IVY ASIA PACIFIC FUND
IVY CHINA REGION FUND
IVY DEVELOPING NATIONS FUND
IVY SOUTH AMERICA FUND
series of
IVY FUND
Via Mizner Financial Plaza, Suite 300
700 South Federal Highway
Boca Raton, Florida 33432
STATEMENT OF ADDITIONAL INFORMATION
May 3, 1999
(as supplemented October 18, 1999)
Ivy Fund (the "Trust") is an open-end management investment company that
currently consists of nineteen fully managed portfolios, each of which (except
for Ivy South America Fund and Ivy International Strategic Bond Fund) is
diversified. This Statement of Additional Information ("SAI") relates to the
Class A, B, and C shares of Ivy Asia Pacific Fund, Ivy China Region Fund, Ivy
Developing Nations Fund, and Ivy South America Fund (each a "Fund"). The other
fifteen 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 Funds dated April 30, 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 Funds also offer 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. ("IMDI")
Via Mizner Financial Plaza, Suite 300
700 South Federal Highway
Boca Raton, Florida 33432
Telephone: (800) 456-5111
<PAGE>
TABLE OF CONTENTS
GENERAL INFORMATION..........................................................1
INVESTMENT OBJECTIVES, STRATEGIES AND RISKS..................................1
IVY ASIA PACIFIC FUND..................................................1
INVESTMENT RESTRICTIONS FOR ASIA PACIFIC FUND..........................2
IVY CHINA REGION FUND..................................................4
INVESTMENT RESTRICTIONS FOR IVY CHINA REGION FUND......................6
IVY DEVELOPING NATIONS FUND............................................8
INVESTMENT RESTRICTIONS FOR IVY DEVELOPING NATIONS FUND................9
IVY SOUTH AMERICA FUND................................................11
INVESTMENT RESTRICTIONS FOR IVY SOUTH AMERICA FUND....................12
COMMON STOCKS.........................................................14
CONVERTIBLE SECURITIES................................................14
SECURITIES ISSUED IN ASIA-PACIFIC COUNTRIES...........................15
THE CHINA REGION......................................................16
SOUTH AMERICAN SECURITIES.............................................16
DEBT SECURITIES.......................................................18
IN GENERAL......................................................18
INVESTMENT-GRADE DEBT SECURITIES................................18
LOW-RATED DEBT SECURITIES.......................................19
U.S. GOVERNMENT SECURITIES......................................20
ZERO COUPON BONDS...............................................21
FIRM COMMITMENT AGREEMENTS AND "WHEN-ISSUED" SECURITIES.........21
ILLIQUID SECURITIES...................................................22
FOREIGN SECURITIES....................................................22
DEPOSITORY RECEIPTS...................................................23
EMERGING MARKETS......................................................24
FOREIGN CURRENCIES....................................................25
FOREIGN CURRENCY EXCHANGE TRANSACTIONS................................26
OTHER INVESTMENT COMPANIES............................................27
REPURCHASE AGREEMENTS.................................................27
BANKING INDUSTRY AND SAVINGS AND LOAN OBLIGATIONS.....................27
COMMERCIAL PAPER......................................................28
BORROWING.............................................................28
WARRANTS..............................................................28
OPTIONS TRANSACTIONS..................................................28
IN GENERAL......................................................28
WRITING OPTIONS ON INDIVIDUAL SECURITIES........................29
PURCHASING OPTIONS ON INDIVIDUAL SECURITIES.....................30
PURCHASING AND WRITING OPTIONS ON SECURITIES INDICES............30
RISKS OF OPTIONS TRANSACTIONS...................................31
FUTURES CONTRACTS AND OPTIONS ON FUTURES CONTRACTS....................32
IN GENERAL......................................................32
FOREIGN CURRENCY FUTURES CONTRACTS AND RELATED OPTIONS..........33
RISKS ASSOCIATED WITH FUTURES AND RELATED OPTIONS...............34
SECURITIES INDEX FUTURES CONTRACTS....................................35
RISKS OF SECURITIES INDEX FUTURES...............................36
COMBINED TRANSACTIONS...........................................37
PORTFOLIO TURNOVER..........................................................37
TRUSTEES AND OFFICERS.......................................................38
PERSONAL INVESTMENTS BY EMPLOYEES OF IMI........................38
INVESTMENT ADVISORY AND OTHER SERVICES......................................38
BUSINESS MANAGEMENT AND INVESTMENT ADVISORY SERVICES..................38
DISTRIBUTION SERVICES.................................................40
RULE 18F-3 PLAN.................................................42
RULE 12B-1 DISTRIBUTION PLANS...................................42
CUSTODIAN.............................................................46
FUND ACCOUNTING SERVICES..............................................47
TRANSFER AGENT AND DIVIDEND PAYING AGENT..............................47
ADMINISTRATOR.........................................................47
AUDITORS..............................................................48
BROKERAGE ALLOCATION........................................................48
CAPITALIZATION AND VOTING RIGHTS............................................49
SPECIAL RIGHTS AND PRIVILEGES...............................................51
AUTOMATIC INVESTMENT METHOD...........................................51
EXCHANGE OF SHARES....................................................51
INITIAL SALES CHARGE SHARES.....................................51
CONTINGENT DEFERRED SALES CHARGE SHARES...............................52
CLASS A.........................................................52
CLASS B.........................................................52
CLASS C.........................................................53
ALL CLASSES.....................................................53
LETTER OF INTENT......................................................54
RETIREMENT PLANS......................................................54
INDIVIDUAL RETIREMENT ACCOUNTS..................................55
ROTH IRAS.......................................................56
QUALIFIED PLANS.................................................57
DEFERRED COMPENSATION FOR PUBLIC SCHOOLS AND CHARITABLE
ORGANIZATIONS ("403(B)(7) ACCOUNT").............................58
SIMPLIFIED EMPLOYEE PENSION ("SEP") IRAS........................58
SIMPLE PLANS....................................................58
REINVESTMENT PRIVILEGE................................................58
RIGHTS OF ACCUMULATION................................................59
SYSTEMATIC WITHDRAWAL PLAN............................................59
GROUP SYSTEMATIC INVESTMENT PROGRAM...................................60
REDEMPTIONS.................................................................61
CONVERSION OF CLASS B SHARES................................................62
NET ASSET VALUE.............................................................62
TAXATION....................................................................64
OPTIONS, FUTURES AND FOREIGN CURRENCY FORWARD CONTRACTS...............65
CURRENCY FLUCTUATIONS -- "SECTION 988" GAINS OR LOSSES................66
INVESTMENT IN PASSIVE FOREIGN INVESTMENT COMPANIES....................66
DEBT SECURITIES ACQUIRED AT A DISCOUNT................................67
DISTRIBUTIONS.........................................................68
DISPOSITION OF SHARES.................................................68
FOREIGN WITHHOLDING TAXES.............................................69
BACKUP WITHHOLDING....................................................70
PERFORMANCE INFORMATION.....................................................70
AVERAGE ANNUAL TOTAL RETURN.....................................70
CUMULATIVE TOTAL RETURN.........................................79
FINANCIAL STATEMENTS........................................................83
APPENDIX A..................................................................84
<PAGE>
GENERAL INFORMATION
Ivy Asia Pacific Fund, Ivy China Region Fund, and Ivy Developing Nations
Fund are organized as separate, diversified portfolios of the Trust, an open-end
management investment company organized as a Massachusetts business trust on
December 21, 1983. Ivy South America Fund is organized as a separate,
non-diversified portfolio of the Trust. The inception dated for Class A and
Class B shares of Ivy China Region Fund was October 23, 1993. The inception date
for Class A and Class B shares of Ivy Developing Nations Fund and Ivy South
America Fund was November 1, 1994. The inception date for Class C shares of Ivy
China Region Fund, Ivy Developing Nations Fund and Ivy South America Fund was
April 30, 1996. Ivy Asia Pacific Fund commenced operations (Class A, B and C) on
January 1, 1997.
Descriptions in this SAI of a particular investment practice or technique
in which each Fund may engage or a financial instrument which each Fund may
purchase are meant to describe the spectrum of investments that IMI, in its
discretion, might, but is not required to, use in managing each Fund's portfolio
assets. IMI may, in its discretion, at any time employ such practice, technique
or instrument for one or more funds but not for all funds advised by it.
Furthermore, it is possible that certain types of financial instruments or
investment techniques described herein may not be available, permissible,
economically feasible or effective for their intended purposes in some or all
markets, in which case a Fund would not use them. Certain practices, techniques,
or instruments may not be principal activities of the Fund but, to the extent
employed, could from time to time have a material impact on the Fund's
performance.
INVESTMENT OBJECTIVES, STRATEGIES AND RISKS
Each Fund has its own investment objectives and policies, which are
described in the Prospectus under the captions "Summary" and "Additional
Information About Strategies and Risks." Descriptions of each Fund's policies,
strategies and investment restrictions, as well as additional information
regarding the characteristics and risks associated with each
Fund's investment techniques, is set forth below.
Whenever an investment objective, policy or restriction set forth in the
Prospectus or this SAI states a maximum percentage of assets that may be
invested in any security or other asset or describes a policy regarding quality
standards, such percentage limitation or standard shall, unless otherwise
indicated, apply to a Fund only at the time a transaction is entered into.
Accordingly, if a percentage limitation is adhered to at the time of investment,
a later increase or decrease in the percentage which results from circumstances
not involving any affirmative action by a Fund, such as a change in market
conditions or a change in a Fund's asset level or other circumstances beyond a
Fund's control, will not be considered a violation.
IVY ASIA PACIFIC FUND
The Fund's principal investment objective is long-term growth.
Consideration of current income is secondary to this principal objective. Under
normal circumstances the Fund invests at least 65% of its total assets in
securities issued in Asia-Pacific countries, which for purposes of this SAI are
defined to include China, Hong Kong, India, Indonesia, Malaysia, Pakistan, the
Philippines, Singapore, Sri Lanka, South Korea, Taiwan, Thailand and Vietnam.
Securities of Asia-Pacific issuers include: (a) securities of companies
organized under the laws of an Asia-Pacific country or for which the principal
securities trading market is in the Asia-Pacific region; (b) securities that are
issued or guaranteed by the government of an Asia-Pacific country, its agencies
or instrumentalities, political subdivisions or the country's central bank; (c)
securities of a company, wherever organized, where at least 50% of the company's
non-current assets, capitalization, gross revenue or profit in any one of the
two most recent fiscal years represents (directly or indirectly through
subsidiaries) assets or activities located in the Asia-Pacific region; and (d)
any of the preceding types of securities in the form of depository shares.
The Fund may participate in markets throughout the Asia-Pacific region,
and it is expected that the Fund will be invested at all times in at least three
Asia-Pacific countries. As a fundamental policy, the Fund does not concentrate
its investments in any particular industry.
The Fund may invest up to 35% of its assets in investment-grade debt
securities of government or corporate issuers in emerging market countries,
equity securities and investment grade debt securities of issuers in developed
countries (including the United States), warrants, and cash or cash equivalents,
such as bank obligations (including certificates of deposit and bankers'
acceptances), commercial paper, short-term notes and repurchase agreements. For
temporary defensive purposes, the Fund may invest without limit in such
instruments. The Fund may also invest up to 5% of its net assets in zero coupon
bonds, and in debt securities rated Ba or below by Moody's Investor Service,
Inc. ("Moody's") or BB or below by Standard & Poor's Ratings Services ("S&P"),
or if unrated, are considered by IMI to be of comparable quality (commonly
referred to as "high yield" or "junk" bonds). The Fund will not invest in debt
securities rated less than C by either Moody's or S&P.
For temporary or emergency purposes, Ivy Asia Pacific Fund may borrow from
banks in accordance with the provisions of the 1940 Act, but may not purchase
securities at any time during which the value of the Fund's outstanding loans
exceeds 10% of the value of the Fund's assets. The Fund may engage in foreign
currency exchange transactions and enter into forward foreign currency
contracts. The Fund may also invest in other investment companies that invest in
securities issued in Asia-Pacific countries in accordance with the provisions of
the 1940 Act, 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. The Fund may write or buy straddles or
spreads. For hedging purposes only, the Fund may engage in transactions in stock
index and foreign currency futures contracts, provided that the Fund's
equivalent exposure in such contracts does not exceed 15% of its total assets.
INVESTMENT RESTRICTIONS FOR IVY ASIA PACIFIC FUND
Ivy Asia Pacific Fund's investment objectives as set forth in the
"Summary" section of the Prospectus, together with the investment restrictions
set forth below, are fundamental policies of the Fund and may not be changed
without the approval of a majority (as defined in the 1940 Act) of the
outstanding voting shares of the Fund. The Fund has adopted the following
fundamental investment restrictions:
(i) The Fund will not borrow money, except as permitted under the
Investment Company Act of 1940, as amended, and as interpreted or
modified by regulatory authority having jurisdiction, from time to
time.
(ii) The Fund will not issue senior securities, except as permitted under
the Investment Company Act of 1940, as amended, and as interpreted or
modified by regulatory authority having jurisdiction, from time to
time.
(iii) The Fund will not engage in the business of underwriting securities
issued by others, except to the extent that the Fund may be deemed to
be an underwriter in connection with the disposition of portfolio
securities.
(iv) The Fund will not purchase or sell real estate (which term does not
include securities of companies that deal in real estate or mortgages
or investments secured by real estate or interests therein), except
that the Fund may hold and sell real estate acquired as a result of
the Fund's ownership of securities.
(v) The Fund will not purchase physical commodities or contracts relating
to physical commodities, although the Fund may invest in commodities
futures contracts and options thereon to the extent permitted by the
Prospectus and this SAI.
(vi) The Fund will not make loans to other persons, except (a) loans of
portfolio securities, and (b) to the extent that entry into repurchase
agreements and the purchase of debt instruments or interests in
indebtedness in accordance with the Fund's investment objective and
policies may be deemed to be loans.
(vii) The Fund will not concentrate its investments in a particular
industry, as the term "concentrate" is interpreted in connection with
the Investment Company Act of 1940, as amended, and as interpreted or
modified by regulatory authority having jurisdiction, from time to
time.
ADDITIONAL RESTRICTIONS
Ivy Asia Pacific 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 the investment in "illiquid securities." Illiquid securities
may include securities subject to legal or contractual restrictions on
resale (including private placements), repurchase agreements maturing
in more than seven days, certain options traded over the counter that
the Fund has purchased, securities being used to cover certain options
that the Fund has written, securities for which market quotations are
not readily available, or other securities which legally or in IMI's
opinion, subject to the Board's supervision, may be deemed illiquid,
but shall not include any instrument that, due to the existence of a
trading market, to the Fund's compliance with certain conditions
intended to provide liquidity, or to other factors, is liquid;
(ii) purchase securities of other investment companies, except in
connection with a merger, consolidation or sale of assets, and except
that the Fund may purchase shares of other investment companies
subject to such restrictions as may be imposed by the Investment
Company Act of 1940 and rules thereunder;
(iii) sell securities short, except for short sales "against the box";
(iv) borrow money, except for temporary or emergency purposes. The Fund may
not purchase securities at any time during which the value of the
Fund's outstanding loans exceeds 10% of the value of the Fund" total
assets;
(v) participate on a joint or a joint and several basis in any trading
account in securities. The "bunching" of orders of the Fund and of
other accounts under the investment management of the Fund's
investment adviser for the sale or purchase of portfolio securities
shall not be considered participation in a joint securities trading
account; or
(vi) 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.
IVY CHINA REGION FUND
Ivy China Region Fund's principal investment objective is long-term
capital growth. Consideration of current income is secondary to this principal
objective. The Fund seeks to meet its objective primarily by investing in the
equity securities of companies that are expected to benefit from the economic
development and growth of China, Hong Kong and Taiwan. A significant percentage
of the Fund's assets may also be invested in the securities markets of South
Korea, Singapore, Malaysia, Thailand, Indonesia and the Philippines
(collectively, with China, Hong Kong and Taiwan, the "China Region").
The Fund normally invests at least 65% of its total assets in "Greater
China growth companies," defined as companies that (a) that are organized in or
for which the principal securities trading markets are in the China Region; (b)
that have at least 50% of their assets in one or more China Region countries or
derive at least 50% of their gross sales revenues or profits from providing
goods or services to or from within one or more China Region countries; or (c)
that have at least 35% of their assets in China, Hong Kong or Taiwan, derive at
least 35% of their gross sales revenues or profits from providing goods or
services to or from within these three countries, or have significant
manufacturing or other operations in these countries. IMI's determination as to
whether a company qualifies as a Greater China growth company is based primarily
on information contained in financial statements, reports, analyses and other
pertinent information (some of which may be obtained directly from the company).
The Fund may invest 25% or more of its total assets in the securities of issuers
located in any one China Region country, and currently expects to invest more
than 50% of its total assets in Hong Kong.
The balance of the Fund's assets ordinarily are invested in (i) certain
investment-grade debt securities and (ii) the equity securities of "China Region
associated companies," which are companies that do not meet the definition of a
Greater China growth company, but whose current or expected performance, based
on certain identified factors (such as the growth trends in the location of a
company's assets and the sources of its revenues and profits), is judged by IMI
to be strongly associated with the China Region. The investment-grade debt
securities in which the Fund may invest include (a) obligations of the U.S.
Government or its agencies or instrumentalities, (b) obligations of U.S. banks
and other banks organized and existing under the laws of Hong Kong, Taiwan or
countries that are member of the Organization for Economic Cooperation and
Development ("OECD"), (c) obligations denominated in any currency issued by
international development institutions and Hong Kong, Taiwan and OECD member
governments and their agencies and instrumentalities, and (d) corporate bonds
rated Baa or higher by Moody's or BBB or higher by S&P (or if unrated, are
considered by IMI to be of comparable quality), as well as repurchase agreements
with respect to any of the foregoing instruments. The Fund may also invest in
zero coupon bonds.
The Fund may invest less than 35% of its net assets in debt securities
rated Ba or below by Moody's or BB or below by S&P, or, if unrated, considered
by IMI to be of comparable quality (commonly referred to as "high yield" or
"junk" bonds). The Fund will not invest in debt securities rated less than C by
either Moody's or S&P.
Ivy China Region Fund may invest in sponsored or unsponsored ADRs, GDRs,
ADSs, and GDSs, warrants, and securities issued on a "when-issued" or firm
commitment basis, and may engage in foreign currency exchange transactions and
enter into forward foreign currency contracts. The Fund may also invest in other
investment companies in accordance with the provisions of the 1940 Act, and up
to 15% of its net assets in illiquid securities.
For temporary defensive purposes and during periods when IMI believes that
circumstances warrant, the Fund may reduce its position in Greater China growth
companies and Greater China associated companies and increase its investment in
cash and liquid debt securities, such as U.S. Government securities, bank
obligations, commercial paper, short-term notes and repurchase agreements. For
temporary or emergency purposes, the Fund may also borrow up to 10% of the value
of its total assets from banks.
The Fund may purchase put and call options on securities and stock
indices, provided the premium paid for such options does not exceed 5% of the
Fund's net assets. The fund may also sell covered put options with respect to up
to 10% of the value of its net assets, and may write covered call options so
long as not more than 25% of the Fund's net assets is subject to being purchased
upon the exercise of the calls. For hedging purposes only, the Fund may engage
in transactions in stock index futures contracts, provided that the Fund's
equivalent exposure in such contracts does not exceed 15% of its total assets.
INVESTMENT RESTRICTIONS FOR IVY CHINA REGION FUND
Ivy China Region Fund's investment objectives as set forth in the
"Summary" section of the Prospectus, together with the investment restrictions
set forth below, are fundamental policies of the Fund and may not be changed
without the approval (as defined in the 1940 Act) of a majority of the
outstanding voting shares of the Fund. The Fund has adopted the following
fundamental investment restrictions:
(i) The Fund has elected to be classified as a diversified series of an
open-end investment company.
(iii) The Fund will not issue senior securities, except as permitted under
the Investment Company Act of 1940, as amended, and as interpreted or
modified by regulatory authority having jurisdiction, from time to
time.
(iv) The Fund will not engage in the business of underwriting securities
issued by others, except to the extent that the Fund may be deemed to
be an underwriter in connection with the disposition of portfolio
securities.
(v) The Fund will not purchase or sell real estate (which term does not
include securities of companies that deal in real estate or mortgages
or investments secured by real estate or interests therein), except
that the Fund may hold and sell real estate acquired as a result of
the Fund's ownership of securities.
(vi) The Fund will not purchase physical commodities or contracts relating
to physical commodities, although the Fund may invest in commodities
futures contracts and options thereon to the extent permitted by the
Prospectus or this SAI.
(vii) The Fund will not make loans to other persons, except (a) loans of
portfolio securities, and (b) to the extent that entry into repurchase
agreements and the purchase of debt instruments or interests in
indebtedness in accordance with the Fund's investment objective and
policies may be deemed to be loans.
(viii) The Fund will not concentrate its investments in a particular
industry, as the term "concentrate" is interpreted in connection with
the Investment Company Act of 1940, as amended, and as interpreted or
modified by regulatory authority having jurisdiction, from time to
time.
ADDITIONAL RESTRICTIONS
Ivy China Region Fund has adopted the following additional restrictions,
which are not fundamental and which may be changed without shareholder approval,
to the extent permitted by applicable law, regulation or regulatory policy.
Under these restrictions, the Fund may not:
(i) invest in oil, gas or other mineral leases or exploration or
development programs;
(ii) invest in companies for the purpose of exercising control of
management;
(iii) invest more than 5% of its total assets in warrants, valued at the
lower of cost or market, or more than 2% of its total assets in
warrants, so valued, which are not listed on either the New York or
American Stock Exchanges;
(iv) purchase securities of other investment companies, except in
connection with a merger, consolidation or sale of assets, and except
that it may purchase shares of other investment companies subject to
such restrictions as may be imposed by the Investment Company Act of
1940 and rules thereunder;
(v) invest more than 15% of its net assets taken at market value at the
time of the investment in "illiquid securities." Illiquid securities
may include securities subject to legal or contractual restrictions on
resale (including private placements), repurchase agreements maturing
in more than seven days, certain options traded over the counter that
the Fund has purchased, securities being used to cover certain options
that the Fund has written, securities for which market quotations are
not readily available, or other securities which legally or in IMI's
opinion, subject to the Board's supervision, may be deemed illiquid,
but shall not include any instrument that, due to the existence of a
trading market, to the Fund's compliance with certain conditions
intended to provide liquidity, or to other factors, is liquid;
(vi) borrow money, except for temporary purposes where investment
transactions might advantageously require it. Any such loan may not be
for a period in excess of 60 days, and the aggregate amount of all
outstanding loans may not at any time exceed 10% of the value of the
total assets of the Fund at the time any such loan is made;
(vii) purchase securities on margin;
(viii) sell securities short; or
(ix) purchase from or sell to any of its officers or trustees, or firms of
which any of them are members or which they control, any securities
(other than capital stock of the Fund), but such persons or firms may
act as brokers for the Fund for customary commissions to the extent
permitted by the Investment Company Act of 1940.
IVY DEVELOPING NATIONS FUND
Ivy Developing Nations Fund's principal objective is long-term growth.
Consideration of current income is secondary to this principal objective. In
pursuing its objective, the Fund invests primarily in the equity securities of
companies that IMI believes will benefit from the economic development and
growth of emerging markets. The Fund considers countries having emerging markets
to be those that (i) are generally considered to be "developing" or "emerging"
by the World Bank and the International Finance Corporation, or (ii) are
classified by the United Nations (or otherwise regarded by their authorities) as
"emerging." Under normal market conditions, the Fund invests at least 65% of its
total assets in equity securities (including common and preferred stocks,
convertible debt obligations, warrants, options (subject to the restrictions set
forth below), rights, and sponsored or unsponsored ADRs, GDRs, ADSs and GDSs
that are listed on stock exchanges or traded over-the-counter) of "Emerging
Market growth companies," which are defined as companies (a) for which the
principal securities trading market is an emerging market (as defined above),
(b) that each (alone or on a consolidated basis) derives 50% or more of its
total revenue either from goods, sales or services in emerging markets, or (c)
that are organized under the laws of (and with a principal office in) an
emerging market country.
The Fund normally invests its assets in the securities of issuers located
in at least three emerging market countries, and may invest 25% or more of its
total assets in the securities of issuers located in any one country. IMI's
determination as to whether a company qualifies as an Emerging Market growth
company is based primarily on information contained in financial statements,
reports, analyses and other pertinent information (some of which may be obtained
directly from the company).
For purposes of capital appreciation, Ivy Developing Nations Fund may
invest up to 35% of its total assets in (i) debt securities of government or
corporate issuers in emerging market countries, (ii) equity and debt securities
of issuers in developed countries (including the United States), and (iii) cash
or cash equivalents such as bank obligations (including certificates of deposit
and bankers' acceptances), commercial paper, short-term notes and repurchase
agreements. For temporary defensive purposes, the Fund may invest without limit
in such instruments. The Fund may also invest in zero coupon bonds and purchase
securities on a "when-issued" or firm commitment basis.
The Fund will not invest more than 20% of its total assets in debt
securities rated Ba or lower by Moody's or BB or lower by S&P, or if unrated,
considered by IMI to be of comparable quality (commonly referred to as "high
yield" or "junk" bonds). The Fund will not invest in debt securities rated less
than C by either Moody's or S&P.
For temporary or emergency purposes, the Fund may borrow from banks in
accordance with the provisions of the 1940 Act, but may not purchase securities
at any time during which the value of the Fund's outstanding loans exceeds 10%
of the value of the Fund's total assets. The Fund may engage in foreign currency
exchange transactions and enter into forward foreign currency contracts. The
Fund may also invest in other investment companies in accordance with the
provisions of the 1940 Act, and up to 15% of its net assets in illiquid
securities.
The Fund may purchase put and call options on securities and stock
indices, provided the premium paid for such options does not exceed 5% of the
Fund's net assets. The Fund may also sell covered put options with respect to up
to 10% of the value of its net assets, and may write covered call options so
long as not more than 25% of the Fund's net assets is subject to being purchased
upon the exercise of the calls. For hedging purposes only, the Fund may engage
in transactions in (and options on) stock index and foreign currency futures
contracts, provided that the Fund's equivalent exposure in such contracts does
not exceed 15% of its total assets.
INVESTMENT RESTRICTIONS FOR IVY DEVELOPING NATIONS FUND
Ivy Developing Nations Fund's investment objectives as set forth in the
"Summary" section of the Prospectus, together with the investment restrictions
set forth below, are fundamental policies of the Fund and may not be changed
without the approval of a majority (as defined in the 1940 Act) of the
outstanding voting shares of the Fund. The Fund has adopted the following
fundamental investment restrictions:
(i) The Fund has elected to be classified as a diversified series of an
open-end investment company.
(ii) The Fund will not borrow money, except as permitted under the
Investment Company Act of 1940, as amended, and as interpreted or
modified by regulatory authority having jurisdiction, from time to
time.
(iii) The Fund will not issue senior securities, except as permitted under
the Investment Company Act of 1940, as amended, and as interpreted or
modified by regulatory authority having jurisdiction, from time to
time.
(iv) The Fund will not engage in the business of underwriting securities
issued by others, except to the extent that the Fund may be deemed to
be an underwriter in connection with the disposition of portfolio
securities.
(v) The Fund will not purchase or sell real estate (which term does not
include securities of companies that deal in real estate or mortgages
or investments secured by real estate or interests therein), except
that the Fund may hold and sell real estate acquired as a result of
the Fund's ownership of securities.
(vi) The Fund will not purchase physical commodities or contracts relating
to physical commodities, although the Fund may invest in commodities
futures contracts and options thereon to the extent permitted by the
Prospectus or this SAI.
(vii) The Fund will not make loans to other persons, except (a) loans of
portfolio securities, and (b) to the extent that entry into repurchase
agreements and the purchase of debt instruments or interests in
indebtedness in accordance with the Fund's investment objective and
policies may be deemed to be loans.
(viii) The Fund will not concentrate its investments in a particular
industry, as the term "concentrate" is interpreted in connection with
the Investment Company Act of 1940, as amended, and as interpreted or
modified by regulatory authority having jurisdiction, from time to
time.
ADDITIONAL RESTRICTIONS
Unless otherwise indicated, Ivy Developing Nations Fund has adopted the
following additional restrictions, which are not fundamental and which may be
changed without shareholder approval to the extent permitted by applicable law,
regulation or regulatory policy. Under these restrictions, the Fund may not:
(i) invest in oil, gas or other mineral leases or exploration or
development programs;
(ii) invest in companies for the purpose of exercising control of
management;
(iii) invest more than 5% of its total assets in warrants, valued at the
lower of cost or market, or more than 2% of its total assets in
warrants, so valued, which are not listed on either the New York or
American Stock Exchanges;
(iv) purchase securities of other investment companies, except in
connection with a merger, consolidation or sale of assets, and except
that it may purchase shares of other investment companies subject to
such restrictions as may be imposed by the Investment Company Act of
1940 and rules thereunder;
(v) invest more than 15% of its net assets taken at market value at the
time of investment in "illiquid securities." Illiquid securities may
include securities subject to legal or contractual restrictions on
resale (including private placements), repurchase agreements maturing
in more than seven days, certain options traded over the counter that
the Fund has purchased, securities being used to cover certain options
that the Fund has written, securities for which market quotations are
not readily available, or other securities which legally or in IMI's
opinion, subject to the Board's supervision, may be deemed illiquid,
but shall not include any instrument that, due to the existence of a
trading market, to the Fund's compliance with certain conditions
intended to provide liquidity, or to other factors, is liquid;
(vi) borrow money, except for temporary or emergency purposes. The Fund may
not purchase securities at any time during which the value of the
Fund's outstanding loans exceeds 10% of the value of the Fund's total
assets;
(vii) purchase securities on margin;
(viii) sell securities short; or
(ix) purchase from or sell to any of its officers or trustees, or firms of
which any of them are members or which they control, any securities
(other than capital stock of the Fund), but such persons or firms may
act a brokers for the Fund for customary commissions to the extent
permitted by the Investment Company Act of 1940.
Under the 1940 Act, the Fund is permitted, subject to the above investment
restrictions, to borrow money only from banks. The Trust has no current
intention of borrowing amounts in excess of 5% of the Fund's assets. The Fund
will continue to interpret fundamental investment restrictions (v) to prohibit
investment in real estate limited partnership interests; this restriction shall
not, however, prohibit investment in readily marketable securities of companies
that invest in real estate or interests therein, including real estate
investment trusts.
IVY SOUTH AMERICA FUND
Ivy South America Fund's principal investment objective is long-term
capital growth. Consideration of current income is secondary to this principal
objective. Under normal conditions the Fund invests at least 65% of its total
assets in securities issued in South America. Securities of South American
issuers include (a) securities of companies organized under the laws of a South
American country or for which the principal securities trading market is in
South America; (b) securities that are issued or guaranteed by the government of
a South American country, its agencies or instrumentalities, political
subdivisions or the country's central bank; (c) securities of a company,
wherever organized, where at least 50% of the company's non-current assets,
capitalization, gross revenue or profit in any one of the two most recent fiscal
years represents (directly or indirectly through subsidiaries) assets or
activities located in South America; or (d) any of the preceding types of
securities in the form of depository shares. The Fund may participate, however,
in markets throughout Latin America, which for purposes of this SAI is defined
as Mexico, Central America, South America and the Spanish-speaking islands of
the Caribbean, and it is expected that the Fund will be invested at all times in
at least three countries. Under present conditions, the Fund expects to focus
its investments in Argentina, Brazil, Chile, Columbia, Peru and Venezuela, which
IMI believes are the most developed capital markets in South America. As a
fundamental restriction, the Fund will not concentrate its investments in any
particular industry.
The Fund's equity investments consist of common stock, preferred stock
(either convertible or non-convertible), sponsored or unsponsored ADRs, GDRs,
ADSs and GDSs, and warrants (any of which may be purchased through rights). The
Fund's equity securities may be listed on securities exchanges, traded
over-the-counter, or have no organized market.
The Fund may invest in debt securities (including zero coupon bonds) when
IMI anticipates that the potential for capital appreciation from debt securities
is likely to equal or exceed that of equity securities (e.g., a favorable change
in relative foreign exchange rates, interest rate levels or the creditworthiness
of issuers). These include debt securities issued by South American Governments
("Sovereign Debt"). Most of the debt securities in which the Fund may invest are
not rated, and those that are rated are expected to be below investment-grade
(i.e., rated Ba or below by Moody's or BB or below by S&P, or considered by IMI
to be of comparable quality), and are commonly referred to as "high yield" or
"junk" bonds.
To meet redemptions, or while the Fund is anticipating investments in
South American securities, the Fund may hold cash or cash equivalents such as
bank obligations (including certificates of deposit and bankers' acceptances),
commercial paper, short-term notes and repurchase agreements. For temporary
defensive or emergency purposes, the Fund may (i) invest without limitation in
such instruments, and (ii) borrow from banks in accordance with the provisions
of the 1940 Act (but may not purchase securities at any time during which the
value of the Fund's outstanding loans exceeds 10% of the value of the Fund's
total assets).
Ivy South America Fund may purchase securities on a "when-issued" or firm
commitment basis, engage in foreign currency exchange transactions and enter
into forward foreign currency contracts. The Fund may also invest in other
investment companies in accordance with the provisions of the 1940 Act, and up
to 15% of its net assets in illiquid securities. The Fund will treat as illiquid
any South American securities that are subject to restrictions on repatriation
for more than seven days, as well as any securities issued in connection with
South American debt conversion programs that are restricted to remittance of
invested capital or profits.
The Fund may purchase put and call options on securities and stock
indices, provided the premium paid for such options does not exceed 5% of the
Fund's net assets. The Fund may also sell covered put options with respect to up
to 10% of the value of its net assets, and may write covered call options so
long as not more than 25% of the Fund's net assets is subject to being purchased
upon the exercise of the calls. For hedging purposes only, the Fund may engage
in transactions in (and options on) stock index and foreign currency futures
contracts, provided that the Fund's equivalent exposure in such contracts does
not exceed 15% of its total assets.
INVESTMENT RESTRICTIONS FOR IVY SOUTH AMERICA FUND
Ivy South America Fund's investment objectives as set forth in the
"Summary" section of the Prospectus, together with the investment restrictions
set forth below, are fundamental policies of the Fund and may not be changed
without the approval of a majority (as defined in the 1940 Act) of the
outstanding voting shares of the Fund. The Fund has adopted the following
fundamental investment restrictions:
(i) The Fund has elected to be classified as a diversified series of an
open-end investment company.
(ii) The Fund will not borrow money, except as permitted under the
Investment Company Act of 1940, as amended, and as interpreted or
modified by regulatory authority having jurisdiction, from time to
time.
(iii) The Fund will not issue senior securities, except as permitted under
the Investment Company Act of 1940, as amended, and as interpreted or
modified by regulatory authority having jurisdiction, from time to
time.
(iv) The Fund will not engage in the business of underwriting securities
issued by others, except to the extent that the Fund may be deemed to
be an underwriter in connection with the disposition of portfolio
securities.
(v) The Fund will not purchase or sell real estate (which term does not
include securities of companies that deal in real estate or mortgages
or investments secured by real estate or interests therein), except
that the Fund may hold and sell real estate acquired as a result of
the Fund's ownership of securities.
(vi) The Fund will not purchase physical commodities or contracts relating
to physical commodities, although the Fund may invest in commodities
futures contracts and options thereon to the extent permitted by the
Prospectus or this SAI.
(vii) The Fund will not make loans to other persons, except (a) loans of
portfolio securities, and (b) to the extent that entry into repurchase
agreements and the purchase of debt instruments or interests in
indebtedness in accordance with the Fund's investment objective and
policies may be deemed to be loans.
The Fund will not concentrate its investments in a particular industry, as the
term "concentrate" is interpreted in connection with the Investment Company Act
of 1940, as amended, and as interpreted or modified by regulatory authority
having jurisdiction, from time to time.
ADDITIONAL RESTRICTIONS
Ivy South America Fund has adopted the following additional restrictions,
which are not fundamental and which may be changed without shareholder approval
to the extent permitted by applicable law, regulation or regulatory policy.
Under these restrictions, the Fund may not:
(i) invest in oil, gas or other mineral leases or exploration or
development programs;
(ii) invest in companies for the purpose of exercising control of
management;
(iii) invest more than 5% of its total assets in warrants, valued at the
lower of cost or market, or more than 2% of its total assets in
warrants, so valued, which are not listed on either the New York or
American Stock Exchanges;
(iv) purchase securities of other investment companies, except in
connection with a merger, consolidation or sale of assets, and except
that it may purchase shares of other investment companies subject to
such restrictions as may be imposed by the Investment Company Act of
1940 and rules thereunder;
(v) borrow money, except for temporary or emergency purposes. The Fund may
not purchase securities at any time during which the value of the
Fund's outstanding loans exceeds 10% of the value of the Fund" total
assets;
(vi) invest more than 15% of its net assets taken at market value at the
time of investment in "illiquid securities." Illiquid securities may
include securities subject to legal or contractual restrictions on
resale (including private placements), repurchase agreements maturing
in more than seven days, certain options traded over the counter that
the Fund has purchased, securities being used to cover certain options
that the Fund has written, securities for which market quotations are
not readily available, or other securities which legally or in IMI's
opinion, subject to the Board's supervision, may be deemed illiquid,
but shall not include any instrument that, due to the existence of a
trading market, to the Fund's compliance with certain conditions
intended to provide liquidity, or to other factors, is liquid;
(vii) purchase securities on margin;
(viii) sell securities short; or
(ix) purchase from or sell to any of its officers or trustees, or firms of
which any of them are members or which they control, any securities
(other than capital stock of the Fund) but such persons or firms may
act as brokers for the Fund for customary commissions to the extent
permitted by the Investment Company Act of 1940.
COMMON STOCKS
Common stock can be issued by companies to raise cash; all common stock
shares represent a proportionate ownership interest in a company. As a result,
the value of common stock rises and falls with a company's success or failure.
The market value of common stock can fluctuate significantly, with smaller
companies being particularly susceptible to price swings. Transaction costs in
smaller company stocks may also be higher than those of larger companies.
CONVERTIBLE SECURITIES
The convertible securities in which each Fund may invest include corporate
bonds, notes, debentures, preferred stock and other securities that may be
converted or exchanged at a stated or determinable exchange ratio into
underlying shares of common stock. Investments in convertible securities can
provide income through interest and dividend payments as well as an opportunity
for capital appreciation by virtue of their conversion or exchange features.
Because convertible securities can be converted into equity securities, their
values will normally vary in some proportion with those of the underlying equity
securities. Convertible securities usually provide a higher yield than the
underlying equity, however, so that the price decline of a convertible security
may sometimes be less substantial than that of the underlying equity security.
The exchange ratio for any particular convertible security may be adjusted from
time to time due to stock splits, dividends, spin-offs, other corporate
distributions or scheduled changes in the exchange ratio. Convertible debt
securities and convertible preferred stocks, until converted, have general
characteristics similar to both debt and equity securities. Although to a lesser
extent than with debt securities generally, the market value of convertible
securities tends to decline as interest rates increase and, conversely, tends to
increase as interest rates decline. In addition, because of the conversion or
exchange feature, the market value of convertible securities typically changes
as the market value of the underlying common stock changes, and, therefore, also
tends to follow movements in the general market for equity securities. When the
market price of the underlying common stock increases, the price of a
convertible security tends to rise as a reflection of the value of the
underlying common stock, although typically not as much as the price of the
underlying common stock. While no securities investments are without risk,
investments in convertible securities generally entail less risk than
investments in common stock of the same issuer.
As debt securities, convertible securities are investments that provide
for a stream of income. Like all debt securities, there can be no assurance of
income or principal payments because the issuers of the convertible securities
may default on their obligations. Convertible securities generally offer lower
yields than non-convertible securities of similar quality because of their
conversion or exchange features.
Convertible securities generally are subordinated to other similar but
non-convertible securities of the same issuer, although convertible bonds, as
corporate debt obligations, are senior in right of payment to all equity
securities, and convertible preferred stock is senior to common stock, of the
same issuer. However, convertible bonds and convertible preferred stock
typically have lower coupon rates than similar non-convertible securities.
Convertible securities may be issued as fixed income obligations that pay
current income.
SECURITIES ISSUED IN ASIA-PACIFIC COUNTRIES
Certain Asia-Pacific countries in which Ivy Asia Pacific Fund is likely to
invest are developing countries, and may be in the initial stages of their
industrialization cycle. The economic structures of developing countries
generally are less diverse and mature than in the United States, and their
political systems may be relatively unstable. Historically, markets of
developing countries have been more volatile than the markets of developed
countries, yet such markets often have provided higher rates of return to
investors.
Investing in securities of issuers in Asia-Pacific countries involves
certain considerations not typically associated with investing in securities
issued in the United States or in other developed countries, including (i)
restrictions on foreign investment and on repatriation of capital invested in
Asian countries, (ii) currency fluctuations, (iii) the cost of converting
foreign currency into United States dollars, (iv) potential price volatility and
lesser liquidity of shares traded on Asia-Pacific securities markets and (v)
political and economic risks, including the risk of nationalization or
expropriation of assets and the risk of war.
Certain Asia-Pacific countries may be more vulnerable to the ebb and flow
of international trade and to trade barriers and other protectionist or
retaliatory measures. Investments in countries that have recently opened their
capital markets and that appear to have relaxed their central planning
requirement, as well as in countries that have privatized some of their
state-owned industries, should be regarded as speculative.
The settlement period of securities transactions in foreign markets in
general may be longer than in domestic markets, and such delays may be of
particular concern in developing countries. For example, the possibility of
political upheaval and the dependence on foreign economic assistance may be
greater in developing countries than in developed countries, either one of which
may increase settlement delays.
Securities exchanges, issuers and broker-dealers in some Asia-Pacific
countries are subject to less regulatory scrutiny than in the United States. In
addition, due to the limited size of the markets for Asia-Pacific securities,
the prices for such securities may be more vulnerable to adverse publicity,
investors' perceptions or traders' positions or strategies, which could cause a
decrease not only in the value but also in the liquidity of the Fund's
investments.
THE CHINA REGION
Investors in Ivy China Region Fund should be aware that many of the China
Region countries in which the Fund is likely to invest may be subject to a
greater degree of economic, political and social instability than is the case in
the United States or other developed countries. Among the factors causing this
instability are (i) authoritarian governments or military involvement in
political and economic decision making, (ii) popular unrest associated with
demands for improved political, economic and social conditions, (iii) internal
insurgencies, (iv) hostile relations with neighboring countries, (v) ethnic,
religious and racial disaffection, and (vi) changes in trading status, any one
of which could disrupt the principal financial markets in which the Ivy China
Region Fund invests and adversely affect the value of its assets.
China Region countries tend to be heavily dependent on international
trade, as a result of which their markets are highly sensitive to protective
trade barriers and the economic conditions of their principal trading partners
(i.e., the United States, Japan and Western European countries). Protectionist
trade legislation, reduction of foreign investment in China Region economies and
general declines in the international securities markets could have a
significant adverse effect on the China Region securities markets. In addition,
certain China Region countries have in the past failed to recognize private
property rights and have at times nationalized or expropriated the assets of
private companies. There is a heightened risk in these countries that such
adverse actions might be repeated.
To the extent that any China Region country experiences rapid increases in
its money supply or investment in equity securities for speculative purposes,
the equity securities traded in such countries may trade at price-earning
multiples higher than those of comparable companies trading on securities
markets in the United States, which may not be sustainable. Finally,
restrictions on foreign investment exists to varying degrees in some China
Region countries. Where such restrictions apply, investments may be limited and
may increase the Fund's expenses.
SOUTH AMERICAN SECURITIES.
Investors in Ivy South America Fund should be aware that investing in the
securities of South American issuers may entail risks relating to the potential
political and economic instability of certain South American countries and the
risks of expropriation, nationalization, confiscation or the imposition of
restrictions on foreign investment and on repatriation of capital invested. In
the event of expropriation, nationalization or other confiscation by any
country, the Fund could lose its entire investment in any such country.
The securities markets of South American countries are substantially
smaller, less developed, less liquid and more volatile than the major securities
markets in the U.S. Disclosure and regulatory standards are in many respects
less stringent than U.S. standards. Furthermore, there is a lower level of
monitoring and regulation of the markets and the activities of investors in such
markets.
The limited size of many South American securities markets and limited
trading volume in the securities of South American issuers compared to volume of
trading in the securities of U.S. issuers could cause prices to be erratic for
reasons apart from factors that affect the soundness and competitiveness of the
securities issuers. For example, limited market size may cause prices to be
unduly influenced by traders who control large positions. Adverse publicity and
investors' perceptions, whether or not based on in-depth fundamental analysis,
may decrease the value and liquidity of portfolio securities.
The Fund invests in securities denominated in currencies of South American
countries. Accordingly, changes in the value of these currencies against the
U.S. dollar will result in corresponding changes in the U.S. dollar value of the
Fund's assets denominated in those currencies.
Some South American countries also may have managed currencies, which are
not free floating against the U.S. dollar. In addition, there is risk that
certain South American countries may restrict the free conversion of their
currencies into other countries. Further, certain South American currencies may
not be internationally traded. Certain of these currencies have experienced a
steep devaluation relative to the U.S. dollar. Any devaluations in the
currencies in which the Fund's portfolio securities are denominated may have a
detrimental impact on the Fund's net asset value.
The economies of individual South American countries may differ favorably
or unfavorably from the U.S. economy in such respects as the rate of growth of
gross domestic product, the rate of inflation, capital reinvestment, resource
self-sufficiency and balance of payments position. Certain South American
countries have experienced high levels of inflation which can have a
debilitating effect on the economy. Furthermore, certain South American
countries may impose withholding taxes on dividends payable to a Fund at a
higher rate than those imposed by other foreign countries. This may reduce the
Fund's investment income available for distribution to shareholders.
Certain South American countries such as Argentina, Brazil and Mexico are
among the world's largest debtors to commercial banks and foreign governments.
At times, certain South American countries have declared moratoria on the
payment of principal and/or interest on outstanding debt. Investment in
sovereign debt can involve a high degree of risk. The governmental entity that
controls the repayment of sovereign debt may not be able or willing to repay the
principal and/or interest when due in accordance with the terms of such debt. A
governmental entity's willingness or ability to repay principal and interest due
in a timely manner may be affected by, among other factors, its cash flow
situation, the extent of its foreign reserves, the availability of sufficient
foreign exchange on the date a payment is due, the relative size of the debt
service burden to the economy as a whole, the governmental entity's policy
towards the International Monetary Fund, and the political constraints to which
a governmental entity may be subject. Governmental entities may also be
dependent on expected disbursements from foreign governments, multilateral
agencies and others abroad to reduce principal and interest arrearages on their
debt. The commitment on the part of these governments, agencies and others to
make such disbursements may be conditioned on a governmental entity's
implementation of economic reforms and/or economic performance and the timely
service of such debtor's obligations. Failure to implement such reforms, achieve
such levels of economic performance or repay principal or interest when due may
result in the cancellation of such third parties' commitments to lend funds to
the governmental entity, which may further impair such debtor's ability or
willingness to service its debts in a timely manner. Consequently, governmental
entities may default on their sovereign debt.
Holders of sovereign debt, may be requested to participate in the
rescheduling of such debt and to extend further loans to governmental entities.
There is no bankruptcy proceeding by which defaulted sovereign debt may be
collected in whole or in part.
Governments of many South American countries have exercised and continue
to exercise substantial influence over many aspects of the private sector
through the ownership or control of many companies, including some of the
largest in those countries. As a result, government actions in the future could
have a significant effect on economic conditions which may adversely affect
prices of certain portfolio securities. Expropriation, confiscatory taxation,
nationalization, political, economic or social instability or other similar
developments, such as military coups, have occurred in the past and could also
adversely affect a Fund's investments in this region.
Changes in political leadership, the implementation of market oriented
economic policies, such as privatization, trade reform and fiscal and monetary
reform are among the recent steps taken to renew economic growth. External debt
is being restructured and flight capital (domestic capital that has left home
country) has begun to return. Inflation control efforts have also been
implemented. South American equity markets can be extremely volatile and in the
past have shown little correlation with the U.S. market. Currencies are
typically weak, but most are now relatively free floating, and it is not unusual
for the currencies to undergo wide fluctuations in value over short periods of
time due to changes in the market.
DEBT SECURITIES
IN GENERAL. Investment in debt securities involves both interest rate and
credit risk. Generally, the value of debt instruments rises and falls inversely
with fluctuations in interest rates. As interest rates decline, the value of
debt securities generally increases. Conversely, rising interest rates tend to
cause the value of debt securities to decrease. Bonds with longer maturities
generally are more volatile than bonds with shorter maturities. The market value
of debt securities also varies according to the relative financial condition of
the issuer. In general, lower-quality bonds offer higher yields due to the
increased risk that the issuer will be unable to meet its obligations on
interest or principal payments at the time called for by the debt instrument.
INVESTMENT-GRADE DEBT SECURITIES. Bonds rated Aaa by Moody's Investors
Service, Inc. ("Moody's") and AAA by Standard & Poor's Ratings Group ("S&P") are
judged to be of the best quality (i.e., capacity to pay interest and repay
principal is extremely strong). Bonds rated Aa/AA are considered to be of high
quality (i.e., capacity to pay interest and repay principal is very strong and
differs from the highest rated issues only to a small degree). Bonds rated A are
viewed as having many favorable investment attributes, but elements may be
present that suggest a susceptibility to the adverse effects of changes in
circumstances and economic conditions than debt in higher rated categories.
Bonds rated Baa/BBB (considered by Moody's to be "medium grade" obligations) are
considered to have an adequate capacity to pay interest and repay principal, but
certain protective elements may be lacking (i.e., such bonds lack outstanding
investment characteristics and have some speculative characteristics). Each Fund
may invest in debt securities that are given an investment-grade rating by
Moody's or S&P, and may also invest in unrated debt securities that are
considered by IMI to be of comparable quality.
LOW-RATED DEBT SECURITIES. Securities rated lower than Baa by Moody's or
BBB by S&P, and comparable unrated securities (commonly referred to as "high
yield" or "junk" bonds), including many emerging markets bonds, are considered
to be predominantly speculative with respect to the issuer's continuing ability
to meet principal and interest payments. The lower the ratings of corporate debt
securities, the more their risks render them like equity securities. Such
securities carry a high degree of risk (including the possibility of default or
bankruptcy of the issuers of such securities), and generally involve greater
volatility of price and risk of principal and income (and may be less liquid)
than securities in the higher rating categories. (See Appendix A for a more
complete description of the ratings assigned by Moody's and S&P and their
respective characteristics.)
Lower rated and unrated securities are especially subject to adverse
changes in general economic conditions and to changes in the financial condition
of their issuers. Economic downturns may disrupt the high yield market and
impair the ability of issuers to repay principal and interest. Also, an increase
in interest rates would likely have an adverse impact on the value of such
obligations. During an economic downturn or period of rising interest rates,
highly leveraged issuers may experience financial stress which could adversely
affect their ability to service their principal and interest payment
obligations. Prices and yields of high yield securities will fluctuate over time
and, during periods of economic uncertainty, volatility of high yield securities
may adversely affect each Fund's net asset value. In addition, investments in
high yield zero coupon or pay-in-kind bonds, rather than income-bearing high
yield securities, may be more speculative and may be subject to greater
fluctuations in value due to changes in interest rates.
Changes in interest rates may have a less direct or dominant impact on
high yield bonds than on higher quality issues of similar maturities. However,
the price of high yield bonds can change significantly or suddenly due to a host
of factors including changes in interest rates, fundamental credit quality,
market psychology, government regulations, U.S. economic growth and, at times,
stock market activity. High yield bonds may contain redemption or call
provisions. If an issuer exercises these provisions in a declining interest rate
market, a Fund may have to replace the security with a lower yielding security.
The trading market for high yield securities may be thin to the extent
that there is no established retail secondary market or because of a decline in
the value of such securities. A thin trading market may limit the ability of
each Fund to accurately value high yield securities in that Fund's portfolio,
could adversely affect the price at which the Fund could sell such securities,
and cause large fluctuations in the daily net asset value of the Fund's shares.
Adverse publicity and investor perceptions, whether or not based on fundamental
analysis, may decrease the value and liquidity of low-rated debt securities,
especially in a thinly traded market. When secondary markets for high yield
securities become relatively less liquid, it may be more difficult to value the
securities, requiring additional research and elements of judgment. These
securities may also involve special registration responsibilities, liabilities
and costs, and liquidity and valuation difficulties.
Credit quality in the high yield securities market can change suddenly and
unexpectedly, and even recently issued credit ratings may not fully reflect the
actual risks posed by a particular high yield security. For these reasons, it is
the policy of IMI not to rely exclusively on ratings issued by established
credit rating agencies, but to supplement such ratings with its own independent
and on-going review of credit quality. The achievement of each Fund's investment
objectives by investment in such securities may be more dependent on IMI's
credit analysis than is the case for higher quality bonds. Should the rating of
a portfolio security be downgraded, IMI will determine whether it is in the best
interest of the Fund to retain or dispose of such security. However, should any
individual bond held by a Fund be downgraded below a rating of C, IMI currently
intends to dispose of such bond based on then existing market conditions.
Prices for high yield securities may be affected by legislative and
regulatory developments. For example, Federal rules require savings and loan
institutions to gradually reduce their holdings of this type of security. Also,
Congress has from time to time considered legislation that would restrict or
eliminate the corporate tax deduction for interest payments in these securities
and regulate corporate restructurings. Such legislation may significantly
depress the prices of outstanding securities of this type.
U.S. GOVERNMENT SECURITIES. U.S. Government securities are obligations
of, or guaranteed by, the U.S. Government, its agencies or instrumentalities.
Securities guaranteed by the U.S. Government include: (1) direct obligations of
the U.S. Treasury (such as Treasury bills, notes, and bonds) and (2) Federal
agency obligations guaranteed as to principal and interest by the U.S. Treasury
(such as GNMA certificates, which are mortgage-backed securities). When such
securities are held to maturity, the payment of principal and interest is
unconditionally guaranteed by the U.S. Government, and thus they are of the
highest possible credit quality. U.S. Government securities that are not held to
maturity are subject to variations in market value due to fluctuations in
interest rates.
Mortgage-backed securities are securities representing part ownership of a
pool of mortgage loans. For example, GNMA certificates are such securities in
which the timely payment of principal and interest is guaranteed by the full
faith and credit of the U.S. Government. Although the mortgage loans in the pool
will have maturities of up to 30 years, the actual average life of the loans
typically will be substantially less because the mortgages will be subject to
principal amortization and may be prepaid prior to maturity. Prepayment rates
vary widely and may be affected by changes in market interest rates. In periods
of falling interest rates, the rate of prepayment tends to increase, thereby
shortening the actual average life of the security. Conversely, rising interest
rates tend to decrease the rate of prepayments, thereby lengthening the actual
average life of the security (and increasing the security's price volatility).
Accordingly, it is not possible to predict accurately the average life of a
particular pool. Reinvestment of prepayment may occur at higher or lower rates
than the original yield on the certificates. Due to the prepayment feature and
the need to reinvest prepayments of principal at current rates, mortgage-backed
securities can be less effective than typical bonds of similar maturities at
"locking in" yields during periods of declining interest rates, and may involve
significantly greater price and yield volatility than traditional debt
securities. Such securities may appreciate or decline in market value during
periods of declining or rising interest rates, respectively.
Securities issued by U.S. Government instrumentalities and certain Federal
agencies are neither direct obligations of nor guaranteed by the U.S. Treasury;
however, they involve Federal sponsorship in one way or another. Some are backed
by specific types of collateral, some are supported by the issuer's right to
borrow from the Treasury, some are supported by the discretionary authority of
the Treasury to purchase certain obligations of the issuer, others are supported
only by the credit of the issuing government agency or instrumentality. These
agencies and instrumentalities include, but are not limited to, Federal Land
Banks, Farmers Home Administration, Central Bank for Cooperatives, Federal
Intermediate Credit Banks, Federal Home Loan Banks, Federal National Mortgage
Association, Federal Home Loan Mortgage Association, and Student Loan Marketing
Association.
ZERO COUPON BONDS. Zero coupon bonds are debt obligations issued without
any requirement for the periodic payment of interest. Zero coupon bonds are
issued at a significant discount from face value. The discount approximates the
total amount of interest the bonds would accrue and compound over the period
until maturity at a rate of interest reflecting the market rate at the time of
issuance. If a 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 a 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 each Fund on a
current basis, but is in effect compounded, the value of the securities of this
type is subject to greater fluctuations in response to changing interest rates
than the value of debt obligations which distribute income regularly.
FIRM COMMITMENT AGREEMENTS AND "WHEN-ISSUED" SECURITIES. New issues of
certain debt securities are often offered on a "when-issued" basis, meaning the
payment obligation and the interest rate are fixed at the time the buyer enters
into the commitment, but delivery and payment for the securities normally take
place after the date of the commitment to purchase. Firm commitment agreements
call for the purchase of securities at an agreed-upon price on a specified
future date. Each Fund uses such investment techniques in order to secure what
is considered to be an advantageous price and yield to that Fund and not for
purposes of leveraging the Fund's assets. In either instance, each Fund will
maintain in a segregated account with its Custodian cash or liquid securities
equal (on a daily marked-to-market basis) to the amount of its commitment to
purchase the underlying securities.
ILLIQUID SECURITIES
Each Fund may purchase securities other than in the open market. While
such purchases may often offer attractive opportunities for investment not
otherwise available on the open market, the securities so purchased are often
"restricted securities" or "not readily marketable" (i.e., they cannot be sold
to the public without registration under the Securities Act of 1933, as amended
(the "1933 Act"), or the availability of an exemption from registration (such as
Rule 144A) or because they are subject to other legal or contractual delays in
or restrictions on resale). This investment practice, therefore, could have the
effect of increasing the level of illiquidity of each Fund. It is each Fund's
policy that illiquid securities (including repurchase agreements of more than
seven days duration, certain restricted securities, and other securities which
are not readily marketable) may not constitute, at the time of purchase, more
than 15% of the value of the Fund's net assets. The Trust's Board of Trustees
has approved guidelines for use by IMI in determining whether a security is
illiquid.
Generally speaking, restricted securities may be sold (i) only to
qualified institutional buyers; (ii) in a privately negotiated transaction to a
limited number of purchasers; (iii) in limited quantities after they have been
held for a specified period of time and other conditions are met pursuant to an
exemption from registration; or (iv) in a public offering for which a
registration statement is in effect under the 1933 Act. Issuers of restricted
securities may not be subject to the disclosure and other investor protection
requirements that would be applicable if their securities were publicly traded.
If adverse market conditions were to develop during the period between a 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, a
Fund may be required to bear all or part of the registration expenses. Each Fund
may be deemed to be an "underwriter" for purposes of the 1933 Act when selling
restricted securities to the public and, in such event, the Fund may be liable
to purchasers of such securities if the registration statement prepared by the
issuer is materially inaccurate or misleading.
Since it is not possible to predict with assurance that the market for
securities eligible for resale under Rule 144A will continue to be liquid, IMI
will monitor such restricted securities subject to the supervision of the Board
of Trustees. Among the factors IMI may consider in reaching liquidity decisions
relating to Rule 144A securities are: (1) the frequency of trades and quotes for
the security; (2) the number of dealers wishing to purchase or sell the security
and the number of other potential purchasers; (3) dealer undertakings to make a
market in the security; and (4) the nature of the security and the nature of the
market for the security (i.e., the time needed to dispose of the security, the
method of soliciting offers, and the mechanics of the transfer).
FOREIGN SECURITIES
The securities of foreign issuers in which each Fund may invest include
non-U.S. dollar-denominated debt securities, Euro dollar securities, sponsored
and unsponsored American Depository Receipts ("ADRs"), Global Depository
Receipts ("GDRs") and related depository instruments, American Depository Shares
("ADSs"), Global Depository Shares ("GDSs"), and debt securities issued, assumed
or guaranteed by foreign governments or political subdivisions or
instrumentalities thereof. Shareholders should consider carefully the
substantial risks involved in investing in securities issued by companies and
governments of foreign nations, which are in addition to the usual risks
inherent in each Fund's domestic investments.
Although IMI intends to invest each Fund's assets only in nations that are
generally considered to have relatively stable and friendly governments, there
is the possibility of expropriation, nationalization, repatriation or
confiscatory taxation, taxation on income earned in a foreign country and other
foreign taxes, foreign exchange controls (which may include suspension of the
ability to transfer currency from a given country), default on foreign
government securities, political or social instability or diplomatic
developments which could affect investments in securities of issuers in those
nations. In addition, in many countries there is less publicly available
information about issuers than is available for U.S. companies. Moreover,
foreign companies are not generally subject to uniform accounting, auditing and
financial reporting standards, and auditing practices and requirements may not
be comparable to those applicable to U.S. companies. In many foreign countries,
there is less governmental supervision and regulation of business and industry
practices, stock exchanges, brokers, and listed companies than in the United
States. Foreign securities transactions may also be subject to higher brokerage
costs than domestic securities transactions. The foreign securities markets of
many of the countries in which each Fund may invest may also be smaller, less
liquid and subject to greater price volatility than those in the United States.
In addition, each Fund may encounter difficulties or be unable to pursue legal
remedies and obtain judgment in foreign courts.
Foreign bond markets have different clearance and settlement procedures
and in certain markets there have been times when settlements have been unable
to keep pace with the volume of securities transactions, making it difficult to
conduct such transactions. Delays in settlement could result in temporary
periods when assets of each Fund are uninvested and no return is earned thereon.
The inability of each 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 a Fund because of subsequent declines
in the value of the portfolio security or, if the Fund has entered into a
contract to sell the security, in possible liability to the purchaser. It may be
more difficult for each Fund's agents to keep currently informed about corporate
actions such as stock dividends or other matters that may affect the prices of
portfolio securities. Communications between the United States and foreign
countries may be less reliable than within the United States, thus increasing
the risk of delayed settlements of portfolio transactions or loss of
certificates for portfolio securities. Moreover, individual foreign economies
may differ favorably or unfavorably from the United States economy in such
respects as growth of gross national product, rate of inflation, capital
reinvestment, resource self-sufficiency and balance of payments position. IMI
seeks to mitigate the risks to each Fund associated with the foregoing
considerations through investment variation and continuous professional
management.
DEPOSITORY RECEIPTS
ADRs, GDRs, ADSs, GDSs and related securities are depository instruments,
the issuance of which is typically administered by a U.S. or foreign bank or
trust company. These instruments evidence ownership of underlying securities
issued by a U.S. or foreign corporation. ADRs are publicly traded on exchanges
or over-the-counter ("OTC") in the United States. Unsponsored programs are
organized independently and without the cooperation of the issuer of the
underlying securities. As a result, information concerning the issuer may not be
as current or as readily available as in the case of sponsored depository
instruments, and their prices may be more volatile than if they were sponsored
by the issuers of the underlying securities.
EMERGING MARKETS
Each 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 each Fund's performance favorably or unfavorably.
In recent years, many emerging market countries around the world have
undergone political changes that have reduced government's role in economic and
personal affairs and have stimulated investment and growth. Historically, there
is a strong direct correlation between economic growth and stock market returns.
While this is no guarantee of future performance, IMI believes that investment
opportunities (particularly in the energy, environmental services, natural
resources, basic materials, power, telecommunications and transportation
industries) may result within the evolving economies of emerging market
countries from which each Fund and its shareholders will benefit.
Investments in companies domiciled in developing countries may be subject
to potentially higher risks than investments in developed countries. Such risks
include (i) less social, political and economic stability; (ii) a small market
for securities and/or a low or nonexistent volume of trading, which result in a
lack of liquidity and in greater price volatility; (iii) certain national
policies that may restrict each 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 each 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, each 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 each 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
each Fund's cash and securities, each Fund's investment in such countries may be
limited or may be required to be effected through intermediaries. The risk of
loss through governmental confiscation may be increased in such countries.
FOREIGN CURRENCIES
Investment in foreign securities usually will involve currencies of
foreign countries. Moreover, each 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 each 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 each Fund may incur costs in connection with
conversions between various currencies. Although each Fund's custodian values
each Fund's assets daily in terms of U.S. dollars, each Fund does not intend to
convert its holdings of foreign currencies into U.S. dollars on a daily basis.
Each 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 a Fund at one
rate, while offering a lesser rate of exchange should the Fund desire to resell
that currency to the dealer. Each Fund will conduct its foreign currency
exchange transactions either on a spot (i.e., cash) basis at the spot rate
prevailing in the foreign currency exchange market, or through entering into
forward contracts to purchase or sell foreign currencies.
Because each Fund normally will be invested in both U.S. and foreign
securities markets, changes in each Fund's share price may have a low
correlation with movements in U.S. markets. Each Fund's share price will reflect
the movements of the different stock and bond markets in which it is invested
(both U.S. and foreign), and of the currencies in which the investments are
denominated. Thus, the strength or weakness of the U.S. dollar against foreign
currencies may account for part of each Fund's investment performance. U.S. and
foreign securities markets do not always move in step with each other, and the
total returns from different markets may vary significantly. In addition,
significant uncertainty surrounds the proposed introduction of the euro (a
common currency for the European Union) in January 1999 and its effect on the
value of securities denominated in local European currencies. These and other
currencies in which each Fund's assets are denominated may be devalued against
the U.S. dollar, resulting in a loss to each Fund.
FOREIGN CURRENCY EXCHANGE TRANSACTIONS
Each Fund may enter into forward foreign currency contracts in order to
protect against uncertainty in the level of future foreign exchange rates in the
purchase and sale of securities. A forward contract is an obligation to purchase
or sell a specific currency for an agreed price at a future date (usually less
than a year), and typically is individually negotiated and privately traded by
currency traders and their customers. A forward contract generally has no
deposit requirement, and no commissions are charged at any stage for trades.
Although foreign exchange dealers do not charge a fee for commissions, they do
realize a profit based on the difference between the price at which they are
buying and selling various currencies. Although these contracts are intended to
minimize the risk of loss due to a decline in the value of the hedged
currencies, at the same time, they tend to limit any potential gain which might
result should the value of such currencies increase.
While each Fund may enter into forward contracts to reduce currency
exchange risks, changes in currency exchange rates may result in poorer overall
performance for each Fund than if it had not engaged in such transactions.
Moreover, there may be an imperfect correlation between a 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 each Fund from achieving the intended hedge or expose the Fund to the
risk of currency exchange loss.
Each Fund may purchase currency forwards and combine such purchases with
sufficient cash or short-term securities to create unleveraged substitutes for
investments in foreign markets when deemed advantageous. Each Fund may also
combine the foregoing with bond futures or interest rate futures contracts to
create the economic equivalent of an unhedged foreign bond position.
Each Fund may also cross-hedge currencies by entering into transactions to
purchase or sell one or more currencies that are expected to decline in value
relative to other currencies to which the Fund has or in which the Fund expects
to have portfolio exposure.
Currency transactions are subject to risks different from those of other
portfolio transactions. Because currency control is of great importance to the
issuing governments and influences economic planning and policy, purchases and
sales of currency and related instruments can be negatively affected by
government exchange controls, blockages, and manipulations or exchange
restrictions imposed by governments. These can result in losses to each Fund if
it is unable to deliver or receive currency or funds in settlement of
obligations and could also cause hedges it has entered into to be rendered
useless, resulting in full currency exposure as well as incurring transactions
costs. Buyers and sellers of currency futures are subject to the same risks that
apply to the use of futures generally. Further, settlement of a currency futures
contract for the purchase of most currencies must occur at a bank based in the
issuing nation. Trading options on currency futures is relatively new, and the
ability to establish and close out positions on such options is subject to the
maintenance of a liquid market which may not always be available. Currency
exchange rates may fluctuate based on factors extrinsic to that country's
economy.
OTHER INVESTMENT COMPANIES
Each Fund may invest up to 10% of its total assets in the shares of other
investment companies. As a shareholder of an investment company, each Fund would
bear its ratable shares of the fund's expenses (which often include an
asset-based management fee). Each Fund could also lose money by investing in
other investment companies, since the value of their respective investments and
the income they generate will vary daily based on prevailing market conditions.
REPURCHASE AGREEMENTS
Repurchase agreements are contracts under which a 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, each Fund is permitted to enter into repurchase
agreements only if the repurchase agreements are at least fully collateralized
with U.S. Government securities or other securities that IMI has approved for
use as collateral for repurchase agreements and the collateral must be
marked-to-market daily. Each Fund will enter into repurchase agreements only
with banks and broker-dealers deemed to be creditworthy by IMI under the
above-referenced guidelines. In the unlikely event of failure of the executing
bank or broker-dealer, a Fund could experience some delay in obtaining direct
ownership of the underlying collateral and might incur a loss if the value of
the security should decline, as well as costs in disposing of the security.
BANKING INDUSTRY AND SAVINGS AND LOAN OBLIGATIONS
Certificates of deposit are negotiable certificates issued against funds
deposited in a commercial bank for a definite period of time and earning a
specified return. Bankers' acceptances are negotiable drafts or bills of
exchange, normally drawn by an importer or exporter to pay for specific
merchandise, which are "accepted" by a bank (meaning, in effect, that the bank
unconditionally agrees to pay the face value of the instrument at maturity). In
addition to investing in certificates of deposit and bankers' acceptances, each
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. Each Fund's investments in certificates of deposit, time
deposits, and bankers' acceptance are limited to obligations of (i) banks having
total assets in excess of $1 billion, (ii) U.S. banks which do not meet the $1
billion asset requirement, if the principal amount of such obligation is fully
insured by the Federal Deposit Insurance Corporation (the "FDIC"), (iii) savings
and loan association which have total assets in excess of $1 billion and which
are members of the FDIC, and (iv) foreign banks if the obligation is, in IMI's
opinion, of an investment quality comparable to other debt securities which may
be purchased by a Fund. Each Fund's investments in certificates of deposit of
savings associations are limited to obligations of Federal and state-chartered
institutions whose total assets exceed $1 billion and whose deposits are insured
by the FDIC.
COMMERCIAL PAPER
Commercial paper represents short-term unsecured promissory notes issued
in bearer form by bank holding companies, corporations and finance companies.
Each Fund may invest in commercial paper that is rated Prime-1 by Moody's
Investors Service, Inc. ("Moody's") or A-1 by Standard & Poor's Corporation
("S&P") or, if not rated by Moody's or S&P, is issued by companies having an
outstanding debt issue rated Aaa or Aa by Moody's or AAA or AA by S&P.
BORROWING
Borrowing may exaggerate the effect on each 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 each Fund's borrowings will be fixed, each Fund's assets may change in value
during the time a borrowing is outstanding, thus increasing exposure to capital
risk.
WARRANTS
The holder of a warrant has the right, until the warrant expires, to
purchase a given number of shares of a particular issuer at a specified price.
Such investments can provide a greater potential for profit or loss than an
equivalent investment in the underlying security. However, prices of warrants do
not necessarily move in a tandem with the prices of the underlying securities,
and are, therefore, considered speculative investments. Warrants pay no
dividends and confer no rights other than a purchase option. Thus, if a warrant
held by any Fund were not exercised by the date of its expiration, the Fund
would lose the entire purchase price of the warrant.
OPTIONS TRANSACTIONS
IN GENERAL. A call option is a short-term contract (having a duration of
less than one year) pursuant to which the purchaser, in return for the premium
paid, has the right to buy the security underlying the option at the specified
exercise price at any time during the term of the option. The writer of the call
option, who receives the premium, has the obligation, upon exercise of the
option, to deliver the underlying security against payment of the exercise
price. A put option is a similar contract pursuant to which the purchaser, in
return for the premium paid, has the right to sell the security underlying the
option at the specified exercise price at any time during the term of the
option. The writer of the put option, who receives the premium, has the
obligation, upon exercise of the option, to buy the underlying security at the
exercise price. The premium paid by the purchaser of an option will reflect,
among other things, the relationship of the exercise price to the market price
and volatility of the underlying security, the time remaining to expiration of
the option, supply and demand, and interest rates.
If the writer of a U.S. exchange-traded 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. Closing purchase transactions are not available in OTC
transactions. In order to terminate an obligation in an OTC transaction, the
Fund would need to negotiate directly with the counterparty to the transaction.
Each Fund will realize a gain (or a loss) on a closing purchase
transaction with respect to a call or a put previously written by that 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 a 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 each Fund, are taxable as ordinary income. See "Taxation."
Each Fund will realize a gain (or a loss) on a closing sale transaction
with respect to a call or a put previously purchased by that 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 each Fund
and its counterparty (usually a securities dealer or a financial institution)
with no clearing organization guarantee. When a 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. Each Fund may write (sell)
covered call options on that Fund's securities in an attempt to realize a
greater current return than would be realized on the securities alone. Each 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 each Fund for the options).
In view of the investment objectives of each Fund, each Fund generally would
write call options only in circumstances where the investment adviser to that
Fund does not anticipate significant appreciation of the underlying security in
the near future or has otherwise determined to dispose of the security.
A "covered" call option means generally that so long as any Fund is
obligated as the writer of a call option, that 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 each
Fund receives premium income from these activities, any appreciation realized on
an underlying security will be limited by the terms of the call option. Each
Fund may purchase call options on individual securities only to effect a
"closing purchase transaction."
As the writer of a call option, each 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 a 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. Each Fund may purchase a put
option on an underlying security owned by that Fund as a defensive technique in
order to protect against an anticipated decline in the value of the security.
Each 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 any Fund for leverage purposes.
Each 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, a 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. A 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. Each Fund may write (sell) put options on individual securities only to
effect a "closing sale transaction."
PURCHASING AND WRITING OPTIONS ON SECURITIES INDICES. Each 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. Call
options on indices are similar to call 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 a 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 a 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 a
Fund holds a put on the same index as the put written where the exercise price
of the put held is (i) equal to or greater than the exercise price of the put
written or (ii) less than the exercise price of the put written, provided that
the Fund maintains in a segregated account with the Custodian the difference in
cash or liquid securities.
RISKS OF OPTIONS TRANSACTIONS. The purchase and writing of options
involves certain risks. During the option period, the covered call writer has,
in return for the premium on the option, given up the opportunity to profit from
a price increase in the underlying securities above the exercise price, but, as
long as its obligation as a writer continues, has retained the risk of loss
should the price of the underlying security decline. The writer of a U.S. option
has no control over the time when it may be required to fulfill its obligation
as a writer of the option. Once an option writer has received an exercise
notice, it cannot effect a closing purchase transaction in order to terminate
its obligation under the option and must deliver the underlying securities (or
cash in the case of an index option) at the exercise price. If a put or call
option purchased by any 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, that 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 a Fund
seeks to close out an option position. Furthermore, if trading restrictions or
suspensions are imposed on the options markets, a 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. Transfer of an
OTC option is usually prohibited absent the consent of the original
counterparty. There is no assurance that any Fund will be able to close out an
OTC option position at a favorable price prior to its expiration. An OTC
counterparty may fail to delivery or to pay, as the case may be. In the event of
insolvency of the counterparty, a Fund might be unable to close out an OTC
option position at any time prior to its expiration. Although each Fund may be
able to offset to some extent any adverse effects of being unable to liquidate
an option position, each Fund may experience losses in some cases as a result of
such inability.
When conducted outside the U.S., options transactions may not be regulated
as rigorously as in the U.S., may not involve a clearing mechanism and related
guarantees, and are subject to the risk of governmental actions affecting
trading in, or the prices of, foreign securities, currencies and other
instruments. The value of such positions also could be adversely affected by:
(i) other complex foreign political, legal and economic factors, (ii) lesser
availability than in the U.S. of data on which to make trading decisions, (iii)
delays in a Fund's ability to act upon economic events occurring in foreign
markets during non-business hours in the U.S., (iv) the imposition of different
exercise and settlement terms and procedures and margin requirements than in the
U.S., and (v) lower trading volume and liquidity.
Each Fund's options activities also may have an impact upon the level
of its portfolio turnover and brokerage commissions. See "Portfolio
Turnover."
Each Fund's success in using options techniques depends, among other
things, on IMI's ability to predict accurately the direction and volatility of
price movements in the options and securities markets, and to select the proper
type, timing of use and duration of options.
FUTURES CONTRACTS AND OPTIONS ON FUTURES CONTRACTS
IN GENERAL. Each 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 any Fund, that Fund is required to deposit with its
custodian (or broker, if legally permitted) a specified amount of cash or liquid
securities ("initial margin"). The margin required for a futures contract is set
by the exchange on which the contract is traded and may be modified during the
term of the contract. The initial margin is in the nature of a performance bond
or good faith deposit on the futures contract which is returned to the Fund upon
termination of the contract, assuming all contractual obligations have been
satisfied. A futures contract held by a Fund is valued daily at the official
settlement price of the exchange on which it is traded. Each day each 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 a Fund but is instead a
settlement between a Fund and the broker of the amount one would owe the other
if the futures contract expired. In computing daily net asset value, each Fund
will mark-to-market its open futures position.
Each Fund is also required to deposit and maintain margin with respect to
put and call options on futures contracts written by it. Such margin deposits
will vary depending on the nature of the underlying futures contract (and the
related initial margin requirements), the current market value of the option,
and other futures positions held by the Fund.
Although some futures contracts call for making or taking delivery of the
underlying securities, generally these obligations are closed out prior to
delivery of offsetting purchases or sales of matching futures contracts (same
exchange, underlying security or index, and delivery month). If an offsetting
purchase price is less than the original sale price, a 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, a 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, each Fund will maintain with its
Custodian (and mark-to-market on a daily basis) cash or liquid securities that,
when added to the amounts deposited with a futures commission merchant ("FCM")
as margin, are equal to the market value of the futures contract. Alternatively,
a Fund may "cover" its position by purchasing a put option on the same futures
contract with a strike price as high as or higher than the price of the contract
held by the Fund, or, if lower, may cover the difference with cash or short-term
securities.
When selling a futures contract, each 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, a Fund may "cover" its position by owning the
instruments underlying the contract (or, in the case of an index futures
contract, a portfolio with a volatility substantially similar to that of the
index on which the futures contract is based), or by holding a call option
permitting the Fund to purchase the same futures contract at a price no higher
than the price of the contract written by the Fund (or at a higher price if the
difference is maintained in liquid assets with the Fund's custodian).
When selling a call option on a futures contract, each 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, a Fund may cover its position by entering into a
long position in the same futures contract at a price no higher than the strike
price of the call option, by owning the instruments underlying the futures
contract, or by holding a separate call option permitting the Fund to purchase
the same futures contract at a price not higher than the strike price of the
call option sold by the Fund, or covering the difference if the price is higher.
When selling a put option on a futures contract, each Fund will maintain
with its Custodian (and mark-to-market on a daily basis) cash or liquid
securities that equal the purchase price of the futures contract less any margin
on deposit. Alternatively, a Fund may cover the position either by entering into
a short position in the same futures contract, or by owning a separate put
option permitting it to sell the same futures contract so long as the strike
price of the purchased put option is the same or higher than the strike price of
the put option sold by the Fund, or, if lower, the Fund may hold securities to
cover the difference.
FOREIGN CURRENCY FUTURES CONTRACTS AND RELATED OPTIONS. Each 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.
Each 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 that 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. Each 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.
Each Fund will only enter into futures contracts and futures options which
are standardized and traded on a U.S. or foreign exchange, board of trade, or
similar entity or quoted on an automated quotation system. Each 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
that Fund plus premiums paid by it for open futures option positions, less the
amount by which any such positions are "in-the-money," would exceed 5% of the
liquidation value of the Fund's portfolio (or the Fund's net asset value), after
taking into account unrealized profits and unrealized losses on any such
contracts the Fund has entered into. A call option is "in-the-money" if the
value of the futures contract that is the subject of the option exceeds the
exercise price. A put option is "in-the-money" if the exercise price exceeds the
value of the futures contract that is the subject of the option. For additional
information about margin deposits required with respect to futures contracts and
options thereon, see "Futures Contracts and Options on Futures Contracts."
RISKS ASSOCIATED WITH FUTURES AND RELATED OPTIONS. There can be no
guarantee that there will be a correlation between price movements in the
hedging vehicle and in any 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
any Fund seeks to close out a futures or a futures option position, and that
Fund would remain obligated to meet margin requirements until the position is
closed. In addition, there can be no assurance that an active secondary market
will continue to exist.
Currency futures contracts and options thereon may be traded on foreign
exchanges. Such transactions may not be regulated as effectively as similar
transactions in the United States; may not involve a clearing mechanism and
related guarantees; and are subject to the risk of governmental actions
affecting trading in, or the prices of, foreign securities. The value of such
position also could be adversely affected by (i) other complex foreign
political, legal and economic factors, (ii) lesser availability than in the
United States of data on which to make trading decisions, (iii) delays in a
Fund's ability to act upon economic events occurring in foreign markets during
non business hours in the United States, (iv) the imposition of different
exercise and settlement terms and procedures and margin requirements than in the
United States, and (v) lesser trading volume.
SECURITIES INDEX FUTURES CONTRACTS
Each Fund may enter into securities index futures contracts as an
efficient means of regulating the Fund's exposure to the equity markets. Each
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 that Fund's portfolio or which it intends to purchase. An
index futures contract is a contract to buy or sell units of an index at a
specified future date at a price agreed upon when the contract is made. Entering
into a contract to buy units of an index is commonly referred to as purchasing a
contract or holding a long position in the index. Entering into a contract to
sell units of an index is commonly referred to as selling a contract or holding
a short position. The value of a unit is the current value of the stock index.
For example, the S&P 500 Index is composed of 500 selected common stocks, most
of which are listed on the New York Stock Exchange (the "Exchange"). The S&P 500
Index assigns relative weightings to the 500 common stocks included in the
Index, and the Index fluctuates with changes in the market values of the shares
of those common stocks. In the case of the S&P 500 Index, contracts are to buy
or sell 500 units. Thus, if the value of the S&P 500 Index were $150, one
contract would be worth $75,000 (500 units x $150). The index futures contract
specifies that no delivery of the actual securities making up the index will
take place. Instead, settlement in cash must occur upon the termination of the
contract, with the settlement being the difference between the contract price
and the actual level of the stock index at the expiration of the contract. For
example, if a 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 a 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. Each Fund's success in using hedging
techniques depends, among other things, on IMI's ability to predict correctly
the direction and volatility of price movements in the futures and options
markets as well as in the securities markets and to select the proper type, time
and duration of hedges. The skills necessary for successful use of hedges are
different from those used in the selection of individual stocks.
Each Fund's ability to hedge effectively all or a portion of its
securities through transactions in index futures (and therefore the extent of
its gain or loss on such transactions) depends on the degree to which price
movements in the underlying index correlate with price movements in the Fund's
securities. Inasmuch as such securities will not duplicate the components of an
index, the correlation probably will not be perfect. Consequently, each 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 each Fund's portfolio diverges from the composition of the
hedging instrument.
Although each 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 a 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,
a 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, a Fund generally realizes a
capital gain, or if it is more, a Fund generally realizes a capital loss.
Conversely, if an offsetting sale price is more than the original purchase
price, a 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.
Each 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. Each 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, each Fund will maintain with
its Custodian (and mark-to-market on a daily basis) cash or liquid securities
that, when added to the amounts deposited with a futures commission merchant
("FCM") as margin, are equal to the market value of the futures contract.
Alternatively, a 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, each Fund will maintain with its
Custodian (and mark-to-market on a daily basis) cash or liquid securities that,
when added to the amounts deposited with an FCM as margin, are equal to the
market value of the instruments underlying the contract. Alternatively, a 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. Each Fund may enter into multiple transactions,
including multiple options transactions, multiple futures transactions and
multiple currency transactions (including forward currency contracts) and some
combination of futures, options, and currency transactions ("component"
transactions), instead of a single transaction, as part of a single or combined
strategy when, in the opinion of IMI, it is in the best interests of that Fund
to do so. A combined transaction will usually contain elements of risk that are
present in each of its component transactions. Although combined transactions
are normally entered into based on IMI's judgment that the combined strategies
will reduce risk or otherwise more effectively achieve the desired portfolio
management goal, it is possible that the combination will instead increase such
risks or hinder achievement of the management objective.
PORTFOLIO TURNOVER
Each 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, each
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 a 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.
Each 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 each Fund's
portfolio turnover rate, all securities whose maturities at the time of
acquisition were one year or less are excluded.
TRUSTEES AND OFFICERS
Each Fund's Board of Trustees (the "Board") is responsible for the
overall management of the Fund, including general supervision and review of the
Fund's investment activities. The Board, in turn, elects the officers who are
responsible for administering each Fund's day-to-day operations.
The Trustees and Executive Officers of the Trust, their business
addresses and principal occupations during the past five years are:
POSITION WITH BUSINESS AFFILIATIONS
NAME, ADDRESS, AGE THE TRUST AND PRINCIPAL OCCUPATIONS
John S. Anderegg, Jr. Trustee Chairman, Dynamics Research
60 Concord Street Corp. (instruments and controls);
Wilmington, MA 01887 Director, Burr-Brown Corp.
Age: 75 (operational amplifiers);
Director, Metritage Incorporated
(level measuring instruments);
Trustee of Mackenzie Series Trust
(1992-1998).
James W. Broadfoot President President,
700 South Federal Hwy. and Ivy Management Inc. (1996-
Suite 300 Trustee present); Senior Vice
Boca Raton, FL 33432 President, Ivy Management,
Age: 56 Inc. (1992-1996); Director and Senior
[*Deemed to be an Vice President, Mackenzie Investment
"interested person" Management Inc. (1995-present); Senior
of the Trust, as Vice President, Mackenzie Investment
defined under the Management Inc. (1990-1995).
1940 Act.]
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: 75 (insurance agency); Chairman,
Scott Management Company
(administrative services for
insurance companies); President,
The Channick Group (consultants
to insurance companies and
national trade associations);
Trustee of Mackenzie Series
Trust (1994-1998); Director of
The Mackenzie Funds Inc.
(1994-1995).
Frank W. DeFriece, Jr. Trustee Director, Manager and Vice
The Landmark Centre President, Director and
113 Landmark Lane, Fund Manager, Massengill-
Suite B DeFriece Foundation
Bristol, TN 37620-2285 (charitable organization)
Age: 78 (1950-present); Trustee and Vice
Chairman, East Tennessee Public
Communications Corp. (WSJK-TV)
(1984-present); Trustee of
Mackenzie Series Trust
(1985-1998); Director of The
Mackenzie Funds Inc. (1987-1995).
Roy J. Glauber Trustee Mallinckrodt Professor of
Lyman Laboratory Physics, Harvard
of Physics University (1974-present);
Harvard University Trustee of Mackenzie Series
Cambridge, MA 02138 Trust (1994-1997).
Age: 73
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: 69 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 Chairman -present); Senior Vice President
Boca Raton, FL 33432 and Director of Mackenzie
Age: 42 Investment Management, Inc. (1994-
[*Deemed to be an 1996); Senior Vice President and
"interested person" Treasurer of Mackenzie Investment
of the Trust, as defined Management, Inc. (1989-1994);
under the Senior Vice President and Director
1940 Act.] 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).
Edward M. Tighe Trustee Chief Executive Officer,
5900 N. Andrews Avenue CITCO Technology Management, Inc.
Suite 700 ("CITCO") (computer software develop-
Ft. Lauderdale, FL 33309 ment and consulting) (1999-present);
President and Director, Global
Technology Management, Inc. (CITCO's
predecessor) (1992-1998); Managing
Director, Global Mutual Fund Services,
Ltd. (financial services firm);
President, Director and Chief
Executive Officer, Global Mutual Fund
Services, Inc. (1994-present).
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).
COMPENSATION TABLE
IVY FUND
(FISCAL YEAR ENDED DECEMBER 31, 1998)
<TABLE>
<S> <C> <C> <C> <C>
PENSION OR
AGGREGATE RETIREMENT ESTIMATED TOTAL COMPENSATION
COMPENSATION BENEFITS ACCRUED ANNUAL ESTIMATED FROM TRUST AND FUND
NAME, FROM AS PART OF FUND ANNUAL BENEFITS COMPLEX PAID TO TRUSTEES
POSITION TRUST EXPENSES UPON RETIREMENT
John S. $18,000 N/A N/A $18,000
Anderegg, Jr.
(Trustee)
Paul H. $18,000 N/A N/A $18,000
Broyhill
(Trustee)
Keith J. $0 N/A N/A $0
Carlson
(Trustee and
President)
Stanley $18,000 N/A N/A $18,000
Channick
(Trustee)
Frank W. $18,000 N/A N/A $18,000
DeFriece, Jr.
(Trustee)
Roy J. $18,000 N/A N/A $18,000
Glauber
(Trustee)
Joseph G. $18,000 N/A N/A $18,000
Rosenthal
(Trustee)
Richard N. $18,000 N/A N/A $18,000
Silverman
(Trustee)
J. Brendan $17,000 N/A N/A $17,000
Swan
(Trustee)
C. William $0 N/A N/A $0
Ferris
(Secretary/
Treasurer)
</TABLE>
To the knowledge of the Trust, as of March 31, 1999, no shareholder
owned beneficially or of record 5% or more of any Fund's outstanding shares of
any class, with the following exceptions:
CLASS A
Of the outstanding Class A shares of :
Ivy Asia Pacific Fund, Merrill Lynch Pierce Fenner & Smith, 4800 Deer
Lake Drive E, 3rd Floor, Jacksonville, FL 32246, owned of record 40,174.921
shares (16.51%), and Michael G. Landry, 211 S. Gordon Rd., Ft.
Lauderdale, FL 33301, owned of record 12,443.882 shares (5.11%);
Ivy Bond Fund, Merrill Lynch Pierce Fenner & Smith, 4800 Deer Lake
Drive E, 3rd Floor, Jacksonville, FL 32246, owned of record 1,397,567.620 shares
(13.02%);
Ivy China Region Fund, Merrill Lynch Pierce Fenner & Smith, 4800 Deer
Lake Drive E, 3rd Floor, Jacksonville, FL 32246, owned of record 218,003.027
shares (13.26%), and Resources Trust Company, PO Box 3865, Englewood, CO
80155-3865, owned of record 186,351.290 shares (11.33%);
Ivy Developing Nations Fund, Donaldson Lufkin Jenrette Securities
Corporation Inc., PO Box 2052, Jersey City, NJ 07303-9998, owned of record
87,092.843 shares (11.31%), Donaldson Lufkin Jenrette Securities Corporation
Inc., PO Box 2052, Jersey City, NJ 07303-9998, owned of record 54,336.017 shares
(7.06%), and Merrill Lynch Pierce Fenner & Smith, 4800 Deer Lake Drive E, 3rd
Floor, Jacksonville, FL 32246, owned of record 41,198.769 shares (5.35%);
Ivy Global Natural Resources Fund, Carn & Co., Riggs Bank (TTEE) FBO
Care-Free Consolidated 401K Plan, PO Box 96211, Washington, DC 20090-6211, owned
of record 62,273.356 shares (29.71%), Carn & Co., Riggs Bank (TTEE) FBO Yazaki
Employee Savings & Retirement Plan, PO Box 96211, Washington, DC 20090-6211,
owned of record 22,533.136 shares (10.75%), and Mackenzie Investment Management
Inc., via Mizner Financial Plaza, 700 South Federal Highway, Suite 300, Boca
Raton, FL 33432, owned of record 11,957.023 shares (5.70%);
Ivy Global Science & Technology Fund, Donaldson Lufkin Jenrette
Securities Corporation Inc., PO Box 2052, Jersey City, NJ 07303-9998, owned of
record 99,948.978 shares (16.84%), Donaldson Lufkin Jenrette Securities
Corporation Inc., PO Box 2052, Jersey City, NJ 07303-9998, owned of record
65,325.391 shares (11.01%), and Merrill Lynch Pierce Fenner & Smith, 4800 Deer
Lake Drive E, 3rd Floor, Jacksonville, FL 32246, owned of record 31,922.542
shares (5.38%);
Ivy International Fund II, Merrill Lynch Pierce Fenner & Smith, 4800
Deer Lake Drive E, 3rd Floor, Jacksonville, FL 32246, owned of record
818,804.984 shares (34.10%);
Ivy International Fund, Charles Schwab & Co. Inc., 101 Montgomery
Street, San Francisco, CA 94104, owned of record 12,827,455.253 shares (35.28%),
and Merrill Lynch Pierce Fenner & Smith, 4800 Deer Lake Drive E, 3rd Floor,
Jacksonville, FL 32246, owned of record 6,083,813.996 shares (16.73%);
Ivy International Small Companies Fund, Donaldson Lufkin Jenrette
Securities Corporation Inc., PO Box 2052, Jersey City, NJ 07303-9998, owned of
record 19,762.181 shares (20.88%), and Mackenzie Investment Management Inc., via
Mizner Financial Plaza, 700 South Federal Highway, Suite 300, Boca Raton, FL
33432, owned of record 10,287.244 shares (10.87%).
Ivy Money Market Fund, Carn & Co., Riggs Bank (TTEE) FBO Plexus Corp
401K Plan, PO Box 96211, Washington, DC 20090-6211, owned of record
2,710,056.720 shares (13.19%), and Bear Stearns Securities Corp., 1 Metrotech
Center North, Brooklyn, NY 11201-3859, owned of record 1,432,318.960 shares
(6.97%).
Ivy Pan-Europe Fund, Mackenzie Investment Management Inc., via Mizner
Financial Plaza, 700 South Federal Highway, Suite 300, Boca Raton, FL 33432,
owned of record 37,553.145 shares (23.84%), and Merrill Lynch Pierce Fenner &
Smith, 4800 Deer Lake Drive E, 3rd Floor, Jacksonville, FL 32246, owned of
record 27,122.193 shares (17.22%);
Ivy South America Fund, Merrill Lynch Pierce Fenner & Smith, 4800 Deer
Lake Drive E, 3rd Floor, Jacksonville, FL 32246, owned of record 45,710.848
shares (17.87%), and Charles Schwab & Co. Inc., 101 Montgomery Street, San
Francisco, CA 94104, owned of record 19,471.113 shares (7.61%), and William A.
Maczko & Mildred E. Helm Maczko, 2100 S. Ocean Ln., #1412, Ft. Lauderdale, FL
33316, owned of record 14,174.070 shares (5.54%);
Ivy US Blue Chip Fund, Helen L. Medvin, 4712 Michael Ave., North
Olmsted, OH 44070, owned of record 10,253.846 shares (7.12%), Donaldson Lufkin
Jenrette Securities Corporation Inc., PO Box 2052, Jersey City, NJ 07303-9998,
owned of record 8,986.371 shares (6.24%), and Janney Montgomery Scott Inc.,
Estate of David Craig, 1801 Market Street, Philadelphia, PA 19103-1675, owned of
record 8,880.995 shares (6.17%).
Ivy US Emerging Growth Fund, Donaldson Lufkin Jenrette Securities
Corporation Inc., PO Box 2052, Jersey City, NJ 07303-9998, owned of record
86,774.211 shares (5.08%);
CLASS B
Of the outstanding Class B shares of:
Ivy Asia Pacific Fund, Merrill Lynch Pierce Fenner & Smith, 4800 Deer
Lake Drive E, 3rd Floor, Jacksonville, FL 32246, owned of record 141,298.083
shares (35.22%);
Ivy Bond Fund, Merrill Lynch Pierce Fenner & Smith, 4800 Deer Lake
Drive E, 3rd Floor, Jacksonville, FL 32246, owned of record 12,199,384.716
shares (48.92%);
Ivy China Region Fund, Merrill Lynch Pierce Fenner & Smith, 4800 Deer
Lake Drive E, 3rd Floor, Jacksonville, FL 32246, owned of record 107,725.641
shares (11.73%);
Ivy Developing Nations Fund, Merrill Lynch Pierce Fenner & Smith, 4800
Deer Lake Drive E, 3rd Floor, Jacksonville, FL 32246, owned of record
278,316.028 shares (28.37%);
Ivy Global Fund, Merrill Lynch Pierce Fenner & Smith, 4800 Deer Lake
Drive E, 3rd Floor, Jacksonville, FL 32246, owned of record 68,719.447 shares
(11.93%);
Ivy Global Natural Resources Fund, Merrill Lynch Pierce Fenner & Smith,
4800 Deer Lake Drive E, 3rd Floor, Jacksonville, FL 32246, owned of record
83,599.984 shares (38.05%);
Ivy Global Science & Technology Fund, Merrill Lynch Pierce Fenner &
Smith, 4800 Deer Lake Drive E, 3rd Floor, Jacksonville, FL 32246, owned of
record 40,990.672 shares (8.13%);
Ivy Growth Fund, Merrill Lynch Pierce Fenner & Smith, 4800 Deer Lake
Drive E, 3rd Floor, Jacksonville, FL 32246, owned of record 24,939.375 shares
(8.96%);
Ivy Growth with Income Fund, Merrill Lynch Pierce Fenner & Smith, 4800
Deer Lake Drive E, 3rd Floor, Jacksonville, FL 32246, owned of record
263,081.752 shares (15.31%);
Ivy International Fund II, Merrill Lynch Pierce Fenner & Smith, 4800
Deer Lake Drive E, 3rd Floor, Jacksonville, FL 32246, owned of record
4,986,169.823 shares (60.62%);
Ivy International Fund, Merrill Lynch Pierce Fenner & Smith, 4800 Deer
Lake Drive E, 3rd Floor, Jacksonville, FL 32246, owned of record 5,678,407.729
shares (45.59%).
Ivy International Small Companies Fund, Merrill Lynch Pierce Fenner &
Smith, 4800 Deer Lake Drive E, 3rd Floor, Jacksonville, FL 32246, owned of
record 24,340.066 shares (23.40%), PaineWebber, FBO B Carmage Walls Trust #10,
FBO Lissa Walls Trust and Cooper Walls TTEE, PO Box 42828, Houston, TX 77242,
owned of record 5,880.313 shares (5.65%), and PaineWebber, FBO B Carmage Walls
Trust #10, FBO Cooper Walls Trust and Cooper Walls TTEE, PO Box 42828, Houston,
TX 77242, owned of record 5,760.640 shares (5.53%);
Ivy Pan-Europe Fund, Merrill Lynch Pierce Fenner & Smith, 4800 Deer
Lake Drive E, 3rd Floor, Jacksonville, FL 32246, owned of record 66,847.392
shares (22.86%);
Ivy South America Fund, Merrill Lynch Pierce Fenner & Smith, 4800 Deer
Lake Drive E, 3rd Floor, Jacksonville, FL 32246, owned of record 46,359.136
shares (29.47%);
Ivy US Blue Chip Fund, Merrill Lynch Pierce Fenner & Smith, 4800 Deer
Lake Drive E, 3rd Floor, Jacksonville, FL 32246, owned of record 74,760.802
shares (18.62%), and Parker Hunter Incorporated, FBO Robert Crisci and Kathy
Crisci, PO Box 7629, 3525 Ellwood Road, New Castle, PA 16107-7629, owned of
record 24,779.090 shares (6.17%).
Ivy US Emerging Growth Fund, Merrill Lynch Pierce Fenner & Smith, 4800
Deer Lake Drive E, 3rd Floor, Jacksonville, FL 32246, owned of record
335,426.771 shares (21.10%);
CLASS C
Of the outstanding Class C shares of:
Ivy Asia Pacific Fund, Merrill Lynch Pierce Fenner & Smith, 4800 Deer
Lake Drive E, 3rd Floor, Jacksonville, FL 32246, owned of record 19,237.215
shares (5.33%);
Ivy Bond Fund, Merrill Lynch Pierce Fenner & Smith, 4800 Deer Lake
Drive E, 3rd Floor, Jacksonville, FL 32246, owned of record 725,233.869 shares
(74.69%);
Ivy China Region Fund, Merrill Lynch Pierce Fenner & Smith, 4800 Deer
Lake Drive E, 3rd Floor, Jacksonville, FL 32246, owned of record 30,474.251
shares (27.72%), and IBT, (custodian) FBO Roy O. Derminer, 2236 Abbottwoods Ln.,
Orange City, FL 32763, owned of record 8,275.708 shares (7.52%);
Ivy Developing Nations Fund, Merrill Lynch Pierce Fenner & Smith, 4800
Deer Lake Drive E, 3rd Floor, Jacksonville, FL 32246, owned of record 48,103,553
shares (11.99%);
Ivy Global Fund, Merrill Lynch Pierce Fenner & Smith, 4800 Deer Lake
Drive E, 3rd Floor, Jacksonville, FL 32246, owned of record 6,585.276 shares
(19.35%), Donaldson Lufkin Jenrette Securities Corporation Inc., PO Box 2052,
Jersey City, NJ 07303-9998, owned of record 3,909.907 shares (11.48%), Robert W.
Baird & Co. Inc., 777 East Wisconsin Avenue, Milwaukee, WI 53202-5391, owned of
record 3,436.408 shares (10.09%), IBT, (custodian) FBO Mattie A. Allen, 755
Selma Pl., San Diego, CA 92114-1711, owned of record 3,095.552 shares (9.09%),
Smith Barney Inc., 388 Greenwich Street, New York, NY 10013, owned of record
2,436.584 shares (7.15%), and PaineWebber, (custodian) FBO Robert D.
Cuthbertson, PO Box 3321, Weehawken, NJ 07087-8154, owned of record 1,705.476
shares (5.01%);
Ivy Global Natural Resources Fund, Raymond James & Assoc. Inc.,
(custodian) Raymond W. Simmons, 6296 104th Avenue, Pinellas Park, FL 33782,
owned of record 981.281 shares (19.43%), Raymond James & Assoc. Inc.,
(custodian) Diversified Dental P/S, FBO Al Pollock, 10641 1st Street E., Suite
204, Treasure Island, FL 33706, owned of record 910.166 shares (18.02%), Robert
W. Baird & Co. Inc., 777 E. Wisconsin Avenue, Milwaukee, WI 53202-5391, owned of
record 613.622 shares (12.15%), Robert W. Baird & Co. Inc., 777 E. Wisconsin
Avenue, Milwaukee, WI 53202-5391, owned of record 550.722 shares (10.90%), Nancy
J. Cleare, 9381 US Hwy. 19 N, Pinellas Park, FL 33782, owned of record 541.597
shares (10.72%), Resources Trust Co., (custodian) FBO Jon K. Loessin, PO Box
5900, Denver, CO 80217, owned of record 535.023 shares (10.59%), Ester C.
