As filed electronically with the Securities and Exchange Commission on
February 8, 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. 106 [ 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 75
days after filing pursuant to paragraph (a)(2) of Rule 485.
THIS POST-EFFECTIVE AMENDMENT NO. 106 IS BEING FILED IN ORDER TO ESTABLISH IVY
EUROPEAN OPPORTUNITIES FUND AS A SERIES OF THE REGISTRANT. THE PROSPECTUSES AND
STATEMENTS OF ADDITIONAL INFORMATION THAT ARE INCLUDED IN THIS POST-EFFECTIVE
AMENDMENT NO. 106 ARE TO BE USED CONCURRENTLY WITH AND SEPARATELY FROM THE
CURRENTLY EFFECTIVE PROSPECTUSES AND STATEMENTS OF ADDITIONAL INFORMATION FOR
IVY MONEY MARKET FUND, IVY ASIA PACIFIC FUND, IVY BOND FUND, IVY CANADA FUND,
IVY CHINA REGION FUND, IVY US EMERGING GROWTH FUND, IVY GLOBAL FUND, IVY GLOBAL
NATURAL RESOURCES FUND, IVY GLOBAL SCIENCE & TECHNOLOGY FUND, IVY GROWTH FUND,
IVY GROWTH WITH INCOME FUND, IVY INTERNATIONAL FUND, IVY INTERNATIONAL FUND II,
IVY INTERNATIONAL SMALL COMPANIES FUND, IVY SOUTH AMERICA FUND, IVY DEVELOPING
NATIONS FUND, IVY PAN-EUROPE FUND, AND IVY US BLUE CHIP FUND (AND IVY
INTERNATIONAL STRATEGIC BOND FUND (FORMERLY IVY HIGH YIELD FUND), WHOSE
PROSPECTUSES AND STATEMENTS OF ADDITIONAL INFORMATION WERE MOST RECENTLY FILED
AS PART OF POST-EFFECTIVE AMENDMENT NO. 105 AND ARE CURRENTLY SUBJECT TO THE
STATUTORY WAITING PERIOD), WHICH ARE NOT INCLUDED IN, BUT ARE INCORPORATED BY
REFERENCE TO, THIS FILING.
IVY FUND
CROSS REFERENCE SHEET
Post-Effective Amendment No. 106 contains the Prospectuses and
Statements of Additional Information to be used with Ivy European Opportunities
Fund, one of the twenty series of Ivy Fund (the "Registrant"). The other
nineteen series of the Registrant are described in separate prospectuses and
statements of additional information, which are not included herewith but are
incorporated by reference herein.
ITEMS REQUIRED BY FORM N-1A
CLASS A, B, C, AND I SHARES:
PART A:
1 COVER PAGE: Cover Page
2 SYNOPSIS: Expense Information
3 CONDENSED FINANCIAL INFORMATION: Not Applicable
4 GENERAL DESCRIPTION OF REGISTRANT: Investment Objectives and Policies; Risk
Factors and Investment Techniques
5 MANAGEMENT OF THE FUND: Organization and Management of the Fund; Investment
Manager; Transfer Agent; Fund Administration and Accounting
6 CAPITAL STOCK AND OTHER SECURITIES: Performance Data; Dividends and Taxes;
Choosing a Distribution Option; Shareholder Inquiries; Signature
Guarantees; Consolidated Account Statements
7 PURCHASE OF SECURITIES BEING OFFERED: How to Buy Shares; How Your Purchase
Price is Determined; How the Fund Values its Shares; Initial Sales Charge
Alternative--Class A Shares; Contingent Deferred Sales Charge
Alternative--Class A Shares; Qualifying for a Reduced Sales Charge;
Contingent Deferred Sales Charge Alternative--Class B and Class C Shares;
Automatic Investment Method; Retirement Plans
8 REDEMPTION OR REPURCHASE: How to Redeem Shares; Minimum Account Balance
Requirements; Tax Identification Number; Certificates; Exchange Privilege;
Systematic Withdrawal Plan
9 PENDING LEGAL PROCEEDINGS: Not Applicable
PART B:
10 COVER PAGE: Cover Page
11 TABLE OF CONTENTS: Table of Contents
12 GENERAL INFORMATION AND HISTORY: Investment Objectives and Policies
13 INVESTMENT OBJECTIVES AND POLICIES: Investment Objectives and Policies;
Risk Factors; Investment Restrictions; Additional Restrictions; Appendix A
14 MANAGEMENT OF THE FUND: Trustees and Officers; Investment Advisory and
Other Services
15 CONTROL PERSONS AND PRINCIPAL HOLDERS OF SECURITIES: Trustees and Officers;
Capitalization and Voting Rights
16 INVESTMENT ADVISORY AND OTHER SERVICES: Investment Advisory and Other
Services
17 BROKERAGE ALLOCATION AND OTHER PRACTICES: Brokerage Allocation; Portfolio
Turnover
18 CAPITAL STOCK AND OTHER SECURITIES: Capitalization and Voting Rights;
Conversion of Class B Shares
19 PURCHASE, REDEMPTION AND PRICING OF SECURITIES BEING OFFERED: Net Asset
Value; Redemptions
20 TAX STATUS: Taxation
21 UNDERWRITERS: Investment Advisory and Other Services
22 CALCULATION OF PERFORMANCE DATA: Performance Information
23 FINANCIAL STATEMENTS: Financial Statements
ADVISOR CLASS SHARES:
PART A:
1 COVER PAGE: Cover Page
2 SYNOPSIS: Expense Information
3 CONDENSED FINANCIAL INFORMATION: Not Applicable
4 GENERAL DESCRIPTION OF REGISTRANT: Investment Objectives and Policies; Risk
Factors and Investment Techniques
5 MANAGEMENT OF THE FUND: Organization and Management of the Fund; Investment
Manager; Transfer Agent; Fund Administration and Accounting
6 CAPITAL STOCK AND OTHER SECURITIES: Performance Data; Dividends and Taxes;
Choosing a Distribution Option; Shareholder Inquiries; Signature
Guarantees; Consolidated Account Statements
7 PURCHASE OF SECURITIES BEING OFFERED: How to Buy Shares; How Your Purchase
Price is Determined; How the Fund Values its Shares; Automatic Investment
Method; Retirement Plans
8 REDEMPTION OR REPURCHASE: How to Redeem Shares; Minimum Account Balance
Requirements; Tax Identification Number; Certificates; Exchange Privilege;
Systematic Withdrawal Plan
9 PENDING LEGAL PROCEEDINGS: Not Applicable
PART B:
10 COVER PAGE: Cover Page
11 TABLE OF CONTENTS: Table of Contents
12 GENERAL INFORMATION AND HISTORY: Investment Objectives and Policies
13 INVESTMENT OBJECTIVES AND POLICIES: Investment Objectives and Policies;
Risk Factors; Investment Restrictions; Additional Restrictions; Appendix A
14 MANAGEMENT OF THE FUND: Trustees and Officers; Investment Advisory and
Other Services
15 CONTROL PERSONS AND PRINCIPAL HOLDERS OF SECURITIES: Trustees and Officers;
Capitalization and Voting Rights
16 INVESTMENT ADVISORY AND OTHER SERVICES: Investment Advisory and Other
Services
17 BROKERAGE ALLOCATION AND OTHER PRACTICES: Brokerage Allocation; Portfolio
Turnover
18 CAPITAL STOCK AND OTHER SECURITIES: Capitalization and Voting Rights
19 PURCHASE, REDEMPTION AND PRICING OF SECURITIES BEING OFFERED: Net Asset
Value; Redemptions
20 TAX STATUS: Taxation
21 UNDERWRITERS: Investment Advisory and Other Services
22 CALCULATION OF PERFORMANCE DATA: Performance Information
23 FINANCIAL STATEMENTS: Financial Statements
April [ ], 1999 IVY FUNDS(R)
Ivy European
Opportunities
Fund
- -----------
Prospectus
- -----------
Ivy Management, Inc.
Via Mizner Financial
Plaza
700 South Federal Hwy.
Boca Raton, FL 33432
1-800-456-5111
[ARTWORK]
THROUGHOUT THE
CENTURIES,
THE CASTLE KEEP HAS
BEEN A SOURCE
OF LONG-RANGE VISION
AND STRATEGIC
ADVANTAGE.
Ivy Fund (the "Trust") is a registered investment company currently
consisting of twenty separate portfolios. One of these portfolios, Ivy European
Opportunities Fund (the "Fund"), is described in this Prospectus. The Fund
offers Class A, Class B, Class C and Class I shares through this Prospectus. The
Fund's Advisor Class shares are described in a separate prospectus dated April
[], 1999.
The Fund's investment objective is long-term capital growth by
investing in the securities markets of Europe.
This Prospectus sets forth concisely the information about the Fund
that a prospective investor should know before investing. Please read it
carefully and retain it for future reference. Additional information about the
Fund is contained in the Fund's Statement of Additional Information dated April
[ ], 1999 (the "SAI"), which has been filed with the Securities and Exchange
Commission ("SEC") and is incorporated by reference into this Prospectus. The
SAI is available upon request and without charge from the Trust at the
Distributor's address and telephone number below. The SEC maintains a web site
(http://www.sec.gov) that contains the SAI and other material incorporated by
reference.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION, NOR HAS THE SECURITIES AND EXCHANGE COMMISSION PASSED UPON
THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY
IS A CRIMINAL OFFENSE.
<PAGE>
TABLE OF CONTENTS
EXPENSE INFORMATION..........................................................2
INVESTMENT OBJECTIVE AND POLICIES............................................4
RISK FACTORS AND INVESTMENT TECHNIQUES.......................................6
ORGANIZATION AND MANAGEMENT OF THE FUND.....................................14
INVESTMENT MANAGER..........................................................14
FUND ADMINISTRATION AND ACCOUNTING..........................................15
TRANSFER AGENT..............................................................16
ALTERNATIVE PURCHASE ARRANGEMENTS...........................................16
DIVIDENDS AND TAXES.........................................................17
PERFORMANCE DATA............................................................18
HOW TO BUY SHARES...........................................................18
HOW YOUR PURCHASE PRICE IS DETERMINED.......................................20
HOW THE FUND VALUES ITS SHARES..............................................20
INITIAL SALES CHARGE ALTERNATIVE -- CLASS A SHARES..........................21
CONTINGENT DEFERRED SALES CHARGE -- CLASS A SHARES..........................22
QUALIFYING FOR A REDUCED SALES CHARGE.......................................23
CONTINGENT DEFERRED SALES CHARGE ALTERNATIVE -- CLASS B AND CLASS C SHARES..25
HOW TO REDEEM SHARES........................................................27
MINIMUM ACCOUNT BALANCE REQUIREMENTS........................................29
SIGNATURE GUARANTEES........................................................29
CHOOSING A DISTRIBUTION OPTION..............................................30
TAX IDENTIFICATION NUMBER...................................................31
CERTIFICATES................................................................31
EXCHANGE PRIVILEGE..........................................................31
REINVESTMENT PRIVILEGE......................................................33
SYSTEMATIC WITHDRAWAL PLAN..................................................34
AUTOMATIC INVESTMENT METHOD.................................................34
CONSOLIDATED ACCOUNT STATEMENTS.............................................35
RETIREMENT PLANS............................................................35
SHAREHOLDER INQUIRIES.......................................................36
ACCOUNT APPLICATION.........................................................37
<PAGE>
<PAGE>
BOARD OF TRUSTEES OFFICERS
John S. Anderegg, Jr. Michael G. Landry, Chairman
Paul H. Broyhill Keith J. Carlson, President
Keith J. Carlson James W. Broadfoot, Vice President
Stanley Channick C. William Ferris,
Frank W. DeFriece, Jr. Secretary/Treasurer
Roy J. Glauber
Michael G. Landry LEGAL COUNSEL
Joseph G. Rosenthal Dechert Price & Rhoads
Richard N. Silverman Boston, MA
J. Brendan Swan
CUSTODIAN
Brown Brothers Harriman & Co.
Boston, MA
TRANSFER AGENT INVESTMENT MANAGER
Ivy Mackenzie Ivy Management, Inc.
Services Corp. 700 South Federal Highway
P.O. Box 3022 Boca Raton, FL 33432
Boca Raton, FL 33431-0922 1-800-456-5111
1-800-777-6472
DISTRIBUTOR
AUDITORS Ivy Mackenzie
Distributors, Inc.
Fort Lauderdale, FL Via Mizner Financial Plaza
700 South Federal Highway
Boca Raton, FL 33432
1-800-456-5111
[LOGO] IVY MACKENZIE
EXPENSE INFORMATION
The expenses and costs associated with investing in the Fund are
reflected in the following tables.
SHAREHOLDER TRANSACTION EXPENSES
MAXIMUM SALES LOAD MAXIMUM CONTINGENT
IMPOSED ON PURCHASES DEFERRED SALES CHARGE
(AS A % OF (AS A % OF ORIGINAL
OFFERING PRICE) PURCHASE PRICE)
-------------------- ---------------------
Class A................. 5.75%(1) None (2)
Class B................. None 5.00%(3)
Class C................. None 1.00%(4)
Class I................. None None
The Fund does not charge a redemption fee, an exchange fee, or a sales load on
reinvested dividends.
(1) Class A shares may be purchased under a variety of plans that provide
for the reduction or elimination of the sales charge. See "Initial
Sales Charge Alternative -- Class A Shares" and "Qualifying for a
Reduced Sales Charge."
(2) A contingent deferred sales charge ("CDSC") may apply to the redemption
of Class A shares that are purchased without an initial sales charge.
See "Purchases of Class A Shares at Net Asset Value" and "Contingent
Deferred Sales Charge -- Class A Shares."
(3) The maximum CDSC on Class B shares applies to redemptions during the
first year after purchase. The charge declines to 4% during the second
year; 3% during the third and fourth years; 2% during the fifth year;
1% during the sixth year; and 0% in the seventh year and thereafter.
(4) The CDSC on Class C shares applies to redemptions during the first year
after purchase.
<PAGE>
ANNUAL FUND OPERATING EXPENSES (1)
(AS A PERCENTAGE OF AVERAGE NET ASSETS)
TOTAL FUND
OTHER OPERATING
12B-1 SERVICE/ EXPENSES EXPENSES
MANAGEMENT DISTRIBUTION (after expense (after expense
FEES FEES reimbursement) reimbursement)
------- ------- ------------------ ----------------
Class A 1.00% 0.25% 0.95% 2.20%
Class B 1.00% 1.00%(2) 0.95% 2.95%
Class C 1.00% 1.00%(2) 0.95% 2.95%
Class I 1.00% 0.00% 0.86%(3) 1.86%
(1) Annual Fund operating expenses are based on estimated fees and
expenses that the Fund expects to incur in its initial fiscal year
ending December 31, 1999, net of expense reimbursements from Ivy
Management, Inc. ("IMI"). IMI currently limits Total Fund Operating
Expenses (excluding 12b-1 fees and certain other items) for the Fund
to an annual rate of 1.95% of the Fund's average net assets. See
"Investment Manager" for a more detailed discussion of the Fund's fees
and expenses.
(2) Long-term investors may, as a result of the Fund's 12b-1 fees, pay more
than the economic equivalent of the maximum front-end sales charge
permitted by the Conduct Rules of the National Association of
Securities Dealers, Inc. ("NASD").
(3) "Other Expenses" of Class I shares are lower than such expenses for
Class A, Class B and Class C shares. See "Fund Administration and
Accounting" in this Prospectus and "Transfer Agent" in the SAI.
EXAMPLES
The following table lists the expenses an investor would pay on a
$1,000 investment in the Fund, assuming (1) 5% annual return and (2) unless
otherwise noted, redemption at the end of each time period. These examples
further assume reinvestment of all dividends and distributions, and that the
percentage amounts under "Total Fund Operating Expenses" (above) remain the same
each year. THE EXAMPLES SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR
FUTURE EXPENSES. ACTUAL EXPENSES MAY BE HIGHER OR LOWER THAN THOSE SHOWN.
1 YEAR 3 YEARS
------ -------
Class A(1)................................... $79 $122
Class B...................................... $80(3) $121(4)
Class B (no redemption)..................... $30 $91
Class C...................................... $40(5) $91
Class C (no redemption)..................... $30 $91
Class I(2)................................... $19 $58
(1) Assumes deduction of the maximum 5.75% initial sales charge at the
time of purchase and no deduction of a CDSC at the time of redemption.
(2) Class I shares are not subject to an initial sales charge at the time
of purchase, nor are they subject to the deduction of a CDSC at the
time of redemption.
(3) Assumes deduction of a 5% CDSC at the time of redemption.
(4) Assumes deduction of a 3% CDSC at the time of redemption.
(5) Assumes deduction of a 1% CDSC at the time of redemption.
The purpose of the foregoing table is to assist you in understanding
the various costs and expenses that an investor in the Fund will bear directly
or indirectly. The information presented in the table does not reflect the
charge of $10 per transaction that would apply if a shareholder elects to have
redemption proceeds wired to his or her bank account. For a more detailed
discussion of the Fund's fees and expenses, see the following sections of this
Prospectus: "Organization and Management of the Fund," "Investment Manager" and
"Fund Administration and Accounting," and the following section of the SAI:
"Investment Advisory and Other Services."
INVESTMENT OBJECTIVE AND POLICIES
The Fund's investment objective is long-term capital growth by
investing in the securities markets of Europe. The Fund's subadviser, Henderson
Investment Management Limited ("Henderson Investors"), will invest the Fund's
assets in the securities of European companies, including those companies
operating in the emerging markets of Europe and small capitalization companies
operating in the developed markets of Europe. The Fund may also invest in larger
capitalization European companies and European companies which have been subject
to special circumstances, e.g., privatized companies or companies which provide
exceptional value. Although the majority of the Fund's assets will be invested
in equity securities, the Fund may also invest in cash, short-term or long-term
fixed income securities issued by corporations and governments of Europe if
considered appropriate in relation to the then current economic or market
conditions in any country.
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 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 American Depository
Receipts ("ADRs"), European Depository Receipts ("EDRs"), Global Depository
Receipts ("GDRs"), American Depository Shares ("ADSs"), European Depository
Shares ("EDSs") and Global Depository Shares ("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 Investors Service, Inc. ("Moody's") or BB or below by Standard
& Poor's Ratings Group ("S&P") or, if unrated, considered by Henderson Investors
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. The Fund may purchase Brady Bonds and other sovereign debt of
countries that have restructured or are in the process of restructuring their
sovereign debt. 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 Henderson Investors 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 Henderson
Investors 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.
The Fund may borrow money for temporary, extraordinary or emergency
purposes, provided that the Fund maintains asset coverage of 300% for all
borrowings. 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 are 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, interest rate and foreign currency futures contracts,
provided that the Fund's equivalent exposure in such contracts does not exceed
15% of its total assets.
The Fund's investment objective is fundamental and may not be changed
without the approval of a majority of the outstanding voting shares of the Fund.
Except for the Fund's investment objective and those investment restrictions
specifically identified as fundamental, all investment policies and practices
described in this Prospectus and in the SAI are non-fundamental, and may be
changed by the Board of Trustees of the Trust ("Trustees") without shareholder
approval. There can be no assurance that the Fund's objective will be met. The
different types of securities and investment techniques used by the Fund involve
varying degrees of risk. For information about the particular risks associated
with each type of investment, see "Risk Factors and Investment Techniques,"
below, and the SAI.
Whenever an investment objective, policy or restriction of the Fund
described in this Prospectus or in the SAI states a maximum percentage of assets
that may be invested in a security or other asset, or describes a policy
regarding quality standards, that percentage limitation or standard will, unless
otherwise indicated, apply to the Fund only at the time a transaction takes
place. Thus, if a percentage limitation is adhered to at the time of investment,
a later increase or decrease in the percentage that results from circumstances
not involving any affirmative action by the Fund will not be considered a
violation.
Descriptions in this prospectus of a particular investment practice or
technique in which the Fund may engage (such as hedging) or a financial
instrument which the Fund may purchase (such as options, forward foreign
currency contracts, etc.) are meant to describe the spectrum of investments that
Henderson Investors, in its discretion, might, but is not required to, use in
managing the Fund's portfolio assets. Henderson Investors 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.
RISK FACTORS AND INVESTMENT TECHNIQUES
By virtue of the Fund's investment policies, European stock markets
will generally have the greatest effect on the value of the Fund's portfolio. To
the extent that the Fund invests in the emerging markets of Europe, the Fund may
be subject to greater risks than if it had invested in more developed markets.
In emerging markets securities may be traded less frequently and price movements
may be more volatile than in developed markets. Foreign securities, particularly
those traded in emerging markets, often have less publicly available information
and are subject to different regulations than domestic securities. Political
events, changes in the perceived creditworthiness of issuers, high rates of
inflation, higher brokerage costs, fluctuating national interest rates, thinner
trading markets, foreign taxes and movements in foreign currencies will affect
the value of the Fund's holdings, which determine the Fund's share price.
The Fund is expected to have significant investments in companies with
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, both because they tend to be traded in lower volume
and because the companies are subject to greater business risk. The Fund also
may buy higher yielding bonds as equity alternatives (typically with a credit
rating of BB to C) to provide higher income, but they are also subject to higher
risk. Risks include bankruptcy or default of the issuer and more volatile market
prices than higher-rated bonds.
BANK OBLIGATIONS: The bank obligations in which the Fund may invest
include certificates of deposit, bankers' acceptances and other short-term debt
obligations. Investments in certificates of deposit and bankers' acceptances are
limited to obligations of (i) banks having total assets in excess of $1 billion,
(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 Henderson Investors' opinion, of an
investment quality comparable to other debt securities which may be purchased by
the Fund. Investments in certificates of deposit of savings associations are
limited to obligations of Federal or state-chartered institutions whose total
assets exceed $1 billion and whose deposits are insured by the FDIC.
BORROWING: Borrowing may exaggerate the effect on the Fund's net asset
value of any increase or decrease in the value of the Fund's portfolio
securities. Money borrowed will be subject to interest costs (which may include
commitment fees and/or the cost of maintaining minimum average balances).
COMMERCIAL PAPER: Commercial paper represents short-term unsecured
promissory notes issued in bearer form by bank holding companies, corporations,
and finance companies. The Fund's investments in commercial paper are not
limited to a particular Moody's or S&P rating category. The lower an issuer's
rating, however, the greater the risk of payment default.
CONVERTIBLE SECURITIES: The convertible securities in which the Fund
may invest include corporate bonds, notes, debentures, preferred stock and other
securities convertible into common stocks. Because convertible securities can be
converted into equity securities, their value will normally vary in some
proportion with those of the underlying equity security. Convertible securities
usually provide a higher yield than the underlying equity, so the price decline
of a convertible security may sometimes be less substantial than that of the
underlying equity security.
DEBT SECURITIES, IN GENERAL: Investment in debt securities, including
municipal securities, involves both interest rate and credit risk. Generally,
the value of debt instruments 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 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 greater susceptibility to the adverse effects of changes
in circumstances and economic conditions than debt in higher rated categories.
Bonds rated Baa/BBB (considered "medium grade" obligations) generally have an
adequate capacity to pay interest and repay principal, but lack outstanding
investment characteristics and have some speculative characteristics.
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 by major credit-rating organizations to have
predominately speculative characteristics with respect to the issuer's capacity
to pay interest and repay principal. Investors in the Fund should be aware of
and willing to accept the special risks associated with these securities.
While high yield debt securities are likely to have some quality and
protective characteristics, these qualities are largely outweighed by the risk
of exposure to adverse conditions and other uncertainties. Accordingly,
investments in such securities, while generally providing for greater income and
potential opportunity for gain than investments in higher-rated securities, also
entail greater risk (including the possibility of default or bankruptcy of the
issuer of such securities) and generally involve greater price volatility than
securities in higher rating categories. Henderson Investors seeks to reduce risk
through diversification, credit analysis and attention to current development
and trends in both the economy and financial markets. Should the rating of a
portfolio security be downgraded, Henderson Investors will determine whether it
is in the Fund's best interest to retain or dispose of the security. For
additional information regarding the risks associated with investing in high
yield bonds, see the SAI (and, in particular, Appendix A, which contains a more
complete description of the ratings assigned by Moody's and S&P).
FOREIGN SECURITIES: The foreign securities in which the Fund invests
may include non-U.S. dollar-denominated securities, Eurodollar securities,
sponsored or unsponsored ADRs, EDRs, GDRs, ADSs, EDSs and GDSs, and debt
securities issued, assumed or guaranteed by foreign governments (or political
subdivisions or instrumentalities thereof). Investors should consider carefully
the special risks that arise in connection with investing in securities issued
by companies and governments of foreign nations, which are in addition to those
risks that are associated with the Fund's investments generally.
In many foreign countries, there is less regulation of business and
industry practices, stock exchanges, brokers and listed companies than in the
United States. For example, foreign companies are not generally subject to
uniform accounting and financial reporting standards, and foreign securities
transactions may be subject to higher brokerage costs. There also tends to be
less publicly available information about issuers in foreign countries, and
foreign securities markets of many of the countries in which the Fund may invest
may be smaller, less liquid and subject to greater price volatility than those
in the United States. Generally, price fluctuations in the Fund's foreign
securities holdings are likely to be high relative to those of securities issued
in the United States.
Other risks include the possibility of expropriation, nationalization
or confiscatory taxation, foreign exchange controls (which may include
suspension of the ability to transfer currency from a given country),
difficulties in pricing, default in foreign government securities, high rates of
inflation, difficulties in enforcing foreign judgments, political or social
instability, or other developments that could adversely affect the Fund's
foreign investments. In addition, investing in foreign securities often involves
the use of foreign currencies. For a description of the risk associated with
such currencies, see the SAI.
EMERGING MARKETS SECURITIES. Countries with emerging markets may have
relatively unstable governments and therefore be susceptible to sudden adverse
government action (such as nationalization of businesses, restrictions on
foreign ownership or prohibitions against repatriation of assets). Security
prices in emerging markets can also be significantly more volatile than in the
more developed nations of the world, and communications between the U.S. (or the
U.K., in Henderson Investors' case) and emerging market countries may be
unreliable, increasing the risk of delayed settlements of portfolio transactions
or loss of certificates for portfolio securities. Delayed settlements could
cause the Fund to miss attractive investment opportunities or impair its ability
to dispose of portfolio securities, resulting in a loss if the value of the
securities subsequently declines or, if the Fund has entered into a contract to
sell the security, in possible liability to the purchaser. In addition, many
emerging markets have experienced and continue to experience especially high
rates of inflation. In certain countries, inflation has at time accelerated
rapidly to hyperinflationary levels, creating a negative interest rate
environment and sharply eroding the value of outstanding financial assets in
those countries.
Costs associated with transactions in foreign securities are generally
higher than costs associated with transactions in U.S. securities. Such
transactions also involve additional costs for the purchase or sale of foreign
currency. Foreign investment in certain emerging market debt obligations is
restricted or controlled to varying degrees. These restrictions or controls may
at times limit or preclude foreign investment in certain emerging market debt
obligations and increase the costs and expenses of the Fund. Certain emerging
markets require prior governmental approval of investments by foreign persons,
and/or impose additional taxes on foreign investors. These markets may also
restrict investment opportunities in issuers in industries deemed important to
national interests. Certain emerging markets may require governmental approval
for the repatriation of investment income, capital or the proceeds of sales of
securities by foreign investors. In addition, if a deterioration occurs in an
emerging market's balance of payments or for other reasons, a country could
impose temporary restrictions on foreign capital remittances.
Securities traded in certain emerging European securities markets may
be subject to risks due to the inexperience or financial intermediaries, the
lack of modern technology and the lack of a sufficient capital basically to
expand business operations. Additionally, former Communist regimes of a number
of Eastern European countries had expropriated a large amount of property, the
claims on which have not been entirely settled. There can be no assurance that
the Fund's investment in Eastern Europe would not also be expropriated,
nationalized or otherwise confiscated. Finally, any change in the leadership or
policies of Eastern European countries, or the countries that exercise a
significant influence over those countries, may halt the expansion of or reverse
the liberalization of foreign investment policies now occurring and adversely
affect existing investment opportunities.
The Fund could be adversely affected by delays in, or a refusal to
grant, any required governmental approval for repatriation of capital, as well
as by the application to the Fund of any restrictions on investments.
FOREIGN SOVEREIGN DEBT OBLIGATIONS. The Fund may purchase sovereign
debt instruments issued or guaranteed by foreign governments or their agencies,
including those located in emerging market countries. Sovereign debt may be in
the form of conventional securities or other types of debt instruments such as
loans or loan participations. Sovereign debt of emerging markets countries may
involve a high degree of risk and may be in default or present the risk of
default. 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. Certain emerging market countries have historically
experienced, and may continue to experience, high inflation and interest rates,
large fluctuations in exchange rates, large amounts of external debt, trade
difficulties and extreme poverty and unemployment. Governmental entities
responsible for repayment of the debt may be unable or unwilling to repay
principal and interest when due. There is no bankruptcy proceeding by which
sovereign debt on which governmental entities have defaulted may be collected in
whole or in part. In the event of a default, the Fund may have limited legal
recourse against the issuer or guarantor. Remedies must in some cases be pursued
in the courts of the defaulting party itself and the ability of holders of
foreign government debt securities to obtain recourse may depend on the
political climate in the relevant country. No assurance can be given that the
holders of commercial bank debt will not contest payments to holders of other
sovereign debt obligations in the event of the default under their commercial
bank loan agreements.
BRADY BONDS: Brady Bonds are debt securities issued under the Brady
Plan, a mechanism whereby debtor nations can restructure their indebtedness by
negotiating with lenders and exchanging existing commercial bank debt for Brady
Bonds. Brady Bonds may also be issued in respect of new money being advanced by
existing lenders in connection with the debt restructuring. The Brady Plan only
sets forth general guidelines for economic reform and debt reduction,
emphasizing that solutions must be negotiated on a case-by-case basis between
debtor nations and their creditors. 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 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 bonds.
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 constituting 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.
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 CURRENCY EXCHANGE TRANSACTIONS: The Fund usually effects its
currency exchange transactions on a spot (i.e., cash) basis at the spot rate
prevailing in the foreign exchange market. However, some price spread on
currency exchange (e.g., to cover service charges) is usually incurred when the
Fund converts assets from one currency to another. The Fund may also be affected
unfavorably by fluctuations in the relative rates of exchange between the
currencies of different nations or by political or economic developments in the
U.S. or abroad. 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.
FORWARD FOREIGN CURRENCY CONTRACTS: A forward foreign currency contract
involves an obligation to purchase or sell a specific currency at a future date
at a predetermined price. Although these contracts are intended to minimize the
risk of loss due to a decline in the value of the hedged currencies, they also
limit any potential gain that might result should the value of the currencies
increase. In addition, there may be an imperfect correlation between the Fund's
portfolio holdings of securities denominated in a particular currency and
forward contracts entered into by the Fund, which may prevent the Fund from
achieving the intended hedge or expose the Fund to the risk of currency exchange
loss.
OPTIONS AND FUTURES TRANSACTIONS: The Fund may use various techniques
to increase or decrease its exposure to changing security prices, interest
rates, commodity prices, or other factors that affect the value of the Fund's
securities. These techniques may involve derivative transactions such as
purchasing put and call options, selling put and call options, and engaging in
transactions in stock index futures and related options.
The Fund may invest in options on securities in accordance with its
stated investment objective and policies. A put option is a short-term contract
that gives the purchaser of the option the right, in return for a premium, to
sell the underlying security or currency to the seller of the option at a
specified price during the term of the option. A call option is a short-term
contract that gives the purchaser the right, in return for a premium, to buy the
underlying security or currency from the seller of the option at a specified
price during the term of the option. An option on a stock index gives the
purchaser the right to receive from the seller cash equal to the difference
between the closing price of the index and the exercise price of the option.
The Fund may also enter into futures transactions in accordance with
its stated investment objective and policies. An interest rate futures contract
is an agreement between two parties to buy or sell a specified debt security at
a set price on a future date. A foreign currency futures contract is an
agreement to buy or sell a specified amount of a foreign currency for a set
price on a future date. A stock index futures contract is an agreement to take
or make delivery of an amount of cash based on the difference between the value
of the index at the beginning and at the end of the contract period.
