--Class A, Class
B, Class C and Class I), filed with Post-Effective
Amendment No. 86 to Registration Statement No.
2-17613 and incorporated by reference herein.
(18) Establishment and designation of Series and Classes
(Ivy Global Natural Resources Fund--Class A, Class B
and Class C; Ivy Asia Pacific Fund--Class A, Class B
and Class C; Ivy International Small Companies
Fund--Class A, Class B, Class C and Class I), filed
with Post-Effective Amendment No. 89 to Registration
Statement No. 2-17613 and incorporated by reference
herein.
(19) Establishment and designation of Series and Classes
(Ivy Pan-Europe Fund--Class A, Class B and Class C),
filed with Post-Effective Amendment No. 92 to
Registration Statement No. 2-17613 and incorporated
by reference herein.
(20) Establishment and designation of Series and Classes
(Ivy International Fund II--Class A, Class B, Class C
and Class I), filed with Post-Effective Amendment No.
94 to Registration Statement No. 2-17613 and
incorporated by reference herein.
(21) Form of Establishment and Designation of Additional
Class (Ivy Asia Pacific Fund--Advisor Class; Ivy Bond
Fund--Advisor Class; Ivy Canada Fund--Advisor Class;
Ivy China Region Fund--Advisor Class; Ivy Emerging
Growth Fund--Advisor Class; Ivy Global Fund--Advisor
Class; Ivy Global Natural Resources Fund--Advisor
Class; Ivy Global Science & Technology Fund--Advisor
Class; Ivy Growth Fund--Advisor Class; Ivy Growth
with Income Fund--Advisor Class; Ivy International
Bond Fund--Advisor Class; Ivy International Fund
II--Advisor Class; Ivy International Small Companies
Fund--Advisor Class; Ivy Latin America Strategy
Fund--Advisor Class; Ivy New Century Fund--Advisor
Class; Ivy Pan-Europe Fund--Advisor Class), filed
with Post-Effective Amendment No. 96 to Registration
Statement No. 2-17613 and incorporated by reference
herein.
(22) Redesignations of Series and Classes (Ivy Emerging
Growth Fund redesignated as Ivy US Emerging Growth
Fund; Ivy New Century Fund redesignated as Ivy
Developing Nations Fund; and, Ivy Latin America
Strategy Fund redesignated as Ivy South America
Fund), filed with Post-Effective Amendment No. 97 to
Registration Statement 2-17613 and incorporated by
reference herein.
(23) Redesignation of Series and Classes and Establishment
and Designation of Additional Class (Ivy
International Bond Fund redesignated as Ivy High
Yield Fund; Class I shares of Ivy High Yield Fund
established), filed with Post-Effective Amendment No.
98 to Registration Statement 2-17613 and incorporated
by reference herein.
(24) Establishment and designation of Series and Classes
(Ivy US Blue Chip Fund--Class A, Class B, Class C,
Class I and Advisor Class), filed with Post-Effective
Amendment No. 101 to Registration Statement 2-17613
and incorporated by reference herein.
(25) Redesignation of Series and Classes (Ivy High Yield
Fund redesignated as Ivy International Strategic Bond
Fund) to be filed by amendment.
(26) Establishment and designation of Series and Classes
(Ivy European Opportunities Fund -- Class A, Class B,
Class C, Class I and Advisor Class) to be filed by
amendment.
(b) By-laws:
(1) By-Laws, as amended, filed with
Post-Effective Amendment No. 102 to Registration
Statement No. 2-17613 and incorporated by reference
herein.
(c) Instruments Defining the Rights of Security
Holders:
(1) Specimen Securities for Ivy Growth Fund,
Ivy Growth with Income Fund, Ivy International Fund
and Ivy Money Market Fund, filed with Post-Effective
Amendment No. 49 to Registration Statement No.
2-17613 and incorporated by reference herein.
(2) Specimen Security for Ivy Emerging
Growth Fund, filed with Post-Effective Amendment No.
70 to Registration Statement No. 2-17613 and
incorporated by reference herein.
(3) Specimen Security for Ivy China Region
Fund, filed with Post-Effective Amendment No. 74 to
Registration Statement No. 2-17613 and incorporated
by reference herein.
(4) Specimen Security for Ivy Latin American
Strategy Fund, filed with Post-Effective Amendment
No. 75 to Registration Statement No. 2-17613 and
incorporated by reference herein.
(5) Specimen Security for Ivy New Century
Fund, filed with Post-Effective Amendment No. 75 to
Registration Statement No. 2-17613 and incorporated
by reference herein.
(6) Specimen Security for Ivy International
Bond Fund, filed with Post-Effective Amendment No. 76
to Registration Statement No. 2-17613 and
incorporated by reference herein.
(7) Specimen Securities for Ivy Bond Fund,
Ivy Canada Fund, Ivy Global Fund, and Ivy Short-Term
U.S. Government Securities Fund, filed with
Post-Effective Amendment No. 77 to Registration
Statement No. 2-17613 and incorporated by reference
herein.
(d) Investment Advisory Contracts:
(1) Master Business Management and
Investment Advisory Agreement between Ivy Fund and
Ivy Management, Inc. and Supplements for Ivy Growth
Fund, Ivy Growth with Income Fund, Ivy International
Fund and Ivy Money Market Fund, filed with
Post-Effective Amendment No. 102 to Registration
Statement No. 2-17613 and incorporated by reference
herein.
(2) Subadvisory Contract by and among Ivy
Fund, Ivy Management, Inc. and Boston Overseas
Investors, Inc., filed with Post-Effective Amendment
No. 102 to Registration Statement No. 2-17613 and
incorporated by reference herein.
(3) Assignment Agreement relating to
Subadvisory Contract, filed with Post-Effective
Amendment No. 102 to Registration Statement No.
2-17613 and incorporated by reference herein.
(4) Business Management and Investment
Advisory Agreement Supplement for Ivy Emerging Growth
Fund, filed with Post-Effective Amendment No. 102 to
Registration Statement No. 2-17613 and incorporated
by reference herein.
(5) Business Management and Investment
Advisory Agreement Supplement for Ivy China Region
Fund, filed with Post-Effective Amendment No. 102 to
Registration Statement No. 2-17613 and incorporated
by reference herein.
(6) Business Management and Investment
Advisory Supplement for Ivy Latin America Strategy
Fund, filed with Post-Effective Amendment No. 102 to
Registration Statement No. 2-17613 and incorporated
by reference herein.
(7) Business Management and Investment
Advisory Agreement Supplement for Ivy New Century
Fund, filed with Post-Effective Amendment No. 102 to
Registration Statement No. 2-17613 and incorporated
by reference herein.
(8) Business Management and Investment
Advisory Agreement Supplement for Ivy International
Bond Fund, filed with Post-Effective Amendment No.
102 to Registration Statement No. 2-17613 and
incorporated by reference herein.
(9) Business Management and Investment
Advisory Agreement Supplement for Ivy Bond Fund, Ivy
Global Fund and Ivy Short-Term U.S. Government
Securities Fund, filed with Post-Effective Amendment
No. 102 to Registration Statement No. 2-17613 and
incorporated by reference herein.
(10) Master Business Management Agreement
between Ivy Fund and Ivy Management, Inc., filed with
Post-Effective Amendment No. 102 to Registration
Statement No. 2-17613 and incorporated by reference
herein.
(11) Supplement to Master Business Agreement
between Ivy Fund and Ivy Management, Inc. (Ivy Canada
Fund), filed with Post-Effective Amendment No. 102 to
Registration Statement No. 2-17613 and incorporated
by reference herein.
(12) Investment Advisory Agreement between
Ivy Fund and Mackenzie Financial Corporation, filed
with Post-Effective Amendment No. 102 to Registration
Statement No. 2-17613 and incorporated by reference
herein.
(13) Form of Supplement to Master Business
Management and Investment Advisory Agreement between
Ivy Fund and Ivy Management, Inc. (Ivy Global Science
& Technology Fund), filed with Post-Effective
Amendment No. 86 to Registration Statement No.
2-17613 and incorporated by reference herein.
(14) Form of Supplement to Master Business
Management and Investment Advisory Agreement between
Ivy Fund and Ivy Management, Inc. (Ivy Asia Pacific
Fund and Ivy International Small Companies Fund),
filed with Post-Effective Amendment No. 89 to
Registration Statement No. 2-17613 and incorporated
by reference herein.
(15) Form of Supplement to Master Business
Management Agreement between Ivy Fund and Ivy
Management, Inc. (Ivy Global Natural Resources Fund),
filed with Post-Effective Amendment No. 89 to
Registration Statement No. 2-17613 and incorporated
by reference herein.
(16) Form of Supplement to Investment
Advisory Agreement between Ivy Fund and Mackenzie
Financial Corporation (Ivy Global Natural Resources
Fund), filed with Post-Effective Amendment No. 89 to
Registration Statement No. 2-17613 and incorporated
by reference herein.
(17) Form of Supplement to Master Business
Management and Investment Advisory Agreement between
Ivy Fund and Ivy Management, Inc. (Ivy Pan-Europe
Fund), filed with Post-Effective Amendment No. 94 to
Registration Statement No. 2-17613 and incorporated
by reference herein.
(18) Form of Supplement to Master Business
Management and Investment Advisory Agreement between
Ivy Fund and Ivy Management, Inc. (Ivy International
Fund II), filed with Post-Effective Amendment No. 94
to Registration Statement No. 2-17613 and
incorporated by reference herein.
(19) Addendum to Master Business Management
and Investment Advisory Agreement between Ivy Fund
and Ivy Management, Inc. (Ivy Developing Nations
Fund, Ivy South America Fund, Ivy US Emerging Growth
Fund), filed with Post-Effective Amendment No. 98 to
Registration Statement No. 2-17613 and incorporated
by reference herein.
(20) Supplement to Master Business
Management and Investment Advisory Agreement between
Ivy Fund and Ivy Management, Inc. (Ivy High Yield
Fund), filed with Post-Effective Amendment No. 98 to
Registration Statement No. 2-17613 and incorporated
by reference herein.
(21) Supplement to Master Business
Management and Investment Advisory Agreement between
Ivy Fund and Ivy Management, Inc. (Ivy US Blue Chip
Fund), filed with Post-Effective Amendment No. 101 to
Registration Statement 2-17613 and incorporated by
reference herein.