Wickes, 19 Fawn Hill Rd., Tuxedo, NY 10987, owned of record 350.772 shares
(6.94%), and IBT, (custodian) FBO Salvatore Disalvo, 311 Bridle Path Lane,
Annapolis, MD 21403-1638, owned of record 299.993 shares (5.94%);
Ivy Global Science & Technology Fund, Merrill Lynch Pierce Fenner &
Smith, 4800 Deer Lake Drive E, 3rd Floor, Jacksonville, FL 32246, owned of
record 38,011.661 shares (11.30%);
Ivy Growth Fund, Merrill Lynch Pierce Fenner & Smith, 4800 Deer Lake
Drive E, 3rd Floor, Jacksonville, FL 32246, owned of record 7,477.571 shares
(47.23%), IBT, (custodian) FBO Joseph L. Wright, 32211 Pierce Street, Garden
City, MI 48135, owned of record 3,938.282 shares (24.87%), PaineWebber, FBO
Cynthia N. Young, PO Box 3321, Weehawken, NJ 07087-8154, owned of record 853.551
shares (5.39%), and Martin S. Sawyer & Ruth C. Sawyer, 5910 Wilson Blvd., #413,
Arlington, VA 22205, owned of record 844.906 shares (5.33%);
Ivy Growth with Income Fund, Merrill Lynch Pierce Fenner & Smith, 4800
Deer Lake Drive E, 3rd Floor, Jacksonville, FL 32246, owned of record 11,534.267
shares (29.37%), Anthony L. Bassano & Marie E. Bassano, 8934 Bari Court, Port
Richie, FL 34668, owned of record 3,203.100 shares (8.15%), IBT, (custodian) FBO
Vytautas Snieckus, 1250 E 276th Street, Euclid, OH 44132, owned of record
2,645.907 shares (6.73%), PaineWebber, (custodian) FBO Patricia Cramer Russell,
PO Box 3321, Weehawken, NJ 07087-8154, owned of record 2,191.410 shares (5.58%),
IBT, (custodian) FBO Kevin D. Thistle, 1017 Glencrest Court, Saulkville, WI
53080, owned of record 2,130.626 shares (5.42%), and IBT, (custodian) FBO Carol
E. Greivell, 985 N Broadway, #67, Depere, WI 54115, owned of record 2,106.814
shares (5.36%);
Ivy International Fund II, Merrill Lynch Pierce Fenner & Smith, 4800
Deer Lake Drive E, 3rd Floor, Jacksonville, FL 32246, owned of record
2,908,557.453 shares (74.01%);
Ivy International Fund, Merrill Lynch Pierce Fenner & Smith, 4800 Deer
Lake Drive E, 3rd Floor, Jacksonville, FL 32246, owned of record 2,189,094.234
shares (64.38%);
Ivy International Small Companies Fund, Merrill Lynch Pierce Fenner &
Smith, 4800 Deer Lake Drive E, 3rd Floor, Jacksonville, FL 32246, owned of
record 87,014.649 shares (90.31%);
Ivy Money Market Fund, PaineWebber, FBO Bruce Blank, PO Box 3321,
Weehawken, NJ 07087-8154, owned of record 103,905.380 shares (17.65%), IBT
(custodian) FBO, Marcelette V. Manning, 1371 Mt. View Lane, Chula Vista, CA
91911, owned of record 65,194.630 shares (11.07%), IBT (custodian) FBO Diana
Rooney, 2441 S. 9th St., El Centro, CA 92243, owned of record 62,822.810 shares
(10.67%), Robert J. Laws & Katherine A. Laws, PO Box 723, Ramona, CA 92065,
owned of record 42,920.450 shares (7.29%), IBT (custodian) FBO Betty J. Carson,
1987 Higgins Lane, El Centro, CA 92243, owned of record 39,398.780 shares
(6.69%), Paul M. Benard, 40 Arrowhead Farm Road, Boxford, MA 01921, owned of
record 33,488.010 shares (5.68%), Diane C. Benard, 40 Arrowhead Farm Road,
Boxford, MA 01921, owned of record 33,488.010 shares (5.68%), and PaineWebber,
FBO Kathleen L. Diller, PO Box 3321, Weehawken, NJ 07087-8154, owned of record
30,238.920 shares (5.13%).
Ivy Pan-Europe Fund, Merrill Lynch Pierce Fenner & Smith, 4800 Deer
Lake Drive E, 3rd Floor, Jacksonville, FL 32246, owned of record 26,948.668
shares (44.12%), Resources Trust Company, FBO Terry K. Ramnanan, PO Box 5900,
Denver, CO 80217, owned of record 14,652.015 shares (23.99%), and Donaldson
Lufkin Jenrette Securities Corporation Inc., PO Box 2052, Jersey City, NJ
07303-9998, owned of record 4,663.657 shares (7.63%);
Ivy South America Fund, Merrill Lynch Pierce Fenner & Smith, 4800 Deer
Lake Drive E, 3rd Floor, Jacksonville, FL 32246, owned of record 10,956.813
shares (58.18%), Interstate/Johnson Lane, Interstate Tower, PO Box 1220,
Charlotte, NC 28201-1220, owned of record 2,617.801 shares (13.90%), Donaldson
Lufkin Jenrette Securities Corporation Inc., PO Box 2052, Jersey City, NJ
07303-9998, owned of record 2,318.301 shares (12.31%), Donaldson Lufkin Jenrette
Securities Corporation Inc., PO Box 2052, Jersey City, NJ 07303-9998, owned of
record 1,133.787 shares (6.02%), and Smith Barney Inc., 388 Greenwich Street,
New York, NY 10013, owned of record 966.121 shares (5.13%);
Ivy US Blue Chip Fund, Merrill Lynch Pierce Fenner & Smith, 4800 Deer
Lake Drive E, 3rd Floor, Jacksonville, FL 32246, owned of record 8,485.693
shares (10.18%), Donaldson Lufkin Jenrette Securities Corporation Inc., PO Box
2052, Jersey City, NJ 07303-9998, owned of record 6,066.012 shares (7.27%), IBT,
(custodian) FBO Roy O. Derminer, 2236 Abbottwoods LN, Orange City, FL 32763,
owned of record 4,517.953 shares (5.42%), and Donaldson Lufkin Jenrette
Securities Corporation Inc., PO Box 2052, Jersey City, NJ 07303-9998, owned of
record 4,412.541 shares (5.29%);
Ivy US Emerging Growth Fund, Merrill Lynch Pierce Fenner & Smith, 4800
Deer Lake Drive E, 3rd Floor, Jacksonville, FL 32246, owned of record 96,481.220
shares (30.56%);
CLASS I
Of the outstanding Class I shares of:
Ivy International Fund, The John E. Fetzer Institute Inc., 9292 W KL
Ave., Kalamazoo, MI 49009, owned of record 727,066.771 shares (19.12%), State
Street Bank, (TTEE) FBO Allison Engines, 200 Newport Ave., 7th Floor, North
Quincy, MA 02171, owned of record 292,309.556 shares (7.68%), Lynspen and
Company, PO Box 830804, Birmingham, AL 35283, owned of record 276,747.272 shares
(7.27%), and U A Local 447 Pension Trust Fund, 5841 Newman Ct., Sacramento, CA
95819, owned of record 240,427.057 shares (6.32%).
ADVISOR CLASS
Of the outstanding Advisor Class shares of:
Ivy Bond Fund, NFSC FEBO, C. William Ferris, Michael Landry/Keith
Carlson, 700 South Federal Highway, Boca Raton, FL 33432-6114, owned of record
13,944.569 shares (77.94%), and Donaldson Lufkin Jenrette Securities Corporation
Inc., PO Box 2052, Jersey City, NJ 07303-9998, owned of record 3,252.157 shares
(18.17%);
Ivy China Region Fund, Donaldson Lufkin Jenrette Securities Corporation
Inc., PO Box 2052, Jersey City, NJ 07303-9998, owned of record 1,354.000 shares
(84.59%), and Donaldson Lufkin Jenrette Securities Corporation Inc., PO Box
2052, Jersey City, NJ 07303-9998, owned of record 192.447 shares (12.02%).
Ivy Developing Nations Fund, NFSC FEBO, C. William Ferris, Michael
Landry/Keith Carlson, 700 South Federal Highway, Boca Raton, FL 33432-6114,
owned of record 14,362.134 shares (100%);
Ivy Global Fund, NFSC FEBO, C. William Ferris, Michael Landry/Keith
Carlson, 700 South Federal Highway, Boca Raton, FL 33432-6114, owned of record
30,007.844 shares (100%);
Ivy Global Science & Technology Fund, IBT, (custodian) FBO Deborah P.
Mason, 3406 Cypress Landing Dr., Valrico, FL 33594, owned of record 629.966
shares (36.59%), Donaldson Lufkin Jenrette Securities Corporation Inc., PO Box
2052, Jersey City, NJ 07303-9998, owned of record 534.539 shares (31.04%),
Donaldson Lufkin Jenrette Securities Corporation Inc., PO Box 2052, Jersey City,
NJ 07303-9998, owned of record 418.586 shares (24.31%), and Donaldson Lufkin
Jenrette Securities Corporation Inc., PO Box 2052, Jersey City, NJ 07303-9998,
owned of record 138.549 shares (8.04%);
Ivy Growth Fund, NFSC FEBO, C. William Ferris, Michael Landry/Keith
Carlson, 700 South Federal Highway, Boca Raton, FL 33432-6114, owned of record
16,572.658 shares (99.90%);
Ivy Growth with Income Fund, NFSC FEBO, C. William Ferris, Michael
Landry/Keith Carlson, 700 South Federal Highway, Boca Raton, FL 33432-6114,
owned of record 25,118.240 shares (100%);
Ivy International Fund II, Charles Scwab & Co. Inc., 101 Montgomery
Street, San Francisco, CA 94104, owned of record 7,913.113 shares (11.19%),
Donaldson Lufkin Jenrette Securities Corporation Inc., PO Box 2052, Jersey City,
NJ 07303-9998, owned of record 6,471.430 shares (9.15%), and Donaldson Lufkin
Jenrette Securities Corporation Inc., PO Box 2052, Jersey City, NJ 07303-9998,
owned of record 4,602.660 shares (6.50%);
Ivy Pan-Europe Fund, NFSC FEBO, C. William Ferris, Michael Landry/Keith
Carlson, 700 South Federal Highway, Boca Raton, FL 33432-6114, owned of record
3,424.319 shares (47.51%), Donaldson Lufkin Jenrette Securities Corporation
Inc., PO Box 2052, Jersey City, NJ 07303-9998, owned of record 1,191.422 shares
(16.53%), Donaldson Lufkin Jenrette Securities Corporation Inc., PO Box 2052,
Jersey City, NJ 07303-9998, owned of record 947.119 shares (13.14%), Donaldson
Lufkin Jenrette Securities Corporation Inc., PO Box 2052, Jersey City, NJ
07303-9998, owned of record 653.595 shares (9.06%), and Charles Schwab & Co.
Inc., 101 Montgomery Street, San Francisco, CA 94104,owned of record 406.639
shares (5.64%);
Ivy US Blue Chip Fund, Mackenzie Investment Management Inc., Via Mizner
Financial Plaza, 700 South Federal Highway, Suite 300, Boca Raton, FL 33432,
owned of record 50,001.000 shares (80.05%), NFSC FEBO, C. William Ferris,
Michael Landry/Keith Carlson, 700 South Federal Highway, Boca Raton, FL
33432-6114, owned of record 7,419.362 shares (11.87%), and Charles Scwab & Co.
Inc., 101 Montgomery Street, San Francisco, CA 94104, owned of record 3,678.690
shares (5.88%);
Ivy US Emerging Growth Fund, NFSC FEBO, C. William Ferris, Michael
Landry/Keith Carlson, 700 South Federal Highway, Boca Raton, FL 33432-6114,
owned of record 20,670.236 shares (84.78%), and Charles Schwab & Co. Inc., 101
Montgomery Street, San Francisco, CA 94104, owned of record 1,927.965 shares
(7.90%).
As of April 16, 1999, the Officers and Trustees of the Trust as a group
owned beneficially or of record less than 1% of the outstanding Class A, Class
B, Class C, Class I and Advisor Class shares of each of the nineteen Ivy funds
that are series of the Trust, except that the Officers and Trustees of the Trust
as a group owned 3.93%, 1.94%, 1.19%, and 2.09%, respectively, of Ivy Asia
Pacific Fund Class A shares, Ivy Global Natural Resources Fund Class A shares,
Ivy Money Market Fund Class A shares, and Ivy South America Fund Class A shares,
respectively, as of that date.
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 Funds. Among other things,
the Code of Ethics, which generally complies with standards recommended by the
Investment Company Institute's Advisory Group on Personal Investing, prohibits
certain types of transactions absent prior approval, applies to portfolio
managers, traders, research analysts and others involved in the investment
advisory process, and imposes time periods during which personal transactions
may not be made in certain securities, and requires the submission of duplicate
broker confirmations and monthly reporting of securities transactions.
Exceptions to these and other provisions of the Code of Ethics may be granted in
particular circumstances after review by appropriate personnel.
INVESTMENT ADVISORY AND OTHER SERVICES
BUSINESS MANAGEMENT AND INVESTMENT ADVISORY SERVICES
IMI provides business management and investment advisory services to each
Fund pursuant to a Business Management and Investment Advisory Agreement (the
"Agreement"). IMI is a wholly owned subsidiary of Mackenzie Investment
Management Inc. ("MIMI"). MIMI, a Delaware corporation, has approximately 10% of
its outstanding common stock listed for trading on the Toronto Stock Exchange
("TSE"). MIMI is a subsidiary of Mackenzie Financial Corporation ("MFC"), 150
Bloor Street West, Toronto, Ontario, Canada, a public corporation organized
under the laws of Ontario whose shares are listed for trading on the TSE. MFC is
registered in Ontario as a mutual fund dealer and advises Ivy Global Natural
Resources Fund. IMI currently acts as manager and investment adviser to the
following additional investment companies registered under the 1940 Act (other
than the Funds): Ivy Bond Fund, Ivy European Opportunities Fund, Ivy Global
Fund, Ivy Global Science & Technology Fund, Ivy Growth Fund, Ivy Growth with
Income Fund, Ivy International Fund II, Ivy International Fund, Ivy
International Small Companies Fund, Ivy International Strategic Bond Fund, Ivy
Money Market Fund, Ivy Pan-Europe Fund, Ivy US Blue Chip Fund and Ivy US
Emerging Growth Fund. IMI also provides business management services to Ivy
Global Natural Resources Fund.
The Agreement obligates IMI to make investments for the account of each
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 Funds' Custodian and
monitor the services it provides to each Fund; (2) coordinate with and monitor
any other third parties furnishing services to each Fund; (3) provide each Fund
with necessary office space, telephones and other communications facilities as
are adequate for each 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 each Fund or by IMI acting in
some other capacity pursuant to a separate agreement or arrangements with each
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.
Each Fund pays IMI a monthly fee for providing business management and
investment advisory services at an annual rate of 1.00% of the Fund's average
net assets.
During the fiscal years ended December 31, 1997 and 1998, Ivy Asia Pacific
Fund paid IMI fees of $10,473 and $49,509, respectively. During the fiscal years
ended December 31, 1997 and 1998, IMI reimbursed Fund expenses of $10,473 and
$167,194, respectively.
During the fiscal years ended December 31, 1996, 1997 and 1998, Ivy China
Region Fund paid IMI fees of $233,804, $277,601 and $187,381, respectively.
During the fiscal years ended December 31, 1996, 1997 and 1998, IMI reimbursed
Fund expenses of $65,675, $18,377 and $105,095, respectively.
During the fiscal years ended December 31, 1996, 1997 and 1998, Ivy
Developing Nations Fund paid IMI fees of $109,125, $284,290 and $156,166,
respectively. During the fiscal years ended December 31, 1996, 1997 and 1998,
IMI reimbursed Fund expenses of $67,600, $22,860 and $200,839, respectively.
During the fiscal years ended December 31, 1996, 1997 and 1998, Ivy South
America Fund paid IMI fees of $42,550, $94,278 and $53,857, respectively. During
the fiscal years ended December 31, 1996, 1997 and 1998, IMI reimbursed Fund
expenses of $99,630, $68,548 and $145,687, respectively.
Under the Agreement, the Trust pays the following expenses: (1) the fees
and expenses of the Trust's Independent Trustees; (2) the salaries and expenses
of any of the Trust's officers or employees who are not affiliated with IMI; (3)
interest expenses; (4) taxes and governmental fees, including any original issue
taxes or transfer taxes applicable to the sale or delivery of shares or
certificates therefor; (5) brokerage commissions and other expenses incurred in
acquiring or disposing of portfolio securities; (6) the expenses of registering
and qualifying shares for sale with the SEC and with various state securities
commissions; (7) accounting and legal costs; (8) insurance premiums; (9) fees
and expenses of the Trust's Custodian and Transfer Agent and any related
services; (10) expenses of obtaining quotations of portfolio securities and of
pricing shares; (11) expenses of maintaining the Trust's legal existence and of
shareholders' meetings; (12) expenses of preparation and distribution to
existing shareholders of periodic reports, proxy materials and prospectuses; and
(13) fees and expenses of membership in industry organizations.
IMI currently limits each 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 that Fund's average net assets, which may lower each Fund's
expenses and increase its yield.
The Agreement will continue in effect with respect to each Fund from year
to year, only so long as the continuance is specifically approved at least
annually (i) by the vote of a majority of the Independent Trustees and (ii)
either (a) by the vote of a majority of the outstanding voting securities (as
defined in the 1940 Act) of the Fund or (b) by the vote of a majority of the
entire Board. If the question of continuance of the Agreement (or adoption of
any new agreement) is presented to the shareholders, continuance (or adoption)
shall be effected only if approved by the affirmative vote of a majority of the
outstanding voting securities of each Fund. See "Capitalization and Voting
Rights."
The Agreement may be terminated with respect to each 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 that Fund, on 60
days' written notice to IMI, or by IMI on 60 days' written notice to the Trust.
The Agreement shall terminate automatically in the event of its assignment.
DISTRIBUTION SERVICES
IMDI, a wholly owned subsidiary of MIMI, serves as the exclusive
distributor of Ivy Fund's shares pursuant to an Amended and Restated
Distribution Agreement with the Trust dated March 16, 1999, as amended from time
to time (the "Distribution Agreement"). The Distribution Agreement was last
approved by the Board on September 17, 1998. IMDI distributes shares of each
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 each 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.
Each 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 each Fund's behalf. Each 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 each Fund's Net Asset Value next
computed after an authorized intermediary or the intermediary's authorized
designee accepts them.
Pursuant to the Distribution Agreement, IMDI is entitled to deduct a
commission on all Class A Fund shares sold equal to the difference, if any,
between the public offering price, as set forth in each 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, each Fund bears, among other expenses,
the expenses of registering and qualifying its shares for sale under Federal and
state securities laws and preparing and distributing to existing shareholders
periodic reports, proxy materials and prospectuses.
During the fiscal year ended December 31, 1998, IMDI received from sales
of Class A shares of Ivy Asia Pacific Fund $45,623 in sales commissions, of
which $4,654 was retained after dealer allowances. During the fiscal year ended
December 31, 1998, IMDI received $9,632 in CDSCs on redemptions of Class B
shares of Ivy Asia Pacific Fund. During the fiscal year ended December 31, 1998,
IMDI received $1,724 in CDSCs on redemptions of Class C shares of Ivy Asia
Pacific Fund.
During the fiscal year ended December 31, 1998, IMDI received from sales
of Class A shares of Ivy China Region Fund $57,500 in sales commissions, of
which $6,494 was retained after dealer allowances. During the fiscal year ended
December 31, 1998, IMDI received $42,712 in CDSCs on redemptions of Class B
shares of Ivy China Region Fund. During the fiscal year ended December 31, 1998,
IMDI received $13,955 in CDSCs on redemption of Class C shares of Ivy China
Region Fund.
During the fiscal year ended December 31, 1998, IMDI received from sales
of Class A shares of Ivy Developing Nations Fund $25,728 in sales commissions,
of which $2,583 was retained after dealer allowances. During the fiscal year
ended December 31, 1998, IMDI received $43,915 in CDSCs on redemptions of Class
B shares of Ivy Developing Nations Fund. During the fiscal year ended December
31, 1998, IMDI received $1,125 in CDSCs on redemptions of Class C shares of Ivy
Developing Nations Fund.
During the fiscal year ended December 31, 1998, IMDI received from sales
of Class A shares of Ivy South America Fund $2,139 in sales commissions, of
which $275 was retained after dealer allowances. During the fiscal year ended
December 31, 1998, IMDI received $15,485 in CDSCs on redemptions of Class B
shares of Ivy South America Fund. During the fiscal year ended December 31,
1998, IMDI received $315 in CDSCs on redemptions of Class C shares of Ivy South
America 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 each Fund.
The Distribution Agreement may be terminated with respect to each Fund at any
time, without payment of any penalty, by IMDI on 60 days' written notice to the
Fund or by each 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. The
Board has adopted a Rule 18f-3 plan on behalf of each Fund. The key features of
each Rule 18f-3 plan are as follows: (i) shares of each class of each 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 each Fund may be exchanged for shares of the same class
of another Ivy fund; and (iii) each Fund's Class B shares will convert
automatically into Class A shares of that 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 each
Fund, in accordance with Rule 12b-1 under the 1940 Act, separate Rule 12b-1
distribution plans pertaining to each 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 each Fund and its
shareholders. The Trustees of the Trust believe that the Plans should result in
greater sales and/or fewer redemptions of each Fund's shares, although it is
impossible to know for certain the level of sales and redemptions of each Fund's
shares in the absence of a Plan or under an alternative distribution
arrangement.
Under each Plan, each 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. This
fee constitutes reimbursement to IMDI of service fee expenses incurred by IMDI.
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 each Fund, answering routine inquiries concerning each 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 each 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. Each Class A Plan does not provide for the payment of interest or
carrying charges as distribution expenses.
Under each Fund's Class B and Class C Plans, each 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. This
fee constitutes compensation to IMDI and is not dependent on expenses incurred
by IMDI. 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 each 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 each Fund under each Plan shall not be materially increased without
the affirmative vote of the holders of a majority of the outstanding shares of
the relevant class; and (4) while each Plan is in effect, the selection and
nomination of Independent Trustees shall be committed to the discretion of the
Trustees who are not "interested persons" of the Trust.
IMDI may make payments for distribution assistance and for administrative
and accounting services from resources that may include the management fees paid
by each 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 each 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.
The Class B Plan and underwriting agreement were amended effective March
16, 1999 to permit IMDI to sell its right to receive distribution fees under the
Class B Plan and CDSCs to third parties. IMDI enters into such transactions to
finance the payment of commissions to brokers at the time of sale and other
distribution-related expenses. In connection with such amendments, the Trust has
agreed that the distribution fee will not be terminated or modified (including a
modification by change in the rules relating to the conversion of Class B shares
into shares of another class) for any reason (including a termination of the
underwriting agreement) except:
(i) to the extent required by a change in the 1940 Act, the rules or
regulations under the 1940 Act, or the Conduct Rules of the NASD, in
each case enacted, issued, or promulgated after March 16, 1999;
(ii) on a basis which does not alter the amount of the distribution
payments to IMDI computed with reference to Class B shares the date of
original issuance of which occurred on or before December 31, 1998;
(iii) in connection with a Complete Termination (as defined in the Class B
Plan); or
(iv) on a basis determined by the Board of Trustees acting in good faith so
long as (a) neither the Trust nor any successor trust or fund or any
trust or fund acquiring a substantial portion of the assets of the
Trust (collectively, the "Affected Funds") nor the sponsors of the
Affected Funds pay, directly or indirectly, as a fee, a trailer fee,
or by way of reimbursement, any fee, however denominated, to any
person for personal services, account maintenance services or other
shareholder services rendered to the holder of Class B shares of the
Affected Funds from and after the effective date of such modification
or termination, and (b) the termination or modification of the
distribution fee applies with equal effect to all outstanding Class B
shares from time to time of all Affected Funds regardless of the date
of issuance thereof.
In the amendments to the underwriting agreement, the Trust has also agreed
that it will not take any action to waive or change any CDSC in respect of any
Class B share the date of original issuance of which occurred on or before
December 31, 1998, except as provided in the Trust's prospectus or statement of
additional information, without the consent of IMDI and its transferees.
During the fiscal year ended December 31, 1998, Ivy Asia Pacific Fund paid
IMDI $4,383 pursuant to its Class A plan, $16,038 pursuant to its Class B plan,
and $15,941 pursuant to its Class C plan.
During the fiscal year end December 31, 1998, IMDI expended the following
amounts in marketing Class A shares of Ivy Asia Pacific Fund: advertising $167;
printing and mailing of prospectuses to persons other than current shareholders,
$3,297; compensation to dealers, $947; compensation to sales personnel, $5,160;
seminars and meetings, $237; travel and entertainment, $411; general and
administrative, $2,928; telephone, $148; and occupancy and equipment rental,
$419.
During the fiscal year end December 31, 1998, IMDI expended the following
amounts in marketing Class B shares of Ivy Asia Pacific Fund: advertising $148;
printing and mailing of prospectuses to persons other than current shareholders,
$596; compensation to dealers, $14,619; compensation to sales personnel, $4,710;
seminars and meetings, $3,655; travel and entertainment, $378; general and
administrative, $2,690; telephone, $136; and occupancy and equipment rental,
$386.
During the fiscal year end December 31, 1998, IMDI expended the following
amounts in marketing Class C shares of Ivy Asia Pacific Fund: advertising $147;
printing and mailing of prospectuses to persons other than current shareholders,
$2,341 compensation to dealers, $12,074; compensation to sales personnel,
$4,677; seminars and meetings, $3,019; travel and entertainment, $376; general
and administrative, $2,665; telephone, $134; and occupancy and equipment rental,
$382.
During the fiscal year ended December 31, 1998, Ivy China Region Fund paid
IMDI $28,156 pursuant to its Class A plan, $64,686 pursuant to its Class B plan,
and $9,992 pursuant to its Class C plan.
During the fiscal year end December 31, 1998, IMDI expended the following
amounts in marketing Class A shares of Ivy China Region Fund: advertising
$1,000; printing and mailing of prospectuses to persons other than current
shareholders, $10,678; compensation to dealers, $5,472; compensation to sales
personnel, $30,984; seminars and meetings, $1,368; travel and entertainment,
$2,450; general and administrative, $17,729; telephone, $904; and occupancy and
equipment rental, $2,651.
During the fiscal year end December 31, 1998, IMDI expended the following
amounts in marketing Class B shares of Ivy China Region Fund: advertising $575;
printing and mailing of prospectuses to persons other than current shareholders,
$6,089; compensation to dealers, $35,423; compensation to sales personnel,
$18,063; seminars and meetings, $8,856; travel and entertainment, $1,432;
general and administrative, $10,364; telephone, $530; and occupancy and
equipment rental, $1,552.
During the fiscal year end December 31, 1998, IMDI expended the following
amounts in marketing Class C shares of Ivy China Region Fund: advertising $95;
printing and mailing of prospectuses to persons other than current shareholders,
$959; compensation to dealers, $3,106; compensation to sales personnel, $2,803;
seminars and meetings, $776; travel and entertainment, $220; general and
administrative, $1,586; telephone, $80; and occupancy and equipment rental,
$235.
During the fiscal year ended December 31, 1998, Ivy Developing Nations
Fund paid IMDI $15,514 pursuant to its Class A plan, $72,269 pursuant to its
Class B plan, and $21,356 pursuant to its Class C plan.
During the fiscal year ended December 31, 1998, IMDI expended the
following amounts in marketing Class A shares of Ivy Developing Nations Fund:
advertising $545; printing and mailing of prospectuses to persons other than
current shareholders, $3,387; compensation to dealers, $2,982; compensation to
sales personnel $17,142; seminars and meetings, $745; travel and entertainment,
$1,352; general and administrative, $9,886; telephone, $510; and occupancy and
equipment rental, $1,518.
During the fiscal year ended December 31, 1998, IMDI expended the
following amounts in marketing Class B shares of Ivy Developing Nations Fund:
advertising, $647; printing and mailing of prospectuses to persons other than
current shareholders, $3,854; compensation to dealers, $39,427; compensation to
sales personnel, $20,232; seminars and meetings, $9,857; travel and
entertainment, $1,603; general and administrative, $11,600; telephone, $592; and
occupancy and equipment rental $1,739.
During the fiscal year ended December 31, 1998, IMDI expended the
following amounts in marketing Class C shares of Ivy Developing Nations Fund:
advertising, $193; printing and mailing of prospectuses to persons other than
current shareholders, $1,121; compensation to dealers, $9,062; compensation to
sales personnel, $6,087; seminars and meetings, $2,266; travel and
entertainment, $483; general administrative, $3,497; telephone, $179; and
occupancy and equipment rental, $523.
During the fiscal year ended December 31, 1998, Ivy South America Fund
paid IMDI $7,893; pursuant to its Class A plan, $19,401; pursuant to its Class B
plan, and $2,882 pursuant to its Class C plan.
During the fiscal year ended December 31, 1998, IMDI expended the
following amounts in marketing Class A shares of Ivy South America Fund:
advertising $267; printing and mailing of prospectuses to persons other than
current shareholders, $2,032; compensation to dealers, $1,246; compensation to
sales personnel $8,327; seminars and meetings, $312; travel and entertainment,
$657; general and administrative, $4,785; telephone, $246; and occupancy and
equipment rental, $727.
During the fiscal year ended December 31, 1998, IMDI expended the
following amounts in marketing Class B shares of Ivy South America Fund:
advertising, $170; printing and mailing of prospectuses to persons other than
current shareholders, $1,262; compensation to dealers, $5,874; compensation to
sales personnel, $5,237; seminars and meetings, $1,468; travel and
entertainment, $413; general and administrative, $3,001; telephone, $153; and
occupancy and equipment rental $454.
During the fiscal year ended December 31, 1998, IMDI expended the
following amounts in marketing Class C shares of Ivy South America Fund:
advertising, $25; printing and mailing of prospectuses to persons other than
current shareholders, $189; compensation to dealers, $334; compensation to sales
personnel, $776; seminars and meetings, $84; travel and entertainment, $62;
general administrative, $445; telephone, $23; and occupancy and equipment
rental, $67.
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 each 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 each 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 each Fund's foreign securities. With
respect to each 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 each Fund. As compensation for those
services, each Fund pays MIMI a monthly fee plus out-of-pocket expenses as
incurred. The monthly fee is based upon the net assets of the Fund at the
preceding month end at the following rates: $1,250 when net assets are $10
million and under; $2,500 when net assets are over $10 million to $40 million;
$5,000 when net assets are over $40 million to $75 million; and $6,500 when net
assets are over $75 million.
During the fiscal year ended December 31, 1998, Ivy Asia Pacific Fund paid
MIMI $19,790 under the agreement.
During the fiscal year ended December 31, 1998, Ivy China Region Fund paid
MIMI $36,178 under the agreement.
During the fiscal year ended December 31, 1998, Ivy Developing Nations
Fund paid MIMI $34,475 under the agreement.
During the fiscal year ended December 31, 1998, Ivy South America Fund
paid MIMI $19,918 under the agreement.
TRANSFER AGENT AND DIVIDEND PAYING AGENT
Pursuant to a Transfer Agency and Shareholder Service Agreement, IMSC, a
wholly owned subsidiary of MIMI, is the transfer agent for each Fund. Under the
Agreement, each Fund pays a monthly fee at an annual rate of $20.00 for each
open Class A, Class B, Class C and Advisor Class account. In addition, the Fund
pays a monthly fee at an annual rate of $4.58 per account that is closed plus
certain out-of-pocket expenses. Such fees and expenses for the fiscal year ended
December 31, 1998 for Ivy Asia Pacific Fund totaled $16,060. Such fees and
expenses for the fiscal year ended December 31, 1998 for Ivy China Region Fund
totaled $101,423. Such fees and expenses for the fiscal year ended December 31,
1998 for Ivy Developing Nations Fund totaled $71,214. Such fees and expenses for
the fiscal year ended December 31, 1998 for Ivy South America Fund totaled
$22,160. Certain broker-dealers that maintain shareholder accounts with each
Fund through an omnibus account provide transfer agent and other
shareholder-related services that would otherwise be provided by IMSC if the
individual accounts that comprise the omnibus account were opened by their
beneficial owners directly. IMSC pays such broker-dealers a per account fee for
each open account within the omnibus account, or a fixed rate (e.g., 0.10%) fee,
based on the average daily net asset value of the omnibus account (or a
combination thereof).
ADMINISTRATOR
Pursuant to an Administrative Services Agreement, MIMI provides certain
administrative services to each Fund. As compensation for these services, each
Fund pays MIMI a monthly fee at the annual rate of 0.10% of the Fund's average
daily net assets. Such fees for the fiscal year ended December 31, 1998 for Ivy
Asia Pacific Fund totaled $4,951. Such fees for the fiscal year ended December
31, 1998 for Ivy China Region totaled $18,738. Such fees for the fiscal year
ended December 31, 1998 for Ivy Developing Nations Fund totaled $15,617. Such
fees for the fiscal year ended December 31, 1998 for Ivy South America Fund
totaled $5,386.
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 each Fund.
AUDITORS
PricewaterhouseCoopers LLP, independent public accountants, has been
selected as auditors for the Trust. The audit services performed by
PricewaterhouseCoopers LLP include audits of the annual financial statements of
each of the funds of the Trust. Other services provided principally relate to
filings with the SEC and the preparation of the funds' tax returns.
BROKERAGE ALLOCATION
Subject to the overall supervision of the President and the Board, IMI
places orders for the purchase and sale of each 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 each
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 Funds or the Trust. IMI may consider sales of shares of Ivy
funds as a factor in the selection of broker-dealers and may select
broker-dealers who provide it with research services. IMI will not, however,
execute brokerage transactions other than at the best price and execution.
During the fiscal years ended December 31, 1997 and 1998, Ivy Asia Pacific
Fund paid brokerage commissions of $18,500, and $75,104, respectively.
During the fiscal years ended December 31, 1996, 1997 and 1998, Ivy China
Region Fund paid brokerage commissions of $62,812, $70,846, and $112,289,
respectively.
During the fiscal years ended December 31, 1996, 1997 and 1998, Ivy
Developing Nations Fund paid brokerage commissions of $95,606, $170,306, and
$83,565, respectively.
During the fiscal years ended December 31, 1996, 1997 and 1998, Ivy South
America Fund paid brokerage commissions of $15,756, $17,213, and $19,922,
respectively.
Brokerage commissions vary from year to year in accordance with the extent
to which a particular Fund is more or less actively traded.
Each Fund may, under some circumstances, accept securities in lieu of cash
as payment for Fund shares. Each 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 that Fund. While no
minimum has been established, it is expected that each 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 each Fund's shares with
securities and may discontinue accepting securities as payment for each Fund's
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
each Fund, and each Fund's shares will be sold for net asset value determined at
the same time the accepted securities are valued. The Trust will only accept
securities delivered in proper form and will not accept securities subject to
legal restrictions on transfer. The acceptance of securities by the Trust must
comply with the applicable laws of certain states.
CAPITALIZATION AND VOTING RIGHTS
The capitalization of the Trust consists of an unlimited number of shares
of beneficial interest (no par value per share). When issued, shares of each
class of each Fund are fully paid, non-assessable, redeemable and fully
transferable. No class of shares of any Fund has preemptive rights or
subscription rights.
The Amended and Restated Declaration of Trust permits the Trustees to
create separate series or portfolios and to divide any series or portfolio into
one or more classes. The Trustees have authorized nineteen series, each of which
represents a fund. The Trustees have further authorized the issuance of Class A,
Class B, and Class C shares for Ivy International Fund and Ivy Money Market Fund
and Class A, Class B, Class C and Advisor Class shares for Ivy Asia Pacific
Fund, Ivy Bond Fund, Ivy China Region Fund, Ivy Developing Nations Fund, Ivy
European Opportunities Fund, Ivy Global Fund, Ivy Global Natural Resources Fund,
Ivy Global Science & Technology Fund, Ivy Growth Fund, Ivy Growth with Income
Fund, Ivy International Fund II, Ivy International Small Companies Fund, Ivy
International Strategic Bond Fund, Ivy Pan-Europe Fund, Ivy South America Fund,
Ivy US Blue Chip Fund, and Ivy US Emerging Growth Fund, as well as Class I
shares for Ivy Bond Fund, Ivy European Opportunities Fund, Ivy Global Science &
Technology Fund, Ivy International Fund II, Ivy International Fund, Ivy
International Small Companies Fund, Ivy International Strategic Bond Fund, and
Ivy US Blue Chip Fund.
Shareholders have the right to vote for the election of Trustees of the
Trust and on any and all matters on which they may be entitled to vote by law or
by the provisions of the Trust's By-Laws. The Trust is not required to hold a
regular annual meeting of shareholders, and it does not intend to do so. Shares
of each class of each Fund entitle their holders to one vote per share (with
proportionate voting for fractional shares). Shareholders of each Fund are
entitled to vote alone on matters that only affect that Fund. All classes of
shares of each Fund will vote together, except with respect to the distribution
plan applicable to a Fund's Class A, Class B or Class C shares or when a class
vote is required by the 1940 Act. On matters relating to all funds of the Trust,
but affecting the funds differently, separate votes by the shareholders of each
fund are required. Approval of an investment advisory agreement and a change in
fundamental policies would be regarded as matters requiring separate voting by
the shareholders of each fund of the Trust. If the Trustees determine that a
matter does not affect the interests of a Fund, then the shareholders of that
Fund will not be entitled to vote on that matter. Matters that affect the Trust
in general, such as ratification of the selection of independent public
accountants, will be voted upon collectively by the shareholders of all funds of
the Trust.
As used in this SAI and the Prospectus, the phrase "majority vote of the
outstanding shares" of a 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 a Fund, the matter shall have been effectively acted upon
with respect to that Fund if a majority of the outstanding voting securities of
the Fund votes for the approval of the matter, notwithstanding that: (1) the
matter has not been approved by a majority of the outstanding voting securities
of any other fund of the Trust; or (2) the matter has not been approved by a
majority of the outstanding voting securities of the Trust.
The Amended and Restated Declaration of Trust provides that the holders of
not less than two-thirds of the outstanding shares of the Trust may remove a
person serving as trustee either by declaration in writing or at a meeting
called for such purpose. The Trustees are required to call a meeting for the
purpose of considering the removal of a person serving as Trustee if requested
in writing to do so by the holders of not less than 10% of the outstanding
shares of the Trust. Shareholders will be assisted in communicating with other
shareholders in connection with the removal of a Trustee as if Section 26(c) of
the Act were applicable.
The Trust's shares do not have cumulative voting rights and accordingly
the holders of more than 50% of the outstanding shares could elect the entire
Board, in which case the holders of the remaining shares would not be able to
elect any Trustees.
Under Massachusetts law, the Trust's shareholders could, under certain
circumstances, be held personally liable for the obligations of the Trust.
However, the Amended and Restated Declaration of Trust disclaims liability of
the shareholders, Trustees or officers of the Trust for acts or obligations of
the Trust, which are binding only on the assets and property of the Trust, and
requires that notice of the disclaimer be given in each contract or obligation
entered into or executed by the Trust or its Trustees. The Amended and Restated
Declaration of Trust provides for indemnification out of Fund property for all
loss and expense of any shareholder of any Fund held personally liable for the
obligations of that Fund. The risk of a shareholder of the Trust incurring
financial loss on account of shareholder liability is limited to circumstances
in which the Trust itself would be unable to meet its obligations and, thus,
should be considered remote. No series of the Trust is liable for the
obligations of any other series of the Trust.
SPECIAL RIGHTS AND PRIVILEGES
The Trust offers, and (except as noted below) bears the cost of providing,
to investors the following rights and privileges. The Trust reserves the right
to amend or terminate any one or more of these rights and privileges. Notice of
amendments to or terminations of rights and privileges will be provided to
shareholders in accordance with applicable law.
Certain of the rights and privileges described below refer to funds, other
than the Funds, whose shares are also distributed by IMDI. These funds are: Ivy
Bond Fund, Ivy European Opportunities Fund, Ivy Global Fund, Ivy Global Natural
Resources Fund, Ivy Global Science & Technology Fund, Ivy Growth Fund, Ivy
Growth with Income Fund, Ivy International Fund, Ivy International Fund II, Ivy
International Small Companies Fund, Ivy International Strategic Bond Fund, Ivy
Money Market Fund, Ivy Pan-Europe Fund, Ivy US Blue Chip Fund, and Ivy US
Emerging Growth Fund (the other eighteen series of the Trust). (Effective April
18, 1997, Ivy International Fund suspended the offer of its shares to new
investors). Shareholders should obtain a current prospectus before exercising
any right or privilege that may relate to these funds.
AUTOMATIC INVESTMENT METHOD
The Automatic Investment Method, which enables a Fund shareholder to have
specified amounts automatically drawn each month from his or her bank for
investment in a Fund's shares, is available for all classes of shares. 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 each 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 each 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).
Each Fund may, from time to time, waive the initial sales charge on its
Class A shares sold to clients of The Legend Group and United Planners Financial
Services of America, Inc. This privilege will apply only to Class A Shares of a
Fund that are purchased using all or a portion of the proceeds obtained by such
clients through redemptions of shares of a mutual fund (other than one of the
Funds) on which a sales charge was paid (the "NAV transfer privilege").
Purchases eligible for the NAV transfer privilege must be made with in 60 days
of redemption from the other fund, and the Class A shares purchased are subject
to a 1.00% CDSC on shares redeemed within the first year after purchase. The NAV
transfer privilege also applies to Fund shares purchased directly by clients of
such dealers as long as their accounts are linked to the dealer's master
account. The normal service fee, as described in the "Initial Sales Charge
Alternative - Class A Shares" section of the Prospectus, will be paid to those
dealers in connection with these purchases. IMDI may from time to time pay a
special cash incentive to The Legend Group or United Planners Financial Services
of America, Inc. in connection with sales of shares of a Fund by its registered
representative under the NAV transfer privilege. Additional information on sales
charge reductions or waivers may be obtained from IMDI at the address listed on
the cover of this Statement of Additional Information.
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 a Fund
exercising the exchange privilege will continue to be subject to that Fund's
CDSC period following an exchange if such period is longer than the CDSC period,
if any, applicable to the new Class A shares.
For purposes of computing the CDSC that may be payable upon the redemption
of the new Class A shares, the holding period of the outstanding Class A shares
is "tacked" onto the holding period of the new Class A shares.
CLASS B: Class B shareholders may exchange their Class B shares
("outstanding Class B shares") for Class B shares of another Ivy fund ("new
Class B shares") on the basis of the relative net asset value per Class B share,
without the payment of any CDSC that would otherwise be due upon the redemption
of the outstanding Class B shares. Class B shareholders of a Fund exercising the
exchange privilege will continue to be subject to that Fund's CDSC schedule (or
period) following an exchange if such schedule is higher (or such period is
longer) than the CDSC schedule (or period) applicable to the new Class B shares.
Class B shares of a Fund acquired through an exchange of Class B shares of
another Ivy fund will be subject to that Fund's CDSC schedule (or period) if
such schedule is higher (or such period is longer) than the CDSC schedule (or
period) applicable to the Ivy fund from which the exchange was made.
For purposes of both the conversion feature and computing the CDSC that
may be payable upon the redemption of the new Class B shares (prior to
conversion), the holding period of the outstanding Class B shares is "tacked"
onto the holding period of the new Class B shares.
The following CDSC table applies to Class B shares of Ivy Asia Pacific
Fund, Ivy Bond Fund, Ivy China Region Fund, Ivy Developing Nations Fund, Ivy
European Opportunities Fund, Ivy Global Fund, Ivy Global Natural Resources Fund,
Ivy Global Science & Technology Fund, Ivy Growth Fund, Ivy Growth with Income
Fund, Ivy International Fund II, Ivy International Fund, Ivy International Small
Companies Fund, Ivy International Strategic Bond Fund, Ivy Pan-Europe Fund, Ivy
South America Fund, Ivy US Blue Chip Fund, and Ivy US Emerging Growth Fund.
CONTINGENT DEFERRED SALES CHARGE AS
A PERCENTAGE OF DOLLAR AMOUNT
YEAR SINCE PURCHASE SUBJECT TO CHARGE
First 5%
Second 4%
Third 3%
Fourth 3%
Fifth 2%
Sixth 1%
Seventh and thereafter 0%
CLASS C: Class C shareholders may exchange their Class C shares
("outstanding Class C shares") for Class C shares of another Ivy fund ("new
Class C shares") on the basis of the relative net asset value per Class C share,
without the payment of any CDSC that would otherwise be due upon redemption.
(Class C shares are subject to a CDSC of 1.00% if redeemed within one year of
the date of purchase.)
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. No exchange out of the
Fund (other than by a complete exchange of all Fund shares) may be made if it
would reduce the shareholder's interest in the Fund to less than $1,000.
Each exchange 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
each 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 a Fund. A Letter of Intent
may be submitted at the time of an initial purchase of Class A shares of a Fund
or within 90 days of the initial purchase, in which case the Letter of Intent
will be back dated. A shareholder may include, as an accumulation credit, the
value (at the applicable offering price) of all Class A shares of Ivy Asia
Pacific Fund, Ivy Bond Fund, Ivy China Region Fund, Ivy Developing Nations Fund,
Ivy European Opportunities Fund, Ivy Global Fund, Ivy Global Natural Resources
Fund, Ivy Global Science & Technology Fund, Ivy Growth Fund, Ivy Growth with
Income Fund, Ivy International Fund II, Ivy International Fund, Ivy
International Small Companies Fund, Ivy International Strategic Bond Fund, Ivy
Pan-Europe Fund, Ivy South America Fund, Ivy US Blue Chip Fund and Ivy US
Emerging Growth Fund (and shares that have been exchanged into Ivy Money Market
Fund from any of the other funds in the Ivy Funds) held of record by him or her
as of the date of his or her Letter of Intent. During the term of the Letter of
Intent, the Transfer Agent will hold Class A shares representing 5% of the
indicated amount (less any accumulation credit value) in escrow. The escrowed
Class A shares will be released when the full indicated amount has been
purchased. If the full indicated amount is not purchased during the term of the
Letter of Intent, the investor is required to pay IMDI an amount equal to the
difference between the dollar amount of sales charge that he or she has paid and
that which he or she would have paid on his or her aggregate purchases if the
total of such purchases had been made at a single time. Such payment will be
made by an automatic liquidation of Class A shares in the escrow account. A
Letter of Intent does not obligate the investor to buy or the Trust to sell the
indicated amount of Class A shares, and the investor should read carefully all
the provisions of such letter before signing.
RETIREMENT PLANS
Shares may be purchased in connection with several types of tax-deferred
retirement plans. Shares of more than one fund distributed by IMDI may be
purchased in a single application establishing a single account under the plan,
and shares held in such an account may be exchanged among the Ivy funds in
accordance with the terms of the applicable plan and the exchange privilege
available to all shareholders. Initial and subsequent purchase payments in
connection with tax-deferred retirement plans must be at least $25 per
participant.
The following fees will be charged to individual shareholder accounts as
described in the retirement prototype plan document:
Retirement Plan New Account Fee no fee
Retirement Plan Annual Maintenance Fee $10.00 per fund account
For shareholders whose retirement accounts are diversified across several
Ivy funds, the annual maintenance fee will be limited to not more than $20.
The following discussion describes the tax treatment of certain
tax-deferred retirement plans under current Federal income tax law. State income
tax consequences may vary. An individual considering the establishment of a
retirement plan should consult with an attorney and/or an accountant with
respect to the terms and tax aspects of the plan.
INDIVIDUAL RETIREMENT ACCOUNTS: Shares of each Fund may be used as a
funding medium for an Individual Retirement Account ("IRA"). Eligible
individuals may establish an IRA by adopting a model custodial account available
from IMSC, who may impose a charge for establishing the account. Individuals
should consult their tax advisers before investing IRA assets in an Ivy fund if
that fund primarily distributes exempt-interest dividends.
An individual who has not reached age 70-1/2 and who receives compensation
or earned income is eligible to contribute to an IRA, whether or not he or she
is an active participant in a retirement plan. An individual who receives a
distribution from another IRA, a qualified retirement plan, a qualified annuity
plan or a tax-sheltered annuity or custodial account ("403(b) plan") that
qualifies for "rollover" treatment is also eligible to establish an IRA by
rolling over the distribution either directly or within 60 days after its
receipt. Tax advice should be obtained in connection with planning a rollover
contribution to an IRA.
In general, an eligible individual may contribute up to the lesser of
$2,000 or 100% of his or her compensation or earned income to an IRA each year.
If a husband and wife are both employed, and both are under age 70-1/2, each may
set up his or her own IRA within these limits. If both earn at least $2,000 per
year, the maximum potential contribution is $4,000 per year for both. For years
after 1996, the result is similar even if one spouse has no earned income; if
the joint earned income of the spouses is at least $4,000, a contribution of up
to $2,000 may be made to each spouse's IRA. Rollover contributions are not
subject to these limits.
An individual may deduct his or her annual contributions to an IRA in
computing his or her Federal income tax within the limits described above,
provided he or she (or his or her spouse, if they file a joint Federal income
tax return) is not an active participant in a qualified retirement plan (such as
a qualified corporate, sole proprietorship, or partnership pension, profit
sharing, 401(k) or stock bonus plan), qualified annuity plan, 403(b) plan,
simplified employee pension, or governmental plan. If he or she (or his or her
spouse) is an active participant, whether the individual's contribution to an
IRA is fully deductible, partially deductible or not deductible depends on (i)
adjusted gross income and (ii) whether it is the individual or the individual's
spouse who is an active participant, in the case of married individuals filing
jointly. Contributions may be made up to the maximum permissible amount even if
they are not deductible. Rollover contributions are not includable in income for
Federal income tax purposes and therefore are not deductible from it.
Generally, earnings on an IRA are not subject to current Federal income
tax until distributed. Distributions attributable to tax-deductible
contributions and to IRA earnings are taxed as ordinary income. Distributions of
non-deductible contributions are not subject to Federal income tax. In general,
distributions from an IRA to an individual before he or she reaches age 59-1/2
are subject to a nondeductible penalty tax equal to 10% of the taxable amount of
the distribution. The 10% penalty tax does not apply to amounts withdrawn from
an IRA after the individual reaches age 59-1/2, becomes disabled or dies, or if
withdrawn in the form of substantially equal payments over the life or life
expectancy of the individual and his or her designated beneficiary, if any, or
rolled over into another IRA, amounts withdrawn and used to pay for deductible
medical expenses and amounts withdrawn by certain unemployed individuals not in
excess of amounts paid for certain health insurance premiums, amounts used to
pay certain qualified higher education expenses, and amounts used within 120
days of the date the distribution is received to pay for certain first-time
homebuyer expenses. Distributions must begin to be withdrawn not later than
April 1 of the calendar year following the calendar year in which the individual
reaches age 70-1/2. Failure to take certain minimum required distributions will
result in the imposition of a 50% non-deductible penalty tax.
ROTH IRAS: Shares of each 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 a Fund may reinvest all
or a part of the proceeds of the redemption back into Class A shares of that
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 each Fund. See "Initial Sales Charge Alternative --
Class A Shares" in the Prospectus. The reduced sales charge is applicable to
investments made at one time by an individual, his or her spouse and children
under the age of 21, or a trustee or other fiduciary of a single trust estate or
single fiduciary account (including a pension, profit sharing or other employee
benefit trust created pursuant to a plan qualified under Section 401 of the
Code). Rights of Accumulation is also applicable to current purchases of all of
the funds of Ivy Fund (except Ivy Money Market Fund) by any of the persons
enumerated above, where the aggregate quantity of Class A shares of such funds
(and shares that have been exchanged into Ivy Money Market Fund from any of the
other funds in the Ivy funds) and of any other investment company distributed by
IMDI, previously purchased or acquired and currently owned, determined at the
higher of current offering price or amount invested, plus the Class A shares
being purchased, amounts to $50,000 or more for all funds other than Ivy Bond;
or $100,000 or more for Ivy Bond Fund.
At the time an investment takes place, IMSC must be notified by the
investor or his or her dealer that the investment qualifies for the reduced
sales charge on the basis of previous investments. The reduced sales charge is
subject to confirmation of the investor's holdings through a check of the
particular fund's records.
SYSTEMATIC WITHDRAWAL PLAN
A shareholder may establish a Systematic Withdrawal Plan (a "Withdrawal
Plan"), by telephone instructions or by delivery to IMSC of a written election
to have his or her shares withdrawn periodically, 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 each 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 a 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 each 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 each 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 a Fund convert to Class A shares once the Plan has reached $5
million invested in Applicable Investments, or 10 years after the date of the
initial purchase by a participant under the Plan--the Plan will receive a Plan
level share conversion.
REDEMPTIONS
Shares of each 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 a 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 a Fund.
The Trust may redeem those accounts of shareholders who have maintained an
investment, including sales charges paid, of less than $1,000 in a 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 each 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.
Each 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, a 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 each Fund will
automatically convert to Class A shares of that 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 that Fund
occurs. For the purpose of calculating the holding period required for
conversion of Class B shares, the date of initial issuance shall mean: (1) the
date on which such Class B shares were issued, or (2) for Class B shares
obtained through an exchange, or a series of exchanges, (subject to the exchange
privileges for Class B shares) the date on which the original Class B shares
were issued. For purposes of conversion of Class B shares, Class B shares
purchased through the reinvestment of dividends and capital gain distributions
paid in respect of Class B shares will be held in a separate sub-account. Each
time any Class B shares in the shareholder's regular account (other than those
shares in the sub-account) convert to Class A shares, a pro rata portion of the
Class B shares in the sub-account will also convert to Class A shares. The
portion will be determined by the ratio that the shareholder's Class B shares
converting to Class A shares bears to the shareholder's total Class B shares not
acquired through the reinvestment of dividends and capital gain distributions.
NET ASSET VALUE
The net asset value per share of each Fund is computed by dividing the
value of that 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 each Fund's aggregate net assets, receivables are valued at their
realizable amounts. Each Fund's liabilities, if not identifiable as belonging to
a particular class of the Fund, are allocated among that Fund's several classes
based on their relative net asset size. Liabilities attributable to a particular
class are charged to that class directly. The total liabilities for a class are
then deducted from the class's proportionate interest in the Fund's assets, and
the resulting amount is divided by the number of shares of the class outstanding
to produce its net asset value per share.
A security listed or traded on a recognized stock exchange or The Nasdaq
Stock Market, Inc. ("Nasdaq") is valued at the security's last sale price on the
exchange on which the security is principally traded. If no sale is reported at
that time, the average between the last bid and asked price (the "Calculated
Mean") is used. Unless otherwise noted herein, the value of a foreign security
is determined in its national currency as of the normal close of trading on the
foreign exchange on which it is traded or as of the close of regular trading on
the Exchange, if that is earlier, and that value is then converted into its U.S.
dollar equivalent at the foreign exchange rate in effect at noon, eastern time,
on the day the value of the foreign security is determined. All other securities
for which OTC market quotations are readily available are valued at the
Calculated Mean.
A debt security normally is valued on the basis of quotes obtained from at
least two dealers (or one dealer who has made a market in the security) or
pricing services that take into account appropriate valuation factors. Interest
is accrued daily. Money market instruments are valued at amortized cost, which
the Board believes approximates market value.
An exchange-traded option is valued at the last sale price on the exchange
on which it is principally traded, if available, and otherwise is valued at the
last sale price on the other exchange(s). If there were no sales on any
exchange, the option shall be valued at the Calculated Mean, if possible, and
otherwise at the last offering price, in the case of a written option, and the
last bid price, in the case of a purchased option. An OTC option is valued at
the last offering price, in the case of a written option, and the last bid
price, in the case of a purchased option. Exchange listed and widely-traded OTC
futures (and options thereon) are valued at the most recent settlement price.
Securities and other assets for which market prices are not readily
available are priced at their "fair value" as determined by IMI in accordance
with procedures approved by the Board. Trading in securities on many foreign
securities exchanges is normally completed before the close of regular trading
on the Exchange. Trading on foreign exchanges may not take place on all days on
which there is regular trading on the Exchange, or may take place on days on
which there is no regular trading on the Exchange (e.g., any of the national
business holidays identified below). If events materially affecting the value of
the Fund's portfolio securities occur between the time when a foreign exchange
closes and the time when the Fund's net asset value is calculated (see following
paragraph), such securities may be valued at fair value as determined by IMI and
approved by the Board.
Portfolio securities are valued (and net asset value per share is
determined) as of the close of regular trading on the Exchange (normally 4:00
p.m., eastern time) on each day the Exchange is open for trading. The Exchange
and the Trust's offices are expected to be closed, and net asset value will not
be calculated, on the following national business holidays: New Year's Day,
Martin Luther King, Jr. Day, Presidents' Day, Good Friday, Memorial Day,
Independence Day, Labor Day, Thanksgiving Day and Christmas Day. On those days
when either or both of the Fund's Custodian or the Exchange close early as a
result of a partial holiday or otherwise, the Trust reserves the right to
advance the time on that day by which purchase and redemption requests must be
received.
The number of shares you receive when you place a purchase order, and the
payment you receive after submitting a redemption request, is based on a Fund's
net asset value next determined after your instructions are received in proper
form by IMSC or by your registered securities dealer. Each purchase and
redemption order is subject to any applicable sales charge. Since each Fund
invests in securities that are listed on foreign exchanges that may trade on
weekends or other days when the Funds not price their shares, each Fund's net
asset value may change on days when shareholders will not be able to purchase or
redeem that Fund's shares. The sale of each 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 a Fund's best interest to do so.
TAXATION
The following is a general discussion of certain tax rules thought to be
applicable with respect to each 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 a Fund.
Each Fund intends to be taxed as a regulated investment company under
Subchapter M of the Code. Accordingly, each 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 each 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 each 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, each 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. Each 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, each 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, each 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 a Fund in October, November or
December of the year with a record date in such a month and paid by that 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 each 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 that Fund. If a 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 a 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 a 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 each 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 each 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
each Fund may result in "straddles" for Federal income tax purposes. The
straddle rules may affect the character of gains or losses realized by each
Fund. In addition, losses realized by each 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 each Fund
are not entirely clear. The straddle rules may increase the amount of short-term
capital gain realized by each Fund, which is taxed as ordinary income when
distributed to shareholders.
Each Fund may make one or more of the elections available under the Code
which are applicable to straddles. If a 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, each Fund may recognize gain (but
not loss) from a constructive sale of certain "appreciated financial positions"
if that 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 each 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 each 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 each Fund's investment company taxable income
available to be distributed to its shareholders as ordinary income.
INVESTMENT IN PASSIVE FOREIGN INVESTMENT COMPANIES
Each Fund may invest in shares of foreign corporations which may be
classified under the Code as passive foreign investment companies ("PFICs"). In
general, a foreign corporation is classified as a PFIC if at least one-half of
its assets constitute investment-type assets, or 75% or more of its gross income
is investment-type income. If a Fund receives a so-called "excess distribution"
with respect to PFIC stock, that 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.
Each Fund may be eligible to elect alternative tax treatment with respect
to PFIC shares. A 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,
each 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 each 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 each 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. Each 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 each Fund may be treated as having
acquisition discount, or OID in the case of certain types of debt securities.
Generally, each 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. Each 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.
Each Fund generally will be required to distribute dividends to
shareholders representing discount on debt securities that is currently
includable in income, even though cash representing such income may not have
been received by that Fund. Cash to pay such dividends may be obtained from
sales proceeds of securities held by that 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 a 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 each 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 that Fund on the distribution date. A
distribution of an amount in excess of a 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 a 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
a 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 a 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 each 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 a Fund's total assets at the close of its
taxable year consists of securities of foreign corporations, that Fund will be
eligible and may elect to "pass-through" to its 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 a Fund makes
the election described in the preceding paragraph, the source of the Fund's
income flows through to its shareholders. With respect to each 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 each 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 a 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 a 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
Each 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 a Fund with and to certify
the shareholder's correct taxpayer identification number or social security
number, (2) the IRS notifies the shareholder or a 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 each 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 a Fund.
PERFORMANCE INFORMATION
Performance information for the classes of shares of each 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 each 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 a 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.
AVERAGE ANNUAL TOTAL RETURN. Quotations of standardized average annual
total return ("Standardized Return") for a specific class of shares of each Fund
will be expressed in terms of the average annual compounded rate of return that
would cause a hypothetical investment in that class of that 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 each Fund, it is assumed that
all dividends and capital gains distributions made by that 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 each 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%.
Each Fund may, from time to time, include in advertisements, promotional
literature or reports to shareholders or prospective investors total return data
that are not calculated according to the formula set forth above
("Non-Standardized Return"). Neither initial nor CDSCs are taken into account in
calculating Non-Standardized Return; a sales charge, if deducted, would reduce
the return.
The following tables summarize the calculation of Standardized and
Non-Standardized Return for the Class A, Class B and Class C shares of each Fund
for the periods indicated. In determining the average annual total return for a
specific class of shares of a Fund, recurring fees, if any, that are charged to
all shareholder accounts are taken into consideration. For any account fees that
vary with the size of the account of the Fund, the account fee used for purposes
of the following computations is assumed to be the fee that would be charged to
the mean account size of the Fund.
IVY ASIA PACIFIC FUND
STANDARDIZED RETURN[*]
CLASS A[1] CLASS B[2] CLASS C[3]
Year ended
December 31,
1998 (12.21)% (12.10)% (8.29)%
Inception [#]
to year ended
December 31, (27.29)% (27.09)% (28.60)%
1998:
NON-STANDARDIZED RETURN[**]
CLASS A[4] CLASS B[5] CLASS C[6]
Year ended
December 31,
1998 (6.86)% (7.48)% (7.37)%
Inception [#]
to year ended
December 31, (25.04)% (25.53)% (28.60)%
1998:
- ---------------------------------------------------------------------
[*] The Standardized Return figures for Class A shares reflect the
deduction of the maximum initial sales charge of 5.75%. The Standardized Return
figures for Class B and C shares reflect the deduction of the applicable CDSC
imposed on redemption of Class B or C shares held for the period.
[**] The Non-Standardized Return figures do not reflect the deduction of
any initial sales charge or CDSC.
[#] The inception date for the Fund (and Class A, Class B and Class C
shares of the Fund) was January 1, 1997.
[1] The Standardized Return figures for the Class A shares reflect expense
reimbursement. Without expense reimbursement, the Standardized Return for Class
A shares for the period from inception through December 31, 1998 and the one
year ended December 31, 1998 would have been (29.90)% and (16.09)%,
respectively.
[2] The Standardized Return figures for the Class B shares reflect expense
reimbursement. Without expense reimbursement, the Standardized Return for Class
B shares for the period from inception through December 31, 1998 and the one
year ended December 31, 1998 would have been (29.04)% and (14.64)%,
respectively.
[3] The Standardized Return figures for the Class C shares reflect expense
reimbursement. Without expense reimbursement, the Standardized Return for Class
C shares for the period from inception through December 31, 1998 and the one
year ended December 31, 1998 would have been (30.75)% and (11.32)%,
respectively.
[4] The Non-Standardized Return figures for Class A shares reflect expense
reimbursement. Without expense reimbursement, the Non-Standardized Return for
Class A shares for the period from inception through December 31, 1998 and the
one year ended December 31, 1998 would have been (27.77)% and (10.95)%,
respectively.
[5] The Non-Standardized Return figures for Class B shares reflect expense
reimbursement. Without expense reimbursement, the Non-Standardized Return for
Class B shares for the period from inception through December 31, 1998 and the
one year ended December 31, 1998 would have been (27.58)% and (10.13)%,
respectively.
[6] The Non-Standardized Return figures for Class C shares reflect expense
reimbursement. Without expense reimbursement, the Non-Standardized Return for
Class C shares for the period from inception through December 31, 1998 and the
one year ended December 31, 1998 would have been (30.75)% and (10.40)%,
respectively.
IVY CHINA REGION FUND
STANDARDIZED RETURN[*]
CLASS A[1] CLASS B[2] CLASS C[3]
Year ended
December 31,
1998 (25.13)% (24.99)% (21.81)%
Five years
ended December
31, 1998 (11.68)% (11.63)% N/A
Inception [#]
to year ended
December 31, (8.76)% (8.55)% (13.93)%
1998[7]:
NON-STANDARDIZED RETURN[**]
CLASS A[4] CLASS B[5] CLASS C[6]
Year ended
December 31,
1998 (20.56)% (21.04)% (21.02)%
Five years
ended December
31, 1998 (10.63)% (11.27)% N/A
Inception [#]
to year ended
December 31, (7.71)% (8.38)% (13.93)%
1998[7]:
- ---------------------------------------------
[*] The Standardized Return figures for Class A shares reflect the
deduction of the maximum initial sales charge of 5.75%. The Standardized Return
figures for Class B and C shares reflect the deduction of the applicable CDSC
imposed on redemption of Class B or C shares held for the period.
[**] The Non-Standardized Return figures do not reflect the deduction of
any initial sales charge or CDSC.
[#] The inception date for the Fund (and Class A and Class B shares of the
Fund) was October 23, 1993. The inception date for Class C shares was April 30,
1996.
[1] The Standardized Return figures for the Class A shares reflect expense
reimbursement. Without expense reimbursement, the Standardized Return for Class
A shares for the period from inception through December 31, 1998 and the one
year and five years ended December 31, 1998 would have been (9.17)%, (25.68)%,
and (12.07)%, respectively.
[2] The Standardized Return figures for the Class B shares reflect expense
reimbursement. Without expense reimbursement, the Standardized Return for Class
B shares for the period from inception through December 31, 1998 and the one
year and five years ended December 31, 1998 would have been (8.93)%, (25.47)%,
and (11.99)%, respectively.
[3] The Standardized Return figures for the Class C shares reflect expense
reimbursement. Without expense reimbursement, the Standardized Return for Class
C shares for the period from inception through December 31, 1998 and the one
year ended December 31, 1998 would have been (14.27)%, and (22.47)%,
respectively. (Since the inception date for Class C shares was April 30, 1996,
there were no outstanding Class C shares for the duration of the five year
period ended December 31, 1998.)
[4] The Non-Standardized Return figures for Class A shares reflect expense
reimbursement. Without expense reimbursement, the Non-Standardized Return for
Class A shares for the period from inception through December 31, 1998 and the
one year and five years ended December 31, 1998 would have been (8.12)%,
(21.14)%, and (11.02)%, respectively.
[5] The Non-Standardized Return figures for Class B shares reflect expense
reimbursement. Without expense reimbursement, the Non-Standardized Return for
Class B shares for the period from inception through December 31, 1998 and the
one year and five years ended December 31, 1998 would have been (8.76)%,
(21.54)%, and (11.63)%, respectively
[6] The Non-Standardized Return figures for Class C shares reflect expense
reimbursement. Without expense reimbursement, the Non-Standardized Return for
Class C shares for the period from inception through December 31, 1998 and the
one year ended December 31, 1998 would have been (14.27)%, and (21.68)%,
respectively. (Since the inception date for Class C shares was April 30, 1996,
there were no Class C shares outstanding for the five year period ended December
31, 1998.)
[7] The total return for a period less than a full year is calculated on
an aggregate basis and is not annualized.
IVY DEVELOPING NATIONS FUND
STANDARDIZED RETURN[*]
CLASS A[1] CLASS B[2] CLASS C[3]
Year ended (16.75)% (16.73)% (13.16)%
December 31,
1998:
Inception [#] (10.76)% (10.60)% (15.22)%
to year ended
December 31,
1998[7]:
NON-STANDARDIZED RETURN[**]
CLASS A[4] CLASS B[5] CLASS C[6]
Year ended (11.67)% (12.35)% (12.16)%
December 31,
1998:
Inception [#] (9.49)% (10.17)% (15.22)%
to year ended
December 31,
1998[7]:
- ----------------------------------------------------------
[*] The Standardized Return figures for Class A shares reflect the
deduction of the maximum initial sales charge of 5.75%. The Standardized Return
figures for Class B and C shares reflect the deduction of the applicable CDSC
imposed on redemption of Class B or C shares held for the period.
[**] The Non-Standardized Return figures do not reflect the deduction of
any initial sales charge or CDSC.
[#] The inception date for the Fund (Class A and Class B shares) was
November 1, 1994. The inception date for Class C shares of the Fund was April
30, 1996.
[1] The Standardized Return figures for the Class A shares reflect expense
reimbursement. Without expense reimbursement, the Standardized Return for Class
A shares for the period from inception through December 31, 1998 and the one
year ended December 31, 1998 would have been (12.39)% and (18.01)%,
respectively.
[2] The Standardized Return figures for the Class B shares reflect expense
reimbursement. Without expense reimbursement, the Standardized Return for Class
B shares for the period from inception through December 31, 1998 and the one
year ended December 31, 1998 would have been (12.19)% and (18.01)%,
respectively.
[3] The Standardized Return figures for the Class C shares reflect expense
reimbursement. Without expense reimbursement, the Standardized Return for Class
C shares for the period from inception through December 31, 1998 and the one
year ended December 31, 1998 would have been(15.63)% and (14.14)%, respectively.
[4] The Non-Standardized Return figures for Class A shares reflect expense
reimbursement. Without expense reimbursement, the Non-Standardized Return for
Class A shares for the period from inception through December 31, 1998 and the
one year ended December 31, 1998 would have been (11.12)% and (13.00)%,
respectively.
[5] The Non-Standardized Return figures for Class B shares reflect expense
reimbursement. Without expense reimbursement, the Non-Standardized Return for
Class B shares for the period from inception through December 31, 1998 and the
one year ended December 31, 1998 would have been (11.77)% and (13.68)%,
respectively.
[6] The Non-Standardized Return figures for Class C shares reflect expense
reimbursement. Without expense reimbursement, the Non-Standardized Return for
Class C shares for the period from inception through December 31, 1998 and the
one year ended December 31, 1998 would have been (15.63)% and (13.14)%,
respectively.
[7] The total return for a period less than a full year is calculated on
an aggregate basis and is not annualized.
IVY SOUTH AMERICA FUND
STANDARDIZED RETURN[*]
CLASS A[1] CLASS B[2] CLASS C[3]
Year ended (39.74)% (39.76)% (37.69)%
December 31,
1998
Inception [#] (13.13)% (13.00)% (11.75)%
to year ended
December 31,
1998[7]:
NON-STANDARDIZED RETURN[**]
CLASS A[4] CLASS B[5] CLASS C[6]
Year ended (36.07)% (36.59)% (36.69)%
December 31,
1998
Inception [#] (11.90)% (12.59)% (11.75)%
to year ended
December 31,
1998[7]:
- -------------------------------------------------------------------
[*] The Standardized Return figures for Class A shares reflect the
deduction of the maximum initial sales charge of 5.75%. The Standardized Return
figures for Class B and C shares reflect the deduction of the applicable CDSC
imposed on redemption of Class B or C shares held for the period.
[**] The Non-Standardized Return figures do not reflect the deduction of
any initial sales charge or CDSC.
[#] The inception date for the Fund (Class A and Class B shares) was
November 1, 1994. The inception date for Class C shares was April 30, 1996.
[1] The Standardized Return figures for the Class A shares reflect expense
reimbursement. Without expense reimbursement, the Standardized Return for Class
A shares for the period from inception through December 31, 1998 and the one
year ended December 31, 1998 would have been (16.79)% and (42.33)%,
respectively.
[2] The Standardized Return figures for the Class B shares reflect expense
reimbursement. Without expense reimbursement, the Standardized Return for Class
B shares for the period from inception through December 31, 1998 and the one
year ended December 31, 1998 would have been (16.53)% and (42.28)%,
respectively.
[3] The Standardized Return figures for the Class C shares reflect expense
reimbursement. Without expense reimbursement, the Standardized Return for Class
C shares for the period from inception through December 31, 1998 and the one
year ended December 31, 1998 would have been (13.71)% and (40.44)%,
respectively.
[4] The Non-Standardized Return figures for Class A shares reflect expense
reimbursement. Without expense reimbursement, the Non-Standardized Return for
Class A shares for the period from inception through December 31, 1998 and the
one year ended December 31, 1998 would have been (15.59)% and (38.80)%,
respectively.
[5] The Non-Standardized Return figures for Class B shares reflect expense
reimbursement. Without expense reimbursement, the Non-Standardized Return for
Class B shares for the period from inception through December 31, 1998 and the
one year ended December 31, 1998 would have been (16.12)% and (39.23)%,
respectively.
[6] The Non-Standardized Return figures for Class C shares reflect expense
reimbursement. Without expense reimbursement, the Non-Standardized Return for
Class C shares for the period from inception through December 31, 1998 and the
one year ended December 31, 1998 would have been (13.71)% and (39.44)%,
respectively.
[7] The total return for a period less than a full year is calculated on
an aggregate basis and is not annualized.
CUMULATIVE TOTAL RETURN. Cumulative total return is the cumulative rate of
return on a hypothetical initial investment of $1,000 in a specific class of
shares of a Fund for a specified period. Cumulative total return quotations
reflect changes in the price of a Fund's shares and assume that all dividends
and capital gains distributions during the period were reinvested in shares of
that. Cumulative total return is calculated by computing the cumulative rates of
return of a hypothetical investment in a specific class of shares of a 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.
IVY ASIA PACIFIC FUND
The following table summarizes the calculation of Cumulative Total Return
for the periods indicated through December 31, 1998, assuming the maximum 5.75%
sales charge has been assessed.
SINCE
ONE YEAR INCEPTION[*]
Class A (12.21)% (46.96)%
Class B (12.10)% (46.67)%
Class C (8.29)% (45.82)%
The following table summarizes the calculation of Cumulative Total Return
for the periods indicated through December 31, 1998, assuming the maximum 5.75%
sales charge has not been assessed.
SINCE
ONE YEAR INCEPTION[*]
Class A (6.86)% (43.72)%
Class B (7.48)% (44.45)%
Class C (7.37)% (45.82)%
- ---------------------------
[*] The inception date for the Fund (Class A, Class B and Class C shares) was
January 1, 1997.
IVY CHINA REGION FUND
The following table summarizes the calculation of Cumulative Total Return
for the periods indicated through December 31, 1998, assuming the maximum 5.75%
sales charge has been assessed.
ONE YEAR FIVE YEARS SINCE
INCEPTION[*]
Class A (25.13)% (46.26)% (37.85)%
Class B (24.99)% (46.11)% (37.11)%
Class C (21.81)% N/A (33.01)%
The following table summarizes the calculation of Cumulative Total Return
for the periods indicated through December 31, 1998, assuming the maximum 5.75%
sales charge has not been assessed.
ONE YEAR FIVE YEARS SINCE
INCEPTION[*]
Class A (20.56)% (42.98)% (34.06)%
Class B (21.04)% (45.01)% (36.48)%
Class C (21.02)% N/A (33.01)%
- ---------------------------
[*] The inception date for the Fund (Class A and Class B shares) was October 23,
1993. The inception date for Class C shares of the Fund was April 30, 1996.
IVY DEVELOPING NATIONS FUND
The following table summarizes the calculation of Cumulative Total Return
for the periods indicated through December 31, 1998, assuming the maximum 5.75%
sales charge has been assessed.
ONE YEAR SINCE
INCEPTION[*]
Class A (16.75)% (37.81)%
Class B (16.73)% (37.96)%
Class C (13.16)% (35.67)%
The following table summarizes the calculation of Cumulative Total Return
for the periods indicated through December 31, 1998, assuming the maximum 5.75%
sales charge has not been assessed.
ONE YEAR SINCE
INCEPTION[*]
Class A (11.67)% (34.01)%
Class B (12.35)% (36.04)%
Class C (12.16)% (35.67)%
- ---------------------------
[*] The inception date for the Fund (Class A and Class B shares) was
November 1, 1994. The inception date for Class C shares was April
30, 1996.
IVY SOUTH AMERICA FUND
The following table summarizes the calculation of Cumulative Total Return
for the periods indicated through December 31, 1998, assuming the maximum 5.75%
sales charge has been assessed.
ONE YEAR SINCE
INCEPTION[*]
Class A (39.74)% (44.40)%
Class B (39.76)% (44.05)%
Class C (37.69)% (28.38)%
The following table summarizes the calculation of Cumulative Total Return
for the periods indicated through December 31, 1998, assuming the maximum 5.75%
sales charge has not been assessed.
ONE YEAR SINCE
INCEPTION[*]
Class A (36.07)% (41.01)%
Class B (36.59)% (42.91)%
Class C (36.69)% (28.38)%
- ---------------------------
[*] The inception date for the Fund (Class A and Class B shares) was
November 1, 1994. The inception date for Class C shares of the Fund
was April 30, 1996.
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 each Fund will vary from time to time depending
on market conditions, the composition of each Fund's portfolio and operating
expenses of each Fund. These factors and possible differences in the methods
used in calculating performance quotations should be considered when comparing
performance information regarding each 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 each
Fund's shares and the risks associated with each 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.
Each 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
Each Fund's Portfolio of Investments as of December 31, 1998, Statement of
Assets and Liabilities as of December 31, 1998, Statement of Operations for the
fiscal year ended December 31, 1998, Statement of Changes in Net Assets for the
fiscal year ended December 31, 1998, Financial Highlights, Notes to Financial
Statements, and Report of Independent Accountants, which are included in each
Fund's December 31, 1998 Annual Report to shareholders, are incorporated by
reference into this SAI.
<PAGE>
APPENDIX A
DESCRIPTION OF STANDARD & POOR'S RATINGS GROUP ("S&P") AND
MOODY'S INVESTORS SERVICE, INC. ("MOODY'S") CORPORATE
BOND AND COMMERCIAL PAPER RATINGS
[From "Moody's Bond Record," November 1994 Issue (Moody's Investors Service,
New York, 1994), and "Standard & Poor's Municipal Ratings Handbook," October
1997 Issue (McGraw Hill, New York, 1997).]
MOODY'S:
(a) CORPORATE BONDS. Bonds rated Aaa by Moody's are judged by Moody's to
be of the best quality, carrying the smallest degree of investment risk.
Interest payments are protected by a large or exceptionally stable margin and
principal is secure. While the various protective elements are likely to change,
such changes as can be visualized are most unlikely to impair the fundamentally
strong position of such issues. Bonds rated Aa are judged by Moody's to be of
high quality by all standards. Aa bonds are rated lower than Aaa bonds because
margins of protection may not be as large as those of Aaa bonds, or fluctuations
of protective elements may be of greater amplitude, or there may be other
elements present which make the long-term risks appear somewhat larger than
those applicable to Aaa securities. Bonds which are rated A by Moody's possess
many favorable investment attributes and are to be considered as upper
medium-grade obligations. Factors giving security to principal and interest are
considered adequate, but elements may be present which suggest a susceptibility
to impairment sometime in the future. Bonds rated Baa by Moody's are considered
medium-grade obligations (i.e., they are neither highly protected nor poorly
secured). Interest payments and principal security appear adequate for the
present, but certain protective elements may be lacking or may be
characteristically unreliable over any great length of time. Such bonds lack
outstanding investment characteristics and in fact have speculative
characteristics as well. Bonds which are rated Ba are judged to have speculative
elements; their future cannot be considered well-assured. Often the protection
of interest and principal payments may be very moderate and thereby not well
safeguarded during both good and bad times over the future. Uncertainty of
position characterizes bonds in this class. Bonds which are rated B generally
lack characteristics of the desirable investment. Assurance of interest and
principal payments of or maintenance of other terms of the contract over any
long period of time may be small. Bonds which are rated Caa are of poor
standing. Such issues may be in default or there may be present elements of
danger with respect to principal or interest. Bonds which are rated Ca represent
obligations which are speculative in a high degree. Such issues are often in
default or have other marked shortcomings. Bonds which are rated C are the
lowest rated class of bonds and issues so rated can be regarded as having
extremely poor prospects of ever attaining any real investment standing.
(b) COMMERCIAL PAPER. The Prime rating is the highest commercial paper
rating assigned by Moody's. Among the factors considered by Moody's in assigning
ratings are the following: (1) evaluation of the management of the issuer; (2)
economic evaluation of the issuer's industry or industries and an appraisal of
speculative-type risks which may be inherent in certain areas; (3) evaluation of
the issuer's products in relation to competition and customer acceptance; (4)
liquidity; (5) amount and quality of long-term debt; (6) trend of earnings over
a period of ten years; (7) financial strength of a parent company and the
relationships which exist with the issuer; and (8) recognition by management of
obligations which may be present or may arise as a result of public interest
questions and preparations to meet such obligations. Issuers within this Prime
category may be given ratings 1, 2 or 3, depending on the relative strengths of
these factors. The designation of Prime-1 indicates the highest quality
repayment capacity of the rated issue. Issuers rated Prime-2 are deemed to have
a strong ability for repayment while issuers voted Prime-3 are deemed to have an
acceptable ability for repayment. Issuers rated Not Prime do not fall within any
of the Prime rating categories.
S&P:
(a) CORPORATE BONDS. An S&P corporate debt rating is a current assessment
of the creditworthiness of an obligor with respect to a specific obligation. The
ratings are based on current information furnished by the issuer or obtained by
S&P from other sources it considers reliable. The ratings described below may be
modified by the addition of a plus or minus sign to show relative standing
within the major rating categories.
Debt rated AAA has the highest rating assigned by S&P. Capacity to pay
interest and repay principal is extremely strong. Debt rated AA is judged by S&P
to have a very strong capacity to pay interest and repay principal and differs
from the highest rated issues only in small degree. Debt rated A by S&P has a
strong capacity to pay interest and repay principal, although it is somewhat
more susceptible to the adverse effects of changes in circumstances and economic
conditions than debt in higher rated categories.
Debt rated BBB by S&P is regarded by S&P as having an adequate capacity to
pay interest and repay principal. Although such bonds normally exhibit adequate
protection parameters, adverse economic conditions or changing circumstances are
more likely to lead to a weakened capacity to pay interest and repay principal
than debt in higher rated categories.
Debt rated BB, B, CCC, CC and C is regarded as having predominately
speculative characteristics with respect to capacity to pay interest and repay
principal. BB indicates the least degree of speculation and C the highest. While
such debt will likely have some quality and protective characteristics, these
are outweighed by large uncertainties or exposures to adverse conditions. Debt
rated BB has less near-term vulnerability to default than other speculative
issues. However, it faces major ongoing uncertainties or exposure to adverse
business, financial or economic conditions which could lead to inadequate
capacity to meet timely interest and principal payments. The BB rating category
is also used for debt subordinated to senior debt that is assigned an actual or
implied BBB- rating. Debt rated B has a greater vulnerability to default but
currently has the capacity to meet interest payments and principal repayments.
Adverse business, financial, or economic conditions will likely impair capacity
or willingness to pay interest and repay principal. The B rating category is
also used for debt subordinated to senior debt that is assigned an actual or
implied BB or BB- rating. Debt rated CCC has a currently identifiable
vulnerability to default, and is dependent upon favorable business, financial,
and economic conditions to meet timely payment of interest and repayment of
principal. In the event of adverse business, financial or economic conditions,
it is not likely to have the capacity to pay interest and repay principal. The
CCC rating category is also used for debt subordinated to senior debt that is
assigned an actual or implied B or B- rating. The rating CC typically is applied
to debt subordinated to senior debt which is assigned an actual or implied CCC
debt rating. The rating C typically is applied to debt subordinated to senior
debt which is assigned an actual or implied CCC- debt rating. The C rating may
be used to cover a situation where a bankruptcy petition has been filed, but
debt service payments are continued.
The rating CI is reserved for income bonds on which no interest is being
paid. Debt rated D is in payment default. The D rating category is used when
interest payments or principal payments are not made on the date due, even if
the applicable grace period has not expired, unless S&P believes that such
payments will be made during such grace period. The D rating also will be used
upon the filing of a bankruptcy petition if debt service payments are
jeopardized.
(b) COMMERCIAL PAPER. An S&P commercial paper rating is a current
assessment of the likelihood of timely payment of debt considered short-term in
the relevant market.
The commercial paper rating A-1 by S&P indicates that the degree of safety
regarding timely payment is strong. Those issues determined to possess extremely
strong safety characteristics are denoted with a plus sign (+) designation. For
commercial paper with an A-2 rating, the capacity for timely payment on issues
is satisfactory, but not as high as for issues designated A-1. Issues rated A-3
have adequate capacity for timely payment, but are more vulnerable to the
adverse effects of changes in circumstances than obligations carrying higher
designations.
Issues rated B are regarded as having only speculative capacity for timely
payment. The C rating is assigned to short-term debt obligations with a doubtful
capacity for payment. Debt rated D is in payment default. The D rating category
is used when interest payments or principal payments are not made on the date
due, even if the applicable grace period has not expired, unless S&P believes
such payments will be made during such grace period.
<PAGE>
IVY ASIA PACIFIC FUND
IVY CHINA REGION FUND
IVY DEVELOPING NATIONS FUND
IVY SOUTH AMERICA 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
May 3, 1999
(as supplemented October 18, 1999)
Ivy Fund (the "Trust") is an open-end management investment company that
currently consists of nineteen fully managed portfolios, each of which (except
for Ivy South America Fund and Ivy International Strategic Bond Fund) is
diversified. This Statement of Additional Information ("SAI") relates to the
Advisor Class shares of Ivy Asia Pacific Fund, Ivy China Region Fund, Ivy
Developing Nations Fund, and Ivy South America Fund (each a "Fund"). The other
fifteen 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 Funds' Advisor Class shares dated April 30, 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. Advisor
Class shares are only offered to certain investors (see the Prospectus). The
Funds also offer Class A, B and C 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. ("IMDI")
Via Mizner Financial Plaza, Suite 300
700 South Federal Highway
Boca Raton, Florida 33432
Telephone: (800) 456-5111
<PAGE>
TABLE OF CONTENTS
GENERAL INFORMATION..........................................................3
INVESTMENT OBJECTIVES, STRATEGIES AND RISKS..................................3
IVY ASIA PACIFIC FUND..................................................4
INVESTMENT RESTRICTIONS FOR ASIA PACIFIC FUND..........................5
IVY CHINA REGION FUND..................................................7
INVESTMENT RESTRICTIONS FOR IVY CHINA REGION FUND......................8
IVY DEVELOPING NATIONS FUND...........................................11
INVESTMENT RESTRICTIONS FOR IVY DEVELOPING NATIONS FUND...............11
IVY SOUTH AMERICA FUND................................................14
INVESTMENT RESTRICTIONS FOR IVY SOUTH AMERICA FUND....................14
COMMON STOCKS.........................................................18
CONVERTIBLE SECURITIES................................................18
SECURITIES ISSUED IN ASIA-PACIFIC COUNTRIES...........................19
THE CHINA REGION......................................................20
SOUTH AMERICAN SECURITIES.............................................20
DEBT SECURITIES.......................................................22
IN GENERAL......................................................22
INVESTMENT-GRADE DEBT SECURITIES................................22
LOW-RATED DEBT SECURITIES.......................................23
U.S. GOVERNMENT SECURITIES......................................24
ZERO COUPON BONDS...............................................25
FIRM COMMITMENT AGREEMENTS AND "WHEN-ISSUED" SECURITIES.........25
ILLIQUID SECURITIES...................................................25
FOREIGN SECURITIES....................................................26
DEPOSITORY RECEIPTS...................................................27
EMERGING MARKETS......................................................28
FOREIGN CURRENCIES....................................................29
FOREIGN CURRENCY EXCHANGE TRANSACTIONS................................30
OTHER INVESTMENT COMPANIES............................................31
REPURCHASE AGREEMENTS.................................................31
BANKING INDUSTRY AND SAVINGS AND LOAN OBLIGATIONS.....................31
COMMERCIAL PAPER......................................................31
BORROWING.............................................................32
WARRANTS..............................................................32
OPTIONS TRANSACTIONS..................................................32
IN GENERAL......................................................32
WRITING OPTIONS ON INDIVIDUAL SECURITIES........................33
PURCHASING OPTIONS ON INDIVIDUAL SECURITIES.....................34
PURCHASING AND WRITING OPTIONS ON SECURITIES INDICES............34
RISKS OF OPTIONS TRANSACTIONS...................................35
FUTURES CONTRACTS AND OPTIONS ON FUTURES CONTRACTS....................36
IN GENERAL......................................................36
FOREIGN CURRENCY FUTURES CONTRACTS AND RELATED OPTIONS..........37
RISKS ASSOCIATED WITH FUTURES AND RELATED OPTIONS...............38
SECURITIES INDEX FUTURES CONTRACTS....................................39
RISKS OF SECURITIES INDEX FUTURES...............................40
COMBINED TRANSACTIONS...........................................41
PORTFOLIO TURNOVER..........................................................41
TRUSTEES AND OFFICERS.......................................................42
PERSONAL INVESTMENTS BY EMPLOYEES OF IMI........................42
INVESTMENT ADVISORY AND OTHER SERVICES......................................42
BUSINESS MANAGEMENT AND INVESTMENT ADVISORY SERVICES..................42
DISTRIBUTION SERVICES.................................................44
RULE 18F-3 PLAN.................................................45
CUSTODIAN.............................................................45
FUND ACCOUNTING SERVICES..............................................45
TRANSFER AGENT AND DIVIDEND PAYING AGENT..............................46
ADMINISTRATOR.........................................................46
AUDITORS..............................................................46
BROKERAGE ALLOCATION........................................................47
CAPITALIZATION AND VOTING RIGHTS............................................48
SPECIAL RIGHTS AND PRIVILEGES...............................................49
AUTOMATIC INVESTMENT METHOD...........................................50
EXCHANGE OF SHARES....................................................50
RETIREMENT PLANS......................................................51
INDIVIDUAL RETIREMENT ACCOUNTS..................................51
ROTH IRAS.......................................................52
QUALIFIED PLANS.................................................53
DEFERRED COMPENSATION FOR PUBLIC SCHOOLS AND CHARITABLE
ORGANIZATIONS ("403(B)(7) ACCOUNT").............................54
SIMPLIFIED EMPLOYEE PENSION ("SEP") IRAS........................54
SIMPLE PLANS....................................................54
SYSTEMATIC WITHDRAWAL PLAN............................................55
GROUP SYSTEMATIC INVESTMENT PROGRAM...................................55
REDEMPTIONS.................................................................56
NET ASSET VALUE.............................................................57
TAXATION....................................................................58
OPTIONS, FUTURES AND FOREIGN CURRENCY FORWARD CONTRACTS...............59
CURRENCY FLUCTUATIONS -- "SECTION 988" GAINS OR LOSSES................60
INVESTMENT IN PASSIVE FOREIGN INVESTMENT COMPANIES....................61
DEBT SECURITIES ACQUIRED AT A DISCOUNT................................61
DISTRIBUTIONS.........................................................62
DISPOSITION OF SHARES.................................................62
FOREIGN WITHHOLDING TAXES.............................................63
BACKUP WITHHOLDING....................................................64
PERFORMANCE INFORMATION.....................................................64
AVERAGE ANNUAL TOTAL RETURN.....................................65
CUMULATIVE TOTAL RETURN.........................................66
FINANCIAL STATEMENTS........................................................67
APPENDIX A..................................................................68
<PAGE>
GENERAL INFORMATION
Ivy Asia Pacific Fund, Ivy China Region Fund, and Ivy Developing Nations
Fund are organized as separate, diversified portfolios of the Trust, an open-end
management investment company organized as a Massachusetts business trust on
December 21, 1983. Ivy South America Fund is organized as a separate,
non-diversified portfolio of the Trust. The inception date for Ivy China Region
Fund was October 23, 1993. The inception date for Ivy Developing Nations Fund
and Ivy South America Fund was November 1, 1994. The inception dated for Ivy
Asia Pacific was January 1, 1997. Advisor Class shares of all Funds were first
offered on January 1, 1998.
Descriptions in this SAI of a particular investment practice or technique
in which each Fund may engage or a financial instrument which each Fund may
purchase are meant to describe the spectrum of investments that IMI, in its
discretion, might, but is not required to, use in managing each Fund's portfolio
assets. IMI may, in its discretion, at any time employ such practice, technique
or instrument for one or more funds but not for all funds advised by it.
Furthermore, it is possible that certain types of financial instruments or
investment techniques described herein may not be available, permissible,
economically feasible or effective for their intended purposes in some or all
markets, in which case a Fund would not use them. Certain practices, techniques,
or instruments may not be principal activities of the Fund but, to the extent
employed, could from time to time have a material impact on the Fund's
performance.
INVESTMENT OBJECTIVES, STRATEGIES AND RISKS
Each Fund has its own investment objectives and policies, which are
described in the Prospectus under the captions "Summary" and "Additional
Information About Strategies and Risks." Descriptions of each Fund's policies,
strategies and investment restrictions, as well as additional information
regarding the characteristics and risks associated with each
Fund's investment techniques, is set forth below.
Whenever an investment objective, policy or restriction set forth in the
Prospectus or this SAI states a maximum percentage of assets that may be
invested in any security or other asset or describes a policy regarding quality
standards, such percentage limitation or standard shall, unless otherwise
indicated, apply to a Fund only at the time a transaction is entered into.
Accordingly, if a percentage limitation is adhered to at the time of investment,
a later increase or decrease in the percentage which results from circumstances
not involving any affirmative action by a Fund, such as a change in market
conditions or a change in a Fund's asset level or other circumstances beyond a
Fund's control, will not be considered a violation.
IVY ASIA PACIFIC FUND
The Fund's principal investment objective is long-term growth.
Consideration of current income is secondary to this principal objective. Under
normal circumstances the Fund invests at least 65% of its total assets in
securities issued in Asia-Pacific countries, which for purposes of this SAI are
defined to include China, Hong Kong, India, Indonesia, Malaysia, Pakistan, the
Philippines, Singapore, Sri Lanka, South Korea, Taiwan, Thailand and Vietnam.
Securities of Asia-Pacific issuers include: (a) securities of companies
organized under the laws of an Asia-Pacific country or for which the principal
securities trading market is in the Asia-Pacific region; (b) securities that are
issued or guaranteed by the government of an Asia-Pacific country, its agencies
or instrumentalities, political subdivisions or the country's central bank; (c)
securities of a company, wherever organized, where at least 50% of the company's
non-current assets, capitalization, gross revenue or profit in any one of the
two most recent fiscal years represents (directly or indirectly through
subsidiaries) assets or activities located in the Asia-Pacific region; and (d)
any of the preceding types of securities in the form of depository shares.
The Fund may participate in markets throughout the Asia-Pacific region,
and it is expected that the Fund will be invested at all times in at least three
Asia-Pacific countries. As a fundamental policy, the Fund does not concentrate
its investments in any particular industry.
The Fund may invest up to 35% of its assets in investment-grade debt
securities of government or corporate issuers in emerging market countries,
equity securities and investment grade debt securities of issuers in developed
countries (including the United States), warrants, and cash or cash equivalents,
such as bank obligations (including certificates of deposit and bankers'
acceptances), commercial paper, short-term notes and repurchase agreements. For
temporary defensive purposes, the Fund may invest without limit in such
instruments. The Fund may also invest up to 5% of its net assets in zero coupon
bonds, and in debt securities rated Ba or below by Moody's Investor Service,
Inc. ("Moody's") or BB or below by Standard & Poor's Ratings Services ("S&P"),
or if unrated, are considered by IMI to be of comparable quality (commonly
referred to as "high yield" or "junk" bonds). The Fund will not invest in debt
securities rated less than C by either Moody's or S&P.
For temporary or emergency purposes, Ivy Asia Pacific Fund may borrow from
banks in accordance with the provisions of the 1940 Act, but may not purchase
securities at any time during which the value of the Fund's outstanding loans
exceeds 10% of the value of the Fund's assets. The Fund may engage in foreign
currency exchange transactions and enter into forward foreign currency
contracts. The Fund may also invest in other investment companies that invest in
securities issued in Asia-Pacific countries in accordance with the provisions of
the 1940 Act, 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. The Fund may write or buy straddles or
spreads. For hedging purposes only, the Fund may engage in transactions in stock
index and foreign currency futures contracts, provided that the Fund's
equivalent exposure in such contracts does not exceed 15% of its total assets.
INVESTMENT RESTRICTIONS FOR IVY ASIA PACIFIC FUND
Ivy Asia Pacific Fund's investment objectives as set forth in the
"Summary" section of the Prospectus, together with the investment restrictions
set forth below, are fundamental policies of the Fund and may not be changed
without the approval of a majority (as defined in the 1940 Act) of the
outstanding voting shares of the Fund. The Fund has adopted the following
fundamental investment restrictions:
(i) The Fund will not borrow money, except as permitted under the
Investment Company Act of 1940, as amended, and as interpreted or
modified by regulatory authority having jurisdiction, from time to
time.
(ii) The Fund will not issue senior securities, except as permitted under
the Investment Company Act of 1940, as amended, and as interpreted or
modified by regulatory authority having jurisdiction, from time to
time.
(iii) The Fund will not engage in the business of underwriting securities
issued by others, except to the extent that the Fund may be deemed to
be an underwriter in connection with the disposition of portfolio
securities.
(iv) The Fund will not purchase or sell real estate (which term does not
include securities of companies that deal in real estate or mortgages
or investments secured by real estate or interests therein), except
that the Fund may hold and sell real estate acquired as a result of
the Fund's ownership of securities.
(v) The Fund will not purchase physical commodities or contracts relating
to physical commodities, although the Fund may invest in commodities
futures contracts and options thereon to the extent permitted by the
Prospectus and this SAI.
(vi) The Fund will not make loans to other persons, except (a) loans of
portfolio securities, and (b) to the extent that entry into repurchase
agreements and the purchase of debt instruments or interests in
indebtedness in accordance with the Fund's investment objective and
policies may be deemed to be loans.
(vii) The Fund will not concentrate its investments in a particular
industry, as the term "concentrate" is interpreted in connection with
the Investment Company Act of 1940, as amended, and as interpreted or
modified by regulatory authority having jurisdiction, from time to
time.
ADDITIONAL RESTRICTIONS
Ivy Asia Pacific 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 the investment in "illiquid securities." Illiquid securities
may include securities subject to legal or contractual restrictions on
resale (including private placements), repurchase agreements maturing
in more than seven days, certain options traded over the counter that
the Fund has purchased, securities being used to cover certain options
that the Fund has written, securities for which market quotations are
not readily available, or other securities which legally or in IMI's
opinion, subject to the Board's supervision, may be deemed illiquid,
but shall not include any instrument that, due to the existence of a
trading market, to the Fund's compliance with certain conditions
intended to provide liquidity, or to other factors, is liquid;
(ii) purchase securities of other investment companies, except in
connection with a merger, consolidation or sale of assets, and except
that the Fund may purchase shares of other investment companies
subject to such restrictions as may be imposed by the Investment
Company Act of 1940 and rules thereunder;
(iii) sell securities short, except for short sales "against the box";
(iv) borrow money, except for temporary or emergency purposes. The Fund may
not purchase securities at any time during which the value of the
Fund's outstanding loans exceeds 10% of the value of the Fund" total
assets;
(v) participate on a joint or a joint and several basis in any trading
account in securities. The "bunching" of orders of the Fund and of
other accounts under the investment management of the Fund's
investment adviser for the sale or purchase of portfolio securities
shall not be considered participation in a joint securities trading
account; or
(vi) 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.
IVY CHINA REGION FUND
Ivy China Region Fund's principal investment objective is long-term
capital growth. Consideration of current income is secondary to this principal
objective. The Fund seeks to meet its objective primarily by investing in the
equity securities of companies that are expected to benefit from the economic
development and growth of China, Hong Kong and Taiwan. A significant percentage
of the Fund's assets may also be invested in the securities markets of South
Korea, Singapore, Malaysia, Thailand, Indonesia and the Philippines
(collectively, with China, Hong Kong and Taiwan, the "China Region").
The Fund normally invests at least 65% of its total assets in "Greater
China growth companies," defined as companies that (a) that are organized in or
for which the principal securities trading markets are in the China Region; (b)
that have at least 50% of their assets in one or more China Region countries or
derive at least 50% of their gross sales revenues or profits from providing
goods or services to or from within one or more China Region countries; or (c)
that have at least 35% of their assets in China, Hong Kong or Taiwan, derive at
least 35% of their gross sales revenues or profits from providing goods or
services to or from within these three countries, or have significant
manufacturing or other operations in these countries. IMI's determination as to
whether a company qualifies as a Greater China growth company is based primarily
on information contained in financial statements, reports, analyses and other
pertinent information (some of which may be obtained directly from the company).
The Fund may invest 25% or more of its total assets in the securities of issuers
located in any one China Region country, and currently expects to invest more
than 50% of its total assets in Hong Kong.
The balance of the Fund's assets ordinarily are invested in (i) certain
investment-grade debt securities and (ii) the equity securities of "China Region
associated companies," which are companies that do not meet the definition of a
Greater China growth company, but whose current or expected performance, based
on certain identified factors (such as the growth trends in the location of a
company's assets and the sources of its revenues and profits), is judged by IMI
to be strongly associated with the China Region. The investment-grade debt
securities in which the Fund may invest include (a) obligations of the U.S.
Government or its agencies or instrumentalities, (b) obligations of U.S. banks
and other banks organized and existing under the laws of Hong Kong, Taiwan or
countries that are member of the Organization for Economic Cooperation and
Development ("OECD"), (c) obligations denominated in any currency issued by
international development institutions and Hong Kong, Taiwan and OECD member
governments and their agencies and instrumentalities, and (d) corporate bonds
rated Baa or higher by Moody's or BBB or higher by S&P (or if unrated, are
considered by IMI to be of comparable quality), as well as repurchase agreements
with respect to any of the foregoing instruments. The Fund may also invest in
zero coupon bonds.
The Fund may invest less than 35% of its net assets in debt securities
rated Ba or below by Moody's or BB or below by S&P, or, if unrated, considered
by IMI to be of comparable quality (commonly referred to as "high yield" or
"junk" bonds). The Fund will not invest in debt securities rated less than C by
either Moody's or S&P.
Ivy China Region Fund may invest in sponsored or unsponsored ADRs, GDRs,
ADSs, and GDSs, warrants, and securities issued on a "when-issued" or firm
commitment basis, and may engage in foreign currency exchange transactions and
enter into forward foreign currency contracts. The Fund may also invest in other
investment companies in accordance with the provisions of the 1940 Act, and up
to 15% of its net assets in illiquid securities.
For temporary defensive purposes and during periods when IMI believes that
circumstances warrant, the Fund may reduce its position in Greater China growth
companies and Greater China associated companies and increase its investment in
cash and liquid debt securities, such as U.S. Government securities, bank
obligations, commercial paper, short-term notes and repurchase agreements. For
temporary or emergency purposes, the Fund may also borrow up to 10% of the value
of its total assets from banks.
The Fund may purchase put and call options on securities and stock
indices, provided the premium paid for such options does not exceed 5% of the
Fund's net assets. The fund may also sell covered put options with respect to up
to 10% of the value of its net assets, and may write covered call options so
long as not more than 25% of the Fund's net assets is subject to being purchased
upon the exercise of the calls. For hedging purposes only, the Fund may engage
in transactions in stock index futures contracts, provided that the Fund's
equivalent exposure in such contracts does not exceed 15% of its total assets.
INVESTMENT RESTRICTIONS FOR IVY CHINA REGION FUND
Ivy China Region Fund's investment objectives as set forth in the
"Summary" section of the Prospectus, together with the investment restrictions
set forth below, are fundamental policies of the Fund and may not be changed
without the approval (as defined in the 1940 Act) of a majority of the
outstanding voting shares of the Fund. The Fund has adopted the following
fundamental investment restrictions:
(i) The Fund has elected to be classified as a diversified series of an
open-end investment company.
(ii) The Fund will not borrow money, except as permitted under the
Investment Company Act of 1940, as amended, and as interpreted or
modified by regulatory authority having jurisdiction, from time to
time.
(iii) The Fund will not issue senior securities, except as permitted under
the Investment Company Act of 1940, as amended, and as interpreted or
modified by regulatory authority having jurisdiction, from time to
time.
(iv) The Fund will not engage in the business of underwriting securities
issued by others, except to the extent that the Fund may be deemed to
be an underwriter in connection with the disposition of portfolio
securities.
(v) The Fund will not purchase or sell real estate (which term does not
include securities of companies that deal in real estate or mortgages
or investments secured by real estate or interests therein), except
that the Fund may hold and sell real estate acquired as a result of
the Fund's ownership of securities.
(vi) The Fund will not purchase physical commodities or contracts relating
to physical commodities, although the Fund may invest in commodities
futures contracts and options thereon to the extent permitted by the
Prospectus or this SAI.
(vii) The Fund will not make loans to other persons, except (a) loans of
portfolio securities, and (b) to the extent that entry into repurchase
agreements and the purchase of debt instruments or interests in
indebtedness in accordance with the Fund's investment objective and
policies may be deemed to be loans.
(viii) The Fund will not concentrate its investments in a particular
industry, as the term "concentrate" is interpreted in connection with
the Investment Company Act of 1940, as amended, and as interpreted or
modified by regulatory authority having jurisdiction, from time to
time.
ADDITIONAL RESTRICTIONS
Ivy China Region Fund has adopted the following additional restrictions,
which are not fundamental and which may be changed without shareholder approval,
to the extent permitted by applicable law, regulation or regulatory policy.