Investors should be aware that the risks associated with the use of
options and futures are considerable. Options and futures transactions generally
involve a small investment of cash relative to the magnitude of the risk
assumed, and therefore could result in a significant loss to the Fund if
Henderson Investors judges market conditions incorrectly or employs a strategy
that does not correlate well with the Fund's investments. The Fund may also
experience a significant loss if it is unable to close a particular position due
to the lack of a liquid secondary market. For further information regarding the
use of options and futures transactions and any associated risks, see the SAI.
REPURCHASE AGREEMENTS: Repurchase agreements are agreements under which
the Fund buys a money market instrument and obtains a simultaneous commitment
from the seller to repurchase the instrument at a specified time and agreed-upon
yield. The Fund may enter into repurchase agreements with banks or
broker-dealers deemed to be creditworthy by Ivy Management, Inc. ("IMI"), the
Fund's investment adviser, under guidelines approved by the Board of Trustees.
The Fund could experience a delay in obtaining direct ownership of the
underlying collateral, and might incur a loss if the value of the security
should decline.
ILLIQUID SECURITIES: An "illiquid security" is an asset that may not be
sold or disposed of in the ordinary course of business within seven days at
approximately the value at which the Fund has valued the security on its books.
Illiquid securities may include securities that are subject to restrictions on
resale ("restricted securities") because they have not been registered. Illiquid
securities often offer the potential for higher returns than more readily
marketable securities, but carry the risk that the Fund may not be able to
dispose of them at an advantageous time or price. The Fund may have to bear the
expense of registering restricted securities for resale, and the risk of
substantial delays in effecting such registrations. In addition, issuers of
restricted securities may not be subject to the disclosure and other investor
protection requirements that would apply if their securities were publicly
traded.
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).
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 smaller
companies may be subject to more abrupt to 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.
WARRANTS: The holder of a warrant has the right to purchase a given
number of shares of a particular issuer at a specified price until expiration of
the warrant. Such investments can provide a greater potential for profit or loss
than an equivalent investment in the underlying security, and are considered
speculative investments. For example, if a warrant were not exercised by the
date of its expiration, the Fund would lose its entire investment.
"WHEN-ISSUED" SECURITIES AND FIRM COMMITMENTS: Purchasing securities
on a "when-issued" or firm commitment basis involves a risk of loss if the
value of the security to be purchased declines prior to the settlement date.
ZERO COUPON BONDS: Zero coupon bonds are debt obligations issued
without any requirement for the periodic payment of interest, and are issued at
a significant discount from face value. Since the interest on such bonds is, in
effect, compounded, they are subject to greater market value fluctuations in
response to changing interest rates than debt securities that distribute income
regularly. In addition, for Federal income tax purposes, the Fund generally
recognizes and is required to distribute income generated by zero coupon bonds
currently in the amount of the unpaid accrued interest, even though the actual
income will not yet have been received by the Fund.
ORGANIZATION AND MANAGEMENT OF THE FUND
The Fund is a separate, diversified portfolio of the Trust, an open-end
management investment company organized as a Massachusetts business trust on
December 21, 1983. The business and affairs of the Fund are managed under the
direction of the Trustees. Information about the Trustees, as well as the
Trust's executive officers, may be found in the SAI. The Trust has an unlimited
number of authorized shares of beneficial interest, and currently has twenty
separate portfolios. The Fund has 5 classes of shares designated as Class A,
Class B, Class C, Class I and Advisor Class (the latter of which is described in
a separate prospectus). Shares of the Fund entitle their holders to one vote per
share (with proportionate voting for fractional shares). The shares of each
class represent an interest in the same portfolio of Fund investments. Each
class of shares, except for the Advisor Class and Class I, has a different Rule
12b-1 distribution plan and bears different distribution fees. Class I shares
are subject to lower administrative service and transfer agency fees than the
Fund's Class A, Class B, Class C and Advisor Class shares. Each class of shares
also has its own sales charge and expense structure that may affect its
performance relative to the Fund's other classes of shares. Shares of each class
have equal rights as to voting, redemption, dividends and liquidation but have
exclusive voting rights with respect to their Rule 12b-1 distribution plans.
The Trust employs IMI to provide business management and investment
advisory services, Mackenzie Investment Management Inc. ("MIMI") to provide
administrative and accounting services, Ivy Mackenzie Distributors, Inc.
("IMDI") to distribute the Fund's shares and Ivy Mackenzie Services Corp.
("IMSC") to provide transfer agent and shareholder-related services for the
Fund. IMI, IMDI and IMSC are wholly-owned subsidiaries of MIMI. IMI has been an
investment advisor since 1992. As of [March 1, 1999], IMI and MIMI had
approximately [$ billion and $ billion,] respectively, in assets under
management. MIMI is a subsidiary of Mackenzie Financial Corporation ("MFC"),
which has been an investment counsel and mutual fund manager in Toronto,
Ontario, Canada for more than 32 years.
INVESTMENT MANAGER
For IMI's business management and investment advisory services, the
Fund pays IMI a fee that is equal, on an annual basis, to 1.00% of its average
net assets.
IMI voluntarily limits the Fund's total operating expenses (excluding
Rule 12b-1 fees, interest, taxes, brokerage commissions, litigation,
class-specific expenses, indemnification, and extraordinary expenses) to an
annual rate of 1.95% of the Fund's average net assets. This voluntary expense
limitation may be terminated or revised at any time.
IMI pays all expenses that it incurs in rendering management services
to the Fund. The Fund bears its own operational costs. General expenses of the
Trust that are not readily identifiable as belonging to a particular series of
the Trust (or a particular class thereof) are allocated among and charged to
each series based on its relative net asset size. Expenses that are attributable
to a particular series (or a class thereof) will be borne by that series (or
class) directly.
The investment management fees paid by the Fund are higher than those
charged by many funds that invest primarily in U.S. securities but not
necessarily higher than the fees charged to funds with investment objectives
similar to those of the Fund.
Henderson Investors serves as subadviser to the Fund. For this service,
IMI pays Henderson Investors a fee that is equal, on an annual basis, to 0.50%
of that portion of the Fund's average net assets managed by Henderson Investors.
Henderson Investors, an United Kingdom corporation organized in 1984,
maintains its registered office at 3 Finsbury Avenue, London, England EC2M 2PA.
Henderson Investors is an indirect, wholly owned subsidiary of AMP Limited, an
Australian life insurance and financial services company located at AMP
Building, 24th Floor, 33 Alfred Street, Sydney, New South Wales 2000 Australia.
As of March 1, 1999, Henderson Investors, together with its affiliates, managed
in excess of [$__ billion] of assets.
PORTFOLIO MANAGEMENT: Stephen Peak, Executive Director Henderson
Investors and head of Henderson Investors' European equities team, has been the
Fund's portfolio manager since its inception in 1999. Formerly a director and
portfolio manager with Touche Remnant & Co., Mr. Peak has 24 years of investment
experience.
HENDERSON INVESTORS' INVESTMENT PROCESS: Henderson Investors' European
equities investment process follows a "bottom-up" approach. Generally, Henderson
Investors will seek long-term earnings growth investment opportunities. Country
and sector allocation decisions are driven by the "bottom-up" company stock
selection process. Company selection is generally based on analysis of wide
range of appropriate measures (e.g., growth, price/earnings, price/cash,
price/book and enterprise value) and takes into account factors such as market
position, competitive advantage, growth prospects and management strength.
FUND ADMINISTRATION AND ACCOUNTING
MIMI provides various administrative services for the Fund, such as
maintaining the registration of Fund shares under state "Blue Sky" laws, and
assisting with the preparation of Federal and state income tax returns,
financial statements and periodic reports to shareholders. MIMI also assists the
Trust's legal counsel with the filing of registration statements, proxies and
other required filings under Federal and state law. Under this arrangement, the
average net assets attributable to the Fund's Class A, Class B and Class C
shares are subject to a fee, accrued daily and paid monthly, at an annual rate
of .10%. The net assets attributable to the Fund's Class I shares are subject to
a fee at the annual rate of 0.01%.
MIMI also provides certain accounting and pricing services for the Fund
(see "Fund Accounting Services" in the SAI for more information).
TRANSFER AGENT
IMSC is the transfer and dividend-paying agent for the Fund, and also
provides certain shareholder-related services. Certain broker-dealers that
maintain shareholder accounts with the Fund through an omnibus account provide
transfer agent and other shareholder-related services that would otherwise be
provided by IMSC if the individual accounts that comprise the omnibus account
were opened by their beneficial owners directly (see "Investment Advisory and
Other Services" in the SAI).
ALTERNATIVE PURCHASE ARRANGEMENTS
CLASS A SHARES: Class A shares are subject to an initial sales charge
unless the amount you purchase is $500,000 or more (see "Contingent Deferred
Sales Charge -- Class A Shares"). Certain purchases qualify for a reduced
initial sales charge (see "Qualifying for a Reduced Sales Charge"). Class A
shares are subject to ongoing service fees at an annual rate of .25% of a Fund's
average net assets attributable to its Class A shares. If you do not specify on
your Account Application which class of shares you are purchasing, it will be
assumed that you are investing in Class A shares.
CLASS B AND CLASS C SHARES: Class B and Class C shares are not subject
to an initial sales charge, but are subject to a CDSC if redeemed within six
years of purchase, in the case of Class B shares, or within one year of
purchase, in the case of Class C shares. Both classes of shares are subject to
ongoing service and distribution fees at a combined annual rate of up to 1% of
the Fund's average net assets attributable to its Class B or Class C shares. The
ongoing distribution fee will cause these shares to have a higher expense ratio
than that of Class A and Class I shares. Also, to the extent that the Fund pays
any dividends, these higher expenses will result in lower dividends than those
paid on Class A shares.
CLASS I SHARES: Class I shares are offered only to institutions and
certain individuals, and are not subject to an initial sales charge or a CDSC,
nor to ongoing service or distribution fees. Class I shares also bear lower
administrative services fees and transfer agency fees than Class A, Class B and
Class C shares.
FACTORS TO CONSIDER IN CHOOSING AN ALTERNATIVE: The multi-class
structure of the Fund allows you to choose the most beneficial way to buy shares
given the size of your purchase and the length of time you expect to hold your
shares. You should consider whether, during the anticipated life of your Fund
investment, the accumulated service and distribution fees on Class B and Class C
shares would be less than the initial sales charge and accumulated service fees
on Class A shares purchased at the same time, and to what extent this
differential would be offset by the Class A shares' potentially higher yield.
You may be charged a fee if you effect transactions through a broker or an
agent. Also, sales personnel may receive different compensation depending on
which class of shares they are selling. The tables under the caption "Annual
Fund Operating Expenses" at the beginning of this Prospectus contain additional
information that is designed to assist you in making this determination.
DIVIDENDS AND TAXES
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 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").
TAXATION: The following discussion is intended for general information
only. You should consult with your tax adviser as to the tax consequences of an
investment in the Fund, including the status of distributions from the Fund
under applicable state or local law.
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 long-term capital gains are taxable to you as long-term capital gains,
regardless of how long you have held Fund shares. Dividends are taxable to you
in the same manner whether received in cash or reinvested in additional Fund
shares.
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 shares of your Fund shares, you
may realize a capital gain or loss which will be long-term or short-term,
generally depending on 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.
Distributions of the Fund which are derived from interest on obligations of the
U.S. Government and certain of its agencies, authorities and instrumentalities
may be exempt from state and local taxes in certain states. Further information
relating to tax consequences is contained in the SAI.
PERFORMANCE DATA
Performance information (e.g., "total return" and "yield") is computed
separately for each class of Fund shares in accordance with formulas prescribed
by the SEC. Performance information for each class may be compared in reports
and promotional literature to indices such as the Standard and Poor's 500 Stock
Index, Dow Jones Industrial Average, and Morgan Stanley Capital International
World Index. Advertisements, sales literature and communications to shareholders
may also contain statements of the Fund's current yield, various expressions of
total return and current distribution rate. Performance figures will vary in
part because of the different expense structures of the Fund's different
classes. ALL PERFORMANCE INFORMATION IS HISTORICAL AND IS NOT INTENDED TO
SUGGEST FUTURE RESULTS.
"Total return" is the change in value of an investment in the Fund for
a specified period, and assumes the reinvestment of all distributions and
imposition of the maximum applicable sales charge for that class. "Average
annual total return" represents the average annual compound rate of return of an
investment in a particular class of Fund shares assuming the investment is held
for one year, five years and ten years as of the end of the most recent calendar
quarter. Where the Fund provides total return quotations for other periods, or
based on investments at various sales charge levels or at net asset value,
"total return" is based on the total of all income and capital gains paid to
(and reinvested by) shareholders, plus (or minus) the change in the value of the
original investment expressed as a percentage of the purchase price.
"Current yield" reflects the income per share earned by the Fund's
portfolio investments, and is calculated by dividing the Fund's net investment
income per share during a recent 30-day period by the maximum public offering
price on the last day of that period and then annualizing the result. Dividends
or distributions that were paid to the Fund's shareholders are reflected in the
"current distribution rate," which is computed by dividing the total amount of
dividends per share paid by the Fund during the preceding 12 months by the
Fund's current maximum offering price (which includes any applicable sales
charge). The "current distribution rate" will differ from the "current yield"
computation because it may include distributions to shareholders from sources
other than dividends and interest, short term capital gain and net equalization
credits and will be calculated over a different period of time.
HOW TO BUY SHARES
OPENING AN ACCOUNT: Complete and sign the Account Application on the
last page of this Prospectus. Make your check payable to Ivy European
Opportunities Fund. No third party checks will be accepted. Deliver these items
to your registered representative or selling broker, or send them to one of the
addresses below:
Regular Mail:
IVY MACKENZIE SERVICES CORP.
P.O. BOX 3022
BOCA RATON, FL 33431-0922
Courier:
IVY MACKENZIE SERVICES CORP.
700 SOUTH FEDERAL HIGHWAY, SUITE 300
BOCA RATON, FL 33432
The Fund reserves the right to reject any purchase order.
MINIMUM INVESTMENT POLICIES: The minimum initial investment in Class A,
Class B or Class C shares is $1,000; the minimum additional investment is $100.
Initial or additional amounts for retirement accounts may be less (see
"Retirement Plans").
Accounts in Class I shares can be opened with a minimum initial
investment of $5,000,000; the minimum additional investment is $10,000. The
minimum initial investment in the Fund's Class I shares may be spread over the
thirteen-month period following the opening of the account (see "Letter of
Intent (LOI)").
BUYING ADDITIONAL SHARES: You may add to your account at any time
through any of the following options:
By Mail: Complete the investment slip attached to your statement, or
write instructions including the account registration, fund number, and account
number of the shares you wish to purchase. Send your check (payable to the Fund)
and investment slip or written instructions to one of the addresses above.
Through Your Broker: Deliver to your registered representative or
selling broker the investment slip attached to your statement (or written
instructions) along with your payment.
By Wire: Purchases may also be made by wiring money from your bank
account to your Ivy account. Your bank may charge a fee for wiring funds.
Before wiring any funds, please call IMSC at 1-800-777-6472. Wiring
instructions are as follows:
FIRST UNION NATIONAL BANK OF FLORIDA
JACKSONVILLE, FL
ABA#063000021
ACCOUNT #2090002063833
FOR FURTHER CREDIT TO:
YOUR IVY ACCOUNT REGISTRATION
YOUR FUND NUMBER AND ACCOUNT NUMBER
By Automatic Investment Method: Complete Sections 6A and 7B on the
Account Application (See "Automatic Investment Method" on page ____ for more
information).
HOW YOUR PURCHASE PRICE IS DETERMINED
Your purchase price for Class A shares of the Fund is the net asset
value ("NAV") per share plus a sales charge, which may be reduced or eliminated
in certain circumstances. The purchase price per share is known as the public
offering price. Your purchase price for Class B and Class C shares and Class I
shares of the Fund is the net asset value per share.
Share purchases will be made at the next determined price after your
purchase order is received. The price is effective for orders received by IMSC
or by your registered securities dealer prior to the time of the determination
of the NAV. Any orders received after the time of the determination of the NAV
will be entered at the next calculated price.
Orders placed with a securities dealer before the NAV is determined and
that are transmitted through the facilities of the National Securities Clearing
Corporation on the same day are confirmed at that day's price. Any loss
resulting from the dealer's failure to submit an order by the deadline will be
borne by that dealer.
You will receive an account statement after any purchase, exchange or
full liquidation. Statements related to reinvestment of dividends, capital
gains, automatic investment plans (see the SAI for further explanation) and/or
systematic withdrawal plans will be sent quarterly.
HOW THE FUND VALUES ITS SHARES
The NAV per share is the value of one share. The NAV is determined for
each class of shares as of the close of the New York Stock Exchange (the
"Exchange") on each day the Exchange is open by dividing the value of the Fund's
net assets attributable to a class by the number of shares of that class that
are outstanding, adjusted to the nearest cent. These procedures are described
more completely in the SAI.
The Trustees have established procedures to value the Fund's securities
in order to determine the NAV. Securities and other assets for which market
prices are not readily available are valued at fair value, as determined by IMI
and approved by the Trustees. Money market instruments of the Fund are valued at
amortized cost.
INITIAL SALES CHARGE ALTERNATIVE -- CLASS A SHARES
Shares are purchased at a public offering price equal to their NAV per
share plus a sales charge, as set forth below.
SALES CHARGE
---------------------------
<TABLE>
<S> <C> <C> <C>
AS A PERCENTAGE OF AS A PERCENTAGE OF AS A PORTION OF PUBLIC
PUBLIC OFFERING PRICE NET AMOUNT INVESTED OFFERING PRICE RETAINED
BY DEALER
AMOUNT 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 $500,000 3.00% 3.09% 2.50%
$500,000 or over* 0.00% 0.00% 0.00%
* A CDSC may apply to the redemption of Class A shares that are
purchased without an initial sales charge. See "Contingent
Deferred Sales Charge -- Class A Shares."
</TABLE>
Sales charges are not applied to any dividends or capital gains that
are reinvested in additional shares of the Fund. An investor may be charged a
transaction fee for Class A and Class I shares purchased or redeemed at NAV
through a broker or agent other than IMDI.
With respect to purchases of $500,000 or more through dealers or
agents, IMDI may, at the time of purchase, pay such dealers or agents from its
own resources a commission to compensate such dealers or agents for their
distribution assistance in connection with such purchases. The commission would
be computed as set forth below:
<PAGE>
NAV COMMISSION TABLE
PURCHASE AMOUNT COMMISSION
- --------------- --------------
First
$3,000,000......................................... 1.00%
Next
$2,000,000......................................... .50%
Over
$5,000,000......................................... .25%
Dealers who receive 90% or more of the sales charge may be deemed to
be "underwriters" as that term is defined in the 1933 Act.
IMDI compensates participating brokers who sell Class A shares through
the initial sales charge. IMDI retains that portion of the initial sales charge
that is not reallowed to the dealers, which it may use to distribute the Fund's
Class A shares. Pursuant to separate distribution plans for the Fund's Class A,
Class B and Class C shares, IMDI bears various promotional and sales related
expenses, including the cost of printing and mailing prospectuses to persons
other than shareholders. Pursuant to the Fund's Class A distribution plans, IMDI
currently pays a continuing service fee to qualified dealers at an annual rate
of .25% of qualified investments.
IMDI may from time to time pay a bonus or other incentive to dealers
(other than IMDI) which employ a registered representative who sells a minimum
dollar amount of the shares of the Fund and/or other funds distributed by IMDI
during a specified period of time. This bonus or other incentive may take the
form of payment for travel expenses, including lodging, incurred in connection
with trips taken by qualifying registered representatives and members of their
families to places within or without the U.S. or other bonuses such as gift
certificates or the cash equivalent of such bonus or incentive.
CONTINGENT DEFERRED SALES CHARGE -- CLASS A SHARES
Purchases of $500,000 or more of Class A shares will be made at NAV
with no initial sales charge, but if the shares are redeemed within 24 months
after the end of the calendar month in which the purchase was made (the CDSC
period), a CDSC of 1% will be imposed.
The charge will be assessed on an amount equal to the lesser of the
current market value or the original purchase cost of the Class A shares
redeemed. Accordingly, no CDSC will be imposed on increases in account value
above the initial purchase price, including any dividends or capital gains which
have been reinvested in additional Class A shares.
In determining whether a CDSC applies to a redemption, the calculation
will be determined in a manner that results in the lowest possible rate being
charged. Therefore, it will be assumed that the redemption is first made from
any shares in your account not subject to the CDSC. The CDSC is waived in
certain circumstances. See the discussion below under the caption "Waiver of
Contingent Deferred Sales Charge."
WAIVER OF CONTINGENT DEFERRED SALES CHARGE: The CDSC is waived for: (i)
redemptions in connection with distributions not exceeding 12% annually of the
initial account balance (i.e., the value of the shareholder's Class A Fund
account at the time of the initial distribution) (i.a) following retirement
under a tax qualified retirement plan, or (i.b) upon attaining age 59 1/2 in the
case of an IRA, a custodial account pursuant to section 403(b)(7) of the Code or
a Keogh Plan; (ii) redemption resulting from tax-free return of an excess
contribution to an IRA; or (iii) any partial or complete redemption following
the death or disability (as defined in Section 72(m)(7) of the Code) of a
shareholder from an account in which the deceased or disabled is named, provided
that the redemption is requested within one year of death or disability. IMDI
may require documentation prior to waiver of the CDSC.
Class A shareholders may exchange their Class A shares subject to a
CDSC ("outstanding Class A shares") for Class A shares of another Ivy fund ("new
Class A shares") on the basis of the relative NAV per Class A share, without the
payment of any CDSC that would be due upon the redemption of the outstanding
Class A shares. The original CDSC rate that would have been charged if the
outstanding Class A shares were redeemed will carry over to the new Class A
shares received in the exchange, and will be charged accordingly at the time of
redemption.
QUALIFYING FOR A REDUCED SALES CHARGE
RIGHTS OF ACCUMULATION (ROA): Rights of Accumulation ("ROA") is
calculated by determining the current market value of all Class A shares in all
Ivy fund accounts (except Ivy Money Market Fund) owned by you, your spouse, and
your children under 21 years of age. ROA is also applicable to accounts under a
trustee or other single fiduciary (including retirement accounts qualified under
Section 401 of the Code). The current market values of your accounts as
described above is added together and then added to your current purchase
amount. If the combined total is equal to or greater than a breakpoint amount
for the Fund you are purchasing, then you qualify for the reduced sales charge
on that purchase. To reduce or eliminate the sales charge, you must complete
Section 4C of the Account Application.
LETTER OF INTENT (LOI): A Letter of Intent ("LOI") is a non-binding
agreement that states your intention to invest in additional Class A shares,
within a thirteen month period after the initial purchase, an amount equal to a
breakpoint amount for the Fund. The LOI may be backdated up to 90 days. To sign
an LOI, please complete Section 4C of the Account Application.
Should the LOI not be fulfilled within the thirteen month period, your
account will be debited for the difference between the full sales charge that
applies for the amount actually invested and the reduced sales charge actually
paid on purchases placed under the terms of the LOI.
PURCHASES OF CLASS A SHARES AT NET ASSET VALUE: Investors who held Ivy
Fund shares as of December 31, 1991, or who held shares of certain funds that
were reorganized into an Ivy fund, may be exempt from sales charges on the
purchase of Class A shares of any of the Ivy funds. If you believe you may be
eligible for such an exemption, please contact IMSC at 1-800-235-3322 for
additional information.
Class A shares of the Fund may be purchased without an initial sales
charge or CDSC by (i) officers and Trustees of the Trust (and their relatives),
(ii) officers, directors, employees, retired employees, legal counsel and
accountants of IMI, MIMI, and MFC (and their relatives), and (iii) directors,
officers, partners, registered representatives, employees and retired employees
(and their relatives) of dealers having a sales agreement with IMDI (or trustees
or custodians of any qualified retirement plan or IRA established for the
benefit of any such person). In addition, certain investment advisors and
financial planners who charge a management, consulting or other fee for their
services and who place trades for their own accounts or the accounts of their
clients may purchase Class A shares of the Fund without an initial sales charge
or a CDSC, provided such purchases are placed through a broker or agent who
maintains an omnibus account with the Fund. Also, clients of these advisors and
planners may make purchases under the same conditions if the purchases are
through the master account of such advisor or planner on the books of such
broker or agent. This provision applies to assets of retirement and deferred
compensation plans and trusts used to fund those plans including, but not
limited to, those defined in Section 401(a), 403(b) or 457 of the Code and
"Rabbi Trusts" whose assets are used to purchase shares of the Fund through the
aforementioned channels.
Class A shares of the Fund may be purchased at NAV by retirement plans
qualified under section 401(a) or 403(b) of the Code or subject to the Employee
Retirement Income Security Act of 1974, as amended. A CDSC of 1% will be imposed
on such purchases in the event of certain plan-level redemption transactions
within 24 months following such purchases. Class A shares of the Fund are made
available to Merrill Lynch Daily K Plan (the "Plan") participants at NAV without
an initial sales charge if the Plan has at least $3 million in assets or 500 or
more eligible employees. Class B shares of the Fund are made available 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 Fund's SAI.
If investments by retirement plans at NAV are made through a dealer who
has executed a dealer agreement with respect to the Fund, IMDI may, at the time
of purchase, pay the dealer out of IMDI's own resources a commission to
compensate the dealer for its distribution assistance in connection with the
retirement plan's investment. Refer to the NAV Commission Table on page _____ of
this Prospectus. A CDSC of 1% will be imposed on such purchases in the event of
certain redemption transactions within 24 months following such purchases.
Please contact IMDI for additional information.
Class A shares can also be purchased without an initial sales charge,
but subject to a CDSC of 1.00% during the first 24 months, by: (a) any state,
county or city (or any instrumentality, department, authority or agency of such
entities) that is prohibited by applicable investment laws from paying a sales
charge or commission when purchasing shares of a registered investment
management company (an "eligible governmental authority"), and (b) trust
companies, bank trust departments, credit unions, savings and loans and other
similar organizations in their fiduciary capacity or for their own accounts,
subject to any minimum requirements set by IMDI (currently, these criteria
require that the amount invested or to be invested in the subsequent 13-month
period totals at least $250,000). In either case, IMDI may pay commissions to
dealers that provide distribution assistance on the same basis as in the
preceding paragraph.
Class A shares of the Fund may also be purchased without a sales charge
in connection with certain liquidation, merger or acquisition transactions
involving other investment companies or personal holding companies. Additional
information on reductions or waivers may be obtained from IMDI at the address
listed on the cover of the Prospectus.
CONTINGENT DEFERRED SALES CHARGE ALTERNATIVE -- CLASS B AND CLASS C SHARES
Class B and Class C shares are offered at NAV per share without a front
end sales charge. Class C shares redeemed within one year of purchase will be
subject to a CDSC of 1%, and Class B shares redeemed within six years of
purchase will be subject to a CDSC at the rates set forth below. This charge
will be assessed on an amount equal to the lesser of the current market value or
the original purchase cost of the shares being redeemed. Accordingly, you will
not be assessed a CDSC on increases in account value above the initial purchase
price, including shares derived from dividends or capital gains reinvested. In
determining whether a CDSC applies to a redemption, the calculation will be
determined in a manner that results in the lowest possible rate being charged.
It will be assumed that your redemption comes first from shares you have held
beyond the requisite maximum holding period or those you acquire through
reinvestment of dividends or capital gain, and next from the shares you have
held the longest during the requisite holding period.
Proceeds from the CDSC are paid to IMDI. The proceeds are used, in
whole or in part, to defray its expenses related to providing the Fund with
distribution services in connection with the sale of Class B and Class C shares,
such as compensating selected dealers and agents for selling these shares. The
combination of the CDSC and the distribution and service fees makes it possible
for the Fund to sell Class B or Class C shares without deducting a sales charge
at the time of the purchase.
In the case of Class B shares, the amount of the CDSC, if any, will
vary depending on the number of months from the time you purchase your shares
until the time you redeem them. Solely for purposes of determining this holding
period, any purchases you make during the quarter will be aggregated and deemed
to have been made on the last day of the quarter. In the case of Class C shares,
solely for purposes of determining this holding period, any purchases you make
during a month will be deemed to have been made on the last day of the month.
<PAGE>
CONTINGENT DEFERRED
CLASS B SHARES: SALES CHARGE AS A
PERCENTAGE OF DOLLAR
AMOUNT SUBJECT TO
YEAR SINCE PURCHASE CHARGE
- ------------------- --------------------
First............................................ 5%
Second........................................ 4%
Third........................................... 3%
Fourth......................................... 3%
Fifth............................................ 2%
Sixth........................................... 1%
Seventh and thereafter................. 0%
IMDI currently intends to pay to dealers a sales commission of 4% of
the sale price of Class B shares they have sold, and will receive the entire
amount of the CDSC paid by shareholders on the redemption of Class B shares to
finance the 4% commission and related marketing expenses.
With respect to Class C shares, IMDI currently intends to pay to
dealers a sales commission of 1% of the sale price of Class C shares that they
have sold, a portion of which is to compensate the dealers for providing Class C
shareholder account services during the first year of investment. IMDI will
receive the entire amount of the CDSC paid by shareholders on the redemption of
Class C shares to finance the 1% commission and related marketing expenses.
Pursuant to separate distribution plans for the Fund's Class B and
Class C shares, IMDI bears various promotional and sales related expenses,
including the cost of printing and mailing prospectuses to persons other than
shareholders. Under the Fund's Class B Plan, IMDI retains .75% of the continuing
1% service/distribution fee assessed to Class B shareholders, and pays a
continuing service fee to qualified dealers at an annual rate of .25% of
qualified investments. Under the Class C Plan, IMDI pays continuing
service/distribution fees to qualified dealers at an annual rate of 1% of
qualified investments after the first year of investment (.25% of which
represents a service fee).
CONVERSION OF CLASS B SHARES: Your Class B shares and an appropriate
portion of both reinvested dividends and capital gains on those shares will be
converted into Class A shares automatically no later than the month following
eight years after the shares were purchased, resulting in lower annual
distribution fees. If you exchanged Class B shares into the Fund from Class B
shares of another Ivy fund, the calculation will be based on the time the shares
in the original fund were purchased.
WAIVER OF CONTINGENT DEFERRED SALES CHARGE: The CDSC is waived for (i)
redemptions in connection with distributions not exceeding 12% annually of the
initial account balance (i.e., the value of the shareholder's Class B or Class C
Fund account at the time of the initial distribution) (i.a) following retirement
under a tax qualified retirement plan, or (i.b) upon attaining age 59 1/2 in the
case of an IRA, a custodial account pursuant to section 403(b)(7) of the Code or
a Keogh Plan; (ii) redemption resulting from tax-free return of an excess
contribution to an IRA; or (iii) any partial or complete redemption following
the death or disability (as defined in Section 72(m)(7) of the Code) of a
shareholder from an account in which the deceased or disabled is named, provided
that the redemption is requested within one year of death or disability. IMDI
may require documentation prior to waiver of the CDSC.
ARRANGEMENTS WITH BROKER-DEALERS AND OTHERS: IMDI may, at its own
expense, pay concessions in addition to those described above to dealers that
satisfy certain criteria established from time to time by IMDI. These conditions
relate to increasing sales of shares of the Fund over specified periods and to
certain other factors. These payments may, depending on the dealer's
satisfaction of the required conditions, be periodic and may be up to (i) .25%
of the value of Fund shares sold by the dealer during a particular period, and
(ii) .10% of the value of Fund shares held by the dealer's customers for more
than one year, calculated on an annual basis.
HOW TO REDEEM SHARES
You may redeem your Fund shares through your registered securities
representative, by mail, or by telephone. A CDSC may apply to certain Class A
share redemptions, to Class B shares that are 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.
When shares of the Fund are redeemed, the Fund normally will send
redemption proceeds to you on the next business day, but may take up to seven
business days (or longer in the case of shares recently purchased by check).