(22) Supplement to Master Business Management and Investment
Advisory Agreement between Ivy Fund and Ivy Management, Inc. (Ivy
International Strategic Bond Fund) to be filed by amendment.
(23) Supplement to Master Business Management and Investment
Advisory Agreement between Ivy Fund and Ivy Management, Inc. (Ivy
European Opportunities Fund) to be filed by amendment.
(24) Subadvisory Agreement between Ivy
Management, Inc. and Henderson Investment Management
Limited to be filed by amendment.
(e) Underwriting Contracts:
(1) Dealer Agreement, as amended, filed with
Post-Effective Amendment No. 102 to Registration
Statement No. 2-17613 and incorporated by reference
herein.
(2) Amended and Restated Distribution Agreement,
filed with Post-Effective Amendment No. 102 to
Registration Statement No. 2-17613 and incorporated
by reference herein.
(3) Addendum to Amended and Restated Distribution
Agreement, filed with Post-Effective Amendment No.
102 to Registration Statement No. 2-17613 and
incorporated by reference herein.
(4) Addendum to Amended and Restated Distribution
Agreement (Ivy Money Market Fund--Class A and Class
B), filed with Post-Effective Amendment No. 84 to
Registration Statement No. 2-17613 and incorporated
by reference herein.
(5) Form of Addendum to Amended and Restated
Distribution Agreement (Class C), filed with
Post-Effective Amendment No. 84 to Registration
Statement No. 2-17613 and incorporated by reference
herein.
(6) Form of Addendum to Amended and Restated
Distribution Agreement (Ivy Global Science &
Technology Fund--Class A, Class B, Class C and Class
I), filed with Post-Effective Amendment No. 86 to
Registration Statement No. 2-17613 and incorporated
by reference herein.
(7) Form of Addendum to Amended and Restated
Distribution Agreement (Ivy Global Natural Resources
Fund--Class A, Class B and Class C; Ivy Asia Pacific
Fund--Class A, Class B and Class C; Ivy International
Small Companies Fund--Class A, Class B, Class C, and
Class I), filed with Post-Effective Amendment No. 89
to Registration Statement No. 2-17613 and
incorporated by reference herein.
(8) Form of Addendum to Amended and Restated
Distribution Agreement (Ivy Pan-Europe Fund--Class A,
Class B and Class C), filed with Post-Effective
Amendment No. 94 to Registration Statement No.
2-17613 and incorporated by reference herein.
(9) Form of Addendum to Amended and Restated
Distribution Agreement (Ivy International Fund
II--Class A, Class B, Class C and Class I), filed
with Post-Effective Amendment No. 94 to Registration
Statement No. 2-17613 and incorporated
by reference herein.
(10) Form of Addendum to Amended and Restated
Distribution Agreement (Advisor Class), filed with
Post-Effective Amendment No. 96 to Registration
Statement No. 2-17613 and incorporated by reference
herein.
(11) Addendum to Amended and Restated Distribution
Agreement (Ivy Developing Nations Fund, Ivy South
America Fund, Ivy US Emerging Growth Fund), filed
with Post-Effective Amendment No. 98 to Registration
Statement No. 2-17613 and incorporated by reference
herein.
(12) Addendum to Amended and Restated Distribution
Agreement (Ivy High Yield Fund), filed with
Post-Effective Amendment No. 98 to Registration
Statement No. 2-17613 and incorporated by reference
herein.
(13) Addendum to Amended and Restated Distribution
Agreement (Ivy US Blue Chip Fund), filed with
Post-Effective Amendment No. 101 to Registration
Statement 2-17613 and incorporated by reference
herein.
(14) Addendum to Amended and Restated Distribution
Agreement (Ivy International Strategic Bond Fund) to
be filed by amendment.
(15) Addendum to Amended and Restated Distribution
Agreement (Ivy European Opportunities Fund) to be
filed by amendment.
(16) Form of Amended and Restated Distribution
Agreement, filed herewith.
(f) Bonus or Profit Sharing Contracts: Inapplicable.
(g) Custodian Agreements:
(1) Custodian Agreement between Ivy Fund and Brown Brothers Harriman
& Co., filed with Post-Effective Amendment No. 102 to
Registration Statement No. 2-17613 and incorporated by reference
herein.
(h) Other Material Contracts:
(1) Master Administrative Services Agreement
between Ivy Fund and Mackenzie Investment Management
Inc. and Supplements for Ivy Growth Fund, Ivy Growth
with Income Fund, Ivy International Fund and Ivy
Money Market Fund, filed with Post-Effective
Amendment No. 102 to Registration Statement No.
2-17613 and incorporated by reference herein.
(2) Addendum to Administrative Services
Agreement Supplement for Ivy International Fund,
filed with Post-Effective Amendment No. 102 to
Registration Statement No. 2-17613 and incorporated
by reference herein.
(3) Administrative Services Agreement Supplement for Ivy Emerging
Growth Fund, filed with Post-Effective Amendment No. 102 to
Registration Statement No. 2-17613 and incorporated by reference
herein.
(4) Administrative Services Agreement Supplement for Ivy Money Market
Fund, filed with Post-Effective Amendment No. 102 to Registration
Statement No. 2-17613 and incorporated by reference herein.
(5) Administrative Services Agreement Supplement for Ivy China Region
Fund, filed with Post-Effective Amendment No. 102 to Registration
Statement No. 2-17613 and incorporated by reference herein.
(6) Administrative Services Agreement
Supplement for Class I Shares of Ivy International
Fund, filed with Post-Effective Amendment No. 102 to
Registration Statement No. 2-17613 and incorporated
by reference herein.
(7) Master Fund Accounting Services
Agreement between Ivy Fund and Mackenzie Investment
Management Inc. and Supplements for Ivy Growth Fund,
Ivy Emerging Growth Fund and Ivy Money Market Fund,
filed with Post-Effective Amendment No. 102 to
Registration Statement No. 2-17613 and incorporated
by reference herein.
(8) Fund Accounting Services Agreement
Supplement for Ivy Growth with Income Fund, filed
with Post-Effective Amendment No. 102 to Registration
Statement No. 2-17613 and incorporated by reference
herein.
(9) Fund Accounting Services Agreement
Supplement for Ivy China Region Fund, filed with
Post-Effective Amendment No. 102 to Registration
Statement No. 2-17613 and incorporated by reference
herein.
(10) Transfer Agency and Shareholder
Services Agreement between Ivy Fund and Ivy
Management, Inc., filed with Post-Effective Amendment
No. 102 to Registration Statement No. 2-17613 and
incorporated by reference herein.
(11) Addendum to Transfer Agency and
Shareholder Services Agreement, filed with
Post-Effective Amendment No. 102 to Registration
Statement No. 2-17613 and incorporated by reference
herein.
(12) Assignment Agreement relating to
Transfer Agency and Shareholder Services Agreement,
filed with Post-Effective Amendment No. 102 to
Registration Statement No. 2-17613 and incorporated
by reference herein.
(13) Administrative Services Agreement
Supplement for Ivy Latin America Strategy Fund, filed
with Post-Effective Amendment No. 102 to Registration
Statement No. 2-17613 and incorporated by reference
herein.
(14) Administrative Services Agreement
Supplement for Ivy New Century Fund, filed with
Post-Effective Amendment No. 102 to Registration
Statement No. 2-17613 and incorporated by reference
herein.
(15) Fund Accounting Services Agreement
Supplement for Ivy Latin America Strategy Fund, filed
with Post-Effective Amendment No. 102 to Registration
Statement No. 2-17613 and incorporated by reference
herein.
(16) Fund Accounting Services Agreement
Supplement for Ivy New Century Fund, filed with
Post-Effective Amendment No. 102 to Registration
Statement No. 2-17613 and incorporated by reference
herein.
(17) Addendum to Transfer Agency and
Shareholder Services Agreement, filed with
Post-Effective Amendment No. 102 to Registration
Statement No. 2-17613 and incorporated by reference
herein.
(18) Administrative Services Agreement
Supplement for Ivy International Bond Fund, filed
with Post-Effective Amendment No. 102 to Registration
Statement No. 2-17613 and incorporated by reference
herein.
(19) Fund Accounting Services Agreement
Supplement for International Bond Fund, filed with
Post-Effective Amendment No. 102 to Registration
Statement No. 2-17613 and incorporated by reference
herein.
(20) Addendum to Transfer Agency and
Shareholder Services Agreement, filed with
Post-Effective Amendment No. 102 to Registration
Statement No. 2-17613 and incorporated by reference
herein.
(21) Addendum to Transfer Agency and
Shareholder Services Agreement, filed with
Post-Effective Amendment No. 102 to Registration
Statement No. 2-17613 and incorporated by reference
herein.
(22) Administrative Services Agreement
Supplement for Ivy Bond Fund, Ivy Global Fund and Ivy
Short-Term U.S. Government Securities Fund, filed
with Post-Effective Amendment No. 102 to Registration
Statement No. 2-17613 and incorporated by reference
herein.
(23) Fund Accounting Services Agreement
Supplement for Ivy Bond Fund, Ivy Global Fund and Ivy
Short-Term U.S. Government Securities Fund, filed
with Post-Effective Amendment No. 102 to Registration
Statement No. 2-17613 and incorporated by reference
herein.
(24) Form of Administrative Services
Agreement Supplement (Class C) for Ivy Bond Fund, Ivy
Canada Fund, Ivy China Region Fund, Ivy Emerging
Growth Fund, Ivy Global Fund, Ivy Growth Fund, Ivy
Growth with Income Fund, Ivy International Fund, Ivy
International Bond Fund, Ivy Latin America Strategy
Fund, Ivy Money Market Fund and Ivy New Century Fund,
filed with Post-Effective Amendment No. 84 to
Registration Statement No. 2-17613 and incorporated
by reference herein.
(25) Form of Addendum to Transfer Agency and
Shareholder Services Agreement (Class C), filed with
Post-Effective Amendment No. 84 to Registration
Statement No. 2-17613 and incorporated by reference
herein.
(26) Form of Administrative Services
Agreement Supplement for Ivy Global Science &
Technology Fund, filed with Post-Effective Amendment
No. 86 to Registration Statement No. 2-17613 and
incorporated by reference herein.
(27) Form of Fund Accounting Services
Agreement Supplement for Ivy Global Science &
Technology Fund, filed with Post-Effective Amendment
No. 86 to Registration Statement No. 2-17613 and
incorporated by reference herein.