Under these restrictions, the Fund may not:
(i) invest in oil, gas or other mineral leases or exploration or
development programs;
(ii) invest in companies for the purpose of exercising control of
management;
(iii) invest more than 5% of its total assets in warrants, valued at the
lower of cost or market, or more than 2% of its total assets in
warrants, so valued, which are not listed on either the New York or
American Stock Exchanges;
(iv) purchase securities of other investment companies, except in
connection with a merger, consolidation or sale of assets, and except
that it may purchase shares of other investment companies subject to
such restrictions as may be imposed by the Investment Company Act of
1940 and rules thereunder;
(v) invest more than 15% of its net assets taken at market value at the
time of the investment in "illiquid securities." Illiquid securities
may include securities subject to legal or contractual restrictions on
resale (including private placements), repurchase agreements maturing
in more than seven days, certain options traded over the counter that
the Fund has purchased, securities being used to cover certain options
that the Fund has written, securities for which market quotations are
not readily available, or other securities which legally or in IMI's
opinion, subject to the Board's supervision, may be deemed illiquid,
but shall not include any instrument that, due to the existence of a
trading market, to the Fund's compliance with certain conditions
intended to provide liquidity, or to other factors, is liquid;
(vi) borrow money, except for temporary purposes where investment
transactions might advantageously require it. Any such loan may not be
for a period in excess of 60 days, and the aggregate amount of all
outstanding loans may not at any time exceed 10% of the value of the
total assets of the Fund at the time any such loan is made;
(vii) purchase securities on margin;
(viii) sell securities short; or
(ix) purchase from or sell to any of its officers or trustees, or firms of
which any of them are members or which they control, any securities
(other than capital stock of the Fund), but such persons or firms may
act as brokers for the Fund for customary commissions to the extent
permitted by the Investment Company Act of 1940.
IVY DEVELOPING NATIONS FUND
Ivy Developing Nations Fund's principal objective is long-term growth.
Consideration of current income is secondary to this principal objective. In
pursuing its objective, the Fund invests primarily in the equity securities of
companies that IMI believes will benefit from the economic development and
growth of emerging markets. The Fund considers countries having emerging markets
to be those that (i) are generally considered to be "developing" or "emerging"
by the World Bank and the International Finance Corporation, or (ii) are
classified by the United Nations (or otherwise regarded by their authorities) as
"emerging." Under normal market conditions, the Fund invests at least 65% of its
total assets in equity securities (including common and preferred stocks,
convertible debt obligations, warrants, options (subject to the restrictions set
forth below), rights, and sponsored or unsponsored ADRs, GDRs, ADSs and GDSs
that are listed on stock exchanges or traded over-the-counter) of "Emerging
Market growth companies," which are defined as companies (a) for which the
principal securities trading market is an emerging market (as defined above),
(b) that each (alone or on a consolidated basis) derives 50% or more of its
total revenue either from goods, sales or services in emerging markets, or (c)
that are organized under the laws of (and with a principal office in) an
emerging market country.
The Fund normally invests its assets in the securities of issuers located
in at least three emerging market countries, and may invest 25% or more of its
total assets in the securities of issuers located in any one country. IMI's
determination as to whether a company qualifies as an Emerging Market growth
company is based primarily on information contained in financial statements,
reports, analyses and other pertinent information (some of which may be obtained
directly from the company).
For purposes of capital appreciation, Ivy Developing Nations Fund may
invest up to 35% of its total assets in (i) debt securities of government or
corporate issuers in emerging market countries, (ii) equity and debt securities
of issuers in developed countries (including the United States), and (iii) cash
or cash equivalents such as bank obligations (including certificates of deposit
and bankers' acceptances), commercial paper, short-term notes and repurchase
agreements. For temporary defensive purposes, the Fund may invest without limit
in such instruments. The Fund may also invest in zero coupon bonds and purchase
securities on a "when-issued" or firm commitment basis.
The Fund will not invest more than 20% of its total assets in debt
securities rated Ba or lower by Moody's or BB or lower by S&P, or if unrated,
considered by IMI to be of comparable quality (commonly referred to as "high
yield" or "junk" bonds). The Fund will not invest in debt securities rated less
than C by either Moody's or S&P.
For temporary or emergency purposes, the Fund may borrow from banks in
accordance with the provisions of the 1940 Act, but may not purchase securities
at any time during which the value of the Fund's outstanding loans exceeds 10%
of the value of the Fund's total assets. The Fund may engage in foreign currency
exchange transactions and enter into forward foreign currency contracts. The
Fund may also invest in other investment companies in accordance with the
provisions of the 1940 Act, and up to 15% of its net assets in illiquid
securities.
The Fund may purchase put and call options on securities and stock
indices, provided the premium paid for such options does not exceed 5% of the
Fund's net assets. The Fund may also sell covered put options with respect to up
to 10% of the value of its net assets, and may write covered call options so
long as not more than 25% of the Fund's net assets is subject to being purchased
upon the exercise of the calls. For hedging purposes only, the Fund may engage
in transactions in (and options on) stock index and foreign currency futures
contracts, provided that the Fund's equivalent exposure in such contracts does
not exceed 15% of its total assets.
INVESTMENT RESTRICTIONS FOR IVY DEVELOPING NATIONS FUND
Ivy Developing Nations Fund's investment objectives as set forth in the
"Summary" section of the Prospectus, together with the investment restrictions
set forth below, are fundamental policies of the Fund and may not be changed
without the approval of a majority (as defined in the 1940 Act) of the
outstanding voting shares of the Fund. The Fund has adopted the following
fundamental investment restrictions:
(i) The Fund has elected to be classified as a diversified series of an
open-end investment company.
(ii) The Fund will not borrow money, except as permitted under the
Investment Company Act of 1940, as amended, and as interpreted or
modified by regulatory authority having jurisdiction, from time to
time.
(iii) The Fund will not issue senior securities, except as permitted under
the Investment Company Act of 1940, as amended, and as interpreted or
modified by regulatory authority having jurisdiction, from time to
time.
(iv) The Fund will not engage in the business of underwriting securities
issued by others, except to the extent that the Fund may be deemed to
be an underwriter in connection with the disposition of portfolio
securities.
(v) The Fund will not purchase or sell real estate (which term does not
include securities of companies that deal in real estate or mortgages
or investments secured by real estate or interests therein), except
that the Fund may hold and sell real estate acquired as a result of
the Fund's ownership of securities.
(vi) The Fund will not purchase physical commodities or contracts relating
to physical commodities, although the Fund may invest in commodities
futures contracts and options thereon to the extent permitted by the
Prospectus or this SAI.
(vii) The Fund will not make loans to other persons, except (a) loans of
portfolio securities, and (b) to the extent that entry into repurchase
agreements and the purchase of debt instruments or interests in
indebtedness in accordance with the Fund's investment objective and
policies may be deemed to be loans.
(viii) The Fund will not concentrate its investments in a particular
industry, as the term "concentrate" is interpreted in connection with
the Investment Company Act of 1940, as amended, and as interpreted or
modified by regulatory authority having jurisdiction, from time to
time.
ADDITIONAL RESTRICTIONS
Unless otherwise indicated, Ivy Developing Nations Fund has adopted the
following additional restrictions, which are not fundamental and which may be
changed without shareholder approval to the extent permitted by applicable law,
regulation or regulatory policy. Under these restrictions, the Fund may not:
(i) invest in oil, gas or other mineral leases or exploration or
development programs;
(ii) invest in companies for the purpose of exercising control of
management;
(iii) invest more than 5% of its total assets in warrants, valued at the
lower of cost or market, or more than 2% of its total assets in
warrants, so valued, which are not listed on either the New York or
American Stock Exchanges;
(iv) purchase securities of other investment companies, except in
connection with a merger, consolidation or sale of assets, and except
that it may purchase shares of other investment companies subject to
such restrictions as may be imposed by the Investment Company Act of
1940 and rules thereunder;
(v) invest more than 15% of its net assets taken at market value at the
time of investment in "illiquid securities." Illiquid securities may
include securities subject to legal or contractual restrictions on
resale (including private placements), repurchase agreements maturing
in more than seven days, certain options traded over the counter that
the Fund has purchased, securities being used to cover certain options
that the Fund has written, securities for which market quotations are
not readily available, or other securities which legally or in IMI's
opinion, subject to the Board's supervision, may be deemed illiquid,
but shall not include any instrument that, due to the existence of a
trading market, to the Fund's compliance with certain conditions
intended to provide liquidity, or to other factors, is liquid;
(vi) borrow money, except for temporary or emergency purposes. The Fund may
not purchase securities at any time during which the value of the
Fund's outstanding loans exceeds 10% of the value of the Fund's total
assets;
(vii) purchase securities on margin;
(viii) sell securities short; or
(ix) purchase from or sell to any of its officers or trustees, or firms of
which any of them are members or which they control, any securities
(other than capital stock of the Fund), but such persons or firms may
act a brokers for the Fund for customary commissions to the extent
permitted by the Investment Company Act of 1940.
Under the 1940 Act, the Fund is permitted, subject to the above investment
restrictions, to borrow money only from banks. The Trust has no current
intention of borrowing amounts in excess of 5% of the Fund's assets. The Fund
will continue to interpret fundamental investment restrictions (v) to prohibit
investment in real estate limited partnership interests; this restriction shall
not, however, prohibit investment in readily marketable securities of companies
that invest in real estate or interests therein, including real estate
investment trusts.
IVY SOUTH AMERICA FUND
Ivy South America Fund's principal investment objective is long-term
capital growth. Consideration of current income is secondary to this principal
objective. Under normal conditions the Fund invests at least 65% of its total
assets in securities issued in South America. Securities of South American
issuers include (a) securities of companies organized under the laws of a South
American country or for which the principal securities trading market is in
South America; (b) securities that are issued or guaranteed by the government of
a South American country, its agencies or instrumentalities, political
subdivisions or the country's central bank; (c) securities of a company,
wherever organized, where at least 50% of the company's non-current assets,
capitalization, gross revenue or profit in any one of the two most recent fiscal
years represents (directly or indirectly through subsidiaries) assets or
activities located in South America; or (d) any of the preceding types of
securities in the form of depository shares. The Fund may participate, however,
in markets throughout Latin America, which for purposes of this SAI is defined
as Mexico, Central America, South America and the Spanish-speaking islands of
the Caribbean, and it is expected that the Fund will be invested at all times in
at least three countries. Under present conditions, the Fund expects to focus
its investments in Argentina, Brazil, Chile, Columbia, Peru and Venezuela, which
IMI believes are the most developed capital markets in South America. As a
fundamental restriction, the Fund will not concentrate its investments in any
particular industry.
The Fund's equity investments consist of common stock, preferred stock
(either convertible or non-convertible), sponsored or unsponsored ADRs, GDRs,
ADSs and GDSs, and warrants (any of which may be purchased through rights). The
Fund's equity securities may be listed on securities exchanges, traded
over-the-counter, or have no organized market.
The Fund may invest in debt securities (including zero coupon bonds) when
IMI anticipates that the potential for capital appreciation from debt securities
is likely to equal or exceed that of equity securities (e.g., a favorable change
in relative foreign exchange rates, interest rate levels or the creditworthiness
of issuers). These include debt securities issued by South American Governments
("Sovereign Debt"). Most of the debt securities in which the Fund may invest are
not rated, and those that are rated are expected to be below investment-grade
(i.e., rated Ba or below by Moody's or BB or below by S&P, or considered by IMI
to be of comparable quality), and are commonly referred to as "high yield" or
"junk" bonds.
To meet redemptions, or while the Fund is anticipating investments in
South American securities, the Fund may hold cash or cash equivalents such as
bank obligations (including certificates of deposit and bankers' acceptances),
commercial paper, short-term notes and repurchase agreements. For temporary
defensive or emergency purposes, the Fund may (i) invest without limitation in
such instruments, and (ii) borrow from banks in accordance with the provisions
of the 1940 Act (but may not purchase securities at any time during which the
value of the Fund's outstanding loans exceeds 10% of the value of the Fund's
total assets).
Ivy South America Fund may purchase securities on a "when-issued" or firm
commitment basis, engage in foreign currency exchange transactions and enter
into forward foreign currency contracts. The Fund may also invest in other
investment companies in accordance with the provisions of the 1940 Act, and up
to 15% of its net assets in illiquid securities. The Fund will treat as illiquid
any South American securities that are subject to restrictions on repatriation
for more than seven days, as well as any securities issued in connection with
South American debt conversion programs that are restricted to remittance of
invested capital or profits.
The Fund may purchase put and call options on securities and stock
indices, provided the premium paid for such options does not exceed 5% of the
Fund's net assets. The Fund may also sell covered put options with respect to up
to 10% of the value of its net assets, and may write covered call options so
long as not more than 25% of the Fund's net assets is subject to being purchased
upon the exercise of the calls. For hedging purposes only, the Fund may engage
in transactions in (and options on) stock index and foreign currency futures
contracts, provided that the Fund's equivalent exposure in such contracts does
not exceed 15% of its total assets.
INVESTMENT RESTRICTIONS FOR IVY SOUTH AMERICA FUND
Ivy South America Fund's investment objectives as set forth in the
"Summary" section of the Prospectus, together with the investment restrictions
set forth below, are fundamental policies of the Fund and may not be changed
without the approval of a majority (as defined in the 1940 Act) of the
outstanding voting shares of the Fund. The Fund has adopted the following
fundamental investment restrictions:
(i) The Fund has elected to be classified as a diversified series of an
open-end investment company.
(ii) The Fund will not borrow money, except as permitted under the
Investment Company Act of 1940, as amended, and as interpreted or
modified by regulatory authority having jurisdiction, from time to
time.
(iii) The Fund will not issue senior securities, except as permitted under
the Investment Company Act of 1940, as amended, and as interpreted or
modified by regulatory authority having jurisdiction, from time to
time.
(iv) The Fund will not engage in the business of underwriting securities
issued by others, except to the extent that the Fund may be deemed to
be an underwriter in connection with the disposition of portfolio
securities.
(v) The Fund will not purchase or sell real estate (which term does not
include securities of companies that deal in real estate or mortgages
or investments secured by real estate or interests therein), except
that the Fund may hold and sell real estate acquired as a result of
the Fund's ownership of securities.
(vi) The Fund will not purchase physical commodities or contracts relating
to physical commodities, although the Fund may invest in commodities
futures contracts and options thereon to the extent permitted by the
Prospectus or this SAI.
(vii) The Fund will not make loans to other persons, except (a) loans of
portfolio securities, and (b) to the extent that entry into repurchase
agreements and the purchase of debt instruments or interests in
indebtedness in accordance with the Fund's investment objective and
policies may be deemed to be loans.
The Fund will not concentrate its investments in a particular industry, as the
term "concentrate" is interpreted in connection with the Investment Company Act
of 1940, as amended, and as interpreted or modified by regulatory authority
having jurisdiction, from time to time.
ADDITIONAL RESTRICTIONS
Ivy South America Fund has adopted the following additional restrictions,
which are not fundamental and which may be changed without shareholder approval
to the extent permitted by applicable law, regulation or regulatory policy.
Under these restrictions, the Fund may not:
(i) invest in oil, gas or other mineral leases or exploration or
development programs;
(ii) invest in companies for the purpose of exercising control of
management;
(iii) invest more than 5% of its total assets in warrants, valued at the
lower of cost or market, or more than 2% of its total assets in
warrants, so valued, which are not listed on either the New York or
American Stock Exchanges;
(iv) purchase securities of other investment companies, except in
connection with a merger, consolidation or sale of assets, and except
that it may purchase shares of other investment companies subject to
such restrictions as may be imposed by the Investment Company Act of
1940 and rules thereunder;
(v) borrow money, except for temporary or emergency purposes. The Fund may
not purchase securities at any time during which the value of the
Fund's outstanding loans exceeds 10% of the value of the Fund" total
assets;
(vi) invest more than 15% of its net assets taken at market value at the
time of investment in "illiquid securities." Illiquid securities may
include securities subject to legal or contractual restrictions on
resale (including private placements), repurchase agreements maturing
in more than seven days, certain options traded over the counter that
the Fund has purchased, securities being used to cover certain options
that the Fund has written, securities for which market quotations are
not readily available, or other securities which legally or in IMI's
opinion, subject to the Board's supervision, may be deemed illiquid,
but shall not include any instrument that, due to the existence of a
trading market, to the Fund's compliance with certain conditions
intended to provide liquidity, or to other factors, is liquid;
(vii) purchase securities on margin;
(viii) sell securities short; or
(ix) purchase from or sell to any of its officers or trustees, or firms of
which any of them are members or which they control, any securities
(other than capital stock of the Fund) but such persons or firms may
act as brokers for the Fund for customary commissions to the extent
permitted by the Investment Company Act of 1940.
COMMON STOCKS
Common stock can be issued by companies to raise cash; all common stock
shares represent a proportionate ownership interest in a company. As a result,
the value of common stock rises and falls with a company's success or failure.
The market value of common stock can fluctuate significantly, with smaller
companies being particularly susceptible to price swings. Transaction costs in
smaller company stocks may also be higher than those of larger companies.
CONVERTIBLE SECURITIES
The convertible securities in which each Fund may invest include corporate
bonds, notes, debentures, preferred stock and other securities that may be
converted or exchanged at a stated or determinable exchange ratio into
underlying shares of common stock. Investments in convertible securities can
provide income through interest and dividend payments as well as an opportunity
for capital appreciation by virtue of their conversion or exchange features.
Because convertible securities can be converted into equity securities, their
values will normally vary in some proportion with those of the underlying equity
securities. Convertible securities usually provide a higher yield than the
underlying equity, however, so that the price decline of a convertible security
may sometimes be less substantial than that of the underlying equity security.
The exchange ratio for any particular convertible security may be adjusted from
time to time due to stock splits, dividends, spin-offs, other corporate
distributions or scheduled changes in the exchange ratio. Convertible debt
securities and convertible preferred stocks, until converted, have general
characteristics similar to both debt and equity securities. Although to a lesser
extent than with debt securities generally, the market value of convertible
securities tends to decline as interest rates increase and, conversely, tends to
increase as interest rates decline. In addition, because of the conversion or
exchange feature, the market value of convertible securities typically changes
as the market value of the underlying common stock changes, and, therefore, also
tends to follow movements in the general market for equity securities. When the
market price of the underlying common stock increases, the price of a
convertible security tends to rise as a reflection of the value of the
underlying common stock, although typically not as much as the price of the
underlying common stock. While no securities investments are without risk,
investments in convertible securities generally entail less risk than
investments in common stock of the same issuer.
As debt securities, convertible securities are investments that provide
for a stream of income. Like all debt securities, there can be no assurance of
income or principal payments because the issuers of the convertible securities
may default on their obligations. Convertible securities generally offer lower
yields than non-convertible securities of similar quality because of their
conversion or exchange features.
Convertible securities generally are subordinated to other similar but
non-convertible securities of the same issuer, although convertible bonds, as
corporate debt obligations, are senior in right of payment to all equity
securities, and convertible preferred stock is senior to common stock, of the
same issuer. However, convertible bonds and convertible preferred stock
typically have lower coupon rates than similar non-convertible securities.
Convertible securities may be issued as fixed income obligations that pay
current income.
SECURITIES ISSUED IN ASIA-PACIFIC COUNTRIES
Certain Asia-Pacific countries in which Ivy Asia Pacific Fund is likely to
invest are developing countries, and may be in the initial stages of their
industrialization cycle. The economic structures of developing countries
generally are less diverse and mature than in the United States, and their
political systems may be relatively unstable. Historically, markets of
developing countries have been more volatile than the markets of developed
countries, yet such markets often have provided higher rates of return to
investors.
Investing in securities of issuers in Asia-Pacific countries involves
certain considerations not typically associated with investing in securities
issued in the United States or in other developed countries, including (i)
restrictions on foreign investment and on repatriation of capital invested in
Asian countries, (ii) currency fluctuations, (iii) the cost of converting
foreign currency into United States dollars, (iv) potential price volatility and
lesser liquidity of shares traded on Asia-Pacific securities markets and (v)
political and economic risks, including the risk of nationalization or
expropriation of assets and the risk of war.
Certain Asia-Pacific countries may be more vulnerable to the ebb and flow
of international trade and to trade barriers and other protectionist or
retaliatory measures. Investments in countries that have recently opened their
capital markets and that appear to have relaxed their central planning
requirement, as well as in countries that have privatized some of their
state-owned industries, should be regarded as speculative.
The settlement period of securities transactions in foreign markets in
general may be longer than in domestic markets, and such delays may be of
particular concern in developing countries. For example, the possibility of
political upheaval and the dependence on foreign economic assistance may be
greater in developing countries than in developed countries, either one of which
may increase settlement delays.
Securities exchanges, issuers and broker-dealers in some Asia-Pacific
countries are subject to less regulatory scrutiny than in the United States. In
addition, due to the limited size of the markets for Asia-Pacific securities,
the prices for such securities may be more vulnerable to adverse publicity,
investors' perceptions or traders' positions or strategies, which could cause a
decrease not only in the value but also in the liquidity of the Fund's
investments.
THE CHINA REGION
Investors in Ivy China Region Fund should be aware that many of the China
Region countries in which the Fund is likely to invest may be subject to a
greater degree of economic, political and social instability than is the case in
the United States or other developed countries. Among the factors causing this
instability are (i) authoritarian governments or military involvement in
political and economic decision making, (ii) popular unrest associated with
demands for improved political, economic and social conditions, (iii) internal
insurgencies, (iv) hostile relations with neighboring countries, (v) ethnic,
religious and racial disaffection, and (vi) changes in trading status, any one
of which could disrupt the principal financial markets in which the Ivy China
Region Fund invests and adversely affect the value of its assets.
China Region countries tend to be heavily dependent on international
trade, as a result of which their markets are highly sensitive to protective
trade barriers and the economic conditions of their principal trading partners
(i.e., the United States, Japan and Western European countries). Protectionist
trade legislation, reduction of foreign investment in China Region economies and
general declines in the international securities markets could have a
significant adverse effect on the China Region securities markets. In addition,
certain China Region countries have in the past failed to recognize private
property rights and have at times nationalized or expropriated the assets of
private companies. There is a heightened risk in these countries that such
adverse actions might be repeated.
To the extent that any China Region country experiences rapid increases in
its money supply or investment in equity securities for speculative purposes,
the equity securities traded in such countries may trade at price-earning
multiples higher than those of comparable companies trading on securities
markets in the United States, which may not be sustainable. Finally,
restrictions on foreign investment exists to varying degrees in some China
Region countries. Where such restrictions apply, investments may be limited and
may increase the Fund's expenses.
SOUTH AMERICAN SECURITIES.
Investors in Ivy South America Fund should be aware that investing in the
securities of South American issuers may entail risks relating to the potential
political and economic instability of certain South American countries and the
risks of expropriation, nationalization, confiscation or the imposition of
restrictions on foreign investment and on repatriation of capital invested. In
the event of expropriation, nationalization or other confiscation by any
country, the Fund could lose its entire investment in any such country.
The securities markets of South American countries are substantially
smaller, less developed, less liquid and more volatile than the major securities
markets in the U.S. Disclosure and regulatory standards are in many respects
less stringent than U.S. standards. Furthermore, there is a lower level of
monitoring and regulation of the markets and the activities of investors in such
markets.
The limited size of many South American securities markets and limited
trading volume in the securities of South American issuers compared to volume of
trading in the securities of U.S. issuers could cause prices to be erratic for
reasons apart from factors that affect the soundness and competitiveness of the
securities issuers. For example, limited market size may cause prices to be
unduly influenced by traders who control large positions. Adverse publicity and
investors' perceptions, whether or not based on in-depth fundamental analysis,
may decrease the value and liquidity of portfolio securities.
The Fund invests in securities denominated in currencies of South American
countries. Accordingly, changes in the value of these currencies against the
U.S. dollar will result in corresponding changes in the U.S. dollar value of the
Fund's assets denominated in those currencies.
Some South American countries also may have managed currencies, which are
not free floating against the U.S. dollar. In addition, there is risk that
certain South American countries may restrict the free conversion of their
currencies into other countries. Further, certain South American currencies may
not be internationally traded. Certain of these currencies have experienced a
steep devaluation relative to the U.S. dollar. Any devaluations in the
currencies in which the Fund's portfolio securities are denominated may have a
detrimental impact on the Fund's net asset value.
The economies of individual South American countries may differ favorably
or unfavorably from the U.S. economy in such respects as the rate of growth of
gross domestic product, the rate of inflation, capital reinvestment, resource
self-sufficiency and balance of payments position. Certain South American
countries have experienced high levels of inflation which can have a
debilitating effect on the economy. Furthermore, certain South American
countries may impose withholding taxes on dividends payable to a Fund at a
higher rate than those imposed by other foreign countries. This may reduce the
Fund's investment income available for distribution to shareholders.
Certain South American countries such as Argentina, Brazil and Mexico are
among the world's largest debtors to commercial banks and foreign governments.
At times, certain South American countries have declared moratoria on the
payment of principal and/or interest on outstanding debt. Investment in
sovereign debt can involve a high degree of risk. The governmental entity that
controls the repayment of sovereign debt may not be able or willing to repay the
principal and/or interest when due in accordance with the terms of such debt. A
governmental entity's willingness or ability to repay principal and interest due
in a timely manner may be affected by, among other factors, its cash flow
situation, the extent of its foreign reserves, the availability of sufficient
foreign exchange on the date a payment is due, the relative size of the debt
service burden to the economy as a whole, the governmental entity's policy
towards the International Monetary Fund, and the political constraints to which
a governmental entity may be subject. Governmental entities may also be
dependent on expected disbursements from foreign governments, multilateral
agencies and others abroad to reduce principal and interest arrearages on their
debt. The commitment on the part of these governments, agencies and others to
make such disbursements may be conditioned on a governmental entity's
implementation of economic reforms and/or economic performance and the timely
service of such debtor's obligations. Failure to implement such reforms, achieve
such levels of economic performance or repay principal or interest when due may
result in the cancellation of such third parties' commitments to lend funds to
the governmental entity, which may further impair such debtor's ability or
willingness to service its debts in a timely manner. Consequently, governmental
entities may default on their sovereign debt.
Holders of sovereign debt, may be requested to participate in the
rescheduling of such debt and to extend further loans to governmental entities.
There is no bankruptcy proceeding by which defaulted sovereign debt may be
collected in whole or in part.
Governments of many South American countries have exercised and continue
to exercise substantial influence over many aspects of the private sector
through the ownership or control of many companies, including some of the
largest in those countries. As a result, government actions in the future could
have a significant effect on economic conditions which may adversely affect
prices of certain portfolio securities. Expropriation, confiscatory taxation,
nationalization, political, economic or social instability or other similar
developments, such as military coups, have occurred in the past and could also
adversely affect a Fund's investments in this region.
Changes in political leadership, the implementation of market oriented
economic policies, such as privatization, trade reform and fiscal and monetary
reform are among the recent steps taken to renew economic growth. External debt
is being restructured and flight capital (domestic capital that has left home
country) has begun to return. Inflation control efforts have also been
implemented. South American equity markets can be extremely volatile and in the
past have shown little correlation with the U.S. market. Currencies are
typically weak, but most are now relatively free floating, and it is not unusual
for the currencies to undergo wide fluctuations in value over short periods of
time due to changes in the market.
DEBT SECURITIES
IN GENERAL. Investment in debt securities involves both interest rate and
credit risk. Generally, the value of debt instruments rises and falls inversely
with fluctuations in interest rates. As interest rates decline, the value of
debt securities generally increases. Conversely, rising interest rates tend to
cause the value of debt securities to decrease. Bonds with longer maturities
generally are more volatile than bonds with shorter maturities. The market value
of debt securities also varies according to the relative financial condition of
the issuer. In general, lower-quality bonds offer higher yields due to the
increased risk that the issuer will be unable to meet its obligations on
interest or principal payments at the time called for by the debt instrument.
INVESTMENT-GRADE DEBT SECURITIES. Bonds rated Aaa by Moody's Investors
Service, Inc. ("Moody's") and AAA by Standard & Poor's Ratings Group ("S&P") are
judged to be of the best quality (i.e., capacity to pay interest and repay
principal is extremely strong). Bonds rated Aa/AA are considered to be of high
quality (i.e., capacity to pay interest and repay principal is very strong and
differs from the highest rated issues only to a small degree). Bonds rated A are
viewed as having many favorable investment attributes, but elements may be
present that suggest a susceptibility to the adverse effects of changes in
circumstances and economic conditions than debt in higher rated categories.
Bonds rated Baa/BBB (considered by Moody's to be "medium grade" obligations) are
considered to have an adequate capacity to pay interest and repay principal, but
certain protective elements may be lacking (i.e., such bonds lack outstanding
investment characteristics and have some speculative characteristics). Each Fund
may invest in debt securities that are given an investment-grade rating by
Moody's or S&P, and may also invest in unrated debt securities that are
considered by IMI to be of comparable quality.
LOW-RATED DEBT SECURITIES. Securities rated lower than Baa by Moody's or
BBB by S&P, and comparable unrated securities (commonly referred to as "high
yield" or "junk" bonds), including many emerging markets bonds, are considered
to be predominantly speculative with respect to the issuer's continuing ability
to meet principal and interest payments. The lower the ratings of corporate debt
securities, the more their risks render them like equity securities. Such
securities carry a high degree of risk (including the possibility of default or
bankruptcy of the issuers of such securities), and generally involve greater
volatility of price and risk of principal and income (and may be less liquid)
than securities in the higher rating categories. (See Appendix A for a more
complete description of the ratings assigned by Moody's and S&P and their
respective characteristics.)
Lower rated and unrated securities are especially subject to adverse
changes in general economic conditions and to changes in the financial condition
of their issuers. Economic downturns may disrupt the high yield market and
impair the ability of issuers to repay principal and interest. Also, an increase
in interest rates would likely have an adverse impact on the value of such
obligations. During an economic downturn or period of rising interest rates,
highly leveraged issuers may experience financial stress which could adversely
affect their ability to service their principal and interest payment
obligations. Prices and yields of high yield securities will fluctuate over time
and, during periods of economic uncertainty, volatility of high yield securities
may adversely affect each Fund's net asset value. In addition, investments in
high yield zero coupon or pay-in-kind bonds, rather than income-bearing high
yield securities, may be more speculative and may be subject to greater
fluctuations in value due to changes in interest rates.
Changes in interest rates may have a less direct or dominant impact on
high yield bonds than on higher quality issues of similar maturities. However,
the price of high yield bonds can change significantly or suddenly due to a host
of factors including changes in interest rates, fundamental credit quality,
market psychology, government regulations, U.S. economic growth and, at times,
stock market activity. High yield bonds may contain redemption or call
provisions. If an issuer exercises these provisions in a declining interest rate
market, a Fund may have to replace the security with a lower yielding security.
The trading market for high yield securities may be thin to the extent
that there is no established retail secondary market or because of a decline in
the value of such securities. A thin trading market may limit the ability of
each Fund to accurately value high yield securities in that Fund's portfolio,
could adversely affect the price at which the Fund could sell such securities,
and cause large fluctuations in the daily net asset value of the Fund's shares.
Adverse publicity and investor perceptions, whether or not based on fundamental
analysis, may decrease the value and liquidity of low-rated debt securities,
especially in a thinly traded market. When secondary markets for high yield
securities become relatively less liquid, it may be more difficult to value the
securities, requiring additional research and elements of judgment. These
securities may also involve special registration responsibilities, liabilities
and costs, and liquidity and valuation difficulties.
Credit quality in the high yield securities market can change suddenly and
unexpectedly, and even recently issued credit ratings may not fully reflect the
actual risks posed by a particular high yield security. For these reasons, it is
the policy of IMI not to rely exclusively on ratings issued by established
credit rating agencies, but to supplement such ratings with its own independent
and on-going review of credit quality. The achievement of each Fund's investment
objectives by investment in such securities may be more dependent on IMI's
credit analysis than is the case for higher quality bonds. Should the rating of
a portfolio security be downgraded, IMI will determine whether it is in the best
interest of the Fund to retain or dispose of such security. However, should any
individual bond held by a Fund be downgraded below a rating of C, IMI currently
intends to dispose of such bond based on then existing market conditions.
Prices for high yield securities may be affected by legislative and
regulatory developments. For example, Federal rules require savings and loan
institutions to gradually reduce their holdings of this type of security. Also,
Congress has from time to time considered legislation that would restrict or
eliminate the corporate tax deduction for interest payments in these securities
and regulate corporate restructurings. Such legislation may significantly
depress the prices of outstanding securities of this type.
U.S. GOVERNMENT SECURITIES. U.S. Government securities are obligations
of, or guaranteed by, the U.S. Government, its agencies or instrumentalities.
Securities guaranteed by the U.S. Government include: (1) direct obligations of
the U.S. Treasury (such as Treasury bills, notes, and bonds) and (2) Federal
agency obligations guaranteed as to principal and interest by the U.S. Treasury
(such as GNMA certificates, which are mortgage-backed securities). When such
securities are held to maturity, the payment of principal and interest is
unconditionally guaranteed by the U.S. Government, and thus they are of the
highest possible credit quality. U.S. Government securities that are not held to
maturity are subject to variations in market value due to fluctuations in
interest rates.
Mortgage-backed securities are securities representing part ownership of a
pool of mortgage loans. For example, GNMA certificates are such securities in
which the timely payment of principal and interest is guaranteed by the full
faith and credit of the U.S. Government. Although the mortgage loans in the pool
will have maturities of up to 30 years, the actual average life of the loans
typically will be substantially less because the mortgages will be subject to
principal amortization and may be prepaid prior to maturity. Prepayment rates
vary widely and may be affected by changes in market interest rates. In periods
of falling interest rates, the rate of prepayment tends to increase, thereby
shortening the actual average life of the security. Conversely, rising interest
rates tend to decrease the rate of prepayments, thereby lengthening the actual
average life of the security (and increasing the security's price volatility).
Accordingly, it is not possible to predict accurately the average life of a
particular pool. Reinvestment of prepayment may occur at higher or lower rates
than the original yield on the certificates. Due to the prepayment feature and
the need to reinvest prepayments of principal at current rates, mortgage-backed
securities can be less effective than typical bonds of similar maturities at
"locking in" yields during periods of declining interest rates, and may involve
significantly greater price and yield volatility than traditional debt
securities. Such securities may appreciate or decline in market value during
periods of declining or rising interest rates, respectively.
Securities issued by U.S. Government instrumentalities and certain Federal
agencies are neither direct obligations of nor guaranteed by the U.S. Treasury;
however, they involve Federal sponsorship in one way or another. Some are backed
by specific types of collateral, some are supported by the issuer's right to
borrow from the Treasury, some are supported by the discretionary authority of
the Treasury to purchase certain obligations of the issuer, others are supported
only by the credit of the issuing government agency or instrumentality. These
agencies and instrumentalities include, but are not limited to, Federal Land
Banks, Farmers Home Administration, Central Bank for Cooperatives, Federal
Intermediate Credit Banks, Federal Home Loan Banks, Federal National Mortgage
Association, Federal Home Loan Mortgage Association, and Student Loan Marketing
Association.
ZERO COUPON BONDS. Zero coupon bonds are debt obligations issued without
any requirement for the periodic payment of interest. Zero coupon bonds are
issued at a significant discount from face value. The discount approximates the
total amount of interest the bonds would accrue and compound over the period
until maturity at a rate of interest reflecting the market rate at the time of
issuance. If a 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 a 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 each Fund on a
current basis, but is in effect compounded, the value of the securities of this
type is subject to greater fluctuations in response to changing interest rates
than the value of debt obligations which distribute income regularly.
FIRM COMMITMENT AGREEMENTS AND "WHEN-ISSUED" SECURITIES. New issues of
certain debt securities are often offered on a "when-issued" basis, meaning the
payment obligation and the interest rate are fixed at the time the buyer enters
into the commitment, but delivery and payment for the securities normally take
place after the date of the commitment to purchase. Firm commitment agreements
call for the purchase of securities at an agreed-upon price on a specified
future date. Each Fund uses such investment techniques in order to secure what
is considered to be an advantageous price and yield to that Fund and not for
purposes of leveraging the Fund's assets. In either instance, each Fund will
maintain in a segregated account with its Custodian cash or liquid securities
equal (on a daily marked-to-market basis) to the amount of its commitment to
purchase the underlying securities.
ILLIQUID SECURITIES
Each Fund may purchase securities other than in the open market. While
such purchases may often offer attractive opportunities for investment not
otherwise available on the open market, the securities so purchased are often
"restricted securities" or "not readily marketable" (i.e., they cannot be sold
to the public without registration under the Securities Act of 1933, as amended
(the "1933 Act"), or the availability of an exemption from registration (such as
Rule 144A) or because they are subject to other legal or contractual delays in
or restrictions on resale). This investment practice, therefore, could have the
effect of increasing the level of illiquidity of each Fund. It is each Fund's
policy that illiquid securities (including repurchase agreements of more than
seven days duration, certain restricted securities, and other securities which
are not readily marketable) may not constitute, at the time of purchase, more
than 15% of the value of the Fund's net assets. The Trust's Board of Trustees
has approved guidelines for use by IMI in determining whether a security is
illiquid.
Generally speaking, restricted securities may be sold (i) only to
qualified institutional buyers; (ii) in a privately negotiated transaction to a
limited number of purchasers; (iii) in limited quantities after they have been
held for a specified period of time and other conditions are met pursuant to an
exemption from registration; or (iv) in a public offering for which a
registration statement is in effect under the 1933 Act. Issuers of restricted
securities may not be subject to the disclosure and other investor protection
requirements that would be applicable if their securities were publicly traded.
If adverse market conditions were to develop during the period between a 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, a
Fund may be required to bear all or part of the registration expenses. Each Fund
may be deemed to be an "underwriter" for purposes of the 1933 Act when selling
restricted securities to the public and, in such event, the Fund may be liable
to purchasers of such securities if the registration statement prepared by the
issuer is materially inaccurate or misleading.
Since it is not possible to predict with assurance that the market for
securities eligible for resale under Rule 144A will continue to be liquid, IMI
will monitor such restricted securities subject to the supervision of the Board
of Trustees. Among the factors IMI may consider in reaching liquidity decisions
relating to Rule 144A securities are: (1) the frequency of trades and quotes for
the security; (2) the number of dealers wishing to purchase or sell the security
and the number of other potential purchasers; (3) dealer undertakings to make a
market in the security; and (4) the nature of the security and the nature of the
market for the security (i.e., the time needed to dispose of the security, the
method of soliciting offers, and the mechanics of the transfer).
FOREIGN SECURITIES
The securities of foreign issuers in which each Fund may invest include
non-U.S. dollar-denominated debt securities, Euro dollar securities, sponsored
and unsponsored American Depository Receipts ("ADRs"), Global Depository
Receipts ("GDRs") and related depository instruments, American Depository Shares
("ADSs"), Global Depository Shares ("GDSs"), and debt securities issued, assumed
or guaranteed by foreign governments or political subdivisions or
instrumentalities thereof. Shareholders should consider carefully the
substantial risks involved in investing in securities issued by companies and
governments of foreign nations, which are in addition to the usual risks
inherent in each Fund's domestic investments.
Although IMI intends to invest each Fund's assets only in nations that are
generally considered to have relatively stable and friendly governments, there
is the possibility of expropriation, nationalization, repatriation or
confiscatory taxation, taxation on income earned in a foreign country and other
foreign taxes, foreign exchange controls (which may include suspension of the
ability to transfer currency from a given country), default on foreign
government securities, political or social instability or diplomatic
developments which could affect investments in securities of issuers in those
nations. In addition, in many countries there is less publicly available
information about issuers than is available for U.S. companies. Moreover,
foreign companies are not generally subject to uniform accounting, auditing and
financial reporting standards, and auditing practices and requirements may not
be comparable to those applicable to U.S. companies. In many foreign countries,
there is less governmental supervision and regulation of business and industry
practices, stock exchanges, brokers, and listed companies than in the United
States. Foreign securities transactions may also be subject to higher brokerage
costs than domestic securities transactions. The foreign securities markets of
many of the countries in which each Fund may invest may also be smaller, less
liquid and subject to greater price volatility than those in the United States.
In addition, each Fund may encounter difficulties or be unable to pursue legal
remedies and obtain judgment in foreign courts.
Foreign bond markets have different clearance and settlement procedures
and in certain markets there have been times when settlements have been unable
to keep pace with the volume of securities transactions, making it difficult to
conduct such transactions. Delays in settlement could result in temporary
periods when assets of each Fund are uninvested and no return is earned thereon.
The inability of each 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 a Fund because of subsequent declines
in the value of the portfolio security or, if the Fund has entered into a
contract to sell the security, in possible liability to the purchaser. It may be
more difficult for each Fund's agents to keep currently informed about corporate
actions such as stock dividends or other matters that may affect the prices of
portfolio securities. Communications between the United States and foreign
countries may be less reliable than within the United States, thus increasing
the risk of delayed settlements of portfolio transactions or loss of
certificates for portfolio securities. Moreover, individual foreign economies
may differ favorably or unfavorably from the United States economy in such
respects as growth of gross national product, rate of inflation, capital
reinvestment, resource self-sufficiency and balance of payments position. IMI
seeks to mitigate the risks to each Fund associated with the foregoing
considerations through investment variation and continuous professional
management.
DEPOSITORY RECEIPTS
ADRs, GDRs, ADSs, GDSs and related securities are depository instruments,
the issuance of which is typically administered by a U.S. or foreign bank or
trust company. These instruments evidence ownership of underlying securities
issued by a U.S. or foreign corporation. ADRs are publicly traded on exchanges
or over-the-counter ("OTC") in the United States. Unsponsored programs are
organized independently and without the cooperation of the issuer of the
underlying securities. As a result, information concerning the issuer may not be
as current or as readily available as in the case of sponsored depository
instruments, and their prices may be more volatile than if they were sponsored
by the issuers of the underlying securities.
EMERGING MARKETS
Each 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 each Fund's performance favorably or unfavorably.
In recent years, many emerging market countries around the world have
undergone political changes that have reduced government's role in economic and
personal affairs and have stimulated investment and growth. Historically, there
is a strong direct correlation between economic growth and stock market returns.
While this is no guarantee of future performance, IMI believes that investment
opportunities (particularly in the energy, environmental services, natural
resources, basic materials, power, telecommunications and transportation
industries) may result within the evolving economies of emerging market
countries from which each Fund and its shareholders will benefit.
Investments in companies domiciled in developing countries may be subject
to potentially higher risks than investments in developed countries. Such risks
include (i) less social, political and economic stability; (ii) a small market
for securities and/or a low or nonexistent volume of trading, which result in a
lack of liquidity and in greater price volatility; (iii) certain national
policies that may restrict each 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 each 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, each 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 each 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
each Fund's cash and securities, each Fund's investment in such countries may be
limited or may be required to be effected through intermediaries. The risk of
loss through governmental confiscation may be increased in such countries.
FOREIGN CURRENCIES
Investment in foreign securities usually will involve currencies of
foreign countries. Moreover, each 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 each 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 each Fund may incur costs in connection with
conversions between various currencies. Although each Fund's custodian values
each Fund's assets daily in terms of U.S. dollars, each Fund does not intend to
convert its holdings of foreign currencies into U.S. dollars on a daily basis.
Each 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 a Fund at one
rate, while offering a lesser rate of exchange should the Fund desire to resell
that currency to the dealer. Each Fund will conduct its foreign currency
exchange transactions either on a spot (i.e., cash) basis at the spot rate
prevailing in the foreign currency exchange market, or through entering into
forward contracts to purchase or sell foreign currencies.
Because each Fund normally will be invested in both U.S. and foreign
securities markets, changes in each Fund's share price may have a low
correlation with movements in U.S. markets. Each Fund's share price will reflect
the movements of the different stock and bond markets in which it is invested
(both U.S. and foreign), and of the currencies in which the investments are
denominated. Thus, the strength or weakness of the U.S. dollar against foreign
currencies may account for part of each Fund's investment performance. U.S. and
foreign securities markets do not always move in step with each other, and the
total returns from different markets may vary significantly. In addition,
significant uncertainty surrounds the proposed introduction of the euro (a
common currency for the European Union) in January 1999 and its effect on the
value of securities denominated in local European currencies. These and other
currencies in which each Fund's assets are denominated may be devalued against
the U.S. dollar, resulting in a loss to each Fund.
FOREIGN CURRENCY EXCHANGE TRANSACTIONS
Each Fund may enter into forward foreign currency contracts in order to
protect against uncertainty in the level of future foreign exchange rates in the
purchase and sale of securities. A forward contract is an obligation to purchase
or sell a specific currency for an agreed price at a future date (usually less
than a year), and typically is individually negotiated and privately traded by
currency traders and their customers. A forward contract generally has no
deposit requirement, and no commissions are charged at any stage for trades.
Although foreign exchange dealers do not charge a fee for commissions, they do
realize a profit based on the difference between the price at which they are
buying and selling various currencies. Although these contracts are intended to
minimize the risk of loss due to a decline in the value of the hedged
currencies, at the same time, they tend to limit any potential gain which might
result should the value of such currencies increase.
While each Fund may enter into forward contracts to reduce currency
exchange risks, changes in currency exchange rates may result in poorer overall
performance for each Fund than if it had not engaged in such transactions.
Moreover, there may be an imperfect correlation between a 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 each Fund from achieving the intended hedge or expose the Fund to the
risk of currency exchange loss.
Each Fund may purchase currency forwards and combine such purchases with
sufficient cash or short-term securities to create unleveraged substitutes for
investments in foreign markets when deemed advantageous. Each Fund may also
combine the foregoing with bond futures or interest rate futures contracts to
create the economic equivalent of an unhedged foreign bond position.
Each Fund may also cross-hedge currencies by entering into transactions to
purchase or sell one or more currencies that are expected to decline in value
relative to other currencies to which the Fund has or in which the Fund expects
to have portfolio exposure.
Currency transactions are subject to risks different from those of other
portfolio transactions. Because currency control is of great importance to the
issuing governments and influences economic planning and policy, purchases and
sales of currency and related instruments can be negatively affected by
government exchange controls, blockages, and manipulations or exchange
restrictions imposed by governments. These can result in losses to each Fund if
it is unable to deliver or receive currency or funds in settlement of
obligations and could also cause hedges it has entered into to be rendered
useless, resulting in full currency exposure as well as incurring transactions
costs. Buyers and sellers of currency futures are subject to the same risks that
apply to the use of futures generally. Further, settlement of a currency futures
contract for the purchase of most currencies must occur at a bank based in the
issuing nation. Trading options on currency futures is relatively new, and the
ability to establish and close out positions on such options is subject to the
maintenance of a liquid market which may not always be available. Currency
exchange rates may fluctuate based on factors extrinsic to that country's
economy.
OTHER INVESTMENT COMPANIES
Each Fund may invest up to 10% of its total assets in the shares of other
investment companies. As a shareholder of an investment company, each Fund would
bear its ratable shares of the fund's expenses (which often include an
asset-based management fee). Each Fund could also lose money by investing in
other investment companies, since the value of their respective investments and
the income they generate will vary daily based on prevailing market conditions.
REPURCHASE AGREEMENTS
Repurchase agreements are contracts under which a 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, each Fund is permitted to enter into repurchase
agreements only if the repurchase agreements are at least fully collateralized
with U.S. Government securities or other securities that IMI has approved for
use as collateral for repurchase agreements and the collateral must be
marked-to-market daily. Each Fund will enter into repurchase agreements only
with banks and broker-dealers deemed to be creditworthy by IMI under the
above-referenced guidelines. In the unlikely event of failure of the executing
bank or broker-dealer, a Fund could experience some delay in obtaining direct
ownership of the underlying collateral and might incur a loss if the value of
the security should decline, as well as costs in disposing of the security.
BANKING INDUSTRY AND SAVINGS AND LOAN OBLIGATIONS
Certificates of deposit are negotiable certificates issued against funds
deposited in a commercial bank for a definite period of time and earning a
specified return. Bankers' acceptances are negotiable drafts or bills of
exchange, normally drawn by an importer or exporter to pay for specific
merchandise, which are "accepted" by a bank (meaning, in effect, that the bank
unconditionally agrees to pay the face value of the instrument at maturity). In
addition to investing in certificates of deposit and bankers' acceptances, each
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. Each Fund's investments in certificates of deposit, time
deposits, and bankers' acceptance are limited to obligations of (i) banks having
total assets in excess of $1 billion, (ii) U.S. banks which do not meet the $1
billion asset requirement, if the principal amount of such obligation is fully
insured by the Federal Deposit Insurance Corporation (the "FDIC"), (iii) savings
and loan association which have total assets in excess of $1 billion and which
are members of the FDIC, and (iv) foreign banks if the obligation is, in IMI's
opinion, of an investment quality comparable to other debt securities which may
be purchased by a Fund. Each Fund's investments in certificates of deposit of
savings associations are limited to obligations of Federal and state-chartered
institutions whose total assets exceed $1 billion and whose deposits are insured
by the FDIC.
COMMERCIAL PAPER
Commercial paper represents short-term unsecured promissory notes issued
in bearer form by bank holding companies, corporations and finance companies.
Each Fund may invest in commercial paper that is rated Prime-1 by Moody's
Investors Service, Inc. ("Moody's") or A-1 by Standard & Poor's Corporation
("S&P") or, if not rated by Moody's or S&P, is issued by companies having an
outstanding debt issue rated Aaa or Aa by Moody's or AAA or AA by S&P.
BORROWING
Borrowing may exaggerate the effect on each 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 each Fund's borrowings will be fixed, each Fund's assets may change in value
during the time a borrowing is outstanding, thus increasing exposure to capital
risk.
WARRANTS
The holder of a warrant has the right, until the warrant expires, to
purchase a given number of shares of a particular issuer at a specified price.
Such investments can provide a greater potential for profit or loss than an
equivalent investment in the underlying security. However, prices of warrants do
not necessarily move in a tandem with the prices of the underlying securities,
and are, therefore, considered speculative investments. Warrants pay no
dividends and confer no rights other than a purchase option. Thus, if a warrant
held by any Fund were not exercised by the date of its expiration, the Fund
would lose the entire purchase price of the warrant.
OPTIONS TRANSACTIONS
IN GENERAL. A call option is a short-term contract (having a duration of
less than one year) pursuant to which the purchaser, in return for the premium
paid, has the right to buy the security underlying the option at the specified
exercise price at any time during the term of the option. The writer of the call
option, who receives the premium, has the obligation, upon exercise of the
option, to deliver the underlying security against payment of the exercise
price. A put option is a similar contract pursuant to which the purchaser, in
return for the premium paid, has the right to sell the security underlying the
option at the specified exercise price at any time during the term of the
option. The writer of the put option, who receives the premium, has the
obligation, upon exercise of the option, to buy the underlying security at the
exercise price. The premium paid by the purchaser of an option will reflect,
among other things, the relationship of the exercise price to the market price
and volatility of the underlying security, the time remaining to expiration of
the option, supply and demand, and interest rates.
If the writer of a U.S. exchange-traded 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. Closing purchase transactions are not available for OTC
transactions. In order to terminate an obligation in an OTC transaction the Fund
would need to negotiate directly with the counterparty to the transaction.
Each Fund will realize a gain (or a loss) on a closing purchase
transaction with respect to a call or a put previously written by that 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 a 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 each Fund, are taxable as ordinary income. See "Taxation."
Each Fund will realize a gain (or a loss) on a closing sale transaction
with respect to a call or a put previously purchased by that 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 each Fund
and its counterparty (usually a securities dealer or a financial institution)
with no clearing organization guarantee. When a 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. Each Fund may write (sell)
covered call options on that Fund's securities in an attempt to realize a
greater current return than would be realized on the securities alone. Each 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 each Fund for the options).
In view of the investment objectives of each Fund, each Fund generally would
write call options only in circumstances where the investment adviser to that
Fund does not anticipate significant appreciation of the underlying security in
the near future or has otherwise determined to dispose of the security.
A "covered" call option means generally that so long as any Fund is
obligated as the writer of a call option, that 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 each
Fund receives premium income from these activities, any appreciation realized on
an underlying security will be limited by the terms of the call option. Each
Fund may purchase call options on individual securities only to effect a
"closing purchase transaction."
As the writer of a call option, each 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 a 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. Each Fund may purchase a put
option on an underlying security owned by that Fund as a defensive technique in
order to protect against an anticipated decline in the value of the security.
Each 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 any Fund for leverage purposes.
Each 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, a 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. A 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. Each Fund may write (sell) put options on individual securities only to
effect a "closing sale transaction."
PURCHASING AND WRITING OPTIONS ON SECURITIES INDICES. Each 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. Call
options on indices are similar to call 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 a 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 a 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 a
Fund holds a put on the same index as the put written where the exercise price
of the put held is (i) equal to or greater than the exercise price of the put
written or (ii) less than the exercise price of the put written, provided that
the Fund maintains in a segregated account with the Custodian the difference in
cash or liquid securities.
RISKS OF OPTIONS TRANSACTIONS. The purchase and writing of options
involves certain risks. During the option period, the covered call writer has,
in return for the premium on the option, given up the opportunity to profit from
a price increase in the underlying securities above the exercise price, but, as
long as its obligation as a writer continues, has retained the risk of loss
should the price of the underlying security decline. The writer of a U.S. option
has no control over the time when it may be required to fulfill its obligation
as a writer of the option. Once an option writer has received an exercise
notice, it cannot effect a closing purchase transaction in order to terminate
its obligation under the option and must deliver the underlying securities (or
cash in the case of an index option) at the exercise price. If a put or call
option purchased by any 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, that 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 a Fund
seeks to close out an option position. Furthermore, if trading restrictions or
suspensions are imposed on the options markets, a 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. Transfer of an
OTC option is usually prohibited absent the consent of the original
counterparty. There is no assurance that any Fund will be able to close out an
OTC option position at a favorable price prior to its expiration. An OTC
counterparty may fail to deliver or to pay, as the case may be. In the event of
insolvency of the counterparty, a Fund might be unable to close out an OTC
option position at any time prior to its expiration. Although each Fund may be
able to offset to some extent any adverse effects of being unable to liquidate
an option position, each Fund may experience losses in some cases as a result of
such inability.
When conducted outside the U.S., options transactions may not be regulated
as rigorously as in the U.S., may not involve a clearing mechanism and related
guarantees, and are subject to the risk of governmental actions affecting
trading in, or the prices of, foreign securities, currencies and other
instruments. The value of such positions also could be adversely affected by:
(i) other complex foreign political, legal and economic factors, (ii) lesser
availability than in the U.S. of data on which to make trading decisions, (iii)
delays in a Fund's ability to act upon economic events occurring in foreign
markets during non-business hours in the U.S., (iv) the imposition of different
exercise and settlement terms and procedures and margin requirements than in the
U.S., and (v) lower trading volume and liquidity.
Each Fund's options activities also may have an impact upon the level
of its portfolio turnover and brokerage commissions. See "Portfolio
Turnover."
Each Fund's success in using options techniques depends, among other
things, on IMI's ability to predict accurately the direction and volatility of
price movements in the options and securities markets, and to select the proper
type, timing of use and duration of options.
FUTURES CONTRACTS AND OPTIONS ON FUTURES CONTRACTS
IN GENERAL. Each 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 any Fund, that Fund is required to deposit with its
custodian (or broker, if legally permitted) a specified amount of cash or liquid
securities ("initial margin"). The margin required for a futures contract is set
by the exchange on which the contract is traded and may be modified during the
term of the contract. The initial margin is in the nature of a performance bond
or good faith deposit on the futures contract which is returned to the Fund upon
termination of the contract, assuming all contractual obligations have been
satisfied. A futures contract held by a Fund is valued daily at the official
settlement price of the exchange on which it is traded. Each day each 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 a Fund but is instead a
settlement between a Fund and the broker of the amount one would owe the other
if the futures contract expired. In computing daily net asset value, each Fund
will mark-to-market its open futures position.
Each Fund is also required to deposit and maintain margin with respect to
put and call options on futures contracts written by it. Such margin deposits
will vary depending on the nature of the underlying futures contract (and the
related initial margin requirements), the current market value of the option,
and other futures positions held by the Fund.
Although some futures contracts call for making or taking delivery of the
underlying securities, generally these obligations are closed out prior to
delivery of offsetting purchases or sales of matching futures contracts (same
exchange, underlying security or index, and delivery month). If an offsetting
purchase price is less than the original sale price, a 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, a 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, each Fund will maintain with its
Custodian (and mark-to-market on a daily basis) cash or liquid securities that,
when added to the amounts deposited with a futures commission merchant ("FCM")
as margin, are equal to the market value of the futures contract. Alternatively,
a Fund may "cover" its position by purchasing a put option on the same futures
contract with a strike price as high as or higher than the price of the contract
held by the Fund, or, if lower, may cover the difference with cash or short-term
securities.
When selling a futures contract, each 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, a Fund may "cover" its position by owning the
instruments underlying the contract (or, in the case of an index futures
contract, a portfolio with a volatility substantially similar to that of the
index on which the futures contract is based), or by holding a call option
permitting the Fund to purchase the same futures contract at a price no higher
than the price of the contract written by the Fund (or at a higher price if the
difference is maintained in liquid assets with the Fund's custodian).
When selling a call option on a futures contract, each 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, a Fund may cover its position by entering into a
long position in the same futures contract at a price no higher than the strike
price of the call option, by owning the instruments underlying the futures
contract, or by holding a separate call option permitting the Fund to purchase
the same futures contract at a price not higher than the strike price of the
call option sold by the Fund, or covering the difference if the price is higher.
When selling a put option on a futures contract, each Fund will maintain
with its Custodian (and mark-to-market on a daily basis) cash or liquid
securities that equal the purchase price of the futures contract less any margin
on deposit. Alternatively, a Fund may cover the position either by entering into
a short position in the same futures contract, or by owning a separate put
option permitting it to sell the same futures contract so long as the strike
price of the purchased put option is the same or higher than the strike price of
the put option sold by the Fund, or, if lower, the Fund may hold securities to
cover the difference.
FOREIGN CURRENCY FUTURES CONTRACTS AND RELATED OPTIONS. Each 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.
Each 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 that 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. Each 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.
Each Fund will only enter into futures contracts and futures options which
are standardized and traded on a U.S. or foreign exchange, board of trade, or
similar entity or quoted on an automated quotation system. Each 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
that Fund plus premiums paid by it for open futures option positions, less the
amount by which any such positions are "in-the-money," would exceed 5% of the
liquidation value of the Fund's portfolio (or the Fund's net asset value), after
taking into account unrealized profits and unrealized losses on any such
contracts the Fund has entered into. A call option is "in-the-money" if the
value of the futures contract that is the subject of the option exceeds the
exercise price. A put option is "in-the-money" if the exercise price exceeds the
value of the futures contract that is the subject of the option. For additional
information about margin deposits required with respect to futures contracts and
options thereon, see "Futures Contracts and Options on Futures Contracts."
RISKS ASSOCIATED WITH FUTURES AND RELATED OPTIONS. There can be no
guarantee that there will be a correlation between price movements in the
hedging vehicle and in any 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
any Fund seeks to close out a futures or a futures option position, and that
Fund would remain obligated to meet margin requirements until the position is
closed. In addition, there can be no assurance that an active secondary market
will continue to exist.
Currency futures contracts and options thereon may be traded on foreign
exchanges. Such transactions may not be regulated as effectively as similar
transactions in the United States; may not involve a clearing mechanism and
related guarantees; and are subject to the risk of governmental actions
affecting trading in, or the prices of, foreign securities. The value of such
position also could be adversely affected by (i) other complex foreign
political, legal and economic factors, (ii) lesser availability than in the
United States of data on which to make trading decisions, (iii) delays in a
Fund's ability to act upon economic events occurring in foreign markets during
non business hours in the United States, (iv) the imposition of different
exercise and settlement terms and procedures and margin requirements than in the
United States, and (v) lesser trading volume.
SECURITIES INDEX FUTURES CONTRACTS
Each Fund may enter into securities index futures contracts as an
efficient means of regulating the Fund's exposure to the equity markets. Each
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 that Fund's portfolio or which it intends to purchase. An
index futures contract is a contract to buy or sell units of an index at a
specified future date at a price agreed upon when the contract is made. Entering
into a contract to buy units of an index is commonly referred to as purchasing a
contract or holding a long position in the index. Entering into a contract to
sell units of an index is commonly referred to as selling a contract or holding
a short position. The value of a unit is the current value of the stock index.
For example, the S&P 500 Index is composed of 500 selected common stocks, most
of which are listed on the New York Stock Exchange (the "Exchange"). The S&P 500
Index assigns relative weightings to the 500 common stocks included in the
Index, and the Index fluctuates with changes in the market values of the shares
of those common stocks. In the case of the S&P 500 Index, contracts are to buy
or sell 500 units. Thus, if the value of the S&P 500 Index were $150, one
contract would be worth $75,000 (500 units x $150). The index futures contract
specifies that no delivery of the actual securities making up the index will
take place. Instead, settlement in cash must occur upon the termination of the
contract, with the settlement being the difference between the contract price
and the actual level of the stock index at the expiration of the contract. For
example, if a 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 a 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. Each Fund's success in using hedging
techniques depends, among other things, on IMI's ability to predict correctly
the direction and volatility of price movements in the futures and options
markets as well as in the securities markets and to select the proper type, time
and duration of hedges. The skills necessary for successful use of hedges are
different from those used in the selection of individual stocks.
Each Fund's ability to hedge effectively all or a portion of its
securities through transactions in index futures (and therefore the extent of
its gain or loss on such transactions) depends on the degree to which price
movements in the underlying index correlate with price movements in the Fund's
securities. Inasmuch as such securities will not duplicate the components of an
index, the correlation probably will not be perfect. Consequently, each 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 each Fund's portfolio diverges from the composition of the
hedging instrument.
Although each 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 a 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,
a 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, a Fund generally realizes a
capital gain, or if it is more, a Fund generally realizes a capital loss.
Conversely, if an offsetting sale price is more than the original purchase
price, a 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.
Each 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. Each 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, each Fund will maintain with
its Custodian (and mark-to-market on a daily basis) cash or liquid securities
that, when added to the amounts deposited with a futures commission merchant
("FCM") as margin, are equal to the market value of the futures contract.
Alternatively, a 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, each Fund will maintain with its
Custodian (and mark-to-market on a daily basis) cash or liquid securities that,
when added to the amounts deposited with an FCM as margin, are equal to the
market value of the instruments underlying the contract. Alternatively, a 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. Each Fund may enter into multiple transactions,
including multiple options transactions, multiple futures transactions and
multiple currency transactions (including forward currency contracts) and some
combination of futures, options, and currency transactions ("component"
transactions), instead of a single transaction, as part of a single or combined
strategy when, in the opinion of IMI, it is in the best interests of that Fund
to do so. A combined transaction will usually contain elements of risk that are
present in each of its component transactions. Although combined transactions
are normally entered into based on IMI's judgment that the combined strategies
will reduce risk or otherwise more effectively achieve the desired portfolio
management goal, it is possible that the combination will instead increase such
risks or hinder achievement of the management objective.
PORTFOLIO TURNOVER
Each 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, each
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 a 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.
Each 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 each Fund's
portfolio turnover rate, all securities whose maturities at the time of
acquisition were one year or less are excluded.
TRUSTEES AND OFFICERS
Each Fund's Board of Trustees (the "Board") is responsible for the
overall management of the Fund, including general supervision and review of the
Fund's investment activities. The Board, in turn, elects the officers who are
responsible for administering each Fund's day-to-day operations.
The Trustees and Executive Officers of the Trust, their business
addresses and principal occupations during the past five years are:
POSITION WITH BUSINESS AFFILIATIONS
NAME, ADDRESS, AGE THE TRUST AND PRINCIPAL OCCUPATIONS
John S. Anderegg, Jr. Trustee Chairman, Dynamics Research
60 Concord Street Corp. (instruments and controls);
Wilmington, MA 01887 Director, Burr-Brown Corp.
Age: 75 (operational amplifiers);
Director, Metritage Incorporated
(level measuring instruments);
Trustee of Mackenzie Series Trust
(1992-1998).
James W. Broadfoot President President,
700 South Federal Hwy. and Ivy Management Inc. (1996-
Suite 300 Trustee present); Senior Vice
Boca Raton, FL 33432 President, Ivy Management,
Age: 56 Inc. (1992-1996); Director and Senior
[*Deemed to be an Vice President, Mackenzie Investment
"interested person" Management Inc. (1995-present); Senior
of the Trust, as Vice President, Mackenzie Investment
defined under the Management Inc. (1990-1995).
1940 Act.]
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: 75 (insurance agency); Chairman,
Scott Management Company
(administrative services for
insurance companies); President,
The Channick Group (consultants
to insurance companies and
national trade associations);
Trustee of Mackenzie Series
Trust (1994-1998); Director of
The Mackenzie Funds Inc.
(1994-1995).
Frank W. DeFriece, Jr. Trustee Director, Manager and Vice
The Landmark Centre President, Director and
113 Landmark Lane, Fund Manager, Massengill-
Suite B DeFriece Foundation
Bristol, TN 37620-2285 (charitable organization)
Age: 78 (1950-present); Trustee and Vice
Chairman, East Tennessee Public
Communications Corp. (WSJK-TV)
(1984-present); Trustee of
Mackenzie Series Trust
(1985-1998); Director of The
Mackenzie Funds Inc. (1987-1995).
Roy J. Glauber Trustee Mallinckrodt Professor of
Lyman Laboratory Physics, Harvard
of Physics University (1974-present);
Harvard University Trustee of Mackenzie Series
Cambridge, MA 02138 Trust (1994-1997).
Age: 73
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: 69 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 Chairman -present); Senior Vice President
Boca Raton, FL 33432 and Director of Mackenzie
Age: 42 Investment Management, Inc. (1994-
[*Deemed to be an 1996); Senior Vice President and
"interested person" Treasurer of Mackenzie Investment
of the Trust, as defined Management, Inc. (1989-1994);
under the Senior Vice President and Director
1940 Act.] 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).
Edward M. Tighe Trustee Chief Executive Officer,
5900 N. Andrews Avenue CITCO Technology Management, Inc.
Suite 700 ("CITCO") (computer software develop-
Ft. Lauderdale, FL 33309 ment and consulting) (1999-present);
President and Director, Global
Technology Management, Inc. (CITCO's
predecessor) (1992-1998); Managing
Director, Global Mutual Fund Services,
Ltd. (financial services firm);
President, Director and Chief
Executive Officer, Global Mutual Fund
Services, Inc. (1994-present).
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).
COMPENSATION TABLE
IVY FUND
(FISCAL YEAR ENDED DECEMBER 31, 1998)
<TABLE>
<S> <C> <C> <C> <C>
PENSION OR
AGGREGATE RETIREMENT ESTIMATED TOTAL COMPENSATION
COMPENSATION BENEFITS ACCRUED ANNUAL ESTIMATED FROM TRUST AND FUND
NAME, FROM AS PART OF FUND ANNUAL BENEFITS COMPLEX PAID TO TRUSTEES
POSITION TRUST EXPENSES UPON RETIREMENT
John S. $18,000 N/A N/A $18,000
Anderegg, Jr.
(Trustee)
Paul H. $18,000 N/A N/A $18,000
Broyhill
(Trustee)
Keith J. $0 N/A N/A $0
Carlson
(Trustee and
President)
Stanley $18,000 N/A N/A $18,000
Channick
(Trustee)
Frank W. $18,000 N/A N/A $18,000
DeFriece, Jr.
(Trustee)
Roy J. $18,000 N/A N/A $18,000
Glauber
(Trustee)
Joseph G. $18,000 N/A N/A $18,000
Rosenthal
(Trustee)
Richard N. $18,000 N/A N/A $18,000
Silverman
(Trustee)
J. Brendan $17,000 N/A N/A $17,000
Swan
(Trustee)
C. William $0 N/A N/A $0
Ferris
(Secretary/
Treasurer)
</TABLE>
To the knowledge of the Trust, as of March 31, 1999, no shareholder
owned beneficially or of record 5% or more of any Fund's outstanding shares of
any class, with the following exceptions:
CLASS A
Of the outstanding Class A shares of :
Ivy Asia Pacific Fund, Merrill Lynch Pierce Fenner & Smith, 4800 Deer
Lake Drive E, 3rd Floor, Jacksonville, FL 32246, owned of record 40,174.921
shares (16.51%), and Michael G. Landry, 211 S. Gordon Rd., Ft.
Lauderdale, FL 33301, owned of record 12,443.882 shares (5.11%);
Ivy Bond Fund, Merrill Lynch Pierce Fenner & Smith, 4800 Deer Lake
Drive E, 3rd Floor, Jacksonville, FL 32246, owned of record 1,397,567.620 shares
(13.02%);
Ivy China Region Fund, Merrill Lynch Pierce Fenner & Smith, 4800 Deer
Lake Drive E, 3rd Floor, Jacksonville, FL 32246, owned of record 218,003.027
shares (13.26%), and Resources Trust Company, PO Box 3865, Englewood, CO
80155-3865, owned of record 186,351.290 shares (11.33%);
Ivy Developing Nations Fund, Donaldson Lufkin Jenrette Securities
Corporation Inc., PO Box 2052, Jersey City, NJ 07303-9998, owned of record
87,092.843 shares (11.31%), Donaldson Lufkin Jenrette Securities Corporation
Inc., PO Box 2052, Jersey City, NJ 07303-9998, owned of record 54,336.017 shares
(7.06%), and Merrill Lynch Pierce Fenner & Smith, 4800 Deer Lake Drive E, 3rd
Floor, Jacksonville, FL 32246, owned of record 41,198.769 shares (5.35%);
Ivy Global Natural Resources Fund, Carn & Co., Riggs Bank (TTEE) FBO
Care-Free Consolidated 401K Plan, PO Box 96211, Washington, DC 20090-6211, owned
of record 62,273.356 shares (29.71%), Carn & Co., Riggs Bank (TTEE) FBO Yazaki
Employee Savings & Retirement Plan, PO Box 96211, Washington, DC 20090-6211,
owned of record 22,533.136 shares (10.75%), and Mackenzie Investment Management
Inc., via Mizner Financial Plaza, 700 South Federal Highway, Suite 300, Boca
Raton, FL 33432, owned of record 11,957.023 shares (5.70%);
Ivy Global Science & Technology Fund, Donaldson Lufkin Jenrette
Securities Corporation Inc., PO Box 2052, Jersey City, NJ 07303-9998, owned of
record 99,948.978 shares (16.84%), Donaldson Lufkin Jenrette Securities
Corporation Inc., PO Box 2052, Jersey City, NJ 07303-9998, owned of record
65,325.391 shares (11.01%), and Merrill Lynch Pierce Fenner & Smith, 4800 Deer
Lake Drive E, 3rd Floor, Jacksonville, FL 32246, owned of record 31,922.542
shares (5.38%);
Ivy International Fund II, Merrill Lynch Pierce Fenner & Smith, 4800
Deer Lake Drive E, 3rd Floor, Jacksonville, FL 32246, owned of record
818,804.984 shares (34.10%);
Ivy International Fund, Charles Schwab & Co. Inc., 101 Montgomery
Street, San Francisco, CA 94104, owned of record 12,827,455.253 shares (35.28%),
and Merrill Lynch Pierce Fenner & Smith, 4800 Deer Lake Drive E, 3rd Floor,
Jacksonville, FL 32246, owned of record 6,083,813.996 shares (16.73%);
Ivy International Small Companies Fund, Donaldson Lufkin Jenrette
Securities Corporation Inc., PO Box 2052, Jersey City, NJ 07303-9998, owned of
record 19,762.181 shares (20.88%), and Mackenzie Investment Management Inc., via
Mizner Financial Plaza, 700 South Federal Highway, Suite 300, Boca Raton, FL
33432, owned of record 10,287.244 shares (10.87%).
Ivy Money Market Fund, Carn & Co., Riggs Bank (TTEE) FBO Plexus Corp
401K Plan, PO Box 96211, Washington, DC 20090-6211, owned of record
2,710,056.720 shares (13.19%), and Bear Stearns Securities Corp., 1 Metrotech
Center North, Brooklyn, NY 11201-3859, owned of record 1,432,318.960 shares
(6.97%).
Ivy Pan-Europe Fund, Mackenzie Investment Management Inc., via Mizner
Financial Plaza, 700 South Federal Highway, Suite 300, Boca Raton, FL 33432,
owned of record 37,553.145 shares (23.84%), and Merrill Lynch Pierce Fenner &
Smith, 4800 Deer Lake Drive E, 3rd Floor, Jacksonville, FL 32246, owned of
record 27,122.193 shares (17.22%);
Ivy South America Fund, Merrill Lynch Pierce Fenner & Smith, 4800 Deer
Lake Drive E, 3rd Floor, Jacksonville, FL 32246, owned of record 45,710.848
shares (17.87%), and Charles Schwab & Co. Inc., 101 Montgomery Street, San
Francisco, CA 94104, owned of record 19,471.113 shares (7.61%), and William A.
Maczko & Mildred E. Helm Maczko, 2100 S. Ocean Ln., #1412, Ft. Lauderdale, FL
33316, owned of record 14,174.070 shares (5.54%);
Ivy US Blue Chip Fund, Helen L. Medvin, 4712 Michael Ave., North
Olmsted, OH 44070, owned of record 10,253.846 shares (7.12%), Donaldson Lufkin
Jenrette Securities Corporation Inc., PO Box 2052, Jersey City, NJ 07303-9998,
owned of record 8,986.371 shares (6.24%), and Janney Montgomery Scott Inc.,
Estate of David Craig, 1801 Market Street, Philadelphia, PA 19103-1675, owned of
record 8,880.995 shares (6.17%).
Ivy US Emerging Growth Fund, Donaldson Lufkin Jenrette Securities
Corporation Inc., PO Box 2052, Jersey City, NJ 07303-9998, owned of record
86,774.211 shares (5.08%);
CLASS B
Of the outstanding Class B shares of:
Ivy Asia Pacific Fund, Merrill Lynch Pierce Fenner & Smith, 4800 Deer
Lake Drive E, 3rd Floor, Jacksonville, FL 32246, owned of record 141,298.083
shares (35.22%);
Ivy Bond Fund, Merrill Lynch Pierce Fenner & Smith, 4800 Deer Lake
Drive E, 3rd Floor, Jacksonville, FL 32246, owned of record 12,199,384.716
shares (48.92%);
Ivy China Region Fund, Merrill Lynch Pierce Fenner & Smith, 4800 Deer
Lake Drive E, 3rd Floor, Jacksonville, FL 32246, owned of record 107,725.641
shares (11.73%);
Ivy Developing Nations Fund, Merrill Lynch Pierce Fenner & Smith, 4800
Deer Lake Drive E, 3rd Floor, Jacksonville, FL 32246, owned of record
278,316.028 shares (28.37%);
Ivy Global Fund, Merrill Lynch Pierce Fenner & Smith, 4800 Deer Lake
Drive E, 3rd Floor, Jacksonville, FL 32246, owned of record 68,719.447 shares
(11.93%);
Ivy Global Natural Resources Fund, Merrill Lynch Pierce Fenner & Smith,
4800 Deer Lake Drive E, 3rd Floor, Jacksonville, FL 32246, owned of record
83,599.984 shares (38.05%);
Ivy Global Science & Technology Fund, Merrill Lynch Pierce Fenner &
Smith, 4800 Deer Lake Drive E, 3rd Floor, Jacksonville, FL 32246, owned of
record 40,990.672 shares (8.13%);
Ivy Growth Fund, Merrill Lynch Pierce Fenner & Smith, 4800 Deer Lake
Drive E, 3rd Floor, Jacksonville, FL 32246, owned of record 24,939.375 shares
(8.96%);
Ivy Growth with Income Fund, Merrill Lynch Pierce Fenner & Smith, 4800
Deer Lake Drive E, 3rd Floor, Jacksonville, FL 32246, owned of record
263,081.752 shares (15.31%);
Ivy International Fund II, Merrill Lynch Pierce Fenner & Smith, 4800
Deer Lake Drive E, 3rd Floor, Jacksonville, FL 32246, owned of record
4,986,169.823 shares (60.62%);
Ivy International Fund, Merrill Lynch Pierce Fenner & Smith, 4800 Deer
Lake Drive E, 3rd Floor, Jacksonville, FL 32246, owned of record 5,678,407.729
shares (45.59%).
Ivy International Small Companies Fund, Merrill Lynch Pierce Fenner &
Smith, 4800 Deer Lake Drive E, 3rd Floor, Jacksonville, FL 32246, owned of
record 24,340.066 shares (23.40%), PaineWebber, FBO B Carmage Walls Trust #10,
FBO Lissa Walls Trust and Cooper Walls TTEE, PO Box 42828, Houston, TX 77242,
owned of record 5,880.313 shares (5.65%), and PaineWebber, FBO B Carmage Walls
Trust #10, FBO Cooper Walls Trust and Cooper Walls TTEE, PO Box 42828, Houston,
TX 77242, owned of record 5,760.640 shares (5.53%);
Ivy Pan-Europe Fund, Merrill Lynch Pierce Fenner & Smith, 4800 Deer
Lake Drive E, 3rd Floor, Jacksonville, FL 32246, owned of record 66,847.392
shares (22.86%);
Ivy South America Fund, Merrill Lynch Pierce Fenner & Smith, 4800 Deer
Lake Drive E, 3rd Floor, Jacksonville, FL 32246, owned of record 46,359.136
shares (29.47%);
Ivy US Blue Chip Fund, Merrill Lynch Pierce Fenner & Smith, 4800 Deer
Lake Drive E, 3rd Floor, Jacksonville, FL 32246, owned of record 74,760.802
shares (18.62%), and Parker Hunter Incorporated, FBO Robert Crisci and Kathy
Crisci, PO Box 7629, 3525 Ellwood Road, New Castle, PA 16107-7629, owned of
record 24,779.090 shares (6.17%).
Ivy US Emerging Growth Fund, Merrill Lynch Pierce Fenner & Smith, 4800
Deer Lake Drive E, 3rd Floor, Jacksonville, FL 32246, owned of record
335,426.771 shares (21.10%);
CLASS C
Of the outstanding Class C shares of:
Ivy Asia Pacific Fund, Merrill Lynch Pierce Fenner & Smith, 4800 Deer
Lake Drive E, 3rd Floor, Jacksonville, FL 32246, owned of record 19,237.215
shares (5.33%);
Ivy Bond Fund, Merrill Lynch Pierce Fenner & Smith, 4800 Deer Lake
Drive E, 3rd Floor, Jacksonville, FL 32246, owned of record 725,233.869 shares
(74.69%);
Ivy China Region Fund, Merrill Lynch Pierce Fenner & Smith, 4800 Deer
Lake Drive E, 3rd Floor, Jacksonville, FL 32246, owned of record 30,474.251
shares (27.72%), and IBT, (custodian) FBO Roy O. Derminer, 2236 Abbottwoods Ln.,
Orange City, FL 32763, owned of record 8,275.708 shares (7.52%);
Ivy Developing Nations Fund, Merrill Lynch Pierce Fenner & Smith, 4800
Deer Lake Drive E, 3rd Floor, Jacksonville, FL 32246, owned of record 48,103,553
shares (11.99%);
Ivy Global Fund, Merrill Lynch Pierce Fenner & Smith, 4800 Deer Lake
Drive E, 3rd Floor, Jacksonville, FL 32246, owned of record 6,585.276 shares
(19.35%), Donaldson Lufkin Jenrette Securities Corporation Inc., PO Box 2052,
Jersey City, NJ 07303-9998, owned of record 3,909.907 shares (11.48%), Robert W.
Baird & Co. Inc., 777 East Wisconsin Avenue, Milwaukee, WI 53202-5391, owned of
record 3,436.408 shares (10.09%), IBT, (custodian) FBO Mattie A. Allen, 755
Selma Pl., San Diego, CA 92114-1711, owned of record 3,095.552 shares (9.09%),
Smith Barney Inc., 388 Greenwich Street, New York, NY 10013, owned of record
2,436.584 shares (7.15%), and PaineWebber, (custodian) FBO Robert D.
Cuthbertson, PO Box 3321, Weehawken, NJ 07087-8154, owned of record 1,705.476
shares (5.01%);
Ivy Global Natural Resources Fund, Raymond James & Assoc. Inc.,
(custodian) Raymond W. Simmons, 6296 104th Avenue, Pinellas Park, FL 33782,
owned of record 981.281 shares (19.43%), Raymond James & Assoc. Inc.,
(custodian) Diversified Dental P/S, FBO Al Pollock, 10641 1st Street E., Suite
204, Treasure Island, FL 33706, owned of record 910.166 shares (18.02%), Robert
W. Baird & Co. Inc., 777 E. Wisconsin Avenue, Milwaukee, WI 53202-5391, owned of
record 613.622 shares (12.15%), Robert W. Baird & Co. Inc., 777 E. Wisconsin
Avenue, Milwaukee, WI 53202-5391, owned of record 550.722 shares (10.90%), Nancy
J. Cleare, 9381 US Hwy. 19 N, Pinellas Park, FL 33782, owned of record 541.597
shares (10.72%), Resources Trust Co., (custodian) FBO Jon K. Loessin, PO Box
5900, Denver, CO 80217, owned of record 535.023 shares (10.59%), Ester C.
Wickes, 19 Fawn Hill Rd., Tuxedo, NY 10987, owned of record 350.772 shares
(6.94%), and IBT, (custodian) FBO Salvatore Disalvo, 311 Bridle Path Lane,
Annapolis, MD 21403-1638, owned of record 299.993 shares (5.94%);
Ivy Global Science & Technology Fund, Merrill Lynch Pierce Fenner &
Smith, 4800 Deer Lake Drive E, 3rd Floor, Jacksonville, FL 32246, owned of
record 38,011.661 shares (11.30%);
Ivy Growth Fund, Merrill Lynch Pierce Fenner & Smith, 4800 Deer Lake
Drive E, 3rd Floor, Jacksonville, FL 32246, owned of record 7,477.571 shares
(47.23%), IBT, (custodian) FBO Joseph L. Wright, 32211 Pierce Street, Garden
City, MI 48135, owned of record 3,938.282 shares (24.87%), PaineWebber, FBO
Cynthia N. Young, PO Box 3321, Weehawken, NJ 07087-8154, owned of record 853.551
shares (5.39%), and Martin S. Sawyer & Ruth C. Sawyer, 5910 Wilson Blvd., #413,
Arlington, VA 22205, owned of record 844.906 shares (5.33%);
Ivy Growth with Income Fund, Merrill Lynch Pierce Fenner & Smith, 4800
Deer Lake Drive E, 3rd Floor, Jacksonville, FL 32246, owned of record 11,534.267
shares (29.37%), Anthony L. Bassano & Marie E. Bassano, 8934 Bari Court, Port
Richie, FL 34668, owned of record 3,203.100 shares (8.15%), IBT, (custodian) FBO
Vytautas Snieckus, 1250 E 276th Street, Euclid, OH 44132, owned of record
2,645.907 shares (6.73%), PaineWebber, (custodian) FBO Patricia Cramer Russell,
PO Box 3321, Weehawken, NJ 07087-8154, owned of record 2,191.410 shares (5.58%),
IBT, (custodian) FBO Kevin D. Thistle, 1017 Glencrest Court, Saulkville, WI
53080, owned of record 2,130.626 shares (5.42%), and IBT, (custodian) FBO Carol
E. Greivell, 985 N Broadway, #67, Depere, WI 54115, owned of record 2,106.814
shares (5.36%);
Ivy International Fund II, Merrill Lynch Pierce Fenner & Smith, 4800
Deer Lake Drive E, 3rd Floor, Jacksonville, FL 32246, owned of record
2,908,557.453 shares (74.01%);
Ivy International Fund, Merrill Lynch Pierce Fenner & Smith, 4800 Deer
Lake Drive E, 3rd Floor, Jacksonville, FL 32246, owned of record 2,189,094.234
shares (64.38%);
Ivy International Small Companies Fund, Merrill Lynch Pierce Fenner &
Smith, 4800 Deer Lake Drive E, 3rd Floor, Jacksonville, FL 32246, owned of
record 87,014.649 shares (90.31%);
Ivy Money Market Fund, PaineWebber, FBO Bruce Blank, PO Box 3321,
Weehawken, NJ 07087-8154, owned of record 103,905.380 shares (17.65%), IBT
(custodian) FBO, Marcelette V. Manning, 1371 Mt. View Lane, Chula Vista, CA
91911, owned of record 65,194.630 shares (11.07%), IBT (custodian) FBO Diana
Rooney, 2441 S. 9th St., El Centro, CA 92243, owned of record 62,822.810 shares
(10.67%), Robert J. Laws & Katherine A. Laws, PO Box 723, Ramona, CA 92065,
owned of record 42,920.450 shares (7.29%), IBT (custodian) FBO Betty J. Carson,
1987 Higgins Lane, El Centro, CA 92243, owned of record 39,398.780 shares
(6.69%), Paul M. Benard, 40 Arrowhead Farm Road, Boxford, MA 01921, owned of
record 33,488.010 shares (5.68%), Diane C. Benard, 40 Arrowhead Farm Road,
Boxford, MA 01921, owned of record 33,488.010 shares (5.68%), and PaineWebber,
FBO Kathleen L. Diller, PO Box 3321, Weehawken, NJ 07087-8154, owned of record
30,238.920 shares (5.13%).
Ivy Pan-Europe Fund, Merrill Lynch Pierce Fenner & Smith, 4800 Deer
Lake Drive E, 3rd Floor, Jacksonville, FL 32246, owned of record 26,948.668
shares (44.12%), Resources Trust Company, FBO Terry K. Ramnanan, PO Box 5900,
Denver, CO 80217, owned of record 14,652.015 shares (23.99%), and Donaldson
Lufkin Jenrette Securities Corporation Inc., PO Box 2052, Jersey City, NJ
07303-9998, owned of record 4,663.657 shares (7.63%);
Ivy South America Fund, Merrill Lynch Pierce Fenner & Smith, 4800 Deer
Lake Drive E, 3rd Floor, Jacksonville, FL 32246, owned of record 10,956.813
shares (58.18%), Interstate/Johnson Lane, Interstate Tower, PO Box 1220,
Charlotte, NC 28201-1220, owned of record 2,617.801 shares (13.90%), Donaldson
Lufkin Jenrette Securities Corporation Inc., PO Box 2052, Jersey City, NJ
07303-9998, owned of record 2,318.301 shares (12.31%), Donaldson Lufkin Jenrette
Securities Corporation Inc., PO Box 2052, Jersey City, NJ 07303-9998, owned of
record 1,133.787 shares (6.02%), and Smith Barney Inc., 388 Greenwich Street,
New York, NY 10013, owned of record 966.121 shares (5.13%);
Ivy US Blue Chip Fund, Merrill Lynch Pierce Fenner & Smith, 4800 Deer
Lake Drive E, 3rd Floor, Jacksonville, FL 32246, owned of record 8,485.693
shares (10.18%), Donaldson Lufkin Jenrette Securities Corporation Inc., PO Box
2052, Jersey City, NJ 07303-9998, owned of record 6,066.012 shares (7.27%), IBT,
(custodian) FBO Roy O. Derminer, 2236 Abbottwoods LN, Orange City, FL 32763,
owned of record 4,517.953 shares (5.42%), and Donaldson Lufkin Jenrette
Securities Corporation Inc., PO Box 2052, Jersey City, NJ 07303-9998, owned of
record 4,412.541 shares (5.29%);
Ivy US Emerging Growth Fund, Merrill Lynch Pierce Fenner & Smith, 4800
Deer Lake Drive E, 3rd Floor, Jacksonville, FL 32246, owned of record 96,481.220
shares (30.56%);
CLASS I
Of the outstanding Class I shares of:
Ivy International Fund, The John E. Fetzer Institute Inc., 9292 W KL
Ave., Kalamazoo, MI 49009, owned of record 727,066.771 shares (19.12%), State
Street Bank, (TTEE) FBO Allison Engines, 200 Newport Ave., 7th Floor, North
Quincy, MA 02171, owned of record 292,309.556 shares (7.68%), Lynspen and
Company, PO Box 830804, Birmingham, AL 35283, owned of record 276,747.272 shares
(7.27%), and U A Local 447 Pension Trust Fund, 5841 Newman Ct., Sacramento, CA
95819, owned of record 240,427.057 shares (6.32%).
ADVISOR CLASS
Of the outstanding Advisor Class shares of:
Ivy Bond Fund, NFSC FEBO, C. William Ferris, Michael Landry/Keith
Carlson, 700 South Federal Highway, Boca Raton, FL 33432-6114, owned of record
13,944.569 shares (77.94%), and Donaldson Lufkin Jenrette Securities Corporation
Inc., PO Box 2052, Jersey City, NJ 07303-9998, owned of record 3,252.157 shares
(18.17%);
Ivy China Region Fund, Donaldson Lufkin Jenrette Securities Corporation
Inc., PO Box 2052, Jersey City, NJ 07303-9998, owned of record 1,354.000 shares
(84.59%), and Donaldson Lufkin Jenrette Securities Corporation Inc., PO Box
2052, Jersey City, NJ 07303-9998, owned of record 192.447 shares (12.02%).
Ivy Developing Nations Fund, NFSC FEBO, C. William Ferris, Michael
Landry/Keith Carlson, 700 South Federal Highway, Boca Raton, FL 33432-6114,
owned of record 14,362.134 shares (100%);
Ivy Global Fund, NFSC FEBO, C. William Ferris, Michael Landry/Keith
Carlson, 700 South Federal Highway, Boca Raton, FL 33432-6114, owned of record
30,007.844 shares (100%);
Ivy Global Science & Technology Fund, IBT, (custodian) FBO Deborah P.
Mason, 3406 Cypress Landing Dr., Valrico, FL 33594, owned of record 629.966
shares (36.59%), Donaldson Lufkin Jenrette Securities Corporation Inc., PO Box
2052, Jersey City, NJ 07303-9998, owned of record 534.539 shares (31.04%),
Donaldson Lufkin Jenrette Securities Corporation Inc., PO Box 2052, Jersey City,
NJ 07303-9998, owned of record 418.586 shares (24.31%), and Donaldson Lufkin
Jenrette Securities Corporation Inc., PO Box 2052, Jersey City, NJ 07303-9998,
owned of record 138.549 shares (8.04%);
Ivy Growth Fund, NFSC FEBO, C. William Ferris, Michael Landry/Keith
Carlson, 700 South Federal Highway, Boca Raton, FL 33432-6114, owned of record
16,572.658 shares (99.90%);
Ivy Growth with Income Fund, NFSC FEBO, C. William Ferris, Michael
Landry/Keith Carlson, 700 South Federal Highway, Boca Raton, FL 33432-6114,
owned of record 25,118.240 shares (100%);
Ivy International Fund II, Charles Scwab & Co. Inc., 101 Montgomery
Street, San Francisco, CA 94104, owned of record 7,913.113 shares (11.19%),
Donaldson Lufkin Jenrette Securities Corporation Inc., PO Box 2052, Jersey City,
NJ 07303-9998, owned of record 6,471.430 shares (9.15%), and Donaldson Lufkin
Jenrette Securities Corporation Inc., PO Box 2052, Jersey City, NJ 07303-9998,
owned of record 4,602.660 shares (6.50%);
Ivy Pan-Europe Fund, NFSC FEBO, C. William Ferris, Michael Landry/Keith
Carlson, 700 South Federal Highway, Boca Raton, FL 33432-6114, owned of record
3,424.319 shares (47.51%), Donaldson Lufkin Jenrette Securities Corporation
Inc., PO Box 2052, Jersey City, NJ 07303-9998, owned of record 1,191.422 shares
(16.53%), Donaldson Lufkin Jenrette Securities Corporation Inc., PO Box 2052,
Jersey City, NJ 07303-9998, owned of record 947.119 shares (13.14%), Donaldson
Lufkin Jenrette Securities Corporation Inc., PO Box 2052, Jersey City, NJ
07303-9998, owned of record 653.595 shares (9.06%), and Charles Schwab & Co.
Inc., 101 Montgomery Street, San Francisco, CA 94104,owned of record 406.639
shares (5.64%);
Ivy US Blue Chip Fund, Mackenzie Investment Management Inc., Via Mizner
Financial Plaza, 700 South Federal Highway, Suite 300, Boca Raton, FL 33432,
owned of record 50,001.000 shares (80.05%), NFSC FEBO, C. William Ferris,
Michael Landry/Keith Carlson, 700 South Federal Highway, Boca Raton, FL
33432-6114, owned of record 7,419.362 shares (11.87%), and Charles Scwab & Co.
Inc., 101 Montgomery Street, San Francisco, CA 94104, owned of record 3,678.690
shares (5.88%);
Ivy US Emerging Growth Fund, NFSC FEBO, C. William Ferris, Michael
Landry/Keith Carlson, 700 South Federal Highway, Boca Raton, FL 33432-6114,
owned of record 20,670.236 shares (84.78%), and Charles Schwab & Co. Inc., 101
Montgomery Street, San Francisco, CA 94104, owned of record 1,927.965 shares
(7.90%).
As of April 16, 1999, the Officers and Trustees of the Trust as a group
owned beneficially or of record less than 1% of the outstanding Class A, Class
B, Class C, Class I and Advisor Class shares of each of the nineteen Ivy funds
that are series of the Trust, except that the Officers and Trustees of the Trust
as a group owned 3.93%, 1.94%, 1.19%, and 2.09%, respectively, of Ivy Asia
Pacific Fund Class A shares, Ivy Global Natural Resources Fund Class A shares,
Ivy Money Market Fund Class A shares, and Ivy South America Fund Class A shares,
respectively, as of that date.
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 Funds. Among other things,
the Code of Ethics, which generally complies with standards recommended by the
Investment Company Institute's Advisory Group on Personal Investing, prohibits
certain types of transactions absent prior approval, applies to portfolio
managers, traders, research analysts and others involved in the investment
advisory process, and imposes time periods during which personal transactions
may not be made in certain securities, and requires the submission of duplicate
broker confirmations and monthly reporting of securities transactions.
Exceptions to these and other provisions of the Code of Ethics may be granted in
particular circumstances after review by appropriate personnel.
INVESTMENT ADVISORY AND OTHER SERVICES
BUSINESS MANAGEMENT AND INVESTMENT ADVISORY SERVICES
IMI provides business management and investment advisory services to each
Fund pursuant to a Business Management and Investment Advisory Agreement (the
"Agreement"). IMI is a wholly owned subsidiary of Mackenzie Investment
Management Inc. ("MIMI"). MIMI, a Delaware corporation, has approximately 10% of
its outstanding common stock listed for trading on the Toronto Stock Exchange
("TSE"). MIMI is a subsidiary of Mackenzie Financial Corporation ("MFC"), 150
Bloor Street West, Toronto, Ontario, Canada, a public corporation organized
under the laws of Ontario whose shares are listed for trading on the TSE. MFC is
registered in Ontario as a mutual fund dealer and advises Ivy Global Natural
Resources Fund. IMI currently acts as manager and investment adviser to the
following additional investment companies registered under the 1940 Act (other
than the Funds): Ivy Bond Fund, Ivy European Opportunities Fund, Ivy Global
Fund, Ivy Global Science & Technology Fund, Ivy Growth Fund, Ivy Growth with
Income Fund, Ivy International Fund II, Ivy International Fund, Ivy
International Small Companies Fund, Ivy International Strategic Bond Fund, Ivy
Money Market Fund, Ivy Pan-Europe Fund, Ivy US Blue Chip Fund and Ivy US
Emerging Growth Fund. IMI also provides business management services to Ivy
Global Natural Resources Fund.
The Agreement obligates IMI to make investments for the account of each
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 Funds' Custodian and
monitor the services it provides to each Fund; (2) coordinate with and monitor
any other third parties furnishing services to each Fund; (3) provide each Fund
with necessary office space, telephones and other communications facilities as
are adequate for each 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 each Fund or by IMI acting in
some other capacity pursuant to a separate agreement or arrangements with each
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.
Each Fund pays IMI a monthly fee for providing business management and
investment advisory services at an annual rate of 1.00% of the Fund's average
net assets.
During the fiscal years ended December 31, 1997 and 1998, Ivy Asia Pacific
Fund paid IMI fees of $10,473 and $49,509, respectively. During the same
periods, IMI reimbursed Fund expenses in the amount of $10,473 and $167,194,
respectively.
During the fiscal years ended December 31, 1996, 1997 and 1998, Ivy China
Region Fund paid IMI fees of $233,804, $277,601 and $187,381, respectively.
During the same periods, IMI reimbursed Fund expenses in the amount of $65,675,
$18,377 and $105,095, respectively.
During the fiscal years ended December 31, 1996, 1997 and 1998, Ivy
Developing Nations Fund paid IMI fees of $109,125, $284,290 and $156,166,
respectively. During the same periods, IMI reimbursed Fund expenses in the
amount of $67,600, $22,860 and $200,839, respectively.
During the fiscal years ended December 31, 1996, 1997 and 1998, Ivy South
America Fund paid IMI fees of $42,550, $94,278 and $53,857, respectively. During
the same periods, IMI reimbursed Fund expenses in the amount of $99,630, $68,548
and $145,867, respectively.
Under the Agreement, the Trust pays the following expenses: (1) the fees
and expenses of the Trust's Independent Trustees; (2) the salaries and expenses
of any of the Trust's officers or employees who are not affiliated with IMI; (3)
interest expenses; (4) taxes and governmental fees, including any original issue
taxes or transfer taxes applicable to the sale or delivery of shares or
certificates therefor; (5) brokerage commissions and other expenses incurred in
acquiring or disposing of portfolio securities; (6) the expenses of registering
and qualifying shares for sale with the SEC and with various state securities
commissions; (7) accounting and legal costs; (8) insurance premiums; (9) fees
and expenses of the Trust's Custodian and Transfer Agent and any related
services; (10) expenses of obtaining quotations of portfolio securities and of
pricing shares; (11) expenses of maintaining the Trust's legal existence and of
shareholders' meetings; (12) expenses of preparation and distribution to
existing shareholders of periodic reports, proxy materials and prospectuses; and
(13) fees and expenses of membership in industry organizations.
IMI currently limits each 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 that Fund's average net assets, which may lower each Fund's
expenses and increase its yield.
The Agreement will continue in effect with respect to each Fund from year
to year, only so long as the continuance is specifically approved at least
annually (i) by the vote of a majority of the Independent Trustees and (ii)
either (a) by the vote of a majority of the outstanding voting securities (as
defined in the 1940 Act) of the Fund or (b) by the vote of a majority of the
entire Board. If the question of continuance of the Agreement (or adoption of
any new agreement) is presented to the shareholders, continuance (or adoption)
shall be effected only if approved by the affirmative vote of a majority of the
outstanding voting securities of each Fund. See "Capitalization and Voting
Rights."
The Agreement may be terminated with respect to each 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 that Fund, on 60
days' written notice to IMI, or by IMI on 60 days' written notice to the Trust.
The Agreement shall terminate automatically in the event of its assignment.
DISTRIBUTION SERVICES
IMDI, a wholly owned subsidiary of MIMI, serves as the exclusive
distributor of Ivy Fund's shares pursuant to an Amended and Restated
Distribution Agreement with the Trust dated March 16, 1999, as amended from time
to time (the "Distribution Agreement"). IMDI distributes shares of each 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 each 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.
Each 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 each Fund's behalf. Each 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 each Fund's Net Asset Value next
computed after an authorized intermediary or the intermediary's authorized
designee accepts them.
Under the Distribution Agreement, each Fund bears, among other expenses,
the expenses of registering and qualifying its shares for sale under Federal and
state securities laws and preparing and distributing to existing shareholders
periodic reports, proxy materials and prospectuses.
The Distribution Agreement will continue in effect for successive one-year
periods, provided that such continuance is specifically approved at least
annually by the vote of a majority of the Independent Trustees, cast in person
at a meeting called for that purpose and by the vote of either a majority of the
entire Board or a majority of the outstanding voting securities of each Fund.
The Distribution Agreement may be terminated with respect to each Fund at any
time, without payment of any penalty, by IMDI on 60 days' written notice to the
Fund or by each 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. The
Board has adopted a Rule 18f-3 plan on behalf of each Fund. The key features of
each Rule 18f-3 plan are as follows: (i) shares of each class of each 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 each Fund may be exchanged for shares of the same class
of another Ivy fund; and (iii) each Fund's Class B shares will convert
automatically into Class A shares of that 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 each 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 each Fund's foreign securities. With
respect to each 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 each Fund. As compensation for those
services, each Fund pays MIMI a monthly fee plus out-of-pocket expenses as
incurred. The monthly fee is based upon the net assets of the Fund at the
preceding month end at the following rates: $1,250 when net assets are $10
million and under; $2,500 when net assets are over $10 million to $40 million;
$5,000 when net assets are over $40 million to $75 million; and $6,500 when net
assets are over $75 million.
During the fiscal year ended December 31, 1998, Ivy Asia Pacific Fund paid
MIMI $19,790 under the agreement.
During the fiscal year ended December 31, 1998, Ivy China Region Fund paid
MIMI $36,178 under the agreement.
During the fiscal year ended December 31, 1998, Ivy Developing Nations
Fund paid MIMI $34,475 under the agreement.
During the fiscal year ended December 31, 1998, Ivy South America Fund
paid MIMI $19,918 under the agreement.
TRANSFER AGENT AND DIVIDEND PAYING AGENT
Pursuant to a Transfer Agency and Shareholder Service Agreement, IMSC, a
wholly owned subsidiary of MIMI, is the transfer agent for each Fund. Under the
Agreement, each Fund pays a monthly fee at an annual rate of $20.00 for each
open Class A, Class B, Class C and Advisor Class account. In addition, the Fund
pays a monthly fee at an annual rate of $4.58 per account that is closed plus
certain out-of-pocket expenses. Such fees and expenses for the fiscal year ended
December 31, 1998 for Ivy Asia Pacific Fund totaled $16,060. Such fees and
expenses for the fiscal year ended December 31, 1998 for Ivy China Region Fund
totaled $101,423. Such fees and expenses for the fiscal year ended December 31,
1998 for Ivy Developing Nations Fund totaled $71,214. Such fees and expenses for
the fiscal year ended December 31, 1998 for Ivy South America Fund totaled
$22,160. Certain broker-dealers that maintain shareholder accounts with each
Fund through an omnibus account provide transfer agent and other
shareholder-related services that would otherwise be provided by IMSC if the
individual accounts that comprise the omnibus account were opened by their
beneficial owners directly. IMSC pays such broker-dealers a per account fee for
each open account within the omnibus account, or a fixed rate (e.g., 0.10%) fee,
based on the average daily net asset value of the omnibus account (or a
combination thereof).
ADMINISTRATOR
Pursuant to an Administrative Services Agreement, MIMI provides certain
administrative services to each Fund. As compensation for these services, each
Fund pays MIMI a monthly fee at the annual rate of 0.10% of the Fund's average
daily net assets. Such fees for the fiscal year ended December 31, 1998 for Ivy
Asia Pacific Fund totaled $4,951. Such fees for the fiscal year ended December
31, 1998 for Ivy China Region totaled $18,738. Such fees for the fiscal year
ended December 31, 1998 for Ivy Developing Nations Fund totaled $15,617. Such
fees for the fiscal year ended December 31, 1998 for Ivy South America Fund
totaled $5,386.
AUDITORS
PricewaterhouseCoopers LLP, independent public accountants, has been
selected as auditors for the Trust. The audit services performed by
PricewaterhouseCoopers LLP include audits of the annual financial statements of
each of the funds of the Trust. Other services provided principally relate to
filings with the SEC and the preparation of the funds' tax returns.
BROKERAGE ALLOCATION
Subject to the overall supervision of the President and the Board, IMI
places orders for the purchase and sale of each 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 each
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 Funds or the Trust. IMI may consider sales of shares of Ivy
funds as a factor in the selection of broker-dealers and may select
broker-dealers who provide it with research services. IMI will not, however,
execute brokerage transactions other than at the best price and execution.
During the fiscal years ended December 31, 1997 and 1998, Ivy Asia Pacific
Fund paid brokerage commissions of $18,500 and $75,104, respectively.