Under unusual circumstances, the Fund may suspend redemptions or postpone
payment to the extent permitted by Federal securities laws. The proceeds of the
redemption may be more or less than the purchase price of your shares, depending
upon, among other factors, the market value of the Fund's securities at the time
of the redemption. If the redemption is for over $50,000, or the proceeds are to
be sent to an address other than the address of record, or an address change has
occurred in the last 30 days, it must be requested in writing with a signature
guarantee. See "Signature Guarantees," below.
If you are not certain of the requirements for a redemption, please
contact IMSC at 1-800-777-6472.
THROUGH YOUR REGISTERED SECURITIES DEALER: The Dealer is responsible
for promptly transmitting redemption orders. Redemptions requested by dealers
will be made at the NAV (less any applicable CDSC) determined at the close of
regular trading (4:00 p.m. Eastern time) on the day that a redemption request is
received in good order by IMSC.
BY MAIL: Requests for redemption in writing are considered to be in
"proper or good order" if they contain the following:
- Any outstanding certificate(s) for shares being redeemed.
- A letter of instruction, including the account registration, fund
number, account number, and dollar amount or number of shares to be
redeemed.
- Signatures of all registered owners whose names appear on the
account.
- Any required signature guarantees.
- Other supporting legal documentation, if required (in the case of
estates, trusts, guardianships, corporations, unincorporated
associations retirement plan trustees or others acting in
representative capacities).
The dollar amount or number of shares indicated for redemption must not
exceed the available shares or NAV of your account at the next-determined
prices. If your request exceeds these limits, then the trade will be rejected in
its entirety.
Mail your request to IMSC at one of the addresses on page ______ of
this Prospectus.
BY TELEPHONE: Individual and joint accounts may redeem up to $50,000
per day over the telephone by contacting IMSC at 1-800-777-6472. In times of
unusual economic or market changes, the telephone redemption privilege may be
difficult to implement. If you are unable to execute your transaction by
telephone, you may want to consider placing the order in writing and sending it
by mail or overnight courier.
Checks will be made payable to the current account registration and
sent to the address of record. If there has been a change of address in the last
30 days, please use the instructions for redemption requests by mail described
above. A signature guarantee would be required.
Requests for telephone redemptions will be accepted from the registered
owner of the account, the designated registered representative or the registered
representative's assistant.
Shares held in certificate form cannot be redeemed by telephone.
If Section 6E of the Account Application is not completed, telephone
redemption privileges will be provided automatically. Although telephone
redemptions may be a convenient feature, you should realize that you may be
giving up a measure of security that you may otherwise have if you terminated
the privilege and redeemed your shares in writing. If you do not wish to make
telephone redemptions or let your registered representative do so on your
behalf, you must notify IMSC in writing.
The Fund employs reasonable procedures that require personal
identification prior to acting on redemption instructions communicated by
telephone to confirm that such instructions are genuine. In the absence of such
procedures, the Fund may be liable for any losses due to unauthorized or
fraudulent telephone instructions.
Receiving Your Proceeds by Federal Funds Wire: For shareholders who
established this feature at the time they opened their account, telephone
instructions will be accepted for redemption of amounts up to $50,000 ($1,000
minimum) and proceeds will be wired on the next business day to a predesignated
bank account.
In order to add this feature to an existing account or to change
existing bank account information, please submit a letter of instructions
including your bank information to IMSC at the address provided above. The
letter must be signed by all registered owners, and their signatures must be
guaranteed.
Your account will be charged a fee of $10 each time redemption
proceeds are wired to your bank. Your bank may also charge you a fee for
receiving a Federal Funds wire.
Neither IMSC nor the Fund can be responsible for the efficiency of the
Federal Funds wire system or the shareholder's bank.
MINIMUM ACCOUNT BALANCE REQUIREMENTS
Due to the high cost of maintaining small accounts and subject to state
law requirements, the Fund may redeem the accounts of shareholders whose
investment, including sales charges paid, has been less than $1,000 for more
than 12 months. The Fund will not redeem an account unless the shareholder has
been given at least 60 days' advance notice of the Fund's intention to do so. No
redemption will be made if a shareholder's account falls below the minimum due
to a reduction in the value of the Fund's portfolio securities. This provision
does not apply to IRAs, other retirement accounts and UGMA/UTMA accounts.
SIGNATURE GUARANTEES
For your protection, and to prevent fraudulent redemptions, we require
a signature guarantee in order to accommodate the following requests:
- Redemption requests over $50,000.
- Requests for redemption proceeds to be sent to someone other than
the registered shareholder.
- Requests for redemption proceeds to be sent to an address other than
the address of record, or the address of record has changed within the
last 30 days.
- Registration transfer requests.
- Requests for redemption proceeds to be wired to your bank account
(if this option was not selected on your original application, or if
you are changing the bank wire information).
A signature guarantee may be obtained only from an eligible guarantor
institution as defined in Rule 17Ad-15 of the Securities Exchange Act of 1934,
as amended. An eligible guarantor institution includes banks, brokers, dealers,
municipal securities dealers, government securities dealers, government
securities brokers, credit unions, national securities exchanges, registered
securities associations, clearing agencies and savings associations. The
signature guarantee must not be qualified in any way. Notarizations from notary
publics are not the same as signature guarantees, and are not accepted.
Circumstances other than those described above may require a signature
guarantee. Please contact IMSC at 1-800-777-6472 for more information.
CHOOSING A DISTRIBUTION OPTION
You have the option of selecting the distribution option that best
suits your needs:
AUTOMATIC REINVESTMENT OPTION -- Both dividends and capital gains are
automatically reinvested at NAV in additional shares of the same class of the
Fund unless you specify one of the other options.
INVESTMENT IN ANOTHER IVY FUND -- Both dividends and capital gains are
automatically invested at NAV in another Ivy fund of the same class.
DIVIDENDS IN CASH/CAPITAL GAINS REINVESTED -- Dividends will be paid in
cash. Capital gains will be reinvested at NAV in additional shares of the same
class of the Fund or another Ivy fund of the same class.
DIVIDENDS AND CAPITAL GAINS IN CASH -- Both dividends and capital gains
will be paid in cash.
If you wish to have your cash distributions deposited directly to your
bank account via electronic funds transfer ("EFT"), or if you wish to change
your distribution option, please contact IMSC at 1-800-777-6472.
If you wish to have your cash distributions go to an address other than
the address of record you must provide IMSC with a letter of instruction signed
by all registered owners with signatures guaranteed.
TAX IDENTIFICATION NUMBER
In general, to avoid being subject to a 31% U.S. Federal backup
withholding tax on dividends, capital gains distributions and redemption
proceeds, you must furnish the Fund with your certified tax identification
number ("TIN") and certify that you are not subject to backup withholding due to
prior underreporting of interest and dividends to the IRS. If you fail to
provide a certified TIN, or such other tax-related certifications as the Fund
may require, within 30 days of opening your new account, the Fund reserves the
right to involuntarily redeem your account and send the proceeds to your address
of record.
You can avoid the above withholding and/or redemption by correctly
furnishing your TIN, and making certain certifications, in Section 2 of the
Account Application at the time you open your new account, unless the IRS
requires that backup withholding be applied to your account.
Certain payees, such as corporations, generally are exempt from backup
withholding. Please complete IRS Form W-9 with the Account Application to claim
this exemption. If the registration is for an UGMA/UTMA account, please provide
the social security number of the minor. Alien individuals must furnish their
individual TIN on a completed IRS Form W-9. Other non-U.S. investors who are not
required to have a TIN must provide, with their Account Application, a completed
IRS Form W-8.
CERTIFICATES
In order to facilitate transfers, exchanges and redemptions, most
shareholders elect not to receive certificates. Should you wish to have a
certificate issued, please contact IMSC at 1-800-777-6472 and request that one
be sent to you. (Retirement plan accounts are not eligible for this service.)
Please note that if you were to lose your certificate, you would incur an
expense to replace it.
Certificates requested by telephone for shares valued up to $50,000
will be issued to the current registration and mailed to the address of record.
Should you wish to have your certificates mailed to a different address, or
registered differently from the current registration, contact IMSC at
1-800-777-6472.
EXCHANGE PRIVILEGE
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). The Fund reserves the right to reject any exchange
order.
Class A shareholders may exchange their outstanding Class A shares for
Class A shares of another Ivy fund on the basis of the relative NAV per Class A
share, plus an amount equal to the difference between the sales charge
previously paid on the outstanding Class A shares and the sales charge payable
at the time of the exchange on the new Class A shares. Incremental sales charges
are waived for outstanding Class A shares that have been invested for 12 months
or longer.
Class B (and Class C) shareholders may exchange their outstanding Class
B (or Class C) shares for Class B (or Class C) shares of another Ivy fund on the
basis of the relative NAV per Class B (or Class C) share, without the payment of
any CDSC that would otherwise be due upon the redemption of Class B (or Class C)
shares. Class B shareholders who exercise the exchange privilege would continue
to be subject to the original Fund's CDSC schedule (or period) following an
exchange if such schedule is higher (or longer) than the CDSC for the new Class
B shares.
Class I shareholders of the Fund may exchange their outstanding Class I
shares for Class I shares of another Ivy fund on the basis of the relative NAV
per Class I share. Exchanges from any class of Fund shares into an Ivy fund in
which shares are not already held are subject to certain minimum investment
restrictions. See "Exchange of Shares" in the SAI or contact IMSC at
1-800-777-6472 for further details.
Shares resulting from the reinvestment of dividends and other
distributions will not be charged an initial sales charge or a CDSC when
exchanged into another Ivy fund.
Exchanges are considered to be taxable events, and may result in a
capital gain or a capital loss for tax purposes. Before executing an exchange,
you should obtain and read the prospectus and consider the investment objective
of the fund to be purchased. Share certificates must be unissued (i.e., held by
the Fund) in order to execute an exchange. Exchanges are available only in
states where they can be legally made. The Fund reserves the right to limit the
frequency of exchanges. Exchanges are accepted only if the registrations of the
two accounts are identical. Amounts to be exchanged must meet minimum investment
requirements for the Ivy fund into which the exchange is made. It is the policy
of the Fund to discourage the use of the exchange privilege for the purpose of
timing short-term market fluctuations. To protect the interests of other
shareholders of the Fund, the Fund may cancel the exchange privileges of any
persons that, in the opinion of the Fund, are using market timing strategies or
are making more than five exchanges per owner or controlling person per calendar
year.
With respect to shares subject to a CDSC, if less than all of an
investment is exchanged out of the Fund, the shares exchanged will reflect, pro
rata, the cost, capital appreciation and/or reinvestment of distributions of the
original investment as well as the original purchase date, for purposes of
calculating any CDSC for future redemptions of the exchanged shares.
Investors who held Ivy Fund shares as of December 31, 1991, or who held
shares of certain funds that were reorganized into an Ivy fund, may be exempt
from sales charges on the exchange of shares between any of the Ivy funds. If
you believe you may be eligible for such an exemption, please contact IMSC at
1-800-235-3322 for additional information.
In calculating the sales charge assessed on an exchange, shareholders
will be allowed to use the Rights of Accumulation privilege.
EXCHANGES BY TELEPHONE: If Section 6D of the Account Application is not
completed, telephone exchange privileges will be provided automatically for
accounts qualifying for this option. Although telephone exchanges may be a
convenient feature, you should realize that you may be giving up a measure of
security that you may otherwise have if you terminated the privilege and
exchanged your shares in writing. If you do not wish to make telephone exchanges
or let your registered representative do so on your behalf, you must notify IMSC
in writing.
In order to execute an exchange, please contact IMSC at 1-800-777-6472.
Have the account number of your current fund and the exact name in which it is
registered available to give to the telephone representative.
The Fund employs reasonable procedures that require personal
identification prior to acting on exchange instructions communicated by
telephone to confirm that such instructions are genuine. In the absence of such
procedures, the Fund may be liable for any losses due to unauthorized or
fraudulent telephone instructions.
EXCHANGES IN WRITING: In a letter, request an exchange and provide the
following information:
- The name and class of the fund whose shares you currently own.
- Your account number.
- The name(s) in which the account is registered.
- The name of the fund in which you wish your exchange to be invested.
- The number of shares or the dollar amount you wish to exchange.
The request must be signed by all registered owners.
REINVESTMENT PRIVILEGE
Investors who have redeemed Class A shares of the Fund have a one-time
privilege of reinvesting all or a part of the proceeds of the redemption back
into Class A shares of the Fund at NAV (without a sales charge) within 60 days
after the date of redemption. IN ORDER TO REINVEST WITHOUT A SALES CHARGE,
SHAREHOLDERS OR THEIR BROKERS MUST INFORM IMSC THAT THEY ARE EXERCISING THE
REINVESTMENT PRIVILEGE AT THE TIME OF REINVESTMENT. The tax status of a gain
realized on a redemption generally will not be affected by the exercise of the
reinvestment privilege, but a loss realized on a redemption generally may be
disallowed by the IRS if the reinvestment privilege is exercised within 30 days
after the redemption. In addition, upon a reinvestment, the shareholder may not
be permitted to take into account sales charges incurred on the original
purchase of shares in computing their taxable gain or loss.
SYSTEMATIC WITHDRAWAL PLAN
You may elect the Systematic Withdrawal Plan at any time by completing
the Account Application, which is attached to this Prospectus. You can also
obtain this application by contacting your registered representative or IMSC at
1-800-777-6472. To be eligible, you must continually maintain at least $5,000 in
your account. Payments (minimum distribution amount -- $50) from your account
can be made monthly, quarterly, semi-annually, annually or on a selected monthly
basis, to yourself or any other designated payee. You may elect to have your
systematic withdrawal paid directly to your bank account via EFT, at no charge.
Share certificates must be unissued (i.e., held by the Fund) while the plan is
in effect. A Systematic Withdrawal Plan may not be established if you are
currently participating in the Automatic Investment Method. For more
information, please contact IMSC at 1-800-777-6472.
If payments you receive through the Systematic Withdrawal Plan exceed
the dividends and capital appreciation of your account, you will be reducing the
value of your account. Additional investments made by shareholders participating
in the Systematic Withdrawal Plan must equal at least $1,000 while the plan is
in effect. However, it may not be advantageous to purchase additional Class A,
Class B or Class C shares when you have a Systematic Withdrawal Plan, because
you may be subject to an initial sales charge on your purchase of Class A shares
or to a CDSC imposed on your redemptions of Class B or Class C shares. In
addition, redemptions are taxable events.
Amounts paid to you through the Systematic Withdrawal Plan are derived
from the redemption of shares in your account. Any applicable CDSC will be
assessed upon the redemptions. A CDSC will not be assessed on withdrawals not
exceeding 12% annually of the initial account balance when the Systematic
Withdrawal Plan was started.
Should you wish at any time to add a Systematic Withdrawal Plan to an
existing account or change payee instructions, you will need to submit a written
request, signed by all registered owners, with signatures guaranteed.
Retirement accounts are eligible for Systematic Withdrawal Plans.
Please contact IMSC at 1-800-777-6472 to obtain the necessary paperwork to
establish a plan.
If the U.S. Postal Service cannot deliver your checks, or if deposits
to a bank account are returned for any reason, your redemptions will be
discontinued.
AUTOMATIC INVESTMENT METHOD
You may authorize an investment to be automatically drawn each month
from your bank for investment in Fund shares by completing Sections 6A and 7B of
the Account Application. Attach a "voided" check to your Account Application. At
pre-specified intervals, your bank account will be debited and the proceeds will
be credited to your Ivy account. The minimum investment under this plan is $50
per month ($25 per month for retirement plans). There is no charge to you for
this program.
You may terminate or suspend your Automatic Investment Method by
telephone at any time by contacting IMSC at 1-800-777-6472.
If you have investments being withdrawn from a bank account and we are
notified that the account has been closed, your Automatic Investment Method will
be discontinued.
CONSOLIDATED ACCOUNT STATEMENTS
Shareholders with two or more Ivy fund accounts having the same
taxpayer I.D. number will receive a single quarterly account statement, unless
otherwise specified. This feature consolidates the activity for each account
onto one statement. Requests for quarterly consolidated statements for all other
accounts must be submitted in writing and must be signed by all registered
owners.
RETIREMENT PLANS
The Ivy funds offer several tax-sheltered retirement plans that may fit
your needs:
- Traditional and Roth IRAs
- 401(k), Money Purchase Pension and Profit Sharing Plans
- SEP-IRA (Simplified Employee Pension Plan)
- 403(b)(7) Plan
- SIMPLE Plans (Individual Retirement Account and 401(k))
Minimum initial and subsequent investments for retirement plans are
$25.
Investors Bank & Trust, which serves as custodian or trustee under the
retirement plan prototypes available from the Fund, charges certain nominal fees
for annual maintenance. A portion of these fees is remitted to IMSC as
compensation for its services to the retirement plan accounts maintained with
the Fund.
Distributions from retirement plans are subject to certain requirements
under the Code. Certain documentation, including IRS Form W4-P, must be provided
to IMSC prior to taking any distribution. Please contact IMSC for details. The
Ivy funds and IMSC assume no responsibility to determine whether a distribution
satisfies the conditions of applicable tax laws, and will not be responsible for
any penalties assessed. For additional information, please contact your broker,
tax adviser or IMSC.
Please call IMSC at 1-800-777-6472 for complete information kits
describing the plans, their benefits, restrictions, provisions and fees.
SHAREHOLDER INQUIRIES
Inquiries regarding the Fund should be directed to IMSC at
1-800-777-6472.
<PAGE>
Ivy European Opportunities Fund
ACCOUNT APPLICATION
USE THIS APPLICATION FOR CLASS A, CLASS B, CLASS C AND CLASS I SHARES
Please mail applications and checks to: Ivy Mackenzie Services Corp.,
P.O. Box 3022, Boca Raton, FL 33431-0922.
(This application should not be used for retirement accounts for which Ivy is
custodian.)
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
Identification Number" 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) made payable to Ivy European
Opportunities Fund. Please invest it in Class A __ Class B __ Class C
__ or Class I shares.
$__________________ (Amount Enclosed)
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.
A. / / Reinvest all dividends and capital gains into additional shares of
a different Ivy fund.
Fund Name
Account Number
B. / / Pay all dividends in cash and reinvest capital gains into
additional shares in this Fund or a different Ivy fund.
Fund Name
Account Number
C. / / Pay all dividends and capital gains in cash.
I REQUEST THE ABOVE CASH DISTRIBUTION, SELECTED IN C OR D ABOVE, BE:
/ / Sent to the address listed in the registration.
/ / Sent to the special payee listed in Section 7A//
(By Mail)
7B// (By E.F.T.)
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 Ivy European Opportunities Fund.
/ / 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 Ivy European
Opportunities Fund.
/ / 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. Electronic Funds Transfer for Redemption Proceeds**
I authorize the Agent to honor telephone instructions for the
redemption of Fund shares up to $50,000. Proceeds may be wire
transferred to the bank account designated ($1,000 minimum). (Complete
Section 7B)
D. 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.
E. Telephonic Redemptions** / / Yes / / No
The Fund or its agents are authorized to honor telephone
instructions from any person as more fully described in the
Prospectus for the redemption of Fund shares. The amount of
the redemption shall not exceed $50,000 and the proceeds are
to be payable to the shareholder of record and mailed to the
address of record. To change this option once established,
written instructions must be received from the shareholder of
record or the current registered representative.
If neither box is checked, the telephone 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 "Exchange Privilege" and "How to
Redeem Shares" in the Prospectus for more information on these
privileges.
I certify to my legal capacity to purchase or redeem shares of the Fund
for my own account or for the account of the organization named in
Section 1. I have received a current Prospectus and understand its
terms are incorporated in this application by reference. I am
certifying my taxpayer information as stated in Section 2.
<PAGE>
THE INTERNAL REVENUE SERVICE DOES NOT REQUIRE YOUR CONSENT TO ANY
PROVISION OF THIS DOCUMENT OTHER THAN THE CERTIFICATIONS REQUIRED TO
VOID 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)
[April [ ], 1999] IVY FUNDS(R)
Ivy
European
Opportunities
Fund
Advisor
Class Shares
- -----------
Prospectus
- -----------
Ivy Management, Inc.
Via Mizner Financial
Plaza
700 South Federal Hwy.
Boca Raton, FL 33432
1-800-456-5111
[ARTWORK]
THROUGHOUT THE
CENTURIES,
THE CASTLE KEEP HAS
BEEN A SOURCE
OF LONG-RANGE VISION
AND STRATEGIC
ADVANTAGE.
Ivy Fund (the "Trust") is a registered investment company currently
consisting of twenty separate portfolios. The Advisor Class of shares of one of
these portfolios, Ivy European Opportunities Fund (the "Fund"), are described in
this Prospectus.
Advisor Class shares are offered at net asset value without the
imposition of a front-end or contingent deferred sales charge or Rule 12b-1
fees, and are available for purchase only by certain investors. The Fund's Class
A, Class B, Class C and Class I shares are described in a separate prospectus
dated April [ ], 1999.
The Fund's investment objective is long-term capital growth by
investing in the securities markets of Europe.
This Prospectus sets forth concisely the information about the Fund's
Advisor Class shares that a prospective investor should know before investing.
Please read it carefully and retain it for future reference. Additional
information about the Fund's Advisor Class shares is contained in the Fund's
Statement of Additional Information for the Advisor Class shares dated [April
__, 1999] (the "SAI"), which has been filed with the Securities and Exchange
Commission ("SEC") and is incorporated by reference into this Prospectus. The
SAI, and the prospectus for the Fund's other classes of shares, are available
upon request and without charge at the Distributor's address and telephone
number below. The SEC maintains a web site (http://www.sec.gov) that contains
the SAI and other material incorporated by reference.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION PASSED UPON
THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY
IS A CRIMINAL OFFENSE.
<PAGE>
TABLE OF CONTENTS
EXPENSE INFORMATION..................................................2
INVESTMENT OBJECTIVE AND POLICIES....................................3
RISK FACTORS AND INVESTMENT TECHNIQUES...............................5
ORGANIZATION AND MANAGEMENT OF THE FUND.............................12
INVESTMENT MANAGER..................................................13
FUND ADMINISTRATION AND ACCOUNTING..................................14
TRANSFER AGENT......................................................14
DIVIDENDS AND TAXES.................................................15
PERFORMANCE DATA....................................................16
HOW TO BUY SHARES...................................................16
HOW YOUR PURCHASE PRICE IS DETERMINED...............................18
HOW THE FUND VALUES ITS SHARES......................................18
HOW TO REDEEM SHARES................................................19
MINIMUM ACCOUNT BALANCE REQUIREMENTS................................21
SIGNATURE GUARANTEES................................................21
CHOOSING A DISTRIBUTION OPTION......................................22
TAX IDENTIFICATION NUMBER...........................................22
CERTIFICATES........................................................23
EXCHANGE PRIVILEGE..................................................23
SYSTEMATIC WITHDRAWAL PLAN..........................................24
AUTOMATIC INVESTMENT METHOD.........................................25
CONSOLIDATED ACCOUNT STATEMENTS.....................................26
RETIREMENT PLANS....................................................26
SHAREHOLDER INQUIRIES...............................................26
ACCOUNT APPLICATION.................................................27
<PAGE>
BOARD OF TRUSTEES OFFICERS
John S. Anderegg, Jr. Michael G. Landry, Chairman
Paul H. Broyhill Keith J. Carlson, President
Keith J. Carlson James W. Broadfoot, Vice President
Stanley Channick C. William Ferris,
Frank W. DeFriece, Jr. Secretary/Treasurer
Roy J. Glauber
Michael G. Landry LEGAL COUNSEL
Joseph G. Rosenthal Dechert Price & Rhoads
Richard N. Silverman Boston, MA
J. Brendan Swan
CUSTODIAN
Brown Brothers Harriman & Co.
Boston, MA
TRANSFER AGENT INVESTMENT MANAGER
Ivy Mackenzie Ivy Management, Inc.
Services Corp. 700 South Federal Highway
P.O. Box 3022 Boca Raton, FL 33432
Boca Raton, FL 33431-0922 1-800-456-5111
1-800-777-6472
DISTRIBUTOR
AUDITORS Ivy Mackenzie
Distributors, Inc.
Fort Lauderdale, FL Via Mizner Financial Plaza
700 South Federal Highway
Boca Raton, FL 33432
1-800-456-5111
[LOGO] IVY MACKENZIE
<PAGE>
EXPENSE INFORMATION
The expenses and costs associated with investing in the Advisor Class
shares of the Fund are reflected in the following tables.
SHAREHOLDER TRANSACTION EXPENSES
MAXIMUM SALES LOAD MAXIMUM CONTINGENT
IMPOSED ON PURCHASES DEFERRED SALES CHARGE
(AS A % OF (AS A % OF ORIGINAL
OFFERING PRICE) PURCHASE PRICE)
-------------------- ---------------------
Advisor Class shares......... None None
The Fund does not charge a redemption fee, an exchange fee, or a sales
load on reinvested dividends.
ANNUAL FUND OPERATING EXPENSES (1)
(AS A PERCENTAGE OF AVERAGE NET ASSETS)
TOTAL FUND
OTHER OPERATING
12B-1 SERVICE/ EXPENSES EXPENSES
MANAGEMENT DISTRIBUTION (after expense (after expense
FEES FEES reimbursement) reimbursement)
----------- ------------- -------------- -------------
Advisor Class
shares ......... 1.00% None 0.95% 1.95%
(1) Annual Fund operating expenses are based on estimated fees and expenses
that the Fund expects to incur in its initial fiscal year ending
December 31, 1999 net of expense reimbursements from Ivy Management,
Inc. ("IMI"). See "Investment Manager" for a more detailed discussion
of the Fund's fees and expenses.
EXAMPLE
The following table lists the expenses an investor would pay on a
$1,000 investment in the Fund's Advisor Class shares, assuming (1) 5% annual
return and (2) unless otherwise noted, redemption at the end of each time
period. This example further assumes reinvestment of all dividends and
distributions, and that the percentage amounts under "Total Fund Operating
Expenses" (above) remain the same each year. THIS EXAMPLE SHOULD NOT BE
CONSIDERED A REPRESENTATION OF PAST OR FUTURE EXPENSES. ACTUAL EXPENSES MAY BE
HIGHER OR LOWER THAN THOSE SHOWN.
1 YEAR 3 YEARS
------ -------
Advisor Class shares....................... $20 $61
The purpose of the foregoing table is to assist you in understanding
the various costs and expenses that an investor in the Fund's Advisor Class
shares will bear directly or indirectly. The information presented in the table
does not reflect the charge of $10 per transaction that would apply if a
shareholder elects to have redemption proceeds wired to his or her bank account.
For a more detailed discussion of the Fund's fees and expenses, see the
following sections of this Prospectus: "Organization and Management of the
Fund," "Investment Manager" and "Fund Administration and Accounting," and the
following section of the SAI: "Investment Advisory and Other Services."
INVESTMENT OBJECTIVE AND POLICIES
The Fund's investment objective is long-term capital growth by
investing in the securities markets of Europe. The Fund's subadviser, Henderson
Investment Management Limited ("Henderson Investors"), will invest the Fund's
assets in the securities of European companies, including those companies
operating in the emerging markets of Europe and small capitalization companies
operating in the developed markets of Europe. The Fund may also invest in larger
capitalization European companies and European companies which have been subject
to special circumstances, e.g., privatized companies or companies which provide
exceptional value. Although the majority of the Fund's assets will be invested
in equity securities, the Fund may also invest in cash, short-term or long-term
fixed income securities issued by corporations and governments of Europe if
considered appropriate in relation to the then current economic or market
conditions in any country.
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 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 American Depository
Receipts ("ADRs"), European Depository Receipts ("EDRs"), Global Depository
Receipts ("GDRs"), American Depository Shares ("ADSs"), European Depository
Shares ("EDSs") and Global Depository Shares ("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 Investors Service, Inc. ("Moody's") or BB or below by Standard
& Poor's Ratings Group ("S&P") or, if unrated, considered by Henderson Investors
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. The Fund may purchase Brady Bonds and other sovereign debt of
countries that have restructured or are in the process of restructuring their
sovereign debt. 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 Henderson Investors 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 Henderson
Investors 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.
The Fund may borrow money for temporary, extraordinary or emergency
purposes, provided that the Fund maintains asset coverage of 300% for all
borrowings. 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 are 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, interest rate and foreign currency futures contracts,
provided that the Fund's equivalent exposure in such contracts does not exceed
15% of its total assets.
The Fund's investment objective is fundamental and may not be changed
without the approval of a majority of the outstanding voting shares of the Fund.
Except for the Fund's investment objective and those investment restrictions
specifically identified as fundamental, all investment policies and practices
described in this Prospectus and in the SAI are non-fundamental, and may be
changed by the Board of Trustees of the Trust ("Trustees") without shareholder
approval. There can be no assurance that the Fund's objective will be met. The
different types of securities and investment techniques used by the Fund involve
varying degrees of risk. For information about the particular risks associated
with each type of investment, see "Risk Factors and Investment Techniques,"
below, and the SAI.
Whenever an investment objective, policy or restriction of the Fund
described in this Prospectus or in the SAI states a maximum percentage of assets
that may be invested in a security or other asset, or describes a policy
regarding quality standards, that percentage limitation or standard will, unless
otherwise indicated, apply to the Fund only at the time a transaction takes
place. Thus, if a percentage limitation is adhered to at the time of investment,
a later increase or decrease in the percentage that results from circumstances
not involving any affirmative action by the Fund will not be considered a
violation.
Descriptions in this prospectus of a particular investment practice or
technique in which the Fund may engage (such as hedging) or a financial
instrument which the Fund may purchase (such as options, forward foreign
currency contracts, etc.) are meant to describe the spectrum of investments that
Henderson Investors, in its discretion, might, but is not required to, use in
managing the Fund's portfolio assets. Henderson Investors 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.
RISK FACTORS AND INVESTMENT TECHNIQUES
By virtue of the Fund's investment policies, European stock markets
will generally have the greatest effect on the value of the Fund's portfolio. To
the extent that the Fund invests in the emerging markets of Europe, the Fund may
be subject to greater risks than if it had invested in more developed markets.
In emerging markets securities may be traded less frequently and price movements
may be more volatile than in developed markets. Foreign securities, particularly
those traded in emerging markets, often have less publicly available information
and are subject to different regulations than domestic securities. Political
events, changes in the perceived creditworthiness of issuers, high rates of
inflation, higher brokerage costs, fluctuating national interest rates, thinner
trading markets, foreign taxes and movements in foreign currencies will affect
the value of the Fund's holdings, which determine the Fund's share price.
The Fund is expected to have significant investments in companies with
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, both because they tend to be traded in lower volume
and because the companies are subject to greater business risk. The Fund also
may buy higher yielding bonds as equity alternatives (typically with a credit
rating of BB to C) to provide higher income, but they are also subject to higher
risk. Risks include bankruptcy or default of the issuer and more volatile market
prices than higher-rated bonds.
BANK OBLIGATIONS: The bank obligations in which the Fund may invest
include certificates of deposit, bankers' acceptances and other short-term debt
obligations. Investments in certificates of deposit and bankers' acceptances are
limited to obligations of (i) banks having total assets in excess of $1 billion,
(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 Henderson Investors' opinion, of an
investment quality comparable to other debt securities which may be purchased by
the Fund. Investments in certificates of deposit of savings associations are
limited to obligations of Federal or state-chartered institutions whose total
assets exceed $1 billion and whose deposits are insured by the FDIC.
BORROWING: Borrowing may exaggerate the effect on the Fund's net asset
value of any increase or decrease in the value of the Fund's portfolio
securities. Money borrowed will be subject to interest costs (which may include
commitment fees and/or the cost of maintaining minimum average balances).
COMMERCIAL PAPER: Commercial paper represents short-term unsecured
promissory notes issued in bearer form by bank holding companies, corporations,
and finance companies. The Fund's investments in commercial paper are not
limited to a particular Moody's or S&P rating category. The lower an issuer's
rating, however, the greater the risk of payment default.