(28) Form of Addendum to Transfer Agency and
Shareholder Services Agreement for Ivy Global Science
& Technology Fund, filed with Post-Effective
Amendment No. 86 to Registration Statement No.
2-17613 and incorporated by reference herein.
(29) Form of Administrative Services
Agreement Supplement for Ivy Global Natural Resources
Fund, Ivy Asia Pacific Fund and Ivy International
Small Companies Fund, filed with Post-Effective
Amendment No. 89 to Registration Statement No.
2-17613 and incorporated by reference herein.
(30) Form of Fund Accounting Services
Agreement Supplement for Ivy Global Natural Resources
Fund, Ivy Asia Pacific Fund and Ivy International
Small Companies Fund, filed with Post-Effective
Amendment No. 89 to Registration Statement No.
2-17613 and incorporated by reference herein.
(31) Form of Addendum to Transfer Agency and
Shareholder Services Agreement for Ivy Global Natural
Resources Fund, Ivy Asia Pacific Fund and Ivy
International Small Companies Fund, filed with
Post-Effective Amendment No. 89 to Registration
Statement No. 2-17613 and incorporated by reference
herein.
(32) Form of Administrative Services
Agreement Supplement for Ivy Pan-Europe Fund, filed
with Post-Effective Amendment No. 94 to Registration
Statement No. 2-17613 and incorporated by reference
herein.
(33) Form of Fund Accounting Services
Agreement Supplement for Ivy Pan-Europe Fund, filed
with Post-Effective Amendment No. 94 to Registration
Statement No. 2-17613 and incorporated by reference
herein.
(34) Form of Addendum to Transfer Agency and
Shareholder Services Agreement for Ivy Pan-Europe
Fund, filed with Post-Effective Amendment No. 94 to
Registration Statement No. 2-17613 and incorporated
by reference herein.
(35) Form of Administrative Services
Agreement Supplement for Ivy International Fund II,
filed with Post-Effective Amendment No. 94 to
Registration Statement No. 2-17613 and incorporated
by reference herein.
(36) Form of Fund Accounting Services
Agreement Supplement for Ivy International Fund II,
filed with Post-Effective Amendment No. 94 to
Registration Statement No. 2-17613 and incorporated
by reference herein.
(37) Form of Addendum to Transfer Agency and
Shareholder Services Agreement for Ivy International
Fund II, filed with Post-Effective Amendment No. 94
to Registration Statement No. 2-17613 and
incorporated by reference herein.
(38) Form of Administrative Services
Agreement Supplement (Advisor Class) for Ivy Asia
Pacific Fund, Ivy Bond Fund, Ivy Canada Fund, Ivy
China Region Fund, Ivy Emerging Growth Fund, Ivy
Global Fund, Ivy Global Natural Resources Fund, Ivy
Global Science & Technology Fund, Ivy Growth Fund,
Ivy Growth with Income Fund, Ivy International Bond
Fund, Ivy International Fund II, Ivy International
Small Companies Fund, Ivy Latin America Strategy
Fund, Ivy New Century Fund and Ivy Pan-Europe Fund,
filed with Post-Effective Amendment No. 96 to
Registration Statement No. 2-17613 and incorporated
by reference herein.
(39) Form of Addendum to Transfer Agency and
Shareholder Services Agreement (Advisor Class), filed
with Post-Effective Amendment No. 96 to Registration
Statement No. 2-17613 and incorporated by reference
herein.
(40) Addendum to Administrative Services
Agreement (Ivy Developing Nations Fund, Ivy South
America Fund, Ivy US Emerging Growth Fund), filed
with Post-Effective Amendment No. 98 to Registration
Statement No. 2-17613 and incorporated by reference
herein.
(41) Addendum to Fund Accounting Services
Agreement (Ivy Developing Nations Fund, Ivy South
America Fund, Ivy US Emerging Growth Fund), filed
with Post-Effective Amendment No. 98 to Registration
Statement No. 2-17613 and incorporated by reference
herein.
(42) Addendum to Transfer Agency and
Shareholder Services Agreement (Ivy Developing
Nations Fund, Ivy South America Fund, Ivy US Emerging
Growth Fund, Ivy High Yield Fund), filed with
Post-Effective Amendment No. 98 to Registration
Statement No. 2-17613 and incorporated by reference
herein.
(43) Addendum to Fund Accounting Services
Agreement (Ivy High Yield Fund), filed with
Post-Effective Amendment No. 98 to Registration
Statement No. 2-17613 and incorporated by reference
herein.
(44) Addendum to Administrative Services
Agreement (Ivy High Yield Fund), filed with
Post-Effective Amendment No. 98 to Registration
Statement No. 2-17613 and incorporated by reference
herein.
(45) Amended Addendum to Transfer Agency and
Shareholder Services Agreement (Ivy Developing
Nations Fund, Ivy South America Fund, Ivy US Emerging
Growth Fund, Ivy High Yield Fund), filed with
Post-Effective Amendment No. 98 to Registration
Statement No. 2-17613 and incorporated by reference
herein (a corrected version of which was filed with
Post-Effective Amendment No. 99).
(46) Addendum to Transfer Agency and
Shareholder Services Agreement (Ivy US Blue Chip
Fund), filed with Post-Effective Amendment No. 101 to
Registration Statement 2-17613 and incorporated by
reference herein.
(47) Addendum to Fund Accounting Services
Agreement (Ivy US Blue Chip Fund), to be filed with
Post-Effective Amendment No. 101 to Registration
Statement 2-17613 and incorporated by reference
herein.
(48) Addendum to Administrative Services
Agreement (Ivy US Blue Chip Fund), filed with
Post-Effective Amendment No. 101 to Registration
Statement 2-17613 and incorporated by reference
herein.
(49) Addendum to Transfer Agency and
Shareholder Services Agreement (Ivy International
Strategic Bond Fund) to be filed by amendment.
(50) Addendum to Fund Accounting Services
Agreement (Ivy International Strategic Bond Fund) to
be filed by amendment.
(51) Addendum to Administrative Services
Agreement (Ivy International Strategic Bond Fund) to
be filed by amendment.
(52) Addendum to Transfer Agency and
Shareholder Services Agreement (Ivy European
Opportunities Fund) to be filed by amendment.
(53) Addendum to Fund Accounting Services
Agreement (Ivy European Opportunities Fund) to be
filed by amendment.
(54) Addendum to Administrative Services
Agreement (Ivy European Opportunities Fund) to be
filed by amendment.
(i) Legal Opinion: To be filed by amendment.
(j) Other Opinions: To be filed by amendment.
(k) Omitted Financial Statements: Not applicable.
(l) Initial Capital Agreements: Not applicable.
(m) Rule 12b-1 Plan:
(1) Amended and Restated Distribution Plan
for Class A shares of Ivy China Region Fund, Ivy
Growth Fund, Ivy Growth with Income Fund, Ivy
International Fund and Ivy Emerging Growth Fund,
filed with Post-Effective Amendment No. 102 to
Registration Statement No. 2-17613 and incorporated
by reference herein.
(2) Distribution Plan for Class B shares of
Ivy China Region Fund, Ivy Growth Fund, Ivy Growth
with Income Fund, Ivy International Fund and Ivy
Emerging Growth Fund, filed with Post-Effective
Amendment No. 102 to Registration Statement No.
2-17613 and incorporated by reference herein.
(3) Distribution Plan for Class C Shares of
Ivy Growth with Income Fund, filed with
Post-Effective Amendment No. 102 to Registration
Statement No. 2-17613 and incorporated by reference
herein.
(4) Form of Rule 12b-1 Related Agreement,
filed with Post-Effective Amendment No. 102 to
Registration Statement No. 2-17613 and incorporated
by reference herein.
(5) Supplement to Master Amended and
Restated Distribution Plan for Ivy Fund Class A
Shares, filed with Post-Effective Amendment No. 102
to Registration Statement No. 2-17613 and
incorporated by reference herein.
(6) Supplement to Distribution Plan for Ivy
Fund Class B Shares, filed with Post-Effective
Amendment No. 103 to Registration Statement No.
2-17613 and incorporated by reference herein.
(7) Supplement to Master Amended and
Restated Distribution Plan for Ivy Fund Class A
Shares, filed with Post-Effective Amendment No. 103
to Registration Statement No. 2-17613 and
incorporated by reference herein.
(8) Supplement to Distribution Plan for Ivy
Fund Class B Shares, filed with Post-Effective
Amendment No. 103 to Registration Statement No.
2-17613 and incorporated by reference herein.
(9) Supplement to Master Amended and
Restated Distribution Plan for Ivy Fund Class A
Shares, filed with Post-Effective Amendment No. 103
to Registration Statement No. 2-17613 and
incorporated by reference herein.
(10) Supplement to Distribution Plan for Ivy
Fund Class B Shares, filed with Post-Effective
Amendment No. 103 to Registration Statement No.
2-17613 and incorporated by reference herein.
(11) Form of Supplement to Distribution Plan
for Ivy Growth with Income Fund Class C Shares
(Redesignation as Class D Shares), filed with
Post-Effective Amendment No. 84 to Registration
Statement No. 2-17613 and incorporated by reference
herein.
(12) Form of Distribution Plan for Class C
shares of Ivy Bond Fund, Ivy Canada Fund, Ivy China
Region Fund, Ivy Emerging Growth Fund, Ivy Global
Fund, Ivy Growth Fund, Ivy Growth with Income Fund,
Ivy International Fund, Ivy International Bond Fund,
Ivy Latin America Strategy Fund and Ivy New Century
Fund, filed with Post-Effective Amendment No. 85 to
Registration Statement No. 2-17613 and incorporated
by reference herein.
(13) Form of Supplement to Master Amended
and Restated Distribution Plan for Ivy Fund Class A
Shares (Ivy Global Science & Technology Fund), filed
with Post-Effective Amendment No. 87 to Registration
Statement No. 2-17613 and incorporated by reference
herein.
(14) Form of Supplement to Distribution Plan
for Ivy Fund Class B Shares (Ivy Global Science &
Technology Fund), filed with Post-Effective Amendment
No. 87 to Registration Statement No. 2-17613 and
incorporated by reference herein.
(15) Form of Supplement to Distribution Plan
for Ivy Fund Class C Shares (Ivy Global Science &
Technology Fund), filed with Post-Effective Amendment
No. 87 to Registration Statement No. 2-17613 and
incorporated by reference herein.