During the fiscal years ended December 31, 1996, 1997 and 1998, Ivy China
Region Fund paid brokerage commissions of $62,812, $70,846, and $112,289,
respectively.
During the fiscal years ended December 31, 1996, 1997 and 1998, Ivy
Developing Nations Fund paid brokerage commissions of $95,606, $170,306, and
$83,565, respectively.
During the fiscal years ended December 31, 1996, 1997 and 1998, Ivy South
America Fund paid brokerage commissions of $15,756, $17,213, and $19,922,
respectively.
Brokerage commissions vary from year to year in accordance with the degree
to which a particular Fund is more or less actively traded.
Each Fund may, under some circumstances, accept securities in lieu of cash
as payment for Fund shares. Each 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 that Fund. While no
minimum has been established, it is expected that each 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 each Fund's shares with
securities and may discontinue accepting securities as payment for each Fund's
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
each Fund, and each Fund's shares will be sold for net asset value determined at
the same time the accepted securities are valued. The Trust will only accept
securities delivered in proper form and will not accept securities subject to
legal restrictions on transfer. The acceptance of securities by the Trust must
comply with the applicable laws of certain states.
CAPITALIZATION AND VOTING RIGHTS
The capitalization of the Trust consists of an unlimited number of shares
of beneficial interest (no par value per share). When issued, shares of each
class of each Fund are fully paid, non-assessable, redeemable and fully
transferable. No class of shares of any Fund has preemptive rights or
subscription rights.
The Amended and Restated Declaration of Trust permits the Trustees to
create separate series or portfolios and to divide any series or portfolio into
one or more classes. The Trustees have authorized nineteen series, each of which
represents a fund. The Trustees have further authorized the issuance of Class A,
Class B, and Class C shares for Ivy International Fund and Ivy Money Market Fund
and Class A, Class B, Class C and Advisor Class shares for Ivy Asia Pacific
Fund, Ivy Bond Fund, Ivy China Region Fund, Ivy Developing Nations Fund, Ivy
European Opportunities Fund, Ivy Global Fund, Ivy Global Natural Resources Fund,
Ivy Global Science & Technology Fund, Ivy Growth Fund, Ivy Growth with Income
Fund, Ivy International Fund II, Ivy International Small Companies Fund, Ivy
International Strategic Bond Fund, Ivy Pan-Europe Fund, Ivy South America Fund,
Ivy US Blue Chip Fund, and Ivy US Emerging Growth Fund, as well as Class I
shares for Ivy Bond Fund, Ivy European Opportunities Fund, Ivy Global Science &
Technology Fund, Ivy International Fund II, Ivy International Fund, Ivy
International Small Companies Fund, Ivy International Strategic Bond Fund, and
Ivy US Blue Chip Fund.
Shareholders have the right to vote for the election of Trustees of the
Trust and on any and all matters on which they may be entitled to vote by law or
by the provisions of the Trust's By-Laws. The Trust is not required to hold a
regular annual meeting of shareholders, and it does not intend to do so. Shares
of each class of each Fund entitle their holders to one vote per share (with
proportionate voting for fractional shares). Shareholders of each Fund are
entitled to vote alone on matters that only affect that Fund. All classes of
shares of each Fund will vote together, except with respect to the distribution
plan applicable to a Fund's Class A, Class B or Class C shares or when a class
vote is required by the 1940 Act. On matters relating to all funds of the Trust,
but affecting the funds differently, separate votes by the shareholders of each
fund are required. Approval of an investment advisory agreement and a change in
fundamental policies would be regarded as matters requiring separate voting by
the shareholders of each fund of the Trust. If the Trustees determine that a
matter does not affect the interests of a Fund, then the shareholders of that
Fund will not be entitled to vote on that matter. Matters that affect the Trust
in general, such as ratification of the selection of independent public
accountants, will be voted upon collectively by the shareholders of all funds of
the Trust.
As used in this SAI and the Prospectus, the phrase "majority vote of the
outstanding shares" of a 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 a Fund, the matter shall have been effectively acted upon
with respect to that Fund if a majority of the outstanding voting securities of
the Fund votes for the approval of the matter, notwithstanding that: (1) the
matter has not been approved by a majority of the outstanding voting securities
of any other fund of the Trust; or (2) the matter has not been approved by a
majority of the outstanding voting securities of the Trust.
The Amended and Restated Declaration of Trust provides that the holders of
not less than two-thirds of the outstanding shares of the Trust may remove a
person serving as trustee either by declaration in writing or at a meeting
called for such purpose. The Trustees are required to call a meeting for the
purpose of considering the removal of a person serving as Trustee if requested
in writing to do so by the holders of not less than 10% of the outstanding
shares of the Trust. Shareholders will be assisted in communicating with other
shareholders in connection with the removal of a Trustee as if Section 26(c) of
the Act were applicable.
The Trust's shares do not have cumulative voting rights and accordingly
the holders of more than 50% of the outstanding shares could elect the entire
Board, in which case the holders of the remaining shares would not be able to
elect any Trustees.
Under Massachusetts law, the Trust's shareholders could, under certain
circumstances, be held personally liable for the obligations of the Trust.
However, the Amended and Restated Declaration of Trust disclaims liability of
the shareholders, Trustees or officers of the Trust for acts or obligations of
the Trust, which are binding only on the assets and property of the Trust, and
requires that notice of the disclaimer be given in each contract or obligation
entered into or executed by the Trust or its Trustees. The Amended and Restated
Declaration of Trust provides for indemnification out of Fund property for all
loss and expense of any shareholder of any Fund held personally liable for the
obligations of that Fund. The risk of a shareholder of the Trust incurring
financial loss on account of shareholder liability is limited to circumstances
in which the Trust itself would be unable to meet its obligations and, thus,
should be considered remote. No series of the Trust is liable for the
obligations of any other series of the Trust.
SPECIAL RIGHTS AND PRIVILEGES
The Trust offers, and (except as noted below) bears the cost of providing,
to investors the following rights and privileges. The Trust reserves the right
to amend or terminate any one or more of these rights and privileges. Notice of
amendments to or terminations of rights and privileges will be provided to
shareholders in accordance with applicable law.
Certain of the rights and privileges described below refer to funds, other
than the Funds, whose shares are also distributed by IMDI. These funds are: Ivy
Bond Fund, Ivy European Opportunities Fund, Ivy Global Fund, Ivy Global Natural
Resources Fund, Ivy Global Science & Technology Fund, Ivy Growth Fund, Ivy
Growth with Income Fund, Ivy International Fund, Ivy International Fund II, Ivy
International Small Companies Fund, Ivy International Strategic Bond Fund, Ivy
Money Market Fund, Ivy Pan-Europe Fund, Ivy US Blue Chip Fund, and Ivy US
Emerging Growth Fund (the other fifteen series of the Trust). (Effective April
18, 1997, Ivy International Fund suspended the offer of its shares to new
investors). Shareholders should obtain a current prospectus before exercising
any right or privilege that may relate to these funds.
AUTOMATIC INVESTMENT METHOD
The Automatic Investment Method, which enables a Fund shareholder to have
specified amounts automatically drawn each month from his or her bank for
investment in a Fund's shares, is available for all classes of shares, except
Class I. The minimum initial and subsequent investment under this method for
Advisor Class shares 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, shareholders of each 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 each 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 which 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.
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.
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 each Fund may be used as a
funding medium for an Individual Retirement Account ("IRA"). Eligible
individuals may establish an IRA by adopting a model custodial account available
from IMSC, who may impose a charge for establishing the account. Individuals
should consult their tax advisers before investing IRA assets in an Ivy fund if
that fund primarily distributes exempt-interest dividends.
An individual who has not reached age 70-1/2 and who receives compensation
or earned income is eligible to contribute to an IRA, whether or not he or she
is an active participant in a retirement plan. An individual who receives a
distribution from another IRA, a qualified retirement plan, a qualified annuity
plan or a tax-sheltered annuity or custodial account ("403(b) plan") that
qualifies for "rollover" treatment is also eligible to establish an IRA by
rolling over the distribution either directly or within 60 days after its
receipt. Tax advice should be obtained in connection with planning a rollover
contribution to an IRA.
In general, an eligible individual may contribute up to the lesser of
$2,000 or 100% of his or her compensation or earned income to an IRA each year.
If a husband and wife are both employed, and both are under age 70-1/2, each may
set up his or her own IRA within these limits. If both earn at least $2,000 per
year, the maximum potential contribution is $4,000 per year for both. For years
after 1996, the result is similar even if one spouse has no earned income; if
the joint earned income of the spouses is at least $4,000, a contribution of up
to $2,000 may be made to each spouse's IRA. Rollover contributions are not
subject to these limits.
An individual may deduct his or her annual contributions to an IRA in
computing his or her Federal income tax within the limits described above,
provided he or she (or his or her spouse, if they file a joint Federal income
tax return) is not an active participant in a qualified retirement plan (such as
a qualified corporate, sole proprietorship, or partnership pension, profit
sharing, 401(k) or stock bonus plan), qualified annuity plan, 403(b) plan,
simplified employee pension, or governmental plan. If he or she (or his or her
spouse) is an active participant, whether the individual's contribution to an
IRA is fully deductible, partially deductible or not deductible depends on (i)
adjusted gross income and (ii) whether it is the individual or the individual's
spouse who is an active participant, in the case of married individuals filing
jointly. Contributions may be made up to the maximum permissible amount even if
they are not deductible. Rollover contributions are not includable in income for
Federal income tax purposes and therefore are not deductible from it.
Generally, earnings on an IRA are not subject to current Federal income
tax until distributed. Distributions attributable to tax-deductible
contributions and to IRA earnings are taxed as ordinary income. Distributions of
non-deductible contributions are not subject to Federal income tax. In general,
distributions from an IRA to an individual before he or she reaches age 59-1/2
are subject to a nondeductible penalty tax equal to 10% of the taxable amount of
the distribution. The 10% penalty tax does not apply to amounts withdrawn from
an IRA after the individual reaches age 59-1/2, becomes disabled or dies, or if
withdrawn in the form of substantially equal payments over the life or life
expectancy of the individual and his or her designated beneficiary, if any, or
rolled over into another IRA, amounts withdrawn and used to pay for deductible
medical expenses and amounts withdrawn by certain unemployed individuals not in
excess of amounts paid for certain health insurance premiums, amounts used to
pay certain qualified higher education expenses, and amounts used within 120
days of the date the distribution is received to pay for certain first-time
homebuyer expenses. Distributions must begin to be withdrawn not later than
April 1 of the calendar year following the calendar year in which the individual
reaches age 70-1/2. Failure to take certain minimum required distributions will
result in the imposition of a 50% non-deductible penalty tax.
ROTH IRAS: Shares of each 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. 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 $250 each while the Withdrawal Plan is in effect.
An investor may terminate his or her participation in the Withdrawal Plan
at any time by delivering written notice to IMSC. If all shares held by the
investor are liquidated at any time, participation in the Withdrawal Plan will
terminate automatically. The Trust or IMSC may terminate the Withdrawal Plan
option at any time after reasonable notice to shareholders.
GROUP SYSTEMATIC INVESTMENT PROGRAM
Shares of each 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 a 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.
REDEMPTIONS
Shares of each 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 a 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 a Fund.
The Trust may redeem the Advisor Class accounts of shareholders who have
maintained an investment of less than $10,000 in the Advisor Class shares of a
Fund for a period of more than 12 months. All 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 each 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.
Each 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, a Fund may be liable for any losses due to
unauthorized or fraudulent telephone instructions.
NET ASSET VALUE
The net asset value per share of each Fund is computed by dividing the
value of that 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 each Fund's aggregate net assets, receivables are valued at their
realizable amounts. Each Fund's liabilities, if not identifiable as belonging to
a particular class of the Fund, are allocated among that Fund's several classes
based on their relative net asset size. Liabilities attributable to a particular
class are charged to that class directly. The total liabilities for a class are
then deducted from the class's proportionate interest in the Fund's assets, and
the resulting amount is divided by the number of shares of the class outstanding
to produce its net asset value per share.
A security listed or traded on a recognized stock exchange or The Nasdaq
Stock Market, Inc. ("Nasdaq") is valued at the security's last sale price on the
exchange on which the security is principally traded. If no sale is reported at
that time, the average between the last bid and asked price (the "Calculated
Mean") is used. Unless otherwise noted herein, the value of a foreign security
is determined in its national currency as of the normal close of trading on the
foreign exchange on which it is traded or as of the close of regular trading on
the Exchange, if that is earlier, and that value is then converted into its U.S.
dollar equivalent at the foreign exchange rate in effect at noon, eastern time,
on the day the value of the foreign security is determined. All other securities
for which OTC market quotations are readily available are valued at the
Calculated Mean.
A debt security normally is valued on the basis of quotes obtained from at
least two dealers (or one dealer who has made a market in the security) or
pricing services that take into account appropriate valuation factors. Interest
is accrued daily. Money market instruments are valued at amortized cost, which
the Board believes approximates market value.
An exchange-traded option is valued at the last sale price on the exchange
on which it is principally traded, if available, and otherwise is valued at the
last sale price on the other exchange(s). If there were no sales on any
exchange, the option shall be valued at the Calculated Mean, if possible, and
otherwise at the last offering price, in the case of a written option, and the
last bid price, in the case of a purchased option. An OTC option is valued at
the last offering price, in the case of a written option, and the last bid
price, in the case of a purchased option. Exchange listed and widely-traded OTC
futures (and options thereon) are valued at the most recent settlement price.
Securities and other assets for which market prices are not readily
available are priced at their "fair value" as determined by IMI in accordance
with procedures approved by the Board. Trading in securities on many foreign
securities exchanges is normally completed before the close of regular trading
on the Exchange. Trading on foreign exchanges may not take place on all days on
which there is regular trading on the Exchange, or may take place on days on
which there is no regular trading on the Exchange (e.g., any of the national
business holidays identified below). If events materially affecting the value of
the Fund's portfolio securities occur between the time when a foreign exchange
closes and the time when the Fund's net asset value is calculated (see following
paragraph), such securities may be valued at fair value as determined by IMI and
approved by the Board.
Portfolio securities are valued (and net asset value per share is
determined) as of the close of regular trading on the Exchange (normally 4:00
p.m., eastern time) on each day the Exchange is open for trading. The Exchange
and the Trust's offices are expected to be closed, and net asset value will not
be calculated, on the following national business holidays: New Year's Day,
Martin Luther King, Jr. Day, Presidents' Day, Good Friday, Memorial Day,
Independence Day, Labor Day, Thanksgiving Day and Christmas Day. On those days
when either or both of the Fund's Custodian or the Exchange close early as a
result of a partial holiday or otherwise, the Trust reserves the right to
advance the time on that day by which purchase and redemption requests must be
received.
The number of shares you receive when you place a purchase order, and the
payment you receive after submitting a redemption request, is based on a Fund's
net asset value next determined after your instructions are received in proper
form by IMSC or by your registered securities dealer. Each purchase and
redemption order is subject to any applicable sales charge. Since each Fund
invests in securities that are listed on foreign exchanges that may trade on
weekends or other days when the Funds not price their shares, each Fund's net
asset value may change on days when shareholders will not be able to purchase or
redeem that Fund's shares. The sale of each 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 a Fund's best interest to do so.
TAXATION
The following is a general discussion of certain tax rules thought to be
applicable with respect to each 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 a Fund.
Each Fund intends to be taxed as a regulated investment company under
Subchapter M of the Code. Accordingly, each 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 each 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 each 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, each 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. Each 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, each 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, each 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 a Fund in October, November or
December of the year with a record date in such a month and paid by that 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 each 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 that Fund. If a 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 a 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 a 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 each 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 each 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
each Fund may result in "straddles" for Federal income tax purposes. The
straddle rules may affect the character of gains or losses realized by each
Fund. In addition, losses realized by each 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 each Fund
are not entirely clear. The straddle rules may increase the amount of short-term
capital gain realized by each Fund, which is taxed as ordinary income when
distributed to shareholders.
Each Fund may make one or more of the elections available under the Code
which are applicable to straddles. If a 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, each Fund may recognize gain (but
not loss) from a constructive sale of certain "appreciated financial positions"
if that 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 each 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 each 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 each Fund's investment company taxable income
available to be distributed to its shareholders as ordinary income.
INVESTMENT IN PASSIVE FOREIGN INVESTMENT COMPANIES
Each Fund may invest in shares of foreign corporations which may be
classified under the Code as passive foreign investment companies ("PFICs"). In
general, a foreign corporation is classified as a PFIC if at least one-half of
its assets constitute investment-type assets, or 75% or more of its gross income
is investment-type income. If a Fund receives a so-called "excess distribution"
with respect to PFIC stock, that 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.
Each Fund may be eligible to elect alternative tax treatment with respect
to PFIC shares. A 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,
each 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 each 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 each 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. Each 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 each Fund may be treated as having
acquisition discount, or OID in the case of certain types of debt securities.
Generally, each 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. Each 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.
Each Fund generally will be required to distribute dividends to
shareholders representing discount on debt securities that is currently
includable in income, even though cash representing such income may not have
been received by that Fund. Cash to pay such dividends may be obtained from
sales proceeds of securities held by that 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 a 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 each 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 that Fund on the distribution date. A
distribution of an amount in excess of a 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 a 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
a 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 a 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 each 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 a Fund's total assets at the close of its
taxable year consists of securities of foreign corporations, that Fund will be
eligible and may elect to "pass-through" to its 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 a Fund makes
the election described in the preceding paragraph, the source of the Fund's
income flows through to its shareholders. With respect to each 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 each 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 a 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 a 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
Each 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 a Fund with and to certify
the shareholder's correct taxpayer identification number or social security
number, (2) the IRS notifies the shareholder or a 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 each 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 a Fund.
PERFORMANCE INFORMATION
Performance information for the classes of shares of each 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 each 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 a 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.
AVERAGE ANNUAL TOTAL RETURN. Quotations of standardized average annual
total return ("Standardized Return") for a specific class of shares of each Fund
will be expressed in terms of the average annual compounded rate of return that
would cause a hypothetical investment in that class of that 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 each Fund, it is assumed that
all dividends and capital gains distributions made by that Fund are reinvested
at net asset value in additional shares of the same class during the designated
period. Standardized Return quotations for each 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%.
Each 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").
In determining the average annual total return for a specific class of
shares of a Fund, recurring fees, if any, that are charged to all shareholder
accounts are taken into consideration. For any account fees that vary with the
size of the account of the Fund, the account fee used for purposes of the
following computations is assumed to be the fee that would be charged to the
mean account size of the Fund.
The Standardized Return for Ivy China Region Fund's Advisor Class shares
for the period from the date Advisor Class shares were first offered (January 1,
1998) through December 31, 1998 was (19.56)%. This figure reflects expense
reimbursement. Without expense reimbursement, the Standardized Return would have
been (19.91)%.
The Standardized Return for Ivy Developing Nations Fund's Advisor Class
shares for the period from the date Advisor Class shares were first offered
(January 1, 1998) through December 31, 1998 was (19.06)%. This figure reflects
expense reimbursement. Without expense reimbursement, the Standardized Return
would have been (19.68)%.
Ivy Asia Pacific Fund and Ivy South America Fund had no outstanding
Advisor Class shares as of December 31, 1998.
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 a Fund for a specified period. Cumulative total return quotations
reflect changes in the price of a Fund's shares and assume that all dividends
and capital gains distributions during the period were reinvested in shares of
that. Cumulative total return is calculated by computing the cumulative rates of
return of a hypothetical investment in a specific class of shares of a Fund over
such periods, according to the following formula (cumulative total return is
then expressed as a percentage):
C = (ERV/P) - 1
Where: C = cumulative total return
P = a hypothetical initial investment of $1,000 to
purchase shares of a specific class
ERV = ending redeemable value: ERV is the value, at
the end of the applicable period, of a
hypothetical $1,000 investment made at the
beginning of the applicable period.
The Cumulative Total Return for Ivy China Region Fund's Advisor Class
shares for the period from the date Advisor Class shares were first offered
(January 1, 1998) through December 31, 1998 was (19.56)%. The Cumulative Total
Return for Ivy Developing Nations Fund's Advisor Class shares for the period
from the date Advisor Class shares were first offered (January 1, 1998) through
December 31, 1998 was (19.06)%. Ivy Asia Pacific Fund and Ivy South America Fund
had no outstanding Advisor Class shares as of December 31, 1998.
OTHER QUOTATIONS, COMPARISONS AND GENERAL INFORMATION. The foregoing
computation methods are prescribed for advertising and other communications
subject to SEC Rule 482. Communications not subject to this rule may contain a
number of different measures of performance, computation methods and
assumptions, including but not limited to: historical total returns; results of
actual or hypothetical investments; changes in dividends, distributions or share
values; or any graphic illustration of such data. These data may cover any
period of the Trust's existence and may or may not include the impact of sales
charges, taxes or other factors.
Performance quotations for each Fund will vary from time to time depending
on market conditions, the composition of each Fund's portfolio and operating
expenses of each Fund. These factors and possible differences in the methods
used in calculating performance quotations should be considered when comparing
performance information regarding each 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 each
Fund's shares and the risks associated with each 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.
Each 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
Each Fund's Portfolio of Investments as of December 31, 1998, Statement of
Assets and Liabilities as of December 31, 1998, Statement of Operations for the
fiscal year ended December 31, 1998, Statement of Changes in Net Assets for the
fiscal year ended December 31, 1998, Financial Highlights, Notes to Financial
Statements, and Report of Independent Accountants, which are included in each
Fund's December 31, 1998 Annual Report to shareholders, are incorporated by
reference into this SAI.
<PAGE>
APPENDIX A
DESCRIPTION OF STANDARD & POOR'S RATINGS GROUP ("S&P") AND
MOODY'S INVESTORS SERVICE, INC. ("MOODY'S") CORPORATE
BOND AND COMMERCIAL PAPER RATINGS
[From "Moody's Bond Record," November 1994 Issue (Moody's Investors Service,
New York, 1994), and "Standard & Poor's Municipal Ratings Handbook," October
1997 Issue (McGraw Hill, New York, 1997).]
MOODY'S:
(a) CORPORATE BONDS. Bonds rated Aaa by Moody's are judged by Moody's to
be of the best quality, carrying the smallest degree of investment risk.
Interest payments are protected by a large or exceptionally stable margin and
principal is secure. While the various protective elements are likely to change,
such changes as can be visualized are most unlikely to impair the fundamentally
strong position of such issues. Bonds rated Aa are judged by Moody's to be of
high quality by all standards. Aa bonds are rated lower than Aaa bonds because
margins of protection may not be as large as those of Aaa bonds, or fluctuations
of protective elements may be of greater amplitude, or there may be other
elements present which make the long-term risks appear somewhat larger than
those applicable to Aaa securities. Bonds which are rated A by Moody's possess
many favorable investment attributes and are to be considered as upper
medium-grade obligations. Factors giving security to principal and interest are
considered adequate, but elements may be present which suggest a susceptibility
to impairment sometime in the future. Bonds rated Baa by Moody's are considered
medium-grade obligations (i.e., they are neither highly protected nor poorly
secured). Interest payments and principal security appear adequate for the
present, but certain protective elements may be lacking or may be
characteristically unreliable over any great length of time. Such bonds lack
outstanding investment characteristics and in fact have speculative
characteristics as well. Bonds which are rated Ba are judged to have speculative
elements; their future cannot be considered well-assured. Often the protection
of interest and principal payments may be very moderate and thereby not well
safeguarded during both good and bad times over the future. Uncertainty of
position characterizes bonds in this class. Bonds which are rated B generally
lack characteristics of the desirable investment. Assurance of interest and
principal payments of or maintenance of other terms of the contract over any
long period of time may be small. Bonds which are rated Caa are of poor
standing. Such issues may be in default or there may be present elements of
danger with respect to principal or interest. Bonds which are rated Ca represent
obligations which are speculative in a high degree. Such issues are often in
default or have other marked shortcomings. Bonds which are rated C are the
lowest rated class of bonds and issues so rated can be regarded as having
extremely poor prospects of ever attaining any real investment standing.
(b) COMMERCIAL PAPER. The Prime rating is the highest commercial paper
rating assigned by Moody's. Among the factors considered by Moody's in assigning
ratings are the following: (1) evaluation of the management of the issuer; (2)
economic evaluation of the issuer's industry or industries and an appraisal of
speculative-type risks which may be inherent in certain areas; (3) evaluation of
the issuer's products in relation to competition and customer acceptance; (4)
liquidity; (5) amount and quality of long-term debt; (6) trend of earnings over
a period of ten years; (7) financial strength of a parent company and the
relationships which exist with the issuer; and (8) recognition by management of
obligations which may be present or may arise as a result of public interest
questions and preparations to meet such obligations. Issuers within this Prime
category may be given ratings 1, 2 or 3, depending on the relative strengths of
these factors. The designation of Prime-1 indicates the highest quality
repayment capacity of the rated issue. Issuers rated Prime-2 are deemed to have
a strong ability for repayment while issuers voted Prime-3 are deemed to have an
acceptable ability for repayment. Issuers rated Not Prime do not fall within any
of the Prime rating categories.
S&P:
(a) CORPORATE BONDS. An S&P corporate debt rating is a current assessment
of the creditworthiness of an obligor with respect to a specific obligation. The
ratings are based on current information furnished by the issuer or obtained by
S&P from other sources it considers reliable. The ratings described below may be
modified by the addition of a plus or minus sign to show relative standing
within the major rating categories.
Debt rated AAA has the highest rating assigned by S&P. Capacity to pay
interest and repay principal is extremely strong. Debt rated AA is judged by S&P
to have a very strong capacity to pay interest and repay principal and differs
from the highest rated issues only in small degree. Debt rated A by S&P has a
strong capacity to pay interest and repay principal, although it is somewhat
more susceptible to the adverse effects of changes in circumstances and economic
conditions than debt in higher rated categories.
Debt rated BBB by S&P is regarded by S&P as having an adequate capacity to
pay interest and repay principal. Although such bonds normally exhibit adequate
protection parameters, adverse economic conditions or changing circumstances are
more likely to lead to a weakened capacity to pay interest and repay principal
than debt in higher rated categories.
Debt rated BB, B, CCC, CC and C is regarded as having predominately
speculative characteristics with respect to capacity to pay interest and repay
principal. BB indicates the least degree of speculation and C the highest. While
such debt will likely have some quality and protective characteristics, these
are outweighed by large uncertainties or exposures to adverse conditions. Debt
rated BB has less near-term vulnerability to default than other speculative
issues. However, it faces major ongoing uncertainties or exposure to adverse
business, financial or economic conditions which could lead to inadequate
capacity to meet timely interest and principal payments. The BB rating category
is also used for debt subordinated to senior debt that is assigned an actual or
implied BBB- rating. Debt rated B has a greater vulnerability to default but
currently has the capacity to meet interest payments and principal repayments.
Adverse business, financial, or economic conditions will likely impair capacity
or willingness to pay interest and repay principal. The B rating category is
also used for debt subordinated to senior debt that is assigned an actual or
implied BB or BB- rating. Debt rated CCC has a currently identifiable
vulnerability to default, and is dependent upon favorable business, financial,
and economic conditions to meet timely payment of interest and repayment of
principal. In the event of adverse business, financial or economic conditions,
it is not likely to have the capacity to pay interest and repay principal. The
CCC rating category is also used for debt subordinated to senior debt that is
assigned an actual or implied B or B- rating. The rating CC typically is applied
to debt subordinated to senior debt which is assigned an actual or implied CCC
debt rating. The rating C typically is applied to debt subordinated to senior
debt which is assigned an actual or implied CCC- debt rating. The C rating may
be used to cover a situation where a bankruptcy petition has been filed, but
debt service payments are continued.
The rating CI is reserved for income bonds on which no interest is being
paid. Debt rated D is in payment default. The D rating category is used when
interest payments or principal payments are not made on the date due, even if
the applicable grace period has not expired, unless S&P believes that such
payments will be made during such grace period. The D rating also will be used
upon the filing of a bankruptcy petition if debt service payments are
jeopardized.
(b) COMMERCIAL PAPER. An S&P commercial paper rating is a current
assessment of the likelihood of timely payment of debt considered short-term in
the relevant market.
The commercial paper rating A-1 by S&P indicates that the degree of safety
regarding timely payment is strong. Those issues determined to possess extremely
strong safety characteristics are denoted with a plus sign (+) designation. For
commercial paper with an A-2 rating, the capacity for timely payment on issues
is satisfactory, but not as high as for issues designated A-1. Issues rated A-3
have adequate capacity for timely payment, but are more vulnerable to the
adverse effects of changes in circumstances than obligations carrying higher
designations.
Issues rated B are regarded as having only speculative capacity for timely
payment. The C rating is assigned to short-term debt obligations with a doubtful
capacity for payment. Debt rated D is in payment default. The D rating category
is used when interest payments or principal payments are not made on the date
due, even if the applicable grace period has not expired, unless S&P believes
such payments will be made during such grace period.
<PAGE>
IVY GROWTH FUND
IVY GROWTH WITH INCOME FUND
IVY US BLUE CHIP FUND
IVY US EMERGING GROWTH FUND
series of
IVY FUND
Via Mizner Financial Plaza, Suite 300
700 South Federal Highway
Boca Raton, Florida 33432
STATEMENT OF ADDITIONAL INFORMATION
May 3, 1999
(as supplemented October 18, 1999)
Ivy Fund (the "Trust") is an open-end management investment company that
currently consists of nineteen fully managed portfolios, each of which (except
for Ivy South America Fund and Ivy International Strategic Bond Fund) is
diversified. This Statement of Additional Information ("SAI") relates to the
Class A, B and C shares of Ivy Growth Fund, Ivy Growth with Income Fund and Ivy
US Emerging Growth Fund, and to the Class A, B, C and I shares of Ivy US Blue
Chip Fund (each a "Fund"). The other fifteen 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 Funds dated May 3, 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 Funds also offer 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. ("IMDI")
Via Mizner Financial Plaza, Suite 300
700 South Federal Highway
Boca Raton, Florida 33432
Telephone: (800) 456-5111
<PAGE>
TABLE OF CONTENTS
GENERAL INFORMATION..........................................................1
INVESTMENT OBJECTIVES, STRATEGIES AND RISKS..................................1
IVY GROWTH FUND........................................................1
INVESTMENT RESTRICTIONS FOR IVY GROWTH FUND............................2
IVY GROWTH WITH INCOME FUND............................................4
INVESTMENT RESTRICTIONS FOR IVY GROWTH WITH INCOME FUND................5
IVY US BLUE CHIP FUND..................................................7
INVESTMENT RESTRICTIONS FOR IVY US BLUE CHIP FUND......................8
IVY US EMERGING GROWTH FUND...........................................10
INVESTMENT RESTRICTIONS FOR IVY US EMERGING GROWTH FUND...............11
COMMON STOCKS.........................................................13
CONVERTIBLE SECURITIES................................................14
SMALL COMPANIES.......................................................14
ADJUSTABLE RATE PREFERRED STOCKS......................................15
DEBT SECURITIES.......................................................15
IN GENERAL......................................................15
INVESTMENT-GRADE DEBT SECURITIES................................15
LOW-RATED DEBT SECURITIES.......................................16
U.S. GOVERNMENT SECURITIES......................................17
ZERO COUPON BONDS...............................................18
FIRM COMMITMENT AGREEMENTS AND "WHEN-ISSUED" SECURITIES.........18
ILLIQUID SECURITIES...................................................18
FOREIGN SECURITIES....................................................19
EMERGING MARKETS......................................................20
FOREIGN CURRENCIES....................................................22
FOREIGN CURRENCY EXCHANGE TRANSACTIONS................................22
REPURCHASE AGREEMENTS.................................................23
BANKING INDUSTRY AND SAVINGS AND LOAN OBLIGATIONS.....................24
COMMERCIAL PAPER......................................................24
BORROWING.............................................................24
WARRANTS..............................................................24
REAL ESTATE INVESTMENT TRUSTS (REITS).................................25
OPTIONS TRANSACTIONS..................................................25
IN GENERAL......................................................25
WRITING OPTIONS ON INDIVIDUAL SECURITIES........................26
PURCHASING OPTIONS ON INDIVIDUAL SECURITIES.....................27
PURCHASING AND WRITING OPTIONS ON SECURITIES INDICES............27
RISKS OF OPTIONS TRANSACTIONS...................................28
FUTURES CONTRACTS AND OPTIONS ON FUTURES CONTRACTS....................29
IN GENERAL......................................................29
RISKS ASSOCIATED WITH FUTURES AND RELATED OPTIONS...............30
SECURITIES INDEX FUTURES CONTRACTS....................................31
RISKS OF SECURITIES INDEX FUTURES...............................32
COMBINED TRANSACTIONS...........................................33
PORTFOLIO TURNOVER..........................................................33
TRUSTEES AND OFFICERS.......................................................34
PERSONAL INVESTMENTS BY EMPLOYEES OF IMI........................47
INVESTMENT ADVISORY AND OTHER SERVICES......................................47
BUSINESS MANAGEMENT AND INVESTMENT ADVISORY SERVICES..................47
DISTRIBUTION SERVICES.................................................49
RULE 18F-3 PLAN.................................................51
RULE 12B-1 DISTRIBUTION PLANS...................................51
CUSTODIAN.............................................................55
FUND ACCOUNTING SERVICES..............................................56
TRANSFER AGENT AND DIVIDEND PAYING AGENT..............................56
ADMINISTRATOR.........................................................57
AUDITORS..............................................................57
BROKERAGE ALLOCATION........................................................57
CAPITALIZATION AND VOTING RIGHTS............................................58
SPECIAL RIGHTS AND PRIVILEGES...............................................60
AUTOMATIC INVESTMENT METHOD...........................................60
EXCHANGE OF SHARES....................................................60
INITIAL SALES CHARGE SHARES.....................................60
CONTINGENT DEFERRED SALES CHARGE SHARES...............................61
CLASS A.........................................................61
CLASS B.........................................................62
CLASS C.........................................................62
CLASS I.........................................................63
ALL CLASSES.....................................................63
LETTER OF INTENT......................................................63
RETIREMENT PLANS......................................................64
INDIVIDUAL RETIREMENT ACCOUNTS..................................64
ROTH IRAS.......................................................65
QUALIFIED PLANS.................................................66
DEFERRED COMPENSATION FOR PUBLIC SCHOOLS AND CHARITABLE
ORGANIZATIONS ("403(B)(7) ACCOUNT").............................67
SIMPLIFIED EMPLOYEE PENSION ("SEP") IRAS........................67
SIMPLE PLANS....................................................68
REINVESTMENT PRIVILEGE................................................68
RIGHTS OF ACCUMULATION................................................68
SYSTEMATIC WITHDRAWAL PLAN............................................69
GROUP SYSTEMATIC INVESTMENT PROGRAM...................................69
REDEMPTIONS.................................................................70
CONVERSION OF CLASS B SHARES................................................71
NET ASSET VALUE.............................................................72
TAXATION....................................................................73
OPTIONS, FUTURES AND FOREIGN CURRENCY FORWARD CONTRACTS...............74
CURRENCY FLUCTUATIONS -- "SECTION 988" GAINS OR LOSSES................75
INVESTMENT IN PASSIVE FOREIGN INVESTMENT COMPANIES....................76
DEBT SECURITIES ACQUIRED AT A DISCOUNT................................76
DISTRIBUTIONS.........................................................77
DISPOSITION OF SHARES.................................................78
FOREIGN WITHHOLDING TAXES.............................................78
BACKUP WITHHOLDING....................................................79
PERFORMANCE INFORMATION.....................................................80
YIELD.................................Error! Bookmark not defined.
AVERAGE ANNUAL TOTAL RETURN.....................................80
CUMULATIVE TOTAL RETURN.........................................88
IVY GROWTH WITH INCOME FUND.................................................89
OTHER QUOTATIONS, COMPARISONS AND GENERAL INFORMATION...........91
FINANCIAL STATEMENTS........................................................91
APPENDIX A..................................................................93
<PAGE>
GENERAL INFORMATION
Each Fund is organized as a separate, diversified portfolio of the Trust,
an open-end management investment company organized as a Massachusetts business
trust on December 21, 1983. Ivy Growth Fund commenced operations (Class A
shares) on March 1, 1984. The inception dates for Ivy Growth Fund's Class B and
Class C shares were October 23, 1993 and April 30, 1996, respectively. Ivy
Growth with Income Fund commenced operations (Class A shares) on April 1, 1984.
The inception dates for the Fund's Class B and Class C shares were October 23,
1993, and April 30, 1996, respectively. Ivy US Blue Chip Fund commenced
operations (Class A, B and C shares) on November 2, 1998. Ivy US Emerging Growth
Fund commenced operations (Class A shares) on March 3, 1993. The inception dates
for Ivy US Emerging Growth Fund's Class B and Class C shares were October 23,
1993 and April 30, 1996, respectively.
Descriptions in this SAI of a particular investment practice or technique
in which any Fund may engage or a financial instrument which any Fund may
purchase are meant to describe the spectrum of investments that IMI, in its
discretion, might, but is not required to, use in managing each Fund's portfolio
assets. IMI may, in its discretion, at any time employ such practice, technique
or instrument for one or more funds but not for all funds advised by it.
Furthermore, it is possible that certain types of financial instruments or
investment techniques described herein may not be available, permissible,
economically feasible or effective for their intended purposes in some or all
markets, in which case a Fund would not use them. Certain practices, techniques,
or instruments may not be principal activities of a Fund but, to the extent
employed, could from time to time have a material impact on that Fund's
performance.
INVESTMENT OBJECTIVES, STRATEGIES AND RISKS
Each Fund has its own investment objectives and policies, which are
described in the Prospectus under the captions "Summary" and "Additional
Information About Strategies and Risks." Descriptions of each Fund's policies,
strategies and investment restrictions, as well as additional information
regarding the characteristics and risks associated with each
Fund's investment techniques, are set forth below.
Whenever an investment objective, policy or restriction set forth in the
Prospectus or this SAI states a maximum percentage of assets that may be
invested in any security or other asset or describes a policy regarding quality
standards, such percentage limitation or standard shall, unless otherwise
indicated, apply to a Fund only at the time a transaction is entered into.
Accordingly, if a percentage limitation is adhered to at the time of investment,
a later increase or decrease in the percentage which results from circumstances
not involving any affirmative action by a Fund, such as a change in market
conditions or a change in a Fund's asset level or other circumstances beyond a
Fund's control, will not be considered a violation.
IVY GROWTH FUND
Ivy Growth Fund's principal investment objective is long-term capital
growth primarily through investment in equity securities, with current income
being a secondary consideration. Under normal conditions, the Fund invests at
least 65% of its total assets in common stocks and securities convertible into
common stocks. The Fund invests primarily in common stocks of domestic
corporations with low price-earnings ratios and rising earnings, focusing on
established, financially secure firms with capitalizations over $100 million and
more than three years of operating history.
Ivy Growth Fund may invest up to 25% of its net assets in foreign equity
securities, primarily those traded in European, Pacific Basin and Latin American
markets, some of which may be emerging markets involving special risks, as
described below. Individual foreign securities are selected based on value
indicators, such as a low price-earnings ratio, and are reviewed for fundamental
financial strength.
When circumstances warrant, the Fund may invest without limit in
investment grade debt securities (e.g., U.S. Government securities or other
corporate debt securities rated at least Baa by Moody's Investors Service, Inc.
("Moody's") or BBB by Standard & Poors Ratings Services ("S&P"), or, if unrated,
considered by IMI to be of comparable quality), preferred stocks, or cash or
cash equivalents such as bank obligations (including certificates of deposit and
bankers' acceptances), commercial paper, short-term notes and repurchase
agreements.
The Fund may invest up to 5% of its net assets in debt securities rated Ba
or below by Moody's or BB or below by S&P, or if unrated, considered by IMI to
be of comparable quality (commonly referred to as "high yield" or "junk" bonds).
The Fund will not invest in debt securities rated less than C by either Moody's
or S&P.
The Fund may borrow up to 10% of the value of its total assets, but only
for temporary purposes when it would be advantageous to do so from an investment
standpoint. The Fund may invest up to 5% of its net assets in warrants. The Fund
may not invest more than 15% of its net assets in illiquid securities. The Fund
may enter into forward foreign currency contracts and may also invest in equity
real estate investment trusts.
Ivy Growth Fund may write put options, with respect to not more than 10%
of the value of its net assets, on securities and stock indices, and may write
covered call options with respect to not more than 25% of the value of its net
assets. The Fund may purchase options, provided the aggregate premium paid for
all options held does not exceed 5% of its net assets. For hedging purposes
only, the Fund may enter into stock index futures contracts as a means of
regulating its exposure to equity markets. The Fund's equivalent exposure in
stock index futures contracts will not exceed 15% of its total assets.
INVESTMENT RESTRICTIONS FOR IVY GROWTH FUND
Ivy Growth Fund's investment objectives as set forth in the "Summary"
section of the Prospectus, together with the investment restrictions set forth
below, are fundamental policies of the Fund and may not be changed without the
approval of a majority (as defined in the 1940 Act) of the outstanding voting
shares of the Fund. The Fund has adopted the following fundamental investment
restrictions:
(i) The Fund has elected to be classified as a diversified series of an
open-end investment company.
(ii) The Fund will not borrow money, except as permitted under the
Investment Company Act of 1940, as amended, and as interpreted or
modified by regulatory authority having jurisdiction, from time to
time.
(iii) The Fund will not issue senior securities, except as permitted under
the Investment Company Act of 1940, as amended, and as interpreted or
modified by regulatory authority having jurisdiction, from time to
time.
(iv) The Fund will not engage in the business of underwriting securities
issued by others, except to the extent that the Fund may be deemed to
be an underwriter in connection with the disposition of portfolio
securities.
(v) The Fund will not purchase or sell real estate (which term does not
include securities of companies that deal in real estate or mortgages
or investments secured by real estate or interests therein), except
that the Fund may hold and sell real estate acquired as a result of
the Fund's ownership of securities.
(vi) The Fund will not purchase physical commodities or contracts relating
to physical commodities, although the Fund may invest in commodities
futures contracts and options thereon to the extent permitted by its
Prospectus and this SAI.
(vii) The Fund will not make loans to other persons, except (a) loans of
portfolio securities, and (b) to the extent that entry into repurchase
agreements and the purchase of debt instruments or interests in
indebtedness in accordance with the Fund's investment objective and
policies may be deemed to be loans.
(viii) The Fund will not concentrate its investments in a particular
industry, as the term "concentrate" is interpreted in connection with
the Investment Company Act of 1940, as amended, and as interpreted or
modified by regulatory authority having jurisdiction, from time to
time.
ADDITIONAL RESTRICTIONS
Ivy Growth Fund has adopted the following additional restrictions which
are not fundamental and which may be changed without shareholder approval to the
extent permitted by applicable law, regulation or regulatory policy.
Under these restrictions, the Fund may not:
(i) invest in oil, gas or other mineral leases or exploration or
development programs;
(ii) engage in the purchase and sale of puts, calls, straddles or spreads
(except to the extent described in the Prospectus and in this SAI);
(iii) invest in companies for the purpose of exercising control of
management;
(iv) invest more than 5% of its total assets in warrants, valued at the
lower of cost or market, or more than 2% of its total assets in
warrants, so valued, which are not listed on either the New York or
American Stock Exchanges;
(v) purchase any security if, as a result, the Fund would then have more
than 5% of its total assets (taken at current value) invested in
securities of companies (including predecessors) less than three years
old;
(vi) invest more than 5% of the value of its total assets in the securities
of issuers which are not readily marketable;
(vii) borrow money, except for temporary purposes where investment
transactions might advantageously require it. Any such loan may not be
for a period in excess of 60 days, and the aggregate amount of all
outstanding loans may not at any time exceed 10% of the value of the
total assets of the Fund at the time any such loan is made;
(viii) purchase securities on margin;
(ix) sell securities short;
(x) purchase from or sell to any of its officers or trustees, or firms of
which any of them are members or which they control, any securities
(other than capital stock of the Fund), but such persons or firms may
act as brokers for the Fund for customary commissions to the extent
permitted by the Investment Company Act of 1940; or
(xi) purchase the securities of any other open-end investment company,
except as part of a plan of merger or consolidation.
Under the 1940 Act, the Fund is permitted, subject to its investment
restrictions, to borrow money only from banks. The Trust has no current
intention of borrowing amounts in excess of 5% of the Fund's assets. The Fund
will continue to interpret fundamental investment restriction (v) to prohibit
investment in real estate limited partnership interests; this restriction shall
not, however, prohibit investment in readily marketable securities of companies
that invest in real estate or interests therein, including real estate
investment trusts.
IVY GROWTH WITH INCOME FUND
Ivy Growth with Income Fund's principal investment objective is long-term
capital growth primarily through investment in equity securities, with current
income being a secondary consideration. The Fund has some emphasis on
dividend-paying stocks. Under normal conditions, the Fund invests at least 65%
of its total assets in common stocks and securities convertible into common
stocks. The Fund invests primarily in common stocks of domestic corporations
with low price-earnings ratios and rising earnings, focusing on established,
financially secure firms with capitalizations over $100 million and more than
three years of operating history.
Ivy Growth with Income Fund may invest up to 25% of its net assets in
foreign equity securities, primarily those traded in European, Pacific Basin and
Latin American markets, some of which may be emerging markets involving special
risks, as described below. Individual foreign securities are selected based on
value indicators, such as a low price-earnings ratio, and are reviewed for
fundamental financial strength.
When circumstances warrant, the Fund may invest without limit in
investment grade debt securities (e.g., U.S. Government securities or other
corporate debt securities rated at least Baa by Moody's or BBB by S&P, or, if
unrated, considered by IMI to be of comparable quality), preferred stocks, or
cash or cash equivalents such as bank obligations (including certificates of
deposit and bankers' acceptances), commercial paper, short-term notes and
repurchase agreements.
The Fund may invest less than 35% of its net assets in debt securities
rated Ba or below by Moody's or BB or below by S&P, or if unrated, considered by
IMI to be of comparable quality (commonly referred to as "high yield" or "junk"
bonds). The Fund will not invest in debt securities rated less than C by either
Moody's or S&P.
The Fund may borrow up to 10% of the value of its total assets, but only
for temporary purposes when it would be advantageous to do so from an investment
standpoint. The Fund may invest up to 5% of its net assets in warrants. The Fund
may not invest more than 15% of its net assets in illiquid securities. The Fund
may enter into forward foreign currency contracts. The Fund may also invest in
equity real estate investment trusts.
The Fund may write put options, with respect to not more than 10% of the
value of its net assets, on securities and stock indices, and may write covered
call options with respect to not more than 25% of the value of its net assets.
The Fund may purchase options, provided the aggregate premium paid for all
options held does not exceed 5% of its net assets. For hedging purposes only,
the Fund may enter into stock index futures contracts as a means of regulating
its exposure to equity markets. The Fund's equivalent exposure in stock index
futures contracts will not exceed 15% of its total assets.
INVESTMENT RESTRICTIONS FOR IVY GROWTH WITH INCOME FUND
Ivy Growth with Income Fund's investment objectives as set forth in the
"Summary" section of the Prospectus, together with the investment restrictions
set forth below, are fundamental policies of the Fund and may not be changed
without the approval of a majority of the outstanding voting shares of the Fund.
The Fund has adopted the following fundamental investment restrictions:
(i) The Fund has elected to be classified as a diversified series of an
open-end investment company.
(ii) The Fund will not borrow money, except as permitted under the
Investment Company Act of 1940, as amended, and as interpreted or
modified by regulatory authority having jurisdiction, from time to
time.
(iii) The Fund will not issue senior securities, except as permitted under
the Investment Company Act of 1940, as amended, and as interpreted or
modified by regulatory authority having jurisdiction, from time to
time.
(iv) The Fund will not engage in the business of underwriting securities
issued by others, except to the extent that the Fund may be deemed to
be an underwriter in connection with the disposition of portfolio
securities.
(v) The Fund will not purchase or sell real estate (which term does not
include securities of companies that deal in real estate or mortgages
or investments secured by real estate or interests therein), except
that the Fund may hold and sell real estate acquired as a result of
the Fund's ownership of securities.
(vi) The Fund will not purchase physical commodities or contracts relating
to physical commodities, although the Fund may invest in commodities
futures contracts and options thereon to the extent permitted by the
Prospectus and this SAI.
(vii) The Fund will not make loans to other persons, except (a) loans of
portfolio securities, and (b) to the extent that entry into repurchase
agreements and the purchase of debt instruments or interests in
indebtedness in accordance with the Fund's investment objective and
policies may be deemed to be loans.
(viii) The Fund will not concentrate its investments in a particular
industry, as the term "concentrate" is interpreted in connection with
the Investment Company Act of 1940, as amended, and as interpreted or
modified by regulatory authority having jurisdiction, from time to
time.
ADDITIONAL RESTRICTIONS
Ivy Growth with Income Fund has adopted the following additional
restrictions, which are not fundamental and which may be changed without
shareholder approval to the extent permitted by applicable law, regulation or
regulatory policy.
Under these restrictions, the Fund may not:
(i) invest in oil, gas or other mineral leases or exploration or
development programs;
(ii) engage in the purchase and sale of puts, calls, straddles or spreads
(except of the extent described in the Prospectus and in this SAI);
(iii) invest in companies for the purpose of exercising control of
management;
(iv) invest more than 5% of its total assets in warrants, valued at the
lower of cost or market, or more than 2% of its total assets in
warrants, so valued, which are not listed on either the New York or
American Stock Exchanges;
(v) purchase any security if, as a result, the Fund would then have more
than 5% of its total assets (taken at current value) invested in
securities of companies (including predecessors) less than three years
old;
(vi) invest more than 5% of the value of its total assets in the securities
of issuers which are not readily marketable;
(viii) borrow money, except for temporary purposes where investment
transactions might advantageously require it. Any such loan may not be
for a period in excess of 60 days, and the aggregate amount of all
outstanding loans may not at any time exceed 10% of the value of the
total assets of the Fund at the time any such loan is made;
(ix) purchase securities on margin;
(x) sell securities short;
(xi) purchase from or sell to any of its officers or trustees, or firms of
which any of them are members or which they control, any securities
(other than capital stock of the Fund), but such persons or firms may
act as brokers for the Fund for customary commissions to the extent
permitted by the 1940 Act; or
(xii) purchase the securities of any other open-end investment company,
except as part of a plan of merger or consolidation.
The Trust has no current intention of borrowing amounts in excess of 5% of
the Fund's assets. The Fund will continue to interpret fundamental investment
restriction (v) to prohibit investment in real estate limited partnership
interests; this restriction shall not, however, prohibit investment in readily
marketable securities of companies that invest in real estate or interests
therein, including real estate investment trusts.
IVY US BLUE CHIP FUND
Ivy US Blue Chip Fund's investment objective is long-term capital growth
primarily through investment in equity securities, with current income being a
secondary consideration. Under normal conditions, the Fund will invest at least
65% of its total assets in the common stocks of companies determined by IMI to
be "Blue Chip." Generally, the median market capitalization of companies
targeted for investment by the Fund will be greater than $5 billion. For
investment purposes, however, Blue Chip companies are those companies whose
market capitalization is greater than $1 billion at the time of investment.
Blue Chip companies are those which occupy (or in IMI's judgment have the
potential to occupy) leading market positions that are expected to be maintained
or enhanced over time. Such companies tend to have a lengthy history of profit
growth and dividend payment, and a reputation for quality management structure,
products and services. Securities of Blue Chip companies generally are
considered to be highly liquid because, compared to those of lesser-capitalized
companies, more shares of these securities are outstanding in the marketplace
and their trading volume tends to be higher.
When circumstances warrant, Ivy US Blue Chip Fund may invest without limit
in investment grade debt securities (e.g., U.S. Government securities or other
corporate debt securities rated at least Baa by Moody's or BBB by S&P, or, if
unrated, are considered by IMI to be of comparable quality), preferred stocks,
or cash or cash equivalents such as bank obligations (including certificates of
deposit and bankers' acceptances), commercial paper, short-term notes and
repurchase agreements.
Ivy US Blue Chip Fund may borrow up to 10% of the value of its total
assets, for temporary purposes when it would be advantageous to do so from an
investment standpoint. The Fund may invest up to 5% of its net assets in
warrants. The Fund may not invest more than 15% of its net assets in illiquid
securities. The Fund may also invest in equity real estate investment trusts
("REITs").
The Fund may write put options on securities and stock indices, with
respect to not more than 10% of the value of its net assets, and may write
covered call options with respect to not more than 25% of the value of its net
assets. The Fund may purchase options, provided the aggregate premium paid for
all options held does not exceed 5% of its total assets. The Fund may purchase
interest rate and other financial futures contracts and related options. For
hedging purposes only, the Fund may enter into stock index futures contracts as
a means of regulating its exposure to equity markets. The Fund's equivalent
exposure in stock index futures contracts will not exceed 15% of its total
assets.
INVESTMENT RESTRICTIONS FOR IVY US BLUE CHIP FUND
Ivy US Blue Chip Fund's investment objective, as set forth in the
Prospectus under "Investment Objectives and Policies," and the investment
restrictions set forth below are fundamental policies of the Fund and may not be
changed with respect to the approval of a majority (as defined in the 1940 Act)
of the outstanding voting shares of the Fund. The Fund has adopted the following
fundamental investment restrictions:
(i) The Fund has elected to be classified as a diversified series of an
open-end investment company.
(ii) The Fund will not borrow money, except as permitted under the
Investment Company Act of 1940, as amended, and as interpreted or
modified by regulatory authority having jurisdiction, from time to
time.
(iii) The Fund will not issue senior securities, except as permitted under
the Investment Company Act of 1940, as amended, and as interpreted or
modified by regulatory authority having jurisdiction, from time to
time.
(iv) The Fund will not engage in the business of underwriting securities
issued by others, except to the extent that the Fund may be deemed to
be an underwriter in connection with the disposition of portfolio
securities.
(v) The Fund will not purchase or sell real estate (which term does not
include securities of companies that deal in real estate or mortgages
or investments secured by real estate or interests therein), except
that the Fund may hold and sell real estate acquired as a result of
the Fund's ownership of securities.
(vi) The Fund will not purchase physical commodities or contracts relating
to physical commodities, although the Fund may invest in commodities
futures contracts and options thereon to the extent permitted by the
Prospectus and this SAI.
(vii) The Fund will not make loans to other persons, except (a) loans of
portfolio securities, and (b) to the extent that entry into repurchase
agreements and the purchase of debt instruments or interests in
indebtedness in accordance with the Fund's investment objective and
policies may be deemed to be loans.
(viii) The Fund will not concentrate its investments in a particular
industry, as the term "concentrate" is interpreted in connection with
the Investment Company Act of 1940, as amended, and as interpreted or
modified by regulatory authority having jurisdiction, from time to
time.
ADDITIONAL RESTRICTIONS
Ivy US Blue Chip Fund has adopted the following additional restrictions,
which are not fundamental and which may be changed without shareholder approval,
to the extent permitted by applicable law, regulation or regulatory policy.
Under these restrictions, the Fund may not:
(i) purchase any security if, as a result, the Fund would then have more
than 5% of its total assets (taken at current value) invested in
securities of companies (including predecessors) less than three years
old;
(ii) invest in oil, gas or other mineral leases or exploration or
development programs;
(iii) engage in the purchase and sale of puts, calls, straddles or spreads
(except to the extent described in the Prospectus and in this SAI);
(iv) invest in companies of the purpose of exercising control of
management;
(v) invest more than 5% of its total assets in warrants, valued at the
lower of cost or market, or more than 2% of its total assets in
warrants, so valued, which are not listed on either the New York or
American Stock Exchanges;
(vi) purchase or retain securities of any company if officers and Trustees
of the Trust and officers and directors of IMI, MIMI or Mackenzie
Financial Corporation who individually own more than 1/2 of 1% of the
securities of that company together own beneficially more than 5% of
such securities;
(vii) invest more than 15% of its net assets in "illiquid securities."
Illiquid securities may include securities subject to legal or
contractual restrictions on resale (including private placements),
repurchase agreements maturing in more than seven days, certain
options traded over the counter that the Fund has purchased,
securities being used to cover certain options that the Fund has
written, securities for which market quotations are not readily
available, or other securities which legally or in IMI's opinion,
subject to the Board's supervision, may be deemed illiquid, but shall
not include any such instrument that, due to the existence of a
trading market or to other factors, is liquid;
(viii) purchase securities of another investment company, except in
connection with a merger, consolidation, reorganization or acquisition
or assets, and except that the Fund may (i) invest in securities of
other investment companies subject to the restrictions set forth in
Section 12(d)(1) of the 1940 Act and (ii) acquire any securities of
registered open-end investment companies or registered unit investment
trusts in reliance on subparagraphs (f) and (g) of Section 12(d)(1) of
the 1940 Act;
(ix) purchase securities on margin, except such short-term credits as are
necessary for the clearance of transactions, the deposit or payment by
the Fund of initial or variation margins in connection with futures
contracts or related options transactions is not considered the
purchase of a security on margin;
(x) sell securities short;
(xi) purchase from or sell to any of its officers or trustees, or firms of
which any of them are members or which they control, any securities
(other than shares of the Fund), but such persons or firms may act as
brokers for the Fund for customary commissions to the extent permitted
by the 1940 Act; or
(xii) borrow amounts in excess of 10% of its total assets, taken at the
lower of cost or market value, as a temporary measure for
extraordinary or emergency purposes or where investment transactions
might advantageously require it, or except in connection with reverse
repurchase agreements, provided that the Fund maintains net asset
coverage of at least 300% for all borrowings.
Under the 1940 Act, the Fund is permitted, subject to the Fund's
investment restrictions, to borrow money only from banks. The Trust has no
current intention of borrowing amounts in excess of 5% of the Fund's assets. The
Fund will continue to interpret fundamental investment restriction (v) above to
prohibit investment in real estate limited partnership interests; this
restriction shall not, however, prohibit investment in readily marketable
securities of companies that invest in real estate or interests therein,
including REITs. Despite fundamental investment restriction (vi) above, the Fund
may invest in interest rate and other financial futures contracts and related
options.
IVY US EMERGING GROWTH FUND
Ivy US Emerging Growth Fund's principal investment objective is long-term
capital growth primarily through investment in equity securities, with current
income being a secondary consideration. Under normal conditions, the Fund
invests at least 65% of its total assets in common stocks and securities
convertible into common stocks. The Fund invests primarily in common stocks (or
securities with similar characteristics) of small- and medium-sized companies,
both domestic and foreign, that are in the early stages of their life cycles and
that IMI believes have the potential to become major enterprises. These may
include securities issued pursuant to initial public offerings ("IPOs"). The
Fund may engage in short-term trading.
Ivy US Emerging Growth Fund may invest up to 25% of its net assets in
foreign equity securities, primarily those traded in European, Pacific Basin and
Latin American markets, some of which may be emerging markets involving special
risks, as described below. Individual foreign securities are selected based on
value indicators, such as a low price-earnings ratio, and are reviewed for
fundamental financial strength.
When circumstances warrant, the Fund may invest without limit in
investment grade debt securities (e.g., U.S. Government securities or other
corporate debt securities rated as least Baa by Moody's or BBB by S&P, or, if
unrated, are considered by IMI to be of comparable quality), preferred stocks,
or cash or cash equivalents such as bank obligations (including certificates of
deposit and bankers' acceptances), commercial paper, short-term notes and
repurchase agreements.
The Fund may borrow up to 10% of the value of its total assets, but only
for temporary purposes when it would be advantageous to do so from an investment
standpoint. The Fund may invest up to 5% of its net assets in warrants. The Fund
may not invest more than 15% of its net assets in illiquid securities. The Fund
may enter into forward foreign currency contracts.
Ivy US Emerging Growth Fund may write put options, with respect to not
more than 10% of the value of its net assets, on securities and stock indices,
and may write covered call options with respect to not more than 25% of the
value of its net assets. The Fund may purchase options, provided the aggregate
premium paid for all options held does not exceed 5% of its net assets. For
hedging purposes only, the Fund may enter into stock index futures contracts as
a means of regulating its exposure to equity markets. The Fund's equivalent
exposure in stock index futures contracts will not exceed 15% of its total
assets.
INVESTMENT RESTRICTIONS FOR IVY US EMERGING GROWTH FUND
Ivy US Emerging Growth Fund's investment objectives as set forth in the
"Summary" section of the Prospectus, together with the investment restrictions
set forth below, are fundamental policies of the Fund and may not be changed
without the approval of a majority of the outstanding voting shares of the Fund.
The Fund has adopted the following fundamental investment restrictions:
(i) The Fund has elected to be classified as a diversified series of an
open-end investment company.
(ii) The Fund will not borrow money, except as permitted under the
Investment Company Act of 1940, as amended, and as interpreted or
modified by regulatory authority having jurisdiction, from time to
time.
(iii) The Fund will not issue senior securities, except as permitted under
the Investment Company Act of 1940, as amended, and as interpreted or
modified by regulatory authority having jurisdiction, from time to
time.
(iv) The Fund will not engage in the business of underwriting securities
issued by others, except to the extent that the Fund may be deemed to
be an underwriter in connection with the disposition of portfolio
securities.
(v) The Fund will not purchase or sell real estate (which term does not
include securities of companies that deal in real estate or mortgages
or investments secured by real estate or interests therein), except
that the Fund may hold and sell real estate acquired as a result of
the Fund's ownership of securities.
(vi) The Fund will not purchase physical commodities or contracts relating
to physical commodities, although the Fund may invest in commodities
futures contracts and options thereon to the extent permitted by the
Prospectus and this SAI.
(vii) The Fund will not make loans to other persons, except (a) loans of
portfolio securities, and (b) to the extent that entry into repurchase
agreements and the purchase of debt instruments or interests in
indebtedness in accordance with the Fund's investment objective and
policies may be deemed to be loans.
(viii) The Fund will not concentrate its investments in a particular
industry, as the term "concentrate" is interpreted in connection with
the Investment Company Act of 1940, as amended, and as interpreted or
modified by regulatory authority having jurisdiction, from time to
time.
ADDITIONAL RESTRICTIONS
Ivy US Emerging Growth Fund has adopted the following additional
restrictions, which are not fundamental and which may be changed without
shareholder approval, to the extent permitted by applicable law, regulation or
regulatory policy. Under these restrictions, the Fund may not:
(i) purchase any security if, as a result, the Fund would then have more
than 5% of its total assets (taken at current value) invested in
securities of companies (including predecessors) less than three years
old;
(ii) invest in oil, gas or other mineral leases or exploration or
development programs;
(iii) engage in the purchase and sale of puts, calls, straddles or spreads
(except to the extent described in the Prospectus and in this SAI);
(iv) invest in companies for the purpose of exercising control of
management;
(v) invest more than 5% of its total assets in warrants, valued at the
lower of cost or market, or more than 2% of its total assets in
warrants, so valued, which are not listed on either the New York or
American Stock Exchanges;
(vi) purchase or retain securities of any company if officers and Trustees
of the Trust and officers and directors of Ivy Management, Inc. (the
Manager, with respect to Ivy Bond Fund), MIMI or Mackenzie Financial
Corporation who individually own more than 1/2 of 1% of the securities
of that company together own beneficially more than 5% of such
securities;
(vii) invest more than 15% of its net assets taken at market value at the
time of investment in "illiquid securities." Illiquid securities may
include securities subject to legal or contractual restrictions on
resale (including private placements), repurchase agreements maturing
in more than seven days, certain options traded over the counter that
the Fund has purchased, securities being used to cover certain options
that a fund has written, securities for which market quotations are
not readily available, or other securities which legally or in IMI's
opinion, subject to the Board's supervision, may be deemed illiquid,
but shall not include any instrument that, due to the existence of a
trading market, to the Fund's compliance with certain conditions
intended to provide liquidity, or to other factors, is liquid;
(viii) purchase securities of other investment companies, except in
connection with a merger, consolidation or sale of assets, and except
that it may purchase shares of other investment companies subject to
such restrictions as may be imposed by the 1940 Act and rules
thereunder or by any state in which its shares are registered;
(ix) purchase securities on margin;
(x) sell securities short;
(xi) purchase from or sell to any of its officers or trustees, or firms of
which any of them are members or which they control, any securities
(other than capital stock of the Fund), but such persons or firms may
act as brokers for the Fund for customary commissions to the extent
permitted by the Investment Company Act of 1940; or
(xii) borrow money, except for temporary purposes where investment
transactions might advantageously require it. Any such loan may not be
for a period in excess of 60 days, and the aggregate amount of all
outstanding loans may not at any time exceed 10% of the value of the
total assets of the Fund at the time any such loan is made.
The Trust has no current intention of borrowing amounts in excess of 5% of
the Fund's assets. The Fund will continue to interpret fundamental investment
restriction (v) above to prohibit investment in real estate limited partnership
interests; this restriction shall not, however, prohibit investment in readily
marketable securities of companies that invest in real estate or interests
therein, including REITs.
COMMON STOCKS
Common stock can be issued by companies to raise cash; all common stock
shares represent a proportionate ownership interest in a company. As a result,
the value of common stock rises and falls with a company's success or failure.
The market value of common stock can fluctuate significantly, with smaller
companies being particularly susceptible to price swings. Transaction costs in
smaller company stocks may also be higher than those of larger companies.
CONVERTIBLE SECURITIES
The convertible securities in which each Fund may invest include corporate
bonds, notes, debentures, preferred stock and other securities that may be
converted or exchanged at a stated or determinable exchange ratio into
underlying shares of common stock. Investments in convertible securities can
provide income through interest and dividend payments as well as an opportunity
for capital appreciation by virtue of their conversion or exchange features.
Because convertible securities can be converted into equity securities, their
values will normally vary in some proportion with those of the underlying equity
securities. Convertible securities usually provide a higher yield than the
underlying equity, however, so that the price decline of a convertible security
may sometimes be less substantial than that of the underlying equity security.
The exchange ratio for any particular convertible security may be adjusted from
time to time due to stock splits, dividends, spin-offs, other corporate
distributions or scheduled changes in the exchange ratio. Convertible debt
securities and convertible preferred stocks, until converted, have general
characteristics similar to both debt and equity securities. Although to a lesser
extent than with debt securities generally, the market value of convertible
securities tends to decline as interest rates increase and, conversely, tends to
increase as interest rates decline. In addition, because of the conversion or
exchange feature, the market value of convertible securities typically changes
as the market value of the underlying common stock changes, and, therefore, also
tends to follow movements in the general market for equity securities. When the
market price of the underlying common stock increases, the price of a
convertible security tends to rise as a reflection of the value of the
underlying common stock, although typically not as much as the price of the
underlying common stock. While no securities investments are without risk,
investments in convertible securities generally entail less risk than
investments in common stock of the same issuer.
As debt securities, convertible securities are investments that provide
for a stream of income. Like all debt securities, there can be no assurance of
income or principal payments because the issuers of the convertible securities
may default on their obligations. Convertible securities generally offer lower
yields than non-convertible securities of similar quality because of their
conversion or exchange features.
Convertible securities generally are subordinated to other similar but
non-convertible securities of the same issuer, although convertible bonds, as
corporate debt obligations, are senior in right of payment to all equity
securities, and convertible preferred stock is senior to common stock, of the
same issuer. However, convertible bonds and convertible preferred stock
typically have lower coupon rates than similar non-convertible securities.
Convertible securities may be issued as fixed income obligations that pay
current income.
SMALL COMPANIES
Investing in smaller company stocks involves certain special
considerations and risks that are not usually associated with investing in
larger, more established companies. For example, the securities of small or new
companies may be subject to more abrupt or erratic market movements because they
tend to be thinly traded and are subject to a greater degree to changes in the
issuer's earnings and prospects. Small companies also tend to have limited
product lines, markets or financial resources. Transaction costs in smaller
company stocks also may be higher than those of larger companies.
INITIAL PUBLIC OFFERINGS
Securities issued through an initial public offering (IPO) can experience
an immediate drop in value if the demand for the securities does not continue to
support the offering price. Information about the issuers of IPO securities is
also difficult to acquire since they are new to the market and may not have
lengthy operating histories. A Fund may engage in short-term trading in
connection with its IPO investments, which could produce higher trading costs
and adverse tax consequences. The number of securities issued in an IPO is
limited, so it is likely that IPO securities will represent a smaller component
of a Fund's portfolio as the Fund's assets increase (and thus have a more
limited effect on the Fund's performance).
ADJUSTABLE RATE PREFERRED STOCKS
Adjustable rate preferred stocks have a variable dividend, generally
determined on a quarterly basis according to a formula based upon a specified
premium or discount to the yield on a particular U.S. Treasury security rather
than a dividend which is set for the life of the issue. Although the dividend
rates on these stocks are adjusted quarterly and their market value should
therefore be less sensitive to interest rate fluctuations than are other fixed
income securities and preferred stocks, the market values of adjustable rate
preferred stocks have fluctuated and can be expected to continue to do so in the
future.
DEBT SECURITIES
IN GENERAL. Investment in debt securities involves both interest rate and
credit risk. Generally, the value of debt instruments rises and falls inversely
with fluctuations in interest rates. As interest rates decline, the value of
debt securities generally increases. Conversely, rising interest rates tend to
cause the value of debt securities to decrease. Bonds with longer maturities
generally are more volatile than bonds with shorter maturities. The market value
of debt securities also varies according to the relative financial condition of
the issuer. In general, lower-quality bonds offer higher yields due to the
increased risk that the issuer will be unable to meet its obligations on
interest or principal payments at the time called for by the debt instrument.
INVESTMENT-GRADE DEBT SECURITIES. Bonds rated Aaa by Moody's Investors
Service, Inc. ("Moody's") and AAA by Standard & Poor's Ratings Group ("S&P") are
judged to be of the best quality (i.e., capacity to pay interest and repay
principal is extremely strong). Bonds rated Aa/AA are considered to be of high
quality (i.e., capacity to pay interest and repay principal is very strong and
differs from the highest rated issues only to a small degree). Bonds rated A are
viewed as having many favorable investment attributes, but elements may be
present that suggest a susceptibility to the adverse effects of changes in
circumstances and economic conditions than debt in higher rated categories.
Bonds rated Baa/BBB (considered by Moody's to be "medium grade" obligations) are
considered to have an adequate capacity to pay interest and repay principal, but
certain protective elements may be lacking (i.e., such bonds lack outstanding
investment characteristics and have some speculative characteristics). The Funds
may invest in debt securities that are given an investment-grade rating by
Moody's or S&P, and may also invest in unrated debt securities that are
considered by IMI to be of comparable quality.
LOW-RATED DEBT SECURITIES. Securities rated lower than Baa by Moody's or
BBB by S&P, and comparable unrated securities (commonly referred to as "high
yield" or "junk" bonds), including many emerging markets bonds, are considered
to be predominantly speculative with respect to the issuer's continuing ability
to meet principal and interest payments. The lower the ratings of corporate debt
securities, the more their risks render them like equity securities. Such
securities carry a high degree of risk (including the possibility of default or
bankruptcy of the issuers of such securities), and generally involve greater
volatility of price and risk of principal and income (and may be less liquid)
than securities in the higher rating categories. (See Appendix A for a more
complete description of the ratings assigned by Moody's and S&P and their
respective characteristics.)
Lower rated and unrated securities are especially subject to adverse
changes in general economic conditions and to changes in the financial condition
of their issuers. Economic downturns may disrupt the high yield market and
impair the ability of issuers to repay principal and interest. Also, an increase
in interest rates would likely have an adverse impact on the value of such
obligations. During an economic downturn or period of rising interest rates,
highly leveraged issuers may experience financial stress which could adversely
affect their ability to service their principal and interest payment
obligations. Prices and yields of high yield securities will fluctuate over time
and, during periods of economic uncertainty, volatility of high yield securities
may adversely affect a Fund's net asset value. In addition, investments in high
yield zero coupon or pay-in-kind bonds, rather than income-bearing high yield
securities, may be more speculative and may be subject to greater fluctuations
in value due to changes in interest rates.
Changes in interest rates may have a less direct or dominant impact on
high yield bonds than on higher quality issues of similar maturities. However,
the price of high yield bonds can change significantly or suddenly due to a host
of factors including changes in interest rates, fundamental credit quality,
market psychology, government regulations, U.S. economic growth and, at times,
stock market activity. High yield bonds may contain redemption or call
provisions. If an issuer exercises these provisions in a declining interest rate
market, a Fund may have to replace the security with a lower yielding security.
The trading market for high yield securities may be thin to the extent
that there is no established retail secondary market or because of a decline in
the value of such securities. A thin trading market may limit the ability of
each Fund to accurately value high yield securities in the Fund's portfolio,
could adversely affect the price at which that Fund could sell such securities,
and cause large fluctuations in the daily net asset value of that Fund's shares.
Adverse publicity and investor perceptions, whether or not based on fundamental
analysis, may decrease the value and liquidity of low-rated debt securities,
especially in a thinly traded market. When secondary markets for high yield
securities become relatively less liquid, it may be more difficult to value the
securities, requiring additional research and elements of judgment. These
securities may also involve special registration responsibilities, liabilities
and costs, and liquidity and valuation difficulties.
Credit quality in the high yield securities market can change suddenly and
unexpectedly, and even recently issued credit ratings may not fully reflect the
actual risks posed by a particular high yield security. For these reasons, it is
the policy of IMI not to rely exclusively on ratings issued by established
credit rating agencies, but to supplement such ratings with its own independent
and on-going review of credit quality. The achievement of each Fund's investment
objectives by investment in such securities may be more dependent on IMI's
credit analysis than is the case for higher quality bonds. Should the rating of
a portfolio security be downgraded, IMI will determine whether it is in the best
interest of a Fund to retain or dispose of such security. However, should any
individual bond held by a Fund be downgraded below a rating of C, IMI currently
intends to dispose of such bond based on then existing market conditions.
Prices for high yield securities may be affected by legislative and
regulatory developments. For example, Federal rules require savings and loan
institutions to gradually reduce their holdings of this type of security. Also,
Congress has from time to time considered legislation that would restrict or
eliminate the corporate tax deduction for interest payments in these securities
and regulate corporate restructurings. Such legislation may significantly
depress the prices of outstanding securities of this type.
U.S. GOVERNMENT SECURITIES. U.S. Government securities are obligations
of, or guaranteed by, the U.S. Government, its agencies or instrumentalities.
Securities guaranteed by the U.S. Government include: (1) direct obligations of
the U.S. Treasury (such as Treasury bills, notes, and bonds) and (2) Federal
agency obligations guaranteed as to principal and interest by the U.S. Treasury
(such as GNMA certificates, which are mortgage-backed securities). When such
securities are held to maturity, the payment of principal and interest is
unconditionally guaranteed by the U.S. Government, and thus they are of the
highest possible credit quality. U.S. Government securities that are not held to
maturity are subject to variations in market value due to fluctuations in
interest rates.
Mortgage-backed securities are securities representing part ownership of a
pool of mortgage loans. For example, GNMA certificates are such securities in
which the timely payment of principal and interest is guaranteed by the full
faith and credit of the U.S. Government. Although the mortgage loans in the pool
will have maturities of up to 30 years, the actual average life of the loans
typically will be substantially less because the mortgages will be subject to
principal amortization and may be prepaid prior to maturity. Prepayment rates
vary widely and may be affected by changes in market interest rates. In periods
of falling interest rates, the rate of prepayments tends to increase, thereby
shortening the actual average life of the security. Conversely, rising interest
rates tend to decrease the rate of prepayment, thereby lengthening the actual
average life of the security (and increasing the security's price volatility).
Accordingly, it is not possible to predict accurately the average life of a
particular pool. Reinvestment of prepayment may occur at higher or lower rates
than the original yield on the certificates. Due to the prepayment feature and
the need to reinvest prepayments of principal at current rates, mortgage-backed
securities can be less effective than typical bonds of similar maturities at
"locking in" yields during periods of declining interest rates, and may involve
significantly greater price and yield volatility than traditional debt
securities. Such securities may appreciate or decline in market value during
periods of declining or rising interest rates, respectively.
Securities issued by U.S. Government instrumentalities and certain federal
agencies are neither direct obligations of nor guaranteed by the U.S. Treasury;
however, they involve Federal sponsorship in one way or another. Some are backed
by specific types of collateral, some are supported by the issuer's right to
borrow from the Treasury, some are supported by the discretionary authority of
the Treasury to purchase certain obligations of the issuer, others are supported
only by the credit of the issuing government agency or instrumentality. These
agencies and instrumentalities include, but are not limited to, Federal Land
Banks, Farmers Home Administration, Central Bank for Cooperatives, Federal
Intermediate Credit Banks, Federal Home Loan Banks, Federal National Mortgage
Association, Federal Home Loan Mortgage Association and Student Loan Marketing
Association.
ZERO COUPON BONDS. Zero coupon bonds are debt obligations issued without
any requirement for the periodic payment of interest. Zero coupon bonds are
issued at a significant discount from face value. The discount approximates the
total amount of interest the bonds would accrue and compound over the period
until maturity at a rate of interest reflecting the market rate at the time of
issuance. If a 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 a 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 a 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. Ivy US Blue Chip 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, Ivy US
Blue Chip Fund will maintain in a segregated account with its Custodian cash or
liquid securities equal (on a daily marked-to-market basis) to the amount of its
commitment to purchase the underlying securities.
ILLIQUID SECURITIES
Each Fund may purchase securities other than in the open market. While
such purchases may often offer attractive opportunities for investment not
otherwise available on the open market, the securities so purchased are often
"restricted securities" or "not readily marketable" (i.e., they cannot be sold
to the public without registration under the Securities Act of 1933, as amended
(the "1933 Act"), or the availability of an exemption from registration (such as
Rule 144A) or because they are subject to other legal or contractual delays in
or restrictions on resale). This investment practice, therefore, could have the
effect of increasing the level of illiquidity of a Fund. It is each Fund's
policy that illiquid securities (including repurchase agreements of more than
seven days duration, certain restricted securities, and other securities which
are not readily marketable) may not constitute, at the time of purchase, more
than 15% of the value of the Fund's net assets. The Trust's Board of Trustees
has approved guidelines for use by IMI in determining whether a security is
illiquid.
Generally speaking, restricted securities may be sold (i) only to
qualified institutional buyers; (ii) in a privately negotiated transaction to a
limited number of purchasers; (iii) in limited quantities after they have been
held for a specified period of time and other conditions are met pursuant to an
exemption from registration; or (iv) in a public offering for which a
registration statement is in effect under the 1933 Act. Issuers of restricted
securities may not be subject to the disclosure and other investor protection
requirements that would be applicable if their securities were publicly traded.
If adverse market conditions were to develop during the period between a Fund's
decision to sell a restricted or illiquid security and the point at which that
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, a
Fund may be required to bear all or part of the registration expenses. A Fund
may be deemed to be an "underwriter" for purposes of the 1933 Act when selling
restricted securities to the public and, in such event, the Fund may be liable
to purchasers of such securities if the registration statement prepared by the
issuer is materially inaccurate or misleading.
Since it is not possible to predict with assurance that the market for
securities eligible for resale under Rule 144A will continue to be liquid, IMI
will monitor such restricted securities subject to the supervision of the Board
of Trustees. Among the factors IMI may consider in reaching liquidity decisions
relating to Rule 144A securities are: (1) the frequency of trades and quotes for
the security; (2) the number of dealers wishing to purchase or sell the security
and the number of other potential purchasers; (3) dealer undertakings to make a
market in the security; and (4) the nature of the security and the nature of the
market for the security (i.e., the time needed to dispose of the security, the
method of soliciting offers, and the mechanics of the transfer).
FOREIGN SECURITIES
The securities of foreign issuers in which Ivy Growth Fund, Ivy Growth
with Income Fund, and Ivy US Emerging Growth Fund may invest include non-U.S.
dollar-denominated debt securities, Euro dollar securities, sponsored and
unsponsored American Depository Receipts ("ADRs"), Global Depository Receipts
("GDRs"), American Depository Shares ("ADSs"), Global Depository Shares ("GDSs")
and related depository instruments, and debt securities issued, assumed or
guaranteed by foreign governments or political subdivisions or instrumentalities
thereof. Shareholders should consider carefully the substantial risks involved
in investing in securities issued by companies and governments of foreign
nations, which are in addition to the usual risks inherent in each Fund's
domestic investments.
Although IMI intends to invest each Fund's assets only in nations that are
generally considered to have relatively stable and friendly governments, there
is the possibility of expropriation, nationalization, repatriation or
confiscatory taxation, taxation on income earned in a foreign country and other
foreign taxes, foreign exchange controls (which may include suspension of the
ability to transfer currency from a given country), default on foreign
government securities, political or social instability or diplomatic
developments which could affect investments in securities of issuers in those
nations. In addition, in many countries there is less publicly available
information about issuers than is available for U.S. companies. Moreover,
foreign companies are not generally subject to uniform accounting, auditing and
financial reporting standards, and auditing practices and requirements may not
be comparable to those applicable to U.S. companies. In many foreign countries,
there is less governmental supervision and regulation of business and industry
practices, stock exchanges, brokers, and listed companies than in the United
States. Foreign securities transactions may also be subject to higher brokerage
costs than domestic securities transactions. The foreign securities markets of
many of the countries in which each Fund may invest may also be smaller, less
liquid and subject to greater price volatility than those in the United States.
In addition, each Fund may encounter difficulties or be unable to pursue legal
remedies and obtain judgment in foreign courts.
Foreign bond markets have different clearance and settlement procedures
and in certain markets there have been times when settlements have been unable
to keep pace with the volume of securities transactions, making it difficult to
conduct such transactions. Delays in settlement could result in temporary
periods when assets of a Fund are uninvested and no return is earned thereon.
The inability of each Fund to make intended security purchases due to settlement
problems could cause that Fund to miss attractive investment opportunities.
Further, the inability to dispose of portfolio securities due to settlement
problems could result either in losses to a Fund because of subsequent declines
in the value of the portfolio security or, if the Fund has entered into a
contract to sell the security, in possible liability to the purchaser. It may be
more difficult for each Fund's agents to keep currently informed about corporate
actions such as stock dividends or other matters that may affect the prices of
portfolio securities. Communications between the United States and foreign
countries may be less reliable than within the United States, thus increasing
the risk of delayed settlements of portfolio transactions or loss of
certificates for portfolio securities. Moreover, individual foreign economies
may differ favorably or unfavorably from the United States economy in such
respects as growth of gross national product, rate of inflation, capital
reinvestment, resource self-sufficiency and balance of payments position. IMI
seeks to mitigate the risks to each Fund associated with the foregoing
considerations through investment variation and continuous professional
management.
EMERGING MARKETS
Ivy Growth Fund, Ivy Growth with Income Fund, and Ivy US Emerging Growth
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 each Fund's performance favorably or unfavorably.
In recent years, many emerging market countries around the world have
undergone political changes that have reduced government's role in economic and
personal affairs and have stimulated investment and growth. Historically, there
is a strong direct correlation between economic growth and stock market returns.
While this is no guarantee of future performance, IMI believes that investment
opportunities (particularly in the energy, environmental services, natural
resources, basic materials, power, telecommunications and transportation
industries) may result within the evolving economies of emerging market
countries from which each Fund and its shareholders will benefit.
Investments in companies domiciled in developing countries may be subject
to potentially higher risks than investments in developed countries. Such risks
include (i) less social, political and economic stability; (ii) a small market
for securities and/or a low or nonexistent volume of trading, which result in a
lack of liquidity and in greater price volatility; (iii) certain national
policies that may restrict each 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 each 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, each 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 a 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
each 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
a Fund's cash and securities, that Fund's investment in such countries may be
limited or may be required to be effected through intermediaries. The risk of
loss through governmental confiscation may be increased in such countries.
FOREIGN CURRENCIES
Investment in foreign securities usually will involve currencies of
foreign countries. Moreover, Ivy Growth Fund, Ivy Growth with Income Fund, and
Ivy US Emerging Growth 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 each 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 each Fund may incur costs in connection with conversions
between various currencies. Although each Fund's custodian values the Fund's
assets daily in terms of U.S. dollars, each Fund does not intend to convert its
holdings of foreign currencies into U.S. dollars on a daily basis. Each 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 a Fund at one
rate, while offering a lesser rate of exchange should the Fund desire to resell
that currency to the dealer. Each Fund will conduct its foreign currency
exchange transactions either on a spot (i.e., cash) basis at the spot rate
prevailing in the foreign currency exchange market, or through entering into
forward contracts to purchase or sell foreign currencies.
Because Ivy Growth Fund, Ivy Growth with Income Fund, and Ivy US Emerging
Growth Fund normally will be invested in both U.S. and foreign securities
markets, changes in these Funds' share price may have a low correlation with
movements in U.S. markets. Each Fund's share price will reflect the movements of
the different stock and bond markets in which it is invested (both U.S. and
foreign), and of the currencies in which the investments are denominated. Thus,
the strength or weakness of the U.S. dollar against foreign currencies may
account for part of each Fund's investment performance. U.S. and foreign
securities markets do not always move in step with each other, and the total
returns from different markets may vary significantly. Foreign currencies in
which each Fund's assets are denominated may be devalued against the U.S.
dollar, resulting in a loss to the Fund.
FOREIGN CURRENCY EXCHANGE TRANSACTIONS
Ivy Growth Fund, Ivy Growth with Income Fund, and Ivy US Emerging Growth
Fund may enter into forward foreign currency contracts in order to protect
against uncertainty in the level of future foreign exchange rates in the
purchase and sale of securities. A forward contract is an obligation to purchase
or sell a specific currency for an agreed price at a future date (usually less
than a year), and typically is individually negotiated and privately traded by
currency traders and their customers. A forward contract generally has no
deposit requirement, and no commissions are charged at any stage for trades.
Although foreign exchange dealers do not charge a fee for commissions, they do
realize a profit based on the difference between the price at which they are
buying and selling various currencies. Although these contracts are intended to
minimize the risk of loss due to a decline in the value of the hedged
currencies, at the same time, they tend to limit any potential gain which might
result should the value of such currencies increase.
While each Fund may enter into forward contracts to reduce currency
exchange risks, changes in currency exchange rates may result in poorer overall
performance for each Fund than if it had not engaged in such transactions.
Moreover, there may be an imperfect correlation between a 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 each Fund from achieving the intended hedge or expose the Fund to the
risk of currency exchange loss.
Ivy Growth Fund, Ivy Growth with Income Fund, and Ivy US Emerging Growth
Fund may purchase currency forwards and combine such purchases with sufficient
cash or short-term securities to create unleveraged substitutes for investments
in foreign markets when deemed advantageous. Each Fund may also combine the
foregoing with bond futures or interest rate futures contracts to create the
economic equivalent of an unhedged foreign bond position.
Ivy Growth Fund, Ivy Growth with Income Fund, and Ivy US Emerging Growth
Fund may also cross-hedge currencies by entering into transactions to purchase
or sell one or more currencies that are expected to decline in value relative to
other currencies to which each Fund has or in which each Fund expects to have
portfolio exposure.
Currency transactions are subject to risks different from those of other
portfolio transactions. Because currency control is of great importance to the
issuing governments and influences economic planning and policy, purchases and
sales of currency and related instruments can be negatively affected by
government exchange controls, blockages, and manipulations or exchange
restrictions imposed by governments. These can result in losses to a Fund if it
is unable to deliver or receive currency or funds in settlement of obligations
and could also cause hedges it has entered into to be rendered useless,
resulting in full currency exposure as well as incurring transactions costs.
Buyers and sellers of currency futures are subject to the same risks that apply
to the use of futures generally. Further, settlement of a currency futures
contract for the purchase of most currencies must occur at a bank based in the
issuing nation. Trading options on currency futures is relatively new, and the
ability to establish and close out positions on such options is subject to the
maintenance of a liquid market which may not always be available. Currency
exchange rates may fluctuate based on factors extrinsic to that country's
economy.
REPURCHASE AGREEMENTS
Repurchase agreements are contracts under which a 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, each Fund is permitted to enter into repurchase
agreements only if the repurchase agreements are at least fully collateralized
with U.S. Government securities or other securities that IMI has approved for
use as collateral for repurchase agreements and the collateral must be
marked-to-market daily. Each Fund will enter into repurchase agreements only
with banks and broker-dealers deemed to be creditworthy by IMI under the
above-referenced guidelines. In the unlikely event of failure of the executing
bank or broker-dealer, each Fund could experience some delay in obtaining direct
ownership of the underlying collateral and might incur a loss if the value of
the security should decline, as well as costs in disposing of the security.
BANKING INDUSTRY AND SAVINGS AND LOAN OBLIGATIONS
Certificates of deposit are negotiable certificates issued against funds
deposited in a commercial bank for a definite period of time and earning a
specified return. Bankers' acceptances are negotiable drafts or bills of
exchange, normally drawn by an importer or exporter to pay for specific
merchandise, which are "accepted" by a bank (meaning, in effect, that the bank
unconditionally agrees to pay the face value of the instrument at maturity). In
addition to investing in certificates of deposit and bankers' acceptances, each
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. Each Fund's investments in certificates of deposit, time
deposits, and bankers' acceptance are limited to obligations of (i) banks having
total assets in excess of $1 billion, (ii) U.S. banks which do not meet the $1
billion asset requirement, if the principal amount of such obligation is fully
insured by the Federal Deposit Insurance Corporation (the "FDIC"), (iii) savings
and loan association which have total assets in excess of $1 billion and which
are members of the FDIC, and (iv) foreign banks if the obligation is, in IMI's
opinion, of an investment quality comparable to other debt securities which may
be purchased by a Fund. Each Fund's investments in certificates of deposit of
savings associations are limited to obligations of Federal and state-chartered
institutions whose total assets exceed $1 billion and whose deposits are insured
by the FDIC.
COMMERCIAL PAPER
Commercial paper represents short-term unsecured promissory notes issued
in bearer form by bank holding companies, corporations and finance companies.
Each Fund may invest in commercial paper that is rated Prime-1 by Moody's
Investors Service, Inc. ("Moody's") or A-1 by Standard & Poor's Corporation
("S&P") or, if not rated by Moody's or S&P, is issued by companies having an
outstanding debt issue rated Aaa or Aa by Moody's or AAA or AA by S&P.
BORROWING
Borrowing may exaggerate the effect on each Fund's net asset value of any
increase or decrease in the value of each 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 each Fund's borrowings will be fixed, each Fund's assets may change in value
during the time a borrowing is outstanding, thus increasing exposure to capital
risk.
WARRANTS
The holder of a warrant has the right, until the warrant expires, to
purchase a given number of shares of a particular issuer at a specified price.
Such investments can provide a greater potential for profit or loss than an
equivalent investment in the underlying security. However, prices of warrants do
not necessarily move in a tandem with the prices of the underlying securities,
and are, therefore, considered speculative investments. Warrants pay no
dividends and confer no rights other than a purchase option. Thus, if a warrant
held by a Fund were not exercised by the date of its expiration, the Fund would
lose the entire purchase price of the warrant.
REAL ESTATE INVESTMENT TRUSTS (REITS)
A REIT is a corporation, trust or association that invests in real estate
mortgages or equities for the benefit of its investors. REITs are dependent upon
management skill, may not be diversified and are subject to the risks of
financing projects. Such entities are also subject to heavy cash flow
dependency, defaults by borrowers, self-liquidation and the possibility of
failing to qualify for tax-free pass-through of income under the Internal
Revenue Code of 1986, as amended (the "Code"), and to maintain exemption from
the Investment Company Act of 1940 (the "1940 Act"). By investing in REITs
indirectly through Ivy Growth Fund, Ivy Growth with Income Fund, or Ivy US Blue
Chip Fund, a shareholder will bear not only his or her proportionate share of
the expenses of the Fund, but also, indirectly, similar expenses of the REITs.
OPTIONS TRANSACTIONS
IN GENERAL. A call option is a short-term contract (having a duration of
less than one year) pursuant to which the purchaser, in return for the premium
paid, has the right to buy the security underlying the option at the specified
exercise price at any time during the term of the option. The writer of the call
option, who receives the premium, has the obligation, upon exercise of the
option, to deliver the underlying security against payment of the exercise
price. A put option is a similar contract pursuant to which the purchaser, in
return for the premium paid, has the right to sell the security underlying the
option at the specified exercise price at any time during the term of the
option. The writer of the put option, who receives the premium, has the
obligation, upon exercise of the option, to buy the underlying security at the
exercise price. The premium paid by the purchaser of an option will reflect,
among other things, the relationship of the exercise price to the market price
and volatility of the underlying security, the time remaining to expiration of
the option, supply and demand, and interest rates.
If the writer of a U.S. exchange-traded 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. Closing purchase transactions are not available for OTC
transactions. In order to terminate an obligation in an OTC transaction, the
Fund would negotiate directly with the counterparty.
Each 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 a 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 any Fund, are taxable as ordinary income. See "Taxation."
Each 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 each Fund
and its counterparty (usually a securities dealer or a financial institution)
with no clearing organization guarantee. When a 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. Each 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. Each Fund may
also write covered call options to hedge a possible stock or bond market decline
(only to the extent of the premium paid to the Fund for the options). In view of
the investment objectives of each Fund, each Fund generally would write call
options only in circumstances where the investment adviser to the Fund does not
anticipate significant appreciation of the underlying security in the near
future or has otherwise determined to dispose of the security.
A "covered" call option means generally that so long as a 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 each
Fund receives premium income from these activities, any appreciation realized on
an underlying security will be limited by the terms of the call option. Each
Fund may purchase call options on individual securities only to effect a
"closing purchase transaction."
As the writer of a call option, each 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 a 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. Each 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.
Each 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 a
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 any Fund for leverage purposes.
Each 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. A 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. A Fund may write (sell) put options on individual securities only to
effect a "closing sale transaction."
PURCHASING AND WRITING OPTIONS ON SECURITIES INDICES. Each 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. Call
options on indices are similar to call 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 a 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 a 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 a
Fund holds a put on the same index as the put written where the exercise price
of the put held is (i) equal to or greater than the exercise price of the put
written or (ii) less than the exercise price of the put written, provided that
the Fund maintains in a segregated account with the Custodian the difference in
cash or liquid securities.
RISKS OF OPTIONS TRANSACTIONS. The purchase and writing of options
involves certain risks. During the option period, the covered call writer has,
in return for the premium on the option, given up the opportunity to profit from
a price increase in the underlying securities above the exercise price, but, as
long as its obligation as a writer continues, has retained the risk of loss
should the price of the underlying security decline. The writer of a U.S. option
has no control over the time when it may be required to fulfill its obligation
as a writer of the option. Once an option writer has received an exercise
notice, it cannot effect a closing purchase transaction in order to terminate
its obligation under the option and must deliver the underlying securities (or
cash in the case of an index option) at the exercise price. If a put or call
option purchased by a 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 a Fund
seeks to close out an option position. Furthermore, if trading restrictions or
suspensions are imposed on the options markets, a 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. Transfer of an
OTC option is usually prohibited absent the consent of the original
counterparty. There is no assurance that a Fund will be able to close out an OTC
option position at a favorable price prior to its expiration. An OTC
counterparty may fail to deliver or to pay, as the case may be. In the event of
insolvency of the counterparty, a Fund might be unable to close out an OTC
option position at any time prior to its expiration. Although a Fund may be able
to offset to some extent any adverse effects of being unable to liquidate an
option position, the Fund may experience losses in some cases as a result of
such inability.
When conducted outside the U.S., options transactions may not be regulated
as rigorously as in the U.S., may not involve a clearing mechanism and related
guarantees, and are subject to the risk of governmental actions affecting
trading in, or the prices of, foreign securities, currencies and other
instruments. The value of such positions also could be adversely affected by:
(i) other complex foreign political, legal and economic factors, (ii) lesser
availability than in the U.S. of data on which to make trading decisions, (iii)
delays in each Fund's ability to act upon economic events occurring in foreign
markets during non-business hours in the U.S., (iv) the imposition of different
exercise and settlement terms and procedures and margin requirements than in the
U.S., and (v) lower trading volume and liquidity.
Each Fund's options activities also may have an impact upon the level
of its portfolio turnover and brokerage commissions. See "Portfolio
Turnover."
Each Fund's success in using options techniques depends, among other
things, on IMI's ability to predict accurately the direction and volatility of
price movements in the options and securities markets, and to select the proper
type, timing of use and duration of options.
FUTURES CONTRACTS AND OPTIONS ON FUTURES CONTRACTS
IN GENERAL. Each 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 a Fund, the Fund is required to deposit with its
custodian (or broker, if legally permitted) a specified amount of cash or liquid
securities ("initial margin"). The margin required for a futures contract is set
by the exchange on which the contract is traded and may be modified during the
term of the contract. The initial margin is in the nature of a performance bond
or good faith deposit on the futures contract which is returned to the Fund upon
termination of the contract, assuming all contractual obligations have been
satisfied. A futures contract held by a Fund is valued daily at the official
settlement price of the exchange on which it is traded. Each day each 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 a 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, each Fund
will mark-to-market its open futures position.
Each Fund is also required to deposit and maintain margin with respect to
put and call options on futures contracts written by it. Such margin deposits
will vary depending on the nature of the underlying futures contract (and the
related initial margin requirements), the current market value of the option,
and other futures positions held by the Fund.
Although some futures contracts call for making or taking delivery of the
underlying securities, generally these obligations are closed out prior to
delivery of offsetting purchases or sales of matching futures contracts (same
exchange, underlying security or index, and delivery month). If an offsetting
purchase price is less than the original sale price, a 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, a 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, each Fund will maintain with its
Custodian (and mark-to-market on a daily basis) cash or liquid securities that,
when added to the amounts deposited with a futures commission merchant ("FCM")
as margin, are equal to the market value of the futures contract. Alternatively,
a Fund may "cover" its position by purchasing a put option on the same futures
contract with a strike price as high as or higher than the price of the contract
held by the Fund, or, if lower, may cover the difference with cash or short-term
securities.
When selling a futures contract, each 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, a Fund may "cover" its position by owning the
instruments underlying the contract (or, in the case of an index futures
contract, a portfolio with a volatility substantially similar to that of the
index on which the futures contract is based), or by holding a call option
permitting the Fund to purchase the same futures contract at a price no higher
than the price of the contract written by the Fund (or at a higher price if the
difference is maintained in liquid assets with the Fund's custodian).
When selling a call option on a futures contract, each 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, a Fund may cover its position by entering into a
long position in the same futures contract at a price no higher than the strike
price of the call option, by owning the instruments underlying the futures
contract, or by holding a separate call option permitting the Fund to purchase
the same futures contract at a price not higher than the strike price of the
call option sold by the Fund, or covering the difference if the price is higher.
When selling a put option on a futures contract, each Fund will maintain
with its Custodian (and mark-to-market on a daily basis) cash or liquid
securities that equal the purchase price of the futures contract less any margin
on deposit. Alternatively, a Fund may cover the position either by entering into
a short position in the same futures contract, or by owning a separate put
option permitting it to sell the same futures contract so long as the strike
price of the purchased put option is the same or higher than the strike price of
the put option sold by the Fund, or, if lower, the Fund may hold securities to
cover the difference.
RISKS ASSOCIATED WITH FUTURES AND RELATED OPTIONS. There can be no
guarantee that there will be a correlation between price movements in the
hedging vehicle and in any 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 a
Fund seeks to close out a futures or a futures option position, and the Fund
would remain obligated to meet margin requirements until the position is closed.
In addition, there can be no assurance that an active secondary market will
continue to exist.
Currency futures contracts and options thereon may be traded on foreign
exchanges. Such transactions may not be regulated as effectively as similar
transactions in the United States; may not involve a clearing mechanism and
related guarantees; and are subject to the risk of governmental actions
affecting trading in, or the prices of, foreign securities. The value of such
position also could be adversely affected by (i) other complex foreign
political, legal and economic factors, (ii) lesser availability than in the
United States of data on which to make trading decisions, (iii) delays in a
Fund's ability to act upon economic events occurring in foreign markets during
non business hours in the United States, (iv) the imposition of different
exercise and settlement terms and procedures and margin requirements than in the
United States, and (v) lesser trading volume.
SECURITIES INDEX FUTURES CONTRACTS
Each Fund may enter into securities index futures contracts as an
efficient means of regulating that Fund's exposure to the equity markets. Each
Fund will not engage in transactions in futures contracts for speculation, but
only as a hedge against changes resulting from market conditions in the values
of securities held in the Fund's portfolio or which it intends to purchase. An
index futures contract is a contract to buy or sell units of an index at a
specified future date at a price agreed upon when the contract is made. Entering
into a contract to buy units of an index is commonly referred to as purchasing a
contract or holding a long position in the index. Entering into a contract to
sell units of an index is commonly referred to as selling a contract or holding
a short position. The value of a unit is the current value of the stock index.
For example, the S&P 500 Index is composed of 500 selected common stocks, most
of which are listed on the New York Stock Exchange (the "Exchange"). The S&P 500
Index assigns relative weightings to the 500 common stocks included in the
Index, and the Index fluctuates with changes in the market values of the shares
of those common stocks. In the case of the S&P 500 Index, contracts are to buy
or sell 500 units. Thus, if the value of the S&P 500 Index were $150, one
contract would be worth $75,000 (500 units x $150). The index futures contract
specifies that no delivery of the actual securities making up the index will
take place. Instead, settlement in cash must occur upon the termination of the
contract, with the settlement being the difference between the contract price
and the actual level of the stock index at the expiration of the contract. For
example, if a 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 a 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. Each Fund's success in using hedging
techniques depends, among other things, on IMI's ability to predict correctly
the direction and volatility of price movements in the futures and options
markets as well as in the securities markets and to select the proper type, time
and duration of hedges. The skills necessary for successful use of hedges are
different from those used in the selection of individual stocks.
Each Fund's ability to hedge effectively all or a portion of its
securities through transactions in index futures (and therefore the extent of
its gain or loss on such transactions) depends on the degree to which price
movements in the underlying index correlate with price movements in the Fund's
securities. Inasmuch as such securities will not duplicate the components of an
index, the correlation probably will not be perfect. Consequently, each 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 each 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 a 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,
a 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, a Fund generally realizes a
capital gain, or if it is more, a Fund generally realizes a capital loss.
Conversely, if an offsetting sale price is more than the original purchase
price, a 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.
Each 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. Each 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, each Fund will maintain with
its Custodian (and mark-to-market on a daily basis) cash or liquid securities
that, when added to the amounts deposited with a futures commission merchant
("FCM") as margin, are equal to the market value of the futures contract.
Alternatively, a 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, each Fund will maintain with its
Custodian (and mark-to-market on a daily basis) cash or liquid securities that,
when added to the amounts deposited with an FCM as margin, are equal to the
market value of the instruments underlying the contract. Alternatively, a 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. Each Fund may enter into multiple transactions,
including multiple options transactions, multiple futures transactions and
multiple currency transactions (including forward currency contracts) and some
combination of futures, options and currency transactions ("component"
transactions), instead of a single transaction, as part of a single or combined
strategy when, in the opinion of IMI, it is in the best interests of the Fund to
do so. A combined transaction will usually contain elements of risk that are
present in each of its component transactions. Although combined transactions
are normally entered into based on IMI's judgment that the combined strategies
will reduce risk or otherwise more effectively achieve the desired portfolio
management goal, it is possible that the combination will instead increase such
risks or hinder achievement of the management objective.
PORTFOLIO TURNOVER
Each 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, each
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 a 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.
Each 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 a Fund's
portfolio turnover rate, all securities whose maturities at the time of
acquisition were one year or less are excluded.
TRUSTEES AND OFFICERS
Each Fund's Board of Trustees (the "Board") is responsible for the overall
management of the Fund, including general supervision and review of the Fund's
investment activities. The Board, in turn, elects the officers who are
responsible for administering each Fund's day-to-day operations.
The Trustees and Executive Officers of the Trust, their business
addresses and principal occupations during the past five years are:
POSITION WITH BUSINESS AFFILIATIONS
NAME, ADDRESS, AGE THE TRUST AND PRINCIPAL OCCUPATIONS
John S. Anderegg, Jr. Trustee Chairman, Dynamics Research
60 Concord Street Corp. (instruments and controls);
Wilmington, MA 01887 Director, Burr-Brown Corp.