CONVERTIBLE SECURITIES: The convertible securities in which the Fund
may invest include corporate bonds, notes, debentures, preferred stock and other
securities convertible into common stocks. Because convertible securities can be
converted into equity securities, their value will normally vary in some
proportion with those of the underlying equity security. Convertible securities
usually provide a higher yield than the underlying equity, so the price decline
of a convertible security may sometimes be less substantial than that of the
underlying equity security.
DEBT SECURITIES, IN GENERAL: Investment in debt securities, including
municipal securities, involves both interest rate and credit risk. Generally,
the value of debt instruments 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 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 greater susceptibility to the adverse effects of changes
in circumstances and economic conditions than debt in higher rated categories.
Bonds rated Baa/BBB (considered "medium grade" obligations) generally have an
adequate capacity to pay interest and repay principal, but lack outstanding
investment characteristics and have some speculative characteristics.
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 by major credit-rating organizations to have
predominately speculative characteristics with respect to the issuer's capacity
to pay interest and repay principal. Investors in the Fund should be aware of
and willing to accept the special risks associated with these securities.
While high yield debt securities are likely to have some quality and
protective characteristics, these qualities are largely outweighed by the risk
of exposure to adverse conditions and other uncertainties. Accordingly,
investments in such securities, while generally providing for greater income and
potential opportunity for gain than investments in higher-rated securities, also
entail greater risk (including the possibility of default or bankruptcy of the
issuer of such securities) and generally involve greater price volatility than
securities in higher rating categories. Henderson Investors seeks to reduce risk
through diversification, credit analysis and attention to current development
and trends in both the economy and financial markets. Should the rating of a
portfolio security be downgraded, Henderson Investors will determine whether it
is in the Fund's best interest to retain or dispose of the security. For
additional information regarding the risks associated with investing in high
yield bonds, see the SAI (and, in particular, Appendix A, which contains a more
complete description of the ratings assigned by Moody's and S&P).
FOREIGN SECURITIES: The foreign securities in which the Fund invests
may include non-U.S. dollar-denominated securities, Eurodollar securities,
sponsored or unsponsored ADRs, EDRs, GDRs, ADSs, EDSs and GDSs, and debt
securities issued, assumed or guaranteed by foreign governments (or political
subdivisions or instrumentalities thereof). Investors should consider carefully
the special risks that arise in connection with investing in securities issued
by companies and governments of foreign nations, which are in addition to those
risks that are associated with the Fund's investments generally.
In many foreign countries, there is less regulation of business and
industry practices, stock exchanges, brokers and listed companies than in the
United States. For example, foreign companies are not generally subject to
uniform accounting and financial reporting standards, and foreign securities
transactions may be subject to higher brokerage costs. There also tends to be
less publicly available information about issuers in foreign countries, and
foreign securities markets of many of the countries in which the Fund may invest
may be smaller, less liquid and subject to greater price volatility than those
in the United States. Generally, price fluctuations in the Fund's foreign
securities holdings are likely to be high relative to those of securities issued
in the United States.
Other risks include the possibility of expropriation, nationalization
or confiscatory taxation, foreign exchange controls (which may include
suspension of the ability to transfer currency from a given country),
difficulties in pricing, default in foreign government securities, high rates of
inflation, difficulties in enforcing foreign judgments, political or social
instability, or other developments that could adversely affect the Fund's
foreign investments. In addition, investing in foreign securities often involves
the use of foreign currencies. For a description of the risk associated with
such currencies, see the SAI.
EMERGING MARKETS SECURITIES. Countries with emerging markets may have
relatively unstable governments and therefore be susceptible to sudden adverse
government action (such as nationalization of businesses, restrictions on
foreign ownership or prohibitions against repatriation of assets). Security
prices in emerging markets can also be significantly more volatile than in the
more developed nations of the world, and communications between the U.S. (or the
U.K., in Henderson Investors' case) and emerging market countries may be
unreliable, increasing the risk of delayed settlements of portfolio transactions
or loss of certificates for portfolio securities. Delayed settlements could
cause the Fund to miss attractive investment opportunities or impair its ability
to dispose of portfolio securities, resulting in a loss if the value of the
securities subsequently declines or, if the Fund has entered into a contract to
sell the security, in possible liability to the purchaser. In addition, many
emerging markets have experienced and continue to experience especially high
rates of inflation. In certain countries, inflation has at time accelerated
rapidly to hyperinflationary levels, creating a negative interest rate
environment and sharply eroding the value of outstanding financial assets in
those countries.
Costs associated with transactions in foreign securities are generally
higher than costs associated with transactions in U.S. securities. Such
transactions also involve additional costs for the purchase or sale of foreign
currency. Foreign investment in certain emerging market debt obligations is
restricted or controlled to varying degrees. These restrictions or controls may
at times limit or preclude foreign investment in certain emerging market debt
obligations and increase the costs and expenses of the Fund. Certain emerging
markets require prior governmental approval of investments by foreign persons,
and/or impose additional taxes on foreign investors. These markets may also
restrict investment opportunities in issuers in industries deemed important to
national interests. Certain emerging markets may require governmental approval
for the repatriation of investment income, capital or the proceeds of sales of
securities by foreign investors. In addition, if a deterioration occurs in an
emerging market's balance of payments or for other reasons, a country could
impose temporary restrictions on foreign capital remittances.
Securities traded in certain emerging European securities markets may
be subject to risks due to the inexperience or financial intermediaries, the
lack of modern technology and the lack of a sufficient capital basically to
expand business operations. Additionally, former Communist regimes of a number
of Eastern European countries had expropriated a large amount of property, the
claims on which have not been entirely settled. There can be no assurance that
the Fund's investment in Eastern Europe would not also be expropriated,
nationalized or otherwise confiscated. Finally, any change in the leadership or
policies of Eastern European countries, or the countries that exercise a
significant influence over those countries, may halt the expansion of or reverse
the liberalization of foreign investment policies now occurring and adversely
affect existing investment opportunities.
The Fund could be adversely affected by delays in, or a refusal to
grant, any required governmental approval for repatriation of capital, as well
as by the application to the Fund of any restrictions on investments.
FOREIGN SOVEREIGN DEBT OBLIGATIONS. The Fund may purchase sovereign
debt instruments issued or guaranteed by foreign governments or their agencies,
including those located in emerging market countries. Sovereign debt may be in
the form of conventional securities or other types of debt instruments such as
loans or loan participations. Sovereign debt of emerging markets countries may
involve a high degree of risk and may be in default or present the risk of
default. 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. Certain emerging market countries have historically
experienced, and may continue to experience, high inflation and interest rates,
large fluctuations in exchange rates, large amounts of external debt, trade
difficulties and extreme poverty and unemployment. Governmental entities
responsible for repayment of the debt may be unable or unwilling to repay
principal and interest when due. There is no bankruptcy proceeding by which
sovereign debt on which governmental entities have defaulted may be collected in
whole or in part. In the event of a default, the Fund may have limited legal
recourse against the issuer or guarantor. Remedies must in some cases be pursued
in the courts of the defaulting party itself and the ability of holders of
foreign government debt securities to obtain recourse may depend on the
political climate in the relevant country. No assurance can be given that the
holders of commercial bank debt will not contest payments to holders of other
sovereign debt obligations in the event of the default under their commercial
bank loan agreements.
BRADY BONDS: Brady Bonds are debt securities issued under the Brady
Plan, a mechanism whereby debtor nations can restructure their indebtedness by
negotiating with lenders and exchanging existing commercial bank debt for Brady
Bonds. Brady Bonds may also be issued in respect of new money being advanced by
existing lenders in connection with the debt restructuring. The Brady Plan only
sets forth general guidelines for economic reform and debt reduction,
emphasizing that solutions must be negotiated on a case-by-case basis between
debtor nations and their creditors. 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 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 bonds.
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 constituting 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.
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 CURRENCY EXCHANGE TRANSACTIONS: The Fund usually effects its
currency exchange transactions on a spot (i.e., cash) basis at the spot rate
prevailing in the foreign exchange market. However, some price spread on
currency exchange (e.g., to cover service charges) is usually incurred when the
Fund converts assets from one currency to another. The Fund may also be affected
unfavorably by fluctuations in the relative rates of exchange between the
currencies of different nations or by political or economic developments in the
U.S. or abroad. 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.
FORWARD FOREIGN CURRENCY CONTRACTS: A forward foreign currency contract
involves an obligation to purchase or sell a specific currency at a future date
at a predetermined price. Although these contracts are intended to minimize the
risk of loss due to a decline in the value of the hedged currencies, they also
limit any potential gain that might result should the value of the currencies
increase. In addition, there may be an imperfect correlation between the Fund's
portfolio holdings of securities denominated in a particular currency and
forward contracts entered into by the Fund, which may prevent the Fund from
achieving the intended hedge or expose the Fund to the risk of currency exchange
loss.
OPTIONS AND FUTURES TRANSACTIONS: The Fund may use various techniques
to increase or decrease its exposure to changing security prices, interest
rates, commodity prices, or other factors that affect the value of the Fund's
securities. These techniques may involve derivative transactions such as
purchasing put and call options, selling put and call options, and engaging in
transactions in stock index futures and related options.
The Fund may invest in options on securities in accordance with its
stated investment objective and policies. A put option is a short-term contract
that gives the purchaser of the option the right, in return for a premium, to
sell the underlying security or currency to the seller of the option at a
specified price during the term of the option. A call option is a short-term
contract that gives the purchaser the right, in return for a premium, to buy the
underlying security or currency from the seller of the option at a specified
price during the term of the option. An option on a stock index gives the
purchaser the right to receive from the seller cash equal to the difference
between the closing price of the index and the exercise price of the option.
The Fund may also enter into futures transactions in accordance with
its stated investment objective and policies. An interest rate futures contract
is an agreement between two parties to buy or sell a specified debt security at
a set price on a future date. A foreign currency futures contract is an
agreement to buy or sell a specified amount of a foreign currency for a set
price on a future date. A stock index futures contract is an agreement to take
or make delivery of an amount of cash based on the difference between the value
of the index at the beginning and at the end of the contract period.
Investors should be aware that the risks associated with the use of
options and futures are considerable. Options and futures transactions generally
involve a small investment of cash relative to the magnitude of the risk
assumed, and therefore could result in a significant loss to the Fund if
Henderson Investors judges market conditions incorrectly or employs a strategy
that does not correlate well with the Fund's investments. The Fund may also
experience a significant loss if it is unable to close a particular position due
to the lack of a liquid secondary market. For further information regarding the
use of options and futures transactions and any associated risks, see the SAI.
REPURCHASE AGREEMENTS: Repurchase agreements are agreements under which
the Fund buys a money market instrument and obtains a simultaneous commitment
from the seller to repurchase the instrument at a specified time and agreed-upon
yield. The Fund may enter into repurchase agreements with banks or
broker-dealers deemed to be creditworthy by Ivy Management, Inc. ("IMI"), the
Fund's investment adviser, under guidelines approved by the Board of Trustees.
The Fund could experience a delay in obtaining direct ownership of the
underlying collateral, and might incur a loss if the value of the security
should decline.
ILLIQUID SECURITIES: An "illiquid security" is an asset that may not be
sold or disposed of in the ordinary course of business within seven days at
approximately the value at which the Fund has valued the security on its books.
Illiquid securities may include securities that are subject to restrictions on
resale ("restricted securities") because they have not been registered. Illiquid
securities often offer the potential for higher returns than more readily
marketable securities, but carry the risk that the Fund may not be able to
dispose of them at an advantageous time or price. The Fund may have to bear the
expense of registering restricted securities for resale, and the risk of
substantial delays in effecting such registrations. In addition, issuers of
restricted securities may not be subject to the disclosure and other investor
protection requirements that would apply if their securities were publicly
traded.
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).
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 smaller
companies may be subject to more abrupt to 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.
WARRANTS: The holder of a warrant has the right to purchase a given
number of shares of a particular issuer at a specified price until expiration of
the warrant. Such investments can provide a greater potential for profit or loss
than an equivalent investment in the underlying security, and are considered
speculative investments. For example, if a warrant were not exercised by the
date of its expiration, the Fund would lose its entire investment.
"WHEN-ISSUED" SECURITIES AND FIRM COMMITMENTS: Purchasing securities
on a "when-issued" or firm commitment basis involves a risk of loss if the
value of the security to be purchased declines prior to the settlement date.
ZERO COUPON BONDS: Zero coupon bonds are debt obligations issued
without any requirement for the periodic payment of interest, and are issued at
a significant discount from face value. Since the interest on such bonds is, in
effect, compounded, they are subject to greater market value fluctuations in
response to changing interest rates than debt securities that distribute income
regularly. In addition, for Federal income tax purposes, the Fund generally
recognizes and is required to distribute income generated by zero coupon bonds
currently in the amount of the unpaid accrued interest, even though the actual
income will not yet have been received by the Fund.
ORGANIZATION AND MANAGEMENT OF THE FUND
The Fund is a separate, diversified portfolio of the Trust, an open-end
management investment company organized as a Massachusetts business trust on
December 21, 1983. The business and affairs of the Fund are managed under the
direction of the Trustees. Information about the Trustees, as well as the
Trust's executive officers, may be found in the SAI. The Trust has an unlimited
number of authorized shares of beneficial interest, and currently has twenty
separate portfolios. The Fund has 5 classes of shares designated as Class A,
Class B, Class C, Class I (which are described in a separate prospectus) and
Advisor Class. Shares of the Fund entitle their holders to one vote per share
(with proportionate voting for fractional shares). The shares of each class
represent an interest in the same portfolio of Fund investments. Each class of
shares, except for the Advisor Class and Class I, has a different Rule 12b-1
distribution plan and bears different distribution fees. Class I shares are
subject to lower administrative service and transfer agency fees than the Fund's
Class A, Class B, Class C and Advisor Class shares. Each class of shares also
has its own sales charge and expense structure that may affect its performance
relative to the Fund's other classes of shares. Shares of each class have equal
rights as to voting, redemption, dividends and liquidation but have exclusive
voting rights with respect to their Rule 12b-1 distribution plans.
The Trust employs IMI to provide business management and investment
advisory services, Mackenzie Investment Management Inc. ("MIMI") to provide
administrative and accounting services, Ivy Mackenzie Distributors, Inc.
("IMDI") to distribute the Fund's shares and Ivy Mackenzie Services Corp.
("IMSC") to provide transfer agent and shareholder-related services for the
Fund. IMI, IMDI and IMSC are wholly-owned subsidiaries of MIMI. IMI has been an
investment advisor since 1992. As of [March 1, 1999], IMI and MIMI had
approximately [$ billion and $ billion,] respectively, in assets under
management. MIMI is a subsidiary of Mackenzie Financial Corporation ("MFC"),
which has been an investment counsel and mutual fund manager in Toronto,
Ontario, Canada for more than 32 years.
INVESTMENT MANAGER
For IMI's business management and investment advisory services, the
Fund pays IMI a fee that is equal, on an annual basis, to 1.00% of its average
net assets.
IMI voluntarily limits the Fund's total operating expenses (excluding
interest, taxes, brokerage commissions, litigation, class-specific expenses,
indemnification, and extraordinary expenses) to an annual rate of 1.95% of the
Fund's average net assets. This voluntary expense limitation may be terminated
or revised at any time.
IMI pays all expenses that it incurs in rendering management services
to the Fund. The Fund bears its own operational costs. General expenses of the
Trust that are not readily identifiable as belonging to a particular series of
the Trust (or a particular class thereof) are allocated among and charged to
each series based on its relative net asset size. Expenses that are attributable
to a particular series (or a class thereof) will be borne by that series (or
class) directly.
The investment management fees paid by the Fund are higher than those
charged by many funds that invest primarily in U.S. securities but not
necessarily higher than the fees charged to funds with investment objectives
similar to those of the Fund.
Henderson Investors serves as subadviser to the Fund. For this service,
IMI pays Henderson Investors a fee that is equal, on an annual basis, to 0.50%
of that portion of the Fund's average net assets managed by Henderson Investors.
Henderson Investors, an United Kingdom corporation organized in 1984,
maintains its registered office at 3 Finsbury Avenue, London, England EC2M 2PA.
Henderson Investors is an indirect, wholly owned subsidiary of AMP Limited, an
Australian life insurance and financial services company located at AMP
Building, 24th Floor, 33 Alfred Street, Sydney, New South Wales 2000 Australia.
As of March 1, 1999, Henderson Investors, together with its affiliates, managed
in excess of [$__ billion] of assets.
PORTFOLIO MANAGEMENT: Stephen Peak, Executive Director Henderson
Investors and head of Henderson Investors' European equities team, has been the
Fund's portfolio manager since its inception in 1999. Formerly a director and
portfolio manager with Touche Remnant & Co., Mr. Peak has 24 years of investment
experience.
HENDERSON INVESTORS' INVESTMENT PROCESS: Henderson Investors' European
equities investment process follows a "bottom-up" approach. Generally, Henderson
Investors will seek long-term earnings growth investment opportunities. Country
and sector allocation decisions are driven by the "bottom-up" company stock
selection process. Company selection is generally based on analysis of wide
range of appropriate measures (e.g., growth, price/earnings, price/cash,
price/book and enterprise value) and takes into account factors such as market
position, competitive advantage, growth prospects and management strength.
FUND ADMINISTRATION AND ACCOUNTING
MIMI provides various administrative services for the Fund, such as
maintaining the registration of Fund shares under state "Blue Sky" laws, and
assisting with the preparation of Federal and state income tax returns,
financial statements and periodic reports to shareholders. MIMI also assists the
Trust's legal counsel with the filing of registration statements, proxies and
other required filings under Federal and state law. Under this arrangement, the
average net assets attributable to the Fund's Advisor Class shares are subject
to a fee, accrued daily and paid monthly, at an annual rate of .10%.
MIMI also provides certain accounting and pricing services for the Fund
(see "Fund Accounting Services" in the SAI for more information).
TRANSFER AGENT
IMSC is the transfer and dividend-paying agent for the Fund, and also
provides certain shareholder-related services. Certain broker-dealers that
maintain shareholder accounts with the Fund through an omnibus account provide
transfer agent and other shareholder-related services that would otherwise be
provided by IMSC if the individual accounts that comprise the omnibus account
were opened by their beneficial owners directly (see "Investment Advisory and
Other Services" in the SAI).
DIVIDENDS AND TAXES
Distributions you receive from the Fund are reinvested in additional
Advisor Class shares unless you elect to receive them in cash. Dividends
ordinarily will vary from one class to another.
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").
TAXATION: The following discussion is intended for general information
only. You should consult with your tax adviser as to the tax consequences of an
investment in the Fund, including the status of distributions from the Fund
under applicable state or local law.
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 long-term capital gains are taxable to you as long-term capital gains,
regardless of how long you have held Fund shares. Dividends are taxable to you
in the same manner whether received in cash or reinvested in additional Fund
shares.
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 shares of your Fund shares, you
may realize a capital gain or loss which will be long-term or short-term,
generally depending on 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.
Distributions of the Fund which are derived from interest on obligations of the
U.S. Government and certain of its agencies, authorities and instrumentalities
may be exempt from state and local taxes in certain states. Further information
relating to tax consequences is contained in the SAI.
PERFORMANCE DATA
Performance information (e.g., "total return" and "yield") is computed
separately for each class of Fund shares in accordance with formulas prescribed
by the SEC. Performance information for each class may be compared in reports
and promotional literature to indices such as the Standard and Poor's 500 Stock
Index, Dow Jones Industrial Average, and Morgan Stanley Capital International
World Index. Advertisements, sales literature and communications to shareholders
may also contain statements of the Fund's current yield, various expressions of
total return and current distribution rate. Performance figures will vary in
part because of the different expense structures of the Fund's different
classes. ALL PERFORMANCE INFORMATION IS HISTORICAL AND IS NOT INTENDED TO
SUGGEST FUTURE RESULTS.
"Total return" is the change in value of an investment in the Fund for
a specified period, and assumes the reinvestment of all distributions and
imposition of the maximum applicable sales charge for that class. "Average
annual total return" represents the average annual compound rate of return of an
investment in a particular class of Fund shares assuming the investment is held
for one year, five years and ten years as of the end of the most recent calendar
quarter. Where the Fund provides total return quotations for other periods, or
based on investments at various sales charge levels or at net asset value,
"total return" is based on the total of all income and capital gains paid to
(and reinvested by) shareholders, plus (or minus) the change in the value of the
original investment expressed as a percentage of the purchase price.
"Current yield" reflects the income per share earned by the Fund's
portfolio investments, and is calculated by dividing the Fund's net investment
income per share during a recent 30-day period by the maximum public offering
price on the last day of that period and then annualizing the result. Dividends
or distributions that were paid to the Fund's shareholders are reflected in the
"current distribution rate," which is computed by dividing the total amount of
dividends per share paid by the Fund during the preceding 12 months by the
Fund's current maximum offering price (which includes any applicable sales
charge). The "current distribution rate" will differ from the "current yield"
computation because it may include distributions to shareholders from sources
other than dividends and interest, short term capital gain and net equalization
credits and will be calculated over a different period of time.
HOW TO BUY SHARES
Advisor Class shares are offered through this Prospectus only to the
following investors:
(i) trustees or other fiduciaries purchasing shares for employee
benefit plans that are sponsored by organizations that have at
least 1,000 employees;
(ii) any account with assets of at least $10,000 if (a) a financial
planner, trust company, bank trust department or registered
investment adviser has investment discretion, and where the
investor pays such person as compensation for its advice and
other services an annual fee of at least .50% on the assets in
the account, or (b) such account is established under a "wrap
fee" program and the account holder pays the sponsor of the
program an annual fee of at least .50% on the assets in the
account;
(iii) officers and Trustees of the Trust (and their relatives);
(iv) officers, directors, employees, retired employees, legal
counsel and accountants of IMI, MIMI, and MFC (and their
relatives); and
(v) directors, officers, partners, registered representatives,
employees and retired employees (and their relatives) of
dealers having a sales agreement with IMDI (or trustees or
custodians of any qualified retirement plan or IRA established
for the benefit of any such person).
OPENING AN ACCOUNT: Complete and sign the Account Application on the
last page of this Prospectus. Make your check payable to Ivy European
Opportunities Fund. No third party checks will be accepted. Deliver these items
to your registered representative or selling broker, or send them to one of the
addresses below:
Regular Mail:
IVY MACKENZIE SERVICES CORP.
P.O. BOX 3022
BOCA RATON, FL 33431-0922
Courier:
IVY MACKENZIE SERVICES CORP.
700 SOUTH FEDERAL HIGHWAY, SUITE 300
BOCA RATON, FL 33432
The Fund reserves the right to reject any purchase order.
MINIMUM INVESTMENT POLICIES: The minimum initial investment in Advisor
Class shares is $10,000. The minimum additional investment is $250. Initial or
additional amounts for retirement accounts may be less (see "Retirement
Plans").
BUYING ADDITIONAL SHARES: You may add to your account at any time
through any of the following options:
By Mail: Complete the investment slip attached to your statement, or
write instructions including the account registration, fund number, and account
number of the shares you wish to purchase. Send your check (payable to the Fund)
and investment slip or written instructions to one of the addresses above.
Through Your Broker: Deliver to your registered representative or
selling broker the investment slip attached to your statement (or written
instructions) along with your payment.
By Wire: Purchases may also be made by wiring money from your bank
account to your Ivy account. Your bank may charge a fee for wiring funds.
Before wiring any funds, please call IMSC at 1-800-777-6472. Wiring
instructions are as follows:
FIRST UNION NATIONAL BANK OF FLORIDA
JACKSONVILLE, FL
ABA#063000021
ACCOUNT #2090002063833
FOR FURTHER CREDIT TO:
YOUR IVY ACCOUNT REGISTRATION
YOUR FUND NUMBER AND ACCOUNT NUMBER
By Automatic Investment Method: Complete Sections 6A and 7B on the
Account Application (See "Automatic Investment Method" on page ____ for more
information).
HOW YOUR PURCHASE PRICE IS DETERMINED
Your purchase price for Advisor Class shares of the Fund is the net
asset value ("NAV") per share.
Share purchases will be made at the next determined price after your
purchase order is received. The price is effective for orders received by IMSC
or by your registered securities dealer prior to the time of the determination
of the NAV. Any orders received after the time of the determination of the NAV
will be entered at the next calculated price.
Orders placed with a securities dealer before the NAV is determined and
that are transmitted through the facilities of the National Securities Clearing
Corporation on the same day are confirmed at that day's price. Any loss
resulting from the dealer's failure to submit an order by the deadline will be
borne by that dealer.
You will receive an account statement after any purchase, exchange or
full liquidation. Statements related to reinvestment of dividends, capital
gains, automatic investment plans (see the SAI for further explanation) and/or
systematic withdrawal plans will be sent quarterly.
HOW THE FUND VALUES ITS SHARES
The NAV per share is the value of one share. The NAV is determined for
each class of shares as of the close of the New York Stock Exchange (the
"Exchange") on each day the Exchange is open by dividing the value of the Fund's
net assets attributable to a class by the number of shares of that class that
are outstanding, adjusted to the nearest cent. These procedures are described
more completely in the SAI.
The Trustees have established procedures to value the Fund's securities
in order to determine the NAV. Securities and other assets for which market
prices are not readily available are valued at fair value, as determined by IMI
and approved by the Trustees. Money market instruments of the Fund are valued at
amortized cost.
ARRANGEMENTS WITH BROKER-DEALERS AND OTHERS: IMDI may, at its own
expense, pay concessions to dealers that satisfy certain criteria established
from time to time by IMDI. These conditions relate to increasing sales of shares
of the Fund over specified periods and to certain other factors. These payments
may, depending on the dealer's satisfaction of the required conditions, be
periodic and may be up to (i) .25% of the value of Fund shares sold by the
dealer during a particular period, and (ii) .10% of the value of Fund shares
held by the dealer's customers for more than one year, calculated on an annual
basis.
An investor may be charged a transaction fee for Advisor Class shares
purchased or redeemed through a broker or agent other than IMDI.
HOW TO REDEEM SHARES
You may redeem your Advisor Class shares through your registered
securities representative, by mail or by telephone. All redemptions are made at
the NAV next determined after a redemption request has been received in good
order. Requests for redemptions must be received by 4:00 p.m. Eastern time to be
processed at the NAV for that day. Any redemption request in good order that is
received after 4:00 p.m. Eastern time will be processed at the price determined
on the following business day. If you own shares of more than one class of the
Fund, the Fund will redeem first the shares having the highest 12b-1 fees; any
shares subject to a CDSC will be redeemed last unless you specifically elect
otherwise.
When shares of the Fund are redeemed, the Fund normally will send
redemption proceeds to you on the next business day, but may take up to seven
business days (or longer in the case of shares recently purchased by check).
Under unusual circumstances, the Fund may suspend redemptions or postpone
payment to the extent permitted by Federal securities laws. The proceeds of the
redemption may be more or less than the purchase price of your shares, depending
upon, among other factors, the market value of the Fund's securities at the time
of the redemption. If the redemption is for over $50,000, or the proceeds are to
be sent to an address other than the address of record, or an address change has
occurred in the last 30 days, it must be requested in writing with a signature
guarantee. See "Signature Guarantees," below.
If you are not certain of the requirements for a redemption, please
contact IMSC at 1-800-777-6472.
THROUGH YOUR REGISTERED SECURITIES DEALER: The Dealer is responsible
for promptly transmitting redemption orders. Redemptions requested by dealers
will be made at the NAV determined at the close of regular trading (4:00 p.m.
Eastern time) on the day that a redemption request is received in good order by
IMSC.
BY MAIL: Requests for redemption in writing are considered to be in
"proper or good order" if they contain the following:
- Any outstanding certificate(s) for shares being redeemed.
- A letter of instruction, including the account registration, fund
number, account number, and dollar amount or number of shares to be
redeemed.
- Signatures of all registered owners whose names appear on the
account.
- Any required signature guarantees.
- Other supporting legal documentation, if required (in the case of
estates, trusts, guardianships, corporations, unincorporated
associations retirement plan trustees or others acting in
representative capacities).
The dollar amount or number of shares indicated for redemption must not
exceed the available shares or NAV of your account at the next-determined
prices. If your request exceeds these limits, then the trade will be rejected in
its entirety.
Mail your request to IMSC at one of the addresses on page ___ of this
Prospectus.
BY TELEPHONE: Individual and joint accounts may redeem up to $50,000
per day over the telephone by contacting IMSC at 1-800-777-6472. In times of
unusual economic or market changes, the telephone redemption privilege may be
difficult to implement. If you are unable to execute your transaction by
telephone, you may want to consider placing the order in writing and sending it
by mail or overnight courier.
Checks will be made payable to the current account registration and
sent to the address of record. If there has been a change of address in the last
30 days, please use the instructions for redemption requests by mail described
above. A signature guarantee would be required.
Requests for telephone redemptions will be accepted from the registered
owner of the account, the designated registered representative or the registered
representative's assistant.
Shares held in certificate form cannot be redeemed by telephone.
If Section 6E of the Account Application is not completed, telephone
redemption privileges will be provided automatically. Although telephone
redemptions may be a convenient feature, you should realize that you may be
giving up a measure of security that you may otherwise have if you terminated
the privilege and redeemed your shares in writing. If you do not wish to make
telephone redemptions or let your registered representative do so on your
behalf, you must notify IMSC in writing.
The Fund employs reasonable procedures that require personal
identification prior to acting on redemption instructions communicated by
telephone to confirm that such instructions are genuine. In the absence of such
procedures, the Fund may be liable for any losses due to unauthorized or
fraudulent telephone instructions.
Receiving Your Proceeds by Federal Funds Wire: For shareholders who
established this feature at the time they opened their account, telephone
instructions will be accepted for redemption of amounts up to $50,000 ($1,000
minimum) and proceeds will be wired on the next business day to a predesignated
bank account.
In order to add this feature to an existing account or to change
existing bank account information, please submit a letter of instructions
including your bank information to IMSC at the address provided above. The
letter must be signed by all registered owners, and their signatures must be
guaranteed.
Your account will be charged a fee of $10 each time redemption proceeds
are wired to your bank. Your bank may also charge you a fee for receiving a
Federal Funds wire.
Neither IMSC nor the Fund can be responsible for the efficiency of the
Federal Funds wire system or the shareholder's bank.
MINIMUM ACCOUNT BALANCE REQUIREMENTS
Due to the high cost of maintaining small accounts and subject to state
law requirements, the Fund may redeem the accounts of shareholders whose
investment has been less than $10,000 for more than 12 months. The Fund will not
redeem an account unless the shareholder has been given at least 60 days'
advance notice of the Fund's intention to do so. No redemption will be made if a
shareholder's account falls below the minimum due to a reduction in the value of
the Fund's portfolio securities. This provision does not apply to IRAs, other
retirement accounts and UGMA/UTMA accounts.
SIGNATURE GUARANTEES
For your protection, and to prevent fraudulent redemptions, we require
a signature guarantee in order to accommodate the following requests:
- Redemption requests over $50,000.
- Requests for redemption proceeds to be sent to someone other than the
registered shareholder.
- Requests for redemption proceeds to be sent to an address other
than the address of record, or the address of record has changed
within the last 30 days.
- Registration transfer requests.
- Requests for redemption proceeds to be wired to your bank account
(if this option was not selected on your original application, or
if you are changing the bank wire information).
A signature guarantee may be obtained only from an eligible guarantor
institution as defined in Rule 17Ad-15 of the Securities Exchange Act of 1934,
as amended. An eligible guarantor institution includes banks, brokers, dealers,
municipal securities dealers, government securities dealers, government
securities brokers, credit unions, national securities exchanges, registered
securities associations, clearing agencies and savings associations. The
signature guarantee must not be qualified in any way. Notarizations from notary
publics are not the same as signature guarantees, and are not accepted.
Circumstances other than those described above may require a signature
guarantee. Please contact IMSC at 1-800-777-6472 for more information.
CHOOSING A DISTRIBUTION OPTION
You have the option of selecting the distribution option that best
suits your needs:
AUTOMATIC REINVESTMENT OPTION -- Both dividends and capital gains are
automatically reinvested at NAV in additional Advisor Class shares of the Fund
unless you specify one of the other options.