(16) Form of Supplement to Master Amended
and Restated Distribution Plan for Ivy Fund Class A
Shares (Ivy Global Natural Resources Fund, Ivy Asia
Pacific Fund and Ivy International Small Companies
Fund), filed with Post-Effective Amendment No. 89 to
Registration Statement No. 2-17613 and incorporated
by reference herein.
(17) Form of Supplement to Distribution Plan
for Ivy Fund Class B Shares (Ivy Global Natural
Resources Fund, Ivy Asia Pacific Fund and Ivy
International Small Companies Fund), filed with
Post-Effective Amendment No. 89 to Registration
Statement No. 2-17613 and incorporated by reference
herein.
(18) Form of Supplement to Distribution Plan
for Ivy Fund Class C Shares (Ivy Global Natural
Resources Fund, Ivy Asia Pacific Fund and Ivy
International Small Companies Fund), filed with
Post-Effective Amendment No. 89 to Registration
Statement No. 2-17613 and incorporated by reference
herein.
(19) Form of Supplement to Master Amended
and Restated Distribution Plan for Ivy Fund Class A
Shares (Ivy Pan-Europe Fund), filed with
Post-Effective Amendment No. 94 to Registration
Statement No. 2-17613 and incorporated by reference
herein.
(20) Form of Supplement to Distribution Plan
for Ivy Fund Class B Shares (Ivy Pan-Europe Fund),
filed with Post-Effective Amendment No. 94 to
Registration Statement No. 2-17613 and incorporated
by reference herein.
(21) Form of Supplement to Distribution Plan
for Ivy Fund Class C Shares (Ivy Pan-Europe Fund),
filed with Post-Effective Amendment No. 94 to
Registration Statement No. 2-17613 and incorporated
by reference herein.
(22) Form of Supplement to Master Amended
and Restated Distribution Plan for Ivy Fund Class A
Shares (Ivy International Fund II), filed with
Post-Effective Amendment No. 94 to Registration
Statement No. 2-17613 and incorporated by reference
herein.
(23) Form of Supplement to Distribution Plan
for Ivy Fund Class B Shares (Ivy International Fund
II), filed with Post-Effective Amendment No. 94 to
Registration Statement No. 2-17613 and incorporated
by reference herein.
(24) Form of Supplement to Distribution Plan
for Ivy Fund Class C Shares (Ivy International Fund
II), filed with Post-Effective Amendment No. 94 to
Registration Statement No. 2-17613 and incorporated
by reference herein.
(25) Amendment to Master Amended and
Restated Distribution Plan for Ivy Fund Class A
Shares (Ivy Developing Nations Fund, Ivy South
America Fund, Ivy US Emerging Growth Fund), filed
with Post-Effective Amendment No. 98 to Registration
Statement No. 2-17613 and incorporated by reference
herein.
(26) Amendment to Distribution Plan for Ivy
Fund Class B Shares (Ivy Developing Nations Fund, Ivy
South America Fund, Ivy US Emerging Growth Fund),
filed with Post-Effective Amendment No. 98 to
Registration Statement No. 2-17613 and incorporated
by reference herein.
(27) Amendment to Distribution Plan for Ivy
Fund Class C Shares (Ivy Developing Nations Fund, Ivy
South America Fund, Ivy US Emerging Growth Fund),
filed with Post-Effective Amendment No. 98 to
Registration Statement No. 2-17613 and incorporated
by reference herein.
(28) Supplement to Master Amended and
Restated Distribution Plan for Ivy Fund Class A
Shares (Ivy High Yield Fund), filed with
Post-Effective Amendment No. 98 to Registration
Statement No. 2-17613 and incorporated by reference
herein.
(29) Supplement to Distribution Plan for Ivy
Fund Class B Shares (Ivy High Yield Fund), filed with
Post-Effective Amendment No. 98 to Registration
Statement No. 2-17613 and incorporated by reference
herein.
(30) Supplement to Distribution Plan for Ivy
Fund Class C Shares (Ivy High Yield Fund), filed with
Post-Effective Amendment No. 98 to Registration
Statement No. 2-17613 and incorporated by reference
herein.
(31) Supplement to Master Amended and
Restated Distribution Plan for Ivy Fund Class A
Shares (Ivy US Blue Chip Fund), filed with
Post-Effective Amendment No. 101 to Registration
Statement No. 2-17613 and incorporated by reference
herein.
(32) Supplement to Distribution Plan for Ivy
Fund Class B Shares (Ivy US Blue Chip Fund), filed
with Post-Effective Amendment No. 101 to Registration
Statement No. 2-17613 and incorporated by reference
herein.
(33) Supplement to Distribution Plan for Ivy
Fund Class C Shares (Ivy US Blue Chip Fund), filed
with Post-Effective Amendment No. 101 to Registration
Statement No. 2-17613 and incorporated by reference
herein.
(34) Supplement to Master Amended and
Restated Distribution Plan for Ivy Fund Class A
Shares (Ivy International Strategic Bond Fund), to be
filed by amendment.
(35) Supplement to Distribution Plan for Ivy
Fund Class B Shares (Ivy International Strategic Bond
Fund), to be filed by amendment.
(36) Supplement to Distribution Plan for Ivy
Fund Class C Shares (Ivy International Strategic Bond
Fund), to be filed by amendment.
(37) Supplement to Master Amended and
Restated Distribution Plan for Ivy Fund Class A
Shares (Ivy European Opportunities Fund), to be filed
by amendment.
(38) Supplement to Distribution Plan for Ivy
Fund Class B Shares (Ivy European Opportunities
Fund), to be filed by amendment.
(39) Supplement to Distribution Plan for Ivy Fund Class C Shares (Ivy
European Opportunities Fund), to be filed by amendment
(40) Form of Distribution Plan For Ivy Fund
Class B Shares, filed herewith.
(n) Financial Data Schedules: To be filed by amendment.
(o) Rule 18f-3 Plans:
(1) Plan adopted pursuant to Rule 18f-3
under the Investment Company Act of 1940, filed with
Post-Effective Amendment No. 83 to Registration
Statement No. 2-17613 and incorporated by reference
herein.
(2) Form of Amended and Restated Plan
adopted pursuant to Rule 18f-3 under the Investment
Company Act of 1940, filed with Post-Effective
Amendment No. 85 to Registration Statement No.
2-17613 and incorporated by reference herein.
(3) Form of Amended and Restated Plan
adopted pursuant to Rule 18f-3 under the Investment
Company Act of 1940, filed with Post-Effective
Amendment No. 87 to Registration Statement No.
2-17613 and incorporated by reference herein.
(4) Form of Amended and Restated Plan
adopted pursuant to Rule 18f-3 under the Investment
Company Act of 1940, filed with Post-Effective
Amendment No. 89 to Registration Statement No.
2-17613 and incorporated by reference herein.
(5) Form of Amended and Restated Plan
adopted pursuant to Rule 18f-3 under the Investment
Company Act of 1940, filed with Post-Effective
Amendment No. 92 to Registration Statement No.
2-17613 and incorporated by reference herein.
(6) Form of Amended and Restated Plan
adopted pursuant to Rule 18f-3 under the Investment
Company Act of 1940, filed with Post-Effective
Amendment No. 94 to Registration Statement No.
2-17613 and incorporated by reference herein.
(7) Form of Amended and Restated Plan
adopted pursuant to Rule 18f-3 under the Investment
Company Act of 1940, filed with Post-Effective
Amendment No. 96 to Registration Statement No.
2-17613 and incorporated by reference herein.
(8) Amended and Restated Plan adopted
pursuant to Rule 18f-3 under the Investment Company
Act of 1940, filed with Post-Effective Amendment No.
98 to Registration Statement No. 2-17613 and
incorporated by reference herein (a corrected version
of which was filed with Post-Effective Amendment No.
99).
(9) Amended and Restated Plan adopted
pursuant to Rule 18f-3 under the Investment Company
Act of 1940, filed with Post-Effective Amendment No.
101 to Registration Statement 2-17613 and
incorporated by reference herein.
(10) Amended and Restated Plan adopted
pursuant to Rule 18f-3 under the Investment Company
Act of 1940, to be filed by amendment.
Item 24. Persons Controlled by or Under Common Control with the Fund: Not
applicable
Item 25. Indemnification
A policy of insurance covering Ivy Management, Inc. and the
Registrant will insure the Registrant's trustees and officers
and others against liability arising by reason of an actual or
alleged breach of duty, neglect, error, misstatement,
misleading statement, omission or other negligent act.
Reference is made to Article VIII of the Registrant's Amended
and Restated Declaration of Trust, dated December 10, 1992,
filed with Post-Effective Amendment No. 71 to Registration
Statement No. 2-17613 and incorporated by reference herein.
Item 26. Business and Other Connections of Investment Adviser
Information Regarding Adviser and Subadviser Under Advisory
Arrangements. Reference is made to the Form ADV of each of Ivy
Management, Inc., the adviser to eighteen series of the Trust,
Mackenzie Financial Corporation, the adviser to Ivy Canada
Fund and Ivy Global Natural Resources Fund, Northern Cross
Investments Limited (the successor to Boston Overseas
Investors, Inc.), and Henderson Investment Management Limited,
the subadviser to Ivy International Small Companies Fund and
Ivy European Opportunities Fund.
The list required by this Item 26 of officers and directors of
Ivy Management, Inc., Mackenzie Financial Corporation,
Northern Cross Investments Limited and Henderson Investment
Management Limited, together with information as to any other
business profession, vocation or employment of a substantial
nature engaged in by such officers and directors during the
past two years, is incorporated by reference to Schedules A
and D of each firm's respective Form ADV.
Item 27. Principal Underwriters
(a) Ivy Mackenzie Distributors, Inc. ("IMDI"), formerly
Mackenzie Ivy Funds Distributors, Inc., Via Mizner Financial
Plaza, 700 South Federal Highway, Suite 300, Boca Raton,
Florida 33432, Registrant's distributor, is a subsidiary of
Mackenzie Investment Management Inc. ("MIMI"), Via Mizner
Financial Plaza, 700 South Federal Highway, Suite 300, Boca
Raton, Florida 33432. IMDI is the successor to MIMI's
distribution activities. IMDI also serves as the distributor
for Mackenzie Solutions.