Age: 75 (operational amplifiers);
Director, Metritage Incorporated
(level measuring instruments);
Trustee of Mackenzie Series Trust
(1992-1998).
James W. Broadfoot President President,
700 South Federal Hwy. and Ivy Management Inc. (1996-
Suite 300 Trustee present); Senior Vice
Boca Raton, FL 33432 President, Ivy Management,
Age: 56 Inc. (1992-1996); Director and Senior
[*Deemed to be an Vice President, Mackenzie Investment
"interested person" Management Inc. (1995-present); Senior
of the Trust, as Vice President, Mackenzie Investment
defined under the Management Inc. (1990-1995).
1940 Act.]
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: 75 (insurance agency); Chairman,
Scott Management Company
(administrative services for
insurance companies); President,
The Channick Group (consultants
to insurance companies and
national trade associations);
Trustee of Mackenzie Series
Trust (1994-1998); Director of
The Mackenzie Funds Inc.
(1994-1995).
Frank W. DeFriece, Jr. Trustee Director, Manager and Vice
The Landmark Centre President, Director and
113 Landmark Lane, Fund Manager, Massengill-
Suite B DeFriece Foundation
Bristol, TN 37620-2285 (charitable organization)
Age: 78 (1950-present); Trustee and Vice
Chairman, East Tennessee Public
Communications Corp. (WSJK-TV)
(1984-present); Trustee of
Mackenzie Series Trust
(1985-1998); Director of The
Mackenzie Funds Inc. (1987-1995).
Roy J. Glauber Trustee Mallinckrodt Professor of
Lyman Laboratory Physics, Harvard
of Physics University (1974-present);
Harvard University Trustee of Mackenzie Series
Cambridge, MA 02138 Trust (1994-1997).
Age: 73
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: 69 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 Chairman -present); Senior Vice President
Boca Raton, FL 33432 and Director of Mackenzie
Age: 42 Investment Management, Inc. (1994-
[*Deemed to be an 1996); Senior Vice President and
"interested person" Treasurer of Mackenzie Investment
of the Trust, as defined Management, Inc. (1989-1994);
under the Senior Vice President and Director
1940 Act.] 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).
Edward M. Tighe Trustee Chief Executive Officer,
5900 N. Andrews Avenue CITCO Technology Management, Inc.
Suite 700 ("CITCO") (computer software develop-
Ft. Lauderdale, FL 33309 ment and consulting) (1999-present);
President and Director, Global
Technology Management, Inc. (CITCO's
predecessor) (1992-1998); Managing
Director, Global Mutual Fund Services,
Ltd. (financial services firm);
President, Director and Chief
Executive Officer, Global Mutual Fund
Services, Inc. (1994-present).
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).
COMPENSATION TABLE
IVY FUND
(FISCAL YEAR ENDED DECEMBER 31, 1998)
<TABLE>
<S> <C> <C> <C> <C>
PENSION OR
AGGREGATE RETIREMENT ESTIMATED TOTAL COMPENSATION
COMPENSATION BENEFITS ACCRUED ANNUAL ESTIMATED FROM TRUST AND FUND
NAME, FROM AS PART OF FUND ANNUAL BENEFITS COMPLEX PAID TO TRUSTEES
POSITION TRUST EXPENSES UPON RETIREMENT
John S. $18,000 N/A N/A $18,000
Anderegg, Jr.
(Trustee)
Paul H. $18,000 N/A N/A $18,000
Broyhill
(Trustee)
Keith J. $0 N/A N/A $0
Carlson
(Trustee and
President)
Stanley $18,000 N/A N/A $18,000
Channick
(Trustee)
Frank W. $18,000 N/A N/A $18,000
DeFriece, Jr.
(Trustee)
Roy J. $18,000 N/A N/A $18,000
Glauber
(Trustee)
Joseph G. $18,000 N/A N/A $18,000
Rosenthal
(Trustee)
Richard N. $18,000 N/A N/A $18,000
Silverman
(Trustee)
J. Brendan $17,000 N/A N/A $17,000
Swan
(Trustee)
C. William $0 N/A N/A $0
Ferris
(Secretary/
Treasurer)
</TABLE>
<PAGE>
To the knowledge of the Trust, as of March 31, 1999, no shareholder
owned beneficially or of record 5% or more of any Fund's outstanding shares of
any class, with the following exceptions:
CLASS A
Of the outstanding Class A shares of :
Ivy Asia Pacific Fund, Merrill Lynch Pierce Fenner & Smith, 4800 Deer
Lake Drive E, 3rd Floor, Jacksonville, FL 32246, owned of record 40,174.921
shares (16.51%), and Michael G. Landry, 211 S. Gordon Rd., Ft.
Lauderdale, FL 33301, owned of record 12,443.882 shares (5.11%);
Ivy Bond Fund, Merrill Lynch Pierce Fenner & Smith, 4800 Deer Lake
Drive E, 3rd Floor, Jacksonville, FL 32246, owned of record 1,397,567.620 shares
(13.02%);
Ivy China Region Fund, Merrill Lynch Pierce Fenner & Smith, 4800 Deer
Lake Drive E, 3rd Floor, Jacksonville, FL 32246, owned of record 218,003.027
shares (13.26%), and Resources Trust Company, PO Box 3865, Englewood, CO
80155-3865, owned of record 186,351.290 shares (11.33%);
Ivy Developing Nations Fund, Donaldson Lufkin Jenrette Securities
Corporation Inc., PO Box 2052, Jersey City, NJ 07303-9998, owned of record
87,092.843 shares (11.31%), Donaldson Lufkin Jenrette Securities Corporation
Inc., PO Box 2052, Jersey City, NJ 07303-9998, owned of record 54,336.017 shares
(7.06%), and Merrill Lynch Pierce Fenner & Smith, 4800 Deer Lake Drive E, 3rd
Floor, Jacksonville, FL 32246, owned of record 41,198.769 shares (5.35%);
Ivy Global Natural Resources Fund, Carn & Co., Riggs Bank (TTEE) FBO
Care-Free Consolidated 401K Plan, PO Box 96211, Washington, DC 20090-6211, owned
of record 62,273.356 shares (29.71%), Carn & Co., Riggs Bank (TTEE) FBO Yazaki
Employee Savings & Retirement Plan, PO Box 96211, Washington, DC 20090-6211,
owned of record 22,533.136 shares (10.75%), and Mackenzie Investment Management
Inc., via Mizner Financial Plaza, 700 South Federal Highway, Suite 300, Boca
Raton, FL 33432, owned of record 11,957.023 shares (5.70%);
Ivy Global Science & Technology Fund, Donaldson Lufkin Jenrette
Securities Corporation Inc., PO Box 2052, Jersey City, NJ 07303-9998, owned of
record 99,948.978 shares (16.84%), Donaldson Lufkin Jenrette Securities
Corporation Inc., PO Box 2052, Jersey City, NJ 07303-9998, owned of record
65,325.391 shares (11.01%), and Merrill Lynch Pierce Fenner & Smith, 4800 Deer
Lake Drive E, 3rd Floor, Jacksonville, FL 32246, owned of record 31,922.542
shares (5.38%);
Ivy International Fund II, Merrill Lynch Pierce Fenner & Smith, 4800
Deer Lake Drive E, 3rd Floor, Jacksonville, FL 32246, owned of record
818,804.984 shares (34.10%);
Ivy International Fund, Charles Schwab & Co. Inc., 101 Montgomery
Street, San Francisco, CA 94104, owned of record 12,827,455.253 shares (35.28%),
and Merrill Lynch Pierce Fenner & Smith, 4800 Deer Lake Drive E, 3rd Floor,
Jacksonville, FL 32246, owned of record 6,083,813.996 shares (16.73%);
Ivy International Small Companies Fund, Donaldson Lufkin Jenrette
Securities Corporation Inc., PO Box 2052, Jersey City, NJ 07303-9998, owned of
record 19,762.181 shares (20.88%), and Mackenzie Investment Management Inc., via
Mizner Financial Plaza, 700 South Federal Highway, Suite 300, Boca Raton, FL
33432, owned of record 10,287.244 shares (10.87%).
Ivy Money Market Fund, Carn & Co., Riggs Bank (TTEE) FBO Plexus Corp
401K Plan, PO Box 96211, Washington, DC 20090-6211, owned of record
2,710,056.720 shares (13.19%), and Bear Stearns Securities Corp., 1 Metrotech
Center North, Brooklyn, NY 11201-3859, owned of record 1,432,318.960 shares
(6.97%).
Ivy Pan-Europe Fund, Mackenzie Investment Management Inc., via Mizner
Financial Plaza, 700 South Federal Highway, Suite 300, Boca Raton, FL 33432,
owned of record 37,553.145 shares (23.84%), and Merrill Lynch Pierce Fenner &
Smith, 4800 Deer Lake Drive E, 3rd Floor, Jacksonville, FL 32246, owned of
record 27,122.193 shares (17.22%);
Ivy South America Fund, Merrill Lynch Pierce Fenner & Smith, 4800 Deer
Lake Drive E, 3rd Floor, Jacksonville, FL 32246, owned of record 45,710.848
shares (17.87%), and Charles Schwab & Co. Inc., 101 Montgomery Street, San
Francisco, CA 94104, owned of record 19,471.113 shares (7.61%), and William A.
Maczko & Mildred E. Helm Maczko, 2100 S. Ocean Ln., #1412, Ft. Lauderdale, FL
33316, owned of record 14,174.070 shares (5.54%);
Ivy US Blue Chip Fund, Helen L. Medvin, 4712 Michael Ave., North
Olmsted, OH 44070, owned of record 10,253.846 shares (7.12%), Donaldson Lufkin
Jenrette Securities Corporation Inc., PO Box 2052, Jersey City, NJ 07303-9998,
owned of record 8,986.371 shares (6.24%), and Janney Montgomery Scott Inc.,
Estate of David Craig, 1801 Market Street, Philadelphia, PA 19103-1675, owned of
record 8,880.995 shares (6.17%).
Ivy US Emerging Growth Fund, Donaldson Lufkin Jenrette Securities
Corporation Inc., PO Box 2052, Jersey City, NJ 07303-9998, owned of record
86,774.211 shares (5.08%);
CLASS B
Of the outstanding Class B shares of:
Ivy Asia Pacific Fund, Merrill Lynch Pierce Fenner & Smith, 4800 Deer
Lake Drive E, 3rd Floor, Jacksonville, FL 32246, owned of record 141,298.083
shares (35.22%);
Ivy Bond Fund, Merrill Lynch Pierce Fenner & Smith, 4800 Deer Lake
Drive E, 3rd Floor, Jacksonville, FL 32246, owned of record 12,199,384.716
shares (48.92%);
Ivy China Region Fund, Merrill Lynch Pierce Fenner & Smith, 4800 Deer
Lake Drive E, 3rd Floor, Jacksonville, FL 32246, owned of record 107,725.641
shares (11.73%);
Ivy Developing Nations Fund, Merrill Lynch Pierce Fenner & Smith, 4800
Deer Lake Drive E, 3rd Floor, Jacksonville, FL 32246, owned of record
278,316.028 shares (28.37%);
Ivy Global Fund, Merrill Lynch Pierce Fenner & Smith, 4800 Deer Lake
Drive E, 3rd Floor, Jacksonville, FL 32246, owned of record 68,719.447 shares
(11.93%);
Ivy Global Natural Resources Fund, Merrill Lynch Pierce Fenner & Smith,
4800 Deer Lake Drive E, 3rd Floor, Jacksonville, FL 32246, owned of record
83,599.984 shares (38.05%);
Ivy Global Science & Technology Fund, Merrill Lynch Pierce Fenner &
Smith, 4800 Deer Lake Drive E, 3rd Floor, Jacksonville, FL 32246, owned of
record 40,990.672 shares (8.13%);
Ivy Growth Fund, Merrill Lynch Pierce Fenner & Smith, 4800 Deer Lake
Drive E, 3rd Floor, Jacksonville, FL 32246, owned of record 24,939.375 shares
(8.96%);
Ivy Growth with Income Fund, Merrill Lynch Pierce Fenner & Smith, 4800
Deer Lake Drive E, 3rd Floor, Jacksonville, FL 32246, owned of record
263,081.752 shares (15.31%);
Ivy International Fund II, Merrill Lynch Pierce Fenner & Smith, 4800
Deer Lake Drive E, 3rd Floor, Jacksonville, FL 32246, owned of record
4,986,169.823 shares (60.62%);
Ivy International Fund, Merrill Lynch Pierce Fenner & Smith, 4800 Deer
Lake Drive E, 3rd Floor, Jacksonville, FL 32246, owned of record 5,678,407.729
shares (45.59%).
Ivy International Small Companies Fund, Merrill Lynch Pierce Fenner &
Smith, 4800 Deer Lake Drive E, 3rd Floor, Jacksonville, FL 32246, owned of
record 24,340.066 shares (23.40%), PaineWebber, FBO B Carmage Walls Trust #10,
FBO Lissa Walls Trust and Cooper Walls TTEE, PO Box 42828, Houston, TX 77242,
owned of record 5,880.313 shares (5.65%), and PaineWebber, FBO B Carmage Walls
Trust #10, FBO Cooper Walls Trust and Cooper Walls TTEE, PO Box 42828, Houston,
TX 77242, owned of record 5,760.640 shares (5.53%);
Ivy Pan-Europe Fund, Merrill Lynch Pierce Fenner & Smith, 4800 Deer
Lake Drive E, 3rd Floor, Jacksonville, FL 32246, owned of record 66,847.392
shares (22.86%);
Ivy South America Fund, Merrill Lynch Pierce Fenner & Smith, 4800 Deer
Lake Drive E, 3rd Floor, Jacksonville, FL 32246, owned of record 46,359.136
shares (29.47%);
Ivy US Blue Chip Fund, Merrill Lynch Pierce Fenner & Smith, 4800 Deer
Lake Drive E, 3rd Floor, Jacksonville, FL 32246, owned of record 74,760.802
shares (18.62%), and Parker Hunter Incorporated, FBO Robert Crisci and Kathy
Crisci, PO Box 7629, 3525 Ellwood Road, New Castle, PA 16107-7629, owned of
record 24,779.090 shares (6.17%).
Ivy US Emerging Growth Fund, Merrill Lynch Pierce Fenner & Smith, 4800
Deer Lake Drive E, 3rd Floor, Jacksonville, FL 32246, owned of record
335,426.771 shares (21.10%);
CLASS C
Of the outstanding Class C shares of:
Ivy Asia Pacific Fund, Merrill Lynch Pierce Fenner & Smith, 4800 Deer
Lake Drive E, 3rd Floor, Jacksonville, FL 32246, owned of record 19,237.215
shares (5.33%);
Ivy Bond Fund, Merrill Lynch Pierce Fenner & Smith, 4800 Deer Lake
Drive E, 3rd Floor, Jacksonville, FL 32246, owned of record 725,233.869 shares
(74.69%);
Ivy China Region Fund, Merrill Lynch Pierce Fenner & Smith, 4800 Deer
Lake Drive E, 3rd Floor, Jacksonville, FL 32246, owned of record 30,474.251
shares (27.72%), and IBT, (custodian) FBO Roy O. Derminer, 2236 Abbottwoods Ln.,
Orange City, FL 32763, owned of record 8,275.708 shares (7.52%);
Ivy Developing Nations Fund, Merrill Lynch Pierce Fenner & Smith, 4800
Deer Lake Drive E, 3rd Floor, Jacksonville, FL 32246, owned of record 48,103,553
shares (11.99%);
Ivy Global Fund, Merrill Lynch Pierce Fenner & Smith, 4800 Deer Lake
Drive E, 3rd Floor, Jacksonville, FL 32246, owned of record 6,585.276 shares
(19.35%), Donaldson Lufkin Jenrette Securities Corporation Inc., PO Box 2052,
Jersey City, NJ 07303-9998, owned of record 3,909.907 shares (11.48%), Robert W.
Baird & Co. Inc., 777 East Wisconsin Avenue, Milwaukee, WI 53202-5391, owned of
record 3,436.408 shares (10.09%), IBT, (custodian) FBO Mattie A. Allen, 755
Selma Pl., San Diego, CA 92114-1711, owned of record 3,095.552 shares (9.09%),
Smith Barney Inc., 388 Greenwich Street, New York, NY 10013, owned of record
2,436.584 shares (7.15%), and PaineWebber, (custodian) FBO Robert D.
Cuthbertson, PO Box 3321, Weehawken, NJ 07087-8154, owned of record 1,705.476
shares (5.01%);
Ivy Global Natural Resources Fund, Raymond James & Assoc. Inc.,
(custodian) Raymond W. Simmons, 6296 104th Avenue, Pinellas Park, FL 33782,
owned of record 981.281 shares (19.43%), Raymond James & Assoc. Inc.,
(custodian) Diversified Dental P/S, FBO Al Pollock, 10641 1st Street E., Suite
204, Treasure Island, FL 33706, owned of record 910.166 shares (18.02%), Robert
W. Baird & Co. Inc., 777 E. Wisconsin Avenue, Milwaukee, WI 53202-5391, owned of
record 613.622 shares (12.15%), Robert W. Baird & Co. Inc., 777 E. Wisconsin
Avenue, Milwaukee, WI 53202-5391, owned of record 550.722 shares (10.90%), Nancy
J. Cleare, 9381 US Hwy. 19 N, Pinellas Park, FL 33782, owned of record 541.597
shares (10.72%), Resources Trust Co., (custodian) FBO Jon K. Loessin, PO Box
5900, Denver, CO 80217, owned of record 535.023 shares (10.59%), Ester C.
Wickes, 19 Fawn Hill Rd., Tuxedo, NY 10987, owned of record 350.772 shares
(6.94%), and IBT, (custodian) FBO Salvatore Disalvo, 311 Bridle Path Lane,
Annapolis, MD 21403-1638, owned of record 299.993 shares (5.94%);
Ivy Global Science & Technology Fund, Merrill Lynch Pierce Fenner &
Smith, 4800 Deer Lake Drive E, 3rd Floor, Jacksonville, FL 32246, owned of
record 38,011.661 shares (11.30%);
Ivy Growth Fund, Merrill Lynch Pierce Fenner & Smith, 4800 Deer Lake
Drive E, 3rd Floor, Jacksonville, FL 32246, owned of record 7,477.571 shares
(47.23%), IBT, (custodian) FBO Joseph L. Wright, 32211 Pierce Street, Garden
City, MI 48135, owned of record 3,938.282 shares (24.87%), PaineWebber, FBO
Cynthia N. Young, PO Box 3321, Weehawken, NJ 07087-8154, owned of record 853.551
shares (5.39%), and Martin S. Sawyer & Ruth C. Sawyer, 5910 Wilson Blvd., #413,
Arlington, VA 22205, owned of record 844.906 shares (5.33%);
Ivy Growth with Income Fund, Merrill Lynch Pierce Fenner & Smith, 4800
Deer Lake Drive E, 3rd Floor, Jacksonville, FL 32246, owned of record 11,534.267
shares (29.37%), Anthony L. Bassano & Marie E. Bassano, 8934 Bari Court, Port
Richie, FL 34668, owned of record 3,203.100 shares (8.15%), IBT, (custodian) FBO
Vytautas Snieckus, 1250 E 276th Street, Euclid, OH 44132, owned of record
2,645.907 shares (6.73%), PaineWebber, (custodian) FBO Patricia Cramer Russell,
PO Box 3321, Weehawken, NJ 07087-8154, owned of record 2,191.410 shares (5.58%),
IBT, (custodian) FBO Kevin D. Thistle, 1017 Glencrest Court, Saulkville, WI
53080, owned of record 2,130.626 shares (5.42%), and IBT, (custodian) FBO Carol
E. Greivell, 985 N Broadway, #67, Depere, WI 54115, owned of record 2,106.814
shares (5.36%);
Ivy International Fund II, Merrill Lynch Pierce Fenner & Smith, 4800
Deer Lake Drive E, 3rd Floor, Jacksonville, FL 32246, owned of record
2,908,557.453 shares (74.01%);
Ivy International Fund, Merrill Lynch Pierce Fenner & Smith, 4800 Deer
Lake Drive E, 3rd Floor, Jacksonville, FL 32246, owned of record 2,189,094.234
shares (64.38%);
Ivy International Small Companies Fund, Merrill Lynch Pierce Fenner &
Smith, 4800 Deer Lake Drive E, 3rd Floor, Jacksonville, FL 32246, owned of
record 87,014.649 shares (90.31%);
Ivy Money Market Fund, PaineWebber, FBO Bruce Blank, PO Box 3321,
Weehawken, NJ 07087-8154, owned of record 103,905.380 shares (17.65%), IBT
(custodian) FBO, Marcelette V. Manning, 1371 Mt. View Lane, Chula Vista, CA
91911, owned of record 65,194.630 shares (11.07%), IBT (custodian) FBO Diana
Rooney, 2441 S. 9th St., El Centro, CA 92243, owned of record 62,822.810 shares
(10.67%), Robert J. Laws & Katherine A. Laws, PO Box 723, Ramona, CA 92065,
owned of record 42,920.450 shares (7.29%), IBT (custodian) FBO Betty J. Carson,
1987 Higgins Lane, El Centro, CA 92243, owned of record 39,398.780 shares
(6.69%), Paul M. Benard, 40 Arrowhead Farm Road, Boxford, MA 01921, owned of
record 33,488.010 shares (5.68%), Diane C. Benard, 40 Arrowhead Farm Road,
Boxford, MA 01921, owned of record 33,488.010 shares (5.68%), and PaineWebber,
FBO Kathleen L. Diller, PO Box 3321, Weehawken, NJ 07087-8154, owned of record
30,238.920 shares (5.13%).
Ivy Pan-Europe Fund, Merrill Lynch Pierce Fenner & Smith, 4800 Deer
Lake Drive E, 3rd Floor, Jacksonville, FL 32246, owned of record 26,948.668
shares (44.12%), Resources Trust Company, FBO Terry K. Ramnanan, PO Box 5900,
Denver, CO 80217, owned of record 14,652.015 shares (23.99%), and Donaldson
Lufkin Jenrette Securities Corporation Inc., PO Box 2052, Jersey City, NJ
07303-9998, owned of record 4,663.657 shares (7.63%);
Ivy South America Fund, Merrill Lynch Pierce Fenner & Smith, 4800 Deer
Lake Drive E, 3rd Floor, Jacksonville, FL 32246, owned of record 10,956.813
shares (58.18%), Interstate/Johnson Lane, Interstate Tower, PO Box 1220,
Charlotte, NC 28201-1220, owned of record 2,617.801 shares (13.90%), Donaldson
Lufkin Jenrette Securities Corporation Inc., PO Box 2052, Jersey City, NJ
07303-9998, owned of record 2,318.301 shares (12.31%), Donaldson Lufkin Jenrette
Securities Corporation Inc., PO Box 2052, Jersey City, NJ 07303-9998, owned of
record 1,133.787 shares (6.02%), and Smith Barney Inc., 388 Greenwich Street,
New York, NY 10013, owned of record 966.121 shares (5.13%);
Ivy US Blue Chip Fund, Merrill Lynch Pierce Fenner & Smith, 4800 Deer
Lake Drive E, 3rd Floor, Jacksonville, FL 32246, owned of record 8,485.693
shares (10.18%), Donaldson Lufkin Jenrette Securities Corporation Inc., PO Box
2052, Jersey City, NJ 07303-9998, owned of record 6,066.012 shares (7.27%), IBT,
(custodian) FBO Roy O. Derminer, 2236 Abbottwoods LN, Orange City, FL 32763,
owned of record 4,517.953 shares (5.42%), and Donaldson Lufkin Jenrette
Securities Corporation Inc., PO Box 2052, Jersey City, NJ 07303-9998, owned of
record 4,412.541 shares (5.29%);
Ivy US Emerging Growth Fund, Merrill Lynch Pierce Fenner & Smith, 4800
Deer Lake Drive E, 3rd Floor, Jacksonville, FL 32246, owned of record 96,481.220
shares (30.56%);
CLASS I
Of the outstanding Class I shares of:
Ivy International Fund, The John E. Fetzer Institute Inc., 9292 W KL
Ave., Kalamazoo, MI 49009, owned of record 727,066.771 shares (19.12%), State
Street Bank, (TTEE) FBO Allison Engines, 200 Newport Ave., 7th Floor, North
Quincy, MA 02171, owned of record 292,309.556 shares (7.68%), Lynspen and
Company, PO Box 830804, Birmingham, AL 35283, owned of record 276,747.272 shares
(7.27%), and U A Local 447 Pension Trust Fund, 5841 Newman Ct., Sacramento, CA
95819, owned of record 240,427.057 shares (6.32%).
ADVISOR CLASS
Of the outstanding Advisor Class shares of:
Ivy Bond Fund, NFSC FEBO, C. William Ferris, Michael Landry/Keith
Carlson, 700 South Federal Highway, Boca Raton, FL 33432-6114, owned of record
13,944.569 shares (77.94%), and Donaldson Lufkin Jenrette Securities Corporation
Inc., PO Box 2052, Jersey City, NJ 07303-9998, owned of record 3,252.157 shares
(18.17%);
Ivy China Region Fund, Donaldson Lufkin Jenrette Securities Corporation
Inc., PO Box 2052, Jersey City, NJ 07303-9998, owned of record 1,354.000 shares
(84.59%), and Donaldson Lufkin Jenrette Securities Corporation Inc., PO Box
2052, Jersey City, NJ 07303-9998, owned of record 192.447 shares (12.02%).
Ivy Developing Nations Fund, NFSC FEBO, C. William Ferris, Michael
Landry/Keith Carlson, 700 South Federal Highway, Boca Raton, FL 33432-6114,
owned of record 14,362.134 shares (100%);
Ivy Global Fund, NFSC FEBO, C. William Ferris, Michael Landry/Keith
Carlson, 700 South Federal Highway, Boca Raton, FL 33432-6114, owned of record
30,007.844 shares (100%);
Ivy Global Science & Technology Fund, IBT, (custodian) FBO Deborah P.
Mason, 3406 Cypress Landing Dr., Valrico, FL 33594, owned of record 629.966
shares (36.59%), Donaldson Lufkin Jenrette Securities Corporation Inc., PO Box
2052, Jersey City, NJ 07303-9998, owned of record 534.539 shares (31.04%),
Donaldson Lufkin Jenrette Securities Corporation Inc., PO Box 2052, Jersey City,
NJ 07303-9998, owned of record 418.586 shares (24.31%), and Donaldson Lufkin
Jenrette Securities Corporation Inc., PO Box 2052, Jersey City, NJ 07303-9998,
owned of record 138.549 shares (8.04%);
Ivy Growth Fund, NFSC FEBO, C. William Ferris, Michael Landry/Keith
Carlson, 700 South Federal Highway, Boca Raton, FL 33432-6114, owned of record
16,572.658 shares (99.90%);
Ivy Growth with Income Fund, NFSC FEBO, C. William Ferris, Michael
Landry/Keith Carlson, 700 South Federal Highway, Boca Raton, FL 33432-6114,
owned of record 25,118.240 shares (100%);
Ivy International Fund II, Charles Scwab & Co. Inc., 101 Montgomery
Street, San Francisco, CA 94104, owned of record 7,913.113 shares (11.19%),
Donaldson Lufkin Jenrette Securities Corporation Inc., PO Box 2052, Jersey City,
NJ 07303-9998, owned of record 6,471.430 shares (9.15%), and Donaldson Lufkin
Jenrette Securities Corporation Inc., PO Box 2052, Jersey City, NJ 07303-9998,
owned of record 4,602.660 shares (6.50%);
Ivy Pan-Europe Fund, NFSC FEBO, C. William Ferris, Michael Landry/Keith
Carlson, 700 South Federal Highway, Boca Raton, FL 33432-6114, owned of record
3,424.319 shares (47.51%), Donaldson Lufkin Jenrette Securities Corporation
Inc., PO Box 2052, Jersey City, NJ 07303-9998, owned of record 1,191.422 shares
(16.53%), Donaldson Lufkin Jenrette Securities Corporation Inc., PO Box 2052,
Jersey City, NJ 07303-9998, owned of record 947.119 shares (13.14%), Donaldson
Lufkin Jenrette Securities Corporation Inc., PO Box 2052, Jersey City, NJ
07303-9998, owned of record 653.595 shares (9.06%), and Charles Schwab & Co.
Inc., 101 Montgomery Street, San Francisco, CA 94104,owned of record 406.639
shares (5.64%);
Ivy US Blue Chip Fund, Mackenzie Investment Management Inc., Via Mizner
Financial Plaza, 700 South Federal Highway, Suite 300, Boca Raton, FL 33432,
owned of record 50,001.000 shares (80.05%), NFSC FEBO, C. William Ferris,
Michael Landry/Keith Carlson, 700 South Federal Highway, Boca Raton, FL
33432-6114, owned of record 7,419.362 shares (11.87%), and Charles Scwab & Co.
Inc., 101 Montgomery Street, San Francisco, CA 94104, owned of record 3,678.690
shares (5.88%);
Ivy US Emerging Growth Fund, NFSC FEBO, C. William Ferris, Michael
Landry/Keith Carlson, 700 South Federal Highway, Boca Raton, FL 33432-6114,
owned of record 20,670.236 shares (84.78%), and Charles Schwab & Co. Inc., 101
Montgomery Street, San Francisco, CA 94104, owned of record 1,927.965 shares
(7.90%).
As of April 16, 1999, the Officers and Trustees of the Trust as a group
owned beneficially or of record less than 1% of the outstanding Class A, Class
B, Class C, Class I and Advisor Class shares of each of the nineteen Ivy funds
that are series of the Trust, except that the Officers and Trustees of the Trust
as a group owned 3.93%, 1.94%, 1.19%, and 2.09%, respectively, of Ivy Asia
Pacific Fund Class A shares, Ivy Global Natural Resources Fund Class A shares,
Ivy Money Market Fund Class A shares, and Ivy South America Fund Class A shares,
respectively, as of that date.
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 Funds. Among other things,
the Code of Ethics, which generally complies with standards recommended by the
Investment Company Institute's Advisory Group on Personal Investing, prohibits
certain types of transactions absent prior approval, applies to portfolio
managers, traders, research analysts and others involved in the investment
advisory process, and imposes time periods during which personal transactions
may not be made in certain securities, and requires the submission of duplicate
broker confirmations and monthly reporting of securities transactions.
Exceptions to these and other provisions of the Code of Ethics may be granted in
particular circumstances after review by appropriate personnel.
INVESTMENT ADVISORY AND OTHER SERVICES
BUSINESS MANAGEMENT AND INVESTMENT ADVISORY SERVICES
IMI provides business management and investment advisory services to the
Fund pursuant to a Business Management and Investment Advisory Agreement (the
"Agreement"). IMI is a wholly owned subsidiary of Mackenzie Investment
Management Inc. ("MIMI"). MIMI, a Delaware corporation, has approximately 10% of
its outstanding common stock listed for trading on the Toronto Stock Exchange
("TSE"). MIMI is a subsidiary of Mackenzie Financial Corporation ("MFC"), 150
Bloor Street West, Toronto, Ontario, Canada, a public corporation organized
under the laws of Ontario whose shares are listed for trading on the TSE. MFC is
registered in Ontario as a mutual fund dealer and advises Ivy Global Natural
Resources Fund. IMI currently acts as manager and investment adviser to the
following additional investment companies registered under the 1940 Act (other
than the Funds): Ivy Asia Pacific Fund, Ivy Bond Fund, Ivy China Region Fund,
Ivy Developing Nations Fund, Ivy European Opportunities Fund, Ivy Global Fund,
Ivy Global Science & Technology Fund, Ivy International Fund, Ivy International
Fund II, Ivy International Small Companies Fund, Ivy International Strategic
Bond Fund, Ivy Money Market Fund, Ivy Pan-Europe Fund, and Ivy South America
Fund. IMI also provides business management services to Ivy Global Natural
Resources Fund.
The Agreement obligates IMI to make investments for the account of each
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 each 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 each Fund's Custodian and
monitor the services it provides to each Fund; (2) coordinate with and monitor
any other third parties furnishing services to each Fund; (3) provide each 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 each Fund or by IMI acting in
some other capacity pursuant to a separate agreement or arrangements with each
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.
Ivy Growth Fund Pays IMI a monthly fee for providing business management
and investment advisory services that is equal, on an annual basis, to 0.85% of
the first $350 million of the Fund's average net assets reduced to 0.75% on its
average net assets in excess of $350 million.
During the fiscal years ended December 31, 1996, 1997 and 1998, Ivy Growth
Fund paid IMI fees of $2,608,378, $2,794,304 and $2,722,314, respectively.
During the same periods, IMI reimbursed Fund expenses in the amount of $12,486,
$0 and $0, respectively.
Ivy Growth with Income Fund pays IMI a monthly fee for providing business
management and investment advisory services at an annual rate of .75% of the
Fund's average net assets.
During the fiscal years ended December 31, 1996, 1997 and 1998, Ivy Growth
with Income Fund paid IMI fees of $629,322, $624,013 and $702,361, respectively.
Ivy US Blue Chip Fund pays IMI a monthly fee for providing business
management and investment advisory services at an annual rate of 1.00% of the
Fund's average net assets.
During the fiscal year ended December 31, 1998, Ivy US Blue Chip Fund paid
IMI fees of $1,687. During the fiscal year ended December 31, 1998, IMI
reimbursed Fund expenses in the amount of $11,052.
Ivy US Emerging Growth Fund pays IMI a monthly fee for providing business
management and investment advisory services at an annual rate of .85% of the
Fund's average net assets.
During the fiscal years ended December 31, 1996, 1997 and 1998, Ivy US
Emerging Growth Fund paid IMI fees of $657,579, $973,756 and $985,816,
respectively.
Under the Agreement, the Trust pays the following expenses: (1) the fees
and expenses of the Trust's Independent Trustees; (2) the salaries and expenses
of any of the Trust's officers or employees who are not affiliated with IMI; (3)
interest expenses; (4) taxes and governmental fees, including any original issue
taxes or transfer taxes applicable to the sale or delivery of shares or
certificates therefor; (5) brokerage commissions and other expenses incurred in
acquiring or disposing of portfolio securities; (6) the expenses of registering
and qualifying shares for sale with the SEC and with various state securities
commissions; (7) accounting and legal costs; (8) insurance premiums; (9) fees
and expenses of the Trust's Custodian and Transfer Agent and any related
services; (10) expenses of obtaining quotations of portfolio securities and of
pricing shares; (11) expenses of maintaining the Trust's legal existence and of
shareholders' meetings; (12) expenses of preparation and distribution to
existing shareholders of periodic reports, proxy materials and prospectuses; and
(13) fees and expenses of membership in industry organizations.
IMI currently limits the total operating expenses (excluding Rule 12b-1
fees, interest, taxes, brokerage commissions, litigation, class-specific
expenses, indemnification expenses, and extraordinary expenses) of Ivy Growth
Fund, Ivy Growth with Income Fund and Ivy US Emerging Growth Fund to an annual
rate of 1.95% of each Fund's average net assets and of Ivy US Blue Chip Fund to
an annual rate of 1.15% of the Fund's average net assets, which may lower each
Fund's expenses and increase its yield.
The Agreement will continue in effect with respect to each Fund from year
to year, only so long as the continuance is specifically approved at least
annually (i) by the vote of a majority of the Independent Trustees and (ii)
either (a) by the vote of a majority of the outstanding voting securities (as
defined in the 1940 Act) of each 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) with respect to any Fund 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 that Fund. See
"Capitalization and Voting Rights."
The Agreement may be terminated with respect to each Fund at any time,
without payment of any penalty, by the vote of a majority of the Board, or by a
vote of a majority of the outstanding voting securities of the Fund, on 60 days'
written notice to IMI, or by IMI on 60 days' written notice to the Trust. The
Agreement shall terminate automatically in the event of its assignment.
DISTRIBUTION SERVICES
IMDI, a wholly owned subsidiary of MIMI, serves as the exclusive
distributor of Ivy Fund's shares pursuant to an Amended and Restated
Distribution Agreement with the Trust dated March 16, 1999, as amended from time
to time (the "Distribution Agreement"). IMDI distributes shares of each 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 each 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.
Each 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 each Fund's behalf. Each 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.
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 each 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 concessions 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, each Fund bears, among other expenses,
the expenses of registering and qualifying its shares for sale under Federal and
state securities laws and preparing and distributing to existing shareholders
periodic reports, proxy materials and prospectuses.
During the fiscal year ended December 31, 1998, IMDI received from sales
of Class A shares of Ivy Growth Fund $71,547 in sales commissions, of which
$10,859 was retained after dealer allowance. During the fiscal year ended
December 31, 1998, IMDI received $25,515 in CDSCs on redemptions of Class B
shares of Ivy Growth Fund. During the fiscal year ended December 31, 1998, IMDI
received $17 in CDSCs on redemption of Class C shares of Ivy Growth Fund.
During the fiscal year ended December 31, 1998, IMDI received from sales
of Class A shares of Ivy Growth with Income Fund $49,641 in sales commissions,
of which $7,545 was retained after dealer allowances. During the fiscal year
ended December 31, 1998, IMDI received $72,972 in CDSCs on redemptions of Class
B shares of Ivy Growth with Income Fund. During the fiscal year ended December
31, 1998, IMDI received $1,527 in CDSCs on redemptions of Class C shares of Ivy
Growth with Income Fund.
During the fiscal year ended December 31, 1998, IMDI received from sales
of Class A shares of Ivy US Blue Chip Fund $12,738 in sales commissions, of
which $1,940 was retained after dealer allowances. During the fiscal year ended
December 31, 1998, IMDI received $0 in CDSCs on redemptions of Class B shares of
Ivy US Blue Chip Fund. During the fiscal year ended December 31, 1998, IMDI
received $0 in CDSCs on redemptions of Class C shares of Ivy US Blue Chip Fund.
During the fiscal year ended December 31, 1998, IMDI received from sales
of Class A shares of Ivy US Emerging Growth Fund $102,664 in sales commissions,
of which $14,318 was retained after dealer allowances. During the fiscal year
ended December 31, 1998, IMDI received $185,059 in CDSCs on redemptions of Class
B shares of Ivy US Emerging Growth Fund. During the fiscal year ended December
31, 1998, IMDI received $2,481 in CDSCs on redemptions of Class C shares of Ivy
US Emerging Growth 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 each Fund.
The Distribution Agreement may be terminated with respect to any 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. The
Board has adopted a Rule 18f-3 plan on behalf of each Fund. The key features of
the Rule 18f-3 plan are as follows: (i) shares of each class of each 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 each Fund may be exchanged for shares of the same class
of another Ivy fund; and (iii) each Fund's Class B shares will convert
automatically into Class A shares of that 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 each
Fund, in accordance with Rule 12b-1 under the 1940 Act, separate Rule 12b-1
distribution plans pertaining to each 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 each Fund and its
shareholders. The Trustees of the Trust believe that the Plans should result in
greater sales and/or fewer redemptions of each 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, each 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. This
fee is a reimbursement to IMDI for service fees paid by IMDI. 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 each 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 a 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 each Fund's Class B and Class C Plans, each 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. This
fee is paid to IMDI as compensation and is not dependent on IMDI's expenses
incurred. 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 each 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 any Fund under each Plan shall not be materially increased without
the affirmative vote of the holders of a majority of the outstanding shares of
the relevant class; and (4) while each Plan is in effect, the selection and
nomination of Independent Trustees shall be committed to the discretion of the
Trustees who are not "interested persons" of the Trust.
IMDI may make payments for distribution assistance and for administrative
and accounting services from resources that may include the management fees paid
by each 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 a 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.
The Class B Plan and underwriting agreement were amended effective March
16, 1999 to permit IMDI to sell its right to receive distribution fees under the
Class B Plan and CDSCs to third parties. IMDI enters into such transactions to
finance the payment of commissions to brokers at the time of sale and other
distribution-related expenses. In connection with such amendments, the Trust has
agreed that the distribution fee will not be terminated or modified (including a
modification by change in the rules relating to the conversion of Class B shares
into shares of another class) for any reason (including a termination of the
underwriting agreement) except:
(i) to the extent required by a change in the 1940 Act, the rules or
regulations under the 1940 Act, or the Conduct Rules of the NASD, in
each case enacted, issued, or promulgated after March 16, 1999;
(ii) on a basis which does not alter the amount of the distribution
payments to IMDI computed with reference to Class B shares the date of
original issuance of which occurred on or before December 31, 1998;
(iii) in connection with a Complete Termination (as defined in the Class B
Plan); or
(iv) on a basis determined by the Board of Trustees acting in good faith so
long as (a) neither the Trust nor any successor trust or fund or any
trust or fund acquiring a substantial portion of the assets of the
Trust (collectively, the "Affected Funds") nor the sponsors of the
Affected Funds pay, directly or indirectly, as a fee, a trailer fee,
or by way of reimbursement, any fee, however denominated, to any
person for personal services, account maintenance services or other
shareholder services rendered to the holder of Class B shares of the
Affected Funds from and after the effective date of such modification
or termination, and (b) the termination or modification of the
distribution fee applies with equal effect to all outstanding Class B
shares from time to time of all Affected Funds regardless of the date
of issuance thereof.
In the amendments to the underwriting agreement, the Trust has also agreed
that it will not take any action to waive or change any CDSC in respect of any
Class B share the date of original issuance of which occurred on or before
December 31, 1998, except as provided in the Trust's prospectus or statement of
additional information, without the consent of IMDI and its transferees.
During the fiscal year ended December 31, 1998, Ivy Growth Fund paid IMDI
$176,268 pursuant to it Class A plan. During the fiscal year ended December 31,
1998, Ivy Growth Fund paid IMDI $47,478 pursuant to its Class B plan. During the
fiscal year ended December 31, 1998, Ivy Growth Fund paid IMDI $1,880 pursuant
to its Class C plan.
During the fiscal year ended December 31, 1998, IMDI expended the
following amounts in marketing Class A shares of Ivy Growth Fund: advertising
$28,196; printing and mailing of prospectuses to persons other than current
shareholders, $53,162; compensation to dealers $149,916; compensation to sales
personnel $891,327; seminars and meetings $37,479; travel and
entertainment,$71,060; general and administrative, $510,305; telephone, $25,922;
and occupancy and equipment rental, $75,038.
During the fiscal year ended December 31, 1998, IMDI expended the
following amounts in marketing Class B shares of Ivy Growth Fund: advertising
$426; printing and mailing of prospectuses to persons other than current
shareholders, $793; compensation to dealers $27,491; compensation to sales
personnel $13,520; seminars and meetings $6,873; travel, and entertainment,
$1,080; general and administrative, $7,742; telephone, $393; and occupancy and
equipment rental, $1,134.
During the fiscal year ended December 31, 1998, IMDI expended the
following amounts in marketing Class C shares of Ivy Growth Fund: advertising
$16; printing and mailing of prospectuses to persons other than current
shareholders, $32; compensation to dealers $0; compensation to sales personnel
$187; seminars and meetings $0; travel and entertainment, $15; general and
administrative, $107; telephone, $6; and occupancy and equipment rental, $16.
During the fiscal year ended December 31, 1998, Ivy Growth with Income
Fund paid IMDI $139,711 pursuant to its Class A plan. During the fiscal year
ended December 31, 1998, Ivy Growth with Income Fund paid IMDI $224,258 pursuant
to its Class B plan. During the fiscal year ended December 31, 1998, Ivy Growth
with Income Fund paid IMDI $29,800 pursuant to its Class C plan.
During the fiscal year ended December 31, 1998, IMDI expended the
following amounts in marketing Class A shares of Ivy Growth with Income Fund:
advertising $6,094; printing and mailing of prospectuses to persons other than
current shareholders, $13,170 compensation to dealers $32,346; compensation to
sales personnel, $192,402; seminars and meetings, $8,087; travel and
entertainment, $15,341; general and administrative, $110,099; telephone, $5,589
and occupancy and equipment rental, $16,163.
During the fiscal year ended December 31, 1998, IMDI expended the
following amounts in marketing Class B shares of Ivy Growth with Income Fund:
advertising, $2,020; printing and mailing of prospectuses to persons other than
current shareholders, $4,302; compensation to dealers, $142,522; compensation to
sales personnel, $63,776; seminars and meetings, $35,630; travel and
entertainment, $5,093; general and administrative, $36,441; telephone, $1,845;
and occupancy and equipment rental $5,307.
During the fiscal year ended December 31, 1998, IMDI expended the
following amounts in marketing Class C shares of Ivy Growth with Income Fund:
advertising, $265; printing and mailing of prospectuses to persons other than
current shareholders, $549; compensation to dealers, $77,858; compensation to
sales personnel, $7,814; seminars and meetings, $1,965; travel and
entertainment, $616; general administrative, $4,396; telephone, $220; and
occupancy and equipment rental, $632.
During the fiscal year ended December 31, 1998, Ivy US Blue Chip Fund paid
IMDI $168 pursuant to its Class A plan. During the fiscal year ended December
31, 1998, Ivy US Blue Chip Fund paid IMDI $654 pursuant to its Class B plan.
During the fiscal year ended December 31, 1998, Ivy US Blue Chip Fund paid IMDI
$88 pursuant to its Class C plan.
During the fiscal year ended December 31, 1998, IMDI expended the
following amounts in marketing Class A shares of Ivy US Blue Chip Fund:
advertising $51; printing and mailing of prospectuses to persons other than
current shareholders, $16,058; compensation to dealers, $216; compensation to
sales personnel $1,749; seminars and meetings, $54; travel and entertainment,
$142; general and administrative, $1,010; telephone, $52; and occupancy and
equipment rental, $143.
During the fiscal year ended December 31, 1998, IMDI expended the
following amounts in marketing Class B shares of Ivy US Blue Chip Fund:
advertising, $60; printing and mailing of prospectuses to persons other than
current shareholders, $18,816; compensation to dealers, $4,697; compensation to
sales personnel, $2,049; seminars and meetings, $1,174; travel and
entertainment, $168; general and administrative, $1,183; telephone, $60; and
occupancy and equipment rental $168.
During the fiscal year ended December 31, 1998, IMDI expended the
following amounts in marketing Class C shares of Ivy US Blue Chip Fund:
advertising, $7; printing and mailing of prospectuses to persons other than
current shareholders, $2,319; compensation to dealers, $269; compensation to
sales personnel, $252; seminars and meetings, $68; travel and entertainment,
$21; general administrative, $145; telephone, $7; and occupancy and equipment
rental, $21.
During the fiscal year ended December 31, 1998, Ivy US Emerging Growth
Fund paid IMDI $146,886 pursuant to its Class A plan. During the fiscal year
ended December 31, 1998, Ivy US Emerging Growth Fund paid IMDI $460,204 pursuant
to its Class B plan. During the fiscal year ended December 31, 1998, Ivy US
Emerging Growth Fund paid IMDI $92,289 pursuant to its Class C plan.
During the fiscal year ended December 31, 1998, IMDI expended the
following amounts in marketing Class A shares of Ivy US Emerging Growth Fund:
advertising $5,379; printing and mailing of prospectuses to persons other than
current shareholders, $26,210; compensation to dealers, $28,682; compensation to
sales personnel $169,532; seminars and meetings, $7,171; travel and
entertainment, $13,500; general and administrative, $97,045; telephone, $4,930;
and occupancy and equipment rental, $14,300.
During the fiscal year ended December 31, 1998, IMDI expended the
following amounts in marketing Class B shares of Ivy US Emerging Growth Fund:
advertising, $4,253; printing and mailing of prospectuses to persons other than
current shareholders, $20,900; compensation to dealers, $295,137; compensation
to sales personnel, $134,449; seminars and meetings, $73,784; travel and
entertainment, $10,726; general and administrative, $76,937; telephone, $3,904;
and occupancy and equipment rental $11,281.
During the fiscal year ended December 31, 1998, IMDI expended the
following amounts in marketing Class C shares of Ivy US Emerging Growth Fund:
advertising, $836; printing and mailing of prospectuses to persons other than
current shareholders, $4,087; compensation to dealers, $35,132; compensation to
sales personnel, $26,384; seminars and meetings, $8,784; travel and
entertainment, $2,104; general administrative, $15,090; telephone, $766; and
occupancy and equipment rental, $2,213.
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 each 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 each Fund's foreign securities. With
respect to each 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 each Fund. As compensation for those
services, each Fund pays MIMI a monthly fee plus out-of-pocket expenses as
incurred. The monthly fee is based upon the net assets of each Fund at the
preceding month end at the following rates: $1,250 when net assets are $10
million and under; $2,500 when net assets are over $10 million to $40 million;
$5,000 when net assets are over $40 million to $75 million; and $6,500 when net
assets are over $75 million.
During the fiscal year ended December 31, 1998, Ivy Growth Fund paid MIMI
$106,712 under the agreement.
During the fiscal year ended December 31, 1998, Ivy Growth with Income
Fund paid MIMI $94,539 under the agreement.
During the fiscal year ended December 31, 1998, Ivy US Blue Chip Fund paid
MIMI $1,654 under the agreement.
During the fiscal year ended December 31, 1998, Ivy US Emerging Growth
Fund paid MIMI $98,957 under the agreement.
TRANSFER AGENT AND DIVIDEND PAYING AGENT
Pursuant to a Transfer Agency and Shareholder Service Agreement, Ivy
Mackenzie Services Corp. ("IMSC"), a wholly owned subsidiary of MIMI, is the
transfer agent for each Fund. Under the Agreement, each Fund pays a monthly fee
at an annual rate of $20.00 for each open Class A, Class B, Class C and Advisor
Class account. In addition, each Fund pays a monthly fee at an annual rate of
$4.58 per account that is closed plus certain out-of-pocket expenses. Ivy US
Blue Chip Fund pays a monthly fee at an annual rate of $10.25 per open Class I
account. Such fees and expenses for the fiscal year ended December 31, 1998 for
Ivy Growth Fund totaled $755,710. Such fees and expenses for the fiscal year
ended December 31, 1998 for Ivy Growth with Income Fund totaled $235,695. Such
fees and expenses for the fiscal year ended December 31, 1998 for Ivy US Blue
Chip Fund totaled $184. Such fees and expenses for the fiscal year ended
December 31, 1998 for Ivy US Emerging Growth Fund totaled $314,453. Certain
broker-dealers that maintain shareholder accounts with each Fund through an
omnibus account provide transfer agent and other shareholder-related services
that would otherwise be provided by IMSC if the individual accounts that
comprise the omnibus account were opened by their beneficial owners directly.
IMSC pays such broker-dealers a per account fee for each open account within the
omnibus account, or a fixed rate (e.g., 0.10%) fee, based on the average daily
net asset value of the omnibus account (or a combination thereof).
ADMINISTRATOR
Pursuant to an Administrative Services Agreement, MIMI provides certain
administrative services to each Fund. As compensation for these services, each
Fund pays MIMI a monthly fee at the annual rate of 0.10% of the Fund's average
daily net assets with respect to Class A, Class B, Class C and Advisor Class
shares. Ivy US Blue Chip fund pays MIMI a monthly fee at the annual rate of
0.01% of its average daily net assets for Class I. Such fees for the fiscal year
ended December 31, 1998 for Ivy Growth Fund totaled $320,272. Such fees for the
fiscal year ended December 31, 1998 for Ivy Growth with Income Fund totaled
$93,648. Such fees for the fiscal year ended December 31, 1998 for Ivy US Blue
Chip Fund totaled $225. Such fees for the fiscal year ended December 31, 1998
for Ivy US Emerging Growth Fund totaled $115,978.
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 each Fund.
AUDITORS
PricewaterhouseCoopers LLP, independent public accountants, has been
selected as auditors for the Trust. The audit services performed by
PricewaterhouseCoopers LLP include audits of the annual financial statements of
each of the funds of the Trust. Other services provided principally relate to
filings with the SEC and the preparation of the funds' tax returns.
BROKERAGE ALLOCATION
Subject to the overall supervision of the President and the Board, IMI
places orders for the purchase and sale of each 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 any 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 Funds or the Trust. IMI may consider sales of shares of Ivy
funds as a factor in the selection of broker-dealers and may select
broker-dealers who provide it with research services. IMI will not, however,
execute brokerage transactions other than at the best price and execution.
During the fiscal years ended December 31, 1996, 1997 and 1998, Ivy Growth
Fund paid brokerage commissions of $883,583, $683,881 and $907,345,
respectively.
During the fiscal years ended December 31, 1996, 1997 and 1998, Ivy Growth
with Income Fund paid brokerage commissions of $293,827, $155,283 and $378,887,
respectively.
During the fiscal year ended December 31, 1998, Ivy US Blue Chip Fund paid
brokerage commissions of $1,806.
During the fiscal years ended December 31, 1996, 1997 and 1998, Ivy US
Emerging Growth Fund paid brokerage commissions of $426,676, $583,738 and
$658,613, respectively.
Each Fund may, under some circumstances, accept securities in lieu of cash
as payment for Fund shares. Each 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 that Fund. While no
minimum has been established, it is expected that each Fund will not accept
securities having an aggregate value of less than $1 million. The Trust may
reject in whole or in part any or all offers to pay for Fund shares with
securities and may discontinue accepting securities as payment for Fund shares
at any time without notice. The Trust will value accepted securities in the
manner and at the same time provided for valuing portfolio securities of each
Fund, and each Fund's shares will be sold for net asset value determined at the
same time the accepted securities are valued. The Trust will only accept
securities delivered in proper form and will not accept securities subject to
legal restrictions on transfer. The acceptance of securities by the Trust must
comply with the applicable laws of certain states.
CAPITALIZATION AND VOTING RIGHTS
The capitalization of the Trust consists of an unlimited number of shares
of beneficial interest (no par value per share). When issued, shares of each
class of each Fund are fully paid, non-assessable, redeemable and fully
transferable. No class of shares of any Fund has preemptive rights or
subscription rights.
The Amended and Restated Declaration of Trust permits the Trustees to
create separate series or portfolios and to divide any series or portfolio into
one or more classes. The Trustees have authorized nineteen series, each of which
represents a fund. The Trustees have further authorized the issuance of Class A,
Class B, and Class C shares for Ivy International Fund and Ivy Money Market Fund
and Class A, Class B, Class C and Advisor Class shares for the Funds, Ivy Asia
Pacific Fund, Ivy Bond Fund, Ivy China Region Fund, Ivy Developing Nations Fund,
Ivy European Opportunities Fund, Ivy Global Fund, Ivy Global Natural Resources
Fund, Ivy Global Science & Technology Fund, Ivy International Fund II, Ivy
International Small Companies Fund, Ivy International Strategic Bond Fund, Ivy
Pan-Europe Fund, and Ivy South America Fund, as well as Class I shares for Ivy
Bond Fund, Ivy European Opportunities Fund, Ivy Global Science & Technology
Fund, Ivy International Fund, Ivy International Fund II, Ivy International Small
Companies Fund, Ivy International Strategic Bond Fund and Ivy US Blue Chip Fund.
Shareholders have the right to vote for the election of Trustees of the
Trust and on any and all matters on which they may be entitled to vote by law or
by the provisions of the Trust's By-Laws. The Trust is not required to hold a
regular annual meeting of shareholders, and it does not intend to do so. Shares
of each class of each Fund entitle their holders to one vote per share (with
proportionate voting for fractional shares). Shareholders of each Fund are
entitled to vote alone on matters that only affect that Fund. All classes of
shares of each Fund will vote together, except with respect to the distribution
plan applicable to the Fund's Class A, Class B or Class C shares or when a class
vote is required by the 1940 Act. On matters relating to all funds of the Trust,
but affecting the funds differently, separate votes by the shareholders of each
fund are required. Approval of an investment advisory agreement and a change in
fundamental policies would be regarded as matters requiring separate voting by
the shareholders of each fund of the Trust. If the Trustees determine that a
matter does not affect the interests of a Fund, then the shareholders of that
Fund will not be entitled to vote on that matter. Matters that affect the Trust
in general, such as ratification of the selection of independent public
accountants, will be voted upon collectively by the shareholders of all funds of
the Trust.
As used in this SAI and the Prospectus, the phrase "majority vote of the
outstanding shares" of a Fund means the vote of the lesser of: (1) 67% of the
shares of that 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 that Fund (or of the Trust).
With respect to the submission to shareholder vote of a matter requiring
separate voting by a Fund, the matter shall have been effectively acted upon
with respect to that Fund if a majority of the outstanding voting securities of
the Fund votes for the approval of the matter, notwithstanding that: (1) the
matter has not been approved by a majority of the outstanding voting securities
of any other fund of the Trust; or (2) the matter has not been approved by a
majority of the outstanding voting securities of the Trust.
The Amended and Restated Declaration of Trust provides that the holders of
not less than two-thirds of the outstanding shares of the Trust may remove a
person serving as trustee either by declaration in writing or at a meeting
called for such purpose. The Trustees are required to call a meeting for the
purpose of considering the removal of a person serving as Trustee if requested
in writing to do so by the holders of not less than 10% of the outstanding
shares of the Trust. Shareholders will be assisted in communicating with other
shareholders in connection with the removal of a Trustee as if Section 26(c) of
the Act were applicable.
The Trust's shares do not have cumulative voting rights and accordingly
the holders of more than 50% of the outstanding shares could elect the entire
Board, in which case the holders of the remaining shares would not be able to
elect any Trustees.
Under Massachusetts law, the Trust's shareholders could, under certain
circumstances, be held personally liable for the obligations of the Trust.
However, the Amended and Restated Declaration of Trust disclaims liability of
the shareholders, Trustees or officers of the Trust for acts or obligations of
the Trust, which are binding only on the assets and property of the Trust, and
requires that notice of the disclaimer be given in each contract or obligation
entered into or executed by the Trust or its Trustees. The Amended and Restated
Declaration of Trust provides for indemnification out of Fund property for all
loss and expense of any shareholder of any Fund held personally liable for the
obligations of that Fund. The risk of a shareholder of the Trust incurring
financial loss on account of shareholder liability is limited to circumstances
in which the Trust itself would be unable to meet its obligations and, thus,
should be considered remote. No series of the Trust is liable for the
obligations of any other series of the Trust.
SPECIAL RIGHTS AND PRIVILEGES
The Trust offers, and (except as noted below) bears the cost of providing,
to investors the following rights and privileges. The Trust reserves the right
to amend or terminate any one or more of these rights and privileges. Notice of
amendments to or terminations of rights and privileges will be provided to
shareholders in accordance with applicable law.
Certain of the rights and privileges described below refer to funds, other
than the Funds, whose shares are also distributed by IMDI. These funds are: Ivy
Asia Pacific Fund, Ivy Bond Fund, Ivy China Region Fund, Ivy Developing Nations
Fund, Ivy European Opportunities Fund, Ivy Global Fund, Ivy Global Natural
Resources Fund, Ivy Global Science & Technology Fund, Ivy International Fund,
Ivy International Fund II, Ivy International Small Companies Fund, Ivy
International Strategic Bond Fund, Ivy Money Market Fund, Ivy Pan-Europe Fund,
and Ivy South America Fund, (the other fifteen series of the Trust). (Effective
April 18, 1997, Ivy International Fund suspended the offer of its shares to new
investors). Shareholders should obtain a current prospectus before exercising
any right or privilege that may relate to these funds.
AUTOMATIC INVESTMENT METHOD
The Automatic Investment Method, which enables a Fund shareholder to have
specified amounts automatically drawn each month from his or her bank for
investment in Fund shares, is available for all classes of shares. The minimum
initial and subsequent investment under this method is $50 per month (except in
the case of a tax qualified retirement plan for which the minimum initial and
subsequent investment is $25 per month). A shareholder may terminate the
Automatic Investment Method at any time upon delivery to IMSC of telephone
instructions or written notice. See "Automatic Investment Method" in the
Prospectus. To begin the plan, complete Sections 6A and 7B of the Account
Application.
EXCHANGE OF SHARES
As described in the Prospectus, shareholders of each 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 a 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).
Each Fund may, from time to time, waive the initial sales charge on its
Class A shares sold to clients of The Legend Group and United Planners Financial
Services of America, Inc. This privilege will apply only to Class A Shares of a
Fund that are purchased using all or a portion of the proceeds obtained by such
clients through redemptions of shares of a mutual fund (other than one of the
Funds) on which a sales charge was paid (the "NAV transfer privilege").
Purchases eligible for the NAV transfer privilege must be made within 60 days of
redemption from the other fund, and the Class A shares purchased are subject to
a 1.00% CDSC on shares redeemed within the first year after purchase. The NAV
transfer privilege also applies to Fund shares purchased directly by clients of
such dealers as long as their accounts are linked to the dealer's master
account. The normal service fee, as described in the "Initial Sales Charge
Alternative - Class A Shares" section of the Prospectus, will be paid to those
dealers in connection with these purchases. IMDI may from time to time pay a
special cash incentive to The Legend Group or United Planners Financial Services
of America, Inc. in connection with sales of shares of a Fund by its registered
representatives under the NAV transfer privilege. Additional information on
sales charge reductions or waivers may be obtained from IMDI at the address
listed on the cover of this Statement of Additional Information.
On August 19, 1999, Ivy US Emerging Growth Fund and Hudson Capital
Appreciation Fund ("Hudson Capital") entered into an Agreement and Plan of
Reorganization (the "Plan") pursuant to which all or substantially all of the
assets of Hudson Capital would be acquired by Ivy US Emerging Growth Fund in
exchange solely for Class A and Class B voting shares of beneficial interest of
Ivy US Emerging Growth Fund (the "Reorganization"). In connection with the
Reorganization, the parties agreed that no sales charge would be imposed in
connection with the issuance of Ivy US Emerging Growth Fund shares to
shareholders of Hudson Capital pursuant to the Plan. In addition, the parties
agreed that former Class N shareholders of Hudson Capital would be exempt from
the initial sales charge on additional purchases of Class A shares of Ivy US
Emerging Growth Fund.
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 any
Fund exercising the exchange privilege will continue to be subject to that
Fund's CDSC period following an exchange if such period is longer than the CDSC
period, if any, applicable to the new Class A shares.
For purposes of computing the CDSC that may be payable upon the redemption
of the new Class A shares, the holding period of the outstanding Class A shares
is "tacked" onto the holding period of the new Class A shares.
CLASS B: Class B shareholders may exchange their Class B shares
("outstanding Class B shares") for Class B shares of another Ivy fund ("new
Class B shares") on the basis of the relative net asset value per Class B share,
without the payment of any CDSC that would otherwise be due upon the redemption
of the outstanding Class B shares. Class B shareholders of any Fund exercising
the exchange privilege will continue to be subject to that Fund's CDSC schedule
(or period) following an exchange if such schedule is higher (or such period is
longer) than the CDSC schedule (or period) applicable to the new Class B shares.
Class B shares of any Fund acquired through an exchange of Class B shares
of another Ivy fund will be subject to that Fund's CDSC schedule (or period) if
such schedule is higher (or such period is longer) than the CDSC schedule (or
period) applicable to the Ivy fund from which the exchange was made.
For purposes of both the conversion feature and computing the CDSC that
may be payable upon the redemption of the new Class B shares (prior to
conversion), the holding period of the outstanding Class B shares is "tacked"
onto the holding period of the new Class B shares.
The following CDSC table applies to Class B shares of Ivy Asia Pacific
Fund, Ivy Bond Fund, Ivy China Region Fund, Ivy Developing Nations Fund, Ivy
European Opportunities Fund, Ivy Global Fund, Ivy Global Natural Resources Fund,
Ivy Global Science & Technology Fund, Ivy Growth Fund, Ivy Growth with Income
Fund, Ivy International Fund, Ivy International Fund II, Ivy International Small
Companies Fund, Ivy International Strategic Bond Fund, Ivy Pan-Europe Fund, Ivy
South America Fund, Ivy US Blue Chip Fund, and Ivy US Emerging Growth Fund.
CONTINGENT DEFERRED SALES CHARGE AS
A PERCENTAGE OF DOLLAR AMOUNT
YEAR SINCE PURCHASE SUBJECT TO CHARGE
First 5%
Second 4%
Third 3%
Fourth 3%
Fifth 2%
Sixth 1%
Seventh and thereafter 0%
CLASS C: Class C shareholders may exchange their Class C shares
("outstanding Class C shares") for Class C shares of another Ivy fund ("new
Class C shares") on the basis of the relative net asset value per Class C share,
without the payment of any CDSC that would otherwise be due upon redemption.
(Class C shares are subject to a CDSC of 1.00% if redeemed within one year of
the date of purchase.)
CLASS I: Subject to the restrictions set forth in the following paragraph,
Class I shareholders may exchange their outstanding Class I shares for Class I
shares of another Ivy fund on the basis of the relative net asset value per
share.
ALL CLASSES: The minimum value of shares which may be exchanged into an
Ivy fund in which shares are not already held is $1,000. No exchange out of any
Fund (other than by a complete exchange of all Fund shares) may be made if it
would reduce the shareholder's interest in that Fund to less than $1,000.
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
each 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 any Fund. A Letter of Intent
may be submitted at the time of an initial purchase of Class A shares of a Fund
or within 90 days of the initial purchase, in which case the Letter of Intent
will be back dated. A shareholder may include, as an accumulation credit, the
value (at the applicable offering price) of all Class A shares of Ivy Asia
Pacific Fund, Ivy Bond Fund, Ivy China Region Fund, Ivy Developing Nations Fund,
Ivy European Opportunities Fund, Ivy Global Fund, Ivy Global Natural Resources
Fund, Ivy Global Science & Technology Fund, Ivy Growth Fund, Ivy Growth with
Income Fund, Ivy International Fund, Ivy International Fund II, Ivy
International Small Companies Fund, Ivy International Strategic Bond Fund, Ivy
Pan-Europe Fund, Ivy South America Fund, Ivy US Blue Chip Fund and Ivy US
Emerging Growth Fund (and shares that have been exchanged into Ivy Money Market
Fund from any of the other funds in the Ivy funds) held of record by him or her
as of the date of his or her Letter of Intent. During the term of the Letter of
Intent, the Transfer Agent will hold Class A shares representing 5% of the
indicated amount (less any accumulation credit value) in escrow. The escrowed
Class A shares will be released when the full indicated amount has been
purchased. If the full indicated amount is not purchased during the term of the
Letter of Intent, the investor is required to pay IMDI an amount equal to the
difference between the dollar amount of sales charge that he or she has paid and
that which he or she would have paid on his or her aggregate purchases if the
total of such purchases had been made at a single time. Such payment will be
made by an automatic liquidation of Class A shares in the escrow account. A
Letter of Intent does not obligate the investor to buy or the Trust to sell the
indicated amount of Class A shares, and the investor should read carefully all
the provisions of such letter before signing.
RETIREMENT PLANS
Shares may be purchased in connection with several types of tax-deferred
retirement plans. Shares of more than one fund distributed by IMDI may be
purchased in a single application establishing a single account under the plan,
and shares held in such an account may be exchanged among the Ivy funds in
accordance with the terms of the applicable plan and the exchange privilege
available to all shareholders. Initial and subsequent purchase payments in
connection with tax-deferred retirement plans must be at least $25 per
participant.
The following fees will be charged to individual shareholder accounts as
described in the retirement prototype plan document:
Retirement Plan New Account Fee no fee
Retirement Plan Annual Maintenance Fee $10.00 per fund account
For shareholders whose retirement accounts are diversified across several
Ivy funds, the annual maintenance fee will be limited to not more than $20.
The following discussion describes the tax treatment of certain
tax-deferred retirement plans under current Federal income tax law. State income
tax consequences may vary. An individual considering the establishment of a
retirement plan should consult with an attorney and/or an accountant with
respect to the terms and tax aspects of the plan.
INDIVIDUAL RETIREMENT ACCOUNTS: Shares of each Fund may be used as a
funding medium for an Individual Retirement Account ("IRA"). Eligible
individuals may establish an IRA by adopting a model custodial account available
from IMSC, who may impose a charge for establishing the account. Individuals
should consult their tax advisers before investing IRA assets in an Ivy fund if
that fund primarily distributes exempt-interest dividends.
An individual who has not reached age 70-1/2 and who receives compensation
or earned income is eligible to contribute to an IRA, whether or not he or she
is an active participant in a retirement plan. An individual who receives a
distribution from another IRA, a qualified retirement plan, a qualified annuity
plan or a tax-sheltered annuity or custodial account ("403(b) plan") that
qualifies for "rollover" treatment is also eligible to establish an IRA by
rolling over the distribution either directly or within 60 days after its
receipt. Tax advice should be obtained in connection with planning a rollover
contribution to an IRA.
In general, an eligible individual may contribute up to the lesser of
$2,000 or 100% of his or her compensation or earned income to an IRA each year.
If a husband and wife are both employed, and both are under age 70-1/2, each may
set up his or her own IRA within these limits. If both earn at least $2,000 per
year, the maximum potential contribution is $4,000 per year for both. For years
after 1996, the result is similar even if one spouse has no earned income; if
the joint earned income of the spouses is at least $4,000, a contribution of up
to $2,000 may be made to each spouse's IRA. Rollover contributions are not
subject to these limits.
An individual may deduct his or her annual contributions to an IRA in
computing his or her Federal income tax within the limits described above,
provided he or she (or his or her spouse, if they file a joint Federal income
tax return) is not an active participant in a qualified retirement plan (such as
a qualified corporate, sole proprietorship, or partnership pension, profit
sharing, 401(k) or stock bonus plan), qualified annuity plan, 403(b) plan,
simplified employee pension, or governmental plan. If he or she (or his or her
spouse) is an active participant, whether the individual's contribution to an
IRA is fully deductible, partially deductible or not deductible depends on (i)
adjusted gross income and (ii) whether it is the individual or the individual's
spouse who is an active participant, in the case of married individuals filing
jointly. Contributions may be made up to the maximum permissible amount even if
they are not deductible. Rollover contributions are not includable in income for
Federal income tax purposes and therefore are not deductible from it.
Generally, earnings on an IRA are not subject to current Federal income
tax until distributed. Distributions attributable to tax-deductible
contributions and to IRA earnings are taxed as ordinary income. Distributions of
non-deductible contributions are not subject to Federal income tax. In general,
distributions from an IRA to an individual before he or she reaches age 59-1/2
are subject to a nondeductible penalty tax equal to 10% of the taxable amount of
the distribution. The 10% penalty tax does not apply to amounts withdrawn from
an IRA after the individual reaches age 59-1/2, becomes disabled or dies, or if
withdrawn in the form of substantially equal payments over the life or life
expectancy of the individual and his or her designated beneficiary, if any, or
rolled over into another IRA, amounts withdrawn and used to pay for deductible
medical expenses and amounts withdrawn by certain unemployed individuals not in
excess of amounts paid for certain health insurance premiums, amounts used to
pay certain qualified higher education expenses, and amounts used within 120
days of the date the distribution is received to pay for certain first-time
homebuyer expenses. Distributions must begin to be withdrawn not later than
April 1 of the calendar year following the calendar year in which the individual
reaches age 70-1/2. Failure to take certain minimum required distributions will
result in the imposition of a 50% non-deductible penalty tax.
ROTH IRAS: Shares of each 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 a Fund may reinvest all
or a part of the proceeds of the redemption back into Class A shares of the same
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 each Fund. See "Initial Sales Charge Alternative --
Class A Shares" in the Prospectus. The reduced sales charge is applicable to
investments made at one time by an individual, his or her spouse and children
under the age of 21, or a trustee or other fiduciary of a single trust estate or
single fiduciary account (including a pension, profit sharing or other employee
benefit trust created pursuant to a plan qualified under Section 401 of the
Code). Rights of Accumulation is also applicable to current purchases of all of
the funds of Ivy Fund (except Ivy Money Market Fund) by any of the persons
enumerated above, where the aggregate quantity of Class A shares of such funds
(and shares that have been exchanged into Ivy Money Market Fund from any of the
other funds in the Ivy funds) and of any other investment company distributed by
IMDI, previously purchased or acquired and currently owned, determined at the
higher of current offering price or amount invested, plus the Class A shares
being purchased, amounts to $50,000 or more for all funds other than Ivy Bond
Fund; or $100,000 or more for Ivy Bond Fund.
At the time an investment takes place, IMSC must be notified by the
investor or his or her dealer that the investment qualifies for the reduced
sales charge on the basis of previous investments. The reduced sales charge is
subject to confirmation of the investor's holdings through a check of the
particular fund's records.
SYSTEMATIC WITHDRAWAL PLAN
A shareholder may establish a Systematic Withdrawal Plan (a "Withdrawal
Plan"), by telephone instructions or by delivery to IMSC of a written election
to have his or her shares withdrawn periodically, 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 each 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 a 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 each 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 each 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 any Fund convert to Class A shares once the Plan has reached
$5 million invested in Applicable Investments, or 10 years after the date of the
initial purchase by a participant under the Plan--the Plan will receive a Plan
level share conversion.
REDEMPTIONS
Shares of each 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 a 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 a Fund.
The Trust may redeem those accounts of shareholders who have maintained an
investment, including sales charges paid, of less than $1,000 in any 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 any 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.
Each 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, a 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 each Fund will
automatically convert to Class A shares of that Fund, based on the relative net
asset values per share of the two classes, no later than the month following the
eighth anniversary of the initial issuance of such Class B shares of the Fund
occurs. For the purpose of calculating the holding period required for
conversion of Class B shares, the date of initial issuance shall mean: (1) the
date on which such Class B shares were issued, or (2) for Class B shares
obtained through an exchange, or a series of exchanges, (subject to the exchange
privileges for Class B shares) the date on which the original Class B shares
were issued. For purposes of conversion of Class B shares, Class B shares
purchased through the reinvestment of dividends and capital gain distributions
paid in respect of Class B shares will be held in a separate sub-account. Each
time any Class B shares in the shareholder's regular account (other than those
shares in the sub-account) convert to Class A shares, a pro rata portion of the
Class B shares in the sub-account will also convert to Class A shares. The
portion will be determined by the ratio that the shareholder's Class B shares
converting to Class A shares bears to the shareholder's total Class B shares not
acquired through the reinvestment of dividends and capital gain distributions.
NET ASSET VALUE
The net asset value per share of each Fund is computed by dividing the
value of that 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 a Fund's aggregate net assets, receivables are valued at their
realizable amounts. Each Fund's liabilities, if not identifiable as belonging to
a particular class of that 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
a Fund's portfolio securities occur between the time when a foreign exchange
closes and the time when that 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 a Fund's Custodian or the Exchange close early as a
result of a partial holiday or otherwise, the Trust reserves the right to
advance the time on that day by which purchase and redemption requests must be
received.
The number of shares you receive when you place a purchase order, and the
payment you receive after submitting a redemption request, is based on each
Fund's net asset value next determined after your instructions are received in
proper form by IMSC or by your registered securities dealer. Each purchase and
redemption order is subject to any applicable sales charge. Since each Fund
normally invests in securities that are listed on foreign exchanges that may
trade on weekends or other days when the Fund does not price its shares, each
Fund's net asset value may change on days when shareholders will not be able to
purchase or redeem that Fund's shares. The sale of each 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 a Fund's best interest to do so.
TAXATION
The following is a general discussion of certain tax rules thought to be
applicable with respect to each 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 any Fund.
Each Fund intends to be taxed as a regulated investment company under
Subchapter M of the Code. Accordingly, each 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, each 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. Each 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, each 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, each 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 a 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 each 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 a 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 a 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 a 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 each 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 each 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
each Fund may result in "straddles" for Federal income tax purposes. The
straddle rules may affect the character of gains or losses realized by each
Fund. In addition, losses realized by each 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 each Fund
are not entirely clear. The straddle rules may increase the amount of short-term
capital gain realized by any Fund, which is taxed as ordinary income when
distributed to shareholders.
Each Fund may make one or more of the elections available under the Code
which are applicable to straddles. If a 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, each 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 each 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 each Fund accrues receivables or liabilities denominated
in a foreign currency and the time that 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 each Fund's investment company taxable income
available to be distributed to its shareholders as ordinary income.
INVESTMENT IN PASSIVE FOREIGN INVESTMENT COMPANIES
Each Fund may invest in shares of foreign corporations which may be
classified under the Code as passive foreign investment companies ("PFICs"). In
general, a foreign corporation is classified as a PFIC if at least one-half of
its assets constitute investment-type assets, or 75% or more of its gross income
is investment-type income. If a Fund receives a so-called "excess distribution"
with respect to PFIC stock, that 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. Each 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.
Each Fund may be eligible to elect alternative tax treatment with respect
to PFIC shares. Each 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, each 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 each 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 each 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. Each 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 each Fund may be treated as having
acquisition discount, or OID in the case of certain types of debt securities.
Generally, each 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. Each 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.
Each Fund generally will be required to distribute dividends to
shareholders representing discount on debt securities that is currently
includable in income, even though cash representing such income may not have
been received by that Fund. Cash to pay such dividends may be obtained from
sales proceeds of securities held by each 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 each Fund to a corporate shareholder, to the extent such dividends are
attributable to dividends received from U.S. corporations by that 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 each 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 that Fund on the distribution date. A
distribution of an amount in excess of a 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 a 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
a 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 same 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 each 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 any Fund's total assets at the close of
its taxable year consists of securities of foreign corporations, that 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 a 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 a Fund makes
the election described in the preceding paragraph, the source of the Fund's
income flows through to its shareholders. With respect to each 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 each 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 a 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 a 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
Each 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 Funds or shareholders. Shareholders are
advised to consult their own tax advisers with respect to the particular tax
consequences to them of an investment in any Fund.
PERFORMANCE INFORMATION
Performance information for the classes of shares of each 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 each 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 a 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.
AVERAGE ANNUAL TOTAL RETURN. Quotations of standardized average annual
total return ("Standardized Return") for a specific class of shares of each 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 each 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 each 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%.
Each Fund may, from time to time, include in advertisements, promotional
literature or reports to shareholders or prospective investors total return data
that are not calculated according to the formula set forth above
("Non-Standardized Return"). Neither initial nor CDSCs are taken into account in
calculating Non-Standardized Return; a sales charge, if deducted, would reduce
the return.
The following table summarizes the calculation of Standardized and
Non-Standardized Return for the Class A, Class B and Class C shares of each Fund
for the periods indicated. In determining the average annual total return for a
specific class of shares of each Fund, recurring fees, if any, that are charged
to all shareholder accounts are taken into consideration. For any account fees
that vary with the size of the account of each Fund, the account fee used for
purposes of the following computations is assumed to be the fee that would be
charged to the mean account size of the Fund.
IVY GROWTH FUND
STANDARDIZED RETURN[*]
CLASS A[1] CLASS B[2] CLASS C[3]
Year ended December 7.50% 7.99% 11.72%
31, 1998
Five Years ended 11.70% 11.70% N/A
December 31, 1998
Ten Years ended 12.65% N/A N/A
December 31, 1998
Inception [#] to 10.86% 11.88% 10.67%
year ended December
31, 1998 [7]:
NON-STANDARDIZED RETURN[**]
CLASS A[4] CLASS B[5] CLASS C[6]
Year ended December 14.05% 12.99% 12.72%
31, 1998
Five Years ended 13.03% 11.96% N/A
December 31, 1998
Ten Years ended 13.31% N/A N/A
December 31, 1998
Inception [#] to 11.04% 11.98% 10.67%
year ended December
31, 1998 [7]:
- ---------------------------------------------------------------------
[*] The Standardized Return figures for Class A shares reflect the
deduction of the maximum initial sales charge of 5.75%. The Standardized Return
figures for Class B and C shares reflect the deduction of the applicable CDSC
imposed on redemption of Class B or C shares held for the period.
[**] The Non-Standardized Return figures do not reflect the deduction of
any initial sales charge or CDSC.
[#] The inception date for Class A shares of Ivy Growth Fund was March 1,
1984. The inception dates for Class B and Class C shares of the Fund were
October 23, 1993 and April 30, 1996, respectively.
[1] The Standardized Return figures for the Class A shares reflect expense
reimbursement. Without expense reimbursement, the Standardized Return for Class
A shares for the period from inception through December 31, 1998 and the one,
five and ten year periods ended December 31, 1998 would have been 10.86%, 7.50%,
11.68% and 12.62%, respectively.
[2] The Standardized Return figures for the Class B shares reflect expense
reimbursement. Without expense reimbursement, the Standardized Return for Class
B shares for the period from inception through December 31, 1998 and the one and
five year periods ended December 31, 1998 would have been 11.83%, 7.99%, and
11.69%, respectively. (Since the inception date for Class B shares was October
23, 1993, there were no Class B shares outstanding for the duration of the
ten-year period ended December 31, 1998.)
[3] The Standardized Return figures for the Class C shares reflect expense
reimbursement. Without expense reimbursement, the Standardized Return for Class
C shares for the period from inception through December 31, 1998 and the one
year period ended December 31, 1998 would have been 10.67% and 11.72%,
respectively. (Since the inception date for Class C shares was April 30, 1996,
there were no Class C shares outstanding for the duration of the five and ten
year periods ended December 31, 1998.)
[4] The Non-Standardized Return figures for Class A shares reflect expense
reimbursement. Without expense reimbursement, the Non-Standardized Return for
Class A shares for the period from inception through December 31, 1998 and the
one, five and ten year periods ended December 31, 1998 would have been 11.03%,
14.05%, 13.02%, and 13.28%, respectively.
[5] The Non-Standardized Return figures for Class B shares reflect expense
reimbursement. Without expense reimbursement, the Non-Standardized Return for
Class B shares for the period from inception through December 31, 1998 and the
one and five year periods ended December 31, 1998 would have been 11.95%,
12.99%, and 11.95%, respectively. (Since the inception date for Class B shares
was October 23, 1993, there were no Class B shares outstanding for the duration
of the ten-year period ended December 31, 1998.)
[6] The Non-Standardized Return figures for Class C shares reflect expense
reimbursement. Without expense reimbursement, the Non-Standardized Return for
Class C shares for the period from inception through December 31, 1998 and the
one year period ended December 31, 1998 would have been 10.67% and 12.72%,
respectively. (Since the inception date for Class C shares was April 30, 1996,
there were no Class C shares outstanding for the duration of the five and ten
year periods ended December 31, 1998.)
[7] The total return for a period less than a full year is calculated on
an aggregate basis and is not annualized.
IVY GROWTH WITH INCOME FUND
STANDARDIZED RETURN[*]
CLASS A[1] CLASS B[2] CLASS C[3]
Year ended 3.53% 4.01% 8.16%
December 31, 1998
Five years ended 13.16% 13.39% N/A
December 31, 1998
Ten years ended 13.41% N/A N/A
December 31, 1998:
Inception [#] to 15.06% 13.12% 15.82%
year ended
December 31, 1998 [7]:
NON-STANDARDIZED RETURN[**]
CLASS A[4] CLASS B[5] CLASS C[6]
Year ended 9.64% 9.01% 9.16%
December 31, 1998:
Five years ended 14.51% 13.63% N/A
December 31, 1998
Ten years ended 14.09% N/A N/A
December 31, 1998:
Inception [#] to 15.53% 13.22% 15.82%
year ended
December 31, 1998 [7]:
- ---------------------------------------------------------------------
[*] The Standardized Return figures for Class A shares reflect the
deduction of the maximum initial sales charge of 5.75%. The Standardized Return
figures for Class B and C shares reflect the deduction of the applicable CDSC
imposed on redemption of Class B or C shares held for the period.
[**] The Non-Standardized Return figures do not reflect the deduction of
any initial sales charge or CDSC.
[#] The inception date for Ivy Growth with Income Fund (Class A shares)
was April 1, 1984; the inception date for Class B shares of the Fund was October
23, 1993; and the inception date for the Class C shares of the Fund was April
30, 1996. The inception of Class C shares of the Fund coincided with the
redesignation as "Class D" those shares of Ivy Growth with Income Fund that were
initially issued as "Ivy Growth with Income Fund -- Class C" to shareholders of
Mackenzie Growth & Income Fund, a former series of the Company, in connection
with the reorganization between that fund and Ivy Growth with Income Fund, which
shares are not offered for sale to the public.
[1] The Standardized Return figures for the Class A shares reflect expense
reimbursement. Without expense reimbursement, the Standardized Return for Class
A shares for the period from inception through December 31, 1998 and the one,
five and ten year periods ended December 31, 1998 would have been 15.06%, 3.53%,
13.16%, and 13.40%, respectively.
[2] The Standardized Return figures for the Class B shares reflect expense
reimbursement. Without expense reimbursement, the Standardized Return for Class
B shares for the period from inception through December 31, 1998 and the one and
five year periods ended December 31, 1998 would have been 13.12%, 4.01%, and
13.39%, respectively. (Since the inception date for Class B shares was October
23, 1993, there were no outstanding Class B shares during the duration of the
ten year period ended December 31, 1998.)
[3] The Standardized Return figures for the Class C shares reflect expense
reimbursement. Without expense reimbursement, the Standardized Return for Class
C shares for the period from inception through December 31, 1998 and the one
year period ended December 31, 1998 would have been 15.82% and 8.16%,
respectively. (Since the inception date for Class C shares was April 30, 1996,
there were no outstanding Class C shares during the five and ten year periods
ended December 31, 1998.)
[4] The Non-Standardized Return figures for Class A shares reflect expense
reimbursement. Without expense reimbursement, the Non-Standardized Return for
Class A shares for the period from inception through December 31, 1998 and the
one, five and ten year periods ended December 31, 1998 would have been 15.52%,
9.84%, 14.51%, and 14.07%, respectively.
[5] The Non-Standardized Return figures for Class B shares reflect expense
reimbursement. Without expense reimbursement, the Non-Standardized Return for
Class B shares for the period from inception through December 31, 1998 and the
one and five year periods ended December 31, 1998 would have been 13.22%, 9.01%,
and 13.63%, respectively. (Since the inception date for Class B shares was
October 23, 1993, there were no outstanding Class B shares during the duration
of the ten year period ended December 31, 1998.)
[6] The Non-Standardized Return figures for Class C shares reflect expense
reimbursement. Without expense reimbursement, the Non-Standardized Return for
Class C shares for the period from inception through December 31, 1998 and the
one year period ended December 31, 1998 would have been 15.82%, and 9.16%,
respectively. (Since the inception date for Class C shares was April 30, 1996,
there were no outstanding Class C shares during the five and ten year periods
ended December 31, 1998.)
[7] The total return for a period less than a full year is calculated on
an aggregate basis and is not annualized.
IVY US BLUE CHIP FUND
STANDARDIZED RETURN[*]
CLASS A[1] CLASS B[2] CLASS C[3] CLASS I [4]
Inception [#] to year 1.22% (0.92)% 3.08% N/A
ended December 31, 1998
[8]:
NON-STANDARDIZED RETURN[**]
CLASS A[5] CLASS B[6] CLASS C[7] CLASS I [4]
Inception [#] to year 7.40% 4.08% 4.08% N/A
ended December 31, 1998
[8]:
- -------------------------------------------------------------------------------
[*] The Standardized Return figures for Class A shares reflect the
deduction of the maximum initial sales charge of 5.75%. The Standardized Return
figures for Class B and C shares reflect the deduction of the applicable CDSC
imposed on redemption of Class B or C shares held for the period.
[**] The Non-Standardized Return figures do not reflect the deduction of
any initial sales charge or CDSC.
[#] The inception date for Ivy US Blue Chip Fund was November 2, 1998.
[1] The Standardized Return figures for the Class A shares reflect expense
reimbursement. Without expense reimbursement, the Standardized Return for Class
A shares for the period from inception through December 31, 1998 would have been
0.35%.
[2] The Standardized Return figures for the Class B shares reflect expense
reimbursement. Without expense reimbursement, the Standardized Return for Class
B shares for the period from inception through December 31, 1998 would have been
(1.79)%.
[3] The Standardized Return figures for the Class C shares reflect expense
reimbursement. Without expense reimbursement, the Standardized Return for Class
C shares for the period from inception through December 31, 1998 would have been
2.22%.
[4] Class I Shares are not subject to an initial sales charge or a CDSC;
therefore, the Standardized and Non-Standardized Return figures would be
identical. However, there were no outstanding Class I Shares during the period
indicated.
[5] The Non-Standardized Return figures for Class A shares reflect expense
reimbursement. Without expense reimbursement, the Non-Standardized Return for
Class A shares for the period from inception through December 31, 1998 would
have been 6.49%.
[6] The Non-Standardized Return figures for Class B shares reflect expense
reimbursement. Without expense reimbursement, the Non-Standardized Return for
Class B shares for the period from inception through December 31, 1998 would
have been 3.19%.
[7] The Non-Standardized Return figures for Class C shares reflect expense
reimbursement. Without expense reimbursement, the Non-Standardized Return for
Class C shares for the period from inception through December 31, 1998 would
have been 3.22%.
[8] The total return for a period less than a full year is calculated on
an aggregate basis and is not annualized.
IVY US EMERGING GROWTH FUND
STANDARDIZED RETURN[*]
CLASS A[1] CLASS B[2] CLASS C[3]
Year ended 11.21% 12.13% 16.19%
December 31, 1998
Five years ended 15.06% 15.35% N/A
December 31, 1998
Inception [#] to 20.88% 14.85% 5.69%
year ended
December 31, 1998 [7]:
NON-STANDARDIZED RETURN[**]
CLASS A[4] CLASS B[5] CLASS C[6]
Year ended 18.00% 17.13% 17.19%
December 31, 1998
Five years ended 16.43% 15.58% N/A
December 31, 1998
Inception [#] to 22.13% 14.94% 5.69%
year ended
December 31, 1998 [7]:
- ---------------------------------------------------------------------
[*] The Standardized Return figures for Class A shares reflect the
deduction of the maximum initial sales charge of 5.75%. The Standardized Return
figures for Class B and C shares reflect the deduction of the applicable CDSC
imposed on redemption of Class B or C shares held for the period.
[**] The Non-Standardized Return figures do not reflect the deduction of
any initial sales charge or CDSC.
[#] The inception date for Ivy US Emerging Growth Fund was March 3, 1993.
Class A shares of the Fund were first offered for sale to the public on April
30, 1993, and Class B shares of the Fund were first offered for sale to the
public on October 23, 1993. The inception date for the Class C shares of the
Fund was April 30, 1996.
[1] The Standardized Return figures for the Class A shares reflect expense
reimbursement. Without expense reimbursement, the Standardized Return for Class
A shares for the period from inception through December 31, 1998 and the one and
five year periods ended December 31, 1998 would have been 20.86%, 11.21% and
15.06%, respectively.
[2] The Standardized Return figures for the Class B shares reflect expense
reimbursement. Without expense reimbursement, the Standardized Return for Class
B shares for the period from inception through December 31, 1998 and the one and
five year periods ended December 31, 1998 would have been 14.81%, 12.13%, and
15.35%, respectively.
[3] The Standardized Return figures for the Class C shares reflect expense
reimbursement. Without expense reimbursement, the Standardized Return for Class
C shares for the period from inception through December 31, 1998 and the one
year period ended December 31, 1998 would have been 5.69% and 16.19%,
respectively. (Since the inception date for Class C shares was April 30, 1996,
there were no outstanding Class C shares for the duration of the five year
period ended December 31, 1998.)
[4] The Non-Standardized Return figures for Class A shares reflect expense
reimbursement. Without expense reimbursement, the Non-Standardized Return for
Class A shares for the period from inception through December 31, 1998 and the
one and five year periods ended December 31, 1998 would have been 22.13%,
18.00%, and 16.43%, respectively.
[5] The Non-Standardized Return figures for Class B shares reflect expense
reimbursement. Without expense reimbursement, the Non-Standardized Return for
Class B shares for the period from inception through December 31, 1998 and the
one and five year periods ended December 31, 1998 would have been 14.90%,
17.13%, and 15.58%, respectively.
[6] The Non-Standardized Return figures for Class C shares reflect expense
reimbursement. Without expense reimbursement, the Non-Standardized Return for
Class C shares for the period from inception through December 31, 1998 and the
one year period ended December 31, 1998 would have been 5.69% and 17.19%,
respectively. (Since the inception date for Class C shares was April 30, 1996,
there were no outstanding Class C shares for the duration of the five year
period ended December 31, 1998.)
[7] The total return for a period less than a full year is calculated on
an aggregate basis and is not annualized.
CUMULATIVE TOTAL RETURN. Cumulative total return is the cumulative rate of
return on a hypothetical initial investment of $1,000 in a specific class of
shares of each Fund for a specified period. Cumulative total return quotations
reflect changes in the price of each Fund's shares and assume that all dividends
and capital gains distributions during the period were reinvested in the same
Fund's shares. Cumulative total return is calculated by computing the cumulative
rates of return of a hypothetical investment in a specific class of shares of
each 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.
IVY GROWTH FUND
The following table summarizes the calculation of Cumulative Total Return
for Ivy Growth Fund for the periods indicated through December 31, 1998,
assuming the maximum 5.75% sales charge has been assessed.
ONE YEAR FIVE YEARS TEN YEARS SINCE
INCEPTION[*]
Class A 7.50% 73.89% 228.95% 4576.57%
Class B 7.99% N/A N/A 79.02%
Class C 11.72% N/A N/A 31.11%
The following table summarizes the calculation of Cumulative Total Return
for Ivy Growth Fund for the periods indicated through December 31, 1998,
assuming the maximum 5.75% sales charge has not been assessed.
ONE YEAR FIVE YEARS TEN YEARS SINCE
INCEPTION[*]
Class A 14.05% 84.50% 249.02% 4861.88%
Class B 12.99% N/A N/A 80.02%
Class C 12.72% N/A N/A 31.11%
- ---------------------------
[*] The inception date for Ivy Growth Fund (Class A shares) was April 1, 1984;
the inception date for the Class B shares of the Fund was October 23,
1993. The inception date for Class C shares of the Fund was April 30,
1996.
IVY GROWTH WITH INCOME FUND
The following table summarizes the calculation of Cumulative Total Return
for Ivy Growth with Income Fund for the periods indicated through December 31,
1998, assuming the maximum 5.75% sales charge has been assessed.
ONE YEAR FIVE YEARS TEN YEARS SINCE
INCEPTION[*]
Class A 9.84% 85.57% 252.08% 684.55%
Class B 4.01% 87.47% N/A 89.62%
Class C 8.16% N/A N/A 48.05%
The following table summarizes the calculation of Cumulative Total Return
for Ivy Growth with Income Fund for the periods indicated through December 31,
1998, assuming the maximum 5.75% sales charge has not been assessed.
ONE YEAR FIVE YEARS TEN YEARS SINCE
INCEPTION[*]
Class A 3.53% 96.89% 273.56% 732.43%
Class B 9.01% 89.47% N/A 90.62%
Class C 9.16% N/A N/A 48.05%
- ---------------------------
[*] The inception date for Ivy Growth with Income Fund (Class A shares) was
April 1, 1984; the inception date for the Class B shares of the Fund was
October 23, 1993. The inception date for Class C shares of the Fund was
April 30, 1996.
IVY US BLUE CHIP FUND
The following table summarizes the calculation of Cumulative Total Return
for Ivy US Blue Chip Fund for the periods indicated through December 31, 1998,
assuming the maximum 5.75% sales charge has been assessed.
SINCE INCEPTION[*]
Class A 1.22%
Class B (0.92)%
Class C 3.08%
Class I N/A
The following table summarizes the calculation of Cumulative Total Return
for Ivy US Blue Chip Fund for the periods indicated through December 31, 1998,
assuming the maximum 5.75% sales charge has not been assessed.
SINCE INCEPTION[*]
Class A 7.40%
Class B 4.08%
Class C 4.08%
Class I N/A
- ---------------------------
[*] The inception date for Ivy US Blue Chip Fund was November 2, 1998.
IVY US EMERGING GROWTH FUND
The following table summarizes the calculation of Cumulative Total Return
for Ivy US Emerging Growth Fund for the periods indicated through December 31,
1998, assuming the maximum 5.75% sales charge has been assessed.
ONE YEAR FIVE YEARS SINCE INCEPTION[*]
Class A 11.21% 101.66% 193.08%
Class B 12.13% 104.26% 105.16%
Class C 16.19% N/A 15.94%
The following table summarizes the calculation of Cumulative Total Return
for Ivy US Emerging Growth Fund for the periods indicated through December 31,
1998, assuming the maximum 5.75% sales charge has not been assessed.
ONE YEAR FIVE YEARS SINCE INCEPTION[*]
Class A 18.00% 113.96% 210.96%
Class B 17.13% 106.26% 106.16%
Class C 17.19% N/A 15.94%
- ---------------------------
[*] The inception date for Ivy US Emerging Growth Fund was March 3, 1993.
Class A shares of the Fund were first offered for sale to the public on
April 30, 1993, and Class B shares were first offered for sale to the
public on October 23, 1993. The inception date for Class C shares was
April 30, 1996.
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 each 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 each 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 each
Fund's shares and the risks associated with each 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.
Each 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
Each Fund's Portfolio of Investments as of December 31, 1998, Statement of
Assets and Liabilities as of December 31, 1998, Statement of Operations for the
fiscal year ended December 31, 1998, Statement of Changes in Net Assets for the
fiscal year ended December 31, 1998, Financial Highlights, Notes to Financial
Statements, and Report of Independent Accountants, which are included in the
Fund's December 31, 1998 Annual Report to shareholders, are incorporated by
reference into this SAI.
<PAGE>
APPENDIX A
DESCRIPTION OF STANDARD & POOR'S RATINGS GROUP ("S&P") AND
MOODY'S INVESTORS SERVICE, INC. ("MOODY'S") CORPORATE
BOND AND COMMERCIAL PAPER RATINGS
[From "Moody's Bond Record," November 1994 Issue (Moody's Investors Service,
New York, 1994), and "Standard & Poor's Municipal Ratings Handbook," October
1997 Issue (McGraw Hill, New York, 1997).]
MOODY'S:
(a) CORPORATE BONDS. Bonds rated Aaa by Moody's are judged by Moody's to
be of the best quality, carrying the smallest degree of investment risk.
Interest payments are protected by a large or exceptionally stable margin and
principal is secure. While the various protective elements are likely to change,
such changes as can be visualized are most unlikely to impair the fundamentally
strong position of such issues. Bonds rated Aa are judged by Moody's to be of
high quality by all standards. Aa bonds are rated lower than Aaa bonds because
margins of protection may not be as large as those of Aaa bonds, or fluctuations
of protective elements may be of greater amplitude, or there may be other
elements present which make the long-term risks appear somewhat larger than
those applicable to Aaa securities. Bonds which are rated A by Moody's possess
many favorable investment attributes and are to be considered as upper
medium-grade obligations. Factors giving security to principal and interest are
considered adequate, but elements may be present which suggest a susceptibility
to impairment sometime in the future. Bonds rated Baa by Moody's are considered
medium-grade obligations (i.e., they are neither highly protected nor poorly
secured). Interest payments and principal security appear adequate for the
present, but certain protective elements may be lacking or may be
characteristically unreliable over any great length of time. Such bonds lack
outstanding investment characteristics and in fact have speculative
characteristics as well. Bonds which are rated Ba are judged to have speculative
elements; their future cannot be considered well-assured. Often the protection
of interest and principal payments may be very moderate and thereby not well
safeguarded during both good and bad times over the future. Uncertainty of
position characterizes bonds in this class. Bonds which are rated B generally
lack characteristics of the desirable investment. Assurance of interest and
principal payments of or maintenance of other terms of the contract over any
long period of time may be small. Bonds which are rated Caa are of poor
standing. Such issues may be in default or there may be present elements of
danger with respect to principal or interest. Bonds which are rated Ca represent
obligations which are speculative in a high degree. Such issues are often in
default or have other marked shortcomings. Bonds which are rated C are the
lowest rated class of bonds and issues so rated can be regarded as having
extremely poor prospects of ever attaining any real investment standing.
(b) COMMERCIAL PAPER. The Prime rating is the highest commercial paper
rating assigned by Moody's. Among the factors considered by Moody's in assigning
ratings are the following: (1) evaluation of the management of the issuer; (2)
economic evaluation of the issuer's industry or industries and an appraisal of
speculative-type risks which may be inherent in certain areas; (3) evaluation of
the issuer's products in relation to competition and customer acceptance; (4)
liquidity; (5) amount and quality of long-term debt; (6) trend of earnings over
a period of ten years; (7) financial strength of a parent company and the
relationships which exist with the issuer; and (8) recognition by management of
obligations which may be present or may arise as a result of public interest
questions and preparations to meet such obligations. Issuers within this Prime
category may be given ratings 1, 2 or 3, depending on the relative strengths of
these factors. The designation of Prime-1 indicates the highest quality
repayment capacity of the rated issue. Issuers rated Prime-2 are deemed to have
a strong ability for repayment while issuers voted Prime-3 are deemed to have an
acceptable ability for repayment. Issuers rated Not Prime do not fall within any
of the Prime rating categories.
S&P:
(a) CORPORATE BONDS. An S&P corporate debt rating is a current assessment
of the creditworthiness of an obligor with respect to a specific obligation. The
ratings are based on current information furnished by the issuer or obtained by
S&P from other sources it considers reliable. The ratings described below may be
modified by the addition of a plus or minus sign to show relative standing
within the major rating categories.
Debt rated AAA has the highest rating assigned by S&P. Capacity to pay
interest and repay principal is extremely strong. Debt rated AA is judged by S&P
to have a very strong capacity to pay interest and repay principal and differs
from the highest rated issues only in small degree. Debt rated A by S&P has a
strong capacity to pay interest and repay principal, although it is somewhat
more susceptible to the adverse effects of changes in circumstances and economic
conditions than debt in higher rated categories.
Debt rated BBB by S&P is regarded by S&P as having an adequate capacity to
pay interest and repay principal. Although such bonds normally exhibit adequate
protection parameters, adverse economic conditions or changing circumstances are
more likely to lead to a weakened capacity to pay interest and repay principal
than debt in higher rated categories.
Debt rated BB, B, CCC, CC and C is regarded as having predominately
speculative characteristics with respect to capacity to pay interest and repay
principal. BB indicates the least degree of speculation and C the highest. While
such debt will likely have some quality and protective characteristics, these
are outweighed by large uncertainties or exposures to adverse conditions. Debt
rated BB has less near-term vulnerability to default than other speculative
issues. However, it faces major ongoing uncertainties or exposure to adverse
business, financial or economic conditions which could lead to inadequate
capacity to meet timely interest and principal payments. The BB rating category
is also used for debt subordinated to senior debt that is assigned an actual or
implied BBB- rating. Debt rated B has a greater vulnerability to default but
currently has the capacity to meet interest payments and principal repayments.
Adverse business, financial, or economic conditions will likely impair capacity
or willingness to pay interest and repay principal. The B rating category is
also used for debt subordinated to senior debt that is assigned an actual or
implied BB or BB- rating. Debt rated CCC has a currently identifiable
vulnerability to default, and is dependent upon favorable business, financial,
and economic conditions to meet timely payment of interest and repayment of
principal. In the event of adverse business, financial or economic conditions,
it is not likely to have the capacity to pay interest and repay principal. The
CCC rating category is also used for debt subordinated to senior debt that is
assigned an actual or implied B or B- rating. The rating CC typically is applied
to debt subordinated to senior debt which is assigned an actual or implied CCC
debt rating. The rating C typically is applied to debt subordinated to senior
debt which is assigned an actual or implied CCC- debt rating. The C rating may
be used to cover a situation where a bankruptcy petition has been filed, but
debt service payments are continued.
The rating CI is reserved for income bonds on which no interest is being
paid. Debt rated D is in payment default. The D rating category is used when
interest payments or principal payments are not made on the date due, even if
the applicable grace period has not expired, unless S&P believes that such
payments will be made during such grace period. The D rating also will be used
upon the filing of a bankruptcy petition if debt service payments are
jeopardized.
(b) COMMERCIAL PAPER. An S&P commercial paper rating is a current
assessment of the likelihood of timely payment of debt considered short-term in
the relevant market.