INVESTMENT IN ANOTHER IVY FUND -- Both dividends and capital gains are
automatically invested at NAV in the Advisor Class shares of another Ivy fund.
DIVIDENDS IN CASH/CAPITAL GAINS REINVESTED -- Dividends will be paid in
cash. Capital gains will be reinvested at NAV in additional Advisor Class shares
of the Fund or the Advisor Class shares of another Ivy fund.
DIVIDENDS AND CAPITAL GAINS IN CASH -- Both dividends and capital gains
will be paid in cash.
If you wish to have your cash distributions deposited directly to your
bank account via electronic funds transfer ("EFT"), or if you wish to change
your distribution option, please contact IMSC at 1-800-777-6472.
If you wish to have your cash distributions go to an address other than
the address of record you must provide IMSC with a letter of instruction signed
by all registered owners with signatures guaranteed.
TAX IDENTIFICATION NUMBER
In general, to avoid being subject to a 31% U.S. Federal backup
withholding tax on dividends, capital gains distributions and redemption
proceeds, you must furnish the Fund with your certified tax identification
number ("TIN") and certify that you are not subject to backup withholding due to
prior underreporting of interest and dividends to the IRS. If you fail to
provide a certified TIN, or such other tax-related certifications as the Fund
may require, within 30 days of opening your new account, the Fund reserves the
right to involuntarily redeem your account and send the proceeds to your address
of record.
You can avoid the above withholding and/or redemption by correctly
furnishing your TIN, and making certain certifications, in Section 2 of the
Account Application at the time you open your new account, unless the IRS
requires that backup withholding be applied to your account.
Certain payees, such as corporations, generally are exempt from backup
withholding. Please complete IRS Form W-9 with the Account Application to claim
this exemption. If the registration is for an UGMA/UTMA account, please provide
the social security number of the minor. Alien individuals must furnish their
individual TIN on a completed IRS Form W-9. Other non-U.S. investors who are not
required to have a TIN must provide, with their Account Application, a completed
IRS Form W-8.
CERTIFICATES
In order to facilitate transfers, exchanges and redemptions, most
shareholders elect not to receive certificates. Should you wish to have a
certificate issued, please contact IMSC at 1-800-777-6472 and request that one
be sent to you. (Retirement plan accounts are not eligible for this service.)
Please note that if you were to lose your certificate, you would incur an
expense to replace it.
Certificates requested by telephone for shares valued up to $50,000
will be issued to the current registration and mailed to the address of record.
Should you wish to have your certificates mailed to a different address, or
registered differently from the current registration, contact IMSC at
1-800-777-6472.
EXCHANGE PRIVILEGE
Advisor Class shareholders may exchange their outstanding Advisor Class
shares for Advisor Class shares of another Ivy fund (other than Ivy
International Fund), or Ivy Money Market Fund, on the basis of the relative NAV
per Advisor Class share. Exchanges into an Ivy fund in which shares are not
already held are subject to certain minimum investment restrictions. See
"Exchange of Shares" in the SAI or contact IMSC at 1-800-777-6472 for further
details. The Fund reserves the right to reject any exchange order.
Exchanges are considered to be taxable events, and may result in a
capital gain or a capital loss for tax purposes. Before executing an exchange,
you should obtain and read the prospectus and consider the investment objective
of the fund to be purchased. Share certificates must be unissued (i.e., held by
the Fund) in order to execute an exchange. Exchanges are available only in
states where they can be legally made. The Fund reserves the right to limit the
frequency of exchanges. Exchanges are accepted only if the registrations of the
two accounts are identical. Amounts to be exchanged must meet minimum investment
requirements for the Ivy fund into which the exchange is made. It is the policy
of the Fund to discourage the use of the exchange privilege for the purpose of
timing short-term market fluctuations. To protect the interests of other
shareholders of the Fund, the Fund may cancel the exchange privileges of any
persons that, in the opinion of the Fund, are using market timing strategies or
are making more than five exchanges per owner or controlling person per calendar
year.
EXCHANGES BY TELEPHONE: If Section 6D of the Account Application is not
completed, telephone exchange privileges will be provided automatically for
accounts qualifying for this option. Although telephone exchanges may be a
convenient feature, you should realize that you may be giving up a measure of
security that you may otherwise have if you terminated the privilege and
exchanged your shares in writing. If you do not wish to make telephone exchanges
or let your registered representative do so on your behalf, you must notify IMSC
in writing.
In order to execute an exchange, please contact IMSC at 1-800-777-6472.
Have the account number of your current fund and the exact name in which it is
registered available to give to the telephone representative.
The Fund employs reasonable procedures that require personal
identification prior to acting on exchange instructions communicated by
telephone to confirm that such instructions are genuine. In the absence of such
procedures, the Fund may be liable for any losses due to unauthorized or
fraudulent telephone instructions.
EXCHANGES IN WRITING: In a letter, request an exchange and provide the
following information:
- The name and class of the fund whose shares you currently own.
- Your account number.
- The name(s) in which the account is registered.
- The name of the fund in which you wish your exchange to be invested.
- The number of shares or the dollar amount you wish to exchange.
The request must be signed by all registered owners.
SYSTEMATIC WITHDRAWAL PLAN
You may elect the Systematic Withdrawal Plan at any time by completing
the Account Application, which is attached to this Prospectus. You can also
obtain this application by contacting your registered representative or IMSC at
1-800-777-6472. To be eligible, you must continually maintain an account balance
of at least $10,000. Payments (minimum distribution amount -- $50) from your
account can be made monthly, quarterly, semi-annually, annually or on a selected
monthly basis, to yourself or any other designated payee. You may elect to have
your systematic withdrawal paid directly to your bank account via EFT, at no
charge. Share certificates must be unissued (i.e., held by the Fund) while the
plan is in effect. A Systematic Withdrawal Plan may not be established if you
are currently participating in the Automatic Investment Method. For more
information, please contact IMSC at 1-800-777-6472.
If payments you receive through the Systematic Withdrawal Plan exceed
the dividends and capital appreciation of your account, you will be reducing the
value of your account. Additional investments made by shareholders participating
in the Systematic Withdrawal Plan must equal at least $250 while the plan is in
effect. Redemptions are taxable events.
Amounts paid to you through the Systematic Withdrawal Plan are derived
from the redemption of shares in your account.
Should you wish at any time to add a Systematic Withdrawal Plan to an
existing account or change payee instructions, you will need to submit a written
request, signed by all registered owners, with signatures guaranteed.
Retirement accounts are eligible for Systematic Withdrawal Plans.
Please contact IMSC at 1-800-777-6472 to obtain the necessary paperwork to
establish a plan.
If the U.S. Postal Service cannot deliver your checks, or if deposits
to a bank account are returned for any reason, your redemptions will be
discontinued.
AUTOMATIC INVESTMENT METHOD
You may authorize an investment to be automatically drawn each month
from your bank for investment in Fund shares by completing Sections 6A and 7B of
the Account Application. Attach a "voided" check to your Account Application. At
pre-specified intervals, your bank account will be debited and the proceeds will
be credited to your Ivy account. The minimum investment under this plan is $250
per month ($25 per month for retirement plans). There is no charge to you for
this program.
You may terminate or suspend your Automatic Investment Method by
telephone at any time by contacting IMSC at 1-800-777-6472.
If you have investments being withdrawn from a bank account and we are
notified that the account has been closed, your Automatic Investment Method will
be discontinued.
CONSOLIDATED ACCOUNT STATEMENTS
Shareholders with two or more Ivy fund accounts having the same
taxpayer I.D. number will receive a single quarterly account statement, unless
otherwise specified. This feature consolidates the activity for each account
onto one statement. Requests for quarterly consolidated statements for all other
accounts must be submitted in writing and must be signed by all registered
owners.
RETIREMENT PLANS
The Ivy funds offer several tax-sheltered retirement plans that may fit
your needs:
- Traditional and Roth IRAs
- 401(k), Money Purchase Pension and Profit Sharing Plans
- SEP-IRA (Simplified Employee Pension Plan)
- 403(b)(7) Plan
- SIMPLE Plans (Individual Retirement Account and 401(k))
Minimum initial and subsequent investments for retirement plans are
$25.
Investors Bank & Trust, which serves as custodian or trustee under the
retirement plan prototypes available from the Fund, charges certain nominal fees
for annual maintenance. A portion of these fees is remitted to IMSC as
compensation for its services to the retirement plan accounts maintained with
the Fund.
Distributions from retirement plans are subject to certain requirements
under the Code. Certain documentation, including IRS Form W4-P, must be provided
to IMSC prior to taking any distribution. Please contact IMSC for details. The
Ivy funds and IMSC assume no responsibility to determine whether a distribution
satisfies the conditions of applicable tax laws, and will not be responsible for
any penalties assessed. For additional information, please contact your broker,
tax adviser or IMSC.
Please call IMSC at 1-800-777-6472 for complete information kits
describing the plans, their benefits, restrictions, provisions and fees.
SHAREHOLDER INQUIRIES
Inquiries regarding the Fund should be directed to IMSC at
1-800-777-6472.
<PAGE>
Ivy European Opportunities Fund
ACCOUNT APPLICATION
USE THIS APPLICATION FOR ADVISOR CLASS SHARES
Please mail applications and checks to: Ivy Mackenzie Services Corp.,
P.O. Box 3022, Boca Raton, FL 33431-0922.
(This application should not be used for retirement accounts for which
Ivy is custodian.)
Account Number:
(Fund Use Only)
Dealer #:
Branch #:
Rep. I.D. #:
Acct. Type: 101/
Soc Cd:
Div Cd: 1/2
CG Cd: 1/2
Exc Cd: 0/1
Red Cd: 0/X
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
Identification Number" 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 for $____________ ($10,000 minimum) made payable
to Ivy European Opportunities Fund.
B. 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.
A. / / Reinvest all dividends and capital gains into additional shares of
a different Ivy fund.
Fund Name
Account Number
B. / / Pay all dividends in cash and reinvest capital gains into
additional shares in this Fund or a different Ivy fund.
Fund Name
Account Number
C. / / Pay all dividends and capital gains in cash.
I REQUEST THE ABOVE CASH DISTRIBUTION, SELECTED IN C OR D ABOVE, BE:
/ / Sent to the address listed in the registration.
/ / Sent to the special payee listed in Section
7A// (By Mail)
7B// (By E.F.T.)
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 the Advisor Class of Ivy European Opportunities
Fund.
/ / 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 Advisor Class account in
Ivy European Opportunities Fund.
/ / 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. Electronic Funds Transfer for Redemption Proceeds**
I authorize the Agent to honor telephone instructions for the
redemption of Fund shares up to $50,000. Proceeds may be wire
transferred to the bank account designated ($1,000 minimum).
(Complete Section 7B)
D. 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.
E. Telephonic Redemptions** / / Yes / / No
The Fund or its agents are authorized to honor telephone
instructions from any person as more fully described in the
Prospectus for the redemption of Fund shares. The amount of
the redemption shall not exceed $50,000 and the proceeds are
to be payable to the shareholder of record and mailed to the
address of record. To change this option once established,
written instructions must be received from the shareholder of
record or the current registered representative.
If neither box is checked, the telephone 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 "Exchange Privilege" and "How to
Redeem Shares" in the Prospectus for more information on these
privileges.
I certify to my legal capacity to purchase or redeem shares of the Fund
for my own account or for the account of the organization named in
Section 1. I have received a current Prospectus and understand its
terms are incorporated in this application by reference. I am
certifying my taxpayer information as stated in Section 2.
THE INTERNAL REVENUE SERVICE DOES NOT REQUIRE YOUR CONSENT TO ANY
PROVISION OF THIS DOCUMENT OTHER THAN THE CERTIFICATIONS REQUIRED TO
AVOID BACKUP WITHHOLDING.
------------------------------ Signature of Owner, Custodian, Date
Trustee or Corporate Officer
------------------------------
Signature of Joint Owner, Date
Co-Trustee or Corporate Officer
(Remember to sign Section 8)
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 and I shares of Ivy European Opportunities Fund (the "Fund"). The other
nineteen 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>
TABLE OF CONTENTS
INVESTMENT OBJECTIVE AND POLICIES........................................1
RISK FACTORS.............................................................1
BANKING INDUSTRY AND SAVINGS AND LOAN OBLIGATIONS...............1
BORROWING.......................................................1
COMMERCIAL PAPER................................................1
CONVERTIBLE SECURITIES..........................................1
DEBT SECURITIES.................................................2
IN GENERAL.............................................2
U.S. GOVERNMENT SECURITIES.............................2
INVESTMENT-GRADE DEBT SECURITIES.......................3
LOW-RATED DEBT SECURITIES..............................3
ZERO COUPON BONDS......................................4
FIRM COMMITMENT AGREEMENTS AND "WHEN-ISSUED" SECURITIES.........5
FOREIGN CURRENCIES..............................................5
FORWARD FOREIGN CURRENCY CONTRACTS..............................6
FOREIGN SECURITIES..............................................6
DEPOSITORY RECEIPTS.............................................7
EMERGING MARKETS................................................7
FOREIGN SOVEREIGN DEBT OBLIGATIONS..............................8
BRADY BONDS.....................................................9
ILLIQUID SECURITIES.............................................9
REPURCHASE AGREEMENTS..........................................10
SHARES OF OTHER INVESTMENT COMPANIES...........................11
WARRANTS.......................................................11
OPTIONS TRANSACTIONS...........................................11
IN GENERAL............................................11
WRITING OPTIONS ON INDIVIDUAL SECURITIES..............12
PURCHASING OPTIONS ON INDIVIDUAL SECURITIES...........13
PURCHASING AND WRITING OPTIONS ON SECURITIES INDICES..13
RISKS OF OPTIONS TRANSACTIONS.........................14
FUTURES CONTRACTS AND OPTIONS ON FUTURES CONTRACTS.............14
IN GENERAL............................................14
EURO CONVERSION RISKS..................................5
RISKS ASSOCIATED WITH FUTURES AND RELATED OPTIONS.....17
SECURITIES INDEX FUTURES CONTRACTS.............................17
RISKS OF SECURITIES INDEX FUTURES.....................18
COMBINED TRANSACTIONS..........................................19
INVESTMENT RESTRICTIONS.................................................19
ADDITIONAL RESTRICTIONS.................................................20
ADDITIONAL RIGHTS AND PRIVILEGES........................................21
AUTOMATIC INVESTMENT METHOD....................................21
EXCHANGE OF SHARES.............................................21
INITIAL SALES CHARGE SHARES...........................22
CONTINGENT DEFERRED SALES CHARGE SHARES CLASS A.......22
CLASS B...............................................22
CLASS C...............................................23
CLASS I...............................................23
ALL CLASSES...........................................23
LETTER OF INTENT...............................................23
RETIREMENT PLANS...............................................24
INDIVIDUAL RETIREMENT ACCOUNTS........................24
ROTH IRAS.............................................25
QUALIFIED PLANS.......................................26
DEFERRED COMPENSATION FOR PUBLIC SCHOOLS AND CHARITABL27
SIMPLIFIED EMPLOYEE PENSION ("SEP") IRAS..............27
SIMPLE PLANS..........................................27
REINVESTMENT PRIVILEGE.........................................28
RIGHTS OF ACCUMULATION.........................................28
SYSTEMATIC WITHDRAWAL PLAN.....................................29
GROUP SYSTEMATIC INVESTMENT PROGRAM............................29
BROKERAGE ALLOCATION....................................................30
TRUSTEES AND OFFICERS...................................................32
PERSONAL INVESTMENTS BY EMPLOYEES OF IMI..............35
COMPENSATION TABLE......................................................36
INVESTMENT ADVISORY AND OTHER SERVICES..................................38
BUSINESS MANAGEMENT AND INVESTMENT ADVISORY SERVICES...........38
DISTRIBUTION SERVICES..........................................40
RULE 18F-3 PLAN.......................................40
RULE 12B-1 DISTRIBUTION PLANS.........................41
CUSTODIAN......................................................42
FUND ACCOUNTING SERVICES.......................................42
TRANSFER AGENT AND DIVIDEND PAYING AGENT.......................43
ADMINISTRATOR..................................................43
AUDITORS.......................................................43
YEAR 2000 RISKS................................................43
CAPITALIZATION AND VOTING RIGHTS........................................44
NET ASSET VALUE.........................................................45
PORTFOLIO TURNOVER......................................................46
REDEMPTIONS.............................................................47
CONVERSION OF CLASS B SHARES............................................48
TAXATION 48
OPTIONS, FUTURES AND FOREIGN CURRENCY FORWARD CONTRACTS........49
CURRENCY FLUCTUATIONS -- "SECTION 988" GAINS OR LOSSES.........50
INVESTMENT IN PASSIVE FOREIGN INVESTMENT COMPANIES.............50
DEBT SECURITIES ACQUIRED AT A DISCOUNT.........................51
DISTRIBUTIONS..................................................52
DISPOSITION OF SHARES..........................................52
FOREIGN WITHHOLDING TAXES......................................53
BACKUP WITHHOLDING.............................................53
PERFORMANCE INFORMATION.................................................54
YIELD.................................................54
AVERAGE ANNUAL TOTAL RETURN...........................55
CUMULATIVE TOTAL RETURN...............................55
OTHER QUOTATIONS, COMPARISONS AND GENERAL INFORMATION.56
FINANCIAL STATEMENTS....................................................56
APPENDIX A..............................................................57
APPENDIX B..............................................................60
<PAGE>
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.
ADDITIONAL RIGHTS AND PRIVILEGES
The Trust offers, and (except as noted below) bears the cost of
providing, to investors the following rights and privileges. The Trust reserves
the right to amend or terminate any one or more of these rights and privileges.
Notice of amendments to or terminations of rights and privileges will be
provided to shareholders in accordance with applicable law.
Certain of the rights and privileges described below refer to funds,
other than the Fund, whose shares are also distributed by Ivy Mackenzie
Distributors, Inc. ("IMDI"). These funds are: Ivy Bond Fund, Ivy Canada Fund,
Ivy China Region Fund, Ivy US Emerging Growth Fund, Ivy Global Fund, Ivy
International Fund, Ivy South America Fund, Ivy Developing Nations Fund, Ivy
International Strategic Bond Fund, Ivy Global Science & Technology Fund, Ivy
Global Natural Resources Fund, Ivy Growth Fund, Ivy Growth with Income Fund, Ivy
Asia Pacific Fund, Ivy International Small Companies Fund, Ivy International
Fund II, Ivy Pan-Europe Fund, Ivy US Blue Chip Fund and Ivy Money Market Fund
(the other nineteen 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 the Fund shareholder to
have specified amounts automatically drawn each month from his or her bank for
investment in Fund shares, is available for all classes of shares, except Class
I. The minimum initial and subsequent investment under this method is $50 per
month, (except in the case of a tax qualified retirement plan for which the
minimum initial and subsequent investment is $25 per month). A shareholder may
terminate the Automatic Investment Method at any time upon delivery to Ivy
Mackenzie Services Corp. ("IMSC") of telephone instructions or written notice.
See "Automatic Investment Method" in the Prospectus. To begin the plan, complete
Sections 6A and 7B of the Account Application.
EXCHANGE OF SHARES
As described in the Prospectus, shareholders of the Fund have an
exchange privilege with other Ivy funds (except Ivy International Fund unless
they have an existing Ivy International Fund account). Before effecting an
exchange, shareholders of the Fund should obtain and read the currently
effective prospectus for the Ivy fund into which the exchange is to be made.
INITIAL SALES CHARGE SHARES. Class A shareholders may exchange their
Class A shares ("outstanding Class A shares") for Class A shares of another Ivy
fund ("new Class A Shares") on the basis of the relative net asset value per
Class A share, plus an amount equal to the difference, if any, between the sales
charge previously paid on the outstanding Class A shares and the sales charge
payable at the time of the exchange on the new Class A shares. (The additional
sales charge will be waived for Class A shares that have been invested for a
period of 12 months or longer.) Class A shareholders may also exchange their
shares for shares of Ivy Money Market Fund (no initial sales charge will be
assessed at the time of such an exchange).
CONTINGENT DEFERRED SALES CHARGE SHARES CLASS A: Class A shareholders
may exchange their Class A shares that are subject to a contingent deferred
sales charge ("CDSC"), as described in the Prospectus ("outstanding Class A
shares"), for Class A shares of another Ivy fund ("new Class A shares") on the
basis of the relative net asset value per Class A share, without the payment of
any CDSC that would otherwise be due upon the redemption of the outstanding
Class A shares. Class A shareholders of the Fund exercising the exchange
privilege will continue to be subject to the Fund's CDSC period following an
exchange if such period is longer than the CDSC period, if any, applicable to
the new Class A shares.
For purposes of computing the CDSC that may be payable upon the
redemption of the new Class A shares, the holding period of the outstanding
Class A shares is "tacked" onto the holding period of the new Class A shares.
CLASS B: Class B shareholders may exchange their Class B shares
("outstanding Class B shares") for Class B shares of another Ivy fund ("new
Class B shares") on the basis of the relative net asset value per Class B share,
without the payment of any CDSC that would otherwise be due upon the redemption
of the outstanding Class B shares. Class B shareholders of the Fund exercising
the exchange privilege will continue to be subject to the Fund's CDSC schedule
(or period) following an exchange if such schedule is higher (or such period is
longer) than the CDSC schedule (or period) applicable to the new Class B shares.
Class B shares of the Fund acquired through an exchange of Class B
shares of another Ivy fund will be subject to the Fund's CDSC schedule (or
period) if such schedule is higher (or such period is longer) than the CDSC
schedule (or period) applicable to the Ivy fund from which the exchange was
made.
For purposes of both the conversion feature and computing the CDSC that
may be payable upon the redemption of the new Class B shares (prior to
conversion), the holding period of the outstanding Class B shares is "tacked"
onto the holding period of the new Class B shares.
The following CDSC table applies to Class B shares of Ivy Asia Pacific
Fund, Ivy Bond Fund, Ivy Canada Fund, Ivy China Region Fund, Ivy US Emerging
Growth Fund, Ivy Global Fund, Ivy Global Natural Resources Fund, Ivy Global
Science & Technology Fund, Ivy Growth Fund, Ivy Growth with Income Fund, Ivy
European Opportunities 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 US Blue Chip 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% if redeemed within one year of the
date of purchase.)
CLASS I: Subject to the restrictions set forth in the following
paragraph, Class I shareholders may exchange their outstanding Class I shares
for Class I shares of another Ivy fund on the basis of the relative net asset
value per Class I share.
ALL CLASSES: The minimum value of shares which may be exchanged into an
Ivy fund in which shares are not already held is $1,000 ($5,000,000 in the case
of Class I shares). 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 China Region Fund, Ivy Canada Fund, Ivy South America Fund, Ivy
International Fund, Ivy International Fund II, Ivy Pan-Europe Fund, Ivy Global
Fund, Ivy Global Natural Resources Fund, Ivy Global Science & Technology Fund,
Ivy Growth Fund, Ivy European Opportunities Fund, Ivy Growth with Income Fund,
Ivy US Emerging Growth Fund, Ivy International Strategic Bond Fund, Ivy
International Small Companies Fund, Ivy Developing Nations Fund, Ivy US Blue
Chip Fund and Ivy Bond Fund (and shares that have been exchanged into Ivy Money
Market Fund from any of the other funds in the Ivy funds) held of record by him
or her as of the date of his or her Letter of Intent. During the term of the
Letter of Intent, the Transfer Agent will hold Class A shares representing 5% of
the indicated amount (less any accumulation credit value) in escrow. The
escrowed Class A shares will be released when the full indicated amount has been
purchased. If the full indicated amount is not purchased during the term of the
Letter of Intent, the investor is required to pay IMDI an amount equal to the
difference between the dollar amount of sales charge that he or she has paid and
that which he or she would have paid on his or her aggregate purchases if the
total of such purchases had been made at a single time. Such payment will be
made by an automatic liquidation of Class A shares in the escrow account. A
Letter of Intent does not obligate the investor to buy or the Trust to sell the
indicated amount of Class A shares, and the investor should read carefully all
the provisions of such letter before signing.
RETIREMENT PLANS
Shares may be purchased in connection with several types of
tax-deferred retirement plans. Shares of more than one fund distributed by IMDI
may be purchased in a single application establishing a single 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
the 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 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 Ivy Asia
Pacific Fund, Ivy Bond Fund, Ivy Canada Fund, Ivy China Region Fund, Ivy US
Emerging Growth Fund, Ivy Global Fund, Ivy Global Natural Resources Fund, Ivy
Global Science & Technology Fund, Ivy Growth Fund, Ivy European Opportunities
Fund, Ivy Growth with Income Fund, Ivy International Fund, Ivy International
Strategic Bond Fund, Ivy International Small Companies Fund, Ivy South America
Fund, Ivy Developing Nations Fund, Ivy International Fund II, Ivy US Blue Chip
Fund and Ivy Pan-Europe Fund (and shares that have been exchanged into Ivy Money
Market Fund from any of the other funds in the Ivy funds) and of any other
investment company distributed by IMDI, previously purchased or acquired and
currently owned, determined at the higher of current offering price or amount
invested, plus the Class A shares being purchased, amounts to $50,000 or more
for Ivy Asia Pacific Fund, Ivy Canada Fund, Ivy China Region Fund, Ivy US
Emerging Growth Fund, Ivy Global Fund, Ivy Global Natural Resources Fund, Ivy
Global Science & Technology Fund, Ivy Growth Fund, Ivy European Opportunities
Fund, Ivy Growth with Income Fund, Ivy International Fund, Ivy International
Small Companies Fund, Ivy South America Fund, Ivy Developing Nations Fund, Ivy
International Fund II, Ivy Pan-Europe Fund or Ivy US Blue Chip Fund; or $100,000
or more for Ivy Bond Fund or Ivy International Strategic 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.
BROKERAGE ALLOCATION
Subject to the overall supervision of the President and the Board,
Henderson Investors 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, Henderson Investors attempts to deal directly
with the principal market makers, except in those circumstances where Henderson
Investors believes that a better price and execution are available elsewhere.
Henderson Investors 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 Henderson
Investors in servicing all of its accounts. In addition, not all of these
services may be used by Henderson Investors in connection with the services it
provides to the Fund or the Trust. Henderson Investors 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. Henderson Investors
will not, however, execute brokerage transactions other than at the best price
and execution.
As of the date of this SAI, the Fund has not paid any brokerage
commissions.
The Fund may, under some circumstances, accept securities in lieu of
cash as payment for Fund shares. The Fund will accept securities only to
increase its holdings in a portfolio security or to take a new portfolio
position in a security that Henderson Investors 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.
<PAGE>
TRUSTEES AND OFFICERS
The Trustees and Executive Officers of the Trust, their business
addresses and principal occupations during the past five years are:
POSITION WITH BUSINESS AFFILIATIONS
NAME, ADDRESS, AGE THE TRUST AND PRINCIPAL OCCUPATIONS
John S. Anderegg, Jr. Trustee Chairman, Dynamics Research
60 Concord Street Corp. (instruments and
Wilmington, MA 01887 controls); Director, Burr-
Age: 75 Brown Corp. (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);
Age: 75 Chairman and President, Broyhill
Investments,Inc. (1983-present);
Chairman, Broyhill Timber
Resources (1983-present);
Management of a personal portfolio
of fixed-income and equity
investments (1983-present);
Trustee of Mackenzie Series Trust
(1988-1998); 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: 76 (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: 78 (1950-present); Trustee and Vice
Chairman, EastTennessee 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: 73
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: 52 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: 64 (1987-1995).
Richard N. Silverman Trustee Director, Newton-Wellesley
18 Bonnybrook Road Hospital; Director, Beth
Waban, MA 02168 Israel Hospital; Director,
Age 75 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: 68 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: 42 Management, Inc. (1994 - 1996);
[*Deemed to be an Senior Vice President and
"interested person" Treasurer of
of the Trust, as Mackenzie Investment Management,
defined under the 1940 Act.] Inc. (1989-1994); Senior Vice President
and Director of Ivy
Management Inc. (1994-present); Senior Vice President, Treasurer
and Director of Ivy Management Inc. (1992-1994); Vice President
of The Mackenzie Funds Inc. (1987-1995); Senior Vice President
and Director Ivy Mackenzie Services Corp.
(1996-present); President and Director of Ivy
Mackenzie Services Corp.
(1993-1996); Trustee and President
of Mackenzie Series Trust
(1996-1998); 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: 54 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: 57 Inc. (1992-1996); Director and
Senior Vice President, Mackenzie
Investment Management Inc.
(1995-present); Senior Vice
President, Mackenzie Investment
Management Inc. (1990-1995).
As of the date of this SAI, the Officers and Trustees of the Trust as a
group owned no Fund shares.
PERSONAL INVESTMENTS BY EMPLOYEES OF IMI. Employees of IMI are
permitted to make personal securities transactions, subject to the requirements
and restrictions set forth in IMI's Code of Ethics 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.
<PAGE>
COMPENSATION TABLE
IVY FUND
(FISCAL YEAR ENDED DECEMBER 31, 1998)
[To be updated]
<TABLE>
<S> <C> <C> <C> <C>
PENSION OR
AGGREGATE RETIREMENT ESTIMATED TOTAL COMPENSATION
COMPENSATION FROM BENEFITS ANNUAL FROM TRUST AND FUND
NAME, TRUST ACCRUED AS PART BENEFITS UPON COMPLEX PAID TO
POSITION OF 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)
</TABLE>
[*] During the year ended December 31, 1998, the fund complex consisted of
the Trust, which had 18 funds at
year end.
<PAGE>
INVESTMENT ADVISORY AND OTHER SERVICES
BUSINESS MANAGEMENT AND INVESTMENT ADVISORY SERVICES
Ivy Management, Inc. ("IMI") provides business management and
investment advisory services to the Fund pursuant to a Business Management and
Investment Advisory Agreement (the "Agreement"). The Agreement was approved by
the sole shareholder of the Fund on [_______, 1999]. 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
[_______, 1999].
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 Canada Fund and
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 China Region Fund, Ivy Global Fund, Ivy
International Fund, Ivy South America Fund, Ivy Developing Nations Fund, Ivy
International Strategic Bond Fund, Ivy Global Science & Technology Fund, Ivy
International Small Companies Fund, Ivy International Fund II, Ivy Asia Pacific
Fund, Ivy Pan-Europe Fund, Ivy Growth Fund, Ivy US Emerging Growth Fund, Ivy
Growth with Income Fund, Ivy Bond Fund, Ivy US Blue Chip Fund and Ivy Money
Market Fund.
The Agreement obligates IMI to make investments for the accounts of the
Fund in accordance with its best judgment and within the investment objective
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 fee for providing business management and
investment advisory services that is equal, on an annual basis, to 1.00% of its
average net assets.
Business management and advisory fee information is not available for
the Fund as of the date of this SAI.
Under the Agreement, the Trust pays the following expenses: (1) the
fees and expenses of the Trust's Independent Trustees; (2) the salaries and
expenses of any of the Trust's officers or employees who are not affiliated with
IMI; (3) interest expenses; (4) taxes and governmental fees, including any
original issue taxes or transfer taxes applicable to the sale or delivery of
shares or certificates therefor; (5) brokerage commissions and other expenses
incurred in acquiring or disposing of portfolio securities; (6) the expenses of
registering and qualifying shares for sale with the SEC and with various state
securities commissions; (7) accounting and legal costs; (8) insurance premiums;
(9) fees and expenses of the Trust's Custodian and Transfer Agent and any
related services; (10) expenses of obtaining quotations of portfolio securities
and of pricing shares; (11) expenses of maintaining the Trust's legal existence
and of shareholders' meetings; (12) expenses of preparation and distribution to
existing shareholders of periodic reports, proxy materials and prospectuses; and
(13) fees and expenses of membership in industry organizations.
IMI currently limits the Fund's total operating expenses (excluding
Rule 12b-1 fees, interest, taxes, brokerage commissions, litigation,
class-specific expenses, indemnification expenses, and extraordinary expenses)
to an annual rate of 1.95% of the Fund's average net assets, which may lower the
Fund's expenses and increase its yield. The Fund's expense limitation may be
terminated or revised at any time, at which time its expenses may increase and
its yield may be reduced.