(b) The information required by this Item 27 regarding each
director, officer or partner of IMDI is incorporated by
reference to Schedule A of Form BD filed by IMDI pursuant to
the Securities Exchange Act of 1934.
(c) Not applicable
Item 28. Location of Accounts and Records
The information required by this item is incorporated by
reference to Item 7 of Part II of Post-Effective Amendment No.
46 to Registration Statement No. 2-17613.
Item 29. Management Services: Not applicable.
Item 30. Undertakings: Not applicable
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Registrant has duly caused this
Post-Effective Amendment No. 107 to its Registration Statement to be signed on
its behalf by the undersigned, duly authorized, in the City of Boston, and the
Commonwealth of Massachusetts, on the 26th day of February, 1999.
IVY FUND
By: Keith J. Carlson**
President
By: /S/ JOSEPH R. FLEMING
Joseph R. Fleming, Attorney-in-Fact
Pursuant to the requirements of the Securities Act of 1933, this
Post-Effective Amendment No. 107 to the Registration Statement has been signed
below by the following persons in the capacities and on the dates indicated.
SIGNATURES TITLE DATE
MICHAEL G. LANDRY* Trustee and Chairman 2/26/99
(Chief Executive Officer)
JOHN S. ANDEREGG, JR.* Trustee 2/26/99
PAUL H. BROYHILL* Trustee 2/26/99
STANLEY CHANNICK* Trustee 2/26/99
FRANK W. DEFRIECE, JR.* Trustee 2/26/99
ROY J. GLAUBER* Trustee 2/26/99
KEITH J. CARLSON** Trustee and 2/26/99
President
JOSEPH G. ROSENTHAL* Trustee 2/26/99
RICHARD N. SILVERMAN* Trustee 2/26/99
J. BRENDAN SWAN* Trustee 2/26/99
C. WILLIAM FERRIS* Treasurer (Chief 2/26/99
Financial Officer)
By: /S/ JOSEPH R. FLEMING
Joseph R. Fleming, Attorney-in-Fact
* Executed pursuant to powers of attorney filed with Post-Effective
Amendments Nos. 69, 73, 74, 84 and 89 to Registration Statement No.
2-17613.
** Executed pursuant to power of attorney filed with Post-Effective
Amendment No. 89 to Registration Statement No. 2-17613.
<PAGE>
EXHIBIT INDEX
Exhibit (e)(16): Form of Amended and Restated Distribution Agreement
Exhibit (m)(40): Form of Distribution Plan For Ivy Fund Class B Shares
Ivy Mackenzie Distributors, Inc.
700 South Federal Highway, Suite 300
Boca Raton, Florida 33432
IVY FUND
AMENDED AND RESTATED DISTRIBUTION AGREEMENT
Dear Sirs:
This will confirm the agreement between the undersigned (the "Trust")
and you (the "Distributor") as follows:
1. The Trust is an open-end management investment company that currently has
twenty investment portfolios and that may create additional portfolios in
the future. One or more separate classes of shares of beneficial interest
in the Trust is offered to investors with respect to each portfolio. This
Agreement relates to Class A, Class B and Class C of Ivy Asia Pacific Fund,
Ivy Bond Fund, Ivy Canada Fund, Ivy China Region Fund, Ivy Developing
Nations Fund, Ivy European Opportunities Fund, Ivy Global Fund, Ivy Global
Natural Resources Fund, Ivy Global Science & Technology Fund, Ivy Growth
Fund, Ivy Growth with Income Fund, Ivy International Fund, Ivy
International Fund II, Ivy International Small Companies Fund, Ivy
International Strategic Bond Fund, Ivy Pan-Europe Fund, Ivy South America
Fund, Ivy US Blue Chip Fund and Ivy US Emerging Growth Fund (the "Equity
and Fixed Income Funds"), to Ivy Money Market Fund and to such other
portfolios as shall be designated from time to time by the Board of
Trustees in any supplement to a Plan (together with the Equity and Fixed
Income Funds, the "Funds"). The Trust engages in the business of investing
and reinvesting the assets of the Funds in the manner and in accordance
with their respective investment objectives and restrictions as specified
in the currently effective Prospectuses (the "Prospectuses") relating to
the Funds included in the Trust's Registration Statement, as amended from
time to time (the "Registration Statement"), filed by the Trust under the
Investment Company Act of 1940, as amended, (the "1940 Act") and the
Securities Act of 1933, as amended, (the "1933 Act"). Copies of the
documents referred to in the preceding sentence have been furnished to the
Distributor. Any amendments to those documents shall be furnished to the
Distributor promptly. The Trust has adopted a separate Distribution Plan
(each, a "Plan") for Class A, Class B and Class C of each of the Equity and
Fixed Income Funds pursuant to Rule 12b-1 under the 1940 Act.
2. As the Trust's agent, the Distributor shall be the exclusive distributor
for the unsold portion of shares of beneficial interest in Ivy Money Market
Fund and Class A, Class B and Class C shares of beneficial interest in the
Equity and Fixed Income Funds (the "Shares") which may from time to time be
registered under the 1933 Act.
3. The Trust shall sell the Shares to eligible investors as described in the
Prospectuses through the Distributor, as the Trust's agent. All orders for
Shares received by the Distributor shall be subject to acceptance and
confirmation by the Trust. The Trust shall have the right, at its election,
to deliver either (i) Shares issued upon original issue or (ii) treasury
shares.
4. As the Trust's agent, the Distributor may sell and distribute the Shares in
such manner not inconsistent with the provisions hereof and the Trust's
Prospectuses as the Distributor may determine from time to time. In this
connection, the Distributor shall comply with all laws, rules and
regulations applicable to it, including, without limiting the generality of
the foregoing, all applicable rules or regulations under the 1940 Act and
of any securities association registered under the Securities Exchange Act
of 1934, as amended (the "1934 Act").
5. To the extent permitted by its then effective Prospectuses, the Trust
reserves the right to sell the Shares to purchasers to the extent that it
or the transfer agent for the Shares receives purchase requests therefor.
The Trust reserves the right to refuse at any time or times to sell any
Shares for any reason deemed adequate by it.
6. All Shares offered for sale and sold by the Distributor shall be offered
for sale and sold by the Distributor to designated investors at the price
per Share specified and determined as provided in the Funds' Prospectuses,
including any applicable reduction or elimination of sales charges with
respect to Class A Shares of the Equity and Fixed Income Funds as provided
in the Equity and Fixed Income Funds' Prospectus (the "offering price").
The Trust shall determine and promptly furnish to the Distributor a
statement of the offering price at least once on each day on which the New
York Stock Exchange is open for trading. Each offering price shall become
effective at the time and shall remain in effect during the period
specified in the statement. Each such statement shall show the basis of its
computation.
7. (a) The Distributor shall be entitled to deduct a commission on all Class A
Shares sold equal to the difference, if any, between the offering price and
the net asset value on which such price is based. If any such commission is
received by a Fund, it will pay such commission to the Distributor. Out of
such commission, the Distributor may allow to dealers such concession as
the Distributor may determine from time to time. Notwithstanding anything
in this Agreement otherwise provided, sales may be made at net asset value
as provided in the Prospectuses for the Funds.
(b) The Distributor shall be entitled to deduct a contingent deferred sales
charge ("CDSC") on the redemption of certain Class A, Class B and Class C
Shares in accordance with, and in the manner set forth in, the Equity and
Fixed Income Funds' Prospectuses. The Distributor may reallow any or all of
such contingent deferred sales charges to dealers as the Distributor may
determine from time to time. Notwithstanding anything in this Agreement
otherwise provided, the Distributor may waive the contingent deferred sales
charge as disclosed in the Equity and Fixed Income Funds' Prospectuses.
(c) In respect of the Class B Shares of each Fund, the following provisions
shall apply:
(i) In consideration of the Distributor's services as principal distributor of
the Fund's Class B Shares pursuant to this contract and the Fund's
distribution plan in respect of such Shares (the "Class B Plan"), the
Trust, on behalf of such Fund, agrees: (I) to pay to the Distributor
monthly in arrears its "Allocable Portion" (as hereinafter defined) of a
fee (the "Distribution Fee") which shall accrue daily in an amount equal to
the product of (A) the daily equivalent of 0.75% per annum multiplied by
(B) the net asset value of the Class B Shares of the Fund outstanding on
such day, and (II) to withhold from redemption proceeds the Distributor's
Allocable Portion of the CDSCs and to pay the same over to the Distributor
or at its direction.
(ii) Each of the provisions set forth in clauses (I) through (V) of the third
sentence of paragraph 2 of the Class B Plan as in effect on the date
hereof, together with the related definitions and the Allocation Schedule
attached hereto as Exhibit A, are hereby incorporated herein by reference
with the same force and effect as if set forth herein in their entirety.
8. The Trust shall furnish the Distributor from time to time, for use in
connection with the sale of Shares, such information with respect to the
Trust as the Distributor may reasonably request. The Trust represents and
warrants that such information, when signed by one of its officers, shall
be true and correct. The Trust also shall furnish to the Distributor copies
of its reports to its shareholders and such additional information
regarding the Trust's financial condition as the Distributor may reasonably
request from time to time.
9. The Registration Statement and the Prospectuses have been or will be, as
the case may be, prepared in conformity with the 1933 Act, the 1940 Act and
the rules and regulations of the Securities and Exchange Commission (the
"SEC"). The Trust represents and warrants to the Distributor that the
Registration Statement and the Prospectuses contain or will contain all
statements required to be stated therein in accordance with the 1933 Act,
the 1940 Act and the rules and regulations thereunder, that all statements
of fact contained or to be contained therein are or will be true and
correct at the time indicated or the effective date, as the case may be,
and that neither the Registration Statement nor the Prospectuses, when they
shall become effective under the 1933 Act or be authorized for use, shall
include any untrue statement of a material fact or omit to state a material
fact required to be stated therein or necessary to make the statements
therein not misleading to a purchaser of Shares. The Trust shall from time
to time file such amendment or amendments to the Registration Statement and
the Prospectuses as, in the light of future developments, shall, in the
opinion of the Trust's counsel, be necessary in order to have the
Registration Statement and the Prospectuses at all times contain all
material facts required to be stated therein or necessary to make the
statements therein not misleading to a purchaser of Shares. The Trust
represents and warrants to the Distributor that any amendment to the
Registration or the Prospectuses filed hereafter by the Trust will, when it
becomes effective under the 1933 Act, contain all statements required to be
stated therein in accordance with the 1933 Act, the 1940 Act and the rules
and regulations thereunder, that all statements of fact contained therein
will, when the same shall become effective, be true and correct, and that
no such amendment, when it becomes effective, will include an untrue
statement of a material fact or will omit to state a material fact required
to be stated therein or necessary to make the statements therein not
misleading to a purchaser of Shares.