The commercial paper rating A-1 by S&P indicates that the degree of safety
regarding timely payment is strong. Those issues determined to possess extremely
strong safety characteristics are denoted with a plus sign (+) designation. For
commercial paper with an A-2 rating, the capacity for timely payment on issues
is satisfactory, but not as high as for issues designated A-1. Issues rated A-3
have adequate capacity for timely payment, but are more vulnerable to the
adverse effects of changes in circumstances than obligations carrying higher
designations.
Issues rated B are regarded as having only speculative capacity for timely
payment. The C rating is assigned to short-term debt obligations with a doubtful
capacity for payment. Debt rated D is in payment default. The D rating category
is used when interest payments or principal payments are not made on the date
due, even if the applicable grace period has not expired, unless S&P believes
such payments will be made during such grace period.
<PAGE>
IVY GROWTH FUND
IVY GROWTH WITH INCOME FUND
IVY US BLUE CHIP FUND
IVY US EMERGING GROWTH 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
May 3, 1999
(as supplemented October 18, 1999)
Ivy Fund (the "Trust") is an open-end management investment company that
currently consists of nineteen fully managed portfolios, each of which (except
for Ivy South America Fund and Ivy International Strategic Bond Fund) is
diversified. This Statement of Additional Information ("SAI") relates to the
Advisor Class shares of Ivy Growth Fund, Ivy Growth with Income Fund, Ivy US
Blue Chip Fund and Ivy US Emerging Growth Fund (each a "Fund"). The other
fifteen 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 Funds' Advisor Class shares dated April 30, 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. Advisor
Class shares are only offered to certain investors (see the Prospectus). The
Funds also offer Class A, B and C shares (and Class I shares, in the case of Ivy
US Blue Chip Fund), 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. ("IMDI")
Via Mizner Financial Plaza, Suite 300
700 South Federal Highway
Boca Raton, Florida 33432
Telephone: (800) 456-5111
<PAGE>
TABLE OF CONTENTS
GENERAL INFORMATION..........................................................1
INVESTMENT OBJECTIVES, STRATEGIES AND RISKS..................................1
IVY GROWTH FUND........................................................1
INVESTMENT RESTRICTIONS FOR IVY GROWTH FUND............................2
IVY GROWTH WITH INCOME FUND............................................4
INVESTMENT RESTRICTIONS FOR IVY GROWTH WITH INCOME FUND................5
IVY US BLUE CHIP FUND..................................................7
INVESTMENT RESTRICTIONS FOR IVY US BLUE CHIP FUND......................8
IVY US EMERGING GROWTH FUND...........................................10
INVESTMENT RESTRICTIONS FOR IVY US EMERGING GROWTH FUND...............11
COMMON STOCKS.........................................................13
CONVERTIBLE SECURITIES................................................14
SMALL COMPANIES.......................................................14
ADJUSTABLE RATE PREFERRED STOCKS......................................15
DEBT SECURITIES.......................................................15
IN GENERAL......................................................15
INVESTMENT-GRADE DEBT SECURITIES................................15
LOW-RATED DEBT SECURITIES.......................................16
U.S. GOVERNMENT SECURITIES......................................17
ZERO COUPON BONDS...............................................18
FIRM COMMITMENT AGREEMENTS AND "WHEN-ISSUED" SECURITIES.........18
ILLIQUID SECURITIES...................................................18
FOREIGN SECURITIES....................................................19
EMERGING MARKETS......................................................20
FOREIGN CURRENCIES....................................................22
FOREIGN CURRENCY EXCHANGE TRANSACTIONS................................22
REPURCHASE AGREEMENTS.................................................23
BANKING INDUSTRY AND SAVINGS AND LOAN OBLIGATIONS.....................24
COMMERCIAL PAPER......................................................24
BORROWING.............................................................24
WARRANTS..............................................................24
REAL ESTATE INVESTMENT TRUSTS (REITS).................................25
OPTIONS TRANSACTIONS..................................................25
IN GENERAL......................................................25
WRITING OPTIONS ON INDIVIDUAL SECURITIES........................26
PURCHASING OPTIONS ON INDIVIDUAL SECURITIES.....................27
PURCHASING AND WRITING OPTIONS ON SECURITIES INDICES............27
RISKS OF OPTIONS TRANSACTIONS...................................28
FUTURES CONTRACTS AND OPTIONS ON FUTURES CONTRACTS....................29
IN GENERAL......................................................29
RISKS ASSOCIATED WITH FUTURES AND RELATED OPTIONS...............30
SECURITIES INDEX FUTURES CONTRACTS....................................31
RISKS OF SECURITIES INDEX FUTURES...............................32
COMBINED TRANSACTIONS...........................................33
PORTFOLIO TURNOVER..........................................................33
TRUSTEES AND OFFICERS.......................................................34
PERSONAL INVESTMENTS BY EMPLOYEES OF IMI........................34
INVESTMENT ADVISORY AND OTHER SERVICES......................................34
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..............................38
ADMINISTRATOR.........................................................38
AUDITORS..............................................................39
BROKERAGE ALLOCATION........................................................39
CAPITALIZATION AND VOTING RIGHTS............................................40
SPECIAL RIGHTS AND PRIVILEGES...............................................41
AUTOMATIC INVESTMENT METHOD...........................................42
EXCHANGE OF SHARES....................................................42
RETIREMENT PLANS......................................................43
INDIVIDUAL RETIREMENT ACCOUNTS..................................43
ROTH IRAS.......................................................44
QUALIFIED PLANS.................................................45
DEFERRED COMPENSATION FOR PUBLIC SCHOOLS AND CHARITABLE
ORGANIZATIONS ("403(B)(7) ACCOUNT").............................46
SIMPLIFIED EMPLOYEE PENSION ("SEP") IRAS........................46
SIMPLE PLANS....................................................46
SYSTEMATIC WITHDRAWAL PLAN............................................47
GROUP SYSTEMATIC INVESTMENT PROGRAM...................................47
REDEMPTIONS.................................................................48
NET ASSET VALUE.............................................................49
TAXATION....................................................................50
OPTIONS, FUTURES AND FOREIGN CURRENCY FORWARD CONTRACTS...............51
CURRENCY FLUCTUATIONS -- "SECTION 988" GAINS OR LOSSES................52
INVESTMENT IN PASSIVE FOREIGN INVESTMENT COMPANIES....................53
DEBT SECURITIES ACQUIRED AT A DISCOUNT................................53
DISTRIBUTIONS.........................................................54
DISPOSITION OF SHARES.................................................54
FOREIGN WITHHOLDING TAXES.............................................55
BACKUP WITHHOLDING....................................................56
PERFORMANCE INFORMATION.....................................................56
AVERAGE ANNUAL TOTAL RETURN.....................................57
CUMULATIVE TOTAL RETURN.........................................58
OTHER QUOTATIONS, COMPARISONS AND GENERAL INFORMATION...........59
FINANCIAL STATEMENTS........................................................59
APPENDIX A..................................................................60
<PAGE>
GENERAL INFORMATION
Each Fund is organized as a separate, diversified portfolio of the Trust,
an open-end management investment company organized as a Massachusetts business
trust on December 21, 1983. Ivy Growth Fund commenced operations on March 1,
1984. Ivy Growth with Income Fund commenced operations on April 1, 1984. Ivy US
Blue Chip Fund commenced operations on November 2, 1998. Ivy US Emerging Growth
Fund commenced operations on March 3, 1993. Advisor Class shares of each Fund
(except Ivy US Blue Chip Fund) were first offered on January 1, 1998. Advisor
Class shares of Ivy US Blue Chip Fund were first offered on November 2, 1998.
Descriptions in this SAI of a particular investment practice or technique
in which any Fund may engage or a financial instrument which any Fund may
purchase are meant to describe the spectrum of investments that IMI, in its
discretion, might, but is not required to, use in managing each Fund's portfolio
assets. IMI may, in its discretion, at any time employ such practice, technique
or instrument for one or more funds but not for all funds advised by it.
Furthermore, it is possible that certain types of financial instruments or
investment techniques described herein may not be available, permissible,
economically feasible or effective for their intended purposes in some or all
markets, in which case a Fund would not use them. Certain practices, techniques,
or instruments may not be principal activities of a Fund but, to the extent
employed, could from time to time have a material impact on that Fund's
performance.
INVESTMENT OBJECTIVES, STRATEGIES AND RISKS
Each Fund has its own investment objectives and policies, which are
described in the Prospectus under the captions "Summary" and "Additional
Information About Strategies and Risks." Descriptions of each Fund's policies,
strategies and investment restrictions, as well as additional information
regarding the characteristics and risks associated with each
Fund's investment techniques, are set forth below.
Whenever an investment objective, policy or restriction set forth in the
Prospectus or this SAI states a maximum percentage of assets that may be
invested in any security or other asset or describes a policy regarding quality
standards, such percentage limitation or standard shall, unless otherwise
indicated, apply to a Fund only at the time a transaction is entered into.
Accordingly, if a percentage limitation is adhered to at the time of investment,
a later increase or decrease in the percentage which results from circumstances
not involving any affirmative action by a Fund, such as a change in market
conditions or a change in a Fund's asset level or other circumstances beyond a
Fund's control, will not be considered a violation.
IVY GROWTH FUND
Ivy Growth Fund's principal investment objective is long-term capital
growth primarily through investment in equity securities, with current income
being a secondary consideration. Under normal conditions, the Fund invests at
least 65% of its total assets in common stocks and securities convertible into
common stocks. The Fund invests primarily in common stocks of domestic
corporations with low price-earnings ratios and rising earnings, focusing on
established, financially secure firms with capitalizations over $100 million and
more than three years of operating history.
Ivy Growth Fund may invest up to 25% of its net assets in foreign equity
securities, primarily those traded in European, Pacific Basin and Latin American
markets, some of which may be emerging markets involving special risks, as
described below. Individual foreign securities are selected based on value
indicators, such as a low price-earnings ratio, and are reviewed for fundamental
financial strength.
When circumstances warrant, the Fund may invest without limit in
investment grade debt securities (e.g., U.S. Government securities or other
corporate debt securities rated at least Baa by Moody's Investors Service, Inc.
("Moody's") or BBB by Standard & Poors Ratings Services ("S&P"), or, if unrated,
considered by IMI to be of comparable quality), preferred stocks, or cash or
cash equivalents such as bank obligations (including certificates of deposit and
bankers' acceptances), commercial paper, short-term notes and repurchase
agreements.
The Fund may invest up to 5% of its net assets in debt securities rated Ba
or below by Moody's or BB or below by S&P, or if unrated, considered by IMI to
be of comparable quality (commonly referred to as "high yield" or "junk" bonds).
The Fund will not invest in debt securities rated less than C by either Moody's
or S&P.
The Fund may borrow up to 10% of the value of its total assets, but only
for temporary purposes when it would be advantageous to do so from an investment
standpoint. The Fund may invest up to 5% of its net assets in warrants. The Fund
may not invest more than 15% of its net assets in illiquid securities. The Fund
may enter into forward foreign currency contracts and may also invest in equity
real estate investment trusts.
Ivy Growth Fund may write put options, with respect to not more than 10%
of the value of its net assets, on securities and stock indices, and may write
covered call options with respect to not more than 25% of the value of its net
assets. The Fund may purchase options, provided the aggregate premium paid for
all options held does not exceed 5% of its net assets. For hedging purposes
only, the Fund may enter into stock index futures contracts as a means of
regulating its exposure to equity markets. The Fund's equivalent exposure in
stock index futures contracts will not exceed 15% of its total assets.
INVESTMENT RESTRICTIONS FOR IVY GROWTH FUND
Ivy Growth Fund's investment objectives as set forth in the "Summary"
section of the Prospectus, together with the investment restrictions set forth
below, are fundamental policies of the Fund and may not be changed without the
approval of a majority (as defined in the 1940 Act) of the outstanding voting
shares of the Fund. The Fund has adopted the following fundamental investment
restrictions:
(i) The Fund has elected to be classified as a diversified series of an
open-end investment company.
(ii) The Fund will not borrow money, except as permitted under the
Investment Company Act of 1940, as amended, and as interpreted or
modified by regulatory authority having jurisdiction, from time to
time.
(iii) The Fund will not issue senior securities, except as permitted under
the Investment Company Act of 1940, as amended, and as interpreted or
modified by regulatory authority having jurisdiction, from time to
time.
(iv) The Fund will not engage in the business of underwriting securities
issued by others, except to the extent that the Fund may be deemed to
be an underwriter in connection with the disposition of portfolio
securities.
(v) The Fund will not purchase or sell real estate (which term does not
include securities of companies that deal in real estate or mortgages
or investments secured by real estate or interests therein), except
that the Fund may hold and sell real estate acquired as a result of
the Fund's ownership of securities.
(vi) The Fund will not purchase physical commodities or contracts relating
to physical commodities, although the Fund may invest in commodities
futures contracts and options thereon to the extent permitted by its
Prospectus and this SAI.
(vii) The Fund will not make loans to other persons, except (a) loans of
portfolio securities, and (b) to the extent that entry into repurchase
agreements and the purchase of debt instruments or interests in
indebtedness in accordance with the Fund's investment objective and
policies may be deemed to be loans.
(viii) The Fund will not concentrate its investments in a particular
industry, as the term "concentrate" is interpreted in connection with
the Investment Company Act of 1940, as amended, and as interpreted or
modified by regulatory authority having jurisdiction, from time to
time.
ADDITIONAL RESTRICTIONS
Ivy Growth Fund has adopted the following additional restrictions which
are not fundamental and which may be changed without shareholder approval to the
extent permitted by applicable law, regulation or regulatory policy.
Under these restrictions, the Fund may not:
(i) invest in oil, gas or other mineral leases or exploration or
development programs;
(ii) engage in the purchase and sale of puts, calls, straddles or spreads
(except to the extent described in the Prospectus and in this SAI);
(iii) invest in companies for the purpose of exercising control of
management;
(iv) invest more than 5% of its total assets in warrants, valued at the
lower of cost or market, or more than 2% of its total assets in
warrants, so valued, which are not listed on either the New York or
American Stock Exchanges;
(v) purchase any security if, as a result, the Fund would then have more
than 5% of its total assets (taken at current value) invested in
securities of companies (including predecessors) less than three years
old;
(vi) invest more than 5% of the value of its total assets in the securities
of issuers which are not readily marketable;
(vii) borrow money, except for temporary purposes where investment
transactions might advantageously require it. Any such loan may not be
for a period in excess of 60 days, and the aggregate amount of all
outstanding loans may not at any time exceed 10% of the value of the
total assets of the Fund at the time any such loan is made;
(viii) purchase securities on margin;
(ix) sell securities short;
(x) purchase from or sell to any of its officers or trustees, or firms of
which any of them are members or which they control, any securities
(other than capital stock of the Fund), but such persons or firms may
act as brokers for the Fund for customary commissions to the extent
permitted by the Investment Company Act of 1940; or
(xi) purchase the securities of any other open-end investment company,
except as part of a plan of merger or consolidation.
Under the 1940 Act, the Fund is permitted, subject to its investment
restrictions, to borrow money only from banks. The Trust has no current
intention of borrowing amounts in excess of 5% of the Fund's assets. The Fund
will continue to interpret fundamental investment restriction (v) to prohibit
investment in real estate limited partnership interests; this restriction shall
not, however, prohibit investment in readily marketable securities of companies
that invest in real estate or interests therein, including real estate
investment trusts.
IVY GROWTH WITH INCOME FUND
Ivy Growth with Income Fund's principal investment objective is long-term
capital growth primarily through investment in equity securities, with current
income being a secondary consideration. The Fund has some emphasis on
dividend-paying stocks. Under normal conditions, the Fund invests at least 65%
of its total assets in common stocks and securities convertible into common
stocks. The Fund invests primarily in common stocks of domestic corporations
with low price-earnings ratios and rising earnings, focusing on established,
financially secure firms with capitalizations over $100 million and more than
three years of operating history.
Ivy Growth with Income Fund may invest up to 25% of its net assets in
foreign equity securities, primarily those traded in European, Pacific Basin and
Latin American markets, some of which may be emerging markets involving special
risks, as described below. Individual foreign securities are selected based on
value indicators, such as a low price-earnings ratio, and are reviewed for
fundamental financial strength.
When circumstances warrant, the Fund may invest without limit in
investment grade debt securities (e.g., U.S. Government securities or other
corporate debt securities rated at least Baa by Moody's or BBB by S&P, or, if
unrated, considered by IMI to be of comparable quality), preferred stocks, or
cash or cash equivalents such as bank obligations (including certificates of
deposit and bankers' acceptances), commercial paper, short-term notes and
repurchase agreements.
The Fund may invest less than 35% of its net assets in debt securities
rated Ba or below by Moody's or BB or below by S&P, or if unrated, considered by
IMI to be of comparable quality (commonly referred to as "high yield" or "junk"
bonds). The Fund will not invest in debt securities rated less than C by either
Moody's or S&P.
The Fund may borrow up to 10% of the value of its total assets, but only
for temporary purposes when it would be advantageous to do so from an investment
standpoint. The Fund may invest up to 5% of its net assets in warrants. The Fund
may not invest more than 15% of its net assets in illiquid securities. The Fund
may enter into forward foreign currency contracts. The Fund may also invest in
equity real estate investment trusts.
The Fund may write put options, with respect to not more than 10% of the
value of its net assets, on securities and stock indices, and may write covered
call options with respect to not more than 25% of the value of its net assets.
The Fund may purchase options, provided the aggregate premium paid for all
options held does not exceed 5% of its net assets. For hedging purposes only,
the Fund may enter into stock index futures contracts as a means of regulating
its exposure to equity markets. The Fund's equivalent exposure in stock index
futures contracts will not exceed 15% of its total assets.
INVESTMENT RESTRICTIONS FOR IVY GROWTH WITH INCOME FUND
Ivy Growth with Income Fund's investment objectives as set forth in the
"Summary" section of the Prospectus, together with the investment restrictions
set forth below, are fundamental policies of the Fund and may not be changed
without the approval of a majority of the outstanding voting shares of the Fund.
The Fund has adopted the following fundamental investment restrictions:
(i) The Fund has elected to be classified as a diversified series of an
open-end investment company.
(ii) The Fund will not borrow money, except as permitted under the
Investment Company Act of 1940, as amended, and as interpreted or
modified by regulatory authority having jurisdiction, from time to
time.
(iii) The Fund will not issue senior securities, except as permitted under
the Investment Company Act of 1940, as amended, and as interpreted or
modified by regulatory authority having jurisdiction, from time to
time.
(iv) The Fund will not engage in the business of underwriting securities
issued by others, except to the extent that the Fund may be deemed to
be an underwriter in connection with the disposition of portfolio
securities.
(v) The Fund will not purchase or sell real estate (which term does not
include securities of companies that deal in real estate or mortgages
or investments secured by real estate or interests therein), except
that the Fund may hold and sell real estate acquired as a result of
the Fund's ownership of securities.
(vi) The Fund will not purchase physical commodities or contracts relating
to physical commodities, although the Fund may invest in commodities
futures contracts and options thereon to the extent permitted by the
Prospectus and this SAI.
(vii) The Fund will not make loans to other persons, except (a) loans of
portfolio securities, and (b) to the extent that entry into repurchase
agreements and the purchase of debt instruments or interests in
indebtedness in accordance with the Fund's investment objective and
policies may be deemed to be loans.
(viii) The Fund will not concentrate its investments in a particular
industry, as the term "concentrate" is interpreted in connection with
the Investment Company Act of 1940, as amended, and as interpreted or
modified by regulatory authority having jurisdiction, from time to
time.
ADDITIONAL RESTRICTIONS
Ivy Growth with Income Fund has adopted the following additional
restrictions, which are not fundamental and which may be changed without
shareholder approval to the extent permitted by applicable law, regulation or
regulatory policy.
Under these restrictions, the Fund may not:
(i) invest in oil, gas or other mineral leases or exploration or
development programs;
(ii) engage in the purchase and sale of puts, calls, straddles or spreads
(except of the extent described in the Prospectus and in this SAI);
(iii) invest in companies for the purpose of exercising control of
management;
(iv) invest more than 5% of its total assets in warrants, valued at the
lower of cost or market, or more than 2% of its total assets in
warrants, so valued, which are not listed on either the New York or
American Stock Exchanges;
(v) purchase any security if, as a result, the Fund would then have more
than 5% of its total assets (taken at current value) invested in
securities of companies (including predecessors) less than three years
old;
(vi) invest more than 5% of the value of its total assets in the securities
of issuers which are not readily marketable;
(viii) borrow money, except for temporary purposes where investment
transactions might advantageously require it. Any such loan may not be
for a period in excess of 60 days, and the aggregate amount of all
outstanding loans may not at any time exceed 10% of the value of the
total assets of the Fund at the time any such loan is made;
(ix) purchase securities on margin;
(x) sell securities short;
(xi) purchase from or sell to any of its officers or trustees, or firms of
which any of them are members or which they control, any securities
(other than capital stock of the Fund), but such persons or firms may
act as brokers for the Fund for customary commissions to the extent
permitted by the 1940 Act; or
(xii) purchase the securities of any other open-end investment company,
except as part of a plan of merger or consolidation.
The Trust has no current intention of borrowing amounts in excess of 5% of
the Fund's assets. The Fund will continue to interpret fundamental investment
restriction (v) to prohibit investment in real estate limited partnership
interests; this restriction shall not, however, prohibit investment in readily
marketable securities of companies that invest in real estate or interests
therein, including real estate investment trusts.
IVY US BLUE CHIP FUND
Ivy US Blue Chip Fund's investment objective is long-term capital growth
primarily through investment in equity securities, with current income being a
secondary consideration. Under normal conditions, the Fund will invest at least
65% of its total assets in the common stocks of companies determined by IMI to
be "Blue Chip." Generally, the median market capitalization of companies
targeted for investment by the Fund will be greater than $5 billion. For
investment purposes, however, Blue Chip companies are those companies whose
market capitalization is greater than $1 billion at the time of investment.
Blue Chip companies are those which occupy (or in IMI's judgment have the
potential to occupy) leading market positions that are expected to be maintained
or enhanced over time. Such companies tend to have a lengthy history of profit
growth and dividend payment, and a reputation for quality management structure,
products and services. Securities of Blue Chip companies generally are
considered to be highly liquid because, compared to those of lesser-capitalized
companies, more shares of these securities are outstanding in the marketplace
and their trading volume tends to be higher.
When circumstances warrant, Ivy US Blue Chip Fund may invest without limit
in investment grade debt securities (e.g., U.S. Government securities or other
corporate debt securities rated at least Baa by Moody's or BBB by S&P, or, if
unrated, are considered by IMI to be of comparable quality), preferred stocks,
or cash or cash equivalents such as bank obligations (including certificates of
deposit and bankers' acceptances), commercial paper, short-term notes and
repurchase agreements.
Ivy US Blue Chip Fund may borrow up to 10% of the value of its total
assets, for temporary purposes when it would be advantageous to do so from an
investment standpoint. The Fund may invest up to 5% of its net assets in
warrants. The Fund may not invest more than 15% of its net assets in illiquid
securities. The Fund may also invest in equity real estate investment trusts
("REITs").
The Fund may write put options on securities and stock indices, with
respect to not more than 10% of the value of its net assets, and may write
covered call options with respect to not more than 25% of the value of its net
assets. The Fund may purchase options, provided the aggregate premium paid for
all options held does not exceed 5% of its total assets. The Fund may purchase
interest rate and other financial futures contracts and related options. For
hedging purposes only, the Fund may enter into stock index futures contracts as
a means of regulating its exposure to equity markets. The Fund's equivalent
exposure in stock index futures contracts will not exceed 15% of its total
assets.
INVESTMENT RESTRICTIONS FOR IVY US BLUE CHIP FUND
Ivy US Blue Chip Fund's investment objective, as set forth in the
Prospectus under "Investment Objectives and Policies," and the investment
restrictions set forth below are fundamental policies of the Fund and may not be
changed with respect to the approval of a majority (as defined in the 1940 Act)
of the outstanding voting shares of the Fund. The Fund has adopted the following
fundamental investment restrictions:
(i) The Fund has elected to be classified as a diversified series of an
open-end investment company.
(ii) The Fund will not borrow money, except as permitted under the
Investment Company Act of 1940, as amended, and as interpreted or
modified by regulatory authority having jurisdiction, from time to
time.
(iii) The Fund will not issue senior securities, except as permitted under
the Investment Company Act of 1940, as amended, and as interpreted or
modified by regulatory authority having jurisdiction, from time to
time.
(iv) The Fund will not engage in the business of underwriting securities
issued by others, except to the extent that the Fund may be deemed to
be an underwriter in connection with the disposition of portfolio
securities.
(v) The Fund will not purchase or sell real estate (which term does not
include securities of companies that deal in real estate or mortgages
or investments secured by real estate or interests therein), except
that the Fund may hold and sell real estate acquired as a result of
the Fund's ownership of securities.
(vi) The Fund will not purchase physical commodities or contracts relating
to physical commodities, although the Fund may invest in commodities
futures contracts and options thereon to the extent permitted by the
Prospectus and this SAI.
(vii) The Fund will not make loans to other persons, except (a) loans of
portfolio securities, and (b) to the extent that entry into repurchase
agreements and the purchase of debt instruments or interests in
indebtedness in accordance with the Fund's investment objective and
policies may be deemed to be loans.
(viii) The Fund will not concentrate its investments in a particular
industry, as the term "concentrate" is interpreted in connection with
the Investment Company Act of 1940, as amended, and as interpreted or
modified by regulatory authority having jurisdiction, from time to
time.
ADDITIONAL RESTRICTIONS
Ivy US Blue Chip Fund has adopted the following additional restrictions,
which are not fundamental and which may be changed without shareholder approval,
to the extent permitted by applicable law, regulation or regulatory policy.
Under these restrictions, the Fund may not:
(i) purchase any security if, as a result, the Fund would then have more
than 5% of its total assets (taken at current value) invested in
securities of companies (including predecessors) less than three years
old;
(ii) invest in oil, gas or other mineral leases or exploration or
development programs;
(iii) engage in the purchase and sale of puts, calls, straddles or spreads
(except to the extent described in the Prospectus and in this SAI);
(iv) invest in companies of the purpose of exercising control of
management;
(v) invest more than 5% of its total assets in warrants, valued at the
lower of cost or market, or more than 2% of its total assets in
warrants, so valued, which are not listed on either the New York or
American Stock Exchanges;
(vi) purchase or retain securities of any company if officers and Trustees
of the Trust and officers and directors of IMI, MIMI or Mackenzie
Financial Corporation who individually own more than 1/2 of 1% of the
securities of that company together own beneficially more than 5% of
such securities;
(vii) invest more than 15% of its net assets in "illiquid securities."
Illiquid securities may include securities subject to legal or
contractual restrictions on resale (including private placements),
repurchase agreements maturing in more than seven days, certain
options traded over the counter that the Fund has purchased,
securities being used to cover certain options that the Fund has
written, securities for which market quotations are not readily
available, or other securities which legally or in IMI's opinion,
subject to the Board's supervision, may be deemed illiquid, but shall
not include any such instrument that, due to the existence of a
trading market or to other factors, is liquid;
(viii) purchase securities of another investment company, except in
connection with a merger, consolidation, reorganization or acquisition
or assets, and except that the Fund may (i) invest in securities of
other investment companies subject to the restrictions set forth in
Section 12(d)(1) of the 1940 Act and (ii) acquire any securities of
registered open-end investment companies or registered unit investment
trusts in reliance on subparagraphs (f) and (g) of Section 12(d)(1) of
the 1940 Act;
(ix) purchase securities on margin, except such short-term credits as are
necessary for the clearance of transactions, the deposit or payment by
the Fund of initial or variation margins in connection with futures
contracts or related options transactions is not considered the
purchase of a security on margin;
(x) sell securities short;
(xi) purchase from or sell to any of its officers or trustees, or firms of
which any of them are members or which they control, any securities
(other than shares of the Fund), but such persons or firms may act as
brokers for the Fund for customary commissions to the extent permitted
by the 1940 Act; or
(xii) borrow amounts in excess of 10% of its total assets, taken at the
lower of cost or market value, as a temporary measure for
extraordinary or emergency purposes or where investment transactions
might advantageously require it, or except in connection with reverse
repurchase agreements, provided that the Fund maintains net asset
coverage of at least 300% for all borrowings.
Under the 1940 Act, the Fund is permitted, subject to the Fund's
investment restrictions, to borrow money only from banks. The Trust has no
current intention of borrowing amounts in excess of 5% of the Fund's assets. The
Fund will continue to interpret fundamental investment restriction (v) above to
prohibit investment in real estate limited partnership interests; this
restriction shall not, however, prohibit investment in readily marketable
securities of companies that invest in real estate or interests therein,
including REITs. Despite fundamental investment restriction (vi) above, the Fund
may invest in interest rate and other financial futures contracts and related
options.
IVY US EMERGING GROWTH FUND
Ivy US Emerging Growth Fund's principal investment objective is long-term
capital growth primarily through investment in equity securities, with current
income being a secondary consideration. Under normal conditions, the Fund
invests at least 65% of its total assets in common stocks and securities
convertible into common stocks. The Fund invests primarily in common stocks (or
securities with similar characteristics) of small- and medium-sized companies,
both domestic and foreign, that are in the early stages of their life cycles and
that IMI believes have the potential to become major enterprises. These may
include securities issued pursuant to initial public offerings ("IPOs"). The
Fund may engage in short-term trading.
Ivy US Emerging Growth Fund may invest up to 25% of its net assets in
foreign equity securities, primarily those traded in European, Pacific Basin and
Latin American markets, some of which may be emerging markets involving special
risks, as described below. Individual foreign securities are selected based on
value indicators, such as a low price-earnings ratio, and are reviewed for
fundamental financial strength.
When circumstances warrant, the Fund may invest without limit in
investment grade debt securities (e.g., U.S. Government securities or other
corporate debt securities rated as least Baa by Moody's or BBB by S&P, or, if
unrated, are considered by IMI to be of comparable quality), preferred stocks,
or cash or cash equivalents such as bank obligations (including certificates of
deposit and bankers' acceptances), commercial paper, short-term notes and
repurchase agreements.
The Fund may borrow up to 10% of the value of its total assets, but only
for temporary purposes when it would be advantageous to do so from an investment
standpoint. The Fund may invest up to 5% of its net assets in warrants. The Fund
may not invest more than 15% of its net assets in illiquid securities. The Fund
may enter into forward foreign currency contracts.
Ivy US Emerging Growth Fund may write put options, with respect to not
more than 10% of the value of its net assets, on securities and stock indices,
and may write covered call options with respect to not more than 25% of the
value of its net assets. The Fund may purchase options, provided the aggregate
premium paid for all options held does not exceed 5% of its net assets. For
hedging purposes only, the Fund may enter into stock index futures contracts as
a means of regulating its exposure to equity markets. The Fund's equivalent
exposure in stock index futures contracts will not exceed 15% of its total
assets.
INVESTMENT RESTRICTIONS FOR IVY US EMERGING GROWTH FUND
Ivy US Emerging Growth Fund's investment objectives as set forth in the
"Summary" section of the Prospectus, together with the investment restrictions
set forth below, are fundamental policies of the Fund and may not be changed
without the approval of a majority of the outstanding voting shares of the Fund.
The Fund has adopted the following fundamental investment restrictions:
(i) The Fund has elected to be classified as a diversified series of an
open-end investment company.
(ii) The Fund will not borrow money, except as permitted under the
Investment Company Act of 1940, as amended, and as interpreted or
modified by regulatory authority having jurisdiction, from time to
time.
(iii) The Fund will not issue senior securities, except as permitted under
the Investment Company Act of 1940, as amended, and as interpreted or
modified by regulatory authority having jurisdiction, from time to
time.
(iv) The Fund will not engage in the business of underwriting securities
issued by others, except to the extent that the Fund may be deemed to
be an underwriter in connection with the disposition of portfolio
securities.
(v) The Fund will not purchase or sell real estate (which term does not
include securities of companies that deal in real estate or mortgages
or investments secured by real estate or interests therein), except
that the Fund may hold and sell real estate acquired as a result of
the Fund's ownership of securities.
(vi) The Fund will not purchase physical commodities or contracts relating
to physical commodities, although the Fund may invest in commodities
futures contracts and options thereon to the extent permitted by the
Prospectus and this SAI.
(vii) The Fund will not make loans to other persons, except (a) loans of
portfolio securities, and (b) to the extent that entry into repurchase
agreements and the purchase of debt instruments or interests in
indebtedness in accordance with the Fund's investment objective and
policies may be deemed to be loans.
(viii) The Fund will not concentrate its investments in a particular
industry, as the term "concentrate" is interpreted in connection with
the Investment Company Act of 1940, as amended, and as interpreted or
modified by regulatory authority having jurisdiction, from time to
time.
ADDITIONAL RESTRICTIONS
Ivy US Emerging Growth Fund has adopted the following additional
restrictions, which are not fundamental and which may be changed without
shareholder approval, to the extent permitted by applicable law, regulation or
regulatory policy. Under these restrictions, the Fund may not:
(i) purchase any security if, as a result, the Fund would then have more
than 5% of its total assets (taken at current value) invested in
securities of companies (including predecessors) less than three years
old;
(ii) invest in oil, gas or other mineral leases or exploration or
development programs;
(iii) engage in the purchase and sale of puts, calls, straddles or spreads
(except to the extent described in the Prospectus and in this SAI);
(iv) invest in companies for the purpose of exercising control of
management;
(v) invest more than 5% of its total assets in warrants, valued at the
lower of cost or market, or more than 2% of its total assets in
warrants, so valued, which are not listed on either the New York or
American Stock Exchanges;
(vi) purchase or retain securities of any company if officers and Trustees
of the Trust and officers and directors of Ivy Management, Inc. (the
Manager, with respect to Ivy Bond Fund), MIMI or Mackenzie Financial
Corporation who individually own more than 1/2 of 1% of the securities
of that company together own beneficially more than 5% of such
securities;
(vii) invest more than 15% of its net assets taken at market value at the
time of investment in "illiquid securities." Illiquid securities may
include securities subject to legal or contractual restrictions on
resale (including private placements), repurchase agreements maturing
in more than seven days, certain options traded over the counter that
the Fund has purchased, securities being used to cover certain options
that a fund has written, securities for which market quotations are
not readily available, or other securities which legally or in IMI's
opinion, subject to the Board's supervision, may be deemed illiquid,
but shall not include any instrument that, due to the existence of a
trading market, to the Fund's compliance with certain conditions
intended to provide liquidity, or to other factors, is liquid;
(viii) purchase securities of other investment companies, except in
connection with a merger, consolidation or sale of assets, and except
that it may purchase shares of other investment companies subject to
such restrictions as may be imposed by the 1940 Act and rules
thereunder or by any state in which its shares are registered;
(ix) purchase securities on margin;
(x) sell securities short;
(xi) purchase from or sell to any of its officers or trustees, or firms of
which any of them are members or which they control, any securities
(other than capital stock of the Fund), but such persons or firms may
act as brokers for the Fund for customary commissions to the extent
permitted by the Investment Company Act of 1940; or
(xii) borrow money, except for temporary purposes where investment
transactions might advantageously require it. Any such loan may not be
for a period in excess of 60 days, and the aggregate amount of all
outstanding loans may not at any time exceed 10% of the value of the
total assets of the Fund at the time any such loan is made.
The Trust has no current intention of borrowing amounts in excess of 5% of
the Fund's assets. The Fund will continue to interpret fundamental investment
restriction (v) above to prohibit investment in real estate limited partnership
interests; this restriction shall not, however, prohibit investment in readily
marketable securities of companies that invest in real estate or interests
therein, including REITs.
COMMON STOCKS
Common stock can be issued by companies to raise cash; all common stock
shares represent a proportionate ownership interest in a company. As a result,
the value of common stock rises and falls with a company's success or failure.
The market value of common stock can fluctuate significantly, with smaller
companies being particularly susceptible to price swings. Transaction costs in
smaller company stocks may also be higher than those of larger companies.
CONVERTIBLE SECURITIES
The convertible securities in which each Fund may invest include corporate
bonds, notes, debentures, preferred stock and other securities that may be
converted or exchanged at a stated or determinable exchange ratio into
underlying shares of common stock. Investments in convertible securities can
provide income through interest and dividend payments as well as an opportunity
for capital appreciation by virtue of their conversion or exchange features.
Because convertible securities can be converted into equity securities, their
values will normally vary in some proportion with those of the underlying equity
securities. Convertible securities usually provide a higher yield than the
underlying equity, however, so that the price decline of a convertible security
may sometimes be less substantial than that of the underlying equity security.
The exchange ratio for any particular convertible security may be adjusted from
time to time due to stock splits, dividends, spin-offs, other corporate
distributions or scheduled changes in the exchange ratio. Convertible debt
securities and convertible preferred stocks, until converted, have general
characteristics similar to both debt and equity securities. Although to a lesser
extent than with debt securities generally, the market value of convertible
securities tends to decline as interest rates increase and, conversely, tends to
increase as interest rates decline. In addition, because of the conversion or
exchange feature, the market value of convertible securities typically changes
as the market value of the underlying common stock changes, and, therefore, also
tends to follow movements in the general market for equity securities. When the
market price of the underlying common stock increases, the price of a
convertible security tends to rise as a reflection of the value of the
underlying common stock, although typically not as much as the price of the
underlying common stock. While no securities investments are without risk,
investments in convertible securities generally entail less risk than
investments in common stock of the same issuer.
As debt securities, convertible securities are investments that provide
for a stream of income. Like all debt securities, there can be no assurance of
income or principal payments because the issuers of the convertible securities
may default on their obligations. Convertible securities generally offer lower
yields than non-convertible securities of similar quality because of their
conversion or exchange features.
Convertible securities generally are subordinated to other similar but
non-convertible securities of the same issuer, although convertible bonds, as
corporate debt obligations, are senior in right of payment to all equity
securities, and convertible preferred stock is senior to common stock, of the
same issuer. However, convertible bonds and convertible preferred stock
typically have lower coupon rates than similar non-convertible securities.
Convertible securities may be issued as fixed income obligations that pay
current income.
SMALL COMPANIES
Investing in smaller company stocks involves certain special
considerations and risks that are not usually associated with investing in
larger, more established companies. For example, the securities of small or new
companies may be subject to more abrupt or erratic market movements because they
tend to be thinly traded and are subject to a greater degree to changes in the
issuer's earnings and prospects. Small companies also tend to have limited
product lines, markets or financial resources. Transaction costs in smaller
company stocks also may be higher than those of larger companies.
INITIAL PUBLIC OFFERINGS
Securities issued through an initial public offering (IPO) can experience
an immediate drop in value if the demand for the securities does not continue to
support the offering price. Information about the issuers of IPO securities is
also difficult to acquire since they are new to the market and may not have
lengthy operating histories. A Fund may engage in short-term trading in
connection with its IPO investments, which could produce higher trading costs
and adverse tax consequences. The number of securities issued in an IPO is
limited, so it is likely that IPO securities will represent a smaller component
of a Fund's portfolio as the Fund's assets increase (and thus have a more
limited effect on the Fund's performance).
ADJUSTABLE RATE PREFERRED STOCKS
Adjustable rate preferred stocks have a variable dividend, generally
determined on a quarterly basis according to a formula based upon a specified
premium or discount to the yield on a particular U.S. Treasury security rather
than a dividend which is set for the life of the issue. Although the dividend
rates on these stocks are adjusted quarterly and their market value should
therefore be less sensitive to interest rate fluctuations than are other fixed
income securities and preferred stocks, the market values of adjustable rate
preferred stocks have fluctuated and can be expected to continue to do so in the
future.
DEBT SECURITIES
IN GENERAL. Investment in debt securities involves both interest rate and
credit risk. Generally, the value of debt instruments rises and falls inversely
with fluctuations in interest rates. As interest rates decline, the value of
debt securities generally increases. Conversely, rising interest rates tend to
cause the value of debt securities to decrease. Bonds with longer maturities
generally are more volatile than bonds with shorter maturities. The market value
of debt securities also varies according to the relative financial condition of
the issuer. In general, lower-quality bonds offer higher yields due to the
increased risk that the issuer will be unable to meet its obligations on
interest or principal payments at the time called for by the debt instrument.
INVESTMENT-GRADE DEBT SECURITIES. Bonds rated Aaa by Moody's Investors
Service, Inc. ("Moody's") and AAA by Standard & Poor's Ratings Group ("S&P") are
judged to be of the best quality (i.e., capacity to pay interest and repay
principal is extremely strong). Bonds rated Aa/AA are considered to be of high
quality (i.e., capacity to pay interest and repay principal is very strong and
differs from the highest rated issues only to a small degree). Bonds rated A are
viewed as having many favorable investment attributes, but elements may be
present that suggest a susceptibility to the adverse effects of changes in
circumstances and economic conditions than debt in higher rated categories.
Bonds rated Baa/BBB (considered by Moody's to be "medium grade" obligations) are
considered to have an adequate capacity to pay interest and repay principal, but
certain protective elements may be lacking (i.e., such bonds lack outstanding
investment characteristics and have some speculative characteristics). The Funds
may invest in debt securities that are given an investment-grade rating by
Moody's or S&P, and may also invest in unrated debt securities that are
considered by IMI to be of comparable quality.
LOW-RATED DEBT SECURITIES. Securities rated lower than Baa by Moody's or
BBB by S&P, and comparable unrated securities (commonly referred to as "high
yield" or "junk" bonds), including many emerging markets bonds, are considered
to be predominantly speculative with respect to the issuer's continuing ability
to meet principal and interest payments. The lower the ratings of corporate debt
securities, the more their risks render them like equity securities. Such
securities carry a high degree of risk (including the possibility of default or
bankruptcy of the issuers of such securities), and generally involve greater
volatility of price and risk of principal and income (and may be less liquid)
than securities in the higher rating categories. (See Appendix A for a more
complete description of the ratings assigned by Moody's and S&P and their
respective characteristics.)
Lower rated and unrated securities are especially subject to adverse
changes in general economic conditions and to changes in the financial condition
of their issuers. Economic downturns may disrupt the high yield market and
impair the ability of issuers to repay principal and interest. Also, an increase
in interest rates would likely have an adverse impact on the value of such
obligations. During an economic downturn or period of rising interest rates,
highly leveraged issuers may experience financial stress which could adversely
affect their ability to service their principal and interest payment
obligations. Prices and yields of high yield securities will fluctuate over time
and, during periods of economic uncertainty, volatility of high yield securities
may adversely affect a Fund's net asset value. In addition, investments in high
yield zero coupon or pay-in-kind bonds, rather than income-bearing high yield
securities, may be more speculative and may be subject to greater fluctuations
in value due to changes in interest rates.
Changes in interest rates may have a less direct or dominant impact on
high yield bonds than on higher quality issues of similar maturities. However,
the price of high yield bonds can change significantly or suddenly due to a host
of factors including changes in interest rates, fundamental credit quality,
market psychology, government regulations, U.S. economic growth and, at times,
stock market activity. High yield bonds may contain redemption or call
provisions. If an issuer exercises these provisions in a declining interest rate
market, a Fund may have to replace the security with a lower yielding security.
The trading market for high yield securities may be thin to the extent
that there is no established retail secondary market or because of a decline in
the value of such securities. A thin trading market may limit the ability of
each Fund to accurately value high yield securities in the Fund's portfolio,
could adversely affect the price at which that Fund could sell such securities,
and cause large fluctuations in the daily net asset value of that Fund's shares.
Adverse publicity and investor perceptions, whether or not based on fundamental
analysis, may decrease the value and liquidity of low-rated debt securities,
especially in a thinly traded market. When secondary markets for high yield
securities become relatively less liquid, it may be more difficult to value the
securities, requiring additional research and elements of judgment. These
securities may also involve special registration responsibilities, liabilities
and costs, and liquidity and valuation difficulties.
Credit quality in the high yield securities market can change suddenly and
unexpectedly, and even recently issued credit ratings may not fully reflect the
actual risks posed by a particular high yield security. For these reasons, it is
the policy of IMI not to rely exclusively on ratings issued by established
credit rating agencies, but to supplement such ratings with its own independent
and on-going review of credit quality. The achievement of each Fund's investment
objectives by investment in such securities may be more dependent on IMI's
credit analysis than is the case for higher quality bonds. Should the rating of
a portfolio security be downgraded, IMI will determine whether it is in the best
interest of a Fund to retain or dispose of such security. However, should any
individual bond held by a Fund be downgraded below a rating of C, IMI currently
intends to dispose of such bond based on then existing market conditions.
Prices for high yield securities may be affected by legislative and
regulatory developments. For example, Federal rules require savings and loan
institutions to gradually reduce their holdings of this type of security. Also,
Congress has from time to time considered legislation that would restrict or
eliminate the corporate tax deduction for interest payments in these securities
and regulate corporate restructurings. Such legislation may significantly
depress the prices of outstanding securities of this type.
U.S. GOVERNMENT SECURITIES. U.S. Government securities are obligations
of, or guaranteed by, the U.S. Government, its agencies or
instrumentalities. Securities guaranteed by the U.S. Government include:
(1) direct obligations of the U.S. Treasury (such as Treasury bills, notes,
and bonds) and (2) Federal agency obligations guaranteed as to principal and
interest by the U.S. Treasury (such as GNMA certificates, which are
mortgage-backed securities). When such securities are held to maturity, the
payment of principal and interest is unconditionally guaranteed by the U.S.
Government, and thus they are of the highest possible credit quality. U.S.
Government securities that are not held to maturity are subject to variations
in market value due to fluctuations in interest rates.
Mortgage-backed securities are securities representing part ownership of a
pool of mortgage loans. For example, GNMA certificates are such securities in
which the timely payment of principal and interest is guaranteed by the full
faith and credit of the U.S. Government. Although the mortgage loans in the pool
will have maturities of up to 30 years, the actual average life of the loans
typically will be substantially less because the mortgages will be subject to
principal amortization and may be prepaid prior to maturity. Prepayment rates
vary widely and may be affected by changes in market interest rates. In periods
of falling interest rates, the rate of prepayments tends to increase, thereby
shortening the actual average life of the security. Conversely, rising interest
rates tend to decrease the rate of prepayment, thereby lengthening the actual
average life of the security (and increasing the security's price volatility).
Accordingly, it is not possible to predict accurately the average life of a
particular pool. Reinvestment of prepayment may occur at higher or lower rates
than the original yield on the certificates. Due to the prepayment feature and
the need to reinvest prepayments of principal at current rates, mortgage-backed
securities can be less effective than typical bonds of similar maturities at
"locking in" yields during periods of declining interest rates, and may involve
significantly greater price and yield volatility than traditional debt
securities. Such securities may appreciate or decline in market value during
periods of declining or rising interest rates, respectively.
Securities issued by U.S. Government instrumentalities and certain federal
agencies are neither direct obligations of nor guaranteed by the U.S. Treasury;
however, they involve Federal sponsorship in one way or another. Some are backed
by specific types of collateral, some are supported by the issuer's right to
borrow from the Treasury, some are supported by the discretionary authority of
the Treasury to purchase certain obligations of the issuer, others are supported
only by the credit of the issuing government agency or instrumentality. These
agencies and instrumentalities include, but are not limited to, Federal Land
Banks, Farmers Home Administration, Central Bank for Cooperatives, Federal
Intermediate Credit Banks, Federal Home Loan Banks, Federal National Mortgage
Association, Federal Home Loan Mortgage Association and Student Loan Marketing
Association.
ZERO COUPON BONDS. Zero coupon bonds are debt obligations issued without
any requirement for the periodic payment of interest. Zero coupon bonds are
issued at a significant discount from face value. The discount approximates the
total amount of interest the bonds would accrue and compound over the period
until maturity at a rate of interest reflecting the market rate at the time of
issuance. If a 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 a 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 a 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. Ivy US Blue Chip 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, Ivy US
Blue Chip Fund will maintain in a segregated account with its Custodian cash or
liquid securities equal (on a daily marked-to-market basis) to the amount of its
commitment to purchase the underlying securities.
ILLIQUID SECURITIES
Each Fund may purchase securities other than in the open market. While
such purchases may often offer attractive opportunities for investment not
otherwise available on the open market, the securities so purchased are often
"restricted securities" or "not readily marketable" (i.e., they cannot be sold
to the public without registration under the Securities Act of 1933, as amended
(the "1933 Act"), or the availability of an exemption from registration (such as
Rule 144A) or because they are subject to other legal or contractual delays in
or restrictions on resale). This investment practice, therefore, could have the
effect of increasing the level of illiquidity of a Fund. It is each Fund's
policy that illiquid securities (including repurchase agreements of more than
seven days duration, certain restricted securities, and other securities which
are not readily marketable) may not constitute, at the time of purchase, more
than 15% of the value of the Fund's net assets. The Trust's Board of Trustees
has approved guidelines for use by IMI in determining whether a security is
illiquid.
Generally speaking, restricted securities may be sold (i) only to
qualified institutional buyers; (ii) in a privately negotiated transaction to a
limited number of purchasers; (iii) in limited quantities after they have been
held for a specified period of time and other conditions are met pursuant to an
exemption from registration; or (iv) in a public offering for which a
registration statement is in effect under the 1933 Act. Issuers of restricted
securities may not be subject to the disclosure and other investor protection
requirements that would be applicable if their securities were publicly traded.
If adverse market conditions were to develop during the period between a Fund's
decision to sell a restricted or illiquid security and the point at which that
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, a
Fund may be required to bear all or part of the registration expenses. A Fund
may be deemed to be an "underwriter" for purposes of the 1933 Act when selling
restricted securities to the public and, in such event, the Fund may be liable
to purchasers of such securities if the registration statement prepared by the
issuer is materially inaccurate or misleading.
Since it is not possible to predict with assurance that the market for
securities eligible for resale under Rule 144A will continue to be liquid, IMI
will monitor such restricted securities subject to the supervision of the Board
of Trustees. Among the factors IMI may consider in reaching liquidity decisions
relating to Rule 144A securities are: (1) the frequency of trades and quotes for
the security; (2) the number of dealers wishing to purchase or sell the security
and the number of other potential purchasers; (3) dealer undertakings to make a
market in the security; and (4) the nature of the security and the nature of the
market for the security (i.e., the time needed to dispose of the security, the
method of soliciting offers, and the mechanics of the transfer).
FOREIGN SECURITIES
The securities of foreign issuers in which Ivy Growth Fund, Ivy Growth
with Income Fund, and Ivy US Emerging Growth Fund may invest include non-U.S.
dollar-denominated debt securities, Euro dollar securities, sponsored and
unsponsored American Depository Receipts ("ADRs"), Global Depository Receipts
("GDRs"), American Depository Shares ("ADSs"), Global Depository Shares ("GDSs")
and related depository instruments, and debt securities issued, assumed or
guaranteed by foreign governments or political subdivisions or instrumentalities
thereof. Shareholders should consider carefully the substantial risks involved
in investing in securities issued by companies and governments of foreign
nations, which are in addition to the usual risks inherent in each Fund's
domestic investments.
Although IMI intends to invest each Fund's assets only in nations that are
generally considered to have relatively stable and friendly governments, there
is the possibility of expropriation, nationalization, repatriation or
confiscatory taxation, taxation on income earned in a foreign country and other
foreign taxes, foreign exchange controls (which may include suspension of the
ability to transfer currency from a given country), default on foreign
government securities, political or social instability or diplomatic
developments which could affect investments in securities of issuers in those
nations. In addition, in many countries there is less publicly available
information about issuers than is available for U.S. companies. Moreover,
foreign companies are not generally subject to uniform accounting, auditing and
financial reporting standards, and auditing practices and requirements may not
be comparable to those applicable to U.S. companies. In many foreign countries,
there is less governmental supervision and regulation of business and industry
practices, stock exchanges, brokers, and listed companies than in the United
States. Foreign securities transactions may also be subject to higher brokerage
costs than domestic securities transactions. The foreign securities markets of
many of the countries in which each Fund may invest may also be smaller, less
liquid and subject to greater price volatility than those in the United States.
In addition, each Fund may encounter difficulties or be unable to pursue legal
remedies and obtain judgment in foreign courts.
Foreign bond markets have different clearance and settlement procedures
and in certain markets there have been times when settlements have been unable
to keep pace with the volume of securities transactions, making it difficult to
conduct such transactions. Delays in settlement could result in temporary
periods when assets of a Fund are uninvested and no return is earned thereon.
The inability of each Fund to make intended security purchases due to settlement
problems could cause that Fund to miss attractive investment opportunities.
Further, the inability to dispose of portfolio securities due to settlement
problems could result either in losses to a Fund because of subsequent declines
in the value of the portfolio security or, if the Fund has entered into a
contract to sell the security, in possible liability to the purchaser. It may be
more difficult for each Fund's agents to keep currently informed about corporate
actions such as stock dividends or other matters that may affect the prices of
portfolio securities. Communications between the United States and foreign
countries may be less reliable than within the United States, thus increasing
the risk of delayed settlements of portfolio transactions or loss of
certificates for portfolio securities. Moreover, individual foreign economies
may differ favorably or unfavorably from the United States economy in such
respects as growth of gross national product, rate of inflation, capital
reinvestment, resource self-sufficiency and balance of payments position. IMI
seeks to mitigate the risks to each Fund associated with the foregoing
considerations through investment variation and continuous professional
management.
EMERGING MARKETS
Ivy Growth Fund, Ivy Growth with Income Fund, and Ivy US Emerging Growth
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 each Fund's performance favorably or unfavorably.
In recent years, many emerging market countries around the world have
undergone political changes that have reduced government's role in economic and
personal affairs and have stimulated investment and growth. Historically, there
is a strong direct correlation between economic growth and stock market returns.
While this is no guarantee of future performance, IMI believes that investment
opportunities (particularly in the energy, environmental services, natural
resources, basic materials, power, telecommunications and transportation
industries) may result within the evolving economies of emerging market
countries from which each Fund and its shareholders will benefit.
Investments in companies domiciled in developing countries may be subject
to potentially higher risks than investments in developed countries. Such risks
include (i) less social, political and economic stability; (ii) a small market
for securities and/or a low or nonexistent volume of trading, which result in a
lack of liquidity and in greater price volatility; (iii) certain national
policies that may restrict each 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 each 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, each 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 a 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
each 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
a Fund's cash and securities, that Fund's investment in such countries may be
limited or may be required to be effected through intermediaries. The risk of
loss through governmental confiscation may be increased in such countries.
FOREIGN CURRENCIES
Investment in foreign securities usually will involve currencies of
foreign countries. Moreover, Ivy Growth Fund, Ivy Growth with Income Fund, and
Ivy US Emerging Growth 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 each 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 each Fund may incur costs in connection with conversions
between various currencies. Although each Fund's custodian values the Fund's
assets daily in terms of U.S. dollars, each Fund does not intend to convert its
holdings of foreign currencies into U.S. dollars on a daily basis. Each 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 a Fund at one
rate, while offering a lesser rate of exchange should the Fund desire to resell
that currency to the dealer. Each Fund will conduct its foreign currency
exchange transactions either on a spot (i.e., cash) basis at the spot rate
prevailing in the foreign currency exchange market, or through entering into
forward contracts to purchase or sell foreign currencies.
Because Ivy Growth Fund, Ivy Growth with Income Fund, and Ivy US Emerging
Growth Fund normally will be invested in both U.S. and foreign securities
markets, changes in these Funds' share price may have a low correlation with
movements in U.S. markets. Each Fund's share price will reflect the movements of
the different stock and bond markets in which it is invested (both U.S. and
foreign), and of the currencies in which the investments are denominated. Thus,
the strength or weakness of the U.S. dollar against foreign currencies may
account for part of each Fund's investment performance. U.S. and foreign
securities markets do not always move in step with each other, and the total
returns from different markets may vary significantly. Foreign currencies in
which each Fund's assets are denominated may be devalued against the U.S.
dollar, resulting in a loss to the Fund.
FOREIGN CURRENCY EXCHANGE TRANSACTIONS
Ivy Growth Fund, Ivy Growth with Income Fund, and Ivy US Emerging Growth
Fund may enter into forward foreign currency contracts in order to protect
against uncertainty in the level of future foreign exchange rates in the
purchase and sale of securities. A forward contract is an obligation to purchase
or sell a specific currency for an agreed price at a future date (usually less
than a year), and typically is individually negotiated and privately traded by
currency traders and their customers. A forward contract generally has no
deposit requirement, and no commissions are charged at any stage for trades.
Although foreign exchange dealers do not charge a fee for commissions, they do
realize a profit based on the difference between the price at which they are
buying and selling various currencies. Although these contracts are intended to
minimize the risk of loss due to a decline in the value of the hedged
currencies, at the same time, they tend to limit any potential gain which might
result should the value of such currencies increase.
While each Fund may enter into forward contracts to reduce currency
exchange risks, changes in currency exchange rates may result in poorer overall
performance for each Fund than if it had not engaged in such transactions.
Moreover, there may be an imperfect correlation between a 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 each Fund from achieving the intended hedge or expose the Fund to the
risk of currency exchange loss.
Ivy Growth Fund, Ivy Growth with Income Fund, and Ivy US Emerging Growth
Fund may purchase currency forwards and combine such purchases with sufficient
cash or short-term securities to create unleveraged substitutes for investments
in foreign markets when deemed advantageous. Each Fund may also combine the
foregoing with bond futures or interest rate futures contracts to create the
economic equivalent of an unhedged foreign bond position.
Ivy Growth Fund, Ivy Growth with Income Fund, and Ivy US Emerging Growth
Fund may also cross-hedge currencies by entering into transactions to purchase
or sell one or more currencies that are expected to decline in value relative to
other currencies to which each Fund has or in which each Fund expects to have
portfolio exposure.
Currency transactions are subject to risks different from those of other
portfolio transactions. Because currency control is of great importance to the
issuing governments and influences economic planning and policy, purchases and
sales of currency and related instruments can be negatively affected by
government exchange controls, blockages, and manipulations or exchange
restrictions imposed by governments. These can result in losses to a Fund if it
is unable to deliver or receive currency or funds in settlement of obligations
and could also cause hedges it has entered into to be rendered useless,
resulting in full currency exposure as well as incurring transactions costs.
Buyers and sellers of currency futures are subject to the same risks that apply
to the use of futures generally. Further, settlement of a currency futures
contract for the purchase of most currencies must occur at a bank based in the
issuing nation. Trading options on currency futures is relatively new, and the
ability to establish and close out positions on such options is subject to the
maintenance of a liquid market which may not always be available. Currency
exchange rates may fluctuate based on factors extrinsic to that country's
economy.
REPURCHASE AGREEMENTS
Repurchase agreements are contracts under which a 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, each Fund is permitted to enter into repurchase
agreements only if the repurchase agreements are at least fully collateralized
with U.S. Government securities or other securities that IMI has approved for
use as collateral for repurchase agreements and the collateral must be
marked-to-market daily. Each Fund will enter into repurchase agreements only
with banks and broker-dealers deemed to be creditworthy by IMI under the
above-referenced guidelines. In the unlikely event of failure of the executing
bank or broker-dealer, each Fund could experience some delay in obtaining direct
ownership of the underlying collateral and might incur a loss if the value of
the security should decline, as well as costs in disposing of the security.
BANKING INDUSTRY AND SAVINGS AND LOAN OBLIGATIONS
Certificates of deposit are negotiable certificates issued against funds
deposited in a commercial bank for a definite period of time and earning a
specified return. Bankers' acceptances are negotiable drafts or bills of
exchange, normally drawn by an importer or exporter to pay for specific
merchandise, which are "accepted" by a bank (meaning, in effect, that the bank
unconditionally agrees to pay the face value of the instrument at maturity). In
addition to investing in certificates of deposit and bankers' acceptances, each
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. Each Fund's investments in certificates of deposit, time
deposits, and bankers' acceptance are limited to obligations of (i) banks having
total assets in excess of $1 billion, (ii) U.S. banks which do not meet the $1
billion asset requirement, if the principal amount of such obligation is fully
insured by the Federal Deposit Insurance Corporation (the "FDIC"), (iii) savings
and loan association which have total assets in excess of $1 billion and which
are members of the FDIC, and (iv) foreign banks if the obligation is, in IMI's
opinion, of an investment quality comparable to other debt securities which may
be purchased by a Fund. Each Fund's investments in certificates of deposit of
savings associations are limited to obligations of Federal and state-chartered
institutions whose total assets exceed $1 billion and whose deposits are insured
by the FDIC.
COMMERCIAL PAPER
Commercial paper represents short-term unsecured promissory notes issued
in bearer form by bank holding companies, corporations and finance companies.
Each Fund may invest in commercial paper that is rated Prime-1 by Moody's
Investors Service, Inc. ("Moody's") or A-1 by Standard & Poor's Corporation
("S&P") or, if not rated by Moody's or S&P, is issued by companies having an
outstanding debt issue rated Aaa or Aa by Moody's or AAA or AA by S&P.
BORROWING
Borrowing may exaggerate the effect on each Fund's net asset value of any
increase or decrease in the value of each 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 each Fund's borrowings will be fixed, each Fund's assets may change in value
during the time a borrowing is outstanding, thus increasing exposure to capital
risk.
WARRANTS
The holder of a warrant has the right, until the warrant expires, to
purchase a given number of shares of a particular issuer at a specified price.
Such investments can provide a greater potential for profit or loss than an
equivalent investment in the underlying security. However, prices of warrants do
not necessarily move in a tandem with the prices of the underlying securities,
and are, therefore, considered speculative investments. Warrants pay no
dividends and confer no rights other than a purchase option. Thus, if a warrant
held by a Fund were not exercised by the date of its expiration, the Fund would
lose the entire purchase price of the warrant.
REAL ESTATE INVESTMENT TRUSTS (REITS)
A REIT is a corporation, trust or association that invests in real estate
mortgages or equities for the benefit of its investors. REITs are dependent upon
management skill, may not be diversified and are subject to the risks of
financing projects. Such entities are also subject to heavy cash flow
dependency, defaults by borrowers, self-liquidation and the possibility of
failing to qualify for tax-free pass-through of income under the Internal
Revenue Code of 1986, as amended (the "Code"), and to maintain exemption from
the Investment Company Act of 1940 (the "1940 Act"). By investing in REITs
indirectly through Ivy Growth Fund, Ivy Growth with Income Fund, or Ivy US Blue
Chip Fund, a shareholder will bear not only his or her proportionate share of
the expenses of the Fund, but also, indirectly, similar expenses of the REITs.
OPTIONS TRANSACTIONS
IN GENERAL. A call option is a short-term contract (having a duration of
less than one year) pursuant to which the purchaser, in return for the premium
paid, has the right to buy the security underlying the option at the specified
exercise price at any time during the term of the option. The writer of the call
option, who receives the premium, has the obligation, upon exercise of the
option, to deliver the underlying security against payment of the exercise
price. A put option is a similar contract pursuant to which the purchaser, in
return for the premium paid, has the right to sell the security underlying the
option at the specified exercise price at any time during the term of the
option. The writer of the put option, who receives the premium, has the
obligation, upon exercise of the option, to buy the underlying security at the
exercise price. The premium paid by the purchaser of an option will reflect,
among other things, the relationship of the exercise price to the market price
and volatility of the underlying security, the time remaining to expiration of
the option, supply and demand, and interest rates.
If the writer of a U.S. exchange-traded 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. Closing purchase transactions are not available for OTC
transactions. In order to terminate an obligation in an OTC transaction, a Fund
would need to negotiate directly with the counterparty.
Each 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 a 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 any Fund, are taxable as ordinary income. See "Taxation."
Each 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 each Fund
and its counterparty (usually a securities dealer or a financial institution)
with no clearing organization guarantee. When a 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. Each 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. Each Fund may
also write covered call options to hedge a possible stock or bond market decline
(only to the extent of the premium paid to the Fund for the options). In view of
the investment objectives of each Fund, each Fund generally would write call
options only in circumstances where the investment adviser to the Fund does not
anticipate significant appreciation of the underlying security in the near
future or has otherwise determined to dispose of the security.
A "covered" call option means generally that so long as a 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 each
Fund receives premium income from these activities, any appreciation realized on
an underlying security will be limited by the terms of the call option. Each
Fund may purchase call options on individual securities only to effect a
"closing purchase transaction."
As the writer of a call option, each 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 a 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. Each 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.
Each 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 a
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 any Fund for leverage purposes.
Each 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. A 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. A Fund may write (sell) put options on individual securities only to
effect a "closing sale transaction."
PURCHASING AND WRITING OPTIONS ON SECURITIES INDICES. Each 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. Call
options on indices are similar to call 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 a 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 a 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 a
Fund holds a put on the same index as the put written where the exercise price
of the put held is (i) equal to or greater than the exercise price of the put
written or (ii) less than the exercise price of the put written, provided that
the Fund maintains in a segregated account with the Custodian the difference in
cash or liquid securities.
RISKS OF OPTIONS TRANSACTIONS. The purchase and writing of options
involves certain risks. During the option period, the covered call writer has,
in return for the premium on the option, given up the opportunity to profit from
a price increase in the underlying securities above the exercise price, but, as
long as its obligation as a writer continues, has retained the risk of loss
should the price of the underlying security decline. The writer of a U.S. option
has no control over the time when it may be required to fulfill its obligation
as a writer of the option. Once an option writer has received an exercise
notice, it cannot effect a closing purchase transaction in order to terminate
its obligation under the option and must deliver the underlying securities (or
cash in the case of an index option) at the exercise price. If a put or call
option purchased by a 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 a Fund
seeks to close out an option position. Furthermore, if trading restrictions or
suspensions are imposed on the options markets, a 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. Transfer of an
OTC option is usually prohibited absent the consent of the original
counterparty. There is no assurance that a Fund will be able to close out an OTC
option position at a favorable price prior to its expiration. An OTC
counterparty may fail to deliver or to pay, as the case may be. In the event of
insolvency of the counterparty, a Fund might be unable to close out an OTC
option position at any time prior to its expiration. Although a Fund may be able
to offset to some extent any adverse effects of being unable to liquidate an
option position, the Fund may experience losses in some cases as a result of
such inability.
When conducted outside the U.S., options transactions may not be regulated
as rigorously as in the U.S., may not involve a clearing mechanism and related
guarantees, and are subject to the risk of governmental actions affecting
trading in, or the prices of, foreign securities, currencies and other
instruments. The value of such positions also could be adversely affected by:
(i) other complex foreign political, legal and economic factors, (ii) lesser
availability than in the U.S. of data on which to make trading decisions, (iii)
delays in each Fund's ability to act upon economic events occurring in foreign
markets during non-business hours in the U.S., (iv) the imposition of different
exercise and settlement terms and procedures and margin requirements than in the
U.S., and (v) lower trading volume and liquidity.
Each Fund's options activities also may have an impact upon the level
of its portfolio turnover and brokerage commissions. See "Portfolio
Turnover."
Each Fund's success in using options techniques depends, among other
things, on IMI's ability to predict accurately the direction and volatility of
price movements in the options and securities markets, and to select the proper
type, timing of use and duration of options.
FUTURES CONTRACTS AND OPTIONS ON FUTURES CONTRACTS
IN GENERAL. Each 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 a Fund, the Fund is required to deposit with its
custodian (or broker, if legally permitted) a specified amount of cash or liquid
securities ("initial margin"). The margin required for a futures contract is set
by the exchange on which the contract is traded and may be modified during the
term of the contract. The initial margin is in the nature of a performance bond
or good faith deposit on the futures contract which is returned to the Fund upon
termination of the contract, assuming all contractual obligations have been
satisfied. A futures contract held by a Fund is valued daily at the official
settlement price of the exchange on which it is traded. Each day each 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 a 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, each Fund
will mark-to-market its open futures position.
Each Fund is also required to deposit and maintain margin with respect to
put and call options on futures contracts written by it. Such margin deposits
will vary depending on the nature of the underlying futures contract (and the
related initial margin requirements), the current market value of the option,
and other futures positions held by the Fund.
Although some futures contracts call for making or taking delivery of the
underlying securities, generally these obligations are closed out prior to
delivery of offsetting purchases or sales of matching futures contracts (same
exchange, underlying security or index, and delivery month). If an offsetting
purchase price is less than the original sale price, a 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, a 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, each Fund will maintain with its
Custodian (and mark-to-market on a daily basis) cash or liquid securities that,
when added to the amounts deposited with a futures commission merchant ("FCM")
as margin, are equal to the market value of the futures contract. Alternatively,
a Fund may "cover" its position by purchasing a put option on the same futures
contract with a strike price as high as or higher than the price of the contract
held by the Fund, or, if lower, may cover the difference with cash or short-term
securities.
When selling a futures contract, each 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, a Fund may "cover" its position by owning the
instruments underlying the contract (or, in the case of an index futures
contract, a portfolio with a volatility substantially similar to that of the
index on which the futures contract is based), or by holding a call option
permitting the Fund to purchase the same futures contract at a price no higher
than the price of the contract written by the Fund (or at a higher price if the
difference is maintained in liquid assets with the Fund's custodian).
When selling a call option on a futures contract, each 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, a Fund may cover its position by entering into a
long position in the same futures contract at a price no higher than the strike
price of the call option, by owning the instruments underlying the futures
contract, or by holding a separate call option permitting the Fund to purchase
the same futures contract at a price not higher than the strike price of the
call option sold by the Fund, or covering the difference if the price is higher.
When selling a put option on a futures contract, each Fund will maintain
with its Custodian (and mark-to-market on a daily basis) cash or liquid
securities that equal the purchase price of the futures contract less any margin
on deposit. Alternatively, a Fund may cover the position either by entering into
a short position in the same futures contract, or by owning a separate put
option permitting it to sell the same futures contract so long as the strike
price of the purchased put option is the same or higher than the strike price of
the put option sold by the Fund, or, if lower, the Fund may hold securities to
cover the difference.
RISKS ASSOCIATED WITH FUTURES AND RELATED OPTIONS. There can be no
guarantee that there will be a correlation between price movements in the
hedging vehicle and in any 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 a
Fund seeks to close out a futures or a futures option position, and the Fund
would remain obligated to meet margin requirements until the position is closed.
In addition, there can be no assurance that an active secondary market will
continue to exist.
Currency futures contracts and options thereon may be traded on foreign
exchanges. Such transactions may not be regulated as effectively as similar
transactions in the United States; may not involve a clearing mechanism and
related guarantees; and are subject to the risk of governmental actions
affecting trading in, or the prices of, foreign securities. The value of such
position also could be adversely affected by (i) other complex foreign
political, legal and economic factors, (ii) lesser availability than in the
United States of data on which to make trading decisions, (iii) delays in a
Fund's ability to act upon economic events occurring in foreign markets during
non business hours in the United States, (iv) the imposition of different
exercise and settlement terms and procedures and margin requirements than in the
United States, and (v) lesser trading volume.
SECURITIES INDEX FUTURES CONTRACTS
Each Fund may enter into securities index futures contracts as an
efficient means of regulating that Fund's exposure to the equity markets. Each
Fund will not engage in transactions in futures contracts for speculation, but
only as a hedge against changes resulting from market conditions in the values
of securities held in the Fund's portfolio or which it intends to purchase. An
index futures contract is a contract to buy or sell units of an index at a
specified future date at a price agreed upon when the contract is made. Entering
into a contract to buy units of an index is commonly referred to as purchasing a
contract or holding a long position in the index. Entering into a contract to
sell units of an index is commonly referred to as selling a contract or holding
a short position. The value of a unit is the current value of the stock index.
For example, the S&P 500 Index is composed of 500 selected common stocks, most
of which are listed on the New York Stock Exchange (the "Exchange"). The S&P 500
Index assigns relative weightings to the 500 common stocks included in the
Index, and the Index fluctuates with changes in the market values of the shares
of those common stocks. In the case of the S&P 500 Index, contracts are to buy
or sell 500 units. Thus, if the value of the S&P 500 Index were $150, one
contract would be worth $75,000 (500 units x $150). The index futures contract
specifies that no delivery of the actual securities making up the index will
take place. Instead, settlement in cash must occur upon the termination of the
contract, with the settlement being the difference between the contract price
and the actual level of the stock index at the expiration of the contract. For
example, if a 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 a 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. Each Fund's success in using hedging
techniques depends, among other things, on IMI's ability to predict correctly
the direction and volatility of price movements in the futures and options
markets as well as in the securities markets and to select the proper type, time
and duration of hedges. The skills necessary for successful use of hedges are
different from those used in the selection of individual stocks.
Each Fund's ability to hedge effectively all or a portion of its
securities through transactions in index futures (and therefore the extent of
its gain or loss on such transactions) depends on the degree to which price
movements in the underlying index correlate with price movements in the Fund's
securities. Inasmuch as such securities will not duplicate the components of an
index, the correlation probably will not be perfect. Consequently, each 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 each 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 a 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,
a 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, a Fund generally realizes a
capital gain, or if it is more, a Fund generally realizes a capital loss.
Conversely, if an offsetting sale price is more than the original purchase
price, a 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.
Each 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. Each 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, each Fund will maintain with
its Custodian (and mark-to-market on a daily basis) cash or liquid securities
that, when added to the amounts deposited with a futures commission merchant
("FCM") as margin, are equal to the market value of the futures contract.
Alternatively, a 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, each Fund will maintain with its
Custodian (and mark-to-market on a daily basis) cash or liquid securities that,
when added to the amounts deposited with an FCM as margin, are equal to the
market value of the instruments underlying the contract. Alternatively, a 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. Each Fund may enter into multiple transactions,
including multiple options transactions, multiple futures transactions and
multiple currency transactions (including forward currency contracts) and some
combination of futures, options and currency transactions ("component"
transactions), instead of a single transaction, as part of a single or combined
strategy when, in the opinion of IMI, it is in the best interests of the Fund to
do so. A combined transaction will usually contain elements of risk that are
present in each of its component transactions. Although combined transactions
are normally entered into based on IMI's judgment that the combined strategies
will reduce risk or otherwise more effectively achieve the desired portfolio
management goal, it is possible that the combination will instead increase such
risks or hinder achievement of the management objective.
PORTFOLIO TURNOVER
Each 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, each
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 a 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.
Each 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 a Fund's
portfolio turnover rate, all securities whose maturities at the time of
acquisition were one year or less are excluded.
TRUSTEES AND OFFICERS
Each Fund's Board of Trustees (the "Board") is responsible for the
overall management of the Fund, including general supervision and review of the
Fund's investment activities. The Board, in turn, elects the officers who are
responsible for administering each Fund's day-to-day operations.
The Trustees and Executive Officers of the Trust, their business
addresses and principal occupations during the past five years are:
POSITION WITH BUSINESS AFFILIATIONS
NAME, ADDRESS, AGE THE TRUST AND PRINCIPAL OCCUPATIONS
John S. Anderegg, Jr. Trustee Chairman, Dynamics Research
60 Concord Street Corp. (instruments and controls);
Wilmington, MA 01887 Director, Burr-Brown Corp.
Age: 75 (operational amplifiers);
Director, Metritage Incorporated
(level measuring instruments);
Trustee of Mackenzie Series Trust
(1992-1998).
James W. Broadfoot President President,
700 South Federal Hwy. and Ivy Management Inc. (1996-
Suite 300 Trustee present); Senior Vice
Boca Raton, FL 33432 President, Ivy Management,
Age: 56 Inc. (1992-1996); Director and Senior
[*Deemed to be an Vice President, Mackenzie Investment
"interested person" Management Inc. (1995-present); Senior
of the Trust, as Vice President, Mackenzie Investment
defined under the Management Inc. (1990-1995).
1940 Act.]
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: 75 (insurance agency); Chairman,
Scott Management Company
(administrative services for
insurance companies); President,
The Channick Group (consultants
to insurance companies and
national trade associations);
Trustee of Mackenzie Series
Trust (1994-1998); Director of
The Mackenzie Funds Inc.
(1994-1995).
Frank W. DeFriece, Jr. Trustee Director, Manager and Vice
The Landmark Centre President, Director and
113 Landmark Lane, Fund Manager, Massengill-
Suite B DeFriece Foundation
Bristol, TN 37620-2285 (charitable organization)
Age: 78 (1950-present); Trustee and Vice
Chairman, East Tennessee Public
Communications Corp. (WSJK-TV)
(1984-present); Trustee of
Mackenzie Series Trust
(1985-1998); Director of The
Mackenzie Funds Inc. (1987-1995).
Roy J. Glauber Trustee Mallinckrodt Professor of
Lyman Laboratory Physics, Harvard
of Physics University (1974-present);
Harvard University Trustee of Mackenzie Series
Cambridge, MA 02138 Trust (1994-1997).
Age: 73
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: 69 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 Chairman -present); Senior Vice President
Boca Raton, FL 33432 and Director of Mackenzie
Age: 42 Investment Management, Inc. (1994-
[*Deemed to be an 1996); Senior Vice President and
"interested person" Treasurer of Mackenzie Investment
of the Trust, as defined Management, Inc. (1989-1994);
under the Senior Vice President and Director
1940 Act.] 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).
Edward M. Tighe Trustee Chief Executive Officer,
5900 N. Andrews Avenue CITCO Technology Management, Inc.
Suite 700 ("CITCO") (computer software develop-
Ft. Lauderdale, FL 33309 ment and consulting) (1999-present);
President and Director, Global
Technology Management, Inc. (CITCO's
predecessor) (1992-1998); Managing
Director, Global Mutual Fund Services,
Ltd. (financial services firm);
President, Director and Chief
Executive Officer, Global Mutual Fund
Services, Inc. (1994-present).
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).
<TABLE>
<CAPTION>
COMPENSATION TABLE
IVY FUND
(FISCAL YEAR ENDED DECEMBER 31, 1998)
<S> <C> <C> <C> <C>
PENSION OR
AGGREGATE RETIREMENT ESTIMATED TOTAL COMPENSATION
COMPENSATION BENEFITS ACCRUED ANNUAL ESTIMATED FROM TRUST AND FUND
NAME, FROM AS PART OF FUND ANNUAL BENEFITS COMPLEX PAID TO TRUSTEES
POSITION TRUST EXPENSES UPON RETIREMENT
John S. $18,000 N/A N/A $18,000
Anderegg, Jr.
(Trustee)
Paul H. $18,000 N/A N/A $18,000
Broyhill
(Trustee)
Keith J. $0 N/A N/A $0
Carlson
(Trustee and
President)
Stanley $18,000 N/A N/A $18,000
Channick
(Trustee)
Frank W. $18,000 N/A N/A $18,000
DeFriece, Jr.
(Trustee)
Roy J. $18,000 N/A N/A $18,000
Glauber
(Trustee)
Joseph G. $18,000 N/A N/A $18,000
Rosenthal
(Trustee)
Richard N. $18,000 N/A N/A $18,000
Silverman
(Trustee)
J. Brendan $17,000 N/A N/A $17,000
Swan
(Trustee)
C. William $0 N/A N/A $0
Ferris
(Secretary/
Treasurer)
</TABLE>
To the knowledge of the Trust, as of March 31, 1999, no shareholder
owned beneficially or of record 5% or more of any Fund's outstanding shares of
any class, with the following exceptions:
CLASS A
Of the outstanding Class A shares of :
Ivy Asia Pacific Fund, Merrill Lynch Pierce Fenner & Smith, 4800 Deer
Lake Drive E, 3rd Floor, Jacksonville, FL 32246, owned of record 40,174.921
shares (16.51%), and Michael G. Landry, 211 S. Gordon Rd., Ft.
Lauderdale, FL 33301, owned of record 12,443.882 shares (5.11%);
Ivy Bond Fund, Merrill Lynch Pierce Fenner & Smith, 4800 Deer Lake
Drive E, 3rd Floor, Jacksonville, FL 32246, owned of record 1,397,567.620 shares
(13.02%);
Ivy China Region Fund, Merrill Lynch Pierce Fenner & Smith, 4800 Deer
Lake Drive E, 3rd Floor, Jacksonville, FL 32246, owned of record 218,003.027
shares (13.26%), and Resources Trust Company, PO Box 3865, Englewood, CO
80155-3865, owned of record 186,351.290 shares (11.33%);
Ivy Developing Nations Fund, Donaldson Lufkin Jenrette Securities
Corporation Inc., PO Box 2052, Jersey City, NJ 07303-9998, owned of record
87,092.843 shares (11.31%), Donaldson Lufkin Jenrette Securities Corporation
Inc., PO Box 2052, Jersey City, NJ 07303-9998, owned of record 54,336.017 shares
(7.06%), and Merrill Lynch Pierce Fenner & Smith, 4800 Deer Lake Drive E, 3rd
Floor, Jacksonville, FL 32246, owned of record 41,198.769 shares (5.35%);
Ivy Global Natural Resources Fund, Carn & Co., Riggs Bank (TTEE) FBO
Care-Free Consolidated 401K Plan, PO Box 96211, Washington, DC 20090-6211, owned
of record 62,273.356 shares (29.71%), Carn & Co., Riggs Bank (TTEE) FBO Yazaki
Employee Savings & Retirement Plan, PO Box 96211, Washington, DC 20090-6211,
owned of record 22,533.136 shares (10.75%), and Mackenzie Investment Management
Inc., via Mizner Financial Plaza, 700 South Federal Highway, Suite 300, Boca
Raton, FL 33432, owned of record 11,957.023 shares (5.70%);
Ivy Global Science & Technology Fund, Donaldson Lufkin Jenrette
Securities Corporation Inc., PO Box 2052, Jersey City, NJ 07303-9998, owned of
record 99,948.978 shares (16.84%), Donaldson Lufkin Jenrette Securities
Corporation Inc., PO Box 2052, Jersey City, NJ 07303-9998, owned of record
65,325.391 shares (11.01%), and Merrill Lynch Pierce Fenner & Smith, 4800 Deer
Lake Drive E, 3rd Floor, Jacksonville, FL 32246, owned of record 31,922.542
shares (5.38%);
Ivy International Fund II, Merrill Lynch Pierce Fenner & Smith, 4800
Deer Lake Drive E, 3rd Floor, Jacksonville, FL 32246, owned of record
818,804.984 shares (34.10%);
Ivy International Fund, Charles Schwab & Co. Inc., 101 Montgomery
Street, San Francisco, CA 94104, owned of record 12,827,455.253 shares (35.28%),
and Merrill Lynch Pierce Fenner & Smith, 4800 Deer Lake Drive E, 3rd Floor,
Jacksonville, FL 32246, owned of record 6,083,813.996 shares (16.73%);
Ivy International Small Companies Fund, Donaldson Lufkin Jenrette
Securities Corporation Inc., PO Box 2052, Jersey City, NJ 07303-9998, owned of
record 19,762.181 shares (20.88%), and Mackenzie Investment Management Inc., via
Mizner Financial Plaza, 700 South Federal Highway, Suite 300, Boca Raton, FL
33432, owned of record 10,287.244 shares (10.87%).
Ivy Money Market Fund, Carn & Co., Riggs Bank (TTEE) FBO Plexus Corp
401K Plan, PO Box 96211, Washington, DC 20090-6211, owned of record
2,710,056.720 shares (13.19%), and Bear Stearns Securities Corp., 1 Metrotech
Center North, Brooklyn, NY 11201-3859, owned of record 1,432,318.960 shares
(6.97%).
Ivy Pan-Europe Fund, Mackenzie Investment Management Inc., via Mizner
Financial Plaza, 700 South Federal Highway, Suite 300, Boca Raton, FL 33432,
owned of record 37,553.145 shares (23.84%), and Merrill Lynch Pierce Fenner &
Smith, 4800 Deer Lake Drive E, 3rd Floor, Jacksonville, FL 32246, owned of
record 27,122.193 shares (17.22%);
Ivy South America Fund, Merrill Lynch Pierce Fenner & Smith, 4800 Deer
Lake Drive E, 3rd Floor, Jacksonville, FL 32246, owned of record 45,710.848
shares (17.87%), and Charles Schwab & Co. Inc., 101 Montgomery Street, San
Francisco, CA 94104, owned of record 19,471.113 shares (7.61%), and William A.
Maczko & Mildred E. Helm Maczko, 2100 S. Ocean Ln., #1412, Ft. Lauderdale, FL
33316, owned of record 14,174.070 shares (5.54%);
Ivy US Blue Chip Fund, Helen L. Medvin, 4712 Michael Ave., North
Olmsted, OH 44070, owned of record 10,253.846 shares (7.12%), Donaldson Lufkin
Jenrette Securities Corporation Inc., PO Box 2052, Jersey City, NJ 07303-9998,
owned of record 8,986.371 shares (6.24%), and Janney Montgomery Scott Inc.,
Estate of David Craig, 1801 Market Street, Philadelphia, PA 19103-1675, owned of
record 8,880.995 shares (6.17%).
Ivy US Emerging Growth Fund, Donaldson Lufkin Jenrette Securities
Corporation Inc., PO Box 2052, Jersey City, NJ 07303-9998, owned of record
86,774.211 shares (5.08%);
CLASS B
Of the outstanding Class B shares of:
Ivy Asia Pacific Fund, Merrill Lynch Pierce Fenner & Smith, 4800 Deer
Lake Drive E, 3rd Floor, Jacksonville, FL 32246, owned of record 141,298.083
shares (35.22%);
Ivy Bond Fund, Merrill Lynch Pierce Fenner & Smith, 4800 Deer Lake
Drive E, 3rd Floor, Jacksonville, FL 32246, owned of record 12,199,384.716
shares (48.92%);
Ivy China Region Fund, Merrill Lynch Pierce Fenner & Smith, 4800 Deer
Lake Drive E, 3rd Floor, Jacksonville, FL 32246, owned of record 107,725.641
shares (11.73%);
Ivy Developing Nations Fund, Merrill Lynch Pierce Fenner & Smith, 4800
Deer Lake Drive E, 3rd Floor, Jacksonville, FL 32246, owned of record
278,316.028 shares (28.37%);
Ivy Global Fund, Merrill Lynch Pierce Fenner & Smith, 4800 Deer Lake
Drive E, 3rd Floor, Jacksonville, FL 32246, owned of record 68,719.447 shares
(11.93%);
Ivy Global Natural Resources Fund, Merrill Lynch Pierce Fenner & Smith,
4800 Deer Lake Drive E, 3rd Floor, Jacksonville, FL 32246, owned of record
83,599.984 shares (38.05%);
Ivy Global Science & Technology Fund, Merrill Lynch Pierce Fenner &
Smith, 4800 Deer Lake Drive E, 3rd Floor, Jacksonville, FL 32246, owned of
record 40,990.672 shares (8.13%);
Ivy Growth Fund, Merrill Lynch Pierce Fenner & Smith, 4800 Deer Lake
Drive E, 3rd Floor, Jacksonville, FL 32246, owned of record 24,939.375 shares
(8.96%);
Ivy Growth with Income Fund, Merrill Lynch Pierce Fenner & Smith, 4800
Deer Lake Drive E, 3rd Floor, Jacksonville, FL 32246, owned of record
263,081.752 shares (15.31%);
Ivy International Fund II, Merrill Lynch Pierce Fenner & Smith, 4800
Deer Lake Drive E, 3rd Floor, Jacksonville, FL 32246, owned of record
4,986,169.823 shares (60.62%);
Ivy International Fund, Merrill Lynch Pierce Fenner & Smith, 4800 Deer
Lake Drive E, 3rd Floor, Jacksonville, FL 32246, owned of record 5,678,407.729
shares (45.59%).
Ivy International Small Companies Fund, Merrill Lynch Pierce Fenner &
Smith, 4800 Deer Lake Drive E, 3rd Floor, Jacksonville, FL 32246, owned of
record 24,340.066 shares (23.40%), PaineWebber, FBO B Carmage Walls Trust #10,
FBO Lissa Walls Trust and Cooper Walls TTEE, PO Box 42828, Houston, TX 77242,
owned of record 5,880.313 shares (5.65%), and PaineWebber, FBO B Carmage Walls
Trust #10, FBO Cooper Walls Trust and Cooper Walls TTEE, PO Box 42828, Houston,
TX 77242, owned of record 5,760.640 shares (5.53%);
Ivy Pan-Europe Fund, Merrill Lynch Pierce Fenner & Smith, 4800 Deer
Lake Drive E, 3rd Floor, Jacksonville, FL 32246, owned of record 66,847.392
shares (22.86%);
Ivy South America Fund, Merrill Lynch Pierce Fenner & Smith, 4800 Deer
Lake Drive E, 3rd Floor, Jacksonville, FL 32246, owned of record 46,359.136
shares (29.47%);
Ivy US Blue Chip Fund, Merrill Lynch Pierce Fenner & Smith, 4800 Deer
Lake Drive E, 3rd Floor, Jacksonville, FL 32246, owned of record 74,760.802
shares (18.62%), and Parker Hunter Incorporated, FBO Robert Crisci and Kathy
Crisci, PO Box 7629, 3525 Ellwood Road, New Castle, PA 16107-7629, owned of
record 24,779.090 shares (6.17%).
Ivy US Emerging Growth Fund, Merrill Lynch Pierce Fenner & Smith, 4800
Deer Lake Drive E, 3rd Floor, Jacksonville, FL 32246, owned of record
335,426.771 shares (21.10%);
CLASS C
Of the outstanding Class C shares of:
Ivy Asia Pacific Fund, Merrill Lynch Pierce Fenner & Smith, 4800 Deer
Lake Drive E, 3rd Floor, Jacksonville, FL 32246, owned of record 19,237.215
shares (5.33%);
Ivy Bond Fund, Merrill Lynch Pierce Fenner & Smith, 4800 Deer Lake
Drive E, 3rd Floor, Jacksonville, FL 32246, owned of record 725,233.869 shares
(74.69%);
Ivy China Region Fund, Merrill Lynch Pierce Fenner & Smith, 4800 Deer
Lake Drive E, 3rd Floor, Jacksonville, FL 32246, owned of record 30,474.251
shares (27.72%), and IBT, (custodian) FBO Roy O. Derminer, 2236 Abbottwoods Ln.,
Orange City, FL 32763, owned of record 8,275.708 shares (7.52%);
Ivy Developing Nations Fund, Merrill Lynch Pierce Fenner & Smith, 4800
Deer Lake Drive E, 3rd Floor, Jacksonville, FL 32246, owned of record 48,103,553
shares (11.99%);
Ivy Global Fund, Merrill Lynch Pierce Fenner & Smith, 4800 Deer Lake
Drive E, 3rd Floor, Jacksonville, FL 32246, owned of record 6,585.276 shares
(19.35%), Donaldson Lufkin Jenrette Securities Corporation Inc., PO Box 2052,
Jersey City, NJ 07303-9998, owned of record 3,909.907 shares (11.48%), Robert W.
Baird & Co. Inc., 777 East Wisconsin Avenue, Milwaukee, WI 53202-5391, owned of
record 3,436.408 shares (10.09%), IBT, (custodian) FBO Mattie A. Allen, 755
Selma Pl., San Diego, CA 92114-1711, owned of record 3,095.552 shares (9.09%),
Smith Barney Inc., 388 Greenwich Street, New York, NY 10013, owned of record
2,436.584 shares (7.15%), and PaineWebber, (custodian) FBO Robert D.
Cuthbertson, PO Box 3321, Weehawken, NJ 07087-8154, owned of record 1,705.476
shares (5.01%);
Ivy Global Natural Resources Fund, Raymond James & Assoc. Inc.,
(custodian) Raymond W. Simmons, 6296 104th Avenue, Pinellas Park, FL 33782,
owned of record 981.281 shares (19.43%), Raymond James & Assoc. Inc.,
(custodian) Diversified Dental P/S, FBO Al Pollock, 10641 1st Street E., Suite
204, Treasure Island, FL 33706, owned of record 910.166 shares (18.02%), Robert
W. Baird & Co. Inc., 777 E. Wisconsin Avenue, Milwaukee, WI 53202-5391, owned of
record 613.622 shares (12.15%), Robert W. Baird & Co. Inc., 777 E. Wisconsin
Avenue, Milwaukee, WI 53202-5391, owned of record 550.722 shares (10.90%), Nancy
J. Cleare, 9381 US Hwy. 19 N, Pinellas Park, FL 33782, owned of record 541.597
shares (10.72%), Resources Trust Co., (custodian) FBO Jon K. Loessin, PO Box
5900, Denver, CO 80217, owned of record 535.023 shares (10.59%), Ester C.
Wickes, 19 Fawn Hill Rd., Tuxedo, NY 10987, owned of record 350.772 shares
(6.94%), and IBT, (custodian) FBO Salvatore Disalvo, 311 Bridle Path Lane,
Annapolis, MD 21403-1638, owned of record 299.993 shares (5.94%);
Ivy Global Science & Technology Fund, Merrill Lynch Pierce Fenner &
Smith, 4800 Deer Lake Drive E, 3rd Floor, Jacksonville, FL 32246, owned of
record 38,011.661 shares (11.30%);
Ivy Growth Fund, Merrill Lynch Pierce Fenner & Smith, 4800 Deer Lake
Drive E, 3rd Floor, Jacksonville, FL 32246, owned of record 7,477.571 shares
(47.23%), IBT, (custodian) FBO Joseph L. Wright, 32211 Pierce Street, Garden
City, MI 48135, owned of record 3,938.282 shares (24.87%), PaineWebber, FBO
Cynthia N. Young, PO Box 3321, Weehawken, NJ 07087-8154, owned of record 853.551
shares (5.39%), and Martin S. Sawyer & Ruth C. Sawyer, 5910 Wilson Blvd., #413,
Arlington, VA 22205, owned of record 844.906 shares (5.33%);
Ivy Growth with Income Fund, Merrill Lynch Pierce Fenner & Smith, 4800
Deer Lake Drive E, 3rd Floor, Jacksonville, FL 32246, owned of record 11,534.267
shares (29.37%), Anthony L. Bassano & Marie E. Bassano, 8934 Bari Court, Port
Richie, FL 34668, owned of record 3,203.100 shares (8.15%), IBT, (custodian) FBO
Vytautas Snieckus, 1250 E 276th Street, Euclid, OH 44132, owned of record
2,645.907 shares (6.73%), PaineWebber, (custodian) FBO Patricia Cramer Russell,
PO Box 3321, Weehawken, NJ 07087-8154, owned of record 2,191.410 shares (5.58%),
IBT, (custodian) FBO Kevin D. Thistle, 1017 Glencrest Court, Saulkville, WI
53080, owned of record 2,130.626 shares (5.42%), and IBT, (custodian) FBO Carol
E. Greivell, 985 N Broadway, #67, Depere, WI 54115, owned of record 2,106.814
shares (5.36%);
Ivy International Fund II, Merrill Lynch Pierce Fenner & Smith, 4800
Deer Lake Drive E, 3rd Floor, Jacksonville, FL 32246, owned of record
2,908,557.453 shares (74.01%);
Ivy International Fund, Merrill Lynch Pierce Fenner & Smith, 4800 Deer
Lake Drive E, 3rd Floor, Jacksonville, FL 32246, owned of record 2,189,094.234
shares (64.38%);
Ivy International Small Companies Fund, Merrill Lynch Pierce Fenner &
Smith, 4800 Deer Lake Drive E, 3rd Floor, Jacksonville, FL 32246, owned of
record 87,014.649 shares (90.31%);
Ivy Money Market Fund, PaineWebber, FBO Bruce Blank, PO Box 3321,
Weehawken, NJ 07087-8154, owned of record 103,905.380 shares (17.65%), IBT
(custodian) FBO, Marcelette V. Manning, 1371 Mt. View Lane, Chula Vista, CA
91911, owned of record 65,194.630 shares (11.07%), IBT (custodian) FBO Diana
Rooney, 2441 S. 9th St., El Centro, CA 92243, owned of record 62,822.810 shares
(10.67%), Robert J. Laws & Katherine A. Laws, PO Box 723, Ramona, CA 92065,
owned of record 42,920.450 shares (7.29%), IBT (custodian) FBO Betty J. Carson,
1987 Higgins Lane, El Centro, CA 92243, owned of record 39,398.780 shares
(6.69%), Paul M. Benard, 40 Arrowhead Farm Road, Boxford, MA 01921, owned of
record 33,488.010 shares (5.68%), Diane C. Benard, 40 Arrowhead Farm Road,
Boxford, MA 01921, owned of record 33,488.010 shares (5.68%), and PaineWebber,
FBO Kathleen L. Diller, PO Box 3321, Weehawken, NJ 07087-8154, owned of record
30,238.920 shares (5.13%).
Ivy Pan-Europe Fund, Merrill Lynch Pierce Fenner & Smith, 4800 Deer
Lake Drive E, 3rd Floor, Jacksonville, FL 32246, owned of record 26,948.668
shares (44.12%), Resources Trust Company, FBO Terry K. Ramnanan, PO Box 5900,
Denver, CO 80217, owned of record 14,652.015 shares (23.99%), and Donaldson
Lufkin Jenrette Securities Corporation Inc., PO Box 2052, Jersey City, NJ
07303-9998, owned of record 4,663.657 shares (7.63%);
Ivy South America Fund, Merrill Lynch Pierce Fenner & Smith, 4800 Deer
Lake Drive E, 3rd Floor, Jacksonville, FL 32246, owned of record 10,956.813
shares (58.18%), Interstate/Johnson Lane, Interstate Tower, PO Box 1220,
Charlotte, NC 28201-1220, owned of record 2,617.801 shares (13.90%), Donaldson
Lufkin Jenrette Securities Corporation Inc., PO Box 2052, Jersey City, NJ
07303-9998, owned of record 2,318.301 shares (12.31%), Donaldson Lufkin Jenrette
Securities Corporation Inc., PO Box 2052, Jersey City, NJ 07303-9998, owned of
record 1,133.787 shares (6.02%), and Smith Barney Inc., 388 Greenwich Street,
New York, NY 10013, owned of record 966.121 shares (5.13%);
Ivy US Blue Chip Fund, Merrill Lynch Pierce Fenner & Smith, 4800 Deer
Lake Drive E, 3rd Floor, Jacksonville, FL 32246, owned of record 8,485.693
shares (10.18%), Donaldson Lufkin Jenrette Securities Corporation Inc., PO Box
2052, Jersey City, NJ 07303-9998, owned of record 6,066.012 shares (7.27%), IBT,
(custodian) FBO Roy O. Derminer, 2236 Abbottwoods LN, Orange City, FL 32763,
owned of record 4,517.953 shares (5.42%), and Donaldson Lufkin Jenrette
Securities Corporation Inc., PO Box 2052, Jersey City, NJ 07303-9998, owned of
record 4,412.541 shares (5.29%);
Ivy US Emerging Growth Fund, Merrill Lynch Pierce Fenner & Smith, 4800
Deer Lake Drive E, 3rd Floor, Jacksonville, FL 32246, owned of record 96,481.220
shares (30.56%);
CLASS I
Of the outstanding Class I shares of:
Ivy International Fund, The John E. Fetzer Institute Inc., 9292 W KL
Ave., Kalamazoo, MI 49009, owned of record 727,066.771 shares (19.12%), State
Street Bank, (TTEE) FBO Allison Engines, 200 Newport Ave., 7th Floor, North
Quincy, MA 02171, owned of record 292,309.556 shares (7.68%), Lynspen and
Company, PO Box 830804, Birmingham, AL 35283, owned of record 276,747.272 shares
(7.27%), and U A Local 447 Pension Trust Fund, 5841 Newman Ct., Sacramento, CA
95819, owned of record 240,427.057 shares (6.32%).
ADVISOR CLASS
Of the outstanding Advisor Class shares of:
Ivy Bond Fund, NFSC FEBO, C. William Ferris, Michael Landry/Keith
Carlson, 700 South Federal Highway, Boca Raton, FL 33432-6114, owned of record
13,944.569 shares (77.94%), and Donaldson Lufkin Jenrette Securities Corporation
Inc., PO Box 2052, Jersey City, NJ 07303-9998, owned of record 3,252.157 shares
(18.17%);
Ivy China Region Fund, Donaldson Lufkin Jenrette Securities Corporation
Inc., PO Box 2052, Jersey City, NJ 07303-9998, owned of record 1,354.000 shares
(84.59%), and Donaldson Lufkin Jenrette Securities Corporation Inc., PO Box
2052, Jersey City, NJ 07303-9998, owned of record 192.447 shares (12.02%).
Ivy Developing Nations Fund, NFSC FEBO, C. William Ferris, Michael
Landry/Keith Carlson, 700 South Federal Highway, Boca Raton, FL 33432-6114,
owned of record 14,362.134 shares (100%);
Ivy Global Fund, NFSC FEBO, C. William Ferris, Michael Landry/Keith
Carlson, 700 South Federal Highway, Boca Raton, FL 33432-6114, owned of record
30,007.844 shares (100%);
Ivy Global Science & Technology Fund, IBT, (custodian) FBO Deborah P.
Mason, 3406 Cypress Landing Dr., Valrico, FL 33594, owned of record 629.966
shares (36.59%), Donaldson Lufkin Jenrette Securities Corporation Inc., PO Box
2052, Jersey City, NJ 07303-9998, owned of record 534.539 shares (31.04%),
Donaldson Lufkin Jenrette Securities Corporation Inc., PO Box 2052, Jersey City,
NJ 07303-9998, owned of record 418.586 shares (24.31%), and Donaldson Lufkin
Jenrette Securities Corporation Inc., PO Box 2052, Jersey City, NJ 07303-9998,
owned of record 138.549 shares (8.04%);
Ivy Growth Fund, NFSC FEBO, C. William Ferris, Michael Landry/Keith
Carlson, 700 South Federal Highway, Boca Raton, FL 33432-6114, owned of record
16,572.658 shares (99.90%);
Ivy Growth with Income Fund, NFSC FEBO, C. William Ferris, Michael
Landry/Keith Carlson, 700 South Federal Highway, Boca Raton, FL 33432-6114,
owned of record 25,118.240 shares (100%);
Ivy International Fund II, Charles Scwab & Co. Inc., 101 Montgomery
Street, San Francisco, CA 94104, owned of record 7,913.113 shares (11.19%),
Donaldson Lufkin Jenrette Securities Corporation Inc., PO Box 2052, Jersey City,
NJ 07303-9998, owned of record 6,471.430 shares (9.15%), and Donaldson Lufkin
Jenrette Securities Corporation Inc., PO Box 2052, Jersey City, NJ 07303-9998,
owned of record 4,602.660 shares (6.50%);
Ivy Pan-Europe Fund, NFSC FEBO, C. William Ferris, Michael Landry/Keith
Carlson, 700 South Federal Highway, Boca Raton, FL 33432-6114, owned of record
3,424.319 shares (47.51%), Donaldson Lufkin Jenrette Securities Corporation
Inc., PO Box 2052, Jersey City, NJ 07303-9998, owned of record 1,191.422 shares
(16.53%), Donaldson Lufkin Jenrette Securities Corporation Inc., PO Box 2052,
Jersey City, NJ 07303-9998, owned of record 947.119 shares (13.14%), Donaldson
Lufkin Jenrette Securities Corporation Inc., PO Box 2052, Jersey City, NJ
07303-9998, owned of record 653.595 shares (9.06%), and Charles Schwab & Co.
Inc., 101 Montgomery Street, San Francisco, CA 94104,owned of record 406.639
shares (5.64%);
Ivy US Blue Chip Fund, Mackenzie Investment Management Inc., Via Mizner
Financial Plaza, 700 South Federal Highway, Suite 300, Boca Raton, FL 33432,
owned of record 50,001.000 shares (80.05%), NFSC FEBO, C. William Ferris,
Michael Landry/Keith Carlson, 700 South Federal Highway, Boca Raton, FL
33432-6114, owned of record 7,419.362 shares (11.87%), and Charles Scwab & Co.
Inc., 101 Montgomery Street, San Francisco, CA 94104, owned of record 3,678.690
shares (5.88%);
Ivy US Emerging Growth Fund, NFSC FEBO, C. William Ferris, Michael
Landry/Keith Carlson, 700 South Federal Highway, Boca Raton, FL 33432-6114,
owned of record 20,670.236 shares (84.78%), and Charles Schwab & Co. Inc., 101
Montgomery Street, San Francisco, CA 94104, owned of record 1,927.965 shares
(7.90%).