The initial term of the Agreement between IMI and the Fund, which
commenced on ____________, 1999, will run for a period of two years from the
date of commencement. The Agreement will continue in effect with respect to the
Fund from year to year, or for more than the initial period, as the case may be,
only so long as the continuance is specifically approved at least annually (i)
by the vote of a majority of the Independent Trustees and (ii) either (a) by the
vote of a majority of the outstanding voting securities (as defined in the 1940
Act) of the Fund or (b) by the vote of a majority of the entire Board. If the
question of continuance of the Agreement (or adoption of any new agreement) is
presented to 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
Under the Agreement, IMI may retain a subadviser with respect to the
Fund at IMI's own cost and expense. Accordingly, IMI, on behalf of the Fund, has
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 are paid monthly by IMI. Effective ______, 1999, Henderson
Investors serves as subadviser for the Fund's portfolio pursuant to the
Subadvisory Contract. As compensation for its services, Henderson is paid a fee
by IMI at the annual rate of 0.50% of the Fund's average net assets.
The Subadvisory Contract will continue in effect (subject to provisions
for earlier termination) 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 the Fund affected thereby.
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 September 19, 1998. At a meeting held on ____________,
1999, the Board approved the Distribution Agreement on behalf of the Fund. IMDI
distributes shares of the Fund through broker-dealers who are members of the
National Association of Securities Dealers, Inc. and who have executed dealer
agreements with IMDI. IMDI distributes shares of the Fund on a continuous basis,
but reserves the right to suspend or discontinue distribution on that basis.
IMDI is not obligated to sell any specific amount of Fund shares.
Pursuant to the Distribution Agreement, IMDI is entitled to deduct a
commission on all Class A Fund shares sold equal to the difference, if any,
between the public offering price, as set forth in the Fund's then-current
prospectus, and the net asset value on which such price is based. Out of that
commission, IMDI may reallow to dealers such concession as IMDI may determine
from time to time. In addition, IMDI is entitled to deduct a CDSC on the
redemption of Class A shares sold without an initial sales charge and Class B
and Class C shares, in accordance with, and in the manner set forth in, the
Prospectus.
Under the Distribution Agreement, the Fund bears, among other expenses,
the expenses of registering and qualifying its shares for sale under federal and
state securities laws and preparing and distributing to existing shareholders
periodic reports, proxy materials and prospectuses.
As of the date of this SAI, IMDI had not received any payments under
the Distribution Agreement with respect to the Fund.
The Distribution Agreement will continue in effect for successive
one-year periods, provided that such continuance is specifically approved at
least annually by the vote of a majority of the Independent Trustees, cast in
person at a meeting called for that purpose and by the vote of either a majority
of the entire Board or a majority of the outstanding voting securities of the
Fund. The Distribution Agreement may be terminated with respect to the Fund at
any time, without payment of any penalty, by IMDI on 60 days' written notice to
the Fund or by the Fund by vote of either a majority of the outstanding voting
securities of the Fund or a majority of the Independent Trustees on 60 days'
written notice to IMDI. The Distribution Agreement shall terminate automatically
in the event of its assignment.
RULE 18F-3 PLAN. On February 23, 1995, the SEC adopted Rule 18f-3 under
the 1940 Act, which permits a registered open-end investment company to issue
multiple classes of shares in accordance with a written plan approved by the
investment company's board of directors/trustees and filed with the SEC. At a
meeting held on __________, 1999, 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 Trustees who are not "interested persons" (as defined in the 1940
Act) of the Trust shall be committed to the discretion of the Trustees who are
not "interested persons" of the Trust.
IMDI may make payments for distribution assistance and for
administrative and accounting services from resources that may include the
management fees paid by the Fund. IMDI also may make payments (such as the
service fee payments described above) to unaffiliated broker-dealers for
services rendered in the distribution of the Fund's shares. To qualify for such
payments, shares may be subject to a minimum holding period. However, no such
payments will be made to any dealer or broker if at the end of each year the
amount of shares held does not exceed a minimum amount. The minimum holding
period and minimum level of holdings will be determined from time to time by
IMDI.
A report of the amount expended pursuant to each Plan, and the purposes
for which such expenditures were incurred, must be made to the Board for its
review at least quarterly.
As of the date of this SAI, no payments had been made under the Plans
with respect to the Fund.
Each Plan may be amended at any time with respect to the class of
shares of the Fund to which the Plan relates by vote of the Trustees, including
a majority of the Independent Trustees, cast in person at a meeting called for
the purpose of considering such amendment. Each Plan may be terminated at any
time with respect to the class of shares of the Fund to which the Plan relates,
without payment of any penalty, by vote of a majority of the Independent
Trustees, or by vote of a majority of the outstanding voting securities of that
class.
If the Distribution Agreement or the Distribution Plans are terminated
(or not renewed) with respect to any of the Ivy funds (or class of shares
thereof), each may continue in effect with respect to any other fund (or Class
of shares thereof) as to which they have not been terminated (or have been
renewed).
CUSTODIAN
Pursuant to a Custodian Agreement with the Trust, Brown Brothers
Harriman & Co. (the "Custodian"), a private bank and member of the principal
securities exchanges, located at 40 Water Street, Boston, Massachusetts 02109
(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 the Fund Accounting Services Agreement, MIMI provides
certain accounting and pricing services for the Fund. As compensation for those
services, the Fund pays MIMI a monthly fee plus out-of-pocket expenses as
incurred. The monthly fee is based upon the net assets of the Fund at the
preceding month end at the following rates: $1,250 when net assets are $10
million and under; $2,500 when net assets are over $10 million to $40 million;
$5,000 when net assets are over $40 million to $75 million; and $6,500 when net
assets are over $75 million.
As of the date of this SAI, no payments have been made with respect to
the provision of these services for the Fund.
TRANSFER AGENT AND DIVIDEND PAYING AGENT
Pursuant to a Transfer Agency and Shareholder Service Agreement, IMSC,
a wholly owned subsidiary of MIMI, is the transfer agent for the Fund. Under the
Agreement, the Fund (except with respect to its Class I shares) pays a monthly
fee at an annual rate of $20.00 for each open Class A, Class B and Class C
account. The Fund pays $10.25 per open Class I account. In addition, the Fund
pays a monthly fee at an annual rate of $4.58 per account that is closed plus
certain out-of-pocket expenses. As of the date of this SAI, no payments had been
made by the Fund for transfer agency services. Certain broker-dealers that
maintain shareholder accounts with the Fund through an omnibus account provide
transfer agent and other shareholder-related services that would otherwise be
provided by IMSC if the individual accounts that comprise the omnibus account
were opened by their beneficial owners directly. IMSC pays such broker-dealers a
per account fee for each open account within the omnibus account, or a fixed
rate (e.g., .10%) fee, based on the average daily net asset value of the omnibus
account (or a combination thereof).
As of the date of this SAI, no payments have been made with respect to
the provision of these services for the Fund.
ADMINISTRATOR
Pursuant to an Administrative Services Agreement, MIMI provides certain
administrative services to the Fund. As compensation for these services, the
Fund (except with respect to its Class I shares) pays MIMI a monthly fee at the
annual rate of .10% of the Fund's average daily net assets. The Fund pays MIMI a
monthly fee at the annual rate of .01% of its average daily net assets for Class
I. As of the date of this SAI, no payments had been made by the Fund under the
Administrative Services Agreement.
Outside of providing administrative services to the Trust, as described
above, MIMI may also act on behalf of IMDI in paying commissions to
broker-dealers with respect to sales of Class B and Class C shares of the Fund.
As of the date of this SAI, no payments have been made with respect to
the provision of these services for 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 Fund's tax
returns.
YEAR 2000 RISKS
The services provided to the Fund by IMI, MFC, 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, MFC, 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
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 twenty series, each of which
represents the 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 Canada Fund, Ivy China Region Fund, Ivy US
Emerging Growth Fund (formerly Ivy Emerging Growth Fund until January 15, 1998),
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 (formerly Ivy High Yield Fund
until __________, 1998), Ivy South America Fund (formerly Ivy Latin America
Strategy Fund until January 15, 1998), Ivy Developing Nations Fund (formerly Ivy
New Century Fund until January 15, 1998), Ivy International Small Companies
Fund, Ivy US Blue Chip Fund and Ivy Pan-Europe Fund, as well as Class I shares
for the Fund, Ivy Bond Fund, Ivy Global Science & Technology Fund, Ivy
International Fund II, Ivy International Fund, Ivy International Strategic Bond
Fund, Ivy US Blue Chip Fund and Ivy International Small Companies 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.
As of the date of this SAI, there were no Fund shares outstanding other
than those issued to the sole shareholder.
Under Massachusetts law, the Trust's shareholders could, under certain
circumstances, be held personally liable for the obligations of the Trust.
However, the Amended and Restated Declaration of Trust disclaims liability of
the shareholders, Trustees or officers of the Trust for acts or obligations of
the Trust, which are binding only on the assets and property of the Trust, and
requires that notice of the disclaimer be given in each contract or obligation
entered into or executed by the Trust or its Trustees. The Amended and Restated
Declaration of Trust provides for indemnification out of Fund property for all
loss and expense of any shareholder of the Fund held personally liable for the
obligations of the Fund. The risk of a shareholder of the Trust incurring
financial loss on account of shareholder liability is limited to circumstances
in which the Trust itself would be unable to meet its obligations and, thus,
should be considered remote. No series of the Trust is liable for the
obligations of any other series of the Trust.
NET ASSET VALUE
The 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 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.
PORTFOLIO TURNOVER
The Fund purchases securities that are believed by IMI to have above
average potential for capital appreciation. Common stocks are disposed of in
situations where it is believed that potential for such appreciation has
lessened or that other common stocks have a greater potential. Therefore, the
Fund may purchase and sell securities without regard to the length of time the
security is to be, or has been, held. A change in securities held by the Fund is
known as "portfolio turnover" and may involve the payment by the Fund of dealer
markup or underwriting commission and other transaction costs on the sale of
securities, as well as on the reinvestment of the proceeds in other securities.
The Fund's portfolio turnover rate is calculated by dividing the lesser of
purchases or sales of portfolio securities for the most recently completed
fiscal year by the monthly average of the value of the portfolio securities
owned by the Fund during that year. For purposes of determining the Fund's
portfolio turnover rate, all securities whose maturities at the time of
acquisition were one year or less are excluded. It is estimated that the
portfolio turnover rate for the Fund's initial fiscal year will not exceed 100%.
REDEMPTIONS
Shares of the Fund are redeemed at their net asset value next
determined after a proper redemption request has been received by IMSC, less any
applicable CDSC.
Unless a shareholder requests that the proceeds of any redemption be
wired to his or her bank account, payment for shares tendered for redemption is
made by check within seven days after tender in proper form, except that the
Trust reserves the right to suspend the right of redemption or to postpone the
date of payment upon redemption beyond seven days, (i) for any period during
which the Exchange is closed (other than customary weekend and holiday closings)
or during which trading on the Exchange is restricted, (ii) for any period
during which an emergency exists as determined by the SEC as a result of which
disposal of securities owned by the Fund is not reasonably practicable or it is
not reasonably practicable for the Fund to fairly determine the value of its net
assets, or (iii) for such other periods as the SEC may by order permit for the
protection of shareholders of the Fund.
Under unusual circumstances, when the Board deems it in the best
interest of the Fund's shareholders, the Fund may make payment for shares
repurchased or redeemed in whole or in part in securities of the Fund taken at
current values. If any such redemption in kind is to be made, the Fund 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.
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 constitutes investment-type assets, or 75% or more of its gross
income is investment-type income. If the Fund receives a so-called "excess
distribution" with respect to PFIC stock, the Fund itself may be subject to a
tax on a portion of the excess distribution, whether or not the corresponding
income is distributed by the Fund to shareholders. In general, under the PFIC
rules, an excess distribution is treated as having been realized ratably over
the period during which the Fund held the PFIC shares. The Fund itself will be
subject to tax on the portion, if any, of an excess distribution that is so
allocated to prior Fund taxable years and an interest factor will be added to
the tax, as if the tax had been payable in such prior taxable years. Certain
distributions from a PFIC as well as gain from the sale of PFIC shares are
treated as excess distributions. Excess distributions are characterized as
ordinary income even though, absent application of the PFIC rules, certain
excess distributions might have been classified as capital gain.
The Fund may be eligible to elect alternative tax treatment with
respect to PFIC shares. 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
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 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 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 CORPORATION ("S&P") AND MOODY'S INVESTORS
SERVICE, INC. ("MOODY'S") CORPORATE
BOND AND COMMERCIAL PAPER RATINGS
[From "Moody's Bond Record," November 1994 Issue (Moody's Investors Service, New
York, 1994), and "Standard & Poor's Municipal Ratings Handbook," October 1997
Issue (McGraw Hill, New York, 1997).]
MOODY'S:
(a) CORPORATE BONDS. Bonds rated Aaa by Moody's are judged by Moody's
to be of the best quality, carrying the smallest degree of investment risk.
Interest payments are protected by a large or exceptionally stable margin and
principal is secure. While the various protective elements are likely to change,
such changes as can be visualized are most unlikely to impair the fundamentally
strong position of such issues. Bonds rated Aa are judged by Moody's to be of
high quality by all standards. Aa bonds are rated lower than Aaa bonds because
margins of protection may not be as large as those of Aaa bonds, or fluctuations
of protective elements may be of greater amplitude, or there may be other
elements present which make the long-term risks appear somewhat larger than
those applicable to Aaa securities. Bonds which are rated A by Moody's possess
many favorable investment attributes and are to be considered as upper
medium-grade obligations. Factors giving security to principal and interest are
considered adequate, but elements may be present which suggest a susceptibility
to impairment sometime in the future. Bonds rated Baa by Moody's are considered
medium-grade obligations (i.e., they are neither highly protected nor poorly
secured). Interest payments and principal security appear adequate for the
present, but certain protective elements may be lacking or may be
characteristically unreliable over any great length of time. Such bonds lack
outstanding investment characteristics and in fact have speculative
characteristics as well. Bonds which are rated Ba are judged to have speculative
elements; their future cannot be considered well-assured. Often the protection
of interest and principal payments may be very moderate and thereby not well
safeguarded during both good and bad times over the future. Uncertainty of
position characterizes bonds in this class. Bonds which are rated B generally
lack characteristics of the desirable investment. Assurance of interest and
principal payments of or maintenance of other terms of the contract over any
long period of time may be small. Bonds which are rated Caa are of poor
standing. Such issues may be in default or there may be present elements of
danger with respect to principal or interest. Bonds which are rated Ca represent
obligations which are speculative in a high degree. Such issues are often in
default or have other marked shortcomings. Bonds which are rated C are the
lowest rated class of bonds and issues so rated can be regarded as having
extremely poor prospects of ever attaining any real investment standing.
(b) COMMERCIAL PAPER. The Prime rating is the highest commercial paper
rating assigned by Moody's. Among the factors considered by Moody's in assigning
ratings are the following: (1) evaluation of the management of the issuer; (2)
economic evaluation of the issuer's industry or industries and an appraisal of
speculative-type risks which may be inherent in certain areas; (3) evaluation of
the issuer's products in relation to competition and customer acceptance; (4)
liquidity; (5) amount and quality of long-term debt; (6) trend of earnings over
a period of ten years; (7) financial strength of a parent company and the
relationships which exist with the issuer; and (8) recognition by management of
obligations which may be present or may arise as a result of public interest
questions and preparations to meet such obligations. Issuers within this Prime
category may be given ratings 1, 2 or 3, depending on the relative strengths of
these factors. The designation of Prime-1 indicates the highest quality
repayment capacity of the rated issue. Issuers rated Prime-2 are deemed to have
a strong ability for repayment while issuers voted Prime-3 are deemed to have an
acceptable ability for repayment. Issuers rated Not Prime do not fall within any
of the Prime rating categories.
S&P:
(a) CORPORATE BONDS. An S&P corporate debt rating is a current
assessment of the creditworthiness of an obligor with respect to a specific
obligation. The ratings are based on current information furnished by the issuer
or obtained by S&P from other sources it considers reliable. The ratings
described below may be modified by the addition of a plus or minus sign to show
relative standing within the major rating categories.
Debt rated AAA has the highest rating assigned by S&P. Capacity to pay
interest and repay principal is extremely strong. Debt rated AA is judged by S&P
to have a very strong capacity to pay interest and repay principal and differs
from the highest rated issues only in small degree. Debt rated A by S&P has a
strong capacity to pay interest and repay principal, although it is somewhat
more susceptible to the adverse effects of changes in circumstances and economic
conditions than debt in higher rated categories.
Debt rated BBB by S&P is regarded by S&P as having an adequate capacity
to pay interest and repay principal. Although such bonds normally exhibit
adequate protection parameters, adverse economic conditions or changing
circumstances are more likely to lead to a weakened capacity to pay interest and
repay principal than debt in higher rated categories.
Debt rated BB, B, CCC, CC and C is regarded as having predominately
speculative characteristics with respect to capacity to pay interest and repay
principal. BB indicates the least degree of speculation and C the highest. While
such debt will likely have some quality and protective characteristics, these
are outweighed by large uncertainties or exposures to adverse conditions. Debt
rated BB has less near-term vulnerability to default than other speculative
issues. However, it faces major ongoing uncertainties or exposure to adverse
business, financial or economic conditions which could lead to inadequate
capacity to meet timely interest and principal payments. The BB rating category
is also used for debt subordinated to senior debt that is assigned an actual or
implied BBB- rating. Debt rated B has a greater vulnerability to default but
currently has the capacity to meet interest payments and principal repayments.
Adverse business, financial, or economic conditions will likely impair capacity
or willingness to pay interest and repay principal. The B rating category is
also used for debt subordinated to senior debt that is assigned an actual or
implied BB or BB- rating. Debt rated CCC has a currently identifiable
vulnerability to default, and is dependent upon favorable business, financial,
and economic conditions to meet timely payment of interest and repayment of
principal. In the event of adverse business, financial or economic conditions,
it is not likely to have the capacity to pay interest and repay principal. The
CCC rating category is also used for debt subordinated to senior debt that is
assigned an actual or implied B or B- rating. The rating CC typically is applied
to debt subordinated to senior debt which is assigned an actual or implied CCC
debt rating. The rating C typically is applied to debt subordinated to senior
debt which is assigned an actual or implied CCC- debt rating. The C rating may
be used to cover a situation where a bankruptcy petition has been filed, but
debt service payments are continued.
The rating CI is reserved for income bonds on which no interest is
being paid. Debt rated D is in payment default. The D rating category is used
when interest payments or principal payments are not made on the date due, even
if the applicable grace period has not expired, unless S&P believes that such
payments will be made during such grace period. The D rating also will be used
upon the filing of a bankruptcy petition if debt service payments are
jeopardized.
(b) COMMERCIAL PAPER. An S&P commercial paper rating is a current
assessment of the likelihood of timely payment of debt considered short-term in
the relevant market.
The commercial paper rating A-1 by S&P indicates that the degree of
safety regarding timely payment is strong. Those issues determined to possess
extremely strong safety characteristics are denoted with a plus sign (+)
designation. For commercial paper with an A-2 rating, the capacity for timely
payment on issues is satisfactory, but not as high as for issues designated A-1.
Issues rated A-3 have adequate capacity for timely payment, but are more
vulnerable to the adverse effects of changes in circumstances than obligations
carrying higher designations.
Issues rated B are regarded as having only speculative capacity for
timely payment. The C rating is assigned to short-term debt obligations with a
doubtful capacity for payment. Debt rated D is in payment default. The D rating
category is used when interest payments or principal payments are not made on
the date due, even if the applicable grace period has not expired, unless S&P
believes such payments will be made during such grace period.
<PAGE>
APPENDIX B
STATEMENT OF ASSETS AND LIABILITIES
AS OF [________, 1999]
AND REPORT OF INDEPENDENT ACCOUNTANTS
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
ADVISOR CLASS SHARES
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 the
Advisor Class shares of Ivy European Opportunities Fund (the "Fund"). The other
nineteen 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's Advisor Class shares dated April [ ], 1999 (the
"Prospectus"), which may be obtained upon request and without charge from the
Distributor at the address and telephone number printed below. Advisor Class
shares are only offered to certain investors (see the Prospectus). The Fund also
offers Class A, Class B and Class C and Class I 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
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TABLE OF CONTENTS
INVESTMENT OBJECTIVES AND POLICIES.........................................1
RISK FACTORS...............................................................1
BANKING INDUSTRY AND SAVINGS AND LOAN OBLIGATIONS.................1
BORROWING.........................................................1
COMMERCIAL PAPER..................................................1
CONVERTIBLE SECURITIES............................................1
DEBT SECURITIES...................................................2
IN GENERAL...............................................2
U.S. GOVERNMENT SECURITIES...............................2
INVESTMENT-GRADE DEBT SECURITIES.........................3
LOW-RATED DEBT SECURITIES................................3
ZERO COUPON BONDS........................................4
FIRM COMMITMENT AGREEMENTS AND "WHEN-ISSUED" SECURITIES...........5
EURO CONVERSION RISKS.............................................5
FOREIGN CURRENCIES................................................5
FORWARD FOREIGN CURRENCY CONTRACTS................................6
FOREIGN SECURITIES................................................6
DEPOSITORY RECEIPTS...............................................7
EMERGING MARKETS..................................................8
FOREIGN SOVEREIGN DEBT OBLIGATIONS................................9
BRADY BONDS.......................................................9
ILLIQUID SECURITIES..............................................10
REPURCHASE AGREEMENTS............................................10
SHARES OF OTHER INVESTMENT COMPANIES.............................11
WARRANTS.........................................................11
OPTIONS TRANSACTIONS.............................................11
IN GENERAL..............................................11
WRITING OPTIONS ON INDIVIDUAL SECURITIES................12
PURCHASING OPTIONS ON INDIVIDUAL SECURITIES.............13
PURCHASING AND WRITING OPTIONS ON SECURITIES INDICES....13
RISKS OF OPTIONS TRANSACTIONS...........................14
FUTURES CONTRACTS AND OPTIONS ON FUTURES CONTRACTS...............15
IN GENERAL..............................................15
RISKS ASSOCIATED WITH FUTURES AND RELATED OPTIONS.......17
SECURITIES INDEX FUTURES CONTRACTS...............................17
RISKS OF SECURITIES INDEX FUTURES.......................18
COMBINED TRANSACTIONS............................................19
INVESTMENT RESTRICTIONS...................................................19
ADDITIONAL RESTRICTIONS...................................................20
ADDITIONAL RIGHTS AND PRIVILEGES..........................................21
AUTOMATIC INVESTMENT METHOD......................................21
EXCHANGE OF SHARES...............................................22
RETIREMENT PLANS.................................................22
INDIVIDUAL RETIREMENT ACCOUNTS..........................23
ROTH IRAS...............................................24
QUALIFIED PLANS.........................................24
DEFERRED COMPENSATION FOR PUBLIC SCHOOLS AND CHARITABLE
ORGANIZATIONS ("403(B)(7) ACCOUNT") ....25
SIMPLIFIED EMPLOYEE PENSION ("SEP") IRAS................25
SIMPLE PLANS............................................26
SYSTEMATIC WITHDRAWAL PLAN.......................................26
GROUP SYSTEMATIC INVESTMENT PROGRAM..............................26
BROKERAGE ALLOCATION......................................................27
TRUSTEES AND OFFICERS.....................................................28
PERSONAL INVESTMENTS BY EMPLOYEES OF IMI................31
COMPENSATION TABLE........................................................32
BUSINESS MANAGEMENT AND INVESTMENT ADVISORY SERVICES.............34
DISTRIBUTION SERVICES............................................36
RULE 18F-3 PLAN.........................................37
CUSTODIAN........................................................37
FUND ACCOUNTING SERVICES.........................................37
TRANSFER AGENT AND DIVIDEND PAYING AGENT.........................37
ADMINISTRATOR....................................................38
AUDITORS.........................................................38
YEAR 2000 RISKS..................................................38
CAPITALIZATION AND VOTING RIGHTS..........................................38
NET ASSET VALUE...........................................................40
PORTFOLIO TURNOVER........................................................41
REDEMPTIONS...............................................................41
TAXATION 42
OPTIONS, FUTURES AND FOREIGN CURRENCY FORWARD CONTRACTS..........43
CURRENCY FLUCTUATIONS -- "SECTION 988" GAINS OR LOSSES...........44
INVESTMENT IN PASSIVE FOREIGN INVESTMENT COMPANIES...............45
DEBT SECURITIES ACQUIRED AT A DISCOUNT...........................45
DISTRIBUTIONS....................................................46
DISPOSITION OF SHARES............................................46
FOREIGN WITHHOLDING TAXES........................................47
BACKUP WITHHOLDING...............................................48
PERFORMANCE INFORMATION...................................................48
YIELD...................................................48
AVERAGE ANNUAL TOTAL RETURN.............................49
CUMULATIVE TOTAL RETURN.................................49
OTHER QUOTATIONS, COMPARISONS AND GENERAL INFORMATION...50
FINANCIAL STATEMENTS......................................................50
APPENDIX A................................................................51
DESCRIPTION OF STANDARD & POOR'S CORPORATION ("S&P") AND MOODY'S INVESTORS
SERVICE, INC. ("MOODY'S") CORPORATE
BOND AND COMMERCIAL PAPER RATINGS................................51
APPENDIX B................................................................54
STATEMENT OF ASSETS AND LIABILITIES.......................................54
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INVESTMENT OBJECTIVES 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.
ADDITIONAL RIGHTS AND PRIVILEGES
The Trust offers, and (except as noted below) bears the cost of
providing, to investors the following rights and privileges. The Trust reserves
the right to amend or terminate any one or more of these rights and privileges.
Notice of amendments to or terminations of rights and privileges will be
provided to shareholders in accordance with applicable law.
Certain of the rights and privileges described below refer to funds,
other than the Fund, whose shares are also distributed by Ivy Mackenzie
Distributors, Inc. ("IMDI"). These funds are: Ivy Bond Fund, Ivy Canada Fund,
Ivy China Region Fund, Ivy US Emerging Growth Fund, Ivy Global Fund, Ivy
International Fund, Ivy South America Fund, Ivy Developing Nations Fund, Ivy
International Strategic Bond Fund, Ivy Global Science & Technology Fund, Ivy
Global Natural Resources Fund, Ivy Growth Fund, Ivy Growth with Income Fund, Ivy
Asia Pacific Fund, Ivy International Small Companies Fund, Ivy International
Fund II, Ivy Pan-Europe Fund, Ivy European Opportunities Fund and Ivy Money
Market Fund (the other nineteen 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 the Fund shareholder to
have specified amounts automatically drawn each month from his or her bank for
investment in Fund shares, is available for all classes of shares, except Class
I. The minimum initial and subsequent investment under this method is $250 per
month, (except in the case of a tax qualified retirement plan for which the
minimum initial and subsequent investment is $25 per month). A shareholder may
terminate the Automatic Investment Method at any time upon delivery to Ivy
Mackenzie Services Corp. ("IMSC") of telephone instructions or written notice.
See "Automatic Investment Method" in the Prospectus. To begin the plan, complete
Sections 6A and 7B of the Account Application.
EXCHANGE OF SHARES
As described in the Prospectus, Advisor Class shareholders of the Fund
have an exchange privilege with 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.
Advisor Class shareholders may exchange their outstanding Advisor Class
shares for Advisor Class shares of another Ivy fund on the basis of the relative
net asset value per Advisor Class share. The minimum value of Advisor Class
shares that may be exchanged into an Ivy fund in which shares are not already
held is $10,000. No exchange out of the Fund (other than by a complete exchange
of all Fund shares) may be made if it would reduce the shareholder's interest in
the Advisor Class shares of the Fund to less than $10,000. Exchanges are
available only in states where the exchange can legally be made.
Each exchange will be made on the basis of the relative net asset 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.
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 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 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 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.
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), accompanied by a surrender to IMSC of all share certificates then
outstanding in such shareholder's name, properly endorsed by the shareholder. To
be eligible to elect a Withdrawal Plan, a shareholder must continually maintain
an account balance of at least $10,000 in his or her account. Additional
investments made by investors participating in a Withdrawal Plan must equal at
least $250 each while the Withdrawal Plan is in effect. A Withdrawal Plan may
not be established if the investor is currently participating in the Automatic
Investment Method. A Withdrawal Plan may involve the depletion of a
shareholder's principal, depending on the amount withdrawn.
A redemption under a Withdrawal Plan is a taxable event. Shareholders
contemplating participating in a Withdrawal Plan should consult their tax
advisers.
An investor may terminate his or her participation in the Withdrawal
Plan at any time by delivering written notice to IMSC. If all shares held by the
investor are liquidated at any time, participation in the Withdrawal Plan will
terminate automatically. The Trust or IMSC may terminate the Withdrawal Plan
option at any time after reasonable notice to shareholders.
GROUP SYSTEMATIC INVESTMENT PROGRAM
Shares 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.
BROKERAGE ALLOCATION
Subject to the overall supervision of the President and the Board,
Henderson Investors 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.
As of the date of this SAI, the Fund has not paid any brokerage
commissions.
The Fund may, under some circumstances, accept securities in lieu of
cash as payment for Fund shares. The Fund will 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.
<PAGE>
TRUSTEES AND OFFICERS
The Trustees and Executive Officers of the Trust, their business
addresses and principal occupations during the past five years are:
POSITION WITH BUSINESS AFFILIATIONS
NAME, ADDRESS, AGE THE TRUST AND PRINCIPAL OCCUPATIONS
John S. Anderegg, Jr. Trustee Chairman, Dynamics Research
60 Concord Street Corp. (instruments and
Wilmington, MA 01887 controls); Director, Burr-
Age: 75 Brown Corp. (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);
Age: 75 Chairman and President, Broyhill
Investments,Inc. (1983-present);
Chairman, Broyhill Timber
Resources (1983-present);
Management of a personal portfolio
of fixed-income and equity
investments (1983-present);
Trustee of Mackenzie Series Trust
(1988-1998); 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: 76 (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: 78 (1950-present); Trustee and Vice
Chairman, EastTennessee 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: 73
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: 52 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: 64 (1987-1995).
Richard N. Silverman Trustee Director, Newton-Wellesley
18 Bonnybrook Road Hospital; Director, Beth
Waban, MA 02168 Israel Hospital; Director,
Age 75 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: 68 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: 42 Management, Inc. (1994 - 1996);
[*Deemed to be an Senior Vice President and
"interested person" Treasurer of
of the Trust, as Mackenzie Investment Management,
defined under the 1940 Act.] Inc. (1989-1994); Senior Vice
President and Director of Ivy
Management Inc. (1994-present);
Senior Vice President, Treasurer
and Director of Ivy Management
Inc. (1992-1994); Vice President
of The Mackenzie Funds Inc.
(1987-1995); Senior Vice President
and Director, Ivy Mackenzie
Services Corp. (1996-present);
President and Director of Ivy
Mackenzie Services Corp.
(1993-1996); Trustee and President
of Mackenzie Series Trust
(1996-1998); 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: 54 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: 57 Inc. (1992-1996); Director and
Senior Vice President, Mackenzie
Investment Management Inc.
(1995-present); Senior Vice
President, Mackenzie Investment
Management Inc. (1990-1995).
As of the date of this SAI, the Officers and Trustees of the Trust as a
group owned no Fund shares.
PERSONAL INVESTMENTS BY EMPLOYEES OF IMI. Employees of IMI are
permitted to make personal securities transactions, subject to the requirements
and restrictions set forth in IMI's Code of Ethics 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.
COMPENSATION TABLE
IVY FUND
(FISCAL YEAR ENDED DECEMBER 31, 1998)
[To be updated]
<TABLE>
<S> <C> <C> <C> <C>
AGGREGATE PENSION OR
COMPENSATION RETIREMENT ESTIMATED ANNUAL TOTAL COMPENSA-TION
FROM BENEFITS BENEFITS UPON FROM TRUST AND FUND
NAME, TRUST ACCRUED AS RETIREMENT COMPLEX PAID TO
POSITION PART OF FUND TRUSTEES[*]
EXPENSES
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)
</TABLE>
[*] During the year ended December 31, 1998, the fund complex consisted
of the Trust, which had 18 funds at year end.