10. The Trust shall prepare and furnish to the Distributor from time to time
such number of copies of the most recent form of the Prospectuses for the
Funds filed with the SEC as the Distributor may reasonably request. The
Trust authorizes the Distributor to use the Prospectuses, in the form
furnished to the Distributor from time to time, in connection with the sale
of Shares. The Trust shall indemnify, defend and hold harmless the
Distributor, its officers and directors and any person who controls the
Distributor within the meaning of the 1933 Act, from and against any and
all claims, demands, liabilities and expenses (including the cost of
investigating or defending such claims, demands or liabilities and any
counsel fees incurred in connection therewith) that the Distributor, its
officers and directors or any such controlling person may incur under the
1933 Act, the 1940 Act, the common law or otherwise, arising out of or
based upon any alleged untrue statement of a material fact contained in the
Registration Statement or the Prospectuses or arising out of or based upon
any alleged omission to state a material fact required to be stated in
either or necessary to make the statements in either not misleading. This
contract shall not be construed to protect the Distributor against any
liability to the Trust or its shareholders to which the Distributor would
otherwise be subject by reason of willful misfeasance, bad faith or gross
negligence in the performance of its duties or by reason of its reckless
disregard of its obligations and duties under this contract. This indemnity
agreement and the Trust's representations and warranties in this contract
shall remain operative and in full force and effect regardless of any
investigation made by or on behalf of the Distributor, its officers and
directors or any such controlling person. This indemnity agreement shall
inure exclusively to the benefit of the Distributor and its successors, the
Distributor's officers and directors and their respective estates and any
such controlling persons and their successors and estates.
11. The Distributor agrees to indemnify, defend and hold harmless the Trust,
its officers and Trustees and any person who controls the Trust within the
meaning of the 1933 Act, from and against any and all claims, demands,
liabilities and expenses (including the cost of investigating or defending
such claims, demands or liabilities and any counsel fees incurred in
connection therewith) that the Trust, its officers or Trustees or any such
controlling person, may incur under the 1933 Act, the 1940 Act, the common
law or otherwise, but only to the extent that such liability or expenses
incurred by the Trust, its officers or Trustees or such controlling person
resulting from such claims or demands shall arise out of or be based upon
any untrue statement of a material fact contained in information furnished
in writing by the Distributor to the Trust specifically for use in the
Registration Statement or the Prospectuses or shall arise out of or based
upon any omission to state a material fact in connection with such
information required to be stated in the Registration Statement or the
Prospectuses or necessary to make such information not misleading.
12. No Shares shall be sold through the Distributor or by the Trust under this
contract and no orders for the purchase of Shares shall be confirmed or
accepted by the Trust if and so long as the effectiveness of the
Registration Statement shall be suspended under any of other provisions of
the 1933 Act. Nothing contained in this paragraph 12 shall in any way
restrict, limit or have any application to or bearing upon the Trust's
obligation to redeem Shares from any shareholder in accordance with the
provisions of its Agreement and Declaration of Trust. The Trust will use
its best efforts at all times to have the Shares effectively registered
under the 1933 Act. 13. The Trust agrees to advise the Distributor
immediately:
(a) of any request by the SEC for amendments to the Registration Statement or
the Funds' Prospectuses or for additional information;
(b) in the event of the issuance by the SEC of any stop order suspending the
effectiveness of the Registration Statement or the Funds' Prospectuses
under the 1933 Act or the initiation of any proceedings for that purpose;
(c) of the happening of any material event that makes untrue any statement made
in the Registration Statement or the Funds' Prospectuses or that requires
the making of a change in either thereof in order to make the statements
therein not misleading; and
(d) of all actions of the SEC with respect to any amendments to the
Registration Statement or the Funds' Prospectuses that may from time to
time be filed with the SEC under the 1933 Act or the 1940 Act.
14. Insofar as they concern the Trust, the Trust shall comply with all
applicable laws, rules and regulations, including, without limiting the
generality of the foregoing, all rules and regulations made or adopted
pursuant to the 1933 Act, the 1940 Act or by any securities association
registered under the 1934 Act.
15. The Distributor may, if it desires and at its own cost and expense, appoint
or employ agents to assist it in carrying out its obligations under this
contract, but no such appointment or employment shall relieve the
Distributor of any of its responsibilities or obligations to the Trust
under this contract.
16. (a) The Distributor shall from time to time employ or associate with it
such persons as it believes necessary to assist it in carrying out its
obligations under this contract. The compensation of such persons shall be
paid by the Distributor.
(b) The Trust shall execute all documents and furnish any information that may
be reasonably necessary in connection with the qualification of the Shares
for sale in jurisdictions designated by the Distributor.
17. The Distributor shall pay all expenses incurred in connection with its
qualification as a dealer or broker under Federal or state law. It is
understood and agreed that, so long as any Plan continues in effect, any
expenses incurred by the Distributor hereunder (as well as any other
expenses that may be permitted to be paid pursuant to a Plan) may be paid
from amounts received by it from the Trust under such Plan. The Trust shall
be responsible for all of its expenses and liabilities, including: (i) the
fees and expenses of the Trust's Trustees who are not interested persons
(as defined in the 1940 Act) of the Trust; (ii) the salaries and expenses
of any of the Trust's officers or employees who are not affiliated with the
Distributor; (iii) interest expenses; (iv) taxes and governmental fees,
including an original issue taxes or transfer taxes applicable to the sale
or delivery of Shares or certificates therefor; (v) brokerage commissions
and other expenses incurred in acquiring or disposing of portfolio
securities; (vi) the expenses of registering and qualifying Shares for sale
with the SEC and with various state securities commissions; (vii)
accounting and legal costs; (viii) insurance premiums; (ix) fees and
expenses of the Trust's Custodian and Transfer Agent and any related
services; (x) expenses of obtaining quotations of portfolio securities and
of pricing Shares; (xi) expenses of maintaining the Trust's legal existence
and of shareholders' meetings; (xii) expenses of preparing and distributing
to existing shareholders periodic reports, proxy materials and
Prospectuses; (xiii) fees and expenses of membership in industry
organizations; and (xiv) expenses of qualification of the Trust as a
foreign corporation authorized to do business in any jurisdiction if the
distributor determines that such qualification is necessary or desirable.
18. This contract shall continue in effect automatically for successive annual
periods, provided such continuance is specifically approved at least
annually (i) by a vote of a majority of the Trustees who are not parties to
the contract or interested persons (as defined in the 1940 Act) of any such
party and who have no director or indirect financial interest in the
operation of the Plans or in any related agreement (the "Independent
Trustees"), by vote cast in person at a meeting called for the purpose of
voting on such approval and (ii) either (a) by the vote of a majority of
the outstanding voting securities (as defined in the 1940 Act) of the Funds
or (b) by the vote of a majority of the entire Board of Trustees. This
contract may be terminated with respect to a Fund at any time, without
payment of any penalty, by a vote of a majority of the outstanding voting
securities of that Fund (as defined in the 1940 Act) or by a vote of a
majority of the Independent Trustees of the Trust on 60 days' written
notice to the Distributor or by the Distributor on 60 days' written notice
to the Trust. This contract shall terminate automatically in the event of
its assignment (as defined in the 1940 Act).
19. Except to the extent necessary to perform the Distributor's obligations
under this contract, nothing herein shall be deemed to limit or restrict
the right of the Distributor, or any affiliate of the Distributor, or any
employee of the Distributor, to engage in any other business or to devote
time and attention to the management or other aspects of any other
business, whether of a similar or dissimilar nature, or to render services
of any kind to any other corporation, firm, individual or association.
20. This contract shall be construed in accordance with the laws of the State
of Florida to the extent such laws are consistent with the 1940 Act.
21. The Trust's Agreement and Declaration of Trust, as amended and restated,
has been filed with the Secretary of State of The Commonwealth of
Massachusetts. The obligations of the Trust are not personally binding
upon, nor shall resort be had to the private property of any of the
Trustees, shareholders, officers, employees or agents of the Trust, but
only the Trust's property shall be bound.
If the foregoing correctly sets forth the agreement between the Trust
and the Distributor, please so indicate by signing and returning to the Trust
the enclosed copy hereof.
Very truly yours,
IVY FUND
By: ___________________________
Keith J. Carlson, President
ACCEPTED:
IVY MACKENZIE DISTRIBUTORS, INC.
By: _______________________________
Keith J. Carlson, President
Dated: __________________, 1999
<PAGE>
SCHEDULE A
to the
[NAME OF FUND]
Distribution Agreement
ALLOCATION PROCEDURES
The Distributor's Allocable Portion of Distribution Fees and Contingent
Deferred Sales Charges in respect of Shares of [the Trust/each Fund] shall be
100% until such time as the Distributor shall cease to serve as exclusive
distributor of Shares of [the Trust/such Fund]; thereafter collections which
constitute Contingent Deferred Sales Charges, and Asset Based Sales Charges
related to Shares of [the Trust/each Fund] shall be allocated among the
Distributor and any successor distributor ("Successor Distributor") in
accordance with this Schedule A.
Defined terms used in this Schedule (A) and not otherwise defined
herein shall have the meanings assigned to them in the Distribution Agreement.
As used herein the following terms shall have the meanings indicated:
"Commission Share" means in respect of [the Trust/any Fund], each Share
of [the Trust/such Fund], which is issued under circumstances which would
normally give rise to an obligation of the holder of such Share to pay a
Contingent Deferred Sales Charge upon redemption of such Share (including,
without limitation, any Share of [the Trust/such Fund] issued in connection with
a permitted free exchange) and any such Share shall continue to be a Commission
Share of [the Trust/such Fund] prior to the redemption (including a redemption
in connection with a permitted free exchange) or conversion of such Share, even
though the obligation to pay the Contingent Deferred Sales Charge may have
expired or conditions for waivers thereof may exist.