As of April 16, 1999, the Officers and Trustees of the Trust as a group
owned beneficially or of record less than 1% of the outstanding Class A, Class
B, Class C, Class I and Advisor Class shares of each of the nineteen Ivy funds
that are series of the Trust, except that the Officers and Trustees of the Trust
as a group owned 3.93%, 1.94%, 1.19%, and 2.09%, respectively, of Ivy Asia
Pacific Fund Class A shares, Ivy Global Natural Resources Fund Class A shares,
Ivy Money Market Fund Class A shares, and Ivy South America Fund Class A shares,
respectively, as of that date.
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 Funds. Among other things,
the Code of Ethics, which generally complies with standards recommended by the
Investment Company Institute's Advisory Group on Personal Investing, prohibits
certain types of transactions absent prior approval, applies to portfolio
managers, traders, research analysts and others involved in the investment
advisory process, and imposes time periods during which personal transactions
may not be made in certain securities, and requires the submission of duplicate
broker confirmations and monthly reporting of securities transactions.
Exceptions to these and other provisions of the Code of Ethics may be granted in
particular circumstances after review by appropriate personnel.
INVESTMENT ADVISORY AND OTHER SERVICES
BUSINESS MANAGEMENT AND INVESTMENT ADVISORY SERVICES
IMI provides business management and investment advisory services to the
Fund pursuant to a Business Management and Investment Advisory Agreement (the
"Agreement"). IMI is a wholly owned subsidiary of Mackenzie Investment
Management Inc. ("MIMI"). MIMI, a Delaware corporation, has approximately 10% of
its outstanding common stock listed for trading on the Toronto Stock Exchange
("TSE"). MIMI is a subsidiary of Mackenzie Financial Corporation ("MFC"), 150
Bloor Street West, Toronto, Ontario, Canada, a public corporation organized
under the laws of Ontario whose shares are listed for trading on the TSE. MFC is
registered in Ontario as a mutual fund dealer and advises Ivy Global Natural
Resources Fund. IMI currently acts as manager and investment adviser to the
following additional investment companies registered under the 1940 Act (other
than the Funds): Ivy Asia Pacific Fund, Ivy Bond Fund, Ivy China Region Fund,
Ivy Developing Nations Fund, Ivy European Opportunities Fund, Ivy Global Fund,
Ivy Global Science & Technology Fund, Ivy International Fund, Ivy International
Fund II, Ivy International Small Companies Fund, Ivy International Strategic
Bond Fund, Ivy Money Market Fund, Ivy Pan-Europe Fund, and Ivy South America
Fund. IMI also provides business management services to Ivy Global Natural
Resources Fund.
The Agreement obligates IMI to make investments for the account of each
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 each 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 each Fund's Custodian and
monitor the services it provides to each Fund; (2) coordinate with and monitor
any other third parties furnishing services to each Fund; (3) provide each 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 each Fund or by IMI acting in
some other capacity pursuant to a separate agreement or arrangements with each
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.
Ivy Growth Fund Pays IMI a monthly fee for providing business management
and investment advisory services that is equal, on an annual basis, to 0.85% of
the first $350 million of the Fund's average net assets reduced to 0.75% on its
average net assets in excess of $350 million.
During the fiscal years ended December 31, 1996, 1997 and 1998, Ivy Growth
Fund paid IMI fees of $2,608,378, $2,794,304 and $2,722,314, respectively.
During the same periods, IMI reimbursed Fund expenses in the amount of $12,486,
$0 and $0, respectively.
Ivy Growth with Income Fund pays IMI a monthly fee for providing business
management and investment advisory services at an annual rate of 0.75% of the
Fund's average net assets.
During the fiscal years ended December 31, 1996, 1997 and 1998, Ivy Growth
with Income Fund paid IMI fees of $629,322, $624,013 and $702,361, respectively.
Ivy US Blue Chip Fund pays IMI a monthly fee for providing business
management and investment advisory services at an annual rate of 1.00% of the
Fund's average net assets.
During the fiscal year ended December 31, 1998, Ivy US Blue Chip Fund paid
IMI fees of $1,687. During the fiscal year ended December 31, 1998, IMI
reimbursed Fund expenses in the amount of $11,052.
Ivy US Emerging Growth Fund pays IMI a monthly fee for providing business
management and investment advisory services at an annual rate of .85% of the
Fund's average net assets.
During the fiscal years ended December 31, 1996, 1997 and 1998, Ivy US
Emerging Growth Fund paid IMI fees of $657,579, $973,756 and $985,816,
respectively.
Under the Agreement, the Trust pays the following expenses: (1) the fees
and expenses of the Trust's Independent Trustees; (2) the salaries and expenses
of any of the Trust's officers or employees who are not affiliated with IMI; (3)
interest expenses; (4) taxes and governmental fees, including any original issue
taxes or transfer taxes applicable to the sale or delivery of shares or
certificates therefor; (5) brokerage commissions and other expenses incurred in
acquiring or disposing of portfolio securities; (6) the expenses of registering
and qualifying shares for sale with the SEC and with various state securities
commissions; (7) accounting and legal costs; (8) insurance premiums; (9) fees
and expenses of the Trust's Custodian and Transfer Agent and any related
services; (10) expenses of obtaining quotations of portfolio securities and of
pricing shares; (11) expenses of maintaining the Trust's legal existence and of
shareholders' meetings; (12) expenses of preparation and distribution to
existing shareholders of periodic reports, proxy materials and prospectuses; and
(13) fees and expenses of membership in industry organizations.
IMI currently limits the total operating expenses (excluding Rule 12b-1
fees, interest, taxes, brokerage commissions, litigation, class-specific
expenses, indemnification expenses, and extraordinary expenses) of Ivy Growth
Fund, Ivy Growth with Income Fund and Ivy US Emerging Growth Fund to an annual
rate of 1.95% of each Fund's average net assets and of Ivy US Blue Chip Fund to
an annual rate of 1.15% of the Fund's average net assets, which may lower each
Fund's expenses and increase its yield.
The Agreement will continue in effect with respect to each Fund from year
to year, only so long as the continuance is specifically approved at least
annually (i) by the vote of a majority of the Independent Trustees and (ii)
either (a) by the vote of a majority of the outstanding voting securities (as
defined in the 1940 Act) of each 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) with respect to any Fund 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 that Fund. See
"Capitalization and Voting Rights."
The Agreement may be terminated with respect to each Fund at any time,
without payment of any penalty, by the vote of a majority of the Board, or by a
vote of a majority of the outstanding voting securities of the Fund, on 60 days'
written notice to IMI, or by IMI on 60 days' written notice to the Trust. The
Agreement shall terminate automatically in the event of its assignment.
DISTRIBUTION SERVICES
IMDI, a wholly owned subsidiary of MIMI, serves as the exclusive
distributor of Ivy Fund's shares pursuant to an Amended and Restated
Distribution Agreement with the Trust dated March 16, 1999, as amended from time
to time (the "Distribution Agreement"). IMDI distributes shares of each 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 each 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, each Fund bears, among other expenses,
the expenses of registering and qualifying its shares for sale under Federal and
state securities laws and preparing and distributing to existing shareholders
periodic reports, proxy materials and prospectuses.
The Distribution Agreement will continue in effect for successive one-year
periods, provided that such continuance is specifically approved at least
annually by the vote of a majority of the Independent Trustees, cast in person
at a meeting called for that purpose and by the vote of either a majority of the
entire Board or a majority of the outstanding voting securities of each Fund.
The Distribution Agreement may be terminated with respect to any 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. The
Board has adopted a Rule 18f-3 plan on behalf of each Fund. The key features of
the Rule 18f-3 plan are as follows: (i) shares of each class of each 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 each Fund may be exchanged for shares of the same class
of another Ivy fund; and (iii) each Fund's Class B shares will convert
automatically into Class A shares of that 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 each 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 each Fund's foreign securities. With
respect to each 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 each Fund. As compensation for those
services, each Fund pays MIMI a monthly fee plus out-of-pocket expenses as
incurred. The monthly fee is based upon the net assets of each Fund at the
preceding month end at the following rates: $1,250 when net assets are $10
million and under; $2,500 when net assets are over $10 million to $40 million;
$5,000 when net assets are over $40 million to $75 million; and $6,500 when net
assets are over $75 million.
During the fiscal year ended December 31, 1998, Ivy Growth Fund paid MIMI
$106,712 under the agreement.
During the fiscal year ended December 31, 1998, Ivy Growth with Income
Fund paid MIMI $94,539 under the agreement.
During the fiscal year ended December 31, 1998, Ivy US Blue Chip Fund paid
MIMI $1,654 under the agreement.
During the fiscal year ended December 31, 1998, Ivy US Emerging Growth
Fund paid MIMI $98,957 under the agreement.
TRANSFER AGENT AND DIVIDEND PAYING AGENT
Pursuant to a Transfer Agency and Shareholder Service Agreement, Ivy
Mackenzie Services Corp. ("IMSC"), a wholly owned subsidiary of MIMI, is the
transfer agent for each Fund. Under the Agreement, each Fund pays a monthly fee
at an annual rate of $20.00 for each open Class A, Class B, Class C and Advisor
Class account. In addition, each Fund pays a monthly fee at an annual rate of
$4.58 per account that is closed plus certain out-of-pocket expenses. Ivy US
Blue Chip Fund pays a monthly fee at an annual rate of $10.25 per open Class I
account. Such fees and expenses for the fiscal year ended December 31, 1998 for
Ivy Growth Fund totaled $755,710. Such fees and expenses for the fiscal year
ended December 31, 1998 for Ivy Growth with Income Fund totaled $235,695. Such
fees and expenses for the fiscal year ended December 31, 1998 for Ivy US Blue
Chip Fund totaled $184. Such fees and expenses for the fiscal year ended
December 31, 1998 for Ivy US Emerging Growth Fund totaled $314,453. Certain
broker-dealers that maintain shareholder accounts with each Fund through an
omnibus account provide transfer agent and other shareholder-related services
that would otherwise be provided by IMSC if the individual accounts that
comprise the omnibus account were opened by their beneficial owners directly.
IMSC pays such broker-dealers a per account fee for each open account within the
omnibus account, or a fixed rate (e.g., 0.10%) fee, based on the average daily
net asset value of the omnibus account (or a combination thereof).
ADMINISTRATOR
Pursuant to an Administrative Services Agreement, MIMI provides certain
administrative services to each Fund. As compensation for these services, each
Fund pays MIMI a monthly fee at the annual rate of 0.10% of the Fund's average
daily net asset value of its Class A, Class B, Class C, and Advisor Class
shares. Ivy US Blue Chip Fund pays MIMI a monthly fee at the annual rate of
0.01% of its average daily net assets for Class I. Such fees for the fiscal year
ended December 31, 1998 for Ivy Growth Fund totaled $320,272. Such fees for the
fiscal year ended December 31, 1998 for Ivy Growth with Income Fund totaled
$93,648. Such fees for the fiscal year ended December 31, 1998 for Ivy US Blue
Chip Fund totaled $225. Such fees for the fiscal year ended December 31, 1998
for Ivy US Emerging Growth Fund totaled $115,978.
AUDITORS
PricewaterhouseCoopers LLP, independent public accountants, has been
selected as auditors for the Trust. The audit services performed by
PricewaterhouseCoopers LLP include audits of the annual financial statements of
each of the funds of the Trust. Other services provided principally relate to
filings with the SEC and the preparation of the funds' tax returns.
BROKERAGE ALLOCATION
Subject to the overall supervision of the President and the Board, IMI
places orders for the purchase and sale of each 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 any 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 Funds or the Trust. IMI may consider sales of shares of Ivy
funds as a factor in the selection of broker-dealers and may select
broker-dealers who provide it with research services. IMI will not, however,
execute brokerage transactions other than at the best price and execution.
During the fiscal years ended December 31, 1996, 1997 and 1998, Ivy Growth
Fund paid brokerage commissions of $883,583, $683,881 and 907,345, respectively.
During the fiscal years ended December 31, 1996, 1997 and 1998, Ivy Growth
with Income Fund paid brokerage commissions of $293,827, $155,283 and $378,887,
respectively.
During the fiscal year ended December 31, 1998, Ivy US Blue Chip Fund paid
brokerage commissions of $1,806.
During the fiscal years ended December 31, 1996, 1997 and 1998, Ivy US
Emerging Growth Fund paid brokerage commissions of $426,676, $583,738 and
$658,613, respectively.
Each Fund may, under some circumstances, accept securities in lieu of cash
as payment for Fund shares. Each 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 that Fund. While no
minimum has been established, it is expected that each Fund will not accept
securities having an aggregate value of less than $1 million. The Trust may
reject in whole or in part any or all offers to pay for Fund shares with
securities and may discontinue accepting securities as payment for Fund shares
at any time without notice. The Trust will value accepted securities in the
manner and at the same time provided for valuing portfolio securities of each
Fund, and each Fund's shares will be sold for net asset value determined at the
same time the accepted securities are valued. The Trust will only accept
securities delivered in proper form and will not accept securities subject to
legal restrictions on transfer. The acceptance of securities by the Trust must
comply with the applicable laws of certain states.
CAPITALIZATION AND VOTING RIGHTS
The capitalization of the Trust consists of an unlimited number of shares
of beneficial interest (no par value per share). When issued, shares of each
class of each Fund are fully paid, non-assessable, redeemable and fully
transferable. No class of shares of any Fund has preemptive rights or
subscription rights.
The Amended and Restated Declaration of Trust permits the Trustees to
create separate series or portfolios and to divide any series or portfolio into
one or more classes. The Trustees have authorized nineteen series, each of which
represents a fund. The Trustees have further authorized the issuance of Class A,
Class B, and Class C shares for Ivy International Fund and Ivy Money Market Fund
and Class A, Class B, Class C and Advisor Class shares for the Funds, Ivy Asia
Pacific Fund, Ivy Bond Fund, Ivy China Region Fund, Ivy Developing Nations Fund,
Ivy European Opportunities Fund, Ivy Global Fund, Ivy Global Natural Resources
Fund, Ivy Global Science & Technology Fund, Ivy International Fund II, Ivy
International Small Companies Fund, Ivy International Strategic Bond Fund, Ivy
Pan-Europe Fund, and Ivy South America Fund, as well as Class I shares for Ivy
Bond Fund, Ivy European Opportunities Fund, Ivy Global Science & Technology
Fund, Ivy International Fund, Ivy International Fund II, Ivy International Small
Companies Fund, Ivy International Strategic Bond Fund and Ivy US Blue Chip Fund.
Shareholders have the right to vote for the election of Trustees of the
Trust and on any and all matters on which they may be entitled to vote by law or
by the provisions of the Trust's By-Laws. The Trust is not required to hold a
regular annual meeting of shareholders, and it does not intend to do so. Shares
of each class of each Fund entitle their holders to one vote per share (with
proportionate voting for fractional shares). Shareholders of each Fund are
entitled to vote alone on matters that only affect that Fund. All classes of
shares of each Fund will vote together, except with respect to the distribution
plan applicable to the Fund's Class A, Class B or Class C shares or when a class
vote is required by the 1940 Act. On matters relating to all funds of the Trust,
but affecting the funds differently, separate votes by the shareholders of each
fund are required. Approval of an investment advisory agreement and a change in
fundamental policies would be regarded as matters requiring separate voting by
the shareholders of each fund of the Trust. If the Trustees determine that a
matter does not affect the interests of a Fund, then the shareholders of that
Fund will not be entitled to vote on that matter. Matters that affect the Trust
in general, such as ratification of the selection of independent public
accountants, will be voted upon collectively by the shareholders of all funds of
the Trust.
As used in this SAI and the Prospectus, the phrase "majority vote of the
outstanding shares" of a Fund means the vote of the lesser of: (1) 67% of the
shares of that 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 that Fund (or of the Trust).
With respect to the submission to shareholder vote of a matter requiring
separate voting by a Fund, the matter shall have been effectively acted upon
with respect to that Fund if a majority of the outstanding voting securities of
the Fund votes for the approval of the matter, notwithstanding that: (1) the
matter has not been approved by a majority of the outstanding voting securities
of any other fund of the Trust; or (2) the matter has not been approved by a
majority of the outstanding voting securities of the Trust.
The Amended and Restated Declaration of Trust provides that the holders of
not less than two-thirds of the outstanding shares of the Trust may remove a
person serving as trustee either by declaration in writing or at a meeting
called for such purpose. The Trustees are required to call a meeting for the
purpose of considering the removal of a person serving as Trustee if requested
in writing to do so by the holders of not less than 10% of the outstanding
shares of the Trust. Shareholders will be assisted in communicating with other
shareholders in connection with the removal of a Trustee as if Section 26(c) of
the Act were applicable.
The Trust's shares do not have cumulative voting rights and accordingly
the holders of more than 50% of the outstanding shares could elect the entire
Board, in which case the holders of the remaining shares would not be able to
elect any Trustees.
Under Massachusetts law, the Trust's shareholders could, under certain
circumstances, be held personally liable for the obligations of the Trust.
However, the Amended and Restated Declaration of Trust disclaims liability of
the shareholders, Trustees or officers of the Trust for acts or obligations of
the Trust, which are binding only on the assets and property of the Trust, and
requires that notice of the disclaimer be given in each contract or obligation
entered into or executed by the Trust or its Trustees. The Amended and Restated
Declaration of Trust provides for indemnification out of Fund property for all
loss and expense of any shareholder of any Fund held personally liable for the
obligations of that Fund. The risk of a shareholder of the Trust incurring
financial loss on account of shareholder liability is limited to circumstances
in which the Trust itself would be unable to meet its obligations and, thus,
should be considered remote. No series of the Trust is liable for the
obligations of any other series of the Trust.
SPECIAL RIGHTS AND PRIVILEGES
The Trust offers, and (except as noted below) bears the cost of providing,
to investors the following rights and privileges. The Trust reserves the right
to amend or terminate any one or more of these rights and privileges. Notice of
amendments to or terminations of rights and privileges will be provided to
shareholders in accordance with applicable law.
Certain of the rights and privileges described below refer to funds, other
than the Funds, whose shares are also distributed by IMDI. These funds are: Ivy
Asia Pacific Fund, Ivy Bond Fund, Ivy China Region Fund, Ivy Developing Nations
Fund, Ivy European Opportunities Fund, Ivy Global Fund, Ivy Global Natural
Resources Fund, Ivy Global Science & Technology Fund, Ivy International Fund,
Ivy International Fund II, Ivy International Small Companies Fund, Ivy
International Strategic Bond Fund, Ivy Money Market Fund, Ivy Pan-Europe Fund,
and Ivy South America Fund, (the other fifteen series of the Trust). (Effective
April 18, 1997, Ivy International Fund suspended the offer of its shares to new
investors). Shareholders should obtain a current prospectus before exercising
any right or privilege that may relate to these funds.
AUTOMATIC INVESTMENT METHOD
The Automatic Investment Method, which enables a Fund shareholder to have
specified amounts automatically drawn each month from his or her bank for
investment in Fund shares, is available for all classes of shares. The minimum
initial and subsequent investment under this method is $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 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 each 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 a 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 share. The minimum value of Advisor Class shares which may
be exchanged into an Ivy fund in which shares are not already held is $10,000.
No exchange out of any 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 that Fund to less than $10,000.
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.
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 each Fund may be used as a
funding medium for an Individual Retirement Account ("IRA"). Eligible
individuals may establish an IRA by adopting a model custodial account available
from IMSC, who may impose a charge for establishing the account. Individuals
should consult their tax advisers before investing IRA assets in an Ivy fund if
that fund primarily distributes exempt-interest dividends.
An individual who has not reached age 70-1/2 and who receives compensation
or earned income is eligible to contribute to an IRA, whether or not he or she
is an active participant in a retirement plan. An individual who receives a
distribution from another IRA, a qualified retirement plan, a qualified annuity
plan or a tax-sheltered annuity or custodial account ("403(b) plan") that
qualifies for "rollover" treatment is also eligible to establish an IRA by
rolling over the distribution either directly or within 60 days after its
receipt. Tax advice should be obtained in connection with planning a rollover
contribution to an IRA.
In general, an eligible individual may contribute up to the lesser of
$2,000 or 100% of his or her compensation or earned income to an IRA each year.
If a husband and wife are both employed, and both are under age 70-1/2, each may
set up his or her own IRA within these limits. If both earn at least $2,000 per
year, the maximum potential contribution is $4,000 per year for both. For years
after 1996, the result is similar even if one spouse has no earned income; if
the joint earned income of the spouses is at least $4,000, a contribution of up
to $2,000 may be made to each spouse's IRA. Rollover contributions are not
subject to these limits.
An individual may deduct his or her annual contributions to an IRA in
computing his or her Federal income tax within the limits described above,
provided he or she (or his or her spouse, if they file a joint Federal income
tax return) is not an active participant in a qualified retirement plan (such as
a qualified corporate, sole proprietorship, or partnership pension, profit
sharing, 401(k) or stock bonus plan), qualified annuity plan, 403(b) plan,
simplified employee pension, or governmental plan. If he or she (or his or her
spouse) is an active participant, whether the individual's contribution to an
IRA is fully deductible, partially deductible or not deductible depends on (i)
adjusted gross income and (ii) whether it is the individual or the individual's
spouse who is an active participant, in the case of married individuals filing
jointly. Contributions may be made up to the maximum permissible amount even if
they are not deductible. Rollover contributions are not includable in income for
Federal income tax purposes and therefore are not deductible from it.
Generally, earnings on an IRA are not subject to current Federal income
tax until distributed. Distributions attributable to tax-deductible
contributions and to IRA earnings are taxed as ordinary income. Distributions of
non-deductible contributions are not subject to Federal income tax. In general,
distributions from an IRA to an individual before he or she reaches age 59-1/2
are subject to a nondeductible penalty tax equal to 10% of the taxable amount of
the distribution. The 10% penalty tax does not apply to amounts withdrawn from
an IRA after the individual reaches age 59-1/2, becomes disabled or dies, or if
withdrawn in the form of substantially equal payments over the life or life
expectancy of the individual and his or her designated beneficiary, if any, or
rolled over into another IRA, amounts withdrawn and used to pay for deductible
medical expenses and amounts withdrawn by certain unemployed individuals not in
excess of amounts paid for certain health insurance premiums, amounts used to
pay certain qualified higher education expenses, and amounts used within 120
days of the date the distribution is received to pay for certain first-time
homebuyer expenses. Distributions must begin to be withdrawn not later than
April 1 of the calendar year following the calendar year in which the individual
reaches age 70-1/2. Failure to take certain minimum required distributions will
result in the imposition of a 50% non-deductible penalty tax.
ROTH IRAS: Shares of each 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. 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 $250 each while the Withdrawal Plan is in effect.
An investor may terminate his or her participation in the Withdrawal Plan
at any time by delivering written notice to IMSC. If all shares held by the
investor are liquidated at any time, participation in the Withdrawal Plan will
terminate automatically. The Trust or IMSC may terminate the Withdrawal Plan
option at any time after reasonable notice to shareholders.
GROUP SYSTEMATIC INVESTMENT PROGRAM
Shares of each 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 a 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.
REDEMPTIONS
Shares of each 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 a 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 a Fund.
The Trust may redeem those Advisor Class accounts of shareholders who have
maintained an investment of less than $10,000 in any 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 any 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.
Each 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, a Fund may be liable for any losses due to
unauthorized or fraudulent telephone instructions.
NET ASSET VALUE
The net asset value per share of each Fund is computed by dividing the
value of that 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 a Fund's aggregate net assets, receivables are valued at their
realizable amounts. Each Fund's liabilities, if not identifiable as belonging to
a particular class of that 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
a Fund's portfolio securities occur between the time when a foreign exchange
closes and the time when that 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 a Fund's Custodian or the Exchange close early as a
result of a partial holiday or otherwise, the Trust reserves the right to
advance the time on that day by which purchase and redemption requests must be
received.
The number of shares you receive when you place a purchase order, and the
payment you receive after submitting a redemption request, is based on each
Fund's net asset value next determined after your instructions are received in
proper form by IMSC or by your registered securities dealer. Each purchase and
redemption order is subject to any applicable sales charge. Since each Fund
normally invests in securities that are listed on foreign exchanges that may
trade on weekends or other days when the Fund does not price its shares, each
Fund's net asset value may change on days when shareholders will not be able to
purchase or redeem that Fund's shares. The sale of each 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 a Fund's best interest to do so.
TAXATION
The following is a general discussion of certain tax rules thought to be
applicable with respect to each 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 any Fund.
Each Fund intends to be taxed as a regulated investment company under
Subchapter M of the Code. Accordingly, each 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, each 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. Each 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, each 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, each 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 a 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 each 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 a 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 a 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 a 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 each 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 each 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
each Fund may result in "straddles" for Federal income tax purposes. The
straddle rules may affect the character of gains or losses realized by each
Fund. In addition, losses realized by each 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 each Fund
are not entirely clear. The straddle rules may increase the amount of short-term
capital gain realized by any Fund, which is taxed as ordinary income when
distributed to shareholders.
Each Fund may make one or more of the elections available under the Code
which are applicable to straddles. If a 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, each 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 each 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 each Fund accrues receivables or liabilities denominated
in a foreign currency and the time that 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 each Fund's investment company taxable income
available to be distributed to its shareholders as ordinary income.
INVESTMENT IN PASSIVE FOREIGN INVESTMENT COMPANIES
Each Fund may invest in shares of foreign corporations which may be
classified under the Code as passive foreign investment companies ("PFICs"). In
general, a foreign corporation is classified as a PFIC if at least one-half of
its assets constitute investment-type assets, or 75% or more of its gross income
is investment-type income. If a Fund receives a so-called "excess distribution"
with respect to PFIC stock, that 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. Each 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.
Each Fund may be eligible to elect alternative tax treatment with respect
to PFIC shares. Each 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, each 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 each 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 each 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. Each 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 each Fund may be treated as having
acquisition discount, or OID in the case of certain types of debt securities.
Generally, each 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. Each 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.
Each Fund generally will be required to distribute dividends to
shareholders representing discount on debt securities that is currently
includable in income, even though cash representing such income may not have
been received by that Fund. Cash to pay such dividends may be obtained from
sales proceeds of securities held by each 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 each Fund to a corporate shareholder, to the extent such dividends are
attributable to dividends received from U.S. corporations by that 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 each 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 that Fund on the distribution date. A
distribution of an amount in excess of a 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 a 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
a 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 same 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 each 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 any Fund's total assets at the close of
its taxable year consists of securities of foreign corporations, that 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 a 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 a Fund makes
the election described in the preceding paragraph, the source of the Fund's
income flows through to its shareholders. With respect to each 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 each 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 a 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 a 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
Each 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 Funds or shareholders. Shareholders are
advised to consult their own tax advisers with respect to the particular tax
consequences to them of an investment in any Fund.
PERFORMANCE INFORMATION
Performance information for the classes of shares of each 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 each 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 a 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.
AVERAGE ANNUAL TOTAL RETURN. Quotations of standardized average annual
total return ("Standardized Return") for a specific class of shares of each 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 each 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 each 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%.
Each 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").
In determining the average annual total return for a specific class of
shares of each Fund, recurring fees, if any, that are charged to all shareholder
accounts are taken into consideration. For any account fees that vary with the
size of the account of each Fund, the account fee used for purposes of the
following computations is assumed to be the fee that would be charged to the
mean account size of the Fund.
The Standardized Return for the Advisor Class shares of Ivy Growth Fund
for the period from the date Advisor Class shares were first offered (January 1,
1998) through December 31, 1998 was (0.14)%.
The Standardized Return for the Advisor Class shares of Ivy Growth with
Income Fund for the period from the date Advisor Class shares were first offered
(January 1, 1998) through December 31, 1998 was (0.36)%.
The Standardized Return for the Advisor Class shares of Ivy US Blue Chip
Fund for the period from the date Advisor Class shares were first offered
(November 2, 1998) through December 31, 1998 was 7.40%. This figure reflects
expense reimbursement. Without expense reimbursement, the Standardized Return
would have been 6.50%.
The Standardized Return for the Advisor Class shares of Ivy US Emerging
Growth Fund for the period from the date Advisor Class shares were first offered
(January 1, 1998) through December 31, 1998 was 13.78%.
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 each Fund for a specified period. Cumulative total return quotations
reflect changes in the price of each Fund's shares and assume that all dividends
and capital gains distributions during the period were reinvested in the same
Fund's shares. Cumulative total return is calculated by computing the cumulative
rates of return of a hypothetical investment in a specific class of shares of
each Fund over such periods, according to the following formula (cumulative
total return is then expressed as a percentage):
C = (ERV/P) - 1
Where: C = cumulative total return
P = a hypothetical initial investment of $1,000 to
purchase shares of a specific class
ERV = ending redeemable value: ERV is the value, at
the end of the applicable period, of a
hypothetical $1,000 investment made at the
beginning of the applicable period.
The Cumulative Total Return for the Advisor Class shares of Ivy Growth
Fund for the period from the date Advisor Class shares were first offered
(January 1, 1998) through December 31, 1998 was (0.14)%.
The Cumulative Total Return for the Advisor Class shares of Ivy Growth
with Income Fund for the period from the date Advisor Class shares were first
offered (January 1, 1998) through December 31, 1998 was (0.36)%.
The Cumulative Total Return for the Advisor Class shares of Ivy US Blue
Chip Fund for the period from the date Advisor Class shares were first offered
(November 2, 1998) through December 31, 1998 was 7.40%.
The Cumulative Total Return for the Advisor Class shares of Ivy US
Emerging Growth Fund for the period from the date Advisor Class shares were
first offered (January 1, 1998) through December 31, 1998 was 13.78%.
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 each 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 each 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 each
Fund's shares and the risks associated with each 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.
Each 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
Each Fund's Portfolio of Investments as of December 31, 1998, Statement of
Assets and Liabilities as of December 31, 1998, Statement of Operations for the
fiscal year ended December 31, 1998, Statement of Changes in Net Assets for the
fiscal year ended December 31, 1998, Financial Highlights, Notes to Financial
Statements, and Report of Independent Accountants, which are included in each
Fund's December 31, 1998 Annual Report to shareholders, are incorporated by
reference into this SAI.
<PAGE>
APPENDIX A
DESCRIPTION OF STANDARD & POOR'S RATINGS GROUP ("S&P") AND
MOODY'S INVESTORS SERVICE, INC. ("MOODY'S") CORPORATE
BOND AND COMMERCIAL PAPER RATINGS
[From "Moody's Bond Record," November 1994 Issue (Moody's Investors Service,
New York, 1994), and "Standard & Poor's Municipal Ratings Handbook," October
1997 Issue (McGraw Hill, New York, 1997).]
MOODY'S:
(a) CORPORATE BONDS. Bonds rated Aaa by Moody's are judged by Moody's to
be of the best quality, carrying the smallest degree of investment risk.
Interest payments are protected by a large or exceptionally stable margin and
principal is secure. While the various protective elements are likely to change,
such changes as can be visualized are most unlikely to impair the fundamentally
strong position of such issues. Bonds rated Aa are judged by Moody's to be of
high quality by all standards. Aa bonds are rated lower than Aaa bonds because
margins of protection may not be as large as those of Aaa bonds, or fluctuations
of protective elements may be of greater amplitude, or there may be other
elements present which make the long-term risks appear somewhat larger than
those applicable to Aaa securities. Bonds which are rated A by Moody's possess
many favorable investment attributes and are to be considered as upper
medium-grade obligations. Factors giving security to principal and interest are
considered adequate, but elements may be present which suggest a susceptibility
to impairment sometime in the future. Bonds rated Baa by Moody's are considered
medium-grade obligations (i.e., they are neither highly protected nor poorly
secured). Interest payments and principal security appear adequate for the
present, but certain protective elements may be lacking or may be
characteristically unreliable over any great length of time. Such bonds lack
outstanding investment characteristics and in fact have speculative
characteristics as well. Bonds which are rated Ba are judged to have speculative
elements; their future cannot be considered well-assured. Often the protection
of interest and principal payments may be very moderate and thereby not well
safeguarded during both good and bad times over the future. Uncertainty of
position characterizes bonds in this class. Bonds which are rated B generally
lack characteristics of the desirable investment. Assurance of interest and
principal payments of or maintenance of other terms of the contract over any
long period of time may be small. Bonds which are rated Caa are of poor
standing. Such issues may be in default or there may be present elements of
danger with respect to principal or interest. Bonds which are rated Ca represent
obligations which are speculative in a high degree. Such issues are often in
default or have other marked shortcomings. Bonds which are rated C are the
lowest rated class of bonds and issues so rated can be regarded as having
extremely poor prospects of ever attaining any real investment standing.
(b) COMMERCIAL PAPER. The Prime rating is the highest commercial paper
rating assigned by Moody's. Among the factors considered by Moody's in assigning
ratings are the following: (1) evaluation of the management of the issuer; (2)
economic evaluation of the issuer's industry or industries and an appraisal of
speculative-type risks which may be inherent in certain areas; (3) evaluation of
the issuer's products in relation to competition and customer acceptance; (4)
liquidity; (5) amount and quality of long-term debt; (6) trend of earnings over
a period of ten years; (7) financial strength of a parent company and the
relationships which exist with the issuer; and (8) recognition by management of
obligations which may be present or may arise as a result of public interest
questions and preparations to meet such obligations. Issuers within this Prime
category may be given ratings 1, 2 or 3, depending on the relative strengths of
these factors. The designation of Prime-1 indicates the highest quality
repayment capacity of the rated issue. Issuers rated Prime-2 are deemed to have
a strong ability for repayment while issuers voted Prime-3 are deemed to have an
acceptable ability for repayment. Issuers rated Not Prime do not fall within any
of the Prime rating categories.
S&P:
(a) CORPORATE BONDS. An S&P corporate debt rating is a current assessment
of the creditworthiness of an obligor with respect to a specific obligation. The
ratings are based on current information furnished by the issuer or obtained by
S&P from other sources it considers reliable. The ratings described below may be
modified by the addition of a plus or minus sign to show relative standing
within the major rating categories.
Debt rated AAA has the highest rating assigned by S&P. Capacity to pay
interest and repay principal is extremely strong. Debt rated AA is judged by S&P
to have a very strong capacity to pay interest and repay principal and differs
from the highest rated issues only in small degree. Debt rated A by S&P has a
strong capacity to pay interest and repay principal, although it is somewhat
more susceptible to the adverse effects of changes in circumstances and economic
conditions than debt in higher rated categories.
Debt rated BBB by S&P is regarded by S&P as having an adequate capacity to
pay interest and repay principal. Although such bonds normally exhibit adequate
protection parameters, adverse economic conditions or changing circumstances are
more likely to lead to a weakened capacity to pay interest and repay principal
than debt in higher rated categories.
Debt rated BB, B, CCC, CC and C is regarded as having predominately
speculative characteristics with respect to capacity to pay interest and repay
principal. BB indicates the least degree of speculation and C the highest. While
such debt will likely have some quality and protective characteristics, these
are outweighed by large uncertainties or exposures to adverse conditions. Debt
rated BB has less near-term vulnerability to default than other speculative
issues. However, it faces major ongoing uncertainties or exposure to adverse
business, financial or economic conditions which could lead to inadequate
capacity to meet timely interest and principal payments. The BB rating category
is also used for debt subordinated to senior debt that is assigned an actual or
implied BBB- rating. Debt rated B has a greater vulnerability to default but
currently has the capacity to meet interest payments and principal repayments.
Adverse business, financial, or economic conditions will likely impair capacity
or willingness to pay interest and repay principal. The B rating category is
also used for debt subordinated to senior debt that is assigned an actual or
implied BB or BB- rating. Debt rated CCC has a currently identifiable
vulnerability to default, and is dependent upon favorable business, financial,
and economic conditions to meet timely payment of interest and repayment of
principal. In the event of adverse business, financial or economic conditions,
it is not likely to have the capacity to pay interest and repay principal. The
CCC rating category is also used for debt subordinated to senior debt that is
assigned an actual or implied B or B- rating. The rating CC typically is applied
to debt subordinated to senior debt which is assigned an actual or implied CCC
debt rating. The rating C typically is applied to debt subordinated to senior
debt which is assigned an actual or implied CCC- debt rating. The C rating may
be used to cover a situation where a bankruptcy petition has been filed, but
debt service payments are continued.
The rating CI is reserved for income bonds on which no interest is being
paid. Debt rated D is in payment default. The D rating category is used when
interest payments or principal payments are not made on the date due, even if
the applicable grace period has not expired, unless S&P believes that such
payments will be made during such grace period. The D rating also will be used
upon the filing of a bankruptcy petition if debt service payments are
jeopardized.
(b) COMMERCIAL PAPER. An S&P commercial paper rating is a current
assessment of the likelihood of timely payment of debt considered short-term in
the relevant market.
The commercial paper rating A-1 by S&P indicates that the degree of safety
regarding timely payment is strong. Those issues determined to possess extremely
strong safety characteristics are denoted with a plus sign (+) designation. For
commercial paper with an A-2 rating, the capacity for timely payment on issues
is satisfactory, but not as high as for issues designated A-1. Issues rated A-3
have adequate capacity for timely payment, but are more vulnerable to the
adverse effects of changes in circumstances than obligations carrying higher
designations.
Issues rated B are regarded as having only speculative capacity for timely
payment. The C rating is assigned to short-term debt obligations with a doubtful
capacity for payment. Debt rated D is in payment default. The D rating category
is used when interest payments or principal payments are not made on the date
due, even if the applicable grace period has not expired, unless S&P believes
such payments will be made during such grace period.
<PAGE>
IVY BOND FUND
IVY INTERNATIONAL STRATEGIC BOND FUND
IVY MONEY MARKET FUND
series of
IVY FUND
Via Mizner Financial Plaza, Suite 300
700 South Federal Highway
Boca Raton, Florida 33432
STATEMENT OF ADDITIONAL INFORMATION
May 3, 1999
(as supplemented October 18, 1999)
Ivy Fund (the "Trust") is an open-end management investment company that
currently consists of nineteen fully managed portfolios, each of which (except
for Ivy South America Fund and Ivy International Strategic Bond Fund) is
diversified. This Statement of Additional Information ("SAI") relates to the
Class A, B and C shares of Ivy Money Market Fund and the Class A, B, C and I
shares of Ivy Bond Fund and Ivy International Strategic Bond Fund (each a
"Fund"). The other sixteen 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 Funds dated April 30, 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. Ivy Bond Fund and Ivy International
Strategic Bond Fund also offer 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. ("IMDI")
Via Mizner Financial Plaza, Suite 300
700 South Federal Highway
Boca Raton, Florida 33432
Telephone: (800) 456-5111
<PAGE>
TABLE OF CONTENTS
GENERAL INFORMATION..........................................................1
INVESTMENT OBJECTIVES, STRATEGIES AND RISKS..................................1
IVY BOND FUND..........................................................1
INVESTMENT RESTRICTIONS FOR IVY BOND FUND..............................2
IVY INTERNATIONAL STRATEGIC BOND FUND..................................5
INVESTMENT RESTRICTIONS FOR IVY INTERNATIONAL STRATEGIC BOND FUND......7
IVY MONEY MARKET FUND..................................................9
INVESTMENT RESTRICTIONS FOR IVY MONEY MARKET FUND.....................10
COMMON STOCKS.........................................................13
CONVERTIBLE SECURITIES................................................13
DEBT SECURITIES.......................................................14
IN GENERAL......................................................14
INVESTMENT-GRADE DEBT SECURITIES................................14
LOW-RATED DEBT SECURITIES.......................................14
U.S. GOVERNMENT SECURITIES......................................16
MUNICIPAL SECURITIES............................................16
ZERO COUPON BONDS...............................................17
FIRM COMMITMENT AGREEMENTS AND "WHEN-ISSUED" SECURITIES.........17
ILLIQUID SECURITIES...................................................17
FOREIGN SECURITIES....................................................18
DEPOSITORY RECEIPTS...................................................19
EMERGING MARKETS......................................................20
FOREIGN SOVEREIGN DEBT OBLIGATIONS....................................21
BRADY BONDS...........................................................21
LOAN PARTICIPATIONS AND ASSIGNMENTS...................................22
FOREIGN CURRENCIES....................................................23
FOREIGN CURRENCY EXCHANGE TRANSACTIONS................................23
REPURCHASE AGREEMENTS.................................................24
BANKING INDUSTRY AND SAVINGS AND LOAN OBLIGATIONS.....................25
COMMERCIAL PAPER......................................................25
BORROWING.............................................................25
SHORT SALES...........................................................26
OPTIONS TRANSACTIONS..................................................26
IN GENERAL......................................................26
WRITING OPTIONS ON INDIVIDUAL SECURITIES........................27
PURCHASING OPTIONS ON INDIVIDUAL SECURITIES.....................28
PURCHASING AND WRITING OPTIONS ON SECURITIES INDICES............28
RISKS OF OPTIONS TRANSACTIONS...................................29
FUTURES CONTRACTS AND OPTIONS ON FUTURES CONTRACTS....................30
IN GENERAL......................................................30
INTEREST RATE FUTURES CONTRACTS.................................32
OPTIONS ON INTEREST RATE FUTURES CONTRACTS......................32
SWAPS, CAPS, FLOORS AND COLLARS.................................33
FOREIGN CURRENCY FUTURES CONTRACTS AND RELATED OPTIONS..........34
RISKS ASSOCIATED WITH FUTURES AND RELATED OPTIONS...............35
SECURITIES INDEX FUTURES CONTRACTS....................................36
RISKS OF SECURITIES INDEX FUTURES...............................36
COMBINED TRANSACTIONS...........................................37
PORTFOLIO TURNOVER..........................................................38
TRUSTEES AND OFFICERS.......................................................38
PERSONAL INVESTMENTS BY EMPLOYEES OF IMI........................38
INVESTMENT ADVISORY AND OTHER SERVICES......................................38
BUSINESS MANAGEMENT AND INVESTMENT ADVISORY SERVICES..................38
DISTRIBUTION SERVICES.................................................41
RULE 18F-3 PLAN.................................................42
RULE 12B-1 DISTRIBUTION PLANS...................................42
CUSTODIAN.............................................................45
FUND ACCOUNTING SERVICES..............................................46
TRANSFER AGENT AND DIVIDEND PAYING AGENT..............................46
ADMINISTRATOR.........................................................46
AUDITORS..............................................................47
BROKERAGE ALLOCATION........................................................47
CAPITALIZATION AND VOTING RIGHTS............................................48
SPECIAL RIGHTS AND PRIVILEGES...............................................49
AUTOMATIC INVESTMENT METHOD...........................................50
EXCHANGE OF SHARES....................................................50
INITIAL SALES CHARGE SHARES.....................................50
CONTINGENT DEFERRED SALES CHARGE SHARES...............................51
CLASS A.........................................................51
CLASS B.........................................................51
CLASS C.........................................................52
CLASS I.........................................................52
ALL CLASSES.....................................................52
LETTER OF INTENT......................................................53
RETIREMENT PLANS......................................................53
INDIVIDUAL RETIREMENT ACCOUNTS..................................54
ROTH IRAS.......................................................55
QUALIFIED PLANS.................................................56
DEFERRED COMPENSATION FOR PUBLIC SCHOOLS AND CHARITABLE
ORGANIZATIONS ("403(B)(7) ACCOUNT").............................57
SIMPLIFIED EMPLOYEE PENSION ("SEP") IRAS........................57
SIMPLE PLANS....................................................57
REINVESTMENT PRIVILEGE................................................57
RIGHTS OF ACCUMULATION................................................58
SYSTEMATIC WITHDRAWAL PLAN............................................58
GROUP SYSTEMATIC INVESTMENT PROGRAM...................................59
REDEMPTIONS.................................................................60
CONVERSION OF CLASS B SHARES................................................61
NET ASSET VALUE.............................................................61
TAXATION....................................................................63
OPTIONS, FUTURES AND FOREIGN CURRENCY FORWARD CONTRACTS...............64
CURRENCY FLUCTUATIONS -- "SECTION 988" GAINS OR LOSSES................65
INVESTMENT IN PASSIVE FOREIGN INVESTMENT COMPANIES....................66
DEBT SECURITIES ACQUIRED AT A DISCOUNT................................66
DISTRIBUTIONS.........................................................67
DISPOSITION OF SHARES.................................................67
FOREIGN WITHHOLDING TAXES.............................................68
BACKUP WITHHOLDING....................................................69
PERFORMANCE INFORMATION.....................................................69
YIELD.................................................................70
STANDARDIZED YIELD QUOTATIONS...................................70
AVERAGE ANNUAL TOTAL RETURN.....................................71
CUMULATIVE TOTAL RETURN.........................................75
OTHER QUOTATIONS, COMPARISONS AND GENERAL INFORMATION...........76
FINANCIAL STATEMENTS........................................................77
APPENDIX A..................................................................78
APPENDIX B..................................................................81
<PAGE>
GENERAL INFORMATION
Ivy Bond Fund and Ivy Money Market Fund are organized as separate,
diversified portfolios of the Trust, an open-end management investment company
organized as a Massachusetts business trust on December 21, 1983. Ivy
International Strategic Bond Fund is organized as a separate, non-diversified
portfolio of the Trust. Ivy Bond Fund commenced operations (Class A shares) on
September 6, 1985. The inception date for Class B and Class I shares of Ivy Bond
Fund was April 1, 1994. The inception date for Class C shares of Ivy Bond Fund
was April 30, 1996. Ivy International Strategic Bond Fund will commence
operations as of the date of this SAI. The inception date for Ivy Money Market
Fund was April 3, 1987.
Descriptions in this SAI of a particular investment practice or technique
in which a Fund may engage or a financial instrument which a Fund may purchase
are meant to describe the spectrum of investments that IMI, in its discretion,
might, but is not required to, use in managing the Funds' portfolio assets. IMI
may, in its discretion, at any time employ such practice, technique or
instrument for one or more funds but not for all funds advised by it.
Furthermore, it is possible that certain types of financial instruments or
investment techniques described herein may not be available, permissible,
economically feasible or effective for their intended purposes in some or all
markets, in which case a Fund would not use them. Certain practices, techniques,
or instruments may not be principal activities of a Fund but, to the extent
employed, could from time to time have a material impact on a Fund's
performance.
INVESTMENT OBJECTIVES, STRATEGIES AND RISKS
Each Fund has its own investment objectives and policies, which are
described in the Prospectus under the captions "Summary" and "Additional
Information About Strategies and Risks." Descriptions of each Fund's policies,
strategies and investment restrictions, as well as additional information
regarding the characteristics and risks associated with each
Fund's investment techniques, is set forth below.
Whenever an investment objective, policy or restriction set forth in the
Prospectus or this SAI states a maximum percentage of assets that may be
invested in any security or other asset or describes a policy regarding quality
standards, such percentage limitation or standard shall, unless otherwise
indicated, apply to a Fund only at the time a transaction is entered into.
Accordingly, if a percentage limitation is adhered to at the time of investment,
a later increase or decrease in the percentage which results from circumstances
not involving any affirmative action by a Fund, such as a change in market
conditions or a change in a Fund's asset level or other circumstances beyond a
Fund's control, will not be considered a violation.
IVY BOND FUND
The Fund seeks a high level of current income by investing primarily in
(i) investment grade corporate bonds (those rated Aaa, Aa, A or Baa by Moody's
Investors Service, Inc. ("Moody's") or AAA, AA, A or BBB by Standard & Poor's
Ratings Services ("S&P"), or, if unrated, considered by IMI to be of comparable
quality) and (ii) U.S. Government securities (including mortgage-backed
securities issued by U.S. Government agencies or instrumentalities) that mature
in more than 13 months. As a fundamental policy, the Fund normally invests at
least 65% of its total assets in these fixed income securities. For temporary
defensive purposes, the Fund may invest without limit in U.S. Government
securities maturing in 13 months or less, certificates of deposit, bankers'
acceptances, commercial paper and repurchase agreements. The Fund may also
invest up to 35% of its total assets in such money market securities in order to
meet redemptions or to maximize income to the Fund while it is arranging
longer-term investments.
The Fund may invest up to 35% of its net assets in corporate debt
securities, including zero coupon bonds (subject to the restrictions set forth
below), rated Ba or below by Moody's or BB or below by S&P, or, if unrated,
considered by IMI to be of comparable quality (commonly referred to as "high
yield" or "junk" bonds). The Fund will not invest in debt securities rated less
than C by either Moody's or S&P. See Appendix A for a description of Moody's and
S&P's corporate bond ratings.
The Fund may invest up to 5% of its net assets in dividend-paying common
and preferred stocks (including adjustable rate preferred stocks and securities
convertible into common stocks), municipal bonds, zero coupon bonds, and
securities sold on a "when-issued" or firm commitment basis. As a temporary
measure for extraordinary or emergency purposes, the Fund may borrow from banks
up to 10% of the value of its total assets.
The Fund may invest up to 20% of its net assets in debt securities of
foreign issuers, including non-U.S. dollar-denominated debt securities, American
Depository Receipts ("ADRs"), Global Depository ("GDRs"), American Depository
Shares ("ADSs") and Global Depository Shares ("GDSs"), Eurodollar securities and
debt securities issued, assumed or guaranteed by foreign governments or
political subdivisions or instrumentalities thereof. The Fund may also enter
into forward foreign currency contracts, but not for speculative purposes. The
Fund may not invest more than 15% of the value of its net assets in illiquid
securities.
The Fund may purchase put and call options, provided the premium paid for
such options does not exceed 10% of the Fund's net assets. The Fund may also
sell covered put options with respect to up to 50% of the value of its net
assets, and may write covered call options so long as not more than 20% of the
Fund's net assets in subject to being purchased upon the exercise of the calls.
For hedging purposes only, the Fund may engage in transactions in interest rate
futures contracts, currency futures contracts and options on interest rate
futures and currency futures contracts.
INVESTMENT RESTRICTIONS FOR IVY BOND FUND
The Fund's investment objectives as set forth in the "Summary" section of
the Prospectus, together with the investment restrictions set forth below, are
fundamental policies of the Fund and may not be changed without the approval of
a majority of the outstanding voting shares of the Fund. The Fund has adopted
the following fundamental investment restrictions:
(i) The Fund has elected to be classified as a diversified series of an
open-end investment company.
(ii) The Fund will not borrow money, except as permitted under the
Investment Company Act of 1940, as amended, and as interpreted or
modified by regulatory authority having jurisdiction, from time to
time.
(i) The Fund will not issue senior securities, except as permitted under
the Investment Company Act of 1940, as amended, and as interpreted or
modified by regulatory authority having jurisdiction, from time to
time.
(ii) The Fund will not engage in the business of underwriting securities
issued by others, except to the extent that the Fund may be deemed to
be an underwriter in connection with the disposition of portfolio
securities.
(iii) The Fund will not purchase or sell real estate (which term does not
include securities of companies that deal in real estate or mortgages
or investments secured by real estate or interests therein), except
that the Fund may hold and sell real estate acquired as a result of
the Fund's ownership of securities.
(iv) The Fund will not purchase physical commodities or contracts relating
to physical commodities, although the Fund may invest in commodities
futures contracts and options thereon to the extent permitted by the
Prospectus or this SAI.
(v) The Fund will not make loans to other persons, except (a) loans of
portfolio securities, and (b) to the extent that entry into repurchase
agreements and the purchase of debt instruments or interests in
indebtedness in accordance with the Fund's investment objective and
policies may be deemed to be loans.
(vi) The Fund will not concentrate its investments in a particular
industry, as the term "concentrate" is interpreted in connection with
the Investment Company Act of 1940, as amended, and as interpreted or
modified by regulatory authority having jurisdiction, from time to
time.
ADDITIONAL RESTRICTIONS
The Fund has adopted the following additional restrictions, which are not
fundamental and which may be changed without shareholder approval, to the extent
permitted by applicable law, regulation or regulatory policy.
Under these restrictions, the Fund may not:
(i) purchase any security if, as a result, the Fund would then have more
than 5% of its total assets (taken at current value) invested in
securities of companies (including predecessors) less than three years
old;
(ii) purchase or sell real estate limited partnership interests;
(iii) purchase or retain securities of any company if officers and Trustees
of the Trust and officers and directors of Ivy Management, Inc. (the
Manager, with respect to Ivy Bond Fund), MIMI or Mackenzie Financial
Corporation who individually own more than 1/2 of 1% of the securities
of that company together own beneficially more than 5% of such
securities;
(iv) purchase or sell interests in oil, gas and mineral leases (other than
securities of companies that invest in or sponsor such programs);
(v) invest more than 15% of its net assets taken at market value at the
time of the investment in "illiquid securities." Illiquid securities
may include securities subject to legal or contractual restrictions on
resale (including private placements), repurchase agreements maturing
in more than seven days, certain options traded over the counter that
the Fund has purchased, securities being used to cover certain options
that the Fund has written, securities for which market quotations are
not readily available, or other securities which legally or in IMI's
opinion, subject to the Board's supervision, may be deemed illiquid,
but shall not include any instrument that, due to the existence of a
trading market, to the Fund's compliance with certain conditions
intended to provide liquidity, or to other factors, is liquid;
(vi) make investments in securities for the purpose of exercising control
over or management of the issuer;
(vii) purchase securities on margin, except such short-term credits as are
necessary for the clearance of transactions. The deposit or payment by
the Fund of initial or variation margin in connection with futures
contracts or relate options transactions is not considered the
purchase of a security on margin;
(viii) borrowamounts in excess of 10% of its total assets, taken at the lower
of cost or market value, and then only from banks as a temporary
measure for extraordinary or emergency purposes;
(ix) mortgage, pledge, hypothecate or in any manner transfer, as security
for indebtedness, any securities owned or held by the Fund (except as
may be necessary in connection with permitted borrowings and then not
in excess of 20% of the Fund's total assets); provided, however, this
does not prohibit escrow, collateral or margin arrangements in
connection with its use of options, short sales, futures contracts and
options on future contracts;
(x) participate on a joint or a joint and several basis in any trading
account in securities. The "bunching" of orders of the Fund -- or of
the Fund and of other accounts under the investment management of the
persons rendering investment advice to the Fund -- for the sale or
purchase of portfolio securities shall not be considered participation
in a joint securities trading account; or
(xi) make short sales of securities or maintain a short position.
<PAGE>
IVY INTERNATIONAL STRATEGIC BOND FUND
The Fund is a non-diversified company whose investment objectives are to
seek total return by investing primarily in the debt securities of foreign
issuers and, consistent with that objective, to maximize current income. The
Fund will seek to achieve its investment objectives primarily through investment
in debt securities issued by foreign governments, government-related entities
and corporations. IMI will endeavor to achieve the Fund's investment objectives
through active management of country, sector and currency exposure.
The Fund seeks to achieve its objectives by investing primarily in a
managed portfolio of high quality bonds denominated in foreign currencies. At
least 65% of the Fund's total assets will normally be invested in bonds of
foreign issuers. In selecting bonds for the Fund's portfolio, IMI will consider
various factors, including yields, credit quality and the fundamental outlook
for currency and interest rate trends in different parts of the world. IMI may
also take into account the ability to hedge currency and local bond price risk.
To be considered a high quality bond in which the Fund primarily invests,
a bond must be rated at least BBB or better by S&P or Baa by Moody's or, if the
bond is unrated, it must be considered by IMI to be of comparable quality in
local currency terms.
The Fund may invest less than 35% of its net assets in debt securities
rated Ba or below by Moody's and/or BB or below by S&P or, if unrated,
considered by IMI to be of comparable quality. The Fund will not invest in debt
securities that, at the time of investment, are rated less than C by either
Moody's or S&P.
The Fund's investments may include: debt securities issued or guaranteed
by a foreign national government, its agencies, instrumentalities or political
subdivisions; debt securities issued or guaranteed by supranational
organizations (e.g., European Investment Bank, Inter-American Development Bank
or the World Bank); corporate debt securities; bank or bank holding company debt
securities; and other debt securities, including those convertible into common
stock. The Fund may also invest in zero coupon securities which do not provide
for the periodic payment of interest and are sold at significant discount from
face value.
The Fund may also purchase securities which are not publicly offered and
may be subject to regulations applicable to restricted securities. The Fund may
invest in fixed- and floating-rate issues such as loan participations and loan
assignments. In addition, 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 intends to diversify among several countries and market sectors,
and to have represented, in substantial proportions, debt exposure in not less
than three different countries other than the United States. Under normal
circumstances, the Fund will invest no more than 35% of the value of its total
assets in the debt securities of U.S. issuers. The Fund may engage in the use of
options, futures, forward foreign currency contracts and other derivatives
transactions, as described below, for hedging purposes, to seek to enhance
potential gain, or as substitutes for direct debt holdings. The Fund may also
engage in short sales of securities as a hedge for related securities whose
liquidity may be insufficient to render it cost effective to sell and repurchase
such securities (e.g., hedging a less liquid security of a corporate emerging
markets issuer by selling short the larger, more liquid issue of a sovereign
entity). The Fund may invest without limit in U.S. debt securities, including
short-term money market securities, for temporary defensive or emergency
purposes. It is not possible to predict the extent to which the Fund might
employ such optional strategies.
To protect against adverse movements of interest rates and for purposes of
liquidity, the Fund may also purchase short-term obligations denominated in U.S.
and foreign currencies such as, but not limited to, bank deposits, bankers'
acceptances, certificates of deposit, commercial paper, short-term government,
government agency, supranational agency and corporate obligations, and
repurchase agreements.
The Fund can use various techniques to increase or decrease its exposure
to changing security prices, interest rates, currency exchange rates, commodity
prices, or other factors that affect security values. These techniques may
involve derivative transactions such as buying and selling options and futures
contracts, entering into currency exchange, interest rate and other financial
futures contracts and related options, and purchasing indexed securities.
IMI can, in its discretion, use these practices to attempt to adjust the
risk and return characteristics of the Fund's portfolio of investments. If IMI
judges market conditions incorrectly or employs a strategy that does not
correlate well with the Fund's investments, these techniques could result in a
loss, regardless of whether the intent was to reduce risk or increase return.
These techniques may increase the volatility of the Fund and may involve a small
investment of cash relative to the magnitude of the risk assumed. In addition,
these techniques could result in a loss if the counterparty to the transaction
does not perform as promised.
The Fund may enter into repurchase agreements with selected banks and
broker/dealers. Under a repurchase agreement, the Fund acquires securities,
subject to the seller's agreement to repurchase at a specified time and price.
The Fund may purchase securities on a when-issued or forward delivery
basis, for payment and delivery at a later date. The price and yield generally
are fixed on the date of commitment to purchase. From the time of purchase until
settlement, no interest accrues to the Fund. At the time of settlement, the
market value of the security may differ from the purchase price.
The higher yields and high income sought by the Fund may be obtainable
from high yield, higher risk securities in the lower rating categories of the
established rating services. These securities are rated Ba or lower by Moody's
or BB or lower by S&P. The Fund may invest in securities rated as low as C by
Moody's or S&P, which may indicate that the obligations are speculative to a
high degree and often in default. Securities rated lower than Baa or BBB (and
comparable unrated securities) are commonly referred to as "high yield" or
"junk" bonds and are considered to be predominantly speculative with respect to
the issuer's continuing ability to meet principal and interest payments. Should
the rating of a portfolio security be downgraded, IMI will determine whether it
is in the Fund's best interest to retain or dispose of the security. However,
should any individual bond held by the Fund be downgraded below a rating of C,
IMI currently intends to dispose of such bond based on then existing market
conditions. See Appendix A for a more complete description of the ratings
assigned by Moody's and S&P and their respective characteristics.
The Fund may not borrow money in excess of 20% of its total assets, except
as a temporary measure for extraordinary or emergency purposes or except in
connection with reverse repurchase agreements. In addition, as a matter of
non-fundamental policy, the Fund may not invest more than 15% of its net assets
in illiquid securities. These instruments may be difficult to sell promptly at
an acceptable price, and the sale of certain of these instruments may be subject
to legal restrictions. Difficulty in selling these instruments may result in a
loss or may be costly to the Fund. A description of these and other policies and
restrictions is contained under "Investment Restrictions" below.
The Fund's investment objectives are 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 objectives and those investment restrictions
specifically identified as fundamental, all investment policies and practices
described in the Prospectus and in this SAI are non-fundamental, and may be
changed by the Board of Trustees without shareholder approval. There can be no
assurance that the Fund's objectives will be met. The different types of
securities and investment techniques used by the Fund involve varying degrees of
risk. For information about the particular risks associated with each type of
investment, see the descriptions of risk factors below, and the "Risk Factors
and Investment Techniques" section of the Prospectus.
INVESTMENT RESTRICTIONS FOR IVY INTERNATIONAL STRATEGIC BOND FUND
The Fund's investment objectives as set forth in the Prospectus under
"Investment Objectives and Policies," together with the investment restrictions
set forth below, are fundamental policies of the Fund and may not be changed
with respect to the Fund without the approval of a majority of the outstanding
voting shares of the Fund. The Fund has adopted the following fundamental
investment restrictions:
(i) The Fund will not borrow money, except as permitted under the
Investment Company Act of 1940, as amended, and as interpreted or
modified by regulatory authority having jurisdiction, from time to
time.
(ii) The Fund will not issue senior securities, except as permitted under
the Investment Company Act of 1940, as amended, and as interpreted or
modified by regulatory authority having jurisdiction, from time to
time.
(iii) The Fund will not engage in the business of underwriting securities
issued by others, except to the extent that the Fund may be deemed to
be an underwriter in connection with the disposition of portfolio
securities.
(iv) The Fund will not purchase or sell real estate (which term does not
include securities of companies that deal in real estate or mortgages
or investments secured by real estate or interests therein), except
that the Fund may hold and sell real estate acquired as a result of
the Fund's ownership of securities.
(v) The Fund will not purchase physical commodities or contracts relating
to physical commodities, although the Fund may invest in commodities
futures contracts and options thereon to the extent permitted by the
Prospectus and this SAI.
(vi) The Fund will not make loans to other persons, except (a) loans of
portfolio securities, and (b) to the extent that entry into repurchase
agreements and the purchase of debt instruments or interests in
indebtedness in accordance with the Fund's investment objective and
policies may be deemed to be loans.
(vii) The Fund will not concentrate its investments in a particular
industry, as the term "concentrate" is interpreted in connection with
the Investment Company Act of 1940, as amended, and as interpreted or
modified by regulatory authority having jurisdiction, from time to
time.
ADDITIONAL RESTRICTIONS
The Fund has adopted the following additional restrictions, which are not
fundamental and which may be changed without shareholder approval, to the extent
permitted by applicable law, regulation or regulatory policy.
Under these restrictions, the Fund may not:
(i) purchase or sell real estate limited partnership interests;
(ii) purchase or sell interests in oil, gas and mineral leases (other than
securities of companies that invest in or sponsor such programs);
(iii) invest more than 15% of its net assets taken at market value at the
time of the investment in "illiquid securities." Illiquid securities
may include securities subject to legal or contractual restrictions on
resale (including private placements), repurchase agreements maturing
in more than seven days, certain options traded over the counter that
the Fund has written, securities for which market quotations are not
readily available, or other securities which legally or in IMI's
opinion, subject to the Board's supervision, may be deemed illiquid,
but shall not include any instrument that, due to the existence of a
trading market or to other factors, is liquid;
(iv) purchase securities of other investment companies, except in
connection with a merger, consolidation or sale of assets, and except
that the Fund may purchase shares of other investment companies
subject to such restrictions as may be imposed by the Investment
Company Act of 1940 and rules thereunder;
(v) make investments in securities for the purpose of exercising control
or management of the issuer.
(vi) participate on a joint or a joint and several basis in any trading
account in securities. The "bunching" of orders of the Fund--or of the
Fund and of other accounts under the investment management of the
persons rendering investment advice to the Fund--for the sale or
purchase of portfolio securities shall not be considered participation
in a joint securities trading account;
(vii) purchase securities on margin, except such short-term credits as are
necessary for the clearance of transactions; the deposit or payment by
the Fund of initial or variation margin in connection with futures
contracts or related options transactions is not considered the
purchase of a security on margin;
(viii) borrowamounts in excess of 20% of its total assets, taken at the lower
of cost or market value, and then only from banks as a temporary
measure for extraordinary or emergency purposes or except in
connection with reverse repurchase agreements, provided that the Fund
maintains net asset coverage of at least 300% for all borrowings; and
(ix) mortgage, pledge, hypothecate or in any manner transfer, as security
for indebtedness, any securities owned or held by the Fund (except as
may be necessary in connection with permitted borrowings and then not
in excess of 20% of the Fund's total assets); provided, however, this
does not prohibit escrow, collateral or margin arrangements in
connection with its use of options, short sales, futures contracts and
options on future contracts.
IVY MONEY MARKET FUND
The Fund seeks to obtain as high a level of current income as is
consistent with the preservation of capital and liquidity by investing in
high-quality, short-term securities. The Fund's investment objective is
fundamental and may not be changed without the approval of a majority of the
Fund's outstanding voting shares, although the Trustees may make non-material
changes in the Fund's objectives without shareholder approval. Except for the
Fund's investment objective and those investment restrictions specifically
identified as fundamental, all investment policies and practices described in
the Prospectus and in this SAI are not fundamental and therefore may be changed
by the Trustees without shareholder approval. There can be no assurance that the
Fund will achieve its investment objectives. 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 the description of risk factors below, and the "Risk Factors and Investment
Techniques" section of the Prospectus.
Whenever an investment objective, policy or restriction described in the
Prospectus or in this 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.
The Fund invests in money market instruments maturing within thirteen
months or less and maintains a portfolio with a dollar-weighted average maturity
of 90 days or less. By purchasing such short-term securities, the Fund will
attempt to maintain a constant net asset value of $1.00 per share. The Funds
portfolio of investments is actively monitored on a daily basis to maintain
competitive yields on investments.
The Fund will invest in the following categories of money market
instrument: (i) debt securities issued or guaranteed by the U.S. Government, its
agencies or instrumentalities; (ii) obligations (including certificates of
deposits and bankers' acceptances) of domestic banks and savings and loan
associations; (iii) high-quality commercial paper that at the time of purchase
is rated at least A-2 by Moody's or AA or P-2 by S&P or, if unrated, is issued
or guaranteed by a corporation with outstanding debt rated AA or higher by S&P
or Aa or higher by Moody's or which is judged by IMI to be of at least
equivalent quality; (iv) short-term corporate notes, bonds and debentures that
at the time of purchase are rated at least Aa by Moody's or AA by S&P or that
are judged by IMI to be of at least equivalent quality; and (v) repurchase
agreements with domestic banks for periods not exceeding seven days and only
with respect to U.S. government securities that throughout the period have a
value at least equal to the amount of the loan (including accrued interest).
The securities in which the Fund invests must present minimal credit risk
and be rated in one of the two highest short-term rating categories for debt
obligations by at least two nationally recognized statistical rating
organizations ("NRSROs") assigning a rating to the securities or issuer, or if
only one NRSRO has assigned a rating, by that agency or determined to be of
equivalent value by IMI. Purchases of securities that are rated by only one
NRSRO must be previously approved or ratified subsequently by the Trustees.
Securities that are rated in the highest short-term rating category by at least
two NRSROs (or that have been issued by an issuer that is rated with respect to
a class of short-term debt obligations, or any security within that class,
comparable in priority and quality with such securities) are designated "First
Tier Securities." Securities rated in the two highest short-term rating
categories by at least two NRSROs, but which are not rated in the highest
category by two or more NRSROs, are designated "Second Tier Securities." IMI
shall determine whether a security presents minimal credit risk under procedures
adopted by the Board of Trustees.
The Fund may not invest more than 5% of its total assets in the securities
of any one issuer. This limitation shall not apply to U.S. Government
securities. Further, the Fund will not invest more than the greater of 1% of its
total assets or one million dollars in the securities of a single issuer that
were Second Tier Securities when acquired by the Fund. In addition, the Fund may
not invest more than 5% of its total assets in securities that are Second Tier
Securities when acquired by the Fund. As a fundamental policy, the Fund may not
borrow money, except for temporary purposes, and then only in an amount not
exceeding 10% of the value of the Fund's total assets.
INVESTMENT RESTRICTIONS FOR IVY MONEY MARKET FUND
The Fund's investment objectives as set forth in the Prospectus under
"Investment Objective and Policies," together with the investment restrictions
set forth below, are fundamental policies of the Fund and may not be changed
without the approval of a majority (as defined in the 1940 Act, of the Fund's
outstanding voting shares. The Fund has adopted the following fundamental
investment restrictions:
(i) The Fund has elected to be classified as a diversified series of an
open-end investment company.
(ii) The Fund will not borrow money, except as permitted under the
Investment Company Act of 1940, as amended, and as interpreted or
modified by regulatory authority having jurisdiction, from time to
time.
(iii) The Fund will not issue senior securities, except as permitted under
the Investment Company Act of 1940, as amended, and as interpreted or
modified by regulatory authority having jurisdiction, from time to
time.
(iv) The Fund will not engage in the business of underwriting securities
issued by others, except to the extent that the Fund may be deemed to
be an underwriter in connection with the disposition of portfolio
securities.
(v) The Fund will not purchase or sell real estate (which term does not
include securities of companies that deal in real estate or mortgages
or investments secured by real estate or interests therein), except
that the Fund may hold and sell real estate acquired as a result of
the Fund's ownership of securities.
(vi) The Fund will not purchase physical commodities or contracts relating
to physical commodities, although the Fund may invest in commodities
futures contracts and options thereon to the extent permitted by the
Prospectus and this SAI.
(vii) The Fund will not make loans to other persons, except (a) loans of
portfolio securities, and (b) to the extent that entry into repurchase
agreements and the purchase of debt instruments or interests in
indebtedness in accordance with the Fund's investment objective and
policies may be deemed to be loans.
(viii) The Fund will not concentrate its investments in a particular
industry, as the term "concentrate" is interpreted in connection with
the Investment Company Act of 1940, as amended, and as interpreted or
modified by regulatory authority having jurisdiction, from time to
time, although the Fund may concentrate its investments in instruments
issued by domestic banks in accordance with its Prospectus and
applicable law.
ADDITIONAL RESTRICTIONS
The Fund has adopted the following additional restrictions, which are
not fundamental and which may be changed without shareholder approval to the
extent permitted by applicable law, regulation or regulatory policy. Under
these restrictions, the Fund may not:
(i) invest in oil, gas or other mineral leases or exploration or
development programs;
(ii) invest more than 5% of the value of its total assets in the securities
of unseasoned issuers, including their predecessors, which have been
in operation for less than three years;
(iii) invest more than 5% of the value of its total assets in the securities
of issuers which are not readily marketable;
(iv) engage in the purchase and sale of puts, calls, straddles or spreads
(except to the extent described in the Prospectus and in this SAI);
(v) invest in companies for the purpose of exercising control of
management;
(vi) purchase any security which it is restricted from selling to the
public without registration under the Securities Act of 1933;
(ix) invest more than 5% of its total assets in warrants, valued at the
lower of cost or market, or more than 2% of its total assets in
warrants, so valued, which are not listed on either the New York or
American Stock Exchanges;
(viii) borrow money, except for temporary purposes where investment
transactions might advantageously require it. Any such loan may not be
for a period in excess of 60 days, and the aggregate amount of all
outstanding loans may not at any time exceed 10% of the value of the
total assets of the Fund at the time any such loan is made;
(ix) purchase securities on margin;
(x) sell securities short;
(xi) purchase from or sell to any of its officers or trustees, or firms of
which any of them are members or which they control, any securities
(other than capital stock of the Fund), but such persons or firms may
act as brokers for the Fund for customary commissions to the extent
permitted by the 1940 Act; or
(xii) purchase the securities of any other open-end investment company,
except as part of a plan of merger or consolidation;
Under the 1940 Act, the Fund is permitted, subject to the above investment
restrictions, to borrow money only from banks. The Trust has no current
intention of borrowing amounts in excess of 5% of the Fund's assets. The Fund
will continue to interpret fundamental investment restriction (v) as prohibiting
investment in real estate limited partnership interests; this restriction shall
not, however, prohibit investment in readily marketable securities of companies
that invest in real estate or interests therein, including real estate
investment trusts.
COMMON STOCKS
Common stock can be issued by companies to raise cash; all common stock
shares represent a proportionate ownership interest in a company. As a result,
the value of common stock rises and falls with a company's success or failure.
The market value of common stock can fluctuate significantly, with smaller
companies being particularly susceptible to price swings. Transaction costs in
smaller company stocks may also be higher than those of larger companies.
CONVERTIBLE SECURITIES
The convertible securities in which a Fund may invest include corporate
bonds, notes, debentures, preferred stock and other securities that may be
converted or exchanged at a stated or determinable exchange ratio into
underlying shares of common stock. Investments in convertible securities can
provide income through interest and dividend payments as well as an opportunity
for capital appreciation by virtue of their conversion or exchange features.
Because convertible securities can be converted into equity securities, their
values will normally vary in some proportion with those of the underlying equity
securities. Convertible securities usually provide a higher yield than the
underlying equity, however, so that the price decline of a convertible security
may sometimes be less substantial than that of the underlying equity security.
The exchange ratio for any particular convertible security may be adjusted from
time to time due to stock splits, dividends, spin-offs, other corporate
distributions or scheduled changes in the exchange ratio. Convertible debt
securities and convertible preferred stocks, until converted, have general
characteristics similar to both debt and equity securities. Although to a lesser
extent than with debt securities generally, the market value of convertible
securities tends to decline as interest rates increase and, conversely, tends to
increase as interest rates decline. In addition, because of the conversion or
exchange feature, the market value of convertible securities typically changes
as the market value of the underlying common stock changes, and, therefore, also
tends to follow movements in the general market for equity securities. When the
market price of the underlying common stock increases, the price of a
convertible security tends to rise as a reflection of the value of the
underlying common stock, although typically not as much as the price of the
underlying common stock. While no securities investments are without risk,
investments in convertible securities generally entail less risk than
investments in common stock of the same issuer.
As debt securities, convertible securities are investments that provide
for a stream of income. Like all debt securities, there can be no assurance of
income or principal payments because the issuers of the convertible securities
may default on their obligations. Convertible securities generally offer lower
yields than non-convertible securities of similar quality because of their
conversion or exchange features.
Convertible securities generally are subordinated to other similar but
non-convertible securities of the same issuer, although convertible bonds, as
corporate debt obligations, are senior in right of payment to all equity
securities, and convertible preferred stock is senior to common stock, of the
same issuer. However, convertible bonds and convertible preferred stock
typically have lower coupon rates than similar non-convertible securities.
Convertible securities may be issued as fixed income obligations that pay
current income.
DEBT SECURITIES
IN GENERAL. Investment in debt securities involves both interest rate and
credit risk. Generally, the value of debt instruments rises and falls inversely
with fluctuations in interest rates. As interest rates decline, the value of
debt securities generally increases. Conversely, rising interest rates tend to
cause the value of debt securities to decrease. Bonds with longer maturities
generally are more volatile than bonds with shorter maturities. The market value
of debt securities also varies according to the relative financial condition of
the issuer. In general, lower-quality bonds offer higher yields due to the
increased risk that the issuer will be unable to meet its obligations on
interest or principal payments at the time called for by the debt instrument.
INVESTMENT-GRADE DEBT SECURITIES. Bonds rated Aaa by Moody's Investors
Service, Inc. ("Moody's") and AAA by Standard & Poor's Ratings Group ("S&P") are
judged to be of the best quality (i.e., capacity to pay interest and repay
principal is extremely strong). Bonds rated Aa/AA are considered to be of high
quality (i.e., capacity to pay interest and repay principal is very strong and
differs from the highest rated issues only to a small degree). Bonds rated A are
viewed as having many favorable investment attributes, but elements may be
present that suggest a susceptibility to the adverse effects of changes in
circumstances and economic conditions than debt in higher rated categories.
Bonds rated Baa/BBB (considered by Moody's to be "medium grade" obligations) are
considered to have an adequate capacity to pay interest and repay principal, but
certain protective elements may be lacking (i.e., such bonds lack outstanding
investment characteristics and have some speculative characteristics). A Fund
may invest in debt securities that are given an investment-grade rating by
Moody's or S&P, and may also invest in unrated debt securities that are
considered by IMI to be of comparable quality.
LOW-RATED DEBT SECURITIES. Securities rated lower than Baa by Moody's or
BBB by S&P, and comparable unrated securities (commonly referred to as "high
yield" or "junk" bonds), including many emerging markets bonds, are considered
to be predominantly speculative with respect to the issuer's continuing ability
to meet principal and interest payments. The lower the ratings of corporate debt
securities, the more their risks render them like equity securities. Such
securities carry a high degree of risk (including the possibility of default or
bankruptcy of the issuers of such securities), and generally involve greater
volatility of price and risk of principal and income (and may be less liquid)
than securities in the higher rating categories. (See Appendix A for a more
complete description of the ratings assigned by Moody's and S&P and their
respective characteristics.)
Lower rated and unrated securities are especially subject to adverse
changes in general economic conditions and to changes in the financial condition
of their issuers. Economic downturns may disrupt the high yield market and
impair the ability of issuers to repay principal and interest. Also, an increase
in interest rates would likely have an adverse impact on the value of such
obligations. During an economic downturn or period of rising interest rates,
highly leveraged issuers may experience financial stress which could adversely
affect their ability to service their principal and interest payment
obligations. Prices and yields of high yield securities will fluctuate over time
and, during periods of economic uncertainty, volatility of high yield securities
may adversely affect a Fund's net asset value. In addition, investments in high
yield zero coupon or pay-in-kind bonds, rather than income-bearing high yield
securities, may be more speculative and may be subject to greater fluctuations
in value due to changes in interest rates.
Changes in interest rates may have a less direct or dominant impact on
high yield bonds than on higher quality issues of similar maturities. However,
the price of high yield bonds can change significantly or suddenly due to a host
of factors including changes in interest rates, fundamental credit quality,
market psychology, government regulations, U.S. economic growth and, at times,
stock market activity. High yield bonds may contain redemption or call
provisions. If an issuer exercises these provisions in a declining interest rate
market, a Fund may have to replace the security with a lower yielding security.
The trading market for high yield securities may be thin to the extent
that there is no established retail secondary market or because of a decline in
the value of such securities. A thin trading market may limit the ability of a
Fund to accurately value high yield securities in the Fund's portfolio, could
adversely affect the price at which the Fund could sell such securities, and
cause large fluctuations in the daily net asset value of the Fund's shares.
Adverse publicity and investor perceptions, whether or not based on fundamental
analysis, may decrease the value and liquidity of low-rated debt securities,
especially in a thinly traded market. When secondary markets for high yield
securities become relatively less liquid, it may be more difficult to value the
securities, requiring additional research and elements of judgment. These
securities may also involve special registration responsibilities, liabilities
and costs, and liquidity and valuation difficulties.
Credit quality in the high yield securities market can change suddenly and
unexpectedly, and even recently issued credit ratings may not fully reflect the
actual risks posed by a particular high yield security. For these reasons, it is
the policy of IMI not to rely exclusively on ratings issued by established
credit rating agencies, but to supplement such ratings with its own independent
and on-going review of credit quality. The achievement of a Fund's investment
objectives by investment in such securities may be more dependent on IMI's
credit analysis than is the case for higher quality bonds. Should the rating of
a portfolio security be downgraded, IMI will determine whether it is in the best
interest of each Fund to retain or dispose of such security. However, should any
individual bond held by any Fund be downgraded below a rating of C, IMI
currently intends to dispose of such bond based on then existing market
conditions.
Prices for high yield securities may be affected by legislative and
regulatory developments. For example, Federal rules require savings and loan
institutions to gradually reduce their holdings of this type of security. Also,
Congress has from time to time considered legislation that would restrict or
eliminate the corporate tax deduction for interest payments in these securities
and regulate corporate restructurings. Such legislation may significantly
depress the prices of outstanding securities of this type.
U.S. GOVERNMENT SECURITIES. U.S. Government securities are obligations
of, or guaranteed by, the U.S. Government, its agencies or
instrumentalities. Securities guaranteed by the U.S. Government include:
(1) direct obligations of the U.S. Treasury (such as Treasury bills, notes,
and bonds) and (2) Federal agency obligations guaranteed as to principal and
interest by the U.S. Treasury (such as GNMA certificates, which are
mortgage-backed securities). When such securities are held to maturity, the
payment of principal and interest is unconditionally guaranteed by the U.S.
Government, and thus they are of the highest possible credit quality. U.S.
Government securities that are not held to maturity are subject to variations
in market value due to fluctuations in interest rates.
Mortgage-backed securities are securities representing part ownership of a
pool of mortgage loans. For example, GNMA certificates are such securities in
which the timely payment of principal and interest is guaranteed by the full
faith and credit of the U.S. Government. Although the mortgage loans in the pool
will have maturities of up to 30 years, the actual average life of the loans
typically will be substantially less because the mortgages will be subject to
principal amortization and may be prepaid prior to maturity. Prepayment rates
vary widely and may be affected by changes in market interest rates. In periods
of falling interest rates, the rate of prepayment tends to increase, thereby
shortening the actual average life of the security. Conversely, rising interest
rates tend to decrease the rate of prepayments, thereby lengthening the actual
average life of the security (and increasing the security's price volatility).
Accordingly, it is not possible to predict accurately the average life of a
particular pool. Reinvestment of prepayment may occur at higher or lower rates
than the original yield on the certificates. Due to the prepayment feature and
the need to reinvest prepayments of principal at current rates, mortgage-backed
securities can be less effective than typical bonds of similar maturities at
"locking in" yields during periods of declining interest rates, and may involve
significantly greater price and yield volatility than traditional debt
securities. Such securities may appreciate or decline in market value during
periods of declining or rising interest rates, respectively.
Securities issued by U.S. Government instrumentalities and certain Federal
agencies are neither direct obligations of nor guaranteed by the U.S. Treasury;
however, they involve Federal sponsorship in one way or another. Some are backed
by specific types of collateral, some are supported by the issuer's right to
borrow from the Treasury, some are supported by the discretionary authority of
the Treasury to purchase certain obligations of the issuer, others are supported
only by the credit of the issuing government agency or instrumentality. These
agencies and instrumentalities include, but are not limited to, Federal Land
Banks, Farmers Home Administration, Central Bank for Cooperatives, Federal
Intermediate Credit Banks, Federal Home Loan Banks, Federal National Mortgage
Association, Federal Home Loan Mortgage Association, and Student Loan Marketing
Association.
MUNICIPAL SECURITIES. Municipal securities are debt obligations that
generally have a maturity at the time of issue in excess of one year and are
issued to obtain funds for various public purposes. The two principal
classifications of municipal bonds are "general obligation" and "revenue" bonds.
General obligation bonds are secured by the issuer's pledge of its full faith,
credit and taxing power for the payment of principal and interest. Revenue bonds
are payable only from the revenues derived from a particular facility or class
of facilities, or, in some cases, from the proceeds of a special excise of a
specific revenue source. Industrial development bonds or private activity bonds
are issued by or on behalf of public authorities to obtain funds for
privately-operated facilities and are in most cases revenue bonds that generally
do not carry the pledge of the full faith and credit of the issuer of such
bonds, but depend for payment on the ability of the industrial user to meet its
obligations (or on any property pledged as security).
The market prices of municipal securities, like those of taxable debt
securities, go up and down when interest rates change. Thus, the net asset value
per share can be expected to fluctuate and shareholders may receive more or less
than their purchase price for shares they redeem.
ZERO COUPON BONDS. Zero coupon bonds are debt obligations issued without
any requirement for the periodic payment of interest. Zero coupon bonds are
issued at a significant discount from face value. The discount approximates the
total amount of interest the bonds would accrue and compound over the period
until maturity at a rate of interest reflecting the market rate at the time of
issuance. If a 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 a 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 each Fund on a
current basis, but is in effect compounded, the value of the securities of this
type is subject to greater fluctuations in response to changing interest rates
than the value of debt obligations which distribute income regularly.
FIRM COMMITMENT AGREEMENTS AND "WHEN-ISSUED" SECURITIES. New issues of
certain debt securities are often offered on a "when-issued" basis, meaning the
payment obligation and the interest rate are fixed at the time the buyer enters
into the commitment, but delivery and payment for the securities normally take
place after the date of the commitment to purchase. Firm commitment agreements
call for the purchase of securities at an agreed-upon price on a specified
future date. A Fund may use 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 such Fund's assets. In either instance, each Fund will
maintain in a segregated account with its Custodian cash or liquid securities
equal (on a daily market-to-market basis) to the amount of its commitment to
purchase the underlying securities.
ILLIQUID SECURITIES
Ivy Bond Fund and Ivy International Strategic Bond Fund may purchase
securities other than in the open market. While such purchases may often offer
attractive opportunities for investment not otherwise available on the open
market, the securities so purchased are often "restricted securities" or "not
readily marketable" (i.e., they cannot be sold to the public without
registration under the Securities Act of 1933, as amended (the "1933 Act"), or
the availability of an exemption from registration (such as Rule 144A) or
because they are subject to other legal or contractual delays in or restrictions
on resale). This investment practice, therefore, could have the effect of
increasing the level of illiquidity of a Fund. It is the policy of Ivy Bond Fund
and Ivy International Strategic Bond Fund that illiquid securities (including
repurchase agreements of more than seven days duration, certain restricted
securities, and other securities which are not readily marketable) may not
constitute, at the time of purchase, more than 15% of the value of the Fund's
net assets. The Trust's Board of Trustees has approved guidelines for use by IMI
in determining whether a security is illiquid.
Generally speaking, restricted securities may be sold (i) only to
qualified institutional buyers; (ii) in a privately negotiated transaction to a
limited number of purchasers; (iii) in limited quantities after they have been
held for a specified period of time and other conditions are met pursuant to an
exemption from registration; or (iv) in a public offering for which a
registration statement is in effect under the 1933 Act. Issuers of restricted
securities may not be subject to the disclosure and other investor protection
requirements that would be applicable if their securities were publicly traded.
If adverse market conditions were to develop during the period between a 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, a
Fund may be required to bear all or part of the registration expenses. A Fund
may be deemed to be an "underwriter" for purposes of the 1933 Act when selling
restricted securities to the public and, in such event, the Fund may be liable
to purchasers of such securities if the registration statement prepared by the
issuer is materially inaccurate or misleading.
Since it is not possible to predict with assurance that the market for
securities eligible for resale under Rule 144A will continue to be liquid, IMI
will monitor such restricted securities subject to the supervision of the Board
of Trustees. Among the factors IMI may consider in reaching liquidity decisions
relating to Rule 144A securities are: (1) the frequency of trades and quotes for
the security; (2) the number of dealers wishing to purchase or sell the security
and the number of other potential purchasers; (3) dealer undertakings to make a
market in the security; and (4) the nature of the security and the nature of the
market for the security (i.e., the time needed to dispose of the security, the
method of soliciting offers, and the mechanics of the transfer).
FOREIGN SECURITIES
The securities of foreign issuers in which Ivy Bond Fund and Ivy
International Strategic Bond Fund may invest include non-U.S. dollar-denominated
debt securities, Euro dollar securities, sponsored and unsponsored American
Depository Receipts ("ADRs"), Global Depository Receipts ("GDRs"), American
Depository Shares ("ADSs"), Global Depository Shares ("GDSs") and related
depository instruments, and debt securities issued, assumed or guaranteed by
foreign governments or political subdivisions or instrumentalities thereof.
Shareholders should consider carefully the substantial risks involved in
investing in securities issued by companies and governments of foreign nations,
which are in addition to the usual risks inherent in the Fund's domestic
investments.
Although IMI intends to invest each Fund's assets only in nations that are
generally considered to have relatively stable and friendly governments, there
is the possibility of expropriation, nationalization, repatriation or
confiscatory taxation, taxation on income earned in a foreign country and other
foreign taxes, foreign exchange controls (which may include suspension of the
ability to transfer currency from a given country), default on foreign
government securities, political or social instability or diplomatic
developments which could affect investments in securities of issuers in those
nations. In addition, in many countries there is less publicly available
information about issuers than is available for U.S. companies. Moreover,
foreign companies are not generally subject to uniform accounting, auditing and
financial reporting standards, and auditing practices and requirements may not
be comparable to those applicable to U.S. companies. In many foreign countries,
there is less governmental supervision and regulation of business and industry
practices, stock exchanges, brokers, and listed companies than in the United
States. Foreign securities transactions may also be subject to higher brokerage
costs than domestic securities transactions. The foreign securities markets of
many of the countries in which each Fund may invest may also be smaller, less
liquid and subject to greater price volatility than those in the United States.
In addition, each Fund may encounter difficulties or be unable to pursue legal
remedies and obtain judgment in foreign courts.
Foreign bond markets have different clearance and settlement procedures
and in certain markets there have been times when settlements have been unable
to keep pace with the volume of securities transactions, making it difficult to
conduct such transactions. Delays in settlement could result in temporary
periods when assets of a Fund are uninvested and no return is earned thereon.
The inability of a 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 a Fund because of subsequent declines
in the value of the portfolio security or, if the Fund has entered into a
contract to sell the security, in possible liability to the purchaser. It may be
more difficult for each Fund's agents to keep currently informed about corporate
actions such as stock dividends or other matters that may affect the prices of
portfolio securities. Communications between the United States and foreign
countries may be less reliable than within the United States, thus increasing
the risk of delayed settlements of portfolio transactions or loss of
certificates for portfolio securities. Moreover, individual foreign economies
may differ favorably or unfavorably from the United States economy in such
respects as growth of gross national product, rate of inflation, capital
reinvestment, resource self-sufficiency and balance of payments position. IMI
seeks to mitigate the risks to each Fund associated with the foregoing
considerations through investment variation and continuous professional
management.
DEPOSITORY RECEIPTS
ADRs, GDRs, ADSs, GDSs and related securities are depository instruments,
the issuance of which is typically administered by a U.S. or foreign bank or
trust company. These instruments evidence ownership of underlying securities
issued by a U.S. or foreign corporation. ADRs are publicly traded on exchanges
or over-the-counter ("OTC") in the United States. Unsponsored programs are
organized independently and without the cooperation of the issuer of the
underlying securities. As a result, information concerning the issuer may not be
as current or as readily available as in the case of sponsored depository
instruments, and their prices may be more volatile than if they were sponsored
by the issuers of the underlying securities.
EMERGING MARKETS
Ivy Bond Fund and Ivy International Strategic Bond 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 each
Fund's performance favorably or unfavorably.
In recent years, many emerging market countries around the world have
undergone political changes that have reduced government's role in economic and
personal affairs and have stimulated investment and growth. Historically, there
is a strong direct correlation between economic growth and stock market returns.
While this is no guarantee of future performance, IMI believes that investment
opportunities (particularly in the energy, environmental services, natural
resources, basic materials, power, telecommunications and transportation
industries) may result within the evolving economies of emerging market
countries from which each Fund and its shareholders will benefit.
Investments in companies domiciled in developing countries may be subject
to potentially higher risks than investments in developed countries. Such risks
include (i) less social, political and economic stability; (ii) a small market
for securities and/or a low or nonexistent volume of trading, which result in a
lack of liquidity and in greater price volatility; (iii) certain national
policies that may restrict each 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 each 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, a 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 each 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
each 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
each Fund's cash and securities, each Fund's investment in such countries may be
limited or may be required to be effected through intermediaries. The risk of
loss through governmental confiscation may be increased in such countries.
FOREIGN SOVEREIGN DEBT OBLIGATIONS
Investment in sovereign debt can involve a high degree of risk. The
governmental entity that controls the repayment of sovereign debt may not be
able or willing to repay the principal and/or interest when due in accordance
with the terms of such debt. A governmental entity's willingness or ability to
repay principal and interest due in a timely manner may be affected by, among
other factors, its cash flow situation, the extent of its foreign reserves, the
availability of sufficient foreign exchange on the date a payment is due, the
relative size of the debt service burden to the economy as a whole, the
governmental entity's policy towards the International Monetary Fund, and the
political constraints to which a governmental entity may be subject.
Governmental entities may also be dependent on expected disbursements from
foreign governments, multilateral agencies and others abroad to reduce principal
and interest arrearages on their debt. The commitment on the part of these
governments, agencies and others to make such disbursements may be conditioned
on a governmental entity's implementation of economic reforms and/or economic
performance and the timely service of such debtor's obligations. Failure to
implement such reforms, achieve such levels of economic performance or repay
principal or interest when due may result in the cancellation of such third
parties' commitments to lend funds to the governmental entity, which may further
impair such debtor's ability or willingness to service it debts in a timely
manner. Consequently, governmental entities may default on their sovereign debt.
Holders of sovereign debt (including Ivy Bond Fund or Ivy International
Strategic Bond Fund) may be request to participate in the rescheduling of such
debt and to extend further loans to governmental entities. There is no
bankruptcy proceeding by which sovereign debt on which governmental entities
have defaulted may be collected in whole or in part.
BRADY BONDS
Ivy International Strategic Bond Fund may invest in Brady Bonds, which are
securities created through the exchange of existing commercial bank loans to
public and private entities in certain emerging markets for new bonds in
connection with debt restructurings under a debt restructuring plan introduced
by former U.S. Secretary of the Treasury, Nicholas F. Brady (the `Brady Plan").
Brady Plan debt restructurings have been implemented to date in Argentina,
Brazil, Bulgaria, Costa Rica, the Dominican Republic, Ecuador, Jordan, Mexico,
Nigeria, Peru, the Philippines, Poland, Uruguay, and Venezuela.
Brady Bonds have been issued only recently, and for that reason do not
have a long payment history. Brady Bonds may be collateralized or
uncollateralized, are issued in various currencies (but primarily the U.S.
dollar) and are actively traded in over-the-counter secondary markets.
Dollar-denominated, collateralized Brady Bonds, which may be fixed-rate bonds or
floating-rate bonds, are generally collateralized in full as to principal by
U.S. Treasury zero coupon bonds having the same maturity as the cash or
securities in an amount that, in the case of fixed rate bonds, is equal to at
least one year of rolling interest payments or, in the case of floating rate
bonds, initially is equal to at least one year's rolling interest payments based
on the applicable interest rate at that time and is adjusted at regular
intervals thereafter.
Brady Bonds are often viewed as having three or four valuation components:
the collateralized repayment of principal at final maturity; the collateralized
interest payments; the uncollateralized interest payments; and any
uncollateralized repayment of principal at maturity (these uncollateralized
amounts constitute the "residual risk"). In light of the residual risk of Brady
Bonds and the history of defaults of countries issuing Brady Bonds, with respect
to commercial bank loans by public and private entities, investments in Brady
Bonds may be viewed as speculative.
LOAN PARTICIPATIONS AND ASSIGNMENTS
Ivy International Strategic Bond Fund may invest in fixed- and
floating-rate loans ("Loans") arranged through private negotiations between an
issuer of emerging market debt instruments and one or more financial
institutions ("Lenders"). The Fund's investments in Loans are expected in most
instances to be in the form of participations in Loans ("Participations") and
assignments of portions of Loans ("Assignments") from third parties.
Participations typically will result in the Fund having a contractual
relationship only with the Lender and not with the borrower. The Fund will have
the right to receive payments of principal, interest and any fees to which it is
entitled only from the Lender selling the Participation and only upon receipt by
the Lender of the payments from the borrower. In connection with purchasing
Participations, the Fund generally will have no right to enforce compliance by
the borrower with the terms of the loan agreement relating to the Loan, nor any
rights of set-off against the borrower, and the Fund may not directly benefit
from any collateral supporting the Loan in which it has purchased the
Participation. As a result, the Fund will assume the credit risk of both the
borrower and the Lender that is selling the Participation. In the event of the
insolvency of the Lender selling a Participation, the Fund may be treated as a
general creditor of the Lender and may not benefit from any set-off between the
Lender and the borrower. The Fund will acquire Participations only if the Lender
interpositioned between the Fund and the borrower is determined by the Adviser
to be creditworthy.
When the Fund purchases Assignments from Lenders, it will acquire direct
rights against the borrower on the Loan. Because Assignments are arranged
through private negotiations between potential assignees and potential
assignors, however, the rights and obligations acquired by the Fund as the
purchaser of an Assignment may differ from, and may be more limited than, those
held by the assigning Lender.
The Fund may have difficulty disposing of Assignments and Participation.
Because no liquid market for these obligations typically exists, the Fund
anticipates that these obligations could be sold only to a limited number of
institutional investors. The lack of a liquid secondary market will have an
adverse effect on the Fund's ability to dispose of particular Assignments or
Participations when necessary to meet the Fund's liquidity needs or in response
to a specific economic event, such as a deterioration in the creditworthiness of
the borrower. The lack of a liquid secondary market for Assignments and
Participations may also make it more difficult for the Fund to assign a value to
those securities for purposes of valuing the Fund's portfolio and calculating
its net asset value.
FOREIGN CURRENCIES
Investment in foreign securities usually will involve currencies of
foreign countries. Moreover, Ivy Bond Fund and Ivy International Strategic Bond
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 each of these
Funds as measured in U.S. dollars may be affected favorably or unfavorably by
changes in foreign currency exchange rates and exchange control regulations, and
each Fund may incur costs in connection with conversions between various
currencies. Although each Fund's custodian values the Fund's assets daily in
terms of U.S. dollars, each Fund does not intend to convert its holdings of
foreign currencies into U.S. dollars on a daily basis. Each 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 a Fund at one rate, while
offering a lesser rate of exchange should the Fund desire to resell that
currency to the dealer. Each Fund will conduct its foreign currency exchange
transactions either on a spot (i.e., cash) basis at the spot rate prevailing in
the foreign currency exchange market, or through entering into forward contracts
to purchase or sell foreign currencies.
Because Ivy Bond Fund and Ivy International Strategic Bond Fund normally
will be invested in both U.S. and foreign securities markets, changes in each
Fund's share price may have a low correlation with movements in U.S. markets.
Each Fund's share price will reflect the movements of the different stock and
bond markets in which it is invested (both U.S. and foreign), and of the
currencies in which the investments are denominated. Thus, the strength or
weakness of the U.S. dollar against foreign currencies may account for part of
each Fund's investment performance. U.S. and foreign securities markets do not
always move in step with each other, and the total returns from different
markets may vary significantly. In addition, significant uncertainty surrounds
the proposed introduction of the euro (a common currency for the European Union)
in January 1999 and its effect on the value of securities denominated in local
European currencies. These and other currencies in which each Fund's assets are
denominated may be devalued against the U.S. dollar, resulting in a loss to a
Fund.
FOREIGN CURRENCY EXCHANGE TRANSACTIONS
Ivy Bond Fund and Ivy International Strategic Bond Fund may enter into
forward foreign currency contracts in order to protect against uncertainty in
the level of future foreign exchange rates in the purchase and sale of
securities. A forward contract is an obligation to purchase or sell a specific
currency for an agreed price at a future date (usually less than a year), and
typically is individually negotiated and privately traded by currency traders
and their customers. A forward contract generally has no deposit requirement,
and no commissions are charged at any stage for trades. Although foreign
exchange dealers do not charge a fee for commissions, they do realize a profit
based on the difference between the price at which they are buying and selling
various currencies. Although these contracts are intended to minimize the risk
of loss due to a decline in the value of the hedged currencies, at the same
time, they tend to limit any potential gain which might result should the value
of such currencies increase.
While Ivy Bond Fund and Ivy International Strategic Bond Fund may enter
into forward contracts to reduce currency exchange risks, changes in currency
exchange rates may result in poorer overall performance for each of these Funds
than if it had not engaged in such transactions. Moreover, there may be an
imperfect correlation between a 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 a Fund to the risk of currency exchange loss.
Ivy Bond Fund and Ivy International Strategic Bond Fund may purchase
currency forwards and combine such purchases with sufficient cash or short-term
securities to create unleveraged substitutes for investments in foreign markets
when deemed advantageous. Each Fund may also combine the foregoing with bond
futures or interest rate futures contracts to create the economic equivalent of
an unhedged foreign bond position.
Ivy Bond Fund and Ivy International Strategic Fund may also cross-hedge
currencies by entering into transactions to purchase or sell one or more
currencies that are expected to decline in value relative to other currencies to
which each Fund has or in which each Fund expects to have portfolio exposure.
Currency transactions are subject to risks different from those of other
portfolio transactions. Because currency control is of great importance to the
issuing governments and influences economic planning and policy, purchases and
sales of currency and related instruments can be negatively affected by
government exchange controls, blockages, and manipulations or exchange
restrictions imposed by governments. These can result in losses to a Fund if it
is unable to deliver or receive currency or funds in settlement of obligations
and could also cause hedges it has entered into to be rendered useless,
resulting in full currency exposure as well as incurring transactions costs.
Buyers and sellers of currency futures are subject to the same risks that apply
to the use of futures generally. Further, settlement of a currency futures
contract for the purchase of most currencies must occur at a bank based in the
issuing nation. Trading options on currency futures is relatively new, and the
ability to establish and close out positions on such options is subject to the
maintenance of a liquid market which may not always be available. Currency
exchange rates may fluctuate based on factors extrinsic to that country's
economy.
REPURCHASE AGREEMENTS
Repurchase agreements are contracts under which a 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, Ivy Bond Fund and Ivy International Strategic Bond Fund
are permitted to enter into repurchase agreements only if the repurchase
agreements are at least fully collateralized with U.S. Government securities or
other securities that IMI has approved for use as collateral for repurchase
agreements and the collateral must be marked-to-market daily. Each Fund will
enter into repurchase agreements only with banks and broker-dealers deemed to be
creditworthy by IMI under the above-referenced guidelines. In the unlikely event
of failure of the executing bank or broker-dealer, a Fund could experience some
delay in obtaining direct ownership of the underlying collateral and might incur
a loss if the value of the security should decline, as well as costs in
disposing of the security.
BANKING INDUSTRY AND SAVINGS AND LOAN OBLIGATIONS
Certificates of deposit are negotiable certificates issued against funds
deposited in a commercial bank for a definite period of time and earning a
specified return. Bankers' acceptances are negotiable drafts or bills of
exchange, normally drawn by an importer or exporter to pay for specific
merchandise, which are "accepted" by a bank (meaning, in effect, that the bank
unconditionally agrees to pay the face value of the instrument at maturity). In
addition to investing in certificates of deposit and bankers' acceptances, each
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. Each Fund's investments in certificates of deposit, time
deposits, and bankers' acceptance are limited to obligations of (i) banks having
total assets in excess of $1 billion, (ii) U.S. banks which do not meet the $1
billion asset requirement, if the principal amount of such obligation is fully
insured by the Federal Deposit Insurance Corporation (the "FDIC"), (iii) savings
and loan association which have total assets in excess of $1 billion and which
are members of the FDIC, and (iv) foreign banks if the obligation is, in IMI's
opinion, of an investment quality comparable to other debt securities which may
be purchased by a Fund. Each Fund's investments in certificates of deposit of
savings associations are limited to obligations of Federal and state-chartered
institutions whose total assets exceed $1 billion and whose deposits are insured
by the FDIC.
COMMERCIAL PAPER.
Commercial paper represents short-term unsecured promissory notes issued
in bearer form by bank holding companies, corporations and finance companies.
Each Fund may invest in commercial paper that is rated Prime-1 by Moody's
Investors Service, Inc. ("Moody's") or A-1 by Standard & Poor's Corporation
("S&P") or, if not rated by Moody's or S&P, is issued by companies having an
outstanding debt issue rated Aaa or Aa by Moody's or AAA or AA by S&P.
BORROWING
Borrowing may exaggerate the effect on a 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 each Fund's borrowings will be fixed, a Fund's assets may change in value
during the time a borrowing is outstanding, thus increasing exposure to capital
risk.
SHORT SALES
Ivy International Strategic Bond Fund may engage in short sale
transactions in fixed-income securities. Short selling involves the sale of
borrowed securities. At the time a short sale is effected, the Fund incurs an
obligation to replace the security borrowed at whatever its price may be at the
time that the Fund purchases it for delivery to the lender. When a short sale
transaction is closed out by delivery of the securities, any gain or loss on the
transaction is taxable as a short-term capital gain or loss. Until the security
is replaced, the Fund is required to pay to the lender amounts equal to any
dividends or interest which accrue during the period of the loan. To borrow the
security, the Fund also may be required to pay a premium, which would increase
the cost of the security sold. Until the Fund replaces a borrowed security in
connection with a short sale, the Fund will: (a) maintain daily a segregated
account containing cash or liquid securities, at such level that (i) the amount
deposited in the segregated account plus the amount deposited with the broker as
collateral will equal the current value of the security sold short and (ii) the
amount deposited in the segregated account plus the amount deposited with the
broker as collateral will not be less than the market value of the security at
the time it was sold short; or (b) otherwise cover its short position.