<PAGE>
INVESTMENT ADVISORY AND OTHER SERVICES
BUSINESS MANAGEMENT AND INVESTMENT ADVISORY SERVICES
Ivy Management, Inc. ("IMI") provides business management and
investment advisory services to the Fund pursuant to a Business Management and
Investment Advisory Agreement (the "Agreement"). The Agreement was approved by
the sole shareholder of the Fund on [_______, 1999]. 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
[__________, 1999].
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 Canada Fund and
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 China Region Fund, Ivy Global Fund, Ivy
International Fund, Ivy South America Fund, Ivy Developing Nations Fund, Ivy
International Strategic Bond Fund, Ivy Global Science & Technology Fund, Ivy
International Small Companies Fund, Ivy International Fund II, Ivy Asia Pacific
Fund, Ivy Pan-Europe Fund, Ivy Growth Fund, Ivy US Emerging Growth Fund, Ivy
Growth with Income Fund, Ivy Bond Fund, Ivy US Blue Chip Fund and Ivy Money
Market Fund.
The Agreement obligates IMI to make investments for the accounts of the
Fund in accordance with its best judgment and within the investment objectives
and restrictions set forth in the Prospectus, the 1940 Act and the provisions of
the Code relating to regulated investment companies, subject to policy decisions
adopted by the Board. IMI also determines the securities to be purchased or sold
by the Fund and places orders with brokers or dealers who deal in such
securities.
Under the Agreement, IMI also provides certain business management
services. IMI is obligated to (1) coordinate with the Fund's Custodian and
monitor the services it provides to the Fund; (2) coordinate with and monitor
any other third parties furnishing services to the Fund; (3) provide the Fund
with necessary office space, telephones and other communications facilities as
are adequate for the Fund's needs; (4) provide the services of individuals
competent to perform administrative and clerical functions that are not
performed by employees or other agents engaged by the Fund or by IMI acting in
some other capacity pursuant to a separate agreement or arrangements with the
Fund; (5) maintain or supervise the maintenance by third parties of such books
and records of the Trust as may be required by applicable Federal or state law;
(6) authorize and permit IMI's directors, officers and employees who may be
elected or appointed as trustees or officers of the Trust to serve in such
capacities; and (7) take such other action with respect to the Trust, after
approval by the Trust as may be required by applicable law, including without
limitation the rules and regulations of the 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.
Business management and advisory fee information is not available for
the Fund as of the date of this SAI.
Under the Agreement, the Trust pays the following expenses: (1) the
fees and expenses of the Trust's Independent Trustees; (2) the salaries and
expenses of any of the Trust's officers or employees who are not affiliated with
IMI; (3) interest expenses; (4) taxes and governmental fees, including any
original issue taxes or transfer taxes applicable to the sale or delivery of
shares or certificates therefor; (5) brokerage commissions and other expenses
incurred in acquiring or disposing of portfolio securities; (6) the expenses of
registering and qualifying shares for sale with the SEC and with various state
securities commissions; (7) accounting and legal costs; (8) insurance premiums;
(9) fees and expenses of the Trust's Custodian and Transfer Agent and any
related services; (10) expenses of obtaining quotations of portfolio securities
and of pricing shares; (11) expenses of maintaining the Trust's legal existence
and of shareholders' meetings; (12) expenses of preparation and distribution to
existing shareholders of periodic reports, proxy materials and prospectuses; and
(13) fees and expenses of membership in industry organizations.
IMI currently limits the Fund's total operating expenses (excluding
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 Fund's expense limitation may be terminated or revised
at any time, at which time its expenses may increase and its yield may be
reduced.
The initial term of the Agreement between IMI and the Fund, which
commenced on [________, 1999], will run for a period of two years from the date
of commencement. The Agreement will continue in effect with respect to the Fund
from year to year, or for more than the initial period, as the case may be, only
so long as the continuance is specifically approved at least annually (i) by the
vote of a majority of the Independent Trustees and (ii) either (a) by the vote
of a majority of the outstanding voting securities (as defined in the 1940 Act)
of the Fund or (b) by the vote of a majority of the entire Board. If the
question of continuance of the Agreement (or adoption of any new agreement) is
presented to 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
Under the Agreement, IMI may retain a subadviser with respect to the
Fund at IMI's own cost and expense. Accordingly, IMI, on behalf of the Fund, has
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 are paid monthly by IMI. Effective ______, 1999, Henderson
Investors serves as subadviser for the Fund's portfolio pursuant to the
Subadvisory Contract. As compensation for its services, Henderson is paid a fee
by IMI at the annual rate of 0.50% of the Fund's average net assets.
The Subadvisory Contract will continue in effect (subject to provisions
for earlier termination) 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 the Fund affected thereby.
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 [__________, 1998]. At a meeting held on [_________,
1998], the Board approved the Distribution Agreement on behalf of the Fund. IMDI
distributes shares of the Fund through broker-dealers who are members of the
National Association of Securities Dealers, Inc. and who have executed dealer
agreements with IMDI. IMDI distributes shares of the Fund on a continuous basis,
but reserves the right to suspend or discontinue distribution on that basis.
IMDI is not obligated to sell any specific amount of Fund shares.
The Fund has authorized IMDI to accept on its behalf purchase and
redemption orders. IMDI is also authorized to designate other intermediaries to
accept purchase and redemption orders on the Fund's behalf. The Fund will be
deemed to have received a purchase or redemption order 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.
Under the Distribution Agreement, the Fund bears, among other expenses,
the expenses of registering and qualifying its shares for sale under federal and
state securities laws and preparing and distributing to existing shareholders
periodic reports, proxy materials and prospectuses.
As of the date of this SAI, IMDI had not received any payments under
the Distribution Agreement with respect to the Fund.
The Distribution Agreement will continue in effect for successive
one-year periods, provided that such continuance is specifically approved at
least annually by the vote of a majority of the Independent Trustees, cast in
person at a meeting called for that purpose and by the vote of either a majority
of the entire Board or a majority of the outstanding voting securities of the
Fund. The Distribution Agreement may be terminated with respect to the Fund at
any time, without payment of any penalty, by IMDI on 60 days' written notice to
the Fund or by the Fund by vote of either a majority of the outstanding voting
securities of the Fund or a majority of the Independent Trustees on 60 days'
written notice to IMDI. The Distribution Agreement shall terminate automatically
in the event of its assignment.
IMDI may make payments for distribution assistance and for
administrative and accounting services from resources that may include the
management fees paid by the Fund. IMDI also may make payments to unaffiliated
broker-dealers for services rendered in the distribution of the Fund's shares.
To qualify for such payments, shares may be subject to a minimum holding period.
However, no such payments will be made to any dealer or broker if at the end of
each year the amount of shares held does not exceed a minimum amount. The
minimum holding period and minimum level of holdings will be determined from
time to time by IMDI.
If the Distribution Agreement is terminated (or not renewed) with
respect to any of the Ivy funds (or class of shares thereof), each may continue
in effect with respect to any other fund (or class of shares thereof) as to
which it has not been terminated (or have been renewed).
RULE 18F-3 PLAN. On February 23, 1995, the SEC adopted Rule 18f-3 under
the 1940 Act, which permits a registered open-end investment company to issue
multiple classes of shares in accordance with a written plan approved by the
investment company's board of directors/trustees and filed with the SEC. At a
meeting held on [_________, 1998], 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.
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.
As of the date of this SAI, no payments have been made with respect to
the provision of these services for the Fund.
TRANSFER AGENT AND DIVIDEND PAYING AGENT
Pursuant to a Transfer Agency and Shareholder Service Agreement, IMSC,
a wholly owned subsidiary of MIMI, is the transfer agent for the Fund. Under the
Agreement, the Fund pays a monthly fee at an annual rate of $20.00 per open
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. As
of the date of this SAI, no payments had been made by the Fund for transfer
agency services. Certain broker-dealers that maintain shareholder accounts with
the Fund through an omnibus account provide transfer agent and other
shareholder-related services that would otherwise be provided by IMSC if the
individual accounts that comprise the omnibus account were opened by their
beneficial owners directly. IMSC pays such broker-dealers a per account fee for
each open account within the omnibus account, or a fixed rate (e.g., .10%) fee,
based on the average daily net asset value of the omnibus account (or a
combination thereof).
As of the date of this SAI, no payments have been made with respect to
the provision of these services for the Fund.
ADMINISTRATOR
Pursuant to an Administrative Services Agreement, MIMI provides certain
administrative services to the Fund. As compensation for these services, the
Fund pays MIMI a monthly fee at the annual rate of [.10%] of the average daily
net asset value of its Advisor Class shares.
As of the date of this SAI, no payments have been made with respect to
the provision of these services for 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.
YEAR 2000 RISKS
The services provided to the Fund by IMI, MFC, 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, MFC, 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
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 twenty 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 Canada Fund, Ivy China Region Fund, Ivy US
Emerging Growth Fund (formerly Ivy Emerging Growth Fund until January 15, 1998),
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 (formerly Ivy High Yield Fund until ___________, 1998), Ivy South
America Fund (formerly Ivy Latin America Strategy Fund until January 15, 1998),
Ivy Developing Nations Fund (formerly Ivy New Century Fund until January 15,
1998) Ivy US Blue Chip Fund and Ivy Pan-Europe Fund, as well as Class I shares
for the Fund, Ivy Bond Fund, Ivy Global Science & Technology Fund, Ivy
International Fund II, Ivy International Fund, Ivy International Strategic Bond
Fund, and Ivy International Small Companies 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.
As of the date of this SAI, there were no Fund shares outstanding other
than those issued to the sole shareholder.
Under Massachusetts law, the Trust's shareholders could, under certain
circumstances, be held personally liable for the obligations of the Trust.
However, the Amended and Restated Declaration of Trust disclaims liability of
the shareholders, Trustees or officers of the Trust for acts or obligations of
the Trust, which are binding only on the assets and property of the Trust, and
requires that notice of the disclaimer be given in each contract or obligation
entered into or executed by the Trust or its Trustees. The Amended and Restated
Declaration of Trust provides for indemnification out of Fund property for all
loss and expense of any shareholder of the Fund held personally liable for the
obligations of the Fund. The risk of a shareholder of the Trust incurring
financial loss on account of shareholder liability is limited to circumstances
in which the Trust itself would be unable to meet its obligations and, thus,
should be considered remote. No series of the Trust is liable for the
obligations of any other series of the Trust.
NET ASSET VALUE
The 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 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.
PORTFOLIO TURNOVER
The Fund purchases securities that are believed by IMI to have above
average potential for capital appreciation. Common stocks are disposed of in
situations where it is believed that potential for such appreciation has
lessened or that other common stocks have a greater potential. Therefore, the
Fund may purchase and sell securities without regard to the length of time the
security is to be, or has been, held. A change in securities held by the Fund is
known as "portfolio turnover" and may involve the payment by the Fund of dealer
markup or underwriting commission and other transaction costs on the sale of
securities, as well as on the reinvestment of the proceeds in other securities.
The Fund's portfolio turnover rate is calculated by dividing the lesser of
purchases or sales of portfolio securities for the most recently completed
fiscal year by the monthly average of the value of the portfolio securities
owned by the Fund during that year. For purposes of determining the Fund's
portfolio turnover rate, all securities whose maturities at the time of
acquisition were one year or less are excluded. It is estimated that the
portfolio turnover rate for the Fund's initial fiscal year will not exceed 100%.
REDEMPTIONS
Shares of the Fund are redeemed at their net asset value next
determined after a proper redemption request has been received by IMSC.
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 Advisor Class accounts of shareholders who
have maintained an investment of less than $10,000 in the Fund for a period of
more than 12 months. All Advisor Class accounts below that minimum will be
redeemed simultaneously when MIMI deems it advisable. The $10,000 balance will
be determined by actual dollar amounts invested by the shareholder, unaffected
by market fluctuations. The Trust will notify any such shareholder by certified
mail of its intention to redeem such account, and the shareholder shall have 60
days from the date of such letter to invest such additional sums as shall raise
the value of such account above that minimum. Should the shareholder fail to
forward such sum within 60 days of the date of the Trust's letter of
notification, the Trust will redeem the shares held in such account and transmit
the redemption in value thereof to the shareholder. However, those shareholders
who are investing pursuant to the Automatic Investment Method will not be
redeemed automatically unless they have ceased making payments pursuant to the
plan for a period of at least six consecutive months, and these shareholders
will be given six-months' notice by the Trust before such redemption.
Shareholders in a qualified retirement, pension or profit sharing plan who wish
to avoid tax consequences must "rollover" any sum so redeemed into another
qualified plan within 60 days. The Trustees of the Trust may change the minimum
account size.
If a shareholder has given authorization for telephonic redemption
privilege, shares can be redeemed and proceeds sent by Federal wire to a single
previously designated bank account. Delivery of the proceeds of a wire
redemption request of $250,000 or more may be delayed by the Fund for up to
seven days if deemed appropriate under then-current market conditions. The Trust
reserves the right to change this minimum or to terminate the telephonic
redemption privilege without prior notice. The Trust cannot be responsible for
the efficiency of the Federal wire system of the shareholder's dealer of record
or bank. The shareholder is responsible for any charges by the shareholder's
bank.
The Fund employs reasonable procedures that require personal
identification prior to acting on redemption or exchange instructions
communicated by telephone to confirm that such instructions are genuine. In the
absence of such instructions, the Fund may be liable for any losses due to
unauthorized or fraudulent telephone instructions.
TAXATION
The following is a general discussion of certain tax rules thought to
be applicable with respect to the Fund. It is merely a summary and is not an
exhaustive discussion of all possible situations or of all potentially
applicable taxes. Accordingly, shareholders and prospective shareholders should
consult a competent tax adviser about the tax consequences to them of investing
in the Fund.
The Fund intends to be taxed as a regulated investment company under
Subchapter M of the Code. Accordingly, the Fund must, among other things, (a)
derive in each taxable year at least 90% of its gross income from dividends,
interest, payments with respect to certain securities loans, and gains from the
sale or other disposition of stock, securities or foreign currencies, or other
income derived with respect to its business of investing in such stock,
securities or currencies; and (b) diversify its holdings so that, at the end of
each fiscal quarter, (i) at least 50% of the market value of the Fund's assets
is represented by cash, U.S. Government securities, the securities of other
regulated investment companies and other securities, with such other securities
limited, in respect of any one issuer, to an amount not greater than 5% of the
value of the Fund's total assets and 10% of the outstanding voting securities of
such issuer, and (ii) not more than 25% of the value of its total assets is
invested in the securities of any one issuer (other than U.S. Government
securities and the securities of other regulated investment companies).
As a regulated investment company, the Fund generally will not be
subject to U.S. Federal income tax on its income and gains that it distributes
to shareholders, if at least 90% of its investment company taxable income (which
includes, among other items, dividends, interest and the excess of any
short-term capital gains over long-term capital losses) for the taxable year is
distributed. The Fund intends to distribute all such income.
Amounts not distributed on a timely basis in accordance with a calendar
year distribution requirement are subject to a nondeductible 4% excise tax at
the Fund level. To avoid the tax, the Fund must distribute during each calendar
year, (1) at least 98% of its ordinary income (not taking into account any
capital gains or losses) for the calendar year (2) at least 98% of its capital
gains in excess of its capital losses (adjusted for certain ordinary losses) for
a one-year period generally ending on October 31 of the calendar year, and (3)
all ordinary income and capital gains for previous years that were not
distributed during such years. To avoid application of the excise tax, the Fund
intends to make distributions in accordance with the calendar year distribution
requirements. A distribution will be treated as paid on December 31 of the
current calendar year if it is declared by the Fund in October, November or
December of the year with a record date in such a month and paid by the Fund
during January of the following year. Such distributions will be taxable to
shareholders in the calendar year the distributions are declared, rather than
the calendar year in which the distributions are received.
OPTIONS, FUTURES AND FOREIGN CURRENCY FORWARD CONTRACTS
The taxation of equity options and OTC options on debt securities is
governed by Code section 1234. Pursuant to Code section 1234, the premium
received by the Fund for selling a put or call option is not included in income
at the time of receipt. If the option expires, the premium is short-term capital
gain to the Fund. If the Fund enters into a closing transaction, the difference
between the amount paid to close out its position and the premium received is
short-term capital gain or loss. If a call option written by the Fund is
exercised, thereby requiring the Fund to sell the underlying security, the
premium will increase the amount realized upon the sale of such security and any
resulting gain or loss will be a capital gain or loss, and will be long-term or
short-term depending upon the holding period of the security. With respect to a
put or call option that is purchased by the Fund, if the option is sold, any
resulting gain or loss will be a capital gain or loss, and will be long-term or
short-term, depending upon the holding period of the option. If the option
expires, the resulting loss is a capital loss and is long-term or short-term,
depending upon the holding period of the option. If the option is exercised, the
cost of the option, in the case of a call option, is added to the basis of the
purchased security and, in the case of a put option, reduces the amount realized
on the underlying security in determining gain or loss.
Some of the options, futures and foreign currency forward contracts in
which the Fund may invest may be "section 1256 contracts." Gains (or losses) on
these contracts generally are considered to be 60% long-term and 40% short-term
capital gains or losses; however, as described below, foreign currency gains or
losses arising from certain section 1256 contracts are ordinary in character.
Also, section 1256 contracts held by the Fund at the end of each taxable year
(and on certain other dates prescribed in the Code) are "marked-to-market" with
the result that unrealized gains or losses are treated as though they were
realized.
The transactions in options, futures and forward contracts undertaken
by the Fund may result in "straddles" for Federal income tax purposes. The
straddle rules may affect the character of gains or losses realized by the Fund.
In addition, losses realized by the Fund on positions that are part of a
straddle may be deferred under the straddle rules, rather than being taken into
account in calculating the taxable income for the taxable year in which such
losses are realized. Because only a few regulations implementing the straddle
rules have been promulgated, the consequences of such transactions to the Fund
are not entirely clear. The straddle rules may increase the amount of short-term
capital gain realized by the Fund, which is taxed as ordinary income when
distributed to shareholders.
The Fund may make one or more of the elections available under the Code
which are applicable to straddles. If the Fund makes any of the elections, the
amount, character and timing of the recognition of gains or losses from the
affected straddle positions will be determined under rules that vary according
to the election(s) made. The rules applicable under certain of the elections may
operate to accelerate the recognition of gains or losses from the affected
straddle positions.
Because application of the straddle rules may affect the character of
gains or losses, defer losses and/or accelerate the recognition of gains or
losses from the affected straddle positions, the amount which must be
distributed to shareholders as ordinary income or long-term capital gain may be
increased or decreased substantially as compared to a fund that did not engage
in such transactions.
Notwithstanding any of the foregoing, the Fund may recognize gain (but
not loss) from a constructive sale of certain "appreciated financial positions"
if the Fund enters into a short sale, offsetting notional principal contract,
futures or forward contract transaction with respect to the appreciated position
or substantially identical property. Appreciated financial positions subject to
this constructive sale treatment are interests (including options, futures and
forward contracts and short sales) in stock, partnership interests, certain
actively traded trust instruments and certain debt instruments. Constructive
sale treatment of appreciated financial positions does not apply to certain
transactions closed in the 90-day period ending with the 30th day after the
close of the Fund's taxable year, if certain conditions are met.
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 constitutes 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
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 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 Advisor Class shares during the designated period.
Standardized Return quotations for the Fund do not take into account any
required payments for federal or state income taxes. Standardized Return
quotations are determined to the nearest 1/100 of 1%.
The Fund may, from time to time, include in advertisements, promotional
literature or reports to shareholders or prospective investors total return data
that are not calculated according to the formula set forth above
("Non-Standardized Return").
CUMULATIVE TOTAL RETURN. Cumulative total return is the cumulative rate
of return on a hypothetical initial investment of $1,000 in a specific class of
shares of the Fund for a specified period. Cumulative total return quotations
reflect changes in the price of the Fund's shares and assume that all dividends
and capital gains distributions during the period were reinvested in 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 CORPORATION ("S&P") AND MOODY'S INVESTORS
SERVICE, INC. ("MOODY'S") CORPORATE BOND AND COMMERCIAL PAPER RATINGS
[From "Moody's Bond Record," November 1994 Issue (Moody's Investors Service, New
York, 1994), and "Standard & Poor's Municipal Ratings Handbook," October 1997
Issue (McGraw Hill, New York, 1997).]
MOODY'S:
(a) CORPORATE BONDS. Bonds rated Aaa by Moody's are judged by Moody's
to be of the best quality, carrying the smallest degree of investment risk.
Interest payments are protected by a large or exceptionally stable margin and
principal is secure. While the various protective elements are likely to change,
such changes as can be visualized are most unlikely to impair the fundamentally
strong position of such issues. Bonds rated Aa are judged by Moody's to be of
high quality by all standards. Aa bonds are rated lower than Aaa bonds because
margins of protection may not be as large as those of Aaa bonds, or fluctuations
of protective elements may be of greater amplitude, or there may be other
elements present which make the long-term risks appear somewhat larger than
those applicable to Aaa securities. Bonds which are rated A by Moody's possess
many favorable investment attributes and are to be considered as upper
medium-grade obligations. Factors giving security to principal and interest are
considered adequate, but elements may be present which suggest a susceptibility
to impairment sometime in the future. Bonds rated Baa by Moody's are considered
medium-grade obligations (i.e., they are neither highly protected nor poorly
secured). Interest payments and principal security appear adequate for the
present, but certain protective elements may be lacking or may be
characteristically unreliable over any great length of time. Such bonds lack
outstanding investment characteristics and in fact have speculative
characteristics as well. Bonds which are rated Ba are judged to have speculative
elements; their future cannot be considered well-assured. Often the protection
of interest and principal payments may be very moderate and thereby not well
safeguarded during both good and bad times over the future. Uncertainty of
position characterizes bonds in this class. Bonds which are rated B generally
lack characteristics of the desirable investment. Assurance of interest and
principal payments of or maintenance of other terms of the contract over any
long period of time may be small.
Bonds which are rated Caa are of poor standing. Such issues may be in default or
there may be present elements of danger with respect to principal or interest.
Bonds which are rated Ca represent obligations which are speculative in a high
degree. Such issues are often in default or have other marked shortcomings.
Bonds which are rated C are the lowest rated class of bonds and issues so rated
can be regarded as having extremely poor prospects of ever attaining any real
investment standing.
(b) COMMERCIAL PAPER. The Prime rating is the highest commercial paper
rating assigned by Moody's. Among the factors considered by Moody's in assigning
ratings are the following: (1) evaluation of the management of the issuer; (2)
economic evaluation of the issuer's industry or industries and an appraisal of
speculative-type risks which may be inherent in certain areas; (3) evaluation of
the issuer's products in relation to competition and customer acceptance; (4)
liquidity; (5) amount and quality of long-term debt; (6) trend of earnings over
a period of ten years; (7) financial strength of a parent company and the
relationships which exist with the issuer; and (8) recognition by management of
obligations which may be present or may arise as a result of public interest
questions and preparations to meet such obligations. Issuers within this Prime
category may be given ratings 1, 2 or 3, depending on the relative strengths of
these factors. The designation of Prime-1 indicates the highest quality
repayment capacity of the rated issue. Issuers rated Prime-2 are deemed to have
a strong ability for repayment while issuers voted Prime-3 are deemed to have an
acceptable ability for repayment. Issuers rated Not Prime do not fall within any
of the Prime rating categories.
S&P:
(a) CORPORATE BONDS. An S&P corporate debt rating is a current
assessment of the creditworthiness of an obligor with respect to a specific
obligation. The ratings are based on current information furnished by the issuer
or obtained by S&P from other sources it considers reliable. The ratings
described below may be modified by the addition of a plus or minus sign to show
relative standing within the major rating categories.
Debt rated AAA has the highest rating assigned by S&P. Capacity to pay
interest and repay principal is extremely strong. Debt rated AA is judged by S&P
to have a very strong capacity to pay interest and repay principal and differs
from the highest rated issues only in small degree. Debt rated A by S&P has a
strong capacity to pay interest and repay principal, although it is somewhat
more susceptible to the adverse effects of changes in circumstances and economic
conditions than debt in higher rated categories.
Debt rated BBB by S&P is regarded by S&P as having an adequate capacity
to pay interest and repay principal. Although such bonds normally exhibit
adequate protection parameters, adverse economic conditions or changing
circumstances are more likely to lead to a weakened capacity to pay interest and
repay principal than debt in higher rated categories.
Debt rated BB, B, CCC, CC and C is regarded as having predominately
speculative characteristics with respect to capacity to pay interest and repay
principal. BB indicates the least degree of speculation and C the highest. While
such debt will likely have some quality and protective characteristics, these
are outweighed by large uncertainties or exposures to adverse conditions. Debt
rated BB has less near-term vulnerability to default than other speculative
issues. However, it faces major ongoing uncertainties or exposure to adverse
business, financial or economic conditions which could lead to inadequate
capacity to meet timely interest and principal payments. The BB rating category
is also used for debt subordinated to senior debt that is assigned an actual or
implied BBB- rating. Debt rated B has a greater vulnerability to default but
currently has the capacity to meet interest payments and principal repayments.
Adverse business, financial, or economic conditions will likely impair capacity
or willingness to pay interest and repay principal. The B rating category is
also used for debt subordinated to senior debt that is assigned an actual or
implied BB or BB- rating. Debt rated CCC has a currently identifiable
vulnerability to default, and is dependent upon favorable business, financial,
and economic conditions to meet timely payment of interest and repayment of
principal. In the event of adverse business, financial or economic conditions,
it is not likely to have the capacity to pay interest and repay principal. The
CCC rating category is also used for debt subordinated to senior debt that is
assigned an actual or implied B or B- rating. The rating CC typically is applied
to debt subordinated to senior debt which is assigned an actual or implied CCC
debt rating. The rating C typically is applied to debt subordinated to senior
debt which is assigned an actual or implied CCC- debt rating. The C rating may
be used to cover a situation where a bankruptcy petition has been filed, but
debt service payments are continued.
The rating CI is reserved for income bonds on which no interest is
being paid. Debt rated D is in payment default. The D rating category is used
when interest payments or principal payments are not made on the date due, even
if the applicable grace period has not expired, unless S&P believes that such
payments will be made during such grace period. The D rating also will be used
upon the filing of a bankruptcy petition if debt service payments are
jeopardized.
(b) COMMERCIAL PAPER. An S&P commercial paper rating is a current
assessment of the likelihood of timely payment of debt considered short-term in
the relevant market.
The commercial paper rating A-1 by S&P indicates that the degree of
safety regarding timely payment is strong. Those issues determined to possess
extremely strong safety characteristics are denoted with a plus sign (+)
designation. For commercial paper with an A-2 rating, the capacity for timely
payment on issues is satisfactory, but not as high as for issues designated A-1.
Issues rated A-3 have adequate capacity for timely payment, but are more
vulnerable to the adverse effects of changes in circumstances than obligations
carrying higher designations.
Issues rated B are regarded as having only speculative capacity for
timely payment. The C rating is assigned to short-term debt obligations with a
doubtful capacity for payment. Debt rated D is in payment default. The D rating
category is used when interest payments or principal payments are not made on
the date due, even if the applicable grace period has not expired, unless S&P
believes such payments will be made during such grace period.
<PAGE>
APPENDIX B
STATEMENT OF ASSETS AND LIABILITIES
AS OF [________, 1999]
AND REPORT OF INDEPENDENT ACCOUNTANTS
PART C. OTHER INFORMATION
Item 24: Financial Statements and Exhibits
(a) Financial Statements:
Included in Part A: None
Included in Part B: Statement of Assets and Liabilities and
Report of Independent Accountants to be filed by amendment.
(b) Exhibits:
1. (a) 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.
(a)(1) 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.
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.
(c) 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.
(d) 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.
(e) Redesignation of Shares (Ivy Growth with
Income Fund--Class A) and Establishment and
Designation of Additional Class (Ivy Growth
with Income Fund--Class C), filed with
Post-Effective Amendment No. 102 to
Registration Statement No. 2-17613 and
incorporated by reference herein.
(f) Redesignation of Shares (Ivy Emerging Growth
Fund--Class A, Ivy Growth Fund--Class A and
Ivy International Fund--Class A), filed with
Post-Effective Amendment No. 102 to
Registration Statement No. 2-17613 and
incorporated by reference herein.
(g) Establishment and Designation of Additional
Series (Ivy China Region Fund), filed with
Post-Effective Amendment No. 102 to
Registration Statement No. 2-17613 and
incorporated by reference herein.
(h) Establishment and Designation of Additional
Class (Ivy China Region Fund--Class B, Ivy
Emerging Growth Fund--Class B, Ivy Growth
Fund--Class B, Ivy Growth with Income
Fund--Class B and Ivy International
Fund--Class B), filed with Post-Effective
Amendment No. 102 to Registration Statement
No. 2-17613 and incorporated by reference
herein.
(i) Establishment and Designation of Additional
Class (Ivy International Fund--Class I),
filed with Post-Effective Amendment No. 102
to Registration Statement No. 2-17613 and
incorporated by reference herein.
(j) Establishment and Designation of Series and
Classes (Ivy Latin American Strategy
Fund--Class A and Class B, Ivy New Century
Fund--Class A and Class B), filed with
Post-Effective Amendment No. 102 to
Registration Statement No. 2-17613 and
incorporated by reference herein.
(k) Establishment and Designation of Series and
Classes (Ivy International Bond Fund--Class
A and Class B), filed with Post-Effective
Amendment No. 102 to Registration Statement
No. 2-17613 and incorporated by reference
herein.
(l) Establishment and Designation of Series and
Classes (Ivy Bond Fund, Ivy Canada Fund, Ivy
Global Fund, Ivy Short-Term 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.
(m) 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.
(n) Redesignation of Shares (Ivy Money Market
Fund--Class A and Ivy Money Market Fund
--Class B), filed with Post-Effective
Amendment No. 84 to Registration
Statement No. 2-17613 and
incorporated by reference herein.
(o) Form of Establishment and
Designation of Additional Class (Ivy
Bond Fund--Class C; Ivy Canada
Fund--Class C; Ivy China Region
Fund--Class C; Ivy Emerging Growth
Fund--Class C; Ivy Global Fund--Class C;
Ivy Growth Fund--Class C; Ivy Growth
with Income Fund--Class C; Ivy
International Fund--Class C; Ivy Latin
America Strategy Fund--Class C; Ivy
International Bond Fund--Class C; Ivy
Money Market Fund--Class C; Ivy New
Century Fund--Class C), filed with
Post-Effective Amendment No. 84 to
Registration Statement No. 2-17613 and
incorporated by reference herein.
(p) Establishment and Designation of Series and
Classes (Ivy Global Science & Technology
Fund--Class A, Class B, Class C and Class
I), filed with Post-Effective Amendment No.
86 to Registration Statement No. 2-17613 and
incorporated by reference herein.
(q) Establishment and designation of Series and
Classes (Ivy Global Natural Resources
Fund--Class A, Class B and Class C; Ivy Asia
Pacific Fund--Class A, Class B and Class C;
Ivy International Small Companies
Fund--Class A, Class B, Class C and Class
I), filed with Post-Effective Amendment No.
89 to Registration Statement No. 2-17613 and
incorporated by reference herein.
(r) Establishment and designation of Series and
Classes (Ivy Pan-Europe Fund--Class A, Class
B and Class C), filed with Post-Effective
Amendment No. 92 to Registration Statement
No. 2-17613 and incorporated by reference
herein.
(s) Establishment and designation of Series and
Classes (Ivy International Fund II--Class A,
Class B, Class C and Class I), filed with
Post-Effective Amendment No. 94 to
Registration Statement No. 2-17613 and
incorporated by reference herein.