"Date of Original Issuance" means in respect of any Commission Share,
the date with reference to which the amount of the Contingent Deferred Sales
Charge payable on redemption thereof, if any, is computed.
"Free Share" means, in respect of [the Trust/any Fund], each Share of
[the Trust/such Fund], other than a Commission Share (including, without
limitation, any Share issued in connection with the reinvestment of dividends or
capital gains).
"Inception Date" means in respect of [the Trust/any Fund], the first
date on which [the Trust/such Fund] issued Shares.
"Net Asset Value" means, (i) with respect to [the Trust/any Fund], as
of the date any determination thereof is made, the net asset value of [the
Trust/such Fund] computed in the manner such value is required to be computed by
[the Trust/such Fund] in its reports to its shareholders, and (ii) with respect
to any Share of [the Trust/such Fund] as of any date, the quotient obtained by
dividing: (A) the net asset value of [the Trust/such Fund] (as computed in
accordance with clause (i) above) allocated to Shares of [the Trust/such Fund]
(in accordance with the constituent documents for [the Trust/such Fund]) as of
such date, by (B) the number of Shares of [the Trust/such Fund] outstanding on
such date.
"Omnibus Share" means, in respect of [the Trust/any Fund], a Commission
Share or Free Share sold by one of the Selling Agents listed on Exhibit I. If,
subsequent to closing of the Program, the Distributor and its Transferees
reasonably determine that the Transfer Agent is able to track all Commission
Shares and Free Shares sold by any of the Selling Agents listed on Exhibit I in
the same manner as Commission Shares and Free Shares are currently tracked in
respect of Selling Agents not listed on Exhibit 1, then Exhibit I shall be
amended to delete such Selling Agent from Exhibit I so that Commission Shares
and Free Shares sold by such Selling Agent will no longer be treated as Omnibus
Shares.
"Shares" means Class B shares of [the Trust/each Fund].
PART I: ATTRIBUTION OF SHARES
Shares of [the Trust/each Fund], which are outstanding from
time to time, shall be attributed to the Distributor and each Successor
Distributor in accordance with the following rules;
(1) Commission Shares other than omnibus Shares:
(a) Commission Shares which are not Omnibus Shares attributed
to the Distributor shall be Commission Shares which are not Omnibus Shares the
Date of Original Issuance of which occurred on or after the Inception Date of
[the Trust/such Fund] and on or prior to the date the Distributor ceased to be
the exclusive distributor of Shares of [the Trust/such Fund].
(b) Commission Shares which are not Omnibus Shares
attributable to each Successor Distributor shall be Commission Shares which are
not Omnibus Shares, the Date of Original Issuance of which occurs after the date
such Successor Distributor became the exclusive distributor of Shares of [the
Trust/such Fund] and on or prior to the date such Successor Distributor ceased
to be the exclusive distributor of Shares of [the Trust/such Fund].
(c) A Commission Share which is not an Omnibus Share of a
particular [Trust/Fund] (the "Issuing Trust") issued in consideration of the
investment of proceeds of the redemption of a Commission Share which is not an
Omnibus Share of another [Trust/Fund] (the "Redeeming Trust") in connection with
a permitted free exchange, is deemed to have a Date of Original Issuance
identical to the Date of Original Issuance of the Commission Share of the
Redeeming Trust and any such Commission Share will be attributed to the
Distributor or Successor Distributor based upon such Date of Original Issuance
in accordance with rules (a) and (b) above.
(d) A Commission Share which is not an Omnibus Share redeemed
(other than in connection with a permitted free exchange) or converted to a
Class A share is attributable to the Distributor or a Successor Distributor
based upon the Date of Original Issuance in accordance with rule (a), (b) and
(c) above.
(2) Free Shares:
Free Shares which are not Omnibus Shares of [the Trust/Fund]
outstanding on any date shall be attributed to the Distributor or a Successor
Distributor, as the case may be, in the same proportion that the Commission
Shares which are not Omnibus Shares of [the Trust/such Fund] outstanding on such
date are attributed to each on such date; provided that if the Distributor and
its Transferees reasonably determine that the Transfer Agent is able to produce
monthly reports which track the Date of Original Issuance for such Free Shares,
then such Free Shares shall be allocated pursuant to clause l (a), (b) and (c)
above.
(3) Omnibus Shares:
Omnibus Shares of [the Trust/a Fund] outstanding on any date
shall be attributed to the Distributor or a Successor Distributor, as the case
may be, in the same proportion that the Commission Shares which are not Omnibus
Shares of [the Trust/such Fund] outstanding on such date are attributed to it on
such date; provided that if the Distributor and its Transferees reasonably
determine that the Transfer Agent is able to produce monthly reports which track
the Date of Original Issuance for the Omnibus Shares, then the Omnibus Shares
shall be allocated pursuant to clause l (a), (b) and (c) above.
PART II: ALLOCATION OF CONTINGENT DEFERRED SALES CHARGES ("CDSCS")
(1) CDSCs Related to the Redemption of Commission Shares which are not
Omnibus Shares:
CDSCs in respect of the redemption of Commission Shares which
are not Omnibus Shares shall be allocated to the Distributor or a Successor
Distributor depending upon whether the related redeemed Commission Share is
attributable to the Distributor or such Successor Distributor, as the case may
be, in accordance with Part I above.
(2) CDSCs Related to the Redemption of Omnibus Shares:
CDSCs in respect of the redemption of omnibus Shares shall be
allocated to the Distributor or a Successor Distributor in the same proportion
that CDSCs related to the redemption of Commission Shares are allocated to each
thereof; provided, that if the Distributor and its Transferees reasonably
determine that the Transfer Agent is able to produce monthly reports which track
the Date of Original Issuance for the Omnibus Shares, then the CDSCs in respect
of the redemption of Omnibus Shares shall be allocated among the Distributor and
any Successor Distributors depending on whether the related redeemed Omnibus
Share is attributable to the Distributor or a Successor Distributor, as the case
may be, in accordance with Part I above.
PART III: ALLOCATION OF ASSET BASED SALES CHARGES
Assuming that the Asset Based Sales Charge remains constant
over time and among [Trusts/Funds] so that Part IV hereof does not become
operative:
(1) The portion of the aggregate Asset Based Sales Charges
accrued in respect of all Shares of [the Trust/all Funds] during any calendar
month allocable to the Distributor or a Successor Distributor is determined by
multiplying the total of such Asset Based Sales Charges by the following
fraction:
(A + C) /2
(B + D) /2
where:
A = The aggregate Net Asset Value of all Shares of [the
Trust/all Funds] attributed to the Distributor or such
Successor Distributor, as the case may be, and outstanding at
the beginning of such calendar month.
B = The aggregate Net Asset Value of all Shares of [the
Trust/all Funds] at the beginning of such calendar month.
C = The aggregate Net Asset Value of all Shares of the Trust/all
Funds] attributed to the Distributor or such Successor
Distributor, as the case may be, and outstanding at the end of
such calendar month.
D = The aggregate Net Asset Value of all Shares of [the
Trust/all Funds] at the end of such calendar month.
(2) If the Distributor and its Transferees reasonably
determine that the Transfer Agent is able to produce automated monthly reports
which allocate the average Net Asset Value of the Commission Shares (or all
Shares if available) of [the Trust/all Funds] among the Distributor and any
Successor Distributors in a manner consistent with the methodology detailed in
Part I and Part III(1) above, the portion of the Asset Based Sales Charges
accrued in respect of all such Shares of [the Trust/all Funds] during a
particular calendar month will be allocated to the Distributor or a Successor
Distributor by multiplying the total of such Asset Based Sales Charges by the
following fraction:
(A) / (B)
where:
A = Average Net Asset Value of all such Shares of the Trust/all
Funds] for such calendar month attributed to the Distributor
or a Successor Distributor, as the case may be.
B = Total average Net Asset Value of all such Shares of [the
Trust/all Funds] for such calendar month.
PART IV: ADJUSTMENT OF THE DISTRIBUTOR'S ALLOCABLE PORTION AND EACH SUCCESSOR
DISTRIBUTOR'S ALLOCABLE PORTION
The Parties to the Distribution Agreement recognize that, if
the terms of any distributor's contract, any distribution plan, any prospectus,
the conduct rules or any other applicable law change, which change
disproportionately reduces, in a manner inconsistent with the intent of this
Distribution Agreement, the amount of the Distributor's Allocable Portion or any
Successor Distributor's Allocable Portion had no such change occurred, the
definitions of the Distributor's Allocable Portion and/or the Successor
Distributor's Allocable Portion in respect of the Shares relating to [the
Trust/such Fund] shall be adjusted by agreement among the Distributor, its
Transferees, each Successor Distributor and the Company; provided, however, if
the Distributor, its Transferees, the Successor Distributors and the Company
cannot agree within thirty (30) days after the date of any such change in
applicable laws or in any distributor's contract, distribution plan, prospectus
or the conduct rules, they shall submit the question to arbitration in
accordance with the commercial arbitration rules of the American Arbitration
Association and the decision reached by the arbitrator shall be final and
binding on each of them.
DISTRIBUTION PLAN
FOR IVY FUND CLASS B SHARES
WHEREAS, Ivy Fund (the "Trust") is registered as an open-end investment
company under the Investment Company Act of 1940 (the "Act") and consists of one
or more separate investment portfolios (the "Funds") as may be established and
designated from time to time;
WHEREAS, the Trust wishes to retain, pursuant to the terms of a
distribution agreement (each, a "Distribution Agreement") pursuant to the Plan,
from time to time, persons (each such persons so acting from time to time, the
"Distributor") to act as principal Distributor of the Class B shares of the
Trust; and
WHEREAS, the Board of Trustees of the Trust has determined to adopt a
Plan (the "Plan"), in accordance with the requirements of the Act and determined
that there is a reasonable likelihood that the Plan will benefit the Trust and
its shareholders.
NOW THEREFORE, the Trust hereby adopts the Plan to apply only to its
Class B shares on the following terms and conditions:
1. The Plan will pertain to the Class B shares of Ivy Asia Pacific
Fund, Ivy Bond Fund, Ivy Canada Fund, Ivy China Region Fund, Ivy Developing
Nations Fund, Ivy European Opportunities Fund, Ivy Global Fund, Ivy Global
Natural Resources Fund, Ivy Global Science & Technology Fund, Ivy Growth Fund,
Ivy Growth with Income Fund, Ivy International Fund, Ivy International Fund II,
Ivy International Small Companies Fund, Ivy International Strategic Bond Fund,
Ivy Pan-Europe Fund, Ivy South America Fund, Ivy US Blue Chip Fund and Ivy US
Emerging Growth Fund, and to the Class B shares of such other Funds as shall be
designated from time to time by the Board of Trustees in any supplement to the
Plan ("Supplement").