(t) Form of Establishment and
Designation of Additional Class (Ivy
Asia Pacific Fund--Advisor Class; Ivy
Bond Fund--Advisor Class; Ivy Canada
Fund--Advisor Class; Ivy China Region
Fund--Advisor Class; Ivy Emerging Growth
Fund--Advisor Class; Ivy Global
Fund--Advisor Class; Ivy Global Natural
Resources Fund--Advisor Class; Ivy
Global Science & Technology
Fund--Advisor Class; Ivy Growth
Fund--Advisor Class; Ivy Growth with
Income Fund--Advisor Class; Ivy
International Bond Fund--Advisor Class;
Ivy International Fund II--Advisor
Class; Ivy International Small Companies
Fund--Advisor Class; Ivy Latin America
Strategy Fund--Advisor Class; Ivy New
Century Fund--Advisor Class; Ivy
Pan-Europe Fund--Advisor Class), filed
with Post-Effective Amendment No. 96 to
Registration Statement No. 2-17613 and
incorporated by reference herein.
(u) Redesignations of Series and Classes (Ivy
Emerging Growth Fund redesignated as Ivy US
Emerging Growth Fund; Ivy New Century Fund
redesignated as Ivy Developing Nations Fund;
and, Ivy Latin America Strategy Fund
redesignated as Ivy South America Fund),
filed with Post-Effective Amendment No. 97
to Registration Statement 2-17613 and
incorporated by reference herein.
(v) Redesignation of Series and Classes and
Establishment and Designation of Additional
Class (Ivy International Bond Fund
redesignated as Ivy High Yield Fund; Class I
shares of Ivy High Yield Fund established),
filed with Post-Effective Amendment No. 98
to Registration Statement 2-17613 and
incorporated by reference herein.
(w) 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.
(x) Redesignation of Series and Classes (Ivy
High Yield Fund redesignated as Ivy
International Strategic Bond Fund) to be
filed by amendment.
(y) 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.
2. By-Laws, as amended, filed with Post-Effective
Amendment No. 102 to Registration Statement No.
2-17613 and incorporated by reference herein.
3. Not Applicable
4. (a) Specimen Securities for Ivy Growth Fund,
Ivy Growth with Income Fund, Ivy
International Fund and Ivy Money Market
Fund, filed with Post-Effective Amendment
No. 49 to Registration Statement No. 2-17613
and incorporated by reference herein.
Specimen Security for Ivy Emerging Growth
Fund, filed with Post-Effective Amendment
No. 70 to Registration Statement No.
2-17613 and incorporated by reference
herein.
(c) Specimen Security for Ivy China Region Fund,
filed with Post-Effective Amendment No. 74
to Registration Statement No. 2-17613 and
incorporated by reference herein.
(d) Specimen Security for Ivy Latin American
Strategy Fund, filed with Post-Effective
Amendment No. 75 to Registration Statement
No. 2-17613 and incorporated by reference
herein.
(e) Specimen Security for Ivy New Century Fund,
filed with Post-Effective Amendment No. 75
to Registration Statement No. 2-17613 and
incorporated by reference herein.
(f) Specimen Security for Ivy International Bond
Fund, filed with Post-Effective Amendment
No. 76 to Registration Statement No. 2-17613
and incorporated by reference herein.
(g) Specimen Securities for Ivy Bond Fund, Ivy
Canada Fund, Ivy Global Fund, and Ivy
Short-Term U.S. Government Securities Fund,
filed with Post-Effective Amendment No. 77
to Registration Statement No. 2-17613 and
incorporated by reference herein.
5. (a) Master Business Management and
Investment Advisory Agreement between Ivy
Fund and Ivy Management, Inc. and
Supplements for Ivy Growth Fund, Ivy Growth
with Income Fund, Ivy International Fund and
Ivy Money Market Fund, filed with
Post-Effective Amendment No. 102 to
Registration Statement No. 2-17613 and
incorporated by reference herein.
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.
(c) Assignment Agreement relating to Subadvisory
Contract, filed with Post-Effective
Amendment No. 102 to Registration Statement
No. 2-17613 and incorporated by reference
herein.
(d) Business Management and Investment
Advisory Agreement Supplement for Ivy
Emerging Growth Fund, filed with
Post-Effective Amendment No. 102 to
Registration Statement No. 2-17613 and
incorporated by reference herein.
(e) Business Management and Investment
Advisory Agreement Supplement for Ivy
China Region Fund, filed with
Post-Effective Amendment No. 102 to
Registration Statement No. 2-17613 and
incorporated by reference herein.
(f) 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.
(g) 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.
(h) 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.
(i) Business Management and Investment
Advisory Agreement Supplement for Ivy
Bond Fund, Ivy Global Fund and Ivy
Short-Term U.S. Government Securities
Fund, filed with Post-Effective
Amendment No. 102 to Registration
Statement No. 2-17613 and incorporated
by reference herein.
(j) Master Business Management Agreement
between Ivy Fund and Ivy Management,
Inc., filed with Post-Effective
Amendment No. 102 to Registration
Statement No. 2-17613 and incorporated
by reference herein.
(k) 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.
(l) 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.
(m) Form of Supplement to Master Business
Management and Investment Advisory
Agreement between Ivy Fund and Ivy
Management, Inc. (Ivy Global Science &
Technology Fund), filed with
Post-Effective Amendment No. 86 to
Registration Statement No. 2-17613 and
incorporated by reference herein.
(n) Form of Supplement to Master Business
Management and Investment Advisory
Agreement between Ivy Fund and Ivy
Management, Inc. (Ivy Asia Pacific Fund
and Ivy International Small Companies
Fund), filed with Post-Effective
Amendment No. 89 to Registration
Statement No. 2-17613 and incorporated
by reference herein.
(o) Form of Supplement to Master Business
Management Agreement between Ivy Fund
and Ivy Management, Inc. (Ivy Global
Natural Resources Fund), filed with
Post-Effective Amendment No. 89 to
Registration Statement No. 2-17613 and
incorporated by reference herein.
(p) Form of Supplement to Investment
Advisory Agreement between Ivy Fund and
Mackenzie Financial Corporation (Ivy
Global Natural Resources Fund), filed
with Post-Effective Amendment No. 89 to
Registration Statement No. 2-17613 and
incorporated by reference herein.
(q) Form of Supplement to Master Business
Management and Investment Advisory
Agreement between Ivy Fund and Ivy
Management, Inc. (Ivy Pan-Europe Fund),
filed with Post-Effective Amendment No.
94 to Registration Statement No. 2-17613
and incorporated by reference herein.
(r) Form of Supplement to Master Business
Management and Investment Advisory
Agreement between Ivy Fund and Ivy
Management, Inc. (Ivy International Fund
II), filed with Post-Effective Amendment
No. 94 to Registration Statement No.
2-17613 and incorporated by reference
herein.
(s) Addendum to Master Business Management
and Investment Advisory Agreement
between Ivy Fund and Ivy Management,
Inc. (Ivy Developing Nations Fund, Ivy
South America Fund, Ivy US Emerging
Growth Fund), filed with Post-Effective
Amendment No. 98 to Registration
Statement No. 2-17613 and incorporated
by reference herein.
(t) 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.
(u) 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.
(v) 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.
(w) 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.
(x) Subadvisory Agreement between Ivy
Management, Inc. and Henderson
Investment Management Limited to be
filed by amendment.
6. (a) Dealer Agreement, as amended, filed with
Post-Effective Amendment No. 102 to
Registration Statement No. 2-17613 and
incorporated by reference herein.
Amended and Restated Distribution
Agreement, filed with Post-Effective
Amendment No. 102 to Registration
Statement No. 2-17613 and incorporated
by reference herein.
(c) Addendum to Amended and Restated
Distribution Agreement, filed with
Post-Effective Amendment No. 102 to
Registration Statement No. 2-17613 and
incorporated by reference herein.
(d) Addendum to Amended and Restated
Distribution Agreement (Ivy Money Market
Fund--Class A and Class B), filed with
Post-Effective Amendment No. 84 to
Registration Statement No. 2-17613 and
incorporated by reference herein.
(e) Form of Addendum to Amended and Restated
Distribution Agreement (Class C), filed with
Post-Effective Amendment No. 84 to
Registration Statement No. 2-17613 and
incorporated by reference herein.
(f) Form of Addendum to Amended and Restated
Distribution Agreement (Ivy Global Science &
Technology Fund--Class A, Class B, Class C
and Class I), filed with Post-Effective
Amendment No. 86 to Registration Statement
No. 2-17613 and incorporated by reference
herein.
(g) Form of Addendum to Amended and Restated
Distribution Agreement (Ivy Global Natural
Resources Fund--Class A, Class B and Class
C; Ivy Asia Pacific Fund--Class A, Class B
and Class C; Ivy International Small
Companies Fund--Class A, Class B, Class C,
and Class I), filed with Post-Effective
Amendment No. 89 to Registration Statement
No. 2-17613 and incorporated by reference
herein.
(h) Form of Addendum to Amended and Restated
Distribution Agreement (Ivy Pan-Europe
Fund--Class A, Class B and Class C), filed
with Post-Effective Amendment No. 94 to
Registration Statement No. 2-17613 and
incorporated by reference herein.
(i) Form of Addendum to Amended and Restated
Distribution Agreement (Ivy International
Fund II--Class A, Class B, Class C and Class
I), filed with Post-Effective Amendment No.
94 to Registration Statement No. 2-17613 and
incorporated by reference herein.
(j) Form of Addendum to Amended and Restated
Distribution Agreement (Advisor Class),
filed with Post-Effective Amendment No.
96 to Registration Statement No. 2-17613
and incorporated by reference herein.
(k) Addendum to Amended and Restated
Distribution Agreement (Ivy Developing
Nations Fund, Ivy South America Fund, Ivy US
Emerging Growth Fund), filed with
Post-Effective Amendment No. 98 to
Registration Statement No. 2-17613 and
incorporated by reference herein.
(l) 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.
(m) 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.
(n) Addendum to Amended and Restated
Distribution Agreement (Ivy
International Strategic Bond Fund) to be
filed by amendment.
(o) Addendum to Amended and Restated
Distribution Agreement (Ivy European
Opportunities Fund) to be filed by
amendment.
7. Not Applicable
8. 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.
9. (a) Master Administrative Services
Agreement between Ivy Fund and Mackenzie
Investment Management Inc. and
Supplements for Ivy Growth Fund, Ivy
Growth with Income Fund, Ivy
International Fund and Ivy Money Market
Fund, filed with Post-Effective
Amendment No. 102 to Registration
Statement No. 2-17613 and incorporated
by reference herein.
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.
(c) 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.
(c)(1) 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.
(d) 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.
(e) 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.
(f) Master Fund Accounting Services Agreement
between Ivy Fund and Mackenzie Investment
Management Inc. and Supplements for Ivy
Growth Fund, Ivy Emerging Growth Fund and
Ivy Money Market Fund, filed with
Post-Effective Amendment No. 102 to
Registration Statement No. 2-17613 and
incorporated by reference herein.
(g) Fund Accounting Services Agreement
Supplement for Ivy Growth with Income Fund,
filed with Post-Effective Amendment No. 102
to Registration Statement No. 2-17613 and
incorporated by reference herein.
(h) Fund Accounting Services Agreement
Supplement for Ivy China Region Fund,
filed with Post-Effective Amendment No.
102 to Registration Statement No.
2-17613 and incorporated by reference
herein.
(i) Transfer Agency and Shareholder Services
Agreement between Ivy Fund and Ivy
Management, Inc., filed with Post-Effective
Amendment No. 102 to Registration Statement
No. 2-17613 and incorporated by reference
herein.
(j) Addendum to Transfer Agency and Shareholder
Services Agreement, filed with
Post-Effective Amendment No. 102 to
Registration Statement No. 2-17613 and
incorporated by reference herein.
(k) Assignment Agreement relating to
Transfer Agency and Shareholder Services
Agreement, filed with Post-Effective
Amendment No. 102 to Registration
Statement No. 2-17613 and incorporated
by reference herein.
(l) 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.
(m) 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.
(n) 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.
(o) 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.
(o)(1) 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.
(p) 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.
(q) 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.
(r) 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.
(s) 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.
(t) Administrative Services Agreement
Supplement for Ivy Bond Fund, Ivy Global
Fund and Ivy Short-Term U.S. Government
Securities Fund, filed with
Post-Effective Amendment No. 102 to
Registration Statement No. 2-17613 and
incorporated by reference herein.
(u) Fund Accounting Services Agreement
Supplement for Ivy Bond Fund, Ivy Global
Fund and Ivy Short-Term U.S. Government
Securities Fund, filed with
Post-Effective Amendment No. 102 to
Registration Statement No. 2-17613 and
incorporated by reference herein.
(v) Form of Administrative Services Agreement
Supplement (Class C) for Ivy Bond Fund, Ivy
Canada Fund, Ivy China Region Fund, Ivy
Emerging Growth Fund, Ivy Global Fund, Ivy
Growth Fund, Ivy Growth with Income Fund,
Ivy International Fund, Ivy International
Bond Fund, Ivy Latin America Strategy Fund,
Ivy Money Market Fund and Ivy New Century
Fund, filed with Post-Effective Amendment
No. 84 to Registration Statement No. 2-17613
and incorporated by reference herein.
(w) Form of Addendum to Transfer Agency and
Shareholder Services Agreement (Class
C), filed with Post-Effective Amendment
No. 84 to Registration Statement No.
2-17613 and incorporated by reference
herein.
(x) Form of Administrative Services
Agreement Supplement for Ivy Global
Science & Technology Fund, filed with
Post-Effective Amendment No. 86 to
Registration Statement No. 2-17613 and
incorporated by reference herein.
(y) Form of Fund Accounting Services
Agreement Supplement for Ivy Global
Science & Technology Fund, filed with
Post-Effective Amendment No. 86 to
Registration Statement No. 2-17613 and
incorporated by reference herein.
(z) Form of Addendum to Transfer Agency and
Shareholder Services Agreement for Ivy
Global Science & Technology Fund, filed
with Post-Effective Amendment No. 86 to
Registration Statement No. 2-17613 and
incorporated by reference herein.
(aa) Form of Administrative Services
Agreement Supplement for Ivy Global
Natural Resources Fund, Ivy Asia Pacific
Fund and Ivy International Small
Companies Fund, filed with
Post-Effective Amendment No. 89 to
Registration Statement No. 2-17613 and
incorporated by reference herein.
(bb) Form of Fund Accounting Services
Agreement Supplement for Ivy Global
Natural Resources Fund, Ivy Asia Pacific
Fund and Ivy International Small
Companies Fund, filed with
Post-Effective Amendment No. 89 to
Registration Statement No. 2-17613 and
incorporated by reference herein.
(cc) Form of Addendum to Transfer Agency and
Shareholder Services Agreement for Ivy
Global Natural Resources Fund, Ivy Asia
Pacific Fund and Ivy International Small
Companies Fund, filed with
Post-Effective Amendment No. 89 to
Registration Statement No. 2-17613 and
incorporated by reference herein.
(dd) Form of Administrative Services
Agreement Supplement for Ivy Pan-Europe
Fund, filed with Post-Effective
Amendment No. 94 to Registration
Statement No. 2-17613 and incorporated
by reference herein.
(ee) Form of Fund Accounting Services
Agreement Supplement for Ivy Pan-Europe
Fund, filed with Post-Effective
Amendment No. 94 to Registration
Statement No. 2-17613 and incorporated
by reference herein.
(ff) Form of Addendum to Transfer Agency and
Shareholder Services Agreement for Ivy
Pan-Europe Fund, filed with
Post-Effective Amendment No. 94 to
Registration Statement No. 2-17613 and
incorporated by reference herein.
(gg) Form of Administrative Services
Agreement Supplement for Ivy
International Fund II, filed with
Post-Effective Amendment No. 94 to
Registration Statement No. 2-17613 and
incorporated by reference herein.
(hh) Form of Fund Accounting Services
Agreement Supplement for Ivy
International Fund II, filed with
Post-Effective Amendment No. 94 to
Registration Statement No. 2-17613 and
incorporated by reference herein.
(ii) Form of Addendum to Transfer Agency and
Shareholder Services Agreement for Ivy
International Fund II, filed with
Post-Effective Amendment No. 94 to
Registration Statement No. 2-17613 and
incorporated by reference herein.
(jj) Form of Administrative Services
Agreement Supplement (Advisor Class) for
Ivy Asia Pacific Fund, Ivy Bond Fund,
Ivy Canada Fund, Ivy China Region Fund,
Ivy Emerging Growth Fund, Ivy Global
Fund, Ivy Global Natural Resources Fund,
Ivy Global Science & Technology Fund,
Ivy Growth Fund, Ivy Growth with Income
Fund, Ivy International Bond Fund, Ivy
International Fund II, Ivy International
Small Companies Fund, Ivy Latin America
Strategy Fund, Ivy New Century Fund and
Ivy Pan-Europe Fund, filed with
Post-Effective Amendment No. 96 to
Registration Statement No. 2-17613 and
incorporated by reference herein.
(kk) Form of Addendum to Transfer Agency and
Shareholder Services Agreement (Advisor
Class), filed with Post-Effective
Amendment No. 96 to Registration
Statement No. 2-17613 and incorporated
by reference herein.
(ll) Addendum to Administrative Services
Agreement (Ivy Developing Nations Fund,
Ivy South America Fund, Ivy US Emerging
Growth Fund), filed with Post-Effective
Amendment No. 98 to Registration
Statement No. 2-17613 and incorporated
by reference herein.
(mm) 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.
(nn) Addendum to Transfer Agency and
Shareholder Services Agreement (Ivy
Developing Nations Fund, Ivy South
America Fund, Ivy US Emerging Growth
Fund, Ivy High Yield Fund), filed with
Post-Effective Amendment No. 98 to
Registration Statement No. 2-17613 and
incorporated by reference herein.
(oo) 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.
(pp) 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.
(qq) 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).
(rr) 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.
(ss) 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.
(tt) 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.
(uu) Addendum to Transfer Agency and
Shareholder Services Agreement (Ivy
International Strategic Bond Fund) to be
filed by amendment.
(vv) Addendum to Fund Accounting Services
Agreement (Ivy International Strategic
Bond Fund) to be filed by amendment.
(ww) Addendum to Administrative Services
Agreement (Ivy International Strategic
Bond Fund) to be filed by amendment.
(xx) Addendum to Transfer Agency and
Shareholder Services Agreement (Ivy
European Opportunities Fund) to be filed
by amendment.
(yy) Addendum to Fund Accounting Services
Agreement (Ivy European Opportunities
Fund) to be filed by amendment.
(zz) Addendum to Administrative Services
Agreement (Ivy European Opportunities
Fund) to be filed by amendment.
10. Opinion and consent of counsel to be
filed by amendment.
11. (a) Consent of independent accountants
to be filed by amendment.
(b)Report of independent accountants to
be filed by amendment.
12. Not applicable.
13. Not applicable.
14. Not applicable.
15. (a) Amended and Restated Distribution Plan
for Class A shares of Ivy China Region Fund,
Ivy Growth Fund, Ivy Growth with Income
Fund, Ivy International Fund and Ivy
Emerging Growth Fund, filed with
Post-Effective Amendment No. 102 to
Registration Statement No. 2-17613 and
incorporated by reference herein.
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.
(c) 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.
(d) 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.
(d)(1) 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.
(e) 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.
(e)(1) 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.
(f) 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.
(g) 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.
(h) 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.
(i) Form of Supplement to Distribution Plan for
Ivy Growth with Income Fund Class C Shares
(Redesignation as Class D Shares), filed
with Post-Effective Amendment No. 84 to
Registration Statement No. 2-17613 and
incorporated by reference herein.
(j) Form of Distribution Plan for Class C shares
of Ivy Bond Fund, Ivy Canada Fund, Ivy China
Region Fund, Ivy Emerging Growth Fund, Ivy
Global Fund, Ivy Growth Fund, Ivy Growth
with Income Fund, Ivy International Fund,
Ivy International Bond Fund, Ivy Latin
America Strategy Fund and Ivy New Century
Fund, filed with Post-Effective Amendment
No. 85 to Registration Statement No. 2-17613
and incorporated by reference herein.
(k) Form of Supplement to Master Amended and
Restated Distribution Plan for Ivy Fund
Class A Shares (Ivy Global Science &
Technology Fund), filed with Post-Effective
Amendment No. 87 to Registration Statement
No. 2-17613 and incorporated by reference
herein.
(l) Form of Supplement to Distribution Plan for
Ivy Fund Class B Shares (Ivy Global Science
& Technology Fund), filed with
Post-Effective Amendment No. 87 to
Registration Statement No. 2-17613 and
incorporated by reference herein.
(m) Form of Supplement to Distribution Plan for
Ivy Fund Class C Shares (Ivy Global Science
& Technology Fund), filed with
Post-Effective Amendment No. 87 to
Registration Statement No. 2-17613 and
incorporated by reference herein.
(n) Form of Supplement to Master Amended and
Restated Distribution Plan for Ivy Fund
Class A Shares (Ivy Global Natural Resources
Fund, Ivy Asia Pacific Fund and Ivy
International Small Companies Fund), filed
with Post-Effective Amendment No. 89 to
Registration Statement No. 2-17613 and
incorporated by reference herein.
(o) Form of Supplement to Distribution Plan for
Ivy Fund Class B Shares (Ivy Global Natural
Resources Fund, Ivy Asia Pacific Fund and
Ivy International Small Companies Fund),
filed with Post-Effective Amendment No. 89
to Registration Statement No. 2-17613 and
incorporated by reference herein.
(p) Form of Supplement to Distribution Plan for
Ivy Fund Class C Shares (Ivy Global Natural
Resources Fund, Ivy Asia Pacific Fund and
Ivy International Small Companies Fund),
filed with Post-Effective Amendment No. 89
to Registration Statement No. 2-17613 and
incorporated by reference herein.
(q) Form of Supplement to Master Amended and
Restated Distribution Plan for Ivy Fund
Class A Shares (Ivy Pan-Europe Fund), filed
with Post-Effective Amendment No. 94 to
Registration Statement No. 2-17613 and
incorporated by reference herein.
(r) Form of Supplement to Distribution Plan
for Ivy Fund Class B Shares (Ivy
Pan-Europe Fund), filed with
Post-Effective Amendment No. 94 to
Registration Statement No. 2-17613 and
incorporated by reference herein.
(s) Form of Supplement to Distribution Plan
for Ivy Fund Class C Shares (Ivy
Pan-Europe Fund), filed with
Post-Effective Amendment No. 94 to
Registration Statement No. 2-17613 and
incorporated by reference herein.
(t) Form of Supplement to Master Amended and
Restated Distribution Plan for Ivy Fund
Class A Shares (Ivy International Fund
II), filed with Post-Effective Amendment
No. 94 to Registration Statement No.
2-17613 and incorporated by reference
herein.
(u) Form of Supplement to Distribution Plan
for Ivy Fund Class B Shares (Ivy
International Fund II), filed with
Post-Effective Amendment No. 94 to
Registration Statement No. 2-17613 and
incorporated by reference herein.
(v) Form of Supplement to Distribution Plan
for Ivy Fund Class C Shares (Ivy
International Fund II), filed with
Post-Effective Amendment No. 94 to
Registration Statement No. 2-17613 and
incorporated by reference herein.
(w) Amendment to Master Amended and Restated
Distribution Plan for Ivy Fund Class A
Shares (Ivy Developing Nations Fund, Ivy
South America Fund, Ivy US Emerging
Growth Fund), filed with Post-Effective
Amendment No. 98 to Registration
Statement No. 2-17613 and incorporated
by reference herein.
(x) Amendment to Distribution Plan for Ivy
Fund Class B Shares (Ivy Developing
Nations Fund, Ivy South America Fund,
Ivy US Emerging Growth Fund), filed with
Post-Effective Amendment No. 98 to
Registration Statement No. 2-17613 and
incorporated by reference herein.
(y) Amendment to Distribution Plan for Ivy
Fund Class C Shares (Ivy Developing
Nations Fund, Ivy South America Fund,
Ivy US Emerging Growth Fund), filed with
Post-Effective Amendment No. 98 to
Registration Statement No. 2-17613 and
incorporated by reference herein.
(z) 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.
(aa) 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.
(bb) 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.
(cc) 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.
(dd) 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.
(ee) 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.
(ff) Supplement to Master Amended and
Restated Distribution Plan for Ivy Fund
Class A Shares (Ivy International
Strategic Bond Fund), to be filed by
amendment.
(gg) Supplement to Distribution Plan for Ivy
Fund Class B Shares (Ivy International
Strategic Bond Fund), to be filed by
amendment.
(hh) Supplement to Distribution Plan for Ivy
Fund Class C Shares (Ivy International
Strategic Bond Fund), to be filed by
amendment.
(ii) Supplement to Master Amended and Restated
Distribution Plan for Ivy Fund Class A
Shares (Ivy European Opportunities Fund), to
be filed by amendment.
(jj) Supplement to Distribution Plan for Ivy
Fund Class B Shares (Ivy European
Opportunities Fund), to be filed by
amendment.
(kk) Supplement to Distribution Plan for Ivy
Fund Class C Shares (Ivy European
Opportunities Fund), to be filed by
amendment.
16. Schedule of Computation of Standardized
Performance Quotations, filed with
Post-Effective Amendment No. 103 to
Registration Statement No. 2-17613 and
incorporated by reference herein.
17. Not applicable.
18. (a) Plan adopted pursuant to Rule 18f-3
under the Investment Company Act of 1940,
filed with Post-Effective Amendment No. 83
to Registration Statement No. 2-17613 and
incorporated by reference herein.
Form of Amended and Restated Plan adopted
pursuant to Rule 18f-3 under the Investment
Company Act of 1940, filed with
Post-Effective Amendment No. 85 to
Registration Statement No. 2-17613 and
incorporated by reference herein.
(c) Form of Amended and Restated Plan adopted
pursuant to Rule 18f-3 under the Investment
Company Act of 1940, filed with
Post-Effective Amendment No. 87 to
Registration Statement No. 2-17613 and
incorporated by reference herein.
(d) Form of Amended and Restated Plan adopted
pursuant to Rule 18f-3 under the Investment
Company Act of 1940, filed with
Post-Effective Amendment No. 89 to
Registration Statement No. 2-17613 and
incorporated by reference herein.
(e) Form of Amended and Restated Plan adopted
pursuant to Rule 18f-3 under the Investment
Company Act of 1940, filed with
Post-Effective Amendment No. 92 to
Registration Statement No. 2-17613 and
incorporated by reference herein.
(f) Form of Amended and Restated Plan adopted
pursuant to Rule 18f-3 under the Investment
Company Act of 1940, filed with
Post-Effective Amendment No. 94 to
Registration Statement No. 2-17613 and
incorporated by reference herein.
(g) Form of Amended and Restated Plan adopted
pursuant to Rule 18f-3 under the Investment
Company Act of 1940, filed with
Post-Effective Amendment No. 96 to
Registration Statement No. 2-17613 and
incorporated by reference herein.
(h) Amended and Restated Plan adopted pursuant
to Rule 18f-3 under the Investment Company
Act of 1940, filed with 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).
(i) 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.
(j) Amended and Restated Plan adopted pursuant
to Rule 18f-3 under the Investment Company
Act of 1940, to be filed by amendment.
25. Not applicable.
26. Number of Holders of Securities
Fund: Date Class Record Holders
Ivy Asia Pacific 12/31/98 Class A 166
Fund Class B 190
Class C 182
Advisor Class 0
Ivy Bond Fund 12/31/98 Class A 4,419
Class B 998
Class C 148
Class I 0
Advisor Class 9
Ivy Canada Fund 12/31/98 Class A 1,352
Class B 140
Class C 20
Advisor Class 1
Ivy China Region 12/31/98 Class A 1,752
Fund Class B 1031
Class C 98
Advisor Class 4
Ivy Developing 12/31/98 Class A 600
Nations Fund Class B 720
(formerly Ivy New Class C 284
Century Fund) Advisor Class 1
Ivy European 12/31/98 Class A 0
Opportunities Fund Class B 0
Class C 0
Class I 0
Advisor Class 0
Ivy Global Fund 12/31/98 Class A 1,155
Class B 723
Class C 40
Advisor Class 1
Ivy Global Natural 12/31/98 Class A 148
Resources Fund Class B 139
Class C 11
Advisor Class 0
Ivy Global Science & 12/31/98 Class A 930
Technology Fund Class B 733
Class C 368
Class I 0
Advisor Class 1
Ivy Growth Fund 12/31/98 Class A 25,080
Class B 356
Class C 18
Advisor Class 3
Ivy Growth with 12/31/98 Class A 6,194
Income Fund Class B 1,425
Class C 38
Class D 0
Advisor Class 1
Ivy International 12/31/98 Class A 0
Strategic Bond Fund Class B 0
Class C 0
Class I 0
Advisor Class 0
Ivy International 12/31/98 Class A 24,766
Fund Class B 20,265
Class C 3,449
Class I 384
Ivy International 12/31/98 Class A 1,310
Fund II Class B 2,767
Class C 915
Class I 0
Advisor Class 30
Ivy International 12/31/98 Class A 109
Small Companies Class B 109
Fund Class C 16
Class I 0
Advisor Class 0
Ivy Money Market 12/31/98 Class A 2,188
Fund Class B 387
Class C 34
Ivy Pan-Europe 12/31/98 Class A 146
Fund Class B 210
Class C 34
Advisor Class 7
Ivy South America 12/31/98 Class A 290
Fund (formerly Class B 162
Ivy Latin America Class C 11
Strategy Fund) Advisor Class 0
Ivy US Blue Chip 12/31/98 Class A 63
Fund Class B 52
Class C 5
Class I 0
Advisor Class 1
Ivy US Emerging 12/31/98 Class A 4,810
Growth Fund Class B 3,601
(formerly Ivy Class C 416
Emerging Growth Fund) Advisor Class 6
27. Indemnification
A policy of insurance covering Ivy Management, Inc. and the Registrant will
insure the Registrant's trustees and officers and others against liability
arising by reason of an actual or alleged breach of duty, neglect, error,
misstatement, misleading statement, omission or other negligent act.
Reference is made to Article VIII of the Registrant's Amended and Restated
Declaration of Trust, dated December 10, 1992, filed with Post-Effective
Amendment No. 71 to Registration Statement No. 2-17613 and incorporated by
reference herein.
28. Business and Other Connections of Investment Adviser
Information Regarding Adviser and Subadviser Under Advisory Arrangements.
Reference is made to the Form ADV of each of Ivy Management, Inc., the adviser
to 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 28 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.
29. 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.
(b) The information required by this Item 29 regarding each
director, officer or partner of IMDI is incorporated by
reference to Schedule A of Form BD filed by IMDI pursuant to
the Securities Exchange Act of 1934.
(c) Not applicable
30. Location of Accounts and Records
The information required by this item is incorporated by reference to
Item 7 of Part II of Post-Effective Amendment No. 46 to Registration
Statement No. 2-17613.
31. Not applicable
32. Undertakings
(a) Not applicable
(b) Not applicable.
(c) Registrant undertakes to furnish each person to whom a
prospectus is delivered with a copy of Registrant's latest
annual report to shareholders, upon request and without
charge.
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. 106 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 fifth day of February, 1999.
IVY FUND
By: Keith J. Carlson**
By: JOSEPH R. FLEMING President
Joseph R. Fleming, Attorney-in-Fact
Pursuant to the requirements of the Securities Act of 1933, this
Post-Effective Amendment No. 106 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 2/05/99
(Chief Executive Officer)
JOHN S. ANDEREGG, JR.* Trustee 2/05/99
PAUL H. BROYHILL* Trustee 2/05/99
STANLEY CHANNICK* Trustee 2/05/99
FRANK W. DEFRIECE, JR.* Trustee 2/05/99
ROY J. GLAUBER* Trustee 2/05/99
KEITH J. CARLSON** Trustee and President 2/05/99
JOSEPH G. ROSENTHAL* Trustee 2/05/99
RICHARD N. SILVERMAN* Trustee 2/05/99
J. BRENDAN SWAN* Trustee 2/05/99
C. WILLIAM FERRIS* Treasurer (Chief 2/05/99
Financial Officer)
By: 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.
EXHIBIT INDEX
Exhibits: None