2. The Trust shall pay to each Distributor, as compensation for acting
as principal distributor in respect of the Class B shares of the Trust its
Allocable Portion (as hereinafter defined) of a fee (the "Distribution Fee"),
which shall accrue daily at the rate of 0.75% per annum of each Fund's average
daily net assets attributable to Class B shares of such Fund and be payable
monthly. Such fee shall be calculated and accrued daily and paid monthly or at
such other intervals as the Trustees shall determine, subject to any applicable
restriction imposed by rules of the National Association of Securities Dealers,
Inc. (the "NASD"). The Distribution Agreement between the Trust and each
Distributor relating to the Class B shares shall provide that: (I) the
Distributor will be deemed to have performed all services required to be
performed in order to be entitled to receive its Allocable Portion (as defined
below) of the Distribution Fee payable in respect of the Class B shares upon the
settlement date of each sale of a Commission Share (as defined in the Allocation
Schedule attached to the Distribution Agreement) taken into account in
determining such Distributor's Allocable Portion of such Distribution Fee; (II)
notwithstanding anything to the contrary in this Plan or the Distribution
Agreement, the Trust's obligation to pay such Distributor its Allocable Portion
of the Distribution Fee payable shall not be terminated or modified (including,
without limitation, by change in the rules applicable to the conversion of Class
B shares into shares of another class) for any reason (including a termination
of the Distribution Agreement between such Distributor and the Trust) except:
(a) to the extent required by a change in the Act, the rules or regulations
under the Act or the Conduct Rules of the NASD, in each case enacted or
promulgated after September 1, 1998, (b) on a basis which does not alter the
Distributor's Allocable Portion of the Distribution Fee computed with reference
to Commission Shares the date of original issuance of which occurred on or
before _____________________, (c) in connection with a Complete Termination (as
hereinafter defined) of the Plan, or (d) on a basis, determined by the Board of
Trustees, including a majority of the Qualified Trustees (as hereinafter
defined), acting in good faith, so long as: (1) neither the Trust, nor any
successor trust or fund or any trust or fund acquiring a substantial portion of
the assets of the Trust (collectively, the "Affected Funds") nor the sponsors of
the Affected Funds pay, directly or indirectly, as a fee, a trailer fee, or by
way of reimbursement, any fee, however denominated, to any person for personal
services, account maintenance services or other shareholder services rendered to
the holder of Class B shares of the Affected Funds from and after the effective
date of such modification or termination, and (2) the termination or
modification of the Distribution Fee applies with equal effect to all
outstanding Class B shares from time to time of all Affected Funds regardless of
the date of issuance thereof; (III) the Trust will not take any action to waive
or change any CDSC in respect of the Class B shares, the date of original
issuance of which occurred on or before _____________________, except as
provided in the Trust's prospectus or statement of additional information,
without the consent of such Distributor and its Transferees; (IV)
notwithstanding anything to the contrary in the Plan or the Distribution
Agreement, neither the termination of such Distributor's role as principal
Distributor of the Class B shares, nor the termination of such Distribution
Agreement nor the termination of this Plan will terminate such Distributor's
right to its Allocable Portion of the CDSCs; and (V) notwithstanding anything to
the contrary in the Plan or the Distribution Agreement, such Distributor may
assign, sell or pledge (each, a "Transfer") its rights to its Allocable Portion
of the Distribution Fees and CDSCs and, upon receipt of notice of such Transfer,
the Trust shall pay to the assignee, purchaser or pledgee (collectively with
their subsequent transferees, "Transferees"), as third party beneficiaries, such
portion of such Distributor's Allocable Portion of the Distribution Fees or
CDSCs in respect of the Class B shares so sold or pledged, and except as
provided in (II) above and notwithstanding anything of the contrary set forth in
this Plan or in the Distribution Agreement, the Trust's obligation to pay such
Distributor's Allocable Portion of the Distribution Fees and CDSCs payable in
respect of the Class B shares shall be absolute and unconditional and shall not
be subject to dispute, offset, counterclaim or any defense whatsoever, at law or
equity, including, without limitation, any of the foregoing based on the
insolvency or bankruptcy of such Distributor. For purposes of this Plan, the
term Allocable Portion of Distribution Fees or CDSCs payable in respect of the
Class B shares as applied to any Distributor shall mean the portion of such
Distribution Fees or CDSCs payable in respect of such Class B shares allocated
to such Distributor in accordance with the Allocation Schedule (attached to the
Distribution Agreement as it relates to the Class B shares). For purposes of
this Plan and each Distribution Agreement, the term "Complete Termination" of
the Plan means a termination of this Plan and every other distribution plan of
each Affected Fund involving the complete cessation of the payment of
Distribution Fees in respect of all shares of the current Class B shares of each
Affected Fund and each future class of shares of each Affected Fund which has
substantially similar characteristics to the shares of the current Class B of
the Trust, including the manner of payment and amount of sales charge,
contingent deferred sales charge or other similar charges borne directly or
indirectly by the holders of such shares (all such classes of shares, "Class B
Shares").
3. The amount set forth in paragraph 2 of this Plan shall be paid for
the Distributor's services as distributor of the Class B shares of a Fund in
connection with any activities or expenses primarily intended to result in the
sale of the Class B shares of a Fund, including but not limited to, compensation
to broker-dealers that have entered into a Dealer Agreement with the
Distributor, bonuses and other incentives paid to broker-dealers, compensation
to and expenses of employees of the Distributor who engage in or support
distribution of a Fund's Class B shares; telephone expenses; interest expense;1
printing of prospectuses and reports for other than existing shareholders;
preparation, printing and distribution of sales literature and advertising
materials; and profit on the foregoing.
4. The Trust will reimburse the Distributor for payments made to
brokers, which are unaffiliated with the Distributor, in connection with account
maintenance and personal services to shareholders (the "Service Fee"). The
services for which the Service Fee may be made include, among others, advising
clients or customers regarding the purchase, sale or retention of Class B shares
of a Fund, answering routine inquiries concerning a Fund, assisting shareholders
in changing options or enrolling in specific plans and providing shareholders
with information regarding the Fund and related developments. The Distributor
will be reimbursed for such payments, subject to any applicable restriction
imposed by the Rules of the National Association of Securities Dealers, Inc., up
to an amount equal on an annual basis to 0.25% of the average daily net asset
value of outstanding Class B shares of a Fund which are registered in the name
of a broker as nominee or held in a shareholder account that designates a broker
as broker of record. Service Fees for which the Distributor will be reimbursed
may also be used to compensate certain entities in addition to brokers, such as
banks and investment advisers, for rendering certain shareholder liaison
services similar to those services rendered for Service Fees, pursuant to a
related agreement between the Distributor and such entity.
5. The Plan shall not take effect with respect to Class B of a Fund
until it has been approved by a vote of at least a majority (as defined in the
Act) of the outstanding voting securities of Class B of that Fund. With respect
to the submission of the Plan for such a vote, it shall have been effectively
approved with respect to Class B of a Fund if a majority of the outstanding
voting securities of Class B of the Fund votes for approval of the Plan,
notwithstanding that the matter has not been approved by a majority of the
outstanding voting securities of the Trust or of any other Fund or class.
6. The Plan shall not take effect until it has been approved, together
with any related agreements and supplements, by votes of a majority of both (a)
the Board of Trustees of the Trust, and (b) those Trustees of the Trust who are
not "interested persons" (as defined in the Act) and who have no direct or
indirect financial interest in the operation of the Plan or any agreements
related to it (the "Plan Trustees") cast in person at a meeting (or meetings)
called for the purpose of voting on the Plan and such related agreements.
7. The Plan shall continue in effect so long as such continuance is
specifically approved at least annually in the manner provided for approval of
the Plan in paragraph 6.
8. Any person authorized to direct the disposition of monies paid or
payable by the Trust pursuant to the Plan or any related agreement shall provide
to the Trust's Board of Trustees, and the Board shall review, at least
quarterly, a written report of the amounts so expended and the purposes for
which such expenditures were made.
9. Any agreement related to the Plan shall be in writing and shall
provide: (a) that such agreement may be terminated at any time as to a Fund,
without payment of any penalty, by vote of a majority of the Plan Trustees or by
vote of a majority of the outstanding voting securities of Class B of the Fund,
on not more than sixty (60) days' written notice to any other party to the
agreement; and (b) that such agreement shall terminate automatically in the
event of its assignment.
10. The Plan may be terminated at any time with respect to Class B of
a Fund, without payment of any penalty, by vote of a majority of the Plan
Trustees, or by vote of a majority of the outstanding voting securities of Class
B of the Fund.
11. The Plan may be amended at any time with respect to Class B of a
Fund by the Board of Trustees, provided that (a) any amendment to increase
materially the costs which the Fund may bear for distribution (including the
Service Fee) pursuant to the Plan shall be effective only upon approval by a
vote of a majority of the outstanding voting securities of Class B of the Fund,
and (b) any material amendments of the terms of the Plan shall become effective
only upon approval as provided in paragraph 6 hereof.
12. While the Plan is in effect, the selection and nomination of
Trustees who are not interested persons (as defined in the Act) of the Trust
shall be committed to the discretion of the Trustees who are not interested
persons.
13. The Trust shall preserve copies of the Plan, any related agreement
and any report made pursuant to paragraph 8 hereof, for a period of not less
than six (6) years from the date of the Plan, such agreement or report, as the
case may be, the first two (2) years of which shall be in an easily accessible
place.
14. It is understood and expressly stipulated that neither the holders
of shares of the Trust nor any Trustee, officer, agent or employees of the Trust
shall be personally liable hereunder, nor shall any resort be had to other
private property for the satisfaction of any claim or obligation hereunder, but
the Trust only shall be liable.
IN WITNESS WHEREOF, the Trust has adopted this Distribution Plan as of
this _____ day of ________________, 1999.
IVY FUND
By: __________________________________
Keith J. Carlson, President
1 Only to the extent not prohibited by a regulation or order of the Securities
and Exchange Commission.