Since short selling can result in profits when bond prices generally
decline, Ivy International Strategic Bond Fund in this manner, can, to a certain
extent, hedge the market risk to the value of its other investments and protect
its equity in a declining market. However, the Fund could, at any given time,
suffer both a loss on the purchase or retention of one security, if that
security should decline in value, and a loss on a short sale of another
security, if the security sold short should increase in value. If the Fund sells
short one security to hedge a position in a similar security, the Fund could
experience a loss due to an increase in the price of the security sold short
resulting from an incorrectly perceived correlation between the two securities
or a correlation not present at the time of the short sale transaction.
Moreover, to the extent that in a generally rising market the Fund maintains
short positions in securities rising with the market, the net asset value of the
Fund would be expected to increase to a lesser extent than the net asset value
of an investment company that does not engage in short sales.
OPTIONS TRANSACTIONS
IN GENERAL. A call option is a short-term contract (having a duration of
less than one year) pursuant to which the purchaser, in return for the premium
paid, has the right to buy the security underlying the option at the specified
exercise price at any time during the term of the option. The writer of the call
option, who receives the premium, has the obligation, upon exercise of the
option, to deliver the underlying security against payment of the exercise
price. A put option is a similar contract pursuant to which the purchaser, in
return for the premium paid, has the right to sell the security underlying the
option at the specified exercise price at any time during the term of the
option. The writer of the put option, who receives the premium, has the
obligation, upon exercise of the option, to buy the underlying security at the
exercise price. The premium paid by the purchaser of an option will reflect,
among other things, the relationship of the exercise price to the market price
and volatility of the underlying security, the time remaining to expiration of
the option, supply and demand, and interest rates.
If the writer of a U.S. exchange-traded 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. Closing purchase transactions are not available for OTC
transactions. In order to terminate an obligation in an OTC transaction, the
Fund would negotiate directly with the counterparty.
Ivy Bond Fund or Ivy International Strategic Bond 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 a Fund has written lapses
unexercised, because a 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 a Fund, are taxable
as ordinary income. See "Taxation."
Ivy Bond or Ivy International Strategic Bond 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 each Fund
and its counterparty (usually a securities dealer or a financial institution)
with no clearing organization guarantee. When a 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. Ivy Bond Fund and Ivy
International Strategic Bond 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. Each of these Funds 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 for the options). In view of the investment
objectives of these Funds, each Fund generally would write call options only in
circumstances where the investment adviser to the Fund does not anticipate
significant appreciation of the underlying security in the near future or has
otherwise determined to dispose of the security.
A "covered" call option means generally that so long as a 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 each
Fund receives premium income from these activities, any appreciation realized on
an underlying security will be limited by the terms of the call option. Ivy Bond
Fund and Ivy International Strategic Bond Fund may purchase call options on
individual securities only to effect a "closing purchase transaction."
As the writer of a call option, each 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. Ivy Bond Fund and Ivy
International Strategic Bond Fund may purchase put options on underlying
securities owned by the Funds as a defensive technique in order to protect
against an anticipated decline in the value of the securities. Each of these
Funds, 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 a 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 any Fund for leverage purposes.
Ivy Bond Fund and Ivy International Strategic Bond Fund may also purchase
put options on underlying securities that they own 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. A 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 Funds may write (sell) put
options on individual securities only to effect a "closing sale transaction."
PURCHASING AND WRITING OPTIONS ON SECURITIES INDICES. Ivy Bond Fund and
Ivy International Strategic Bond 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. Call options on indices are similar
to call 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 a Fund writes a call or put option on a stock index, the option is
"covered", in the case of a call, or "secured", in the case of a put, if the
Fund maintains in a segregated account with the Custodian cash or liquid
securities equal to the contract value. A call option is also covered if the
Fund holds a call on the same index as the call written where the exercise price
of the call held is (i) equal to or less than the exercise price of the call
written or (ii) greater than the exercise price of the call written, provided
that the Fund maintains in a segregated account with the Custodian the
difference in cash or liquid securities. A put option is also "secured" if the
Fund holds a put on the same index as the put written where the exercise price
of the put held is (i) equal to or greater than the exercise price of the put
written or (ii) less than the exercise price of the put written, provided that
the Fund maintains in a segregated account with the Custodian the difference in
cash or liquid securities.
RISKS OF OPTIONS TRANSACTIONS. The purchase and writing of options
involves certain risks. During the option period, the covered call writer has,
in return for the premium on the option, given up the opportunity to profit from
a price increase in the underlying securities above the exercise price, but, as
long as its obligation as a writer continues, has retained the risk of loss
should the price of the underlying security decline. The writer of a U.S. option
has no control over the time when it may be required to fulfill its obligation
as a writer of the option. Once an option writer has received an exercise
notice, it cannot effect a closing purchase transaction in order to terminate
its obligation under the option and must deliver the underlying securities (or
cash in the case of an index option) at the exercise price. If a put or call
option purchased by Ivy Bond Fund or Ivy International Strategic Bond 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 Ivy Bond
Fund or Ivy International Strategic Bond Fund seeks to close out an option
position. Furthermore, if trading restrictions or suspensions are imposed on the
options markets, a 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. Transfer of an OTC option is
usually prohibited absent the consent of the original counterparty. There is no
assurance that a Fund will be able to close out an OTC option position at a
favorable price prior to its expiration. An OTC counterparty may fail to deliver
or to pay, as the case may be. In the event of insolvency of the counterparty, a
Fund might be unable to close out an OTC option position at any time prior to
its expiration. Although a Fund may be able to offset to some extent any adverse
effects of being unable to liquidate an option position, the Fund may experience
losses in some cases as a result of such inability.
When conducted outside the U.S., options transactions may not be regulated
as rigorously as in the U.S., may not involve a clearing mechanism and related
guarantees, and are subject to the risk of governmental actions affecting
trading in, or the prices of, foreign securities, currencies and other
instruments. The value of such positions also could be adversely affected by:
(i) other complex foreign political, legal and economic factors, (ii) lesser
availability than in the U.S. of data on which to make trading decisions, (iii)
delays in a Fund's ability to act upon economic events occurring in foreign
markets during non-business hours in the U.S., (iv) the imposition of different
exercise and settlement terms and procedures and margin requirements than in the
U.S., and (v) lower trading volume and liquidity.
Ivy Bond Fund's and Ivy International Strategic Bond Fund's options
activities also may have an impact upon the level of their portfolio turnover
and brokerage commissions. See "Portfolio Turnover."
Each Fund's success in using options techniques depends, among other
things, on IMI's ability to predict accurately the direction and volatility of
price movements in the options and securities markets, and to select the proper
type, timing of use and duration of options.
FUTURES CONTRACTS AND OPTIONS ON FUTURES CONTRACTS
IN GENERAL. Ivy Bond Fund and Ivy International Strategic Bond 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 a Fund,
that Fund is required to deposit with its custodian (or broker, if legally
permitted) a specified amount of cash or liquid securities ("initial margin").
The margin required for a futures contract is set by the exchange on which the
contract is traded and may be modified during the term of the contract. The
initial margin is in the nature of a performance bond or good faith deposit on
the futures contract which is returned to the Fund upon termination of the
contract, assuming all contractual obligations have been satisfied. A futures
contract held by a 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 a 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, each Fund will
mark-to-market its open futures position.
Each Fund is also required to deposit and maintain margin with respect to
put and call options on futures contracts written by it. Such margin deposits
will vary depending on the nature of the underlying futures contract (and the
related initial margin requirements), the current market value of the option,
and other futures positions held by the Fund.
Although some futures contracts call for making or taking delivery of the
underlying securities, generally these obligations are closed out prior to
delivery of offsetting purchases or sales of matching futures contracts (same
exchange, underlying security or index, and delivery month). If an offsetting
purchase price is less than the original sale price, each 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, each 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, each Fund will maintain with its
Custodian (and mark-to-market on a daily basis) cash or liquid securities that,
when added to the amounts deposited with a futures commission merchant ("FCM")
as margin, are equal to the market value of the futures contract. Alternatively,
a Fund may "cover" its position by purchasing a put option on the same futures
contract with a strike price as high as or higher than the price of the contract
held by the Fund, or, if lower, may cover the difference with cash or short-term
securities.
When selling a futures contract, each 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, a Fund may "cover" its position by owning the
instruments underlying the contract (or, in the case of an index futures
contract, a portfolio with a volatility substantially similar to that of the
index on which the futures contract is based), or by holding a call option
permitting the Fund to purchase the same futures contract at a price no higher
than the price of the contract written by the Fund (or at a higher price if the
difference is maintained in liquid assets with the Fund's custodian).
When selling a call option on a futures contract, each 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, a Fund may cover its position by entering into a
long position in the same futures contract at a price no higher than the strike
price of the call option, by owning the instruments underlying the futures
contract, or by holding a separate call option permitting the Fund to purchase
the same futures contract at a price not higher than the strike price of the
call option sold by the Fund, or covering the difference if the price is higher.
When selling a put option on a futures contract, each Fund will maintain
with its Custodian (and mark-to-market on a daily basis) cash or liquid
securities that equal the purchase price of the futures contract less any margin
on deposit. Alternatively, a Fund may cover the position either by entering into
a short position in the same futures contract, or by owning a separate put
option permitting it to sell the same futures contract so long as the strike
price of the purchased put option is the same or higher than the strike price of
the put option sold by the Fund, or, if lower, the Fund may hold securities to
cover the difference.
INTEREST RATE FUTURES CONTRACTS. An interest rate futures contract is an
agreement between parties to buy or sell a specified debt security at a set
price on a future date. The financial instruments that underlie interest rate
futures contracts include long-term U.S. Treasury bonds, U.S. Treasury notes,
and three-month U.S. Treasury bills. In the case of futures contracts traded on
U.S. exchanges, the exchange itself or an affiliated clearing corporation
assumes the opposite side of each transaction (i.e., as buyer or seller). A
futures contract may be satisfied or closed out by delivery or purchase, as the
case may be in the cash financial instrument or by payment of the change in cash
value of the index. Frequently, using futures to effect a particular strategy
instead of using the underlying or related security will result in lower
transaction costs being incurred.
Ivy Bond Fund and Ivy International Strategic Bond Fund may sell interest
rate futures contracts in order to hedge their portfolio securities whose value
may be sensitive to changes in interest rates. In addition, each of these Funds
could purchase and sell these futures contracts in order to hedge its holdings
in certain common stocks (such as utilities, banks and savings and loan) whose
value may be sensitive to change in interests rates. Each Fund could sell
interest rate futures contracts in anticipation of or doing a market decline to
attempt to offset the decrease in market value of its securities that might
otherwise result. When a Fund is not fully invested in securities, it could
purchase interest rate futures in order to gain rapid market exposure that may
in part or entirely offset increases in the cost of securities that it intends
to purchase. If such purchases are made, an equivalent amount of interest rate
futures contracts will be terminated by offsetting sales. Each Fund may also
maintain the futures contract as a substitute for the underlying securities.
OPTIONS ON INTEREST RATE FUTURES CONTRACTS. Ivy Bond Fund and Ivy
International Strategic Bond Fund may also purchase and write put and call
options on interest rate futures contracts which are traded on a U.S. exchange
or board of trade and sell or purchase such options to terminate an existing
position. Options on interest rate futures give the purchaser the right (but not
the obligation), in return for the premium paid, to assume a position in an
interest rate futures contract at a specified exercise price at a time during
the period of the option.
Transactions in options on interest rate futures would enable each Fund to
hedge against the possibility that fluctuations in interest rates and other
factors may result in a general decline in prices of debt securities owned by
the Fund. Assuming that any decline in the securities being hedged in
accomplished by a rise in interest rates, the purchase of put options and sale
of call options on the futures contracts may generate gains which can partially
offset any decline in the value of the particular Fund's portfolio securities
which have been hedged. However, if after a Fund purchases or sells an option on
a futures contract, the value of the securities being hedged moves in the
opposite direction from that contemplated, the Fund may experience losses in the
form of premiums on such options which would partially offset gains the Fund
would have.
SWAPS, CAPS, FLOORS AND COLLARS. Ivy International Strategic Bond Fund may
enter into interest rate, currency, credit and index swaps and the purchase or
sale of related caps, floors and collars. The Fund expects to enter into these
transactions primarily to preserve a return or spread on a particular investment
or portion of its portfolio, to protect against currency fluctuations, as a
duration management technique or to protect against any increase in the price of
securities the Fund anticipates purchasing at a later date. The Fund intends to
use these transactions as hedges and not as speculative investments and will not
sell interest rate caps or floors where it does not own securities or other
instruments providing the income stream the Fund may be obligated to pay.
Interest rate swaps involve the exchange by the Fund with another party of their
respective commitments to pay or receive interest, e.g., an exchange of floating
rate payments for fixed rate payments with respect to a notional amount of
principal. A currency swap is an agreement to exchange cash flows on a notional
amount of two or more currencies based on the relative value differential among
them and an index swap is an agreement to swap cash flows on a notional amount
based on changes in the values of the reference indices. Credit swaps involve
the exchange by the Fund with a counterparty of their respective commitments to
pay or receive the difference in interest rates between a firm or country's rate
and the risk free rate. The purchase of a cap entitles the purchaser to receive
payments on a notional principal amount from the party selling such cap to the
extent that a specified index exceeds a predetermined interest rate or amount.
The purchase of a floor entitles the purchaser to receive payments on a notional
principal amount from the party selling such floor to the extent that a
specified index falls below a predetermined interest rate or amount. A collar is
a combination of a cap and a floor that preserves a certain return within a
predetermined range of interest rate or values.
Ivy International Strategic Bond Fund may enter credit protection swap
arrangements involving the sale by the Fund of a put option on a debt security
which is exercisable by the buyer upon certain events, such as a default by the
referenced creditor on the underlying debt or a bankruptcy event of the
creditor.
The Fund will usually enter into swaps on a net basis, i.e., the two
payment streams are netted out in a cash settlement on the payment date or dates
specified in the instrument, with the Fund receiving or paying, as the case may
be, only the net amount of the two payments. Inasmuch as these swaps, caps,
floors and collars are entered into for good faith hedging purposes, IMI and the
Fund believe such obligations do not constitute senior securities under the 1940
Act and, accordingly, will not treat them as being subject to its borrowing
restrictions. The Fund will not enter into any swap, cap, floor or collar
transaction unless, at the time of entering into such transaction, the unsecured
long-term debt of the counterparty, combined with any credit enhancements, is
rated at least A by S&P or Moody's or has an equivalent rating from a nationally
recognized statistical rating organization or is determined to be of equivalent
credit quality by IMI. If there is a default by the counterparty, the Fund may
have contractual remedies pursuant to the agreements related to the transaction.
The swap market has grown substantially in recent years with a large number of
banks and investment banking firms acting both as principals and as agents
utilizing standardized swap documentation. As a result, the swap market has
become relatively liquid. Caps, floors and collars are more recent innovations
for which standardized documentation has not yet been fully developed and,
accordingly, they are less liquid than swaps.
FOREIGN CURRENCY FUTURES CONTRACTS AND RELATED OPTIONS. Ivy Bond Fund and
Ivy International Strategic Bond 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.
Ivy Bond Fund and Ivy International Strategic Bond 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 each of these Funds 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. Each 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.
Each Fund will only enter into futures contracts and futures options which
are standardized and traded on a U.S. or foreign exchange, board of trade, or
similar entity or quoted on an automated quotation system. Each Fund will not
enter into a futures contract or purchase an option thereon if, immediately
thereafter, the aggregate initial margin deposits for futures contracts held by
the Fund plus premiums paid by it for open futures option positions, less the
amount by which any such positions are "in-the-money," would exceed 5% of the
liquidation value of the Fund's portfolio (or the Fund's net asset value), after
taking into account unrealized profits and unrealized losses on any such
contracts the Fund has entered into. A call option is "in-the-money" if the
value of the futures contract that is the subject of the option exceeds the
exercise price. A put option is "in-the-money" if the exercise price exceeds the
value of the futures contract that is the subject of the option. For additional
information about margin deposits required with respect to futures contracts and
options thereon, see "Futures Contracts and Options on Futures Contracts."
RISKS ASSOCIATED WITH FUTURES AND RELATED OPTIONS. There can be no
guarantee that there will be a correlation between price movements in the
hedging vehicle and in a 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 a
Fund seeks to close out a futures or a futures option position, and the Fund
would remain obligated to meet margin requirements until the position is closed.
In addition, there can be no assurance that an active secondary market will
continue to exist.
Currency futures contracts and options thereon may be traded on foreign
exchanges. Such transactions may not be regulated as effectively as similar
transactions in the United States; may not involve a clearing mechanism and
related guarantees; and are subject to the risk of governmental actions
affecting trading in, or the prices of, foreign securities. The value of such
position also could be adversely affected by (i) other complex foreign
political, legal and economic factors, (ii) lesser availability than in the
United States of data on which to make trading decisions, (iii) delays in a
Fund's ability to act upon economic events occurring in foreign markets during
non business hours in the United States, (iv) the imposition of different
exercise and settlement terms and procedures and margin requirements than in the
United States, and (v) lesser trading volume.
SECURITIES INDEX FUTURES CONTRACTS
Ivy International Strategic Bond Fund may enter into securities index
futures contracts as an efficient means of regulating the Fund's exposure to the
equity markets. The Fund will not engage in transactions in futures contracts
for speculation, but only as a hedge against changes resulting from market
conditions in the values of securities held in the Fund's portfolio or which it
intends to purchase. An index futures contract is a contract to buy or sell
units of an index at a specified future date at a price agreed upon when the
contract is made. Entering into a contract to buy units of an index is commonly
referred to as purchasing a contract or holding a long position in the index.
Entering into a contract to sell units of an index is commonly referred to as
selling a contract or holding a short position. The value of a unit is the
current value of the stock index. For example, the S&P 500 Index is composed of
500 selected common stocks, most of which are listed on the New York Stock
Exchange (the "Exchange"). The S&P 500 Index assigns relative weightings to the
500 common stocks included in the Index, and the Index fluctuates with changes
in the market values of the shares of those common stocks. In the case of the
S&P 500 Index, contracts are to buy or sell 500 units. Thus, if the value of the
S&P 500 Index were $150, one contract would be worth $75,000 (500 units x $150).
The index futures contract specifies that no delivery of the actual securities
making up the index will take place. Instead, settlement in cash must occur upon
the termination of the contract, with the settlement being the difference
between the contract price and the actual level of the stock index at the
expiration of the contract. For example, if the Fund enters into a futures
contract to buy 500 units of the S&P 500 Index at a specified future date at a
contract price of $150 and the S&P 500 Index is at $154 on that future date, the
Fund will gain $2,000 (500 units x gain of $4). If the Fund enters into a
futures contract to sell 500 units of the stock index at a specified future date
at a contract price of $150 and the S&P 500 Index is at $154 on that future
date, the Fund will lose $2,000 (500 units x loss of $4).
RISKS OF SECURITIES INDEX FUTURES. Ivy International Strategic Bond Fund's
success in using hedging techniques depends, among other things, on IMI's
ability to predict correctly the direction and volatility of price movements in
the futures and options markets as well as in the securities markets and to
select the proper type, time and duration of hedges. The skills necessary for
successful use of hedges are different from those used in the selection of
individual stocks.
The Fund's ability to hedge effectively all or a portion of its securities
through transactions in index futures (and therefore the extent of its gain or
loss on such transactions) depends on the degree to which price movements in the
underlying index correlate with price movements in the Fund's securities.
Inasmuch as such securities will not duplicate the components of an index, the
correlation probably will not be perfect. Consequently, the Fund will bear the
risk that the prices of the securities being hedged will not move in the same
amount as the hedging instrument. This risk will increase as the composition of
the Fund's portfolio diverges from the composition of the hedging instrument.
Although the Fund intends to establish positions in these instruments only
when there appears to be an active market, there is no assurance that a liquid
market will exist at a time when the Fund seeks to close a particular option or
futures position. Trading could be interrupted, for example, because of supply
and demand imbalances arising from a lack of either buyers or sellers. In
addition, the futures exchanges may suspend trading after the price has risen or
fallen more than the maximum amount specified by the exchange. In some cases,
the Fund may experience losses as a result of its inability to close out a
position, and it may have to liquidate other investments to meet its cash needs.
Although some index futures contracts call for making or taking delivery
of the underlying securities, generally these obligations are closed out prior
to delivery by offsetting purchases or sales of matching futures contracts (same
exchange, underlying security or index, and delivery month). If an offsetting
purchase price is less than the original sale price, the Fund generally realizes
a capital gain, or if it is more, the Fund generally realizes a capital loss.
Conversely, if an offsetting sale price is more than the original purchase
price, the Fund generally realizes a capital gain, or if it is less, the Fund
generally realizes a capital loss. The transaction costs must also be included
in these calculations.
The Fund will only enter into index futures contracts or futures options
that are standardized and traded on a U.S. or foreign exchange or board of
trade, or similar entity, or quoted on an automated quotation system. The Fund
will use futures contracts and related options only for "bona fide hedging"
purposes, as such term is defined in applicable regulations of the CFTC.
When purchasing an index futures contract, the Fund will maintain with its
Custodian (and mark-to-market on a daily basis) cash or liquid securities that,
when added to the amounts deposited with a futures commission merchant ("FCM")
as margin, are equal to the market value of the futures contract. Alternatively,
the Fund may "cover" its position by purchasing a put option on the same futures
contract with a strike price as high as or higher than the price of the contract
held by the Fund.
When selling an index futures contract, the Fund will maintain with its
Custodian (and mark-to-market on a daily basis) cash or liquid securities that,
when added to the amounts deposited with an FCM as margin, are equal to the
market value of the instruments underlying the contract. Alternatively, the Fund
may "cover" its position by owning the instruments underlying the contract (or,
in the case of an index futures contract, a portfolio with a volatility
substantially similar to that of the index on which the futures contract is
based), or by holding a call option permitting the Fund to purchase the same
futures contract at a price no higher than the price of the contract written by
the Fund (or at a higher price if the difference is maintained in cash or liquid
assets in a segregated account with the Fund's custodian).
COMBINED TRANSACTIONS. Ivy Bond Fund and Ivy International Strategic Bond
Fund may enter into multiple transactions, including multiple options
transactions, multiple futures transactions, multiple currency transactions
(including forward currency contracts) and multiple interest rate transactions
and some combination of futures, options, currency and interest rate
transactions ("component" transactions), instead of a single transaction, as
part of a single or combined strategy when, in the opinion of IMI, it is in the
best interests of a Fund to do so. A combined transaction will usually contain
elements of risk that are present in each of its component transactions.
Although combined transactions are normally entered into based on IMI's judgment
that the combined strategies will reduce risk or otherwise more effectively
achieve the desired portfolio management goal, it is possible that the
combination will instead increase such risks or hinder achievement of the
management objective.
PORTFOLIO TURNOVER
Ivy Bond Fund and Ivy International Strategic Bond Fund purchase
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, each of these Funds 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 a 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. Each Fund's
portfolio turnover rate is calculated by dividing the lesser of purchases or
sales of portfolio securities for the most recently completed fiscal year by the
monthly average of the value of the portfolio securities owned by the Fund
during that year. For purposes of determining the Fund's portfolio turnover
rate, all securities whose maturities at the time of acquisition were one year
or less are excluded.
TRUSTEES AND OFFICERS
Each Fund's Board of Trustees (the "Board") is responsible for the
overall management of the Fund, including general supervision and review of the
Fund's investment activities. The Board, in turn, elects the officers who are
responsible for administering each Fund's day-to-day operations.
The Trustees and Executive Officers of the Trust, their business
addresses and principal occupations during the past five years are:
POSITION WITH BUSINESS AFFILIATIONS
NAME, ADDRESS, AGE THE TRUST AND PRINCIPAL OCCUPATIONS
John S. Anderegg, Jr. Trustee Chairman, Dynamics Research
60 Concord Street Corp. (instruments and controls);
Wilmington, MA 01887 Director, Burr-Brown Corp.
Age: 75 (operational amplifiers);
Director, Metritage Incorporated
(level measuring instruments);
Trustee of Mackenzie Series Trust
(1992-1998).
James W. Broadfoot President President,
700 South Federal Hwy. and Ivy Management Inc. (1996-
Suite 300 Trustee present); Senior Vice
Boca Raton, FL 33432 President, Ivy Management,
Age: 56 Inc. (1992-1996); Director and Senior
[*Deemed to be an Vice President, Mackenzie Investment
"interested person" Management Inc. (1995-present); Senior
of the Trust, as Vice President, Mackenzie Investment
defined under the Management Inc. (1990-1995).
1940 Act.]
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: 75 (insurance agency); Chairman,
Scott Management Company
(administrative services for
insurance companies); President,
The Channick Group (consultants
to insurance companies and
national trade associations);
Trustee of Mackenzie Series
Trust (1994-1998); Director of
The Mackenzie Funds Inc.
(1994-1995).
Frank W. DeFriece, Jr. Trustee Director, Manager and Vice
The Landmark Centre President, Director and
113 Landmark Lane, Fund Manager, Massengill-
Suite B DeFriece Foundation
Bristol, TN 37620-2285 (charitable organization)
Age: 78 (1950-present); Trustee and Vice
Chairman, East Tennessee Public
Communications Corp. (WSJK-TV)
(1984-present); Trustee of
Mackenzie Series Trust
(1985-1998); Director of The
Mackenzie Funds Inc. (1987-1995).
Roy J. Glauber Trustee Mallinckrodt Professor of
Lyman Laboratory Physics, Harvard
of Physics University (1974-present);
Harvard University Trustee of Mackenzie Series
Cambridge, MA 02138 Trust (1994-1997).
Age: 73
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: 69 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 Chairman -present); Senior Vice President
Boca Raton, FL 33432 and Director of Mackenzie
Age: 42 Investment Management, Inc. (1994-
[*Deemed to be an 1996); Senior Vice President and
"interested person" Treasurer of Mackenzie Investment
of the Trust, as defined Management, Inc. (1989-1994);
under the Senior Vice President and Director
1940 Act.] 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).
Edward M. Tighe Trustee Chief Executive Officer,
5900 N. Andrews Avenue CITCO Technology Management, Inc.
Suite 700 ("CITCO") (computer software develop-
Ft. Lauderdale, FL 33309 ment and consulting) (1999-present);
President and Director, Global
Technology Management, Inc. (CITCO's
predecessor) (1992-1998); Managing
Director, Global Mutual Fund Services,
Ltd. (financial services firm);
President, Director and Chief
Executive Officer, Global Mutual Fund
Services, Inc. (1994-present).
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).
COMPENSATION TABLE
IVY FUND
(FISCAL YEAR ENDED DECEMBER 31, 1998)
<TABLE>
<S> <C> <C> <C> <C>
PENSION OR
AGGREGATE RETIREMENT ESTIMATED TOTAL COMPENSATION
COMPENSATION BENEFITS ACCRUED ANNUAL ESTIMATED FROM TRUST AND FUND
NAME, FROM AS PART OF FUND ANNUAL BENEFITS COMPLEX PAID TO TRUSTEES
POSITION TRUST EXPENSES UPON RETIREMENT
John S. $18,000 N/A N/A $18,000
Anderegg, Jr.
(Trustee)
Paul H. $18,000 N/A N/A $18,000
Broyhill
(Trustee)
Keith J. $0 N/A N/A $0
Carlson
(Trustee and
President)
Stanley $18,000 N/A N/A $18,000
Channick
(Trustee)
Frank W. $18,000 N/A N/A $18,000
DeFriece, Jr.
(Trustee)
Roy J. $18,000 N/A N/A $18,000
Glauber
(Trustee)
Joseph G. $18,000 N/A N/A $18,000
Rosenthal
(Trustee)
Richard N. $18,000 N/A N/A $18,000
Silverman
(Trustee)
J. Brendan $17,000 N/A N/A $17,000
Swan
(Trustee)
C. William $0 N/A N/A $0
Ferris
(Secretary/
Treasurer)
</TABLE>
To the knowledge of the Trust, as of March 31, 1999, no shareholder
owned beneficially or of record 5% or more of any Fund's outstanding shares of
any class, with the following exceptions:
CLASS A
Of the outstanding Class A shares of :
Ivy Asia Pacific Fund, Merrill Lynch Pierce Fenner & Smith, 4800 Deer
Lake Drive E, 3rd Floor, Jacksonville, FL 32246, owned of record 40,174.921
shares (16.51%), and Michael G. Landry, 211 S. Gordon Rd., Ft.
Lauderdale, FL 33301, owned of record 12,443.882 shares (5.11%);
Ivy Bond Fund, Merrill Lynch Pierce Fenner & Smith, 4800 Deer Lake
Drive E, 3rd Floor, Jacksonville, FL 32246, owned of record 1,397,567.620 shares
(13.02%);
Ivy China Region Fund, Merrill Lynch Pierce Fenner & Smith, 4800 Deer
Lake Drive E, 3rd Floor, Jacksonville, FL 32246, owned of record 218,003.027
shares (13.26%), and Resources Trust Company, PO Box 3865, Englewood, CO
80155-3865, owned of record 186,351.290 shares (11.33%);
Ivy Developing Nations Fund, Donaldson Lufkin Jenrette Securities
Corporation Inc., PO Box 2052, Jersey City, NJ 07303-9998, owned of record
87,092.843 shares (11.31%), Donaldson Lufkin Jenrette Securities Corporation
Inc., PO Box 2052, Jersey City, NJ 07303-9998, owned of record 54,336.017 shares
(7.06%), and Merrill Lynch Pierce Fenner & Smith, 4800 Deer Lake Drive E, 3rd
Floor, Jacksonville, FL 32246, owned of record 41,198.769 shares (5.35%);
Ivy Global Natural Resources Fund, Carn & Co., Riggs Bank (TTEE) FBO
Care-Free Consolidated 401K Plan, PO Box 96211, Washington, DC 20090-6211, owned
of record 62,273.356 shares (29.71%), Carn & Co., Riggs Bank (TTEE) FBO Yazaki
Employee Savings & Retirement Plan, PO Box 96211, Washington, DC 20090-6211,
owned of record 22,533.136 shares (10.75%), and Mackenzie Investment Management
Inc., via Mizner Financial Plaza, 700 South Federal Highway, Suite 300, Boca
Raton, FL 33432, owned of record 11,957.023 shares (5.70%);
Ivy Global Science & Technology Fund, Donaldson Lufkin Jenrette
Securities Corporation Inc., PO Box 2052, Jersey City, NJ 07303-9998, owned of
record 99,948.978 shares (16.84%), Donaldson Lufkin Jenrette Securities
Corporation Inc., PO Box 2052, Jersey City, NJ 07303-9998, owned of record
65,325.391 shares (11.01%), and Merrill Lynch Pierce Fenner & Smith, 4800 Deer
Lake Drive E, 3rd Floor, Jacksonville, FL 32246, owned of record 31,922.542
shares (5.38%);
Ivy International Fund II, Merrill Lynch Pierce Fenner & Smith, 4800
Deer Lake Drive E, 3rd Floor, Jacksonville, FL 32246, owned of record
818,804.984 shares (34.10%);
Ivy International Fund, Charles Schwab & Co. Inc., 101 Montgomery
Street, San Francisco, CA 94104, owned of record 12,827,455.253 shares (35.28%),
and Merrill Lynch Pierce Fenner & Smith, 4800 Deer Lake Drive E, 3rd Floor,
Jacksonville, FL 32246, owned of record 6,083,813.996 shares (16.73%);
Ivy International Small Companies Fund, Donaldson Lufkin Jenrette
Securities Corporation Inc., PO Box 2052, Jersey City, NJ 07303-9998, owned of
record 19,762.181 shares (20.88%), and Mackenzie Investment Management Inc., via
Mizner Financial Plaza, 700 South Federal Highway, Suite 300, Boca Raton, FL
33432, owned of record 10,287.244 shares (10.87%).
Ivy Money Market Fund, Carn & Co., Riggs Bank (TTEE) FBO Plexus Corp
401K Plan, PO Box 96211, Washington, DC 20090-6211, owned of record
2,710,056.720 shares (13.19%), and Bear Stearns Securities Corp., 1 Metrotech
Center North, Brooklyn, NY 11201-3859, owned of record 1,432,318.960 shares
(6.97%).
Ivy Pan-Europe Fund, Mackenzie Investment Management Inc., via Mizner
Financial Plaza, 700 South Federal Highway, Suite 300, Boca Raton, FL 33432,
owned of record 37,553.145 shares (23.84%), and Merrill Lynch Pierce Fenner &
Smith, 4800 Deer Lake Drive E, 3rd Floor, Jacksonville, FL 32246, owned of
record 27,122.193 shares (17.22%);
Ivy South America Fund, Merrill Lynch Pierce Fenner & Smith, 4800 Deer
Lake Drive E, 3rd Floor, Jacksonville, FL 32246, owned of record 45,710.848
shares (17.87%), and Charles Schwab & Co. Inc., 101 Montgomery Street, San
Francisco, CA 94104, owned of record 19,471.113 shares (7.61%), and William A.
Maczko & Mildred E. Helm Maczko, 2100 S. Ocean Ln., #1412, Ft. Lauderdale, FL
33316, owned of record 14,174.070 shares (5.54%);
Ivy US Blue Chip Fund, Helen L. Medvin, 4712 Michael Ave., North
Olmsted, OH 44070, owned of record 10,253.846 shares (7.12%), Donaldson Lufkin
Jenrette Securities Corporation Inc., PO Box 2052, Jersey City, NJ 07303-9998,
owned of record 8,986.371 shares (6.24%), and Janney Montgomery Scott Inc.,
Estate of David Craig, 1801 Market Street, Philadelphia, PA 19103-1675, owned of
record 8,880.995 shares (6.17%).
Ivy US Emerging Growth Fund, Donaldson Lufkin Jenrette Securities
Corporation Inc., PO Box 2052, Jersey City, NJ 07303-9998, owned of record
86,774.211 shares (5.08%);
CLASS B
Of the outstanding Class B shares of:
Ivy Asia Pacific Fund, Merrill Lynch Pierce Fenner & Smith, 4800 Deer
Lake Drive E, 3rd Floor, Jacksonville, FL 32246, owned of record 141,298.083
shares (35.22%);
Ivy Bond Fund, Merrill Lynch Pierce Fenner & Smith, 4800 Deer Lake
Drive E, 3rd Floor, Jacksonville, FL 32246, owned of record 12,199,384.716
shares (48.92%);
Ivy China Region Fund, Merrill Lynch Pierce Fenner & Smith, 4800 Deer
Lake Drive E, 3rd Floor, Jacksonville, FL 32246, owned of record 107,725.641
shares (11.73%);
Ivy Developing Nations Fund, Merrill Lynch Pierce Fenner & Smith, 4800
Deer Lake Drive E, 3rd Floor, Jacksonville, FL 32246, owned of record
278,316.028 shares (28.37%);
Ivy Global Fund, Merrill Lynch Pierce Fenner & Smith, 4800 Deer Lake
Drive E, 3rd Floor, Jacksonville, FL 32246, owned of record 68,719.447 shares
(11.93%);
Ivy Global Natural Resources Fund, Merrill Lynch Pierce Fenner & Smith,
4800 Deer Lake Drive E, 3rd Floor, Jacksonville, FL 32246, owned of record
83,599.984 shares (38.05%);
Ivy Global Science & Technology Fund, Merrill Lynch Pierce Fenner &
Smith, 4800 Deer Lake Drive E, 3rd Floor, Jacksonville, FL 32246, owned of
record 40,990.672 shares (8.13%);
Ivy Growth Fund, Merrill Lynch Pierce Fenner & Smith, 4800 Deer Lake
Drive E, 3rd Floor, Jacksonville, FL 32246, owned of record 24,939.375 shares
(8.96%);
Ivy Growth with Income Fund, Merrill Lynch Pierce Fenner & Smith, 4800
Deer Lake Drive E, 3rd Floor, Jacksonville, FL 32246, owned of record
263,081.752 shares (15.31%);
Ivy International Fund II, Merrill Lynch Pierce Fenner & Smith, 4800
Deer Lake Drive E, 3rd Floor, Jacksonville, FL 32246, owned of record
4,986,169.823 shares (60.62%);
Ivy International Fund, Merrill Lynch Pierce Fenner & Smith, 4800 Deer
Lake Drive E, 3rd Floor, Jacksonville, FL 32246, owned of record 5,678,407.729
shares (45.59%).
Ivy International Small Companies Fund, Merrill Lynch Pierce Fenner &
Smith, 4800 Deer Lake Drive E, 3rd Floor, Jacksonville, FL 32246, owned of
record 24,340.066 shares (23.40%), PaineWebber, FBO B Carmage Walls Trust #10,
FBO Lissa Walls Trust and Cooper Walls TTEE, PO Box 42828, Houston, TX 77242,
owned of record 5,880.313 shares (5.65%), and PaineWebber, FBO B Carmage Walls
Trust #10, FBO Cooper Walls Trust and Cooper Walls TTEE, PO Box 42828, Houston,
TX 77242, owned of record 5,760.640 shares (5.53%);
Ivy Pan-Europe Fund, Merrill Lynch Pierce Fenner & Smith, 4800 Deer
Lake Drive E, 3rd Floor, Jacksonville, FL 32246, owned of record 66,847.392
shares (22.86%);
Ivy South America Fund, Merrill Lynch Pierce Fenner & Smith, 4800 Deer
Lake Drive E, 3rd Floor, Jacksonville, FL 32246, owned of record 46,359.136
shares (29.47%);
Ivy US Blue Chip Fund, Merrill Lynch Pierce Fenner & Smith, 4800 Deer
Lake Drive E, 3rd Floor, Jacksonville, FL 32246, owned of record 74,760.802
shares (18.62%), and Parker Hunter Incorporated, FBO Robert Crisci and Kathy
Crisci, PO Box 7629, 3525 Ellwood Road, New Castle, PA 16107-7629, owned of
record 24,779.090 shares (6.17%).
Ivy US Emerging Growth Fund, Merrill Lynch Pierce Fenner & Smith, 4800
Deer Lake Drive E, 3rd Floor, Jacksonville, FL 32246, owned of record
335,426.771 shares (21.10%);
CLASS C
Of the outstanding Class C shares of:
Ivy Asia Pacific Fund, Merrill Lynch Pierce Fenner & Smith, 4800 Deer
Lake Drive E, 3rd Floor, Jacksonville, FL 32246, owned of record 19,237.215
shares (5.33%);
Ivy Bond Fund, Merrill Lynch Pierce Fenner & Smith, 4800 Deer Lake
Drive E, 3rd Floor, Jacksonville, FL 32246, owned of record 725,233.869 shares
(74.69%);
Ivy China Region Fund, Merrill Lynch Pierce Fenner & Smith, 4800 Deer
Lake Drive E, 3rd Floor, Jacksonville, FL 32246, owned of record 30,474.251
shares (27.72%), and IBT, (custodian) FBO Roy O. Derminer, 2236 Abbottwoods Ln.,
Orange City, FL 32763, owned of record 8,275.708 shares (7.52%);
Ivy Developing Nations Fund, Merrill Lynch Pierce Fenner & Smith, 4800
Deer Lake Drive E, 3rd Floor, Jacksonville, FL 32246, owned of record 48,103,553
shares (11.99%);
Ivy Global Fund, Merrill Lynch Pierce Fenner & Smith, 4800 Deer Lake
Drive E, 3rd Floor, Jacksonville, FL 32246, owned of record 6,585.276 shares
(19.35%), Donaldson Lufkin Jenrette Securities Corporation Inc., PO Box 2052,
Jersey City, NJ 07303-9998, owned of record 3,909.907 shares (11.48%), Robert W.
Baird & Co. Inc., 777 East Wisconsin Avenue, Milwaukee, WI 53202-5391, owned of
record 3,436.408 shares (10.09%), IBT, (custodian) FBO Mattie A. Allen, 755
Selma Pl., San Diego, CA 92114-1711, owned of record 3,095.552 shares (9.09%),
Smith Barney Inc., 388 Greenwich Street, New York, NY 10013, owned of record
2,436.584 shares (7.15%), and PaineWebber, (custodian) FBO Robert D.
Cuthbertson, PO Box 3321, Weehawken, NJ 07087-8154, owned of record 1,705.476
shares (5.01%);
Ivy Global Natural Resources Fund, Raymond James & Assoc. Inc.,
(custodian) Raymond W. Simmons, 6296 104th Avenue, Pinellas Park, FL 33782,
owned of record 981.281 shares (19.43%), Raymond James & Assoc. Inc.,
(custodian) Diversified Dental P/S, FBO Al Pollock, 10641 1st Street E., Suite
204, Treasure Island, FL 33706, owned of record 910.166 shares (18.02%), Robert
W. Baird & Co. Inc., 777 E. Wisconsin Avenue, Milwaukee, WI 53202-5391, owned of
record 613.622 shares (12.15%), Robert W. Baird & Co. Inc., 777 E. Wisconsin
Avenue, Milwaukee, WI 53202-5391, owned of record 550.722 shares (10.90%), Nancy
J. Cleare, 9381 US Hwy. 19 N, Pinellas Park, FL 33782, owned of record 541.597
shares (10.72%), Resources Trust Co., (custodian) FBO Jon K. Loessin, PO Box
5900, Denver, CO 80217, owned of record 535.023 shares (10.59%), Ester C.
Wickes, 19 Fawn Hill Rd., Tuxedo, NY 10987, owned of record 350.772 shares
(6.94%), and IBT, (custodian) FBO Salvatore Disalvo, 311 Bridle Path Lane,
Annapolis, MD 21403-1638, owned of record 299.993 shares (5.94%);
Ivy Global Science & Technology Fund, Merrill Lynch Pierce Fenner &
Smith, 4800 Deer Lake Drive E, 3rd Floor, Jacksonville, FL 32246, owned of
record 38,011.661 shares (11.30%);
Ivy Growth Fund, Merrill Lynch Pierce Fenner & Smith, 4800 Deer Lake
Drive E, 3rd Floor, Jacksonville, FL 32246, owned of record 7,477.571 shares
(47.23%), IBT, (custodian) FBO Joseph L. Wright, 32211 Pierce Street, Garden
City, MI 48135, owned of record 3,938.282 shares (24.87%), PaineWebber, FBO
Cynthia N. Young, PO Box 3321, Weehawken, NJ 07087-8154, owned of record 853.551
shares (5.39%), and Martin S. Sawyer & Ruth C. Sawyer, 5910 Wilson Blvd., #413,
Arlington, VA 22205, owned of record 844.906 shares (5.33%);
Ivy Growth with Income Fund, Merrill Lynch Pierce Fenner & Smith, 4800
Deer Lake Drive E, 3rd Floor, Jacksonville, FL 32246, owned of record 11,534.267
shares (29.37%), Anthony L. Bassano & Marie E. Bassano, 8934 Bari Court, Port
Richie, FL 34668, owned of record 3,203.100 shares (8.15%), IBT, (custodian) FBO
Vytautas Snieckus, 1250 E 276th Street, Euclid, OH 44132, owned of record
2,645.907 shares (6.73%), PaineWebber, (custodian) FBO Patricia Cramer Russell,
PO Box 3321, Weehawken, NJ 07087-8154, owned of record 2,191.410 shares (5.58%),
IBT, (custodian) FBO Kevin D. Thistle, 1017 Glencrest Court, Saulkville, WI
53080, owned of record 2,130.626 shares (5.42%), and IBT, (custodian) FBO Carol
E. Greivell, 985 N Broadway, #67, Depere, WI 54115, owned of record 2,106.814
shares (5.36%);
Ivy International Fund II, Merrill Lynch Pierce Fenner & Smith, 4800
Deer Lake Drive E, 3rd Floor, Jacksonville, FL 32246, owned of record
2,908,557.453 shares (74.01%);
Ivy International Fund, Merrill Lynch Pierce Fenner & Smith, 4800 Deer
Lake Drive E, 3rd Floor, Jacksonville, FL 32246, owned of record 2,189,094.234
shares (64.38%);
Ivy International Small Companies Fund, Merrill Lynch Pierce Fenner &
Smith, 4800 Deer Lake Drive E, 3rd Floor, Jacksonville, FL 32246, owned of
record 87,014.649 shares (90.31%);
Ivy Money Market Fund, PaineWebber, FBO Bruce Blank, PO Box 3321,
Weehawken, NJ 07087-8154, owned of record 103,905.380 shares (17.65%), IBT
(custodian) FBO, Marcelette V. Manning, 1371 Mt. View Lane, Chula Vista, CA
91911, owned of record 65,194.630 shares (11.07%), IBT (custodian) FBO Diana
Rooney, 2441 S. 9th St., El Centro, CA 92243, owned of record 62,822.810 shares
(10.67%), Robert J. Laws & Katherine A. Laws, PO Box 723, Ramona, CA 92065,
owned of record 42,920.450 shares (7.29%), IBT (custodian) FBO Betty J. Carson,
1987 Higgins Lane, El Centro, CA 92243, owned of record 39,398.780 shares
(6.69%), Paul M. Benard, 40 Arrowhead Farm Road, Boxford, MA 01921, owned of
record 33,488.010 shares (5.68%), Diane C. Benard, 40 Arrowhead Farm Road,
Boxford, MA 01921, owned of record 33,488.010 shares (5.68%), and PaineWebber,
FBO Kathleen L. Diller, PO Box 3321, Weehawken, NJ 07087-8154, owned of record
30,238.920 shares (5.13%).
Ivy Pan-Europe Fund, Merrill Lynch Pierce Fenner & Smith, 4800 Deer
Lake Drive E, 3rd Floor, Jacksonville, FL 32246, owned of record 26,948.668
shares (44.12%), Resources Trust Company, FBO Terry K. Ramnanan, PO Box 5900,
Denver, CO 80217, owned of record 14,652.015 shares (23.99%), and Donaldson
Lufkin Jenrette Securities Corporation Inc., PO Box 2052, Jersey City, NJ
07303-9998, owned of record 4,663.657 shares (7.63%);
Ivy South America Fund, Merrill Lynch Pierce Fenner & Smith, 4800 Deer
Lake Drive E, 3rd Floor, Jacksonville, FL 32246, owned of record 10,956.813
shares (58.18%), Interstate/Johnson Lane, Interstate Tower, PO Box 1220,
Charlotte, NC 28201-1220, owned of record 2,617.801 shares (13.90%), Donaldson
Lufkin Jenrette Securities Corporation Inc., PO Box 2052, Jersey City, NJ
07303-9998, owned of record 2,318.301 shares (12.31%), Donaldson Lufkin Jenrette
Securities Corporation Inc., PO Box 2052, Jersey City, NJ 07303-9998, owned of
record 1,133.787 shares (6.02%), and Smith Barney Inc., 388 Greenwich Street,
New York, NY 10013, owned of record 966.121 shares (5.13%);
Ivy US Blue Chip Fund, Merrill Lynch Pierce Fenner & Smith, 4800 Deer
Lake Drive E, 3rd Floor, Jacksonville, FL 32246, owned of record 8,485.693
shares (10.18%), Donaldson Lufkin Jenrette Securities Corporation Inc., PO Box
2052, Jersey City, NJ 07303-9998, owned of record 6,066.012 shares (7.27%), IBT,
(custodian) FBO Roy O. Derminer, 2236 Abbottwoods LN, Orange City, FL 32763,
owned of record 4,517.953 shares (5.42%), and Donaldson Lufkin Jenrette
Securities Corporation Inc., PO Box 2052, Jersey City, NJ 07303-9998, owned of
record 4,412.541 shares (5.29%);
Ivy US Emerging Growth Fund, Merrill Lynch Pierce Fenner & Smith, 4800
Deer Lake Drive E, 3rd Floor, Jacksonville, FL 32246, owned of record 96,481.220
shares (30.56%);
CLASS I
Of the outstanding Class I shares of:
Ivy International Fund, The John E. Fetzer Institute Inc., 9292 W KL
Ave., Kalamazoo, MI 49009, owned of record 727,066.771 shares (19.12%), State
Street Bank, (TTEE) FBO Allison Engines, 200 Newport Ave., 7th Floor, North
Quincy, MA 02171, owned of record 292,309.556 shares (7.68%), Lynspen and
Company, PO Box 830804, Birmingham, AL 35283, owned of record 276,747.272 shares
(7.27%), and U A Local 447 Pension Trust Fund, 5841 Newman Ct., Sacramento, CA
95819, owned of record 240,427.057 shares (6.32%).
ADVISOR CLASS
Of the outstanding Advisor Class shares of:
Ivy Bond Fund, NFSC FEBO, C. William Ferris, Michael Landry/Keith
Carlson, 700 South Federal Highway, Boca Raton, FL 33432-6114, owned of record
13,944.569 shares (77.94%), and Donaldson Lufkin Jenrette Securities Corporation
Inc., PO Box 2052, Jersey City, NJ 07303-9998, owned of record 3,252.157 shares
(18.17%);
Ivy China Region Fund, Donaldson Lufkin Jenrette Securities Corporation
Inc., PO Box 2052, Jersey City, NJ 07303-9998, owned of record 1,354.000 shares
(84.59%), and Donaldson Lufkin Jenrette Securities Corporation Inc., PO Box
2052, Jersey City, NJ 07303-9998, owned of record 192.447 shares (12.02%).
Ivy Developing Nations Fund, NFSC FEBO, C. William Ferris, Michael
Landry/Keith Carlson, 700 South Federal Highway, Boca Raton, FL 33432-6114,
owned of record 14,362.134 shares (100%);
Ivy Global Fund, NFSC FEBO, C. William Ferris, Michael Landry/Keith
Carlson, 700 South Federal Highway, Boca Raton, FL 33432-6114, owned of record
30,007.844 shares (100%);
Ivy Global Science & Technology Fund, IBT, (custodian) FBO Deborah P.
Mason, 3406 Cypress Landing Dr., Valrico, FL 33594, owned of record 629.966
shares (36.59%), Donaldson Lufkin Jenrette Securities Corporation Inc., PO Box
2052, Jersey City, NJ 07303-9998, owned of record 534.539 shares (31.04%),
Donaldson Lufkin Jenrette Securities Corporation Inc., PO Box 2052, Jersey City,
NJ 07303-9998, owned of record 418.586 shares (24.31%), and Donaldson Lufkin
Jenrette Securities Corporation Inc., PO Box 2052, Jersey City, NJ 07303-9998,
owned of record 138.549 shares (8.04%);
Ivy Growth Fund, NFSC FEBO, C. William Ferris, Michael Landry/Keith
Carlson, 700 South Federal Highway, Boca Raton, FL 33432-6114, owned of record
16,572.658 shares (99.90%);
Ivy Growth with Income Fund, NFSC FEBO, C. William Ferris, Michael
Landry/Keith Carlson, 700 South Federal Highway, Boca Raton, FL 33432-6114,
owned of record 25,118.240 shares (100%);
Ivy International Fund II, Charles Scwab & Co. Inc., 101 Montgomery
Street, San Francisco, CA 94104, owned of record 7,913.113 shares (11.19%),
Donaldson Lufkin Jenrette Securities Corporation Inc., PO Box 2052, Jersey City,
NJ 07303-9998, owned of record 6,471.430 shares (9.15%), and Donaldson Lufkin
Jenrette Securities Corporation Inc., PO Box 2052, Jersey City, NJ 07303-9998,
owned of record 4,602.660 shares (6.50%);
Ivy Pan-Europe Fund, NFSC FEBO, C. William Ferris, Michael Landry/Keith
Carlson, 700 South Federal Highway, Boca Raton, FL 33432-6114, owned of record
3,424.319 shares (47.51%), Donaldson Lufkin Jenrette Securities Corporation
Inc., PO Box 2052, Jersey City, NJ 07303-9998, owned of record 1,191.422 shares
(16.53%), Donaldson Lufkin Jenrette Securities Corporation Inc., PO Box 2052,
Jersey City, NJ 07303-9998, owned of record 947.119 shares (13.14%), Donaldson
Lufkin Jenrette Securities Corporation Inc., PO Box 2052, Jersey City, NJ
07303-9998, owned of record 653.595 shares (9.06%), and Charles Schwab & Co.
Inc., 101 Montgomery Street, San Francisco, CA 94104,owned of record 406.639
shares (5.64%);
Ivy US Blue Chip Fund, Mackenzie Investment Management Inc., Via Mizner
Financial Plaza, 700 South Federal Highway, Suite 300, Boca Raton, FL 33432,
owned of record 50,001.000 shares (80.05%), NFSC FEBO, C. William Ferris,
Michael Landry/Keith Carlson, 700 South Federal Highway, Boca Raton, FL
33432-6114, owned of record 7,419.362 shares (11.87%), and Charles Scwab & Co.
Inc., 101 Montgomery Street, San Francisco, CA 94104, owned of record 3,678.690
shares (5.88%);
Ivy US Emerging Growth Fund, NFSC FEBO, C. William Ferris, Michael
Landry/Keith Carlson, 700 South Federal Highway, Boca Raton, FL 33432-6114,
owned of record 20,670.236 shares (84.78%), and Charles Schwab & Co. Inc., 101
Montgomery Street, San Francisco, CA 94104, owned of record 1,927.965 shares
(7.90%).
As of April 16, 1999, the Officers and Trustees of the Trust as a group
owned beneficially or of record less than 1% of the outstanding Class A, Class
B, Class C, Class I and Advisor Class shares of each of the nineteen Ivy funds
that are series of the Trust, except that the Officers and Trustees of the Trust
as a group owned 3.93%, 1.94%, 1.19%, and 2.09%, respectively, of Ivy Asia
Pacific Fund Class A shares, Ivy Global Natural Resources Fund Class A shares,
Ivy Money Market Fund Class A shares, and Ivy South America Fund Class A shares,
respectively, as of that date.
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 each Fund. Among other things,
the Code of Ethics, which generally complies with standards recommended by the
Investment Company Institute's Advisory Group on Personal Investing, prohibits
certain types of transactions absent prior approval, applies to portfolio
managers, traders, research analysts and others involved in the investment
advisory process, and imposes time periods during which personal transactions
may not be made in certain securities, and requires the submission of duplicate
broker confirmations and monthly reporting of securities transactions.
Exceptions to these and other provisions of the Code of Ethics may be granted in
particular circumstances after review by appropriate personnel.
INVESTMENT ADVISORY AND OTHER SERVICES
BUSINESS MANAGEMENT AND INVESTMENT ADVISORY SERVICES
IMI provides business management and investment advisory services to each
Fund pursuant to a Business Management and Investment Advisory Agreement (the
"Agreement"). IMI is a wholly owned subsidiary of Mackenzie Investment
Management Inc. ("MIMI"). MIMI, a Delaware corporation, has approximately 10% of
its outstanding common stock listed for trading on the Toronto Stock Exchange
("TSE"). MIMI is a subsidiary of Mackenzie Financial Corporation ("MFC"), 150
Bloor Street West, Toronto, Ontario, Canada, a public corporation organized
under the laws of Ontario whose shares are listed for trading on the TSE. MFC is
registered in Ontario as a mutual fund dealer and advises Ivy Global Natural
Resources Fund. IMI currently acts as manager and investment adviser to the
following additional investment companies registered under the 1940 Act (other
than the Funds): Ivy Asia Pacific Fund, Ivy China Region Fund, Ivy Developing
Nations Fund, Ivy European Opportunities Fund, Ivy Global Fund, Ivy Global
Science & Technology Fund, Ivy Growth Fund, Ivy Growth with Income Fund, Ivy
International Fund II, Ivy International Fund, Ivy International Small Companies
Fund, Ivy Pan-Europe Fund, Ivy South America Fund, Ivy US Blue Chip Fund and Ivy
US Emerging Growth Fund. IMI also provides business management services to Ivy
Global Natural Resources Fund.
The Agreement obligates IMI to make investments for the account of each
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 each 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 each Fund's Custodian and
monitor the services it provides to the Fund; (2) coordinate with and monitor
any other third parties furnishing services to each Fund; (3) provide each 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 each 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.
Ivy Bond Fund pays IMI a monthly fee for providing business management and
investment advisory services at an annual rate of 0.75% of the first $100
million of the Fund's average net assets, reduced to 0.50% of the Fund's average
net assets in excess of $100 million. During the fiscal years ended December 31,
1996, 1997 and 1998, Ivy Bond Fund paid IMI fees of $781,647, $800,555, and
$1,042,273, respectively. During the same periods, IMI reimbursed Fund expenses
in the amount of $0, $0, and $0, respectively.
Ivy International Strategic Bond Fund pays IMI a monthly fee for providing
business management and investment advisory services at an annual rate of 0.75%
of the Fund's average net assets.
Ivy Money Market Fund pays IMI a monthly fee for providing business
management and investment advisory services, based on the Fund's average daily
net assets during the preceding month at an annual rate of 0.40%. For the fiscal
years ended December 31, 1996, 1997 and 1998, Ivy Money Market Fund paid IMI
$80,302, $83,294 and $102,727, respectively. During the same periods IMI
reimbursed Fund expenses in the amount of $199,546, $83,294 and $140,140,
respectively, pursuant to expense limitations).
Under the Agreement, the Trust pays the following expenses: (1) the fees
and expenses of the Trust's Independent Trustees; (2) the salaries and expenses
of any of the Trust's officers or employees who are not affiliated with IMI; (3)
interest expenses; (4) taxes and governmental fees, including any original issue
taxes or transfer taxes applicable to the sale or delivery of shares or
certificates therefor; (5) brokerage commissions and other expenses incurred in
acquiring or disposing of portfolio securities; (6) the expenses of registering
and qualifying shares for sale with the SEC and with various state securities
commissions; (7) accounting and legal costs; (8) insurance premiums; (9) fees
and expenses of the Trust's Custodian and Transfer Agent and any related
services; (10) expenses of obtaining quotations of portfolio securities and of
pricing shares; (11) expenses of maintaining the Trust's legal existence and of
shareholders' meetings; (12) expenses of preparation and distribution to
existing shareholders of periodic reports, proxy materials and prospectuses; and
(13) fees and expenses of membership in industry organizations.
IMI currently limits Ivy Bond 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.
IMI currently limits Ivy International Strategic Bond Fund's total
operating expenses (excluding 12b-1 fees, interest, taxes, brokerage
commissions, litigation, class-specific expenses, indemnification expenses, and
extraordinary expenses) to an annual rate of 1.25% of the Fund's average net
assets, which may lower the Fund's expenses and increase its yield.
IMI currently limits Ivy Money Market Fund's total operating expenses
(excluding interest, taxes, brokerage commissions, litigation, indemnification
expenses, and extraordinary expenses) to an annual rate of 0.85% of the Fund's
average net assets, which may lower the Fund's expenses and increase its yield.
The Agreement will continue in effect with respect to each Fund from year
to year, only so long as the continuance is specifically approved at least
annually (i) by the vote of a majority of the Independent Trustees and (ii)
either (a) by the vote of a majority of the outstanding voting securities (as
defined in the 1940 Act) of each 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 with respect to each Fund only if approved by the affirmative
vote of a majority of the outstanding voting securities of that Fund. See
"Capitalization and Voting Rights."
The Agreement may be terminated with respect to each 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 that Fund, on 60
days' written notice to IMI, or by IMI on 60 days' written notice to the Trust.
The Agreement shall terminate automatically in the event of its assignment.
DISTRIBUTION SERVICES
IMDI, a wholly owned subsidiary of MIMI, serves as the exclusive
distributor of Ivy Fund's shares pursuant to an Amended and Restated
Distribution Agreement with the Trust dated March 16, 1999, as amended from time
to time (the "Distribution Agreement"). IMDI distributes shares of each 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 each 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. Shares of Ivy Money Market Fund are sold at
the Fund's net asset value per share without a sales load.
Each 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 each Fund's behalf. Each 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 each Fund's Net Asset Value next
computed after an authorized intermediary or the intermediary's authorized
designee accepts them.
Pursuant to the Distribution Agreement, IMDI is entitled to deduct a
commission on all Class A shares of Ivy Bond Fund and Ivy International
Strategic Bond Fund sold equal to the difference, if any, between the public
offering price, as set forth in each 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
of Ivy Bond Fund and Ivy International Strategic Bond Fund sold without an
initial sales charge and Class B and Class C shares of Ivy Bond Fund and Ivy
International Strategic Bond Fund, in accordance with, and in the manner set
forth in, the Prospectus.
Under the Distribution Agreement, each Fund bears, among other expenses,
the expenses of registering and qualifying its shares for sale under Federal and
state securities laws and preparing and distributing to existing shareholders
periodic reports, proxy materials and prospectuses.
During the fiscal year ended December 31, 1998, IMDI received from sales
of Class A shares of Ivy Bond Fund $177,369 in sales commissions, of which
$23,981 was retained after dealer allowances. During the fiscal year ended
December 31, 1998, IMDI received $82,472 in CDSCs on redemptions of Class B
shares of Ivy Bond Fund. During the fiscal year ended December 31, 1998, IMDI
received $11,226 in CDSCs on redemptions of Class C shares of Ivy Bond 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 each Fund.
The Distribution Agreement may be terminated with respect to each Fund at any
time, without payment of any penalty, by IMDI on 60 days' written notice to that
Fund or by a Fund by vote of either a majority of the outstanding voting
securities of that 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. The
Board has adopted a Rule 18f-3 plan on behalf of each Fund. The key features of
the Rule 18f-3 plan for Ivy Bond Fund and Ivy International Strategic Bond Fund
are as follows: (i) shares of each class of the Fund represent an equal pro rata
interest in that 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 each Fund may be exchanged for shares of the same class of another Ivy fund;
and (iii) each Fund's Class B shares will convert automatically into Class A
shares of that Fund after a period of eight years, based on the relative net
asset value of such shares at the time of conversion.
At a meeting held on December 1-2, 1995, the Board of the Trust adopted a
multi-class plan on behalf of Ivy Money Market Fund and authorized the
redesignation of the Fund's shares into Class A and Class B, respectively. On
February 29, 1996, the Trustees resolved by written consent to establish a new
class of shares, designated as "Class C," for all Ivy Fund portfolios. The
purpose of the Class B redesignation (and the Class C designation) of shares for
Ivy Money Market Fund is primarily to enable the transfer agent for the Ivy
funds to track the contingent deferred sales charge period that applies to Class
B and Class C shares of Ivy funds (other than Ivy Money Market Fund) that are
being exchanged for shares of Ivy Money Market Fund. In all other relevant
respects, Ivy Money Market Fund's Class A, Class B and Class C shares are
identical (i.e., having the same arrangement for shareholder services and the
distribution of securities).
RULE 12B-1 DISTRIBUTION PLANS. The Trust has adopted on behalf of Ivy Bond
Fund and Ivy International Strategic Bond Fund, in accordance with Rule 12b-1
under the 1940 Act, separate Rule 12b-1 distribution plans pertaining to each
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 each Fund and its shareholders. The Trustees of the Trust
believe that the Plans should result in greater sales and/or fewer redemptions
of each Fund's shares, although it is impossible to know for certain the level
of sales and redemptions of each Fund's shares in the absence of a Plan or under
an alternative distribution arrangement.
Under each Plan, Ivy Bond Fund and Ivy International Strategic Bond Fund
each 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. This fee constitutes
reimbursement to IMDI for service fees paid by IMDI. 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 each
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 each Fund's Class B and Class C Plans, each of Ivy Bond Fund and Ivy
International Strategic Bond 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. This fee constitutes
compensation to IMDI which is not dependent on expenses incurred by IMDI. 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 each 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 each Fund under each Plan shall not be materially increased without
the affirmative vote of the holders of a majority of the outstanding shares of
the relevant class; and (4) while each Plan is in effect, the selection and
nomination of Independent Trustees of the Trust shall be committed to the
discretion of the Trustees who are not "interested persons" of the Trust.
IMDI may make payments for distribution assistance and for administrative
and accounting services from resources that may include the management fees paid
by each 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 each 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.
The Class B Plan and underwriting agreement were amended effective March
16, 1999 to permit IMDI to sell its right to receive distribution fees under the
Class B Plan and CDSCs to third parties. IMDI enters into such transactions to
finance the payment of commissions to brokers at the time of sale and other
distribution-related expenses. In connection with such amendments, the Trust has
agreed that the distribution fee will not be terminated or modified (including a
modification by change in the rules relating to the conversion of Class B shares
into shares of another class) for any reason (including a termination of the
underwriting agreement) except:
(i) to the extent required by a change in the 1940 Act, the rules or
regulations under the 1940 Act, or the Conduct Rules of the NASD, in
each case enacted, issued, or promulgated after March 16, 1999;
(ii) on a basis which does not alter the amount of the distribution
payments to IMDI computed with reference to Class B shares the date of
original issuance of which occurred on or before December 31, 1998;
(iii) in connection with a Complete Termination (as defined in the Class B
Plan); or
(iv) on a basis determined by the Board of Trustees acting in good faith so
long as (a) neither the Trust nor any successor trust or fund or any
trust or fund acquiring a substantial portion of the assets of the
Trust (collectively, the "Affected Funds") nor the sponsors of the
Affected Funds pay, directly or indirectly, as a fee, a trailer fee,
or by way of reimbursement, any fee, however denominated, to any
person for personal services, account maintenance services or other
shareholder services rendered to the holder of Class B shares of the
Affected Funds from and after the effective date of such modification
or termination, and (b) the termination or modification of the
distribution fee applies with equal effect to all outstanding Class B
shares from time to time of all Affected Funds regardless of the date
of issuance thereof.
In the amendments to the underwriting agreement, the Trust has also agreed
that it will not take any action to waive or change any CDSC in respect of any
Class B share the date of original issuance of which occurred on or before
December 31, 1998, except as provided in the Trust's prospectus or statement of
additional information, without the consent of IMDI and its transferees.
During the fiscal year ended December 31, 1998, Ivy Bond Fund paid IMDI
$286,205 pursuant to its Class A plan. During the fiscal year ended December 31,
1998, Ivy Bond Fund paid IMDI $339,823 pursuant to its Class B plan. During the
fiscal year ended December 31, 1998, Ivy Bond Fund paid IMDI $97,011 pursuant to
its Class C plan.
During the fiscal year ended December 31, 1998, IMDI expended the
following amounts in marketing Class A shares of Ivy Bond Fund: advertising
$10,207; printing and mailing of prospectuses to persons other than current
shareholders, $33,695; compensation to dealers, $53,099; compensation to sales
personnel $324,579; seminars and meetings, $13,279; travel and entertainment,
$25,942; general and administrative, $185,837; telephone, $9,427; and occupancy
and equipment rental, $27,170.
During the fiscal year ended December 31, 1998, IMDI expended the
following amounts in marketing Class B shares of Ivy Bond Fund: advertising,
$3,097; printing and mailing of prospectuses to persons other than current
shareholders, $10,547; compensation to dealers, $249,386; compensation to sales
personnel, $99,341; seminars and meetings, $62,347; travel and entertainment,
$7,987; general and administrative, $56,767; telephone, $2,863; and occupancy
and equipment rental $8,140.
During the fiscal year ended December 31, 1998, IMDI expended the
following amounts in marketing Class C shares of Ivy Bond Fund: advertising,
$881; printing and mailing of prospectuses to persons other than current
shareholders, $3,018; compensation to dealers, $45,333; compensation to sales
personnel, $28,204; seminars and meetings, $11,333; travel and entertainment,
$2,266; general administrative, $16,112; telephone, $813; and occupancy and
equipment rental, $2,311.
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 each 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 each Fund's foreign securities. With
respect to each Fund, the Custodian may receive, as partial payment for its
services to that 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 each Fund. As compensation for those
services, each Fund pays MIMI a monthly fee plus out-of-pocket expenses as
incurred. The monthly fee for Ivy Money Market Fund is 0.10% of the Fund's
average net assets. The monthly fee for Ivy Bond Fund and Ivy International
Strategic Bond Fund is based upon the net assets of the Fund at the preceding
month end at the following rates: $1,250 when net assets are $10 million and
under; $2,500 when net assets are over $10 million to $40 million; $5,000 when
net assets are over $40 million to $75 million; and $6,500 when net assets are
over $75 million.
During the fiscal year ended December 31, 1998, Ivy Bond Fund paid MIMI
$102,796 under the agreement.
During the fiscal year ended December 31, 1998, Ivy Money Market Fund paid
MIMI $32,570 under the agreement.
TRANSFER AGENT AND DIVIDEND PAYING AGENT
Pursuant to a Transfer Agency and Shareholder Service Agreement, Ivy
Mackenzie Services Corp. ("IMSC"), a wholly owned subsidiary of MIMI, is the
transfer agent for each Fund. Under the Agreement, Ivy Bond Fund pays a monthly
fee at an annual rate of $20.75 for each open Class A, Class B, Class C and
Advisor Class account. Ivy International Strategic Bond Fund pays a montly fee
at an annual rate of $20.00 for each open Class A, Class B, Class C, and Advisor
Class account. Each Fund pays a monthly fee at an annual rate of $10.25 for each
open Class I account. In addition, each Fund pays a monthly fee at an annual
rate of $4.58 per account that is closed plus certain out-of-pocket expenses.
Such fees and expenses for Ivy Bond Fund for the fiscal year ended December 31,
1998 totaled $260,700. Ivy Money Market pays IMSC an annual fee of $22.00 per
open account and $4.58 for each account that is closed, and reimburses IMSC
monthly for out-of-pocket expenses. Such fees and expenses for Ivy Money Market
Fund for the fiscal year ended December 31, 1998 totaled $93,104. Certain
broker-dealers that maintain shareholder accounts with each Fund through an
omnibus account provide transfer agent and other shareholder-related services
that would otherwise be provided by IMSC if the individual accounts that
comprise the omnibus account were opened by their beneficial owners directly.
IMSC pays such broker-dealers a per account fee for each open account within the
omnibus account, or a fixed rate (e.g., 0.10%) fee, based on the average daily
net asset value of the omnibus account (or a combination thereof).
ADMINISTRATOR
Pursuant to an Administrative Services Agreement, MIMI provides certain
administrative services to each Fund. As compensation for these services, each
Fund pays MIMI a monthly fee at the annual rate of 0.10% of the Fund's average
daily net assets with respect to its Class A, Class B and Class C shares, and,
except for Ivy Money Market Fund, Advisor Class shares. Ivy Bond Fund and Ivy
International Strategic Bond Fund each pay MIMI a monthly fee at the annual rate
of 0.01% of its average daily net assets for Class I. Such fees for the fiscal
year ended December 31, 1998 for Ivy Bond Fund totaled $158,455. Such fees for
the fiscal year ended December 31, 1998 for Ivy Money Market Fund totaled
$25,682.
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 Ivy Bond
Fund and Ivy International Strategic Bond Fund.
AUDITORS
PricewaterhouseCoopers LLP, independent public accountants, has been
selected as auditors for the Trust. The audit services performed by
PricewaterhouseCoopers LLP include audits of the annual financial statements of
each of the funds of the Trust. Other services provided principally relate to
filings with the SEC and the preparation of the funds' tax returns.
BROKERAGE ALLOCATION
Subject to the overall supervision of the President and the Board, IMI
places orders for the purchase and sale of each 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 each
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 each Fund or the Trust. IMI may consider sales of shares of Ivy
funds as a factor in the selection of broker-dealers and may select
broker-dealers who provide it with research services. IMI will not, however,
execute brokerage transactions other than at the best price and execution.
During the fiscal years ended December 31, 1996, 1997 and 1998, Ivy Bond
Fund paid brokerage commissions of $398, $1,361, and $0, respectively.
During the fiscal years ended December 31, 1996, 1997, and 1998, Ivy Money
Market Fund paid brokerage commission of $0, $0, and $0, respectively.
Each Fund may, under some circumstances, accept securities in lieu of cash
as payment for Fund shares. Each 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 each 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 any Fund shares with
securities and may discontinue accepting securities as payment for any 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
each Fund, and the Fund shares will be sold for net asset value determined at
the same time the accepted securities are valued. The Trust will only accept
securities delivered in proper form and will not accept securities subject to
legal restrictions on transfer. The acceptance of securities by the Trust must
comply with the applicable laws of certain states.
CAPITALIZATION AND VOTING RIGHTS
The capitalization of the Trust consists of an unlimited number of shares
of beneficial interest (no par value per share). When issued, shares of each
class of each Fund are fully paid, non-assessable, redeemable and fully
transferable. No class of shares of any Fund has preemptive rights or
subscription rights.
The Amended and Restated Declaration of Trust permits the Trustees to
create separate series or portfolios and to divide any series or portfolio into
one or more classes. The Trustees have authorized nineteen series, each of which
represents a fund. The Trustees have further authorized the issuance of Class A,
Class B, and Class C shares for Ivy International Fund and Ivy Money Market Fund
and Class A, Class B, Class C and Advisor Class shares for Ivy Asia Pacific
Fund, Ivy Bond Fund, Ivy China Region Fund, Ivy Developing Nations Fund, Ivy
European Opportunities Fund Ivy Global Fund, Ivy Global Natural Resources Fund,
Ivy Global Science & Technology Fund, Ivy Growth Fund, Ivy Growth with Income
Fund, Ivy International Fund II, Ivy International Small Companies Fund, Ivy
International Strategic Bond Fund, Ivy Pan-Europe Fund, Ivy South America Fund,
Ivy US Blue Chip Fund and Ivy US Emerging Growth Fund, as well as Class I shares
for Ivy Bond Fund, Ivy European Opportunities Fund, Ivy Global Science &
Technology Fund, Ivy International Fund II, Ivy International Fund, Ivy
International Small Companies Fund, Ivy International Strategic Bond Fund and
Ivy US Blue Chip Fund.
Shareholders have the right to vote for the election of Trustees of the
Trust and on any and all matters on which they may be entitled to vote by law or
by the provisions of the Trust's By-Laws. The Trust is not required to hold a
regular annual meeting of shareholders, and it does not intend to do so. Shares
of each class of each Fund entitle their holders to one vote per share (with
proportionate voting for fractional shares). Shareholders of each Fund are
entitled to vote alone on matters that only affect that Fund. All classes of
shares of each 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 that funds differently, separate votes by the shareholders of each
fund are required. Approval of an investment advisory agreement and a change in
fundamental policies would be regarded as matters requiring separate voting by
the shareholders of each fund of the Trust. If the Trustees determine that a
matter does not affect the interests of a Fund, then the shareholders of that
Fund will not be entitled to vote on that matter. Matters that affect the Trust
in general, such as ratification of the selection of independent public
accountants, will be voted upon collectively by the shareholders of all funds of
the Trust.
As used in this SAI and the Prospectus, the phrase "majority vote of the
outstanding shares" of a 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 a Fund, the matter shall have been effectively acted upon
with respect to the Fund if a majority of the outstanding voting securities of
the Fund votes for the approval of the matter, notwithstanding that: (1) the
matter has not been approved by a majority of the outstanding voting securities
of any other fund of the Trust; or (2) the matter has not been approved by a
majority of the outstanding voting securities of the Trust.
The Amended and Restated Declaration of Trust provides that the holders of
not less than two-thirds of the outstanding shares of the Trust may remove a
person serving as trustee either by declaration in writing or at a meeting
called for such purpose. The Trustees are required to call a meeting for the
purpose of considering the removal of a person serving as Trustee if requested
in writing to do so by the holders of not less than 10% of the outstanding
shares of the Trust. Shareholders will be assisted in communicating with other
shareholders in connection with the removal of a Trustee as if Section 26(c) of
the Act were applicable.
The Trust's shares do not have cumulative voting rights and accordingly
the holders of more than 50% of the outstanding shares could elect the entire
Board, in which case the holders of the remaining shares would not be able to
elect any Trustees.
Under Massachusetts law, the Trust's shareholders could, under certain
circumstances, be held personally liable for the obligations of the Trust.
However, the Amended and Restated Declaration of Trust disclaims liability of
the shareholders, Trustees or officers of the Trust for acts or obligations of
the Trust, which are binding only on the assets and property of the Trust, and
requires that notice of the disclaimer be given in each contract or obligation
entered into or executed by the Trust or its Trustees. The Amended and Restated
Declaration of Trust provides for indemnification out of Fund property for all
loss and expense of any shareholder of a Fund held personally liable for the
obligations of the Fund. The risk of a shareholder of the Trust incurring
financial loss on account of shareholder liability is limited to circumstances
in which the Trust itself would be unable to meet its obligations and, thus,
should be considered remote. No series of the Trust is liable for the
obligations of any other series of the Trust.
SPECIAL RIGHTS AND PRIVILEGES
The Trust offers, and (except as noted below) bears the cost of providing,
to investors the following rights and privileges. The Trust reserves the right
to amend or terminate any one or more of these rights and privileges. Notice of
amendments to or terminations of rights and privileges will be provided to
shareholders in accordance with applicable law.
Certain of the rights and privileges described below refer to funds, other
than the Funds, whose shares are also distributed by IMDI. These funds are: Ivy
Asia Pacific Fund, Ivy China Region Fund, Ivy Developing Nations Fund, Ivy
European Opportunities Fund Ivy Global Fund, Ivy Global Natural Resources Fund,
Ivy Global Science & Technology Fund, Ivy Growth Fund, Ivy Growth with Income
Fund, Ivy International Fund II, Ivy International Fund, Ivy International Small
Companies Fund, Ivy Pan-Europe Fund, Ivy South America Fund, Ivy US Blue Chip
Fund and Ivy US Emerging Growth Fund (the other sixteen series of the Trust).
(Effective April 18, 1997, Ivy International Fund suspended the offer of its
shares to new investors). Shareholders should obtain a current prospectus before
exercising any right or privilege that may relate to these funds.
AUTOMATIC INVESTMENT METHOD
The Automatic Investment Method, which enables a Fund shareholder to have
specified amounts automatically drawn each month from his or her bank for
investment in Fund shares, is available for all classes of shares, except Class
I. The minimum initial and subsequent investment under this method is $50 per
month (except in the case of a tax qualified retirement plan for which the
minimum initial and subsequent investment is $25 per month). A shareholder may
terminate the Automatic Investment Method at any time upon delivery to 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 each 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 each 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 of Ivy Bond Fund and Ivy
International Strategic Bond Fund 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 of these Funds 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).
Ivy Bond Fund and Ivy International Strategic Bond Fund may, from time to
time, waive the initial sales charge on its Class A shares sold to clients of
The Legend Group and United Planners Financial Services of America, Inc. This
privilege will apply only to Class A Shares of a Fund that are purchased using
all or a portion of the proceeds obtained by such clients through redemptions of
shares of a mutual fund (other than one of the Funds) on which a sales charge
was paid (the "NAV transfer privilege"). Purchases eligible for the NAV transfer
privilege must be made within 60 days of redemption from the other fund, and the
Class A shares purchased are subject to a 1.00% CDSC on shares redeemed within
the first year after purchase. The NAV transfer privilege also applies to Fund
shares purchased directly by clients of such dealers as long as their accounts
are linked to the dealer's master account. The normal service fee, as described
in the "Initial Sales Charge Alternative - Class A Shares" section of the
Prospectus, will be paid to those dealers in connection with these purchases.
IMDI may from time to time pay a special cash incentive to The Legend Group or
United Planners Financial Services of America, Inc. in connection with sales of
shares of a Fund by its registered representative under the NAV transfer
privilege. Additional information on sales charge reductions or waivers may be
obtained from IMDI at the address listed on the cover of this Statement of
Additional Information.
CONTINGENT DEFERRED SALES CHARGE SHARES
CLASS A: Class A shareholders of Ivy Bond Fund and Ivy International
Strategic Bond Fund 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 a Fund exercising the
exchange privilege will continue to be subject to that Fund's CDSC period
following an exchange if such period is longer than the CDSC period, if any,
applicable to the new Class A shares.
For purposes of computing the CDSC that may be payable upon the redemption
of the new Class A shares, the holding period of the outstanding Class A shares
is "tacked" onto the holding period of the new Class A shares.
CLASS B: Class B shareholders of Ivy Bond Fund and Ivy International
Strategic Bond Fund 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 a Fund exercising the exchange privilege
will continue to be subject to that Fund's CDSC schedule (or period) following
an exchange if such schedule is higher (or such period is longer) than the CDSC
schedule (or period) applicable to the new Class B shares.
Class B shares of Ivy Bond Fund or Ivy International Strategic Bond Fund
acquired through an exchange of Class B shares of another Ivy fund will be
subject to that Fund's CDSC schedule (or period) if such schedule is higher (or
such period is longer) than the CDSC schedule (or period) applicable to the Ivy
fund from which the exchange was made.
For purposes of both the conversion feature and computing the CDSC that
may be payable upon the redemption of the new Class B shares (prior to
conversion), the holding period of the outstanding Class B shares is "tacked"
onto the holding period of the new Class B shares.
The following CDSC table applies to Class B shares of Ivy Asia Pacific
Fund, Ivy Bond Fund, Ivy China Region Fund, Ivy Developing Nations Fund, Ivy
European Opportunities Fund, Ivy Global Fund, Ivy Global Natural Resources Fund,
Ivy Global Science & Technology Fund, Ivy Growth Fund, Ivy Growth with Income
Fund, Ivy International Fund II, Ivy International Fund, Ivy International Small
Companies Fund, Ivy International Strategic Bond Fund, Ivy Pan-Europe Fund, Ivy
South America Fund, Ivy US Blue Chip Fund and Ivy US Emerging Growth Fund:
CONTINGENT DEFERRED SALES CHARGE AS
A PERCENTAGE OF DOLLAR AMOUNT
YEAR SINCE PURCHASE SUBJECT TO CHARGE
First 5%
Second 4%
Third 3%
Fourth 3%
Fifth 2%
Sixth 1%
Seventh and thereafter 0%
CLASS C: Class C shareholders of Ivy Bond Fund and Ivy International
Strategic Bond Fund may exchange their Class C shares ("outstanding Class C
shares") for Class C shares of another Ivy fund ("new Class C shares") on the
basis of the relative net asset value per Class C share, without the payment of
any CDSC that would otherwise be due upon redemption. (Class C shares are
subject to a CDSC of 1.00% if redeemed within one year of the date of purchase.)
CLASS I: Subject to the restrictions set forth in the following paragraph,
Class I shareholders may exchange their outstanding Class I shares for Class I
shares of another Ivy fund on the basis of the relative net asset value per
share.
ALL CLASSES: The minimum value of shares which may be exchanged into an
Ivy fund in which shares are not already held is $1,000 ($5,000,000 in the case
of Class I shares). No exchange out of any Fund (other than by a complete
exchange of all Fund shares) may be made if it would reduce the shareholder's
interest in that 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
Ivy Bond Fund and Ivy International Strategic Bond 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 Ivy Bond Fund or Ivy International Strategic Bond
Fund. A Letter of Intent may be submitted at the time of an initial purchase of
Class A shares of these Funds or within 90 days of the initial purchase, in
which case the Letter of Intent will be back dated. A shareholder may include,
as an accumulation credit, the value (at the applicable offering price) of all
Class A shares of Ivy Asia Pacific Fund, Ivy Bond Fund, Ivy China Region Fund,
Ivy Developing Nations Fund, Ivy European Opportunities Fund, Ivy Global Fund,
Ivy Global Natural Resources Fund, Ivy Global Science & Technology Fund, Ivy
Growth Fund, Ivy Growth with Income Fund, Ivy International Fund II, Ivy
International Fund, Ivy International Small Companies Fund, Ivy International
Strategic Bond Fund, Ivy Pan-Europe Fund, Ivy South America Fund, Ivy US Blue
Chip Fund and Ivy US Emerging Growth Fund (and shares that have been exchanged
into Ivy Money Market Fund from any of the other funds in the Ivy funds) held of
record by him or her as of the date of his or her Letter of Intent. During the
term of the Letter of Intent, the Transfer Agent will hold Class A shares
representing 5% of the indicated amount (less any accumulation credit value) in
escrow. The escrowed Class A shares will be released when the full indicated
amount has been purchased. If the full indicated amount is not purchased during
the term of the Letter of Intent, the investor is required to pay IMDI an amount
equal to the difference between the dollar amount of sales charge that he or she
has paid and that which he or she would have paid on his or her aggregate
purchases if the total of such purchases had been made at a single time. Such
payment will be made by an automatic liquidation of Class A shares in the escrow
account. A Letter of Intent does not obligate the investor to buy or the Trust
to sell the indicated amount of Class A shares, and the investor should read
carefully all the provisions of such letter before signing.
RETIREMENT PLANS
Shares may be purchased in connection with several types of tax-deferred
retirement plans. Shares of more than one fund distributed by IMDI may be
purchased in a single application establishing a single account under the plan,
and shares held in such an account may be exchanged among the Ivy funds in
accordance with the terms of the applicable plan and the exchange privilege
available to all shareholders. Initial and subsequent purchase payments in
connection with tax-deferred retirement plans must be at least $25 per
participant.
The following fees will be charged to individual shareholder accounts as
described in the retirement prototype plan document:
Retirement Plan New Account Fee no fee
Retirement Plan Annual Maintenance Fee $10.00 per fund account
For shareholders whose retirement accounts are diversified across several
Ivy funds, the annual maintenance fee will be limited to not more than $20.
The following discussion describes the tax treatment of certain
tax-deferred retirement plans under current Federal income tax law. State income
tax consequences may vary. An individual considering the establishment of a
retirement plan should consult with an attorney and/or an accountant with
respect to the terms and tax aspects of the plan.
INDIVIDUAL RETIREMENT ACCOUNTS: Shares of each Fund may be used as a
funding medium for an Individual Retirement Account ("IRA"). Eligible
individuals may establish an IRA by adopting a model custodial account available
from IMSC, who may impose a charge for establishing the account. Individuals
should consult their tax advisers before investing IRA assets in an Ivy fund if
that fund primarily distributes exempt-interest dividends.
An individual who has not reached age 70-1/2 and who receives compensation
or earned income is eligible to contribute to an IRA, whether or not he or she
is an active participant in a retirement plan. An individual who receives a
distribution from another IRA, a qualified retirement plan, a qualified annuity
plan or a tax-sheltered annuity or custodial account ("403(b) plan") that
qualifies for "rollover" treatment is also eligible to establish an IRA by
rolling over the distribution either directly or within 60 days after its
receipt. Tax advice should be obtained in connection with planning a rollover
contribution to an IRA.
In general, an eligible individual may contribute up to the lesser of
$2,000 or 100% of his or her compensation or earned income to an IRA each year.
If a husband and wife are both employed, and both are under age 70-1/2, each may
set up his or her own IRA within these limits. If both earn at least $2,000 per
year, the maximum potential contribution is $4,000 per year for both. For years
after 1996, the result is similar even if one spouse has no earned income; if
the joint earned income of the spouses is at least $4,000, a contribution of up
to $2,000 may be made to each spouse's IRA. Rollover contributions are not
subject to these limits.
An individual may deduct his or her annual contributions to an IRA in
computing his or her Federal income tax within the limits described above,
provided he or she (or his or her spouse, if they file a joint Federal income
tax return) is not an active participant in a qualified retirement plan (such as
a qualified corporate, sole proprietorship, or partnership pension, profit
sharing, 401(k) or stock bonus plan), qualified annuity plan, 403(b) plan,
simplified employee pension, or governmental plan. If he or she (or his or her
spouse) is an active participant, whether the individual's contribution to an
IRA is fully deductible, partially deductible or not deductible depends on (i)
adjusted gross income and (ii) whether it is the individual or the individual's
spouse who is an active participant, in the case of married individuals filing
jointly. Contributions may be made up to the maximum permissible amount even if
they are not deductible. Rollover contributions are not includable in income for
Federal income tax purposes and therefore are not deductible from it.
Generally, earnings on an IRA are not subject to current Federal income
tax until distributed. Distributions attributable to tax-deductible
contributions and to IRA earnings are taxed as ordinary income. Distributions of
non-deductible contributions are not subject to Federal income tax. In general,
distributions from an IRA to an individual before he or she reaches age 59-1/2
are subject to a nondeductible penalty tax equal to 10% of the taxable amount of
the distribution. The 10% penalty tax does not apply to amounts withdrawn from
an IRA after the individual reaches age 59-1/2, becomes disabled or dies, or if
withdrawn in the form of substantially equal payments over the life or life
expectancy of the individual and his or her designated beneficiary, if any, or
rolled over into another IRA, amounts withdrawn and used to pay for deductible
medical expenses and amounts withdrawn by certain unemployed individuals not in
excess of amounts paid for certain health insurance premiums, amounts used to
pay certain qualified higher education expenses, and amounts used within 120
days of the date the distribution is received to pay for certain first-time
homebuyer expenses. Distributions must begin to be withdrawn not later than
April 1 of the calendar year following the calendar year in which the individual
reaches age 70-1/2. Failure to take certain minimum required distributions will
result in the imposition of a 50% non-deductible penalty tax.
ROTH IRAS: Shares of each 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 Ivy Bond Fund or Ivy
International Strategic Bond Fund may reinvest all or a part of the proceeds of
the redemption back into Class A shares of the same 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 Ivy Bond Fund or Ivy International Strategic Bond
Fund. See "Initial Sales Charge Alternative -- Class A Shares" in the
Prospectus. The reduced sales charge is applicable to investments made at one
time by an individual, his or her spouse and children under the age of 21, or a
trustee or other fiduciary of a single trust estate or single fiduciary account
(including a pension, profit sharing or other employee benefit trust created
pursuant to a plan qualified under Section 401 of the Code). Rights of
Accumulation is also applicable to current purchases of all of the funds of Ivy
Fund (except Ivy Money Market Fund) by any of the persons enumerated above,
where the aggregate quantity of Class A shares of such funds (and shares that
have been exchanged into Ivy Money Market Fund from any of the other funds in
the Ivy funds) and of any other investment company distributed by IMDI,
previously purchased or acquired and currently owned, determined at the higher
of current offering price or amount invested, plus the Class A shares being
purchased, amounts to $50,000 or more for all funds other than Ivy Bond Fund; or
$100,000 or more for Ivy Bond Fund.
At the time an investment takes place, IMSC must be notified by the
investor or his or her dealer that the investment qualifies for the reduced
sales charge on the basis of previous investments. The reduced sales charge is
subject to confirmation of the investor's holdings through a check of the
particular fund's records.
SYSTEMATIC WITHDRAWAL PLAN
A shareholder (except shareholders with accounts in Class I) may establish
a Systematic Withdrawal Plan (a "Withdrawal Plan"), by telephone instructions or
by delivery to IMSC of a written election to have his or her shares withdrawn
periodically, accompanied by a surrender to IMSC of all share certificates then
outstanding in such shareholder's name, properly endorsed by the shareholder. To
be eligible to elect a Withdrawal Plan, a shareholder must have at least $5,000
in his or her account. A Withdrawal Plan may not be established if the investor
is currently participating in the Automatic Investment Method. A Withdrawal Plan
may involve the depletion of a shareholder's principal, depending on the amount
withdrawn.
A redemption under a Withdrawal Plan is a taxable event. Shareholders
contemplating participating in a Withdrawal Plan should consult their tax
advisers.
Additional investments made by investors participating in a Withdrawal
Plan must equal at least $1,000 each while the Withdrawal Plan is in effect.
Making additional purchases while a Withdrawal Plan is in effect may be
disadvantageous to the investor because of applicable initial sales charges or
CDSCs.
An investor may terminate his or her participation in the Withdrawal Plan
at any time by delivering written notice to IMSC. If all shares held by the
investor are liquidated at any time, participation in the Withdrawal Plan will
terminate automatically. The Trust or IMSC may terminate the Withdrawal Plan
option at any time after reasonable notice to shareholders.
GROUP SYSTEMATIC INVESTMENT PROGRAM
Shares of each 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 a 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 Ivy Bond Fund and Ivy International Strategic Bond 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 Ivy Bond Fund and Ivy International
Strategic Bond 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 Ivy Bond Fund and Ivy International Strategic Bond Fund
convert to Class A shares once the Plan has reached $5 million invested in
Applicable Investments, or 10 years after the date of the initial purchase by a
participant under the Plan--the Plan will receive a Plan level share conversion.
REDEMPTIONS
Shares of each Fund are redeemed at their net asset value next determined
after a proper redemption request has been received by IMSC, less any applicable
CDSC. Ivy Money Market Fund does not assess a contingent deferred sales charge.
However, if shares of another Ivy Fund that are subject to a contingent deferred
sales charge are exchanged for shares of Ivy Money Market Fund, the contingent
deferred sales charge will carry over to the investment in Ivy Money Market Fund
and may be assessed upon redemption.
Unless a shareholder requests that the proceeds of any redemption be wired
to his or her bank account, payment for shares tendered for redemption is made
by check within seven days after tender in proper form, except that the Trust
reserves the right to suspend the right of redemption or to postpone the date of
payment upon redemption beyond seven days, (i) for any period during which the
Exchange is closed (other than customary weekend and holiday closings) or during
which trading on the Exchange is restricted, (ii) for any period during which an
emergency exists as determined by the SEC as a result of which disposal of
securities owned by a 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 Funds.
The Trust may redeem those accounts of shareholders who have maintained an
investment, including sales charges paid, of less than $1,000 in any 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 each 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.
Each 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, each 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 Ivy Bond Fund and Ivy
International Strategic Bond Fund will automatically convert to Class A shares
of those Funds, based on the relative net asset values per share of the two
classes, no later than the month following the eighth anniversary of the initial
issuance of such Class B shares of the Fund occurs. For the purpose of
calculating the holding period required for conversion of Class B shares, the
date of initial issuance shall mean: (1) the date on which such Class B shares
were issued, or (2) for Class B shares obtained through an exchange, or a series
of exchanges, (subject to the exchange privileges for Class B shares) the date
on which the original Class B shares were issued. For purposes of conversion of
Class B shares, Class B shares purchased through the reinvestment of dividends
and capital gain distributions paid in respect of Class B shares will be held in
a separate sub-account. Each time any Class B shares in the shareholder's
regular account (other than those shares in the sub-account) convert to Class A
shares, a pro rata portion of the Class B shares in the sub-account will also
convert to Class A shares. The portion will be determined by the ratio that the
shareholder's Class B shares converting to Class A shares bears to the
shareholder's total Class B shares not acquired through the reinvestment of
dividends and capital gain distributions.
NET ASSET VALUE
The net asset value per share of each 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. Each Fund's liabilities, if not identifiable as belonging to
a particular class of the Fund, are allocated among that 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 each 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.
Pursuant to SEC rules, Ivy Money Market Fund's portfolio securities are
valued using the amortized cost method of valuation in an effort to maintain a
constant net asset value of $1.00 per share, which the Trustees have determined
to be in the best interest of the Fund and its shareholders. The amortized cost
method involves valuing a security at cost on the date of acquisition and
thereafter assuming a constant rate of accretion of discount or amortization of
premium. While this method provides certainty in valuation, it may result in
periods during which value, as determined by amortized cost, is higher or lower
than the price the Fund would receive if it sold the instrument. During such
periods, the yield to an investor in the Fund may differ somewhat from that
obtained in a similar investment company which uses available market quotations
to value all of its portfolio securities.
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
any Fund's portfolio securities occur between the time when a foreign exchange
closes and the time when the Fund's net asset value is calculated (see following
paragraph), such securities may be valued at fair value as determined by IMI and
approved by the Board.
Portfolio securities are valued (and net asset value per share is
determined) as of the close of regular trading on the Exchange (normally 4:00
p.m., eastern time) on each day the Exchange is open for trading. The Exchange
and the Trust's offices are expected to be closed, and net asset value will not
be calculated, on the following national business holidays: New Year's Day,
Martin Luther King, Jr. Day, Presidents' Day, Good Friday, Memorial Day,
Independence Day, Labor Day, Thanksgiving Day and Christmas Day. On those days
when either or both of the Fund's Custodian or the Exchange close early as a
result of a partial holiday or otherwise, the Trust reserves the right to
advance the time on that day by which purchase and redemption requests must be
received.
The number of shares you receive when you place a purchase order, and the
payment you receive after submitting a redemption request, is based on each
Fund's net asset value next determined after your instructions are received in
proper form by IMSC or by your registered securities dealer. Each purchase and
redemption order is subject to any applicable sales charge. Since each Fund
invests in securities that are listed on foreign exchanges that may trade on
weekends or other days when the Fund does not price its shares, each Fund's net
asset value may change on days when shareholders will not be able to purchase or
redeem the Fund's shares. The sale of each 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 a Fund's best interest to do so.
TAXATION
The following is a general discussion of certain tax rules thought to be
applicable with respect to each 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 any Fund.
Each Fund intends to be taxed as a regulated investment company under
Subchapter M of the Code. Accordingly, each 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, each 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. Each 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, each 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, each 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 a 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 a 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 that Fund. If a 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 a 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 a 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 a 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 each 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 Funds may result in "straddles" for Federal income tax purposes. The
straddle rules may affect the character of gains or losses realized by each
Fund. In addition, losses realized by a 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 each Fund
are not entirely clear. The straddle rules may increase the amount of short-term
capital gain realized by the Funds, which is taxed as ordinary income when
distributed to shareholders.
A Fund may make one or more of the elections available under the Code
which are applicable to straddles. If a 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, each 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 each 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 each 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 a Fund's investment company taxable income
available to be distributed to its shareholders as ordinary income.
INVESTMENT IN PASSIVE FOREIGN INVESTMENT COMPANIES
Ivy Bond Fund and Ivy International Strategic Bond Fund may invest in
shares of foreign corporations which may be classified under the Code as passive
foreign investment companies ("PFICs"). In general, a foreign corporation is
classified as a PFIC if at least one-half of its assets constitute
investment-type assets, or 75% or more of its gross income is investment-type
income. If a 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.
Each Fund may be eligible to elect alternative tax treatment with respect
to PFIC shares. A 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,
a 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 each 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 a 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. Each 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 a Fund may be treated as having
acquisition discount, or OID in the case of certain types of debt securities.
Generally, a 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. Each
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.
Each Fund generally will be required to distribute dividends to
shareholders representing discount on debt securities that is currently
includable in income, even though cash representing such income may not have
been received by the Fund. Cash to pay such dividends may be obtained from sales
proceeds of securities held by the Fund.
DISTRIBUTIONS
Distributions of investment company taxable income are taxable to a U.S.
shareholder as ordinary income, whether paid in cash or shares. Dividends paid
by a 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 a 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 a Fund on the distribution date. A
distribution of an amount in excess of any 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 a 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
a 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 any 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 a Fund's total assets at the close of its
taxable year consists of securities of foreign corporations, that 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 each Fund's taxable year whether the foreign taxes
paid by that 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 a Fund makes
the election described in the preceding paragraph, the source of the Fund's
income flows through to its shareholders. With respect to each 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 a 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 a 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 a 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
Each 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 each Fund or its shareholders. Shareholders are
advised to consult their own tax advisers with respect to the particular tax
consequences to them of an investment in any Fund.
PERFORMANCE INFORMATION
Performance information for the classes of shares of Ivy Bond Fund and Ivy
International Strategic Bond 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 Funds'
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 each 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
IVY MONEY MARKET FUND
Ivy Money Market Fund's yield quotations as they may appear in the
Prospectus, this SAI, advertising or sales literature are calculated by standard
methods prescribed by the SEC.
STANDARDIZED YIELD QUOTATIONS. Ivy Money Market Fund's current yield
quotation is computed by determining the net change, exclusive of capital
changes (i.e., realized gains and losses from the sale of securities and
unrealized appreciation and depreciation) and income other than investment
income, in the value of a hypothetical pre-existing account having a balance of
one share at the beginning of the base period, subtracting a hypothetical charge
reflecting expense deductions from the hypothetical account, and dividing the
difference by the value of the account at the beginning of the base period to
obtain the base period return. This base period return is then multiplied by
365/7 with the resulting yield figure carried to the nearest 100th of 1%. The
determination of net change in account value reflects the value of additional
shares purchased with dividends from the original share, dividends declared on
both the original share and any such additional shares, and all fees, other than
non-recurring account or sales charges, that are charged to all shareholder
accounts in the Fund in proportion to the length of the base period. For any
account fees that vary with the size of the account in the Fund, the account fee
used for purposes of the yield computation is assumed to be the fee that would
be charged to the mean account size of the Fund. The distribution rate will
differ from the current yield computation because it may include distributions
to shareholders from sources other than dividends and interest, short-term
capital gains and net equalization credits.
Ivy Money Market Fund's current yield for the seven-day period ended
December 31, 1998 was 4.11%. IMI currently reimburses the Fund to limit ordinary
operating expenses to 0.85% of average net assets. Without reimbursement, the
Fund's current yield for this period would have been 3.38%.
IVY BOND FUND AND IVY INTERNATIONAL STRATEGIC BOND FUND
Quotations of yield for a specific class of shares of the Fund will be
based on all investment income attributable to that class earned during a
particular 30-day (or one month) period (including dividends and interest), less
expenses attributable to that class accrued during the period ("net investment
income"), and will be computed by dividing the net investment income per share
of that class earned during the period by the maximum offering price per share
(in the case of Class A shares) or the net asset value per share (in the case of
Class B and Class C shares) on the last day of the period, according to the
following formula:
YIELD = 2[({(a-b)/cd} + 1){superscript 6}-1]
Where: a = dividends and interest earned during the
period attributable to a specific class of
shares,
b = expenses accrued for the period attributable to
that class (net of reimbursements),
c = the average daily number of shares of that class
outstanding during the period that were entitled
to receive dividends, and
d = the maximum offering price per share (in the
case of Class A shares) or the net asset value per
share (in the case of Class B shares, Class C
shares and Class I shares) on the last day of the
period.
The yields for Class A, Class B, and Class C shares of the Ivy Bond Fund
for the 30-day period ended December 31, 1998 were (0.75)%, (0.83)%, and
(0.81)%, respectively.
AVERAGE ANNUAL TOTAL RETURN. Quotations of standardized average annual
total return ("Standardized Return") for a specific class of shares of Ivy Bond
Fund and Ivy International Strategic Bond Fund will be expressed in terms of the
average annual compounded rate of return that would cause a hypothetical
investment in that class of each 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 each Fund, it is assumed that
all dividends and capital gains distributions made by that Fund are reinvested
at net asset value in additional shares of the same class during the designated
period. In calculating the ending redeemable value for Class A shares and
assuming complete redemption at the end of the applicable period, the maximum
4.75% sales charge for Ivy Bond Fund, or 5.75% sales charge for Ivy
International Strategic Bond Fund, 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 each 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%.
Each Fund may, from time to time, include in advertisements, promotional
literature or reports to shareholders or prospective investors total return data
that are not calculated according to the formula set forth above
("Non-Standardized Return"). Neither initial nor CDSCs are taken into account in
calculating Non-Standardized Return; a sales charge, if deducted, would reduce
the return.
The following table summarizes the calculation of Standardized and
Non-Standardized Return for the Class A, Class B, Class C, and Class I shares of
Ivy Bond Fund for the periods indicated. In determining the average annual total
return for a specific class of shares of the Fund, recurring fees, if any, that
are charged to all shareholder accounts are taken into consideration. For any
account fees that vary with the size of the account of the Fund, the account fee
used for purposes of the following computations is assumed to be the fee that
would be charged to the mean account size of the Fund.
STANDARDIZED RETURN FOR IVY BOND FUND[*]
CLASS A[1] CLASS B[2] CLASS C[3] CLASS I[4]
One year ended
December 31,
1998 (4.75)% (5.77)% (1.81)% N/A
Five years
ended December
31, 1998 5.33% N/A N/A N/A
Ten years ended
December 31,
1998 8.32% N/A N/A N/A
Inception [#]
to year ended
December 31, 8.28% 6.15% 7.04% N/A
1998 [8]:
NON-STANDARDIZED RETURN FOR IVY BOND FUND[**]
CLASS A[5] CLASS B[6] CLASS C[7] CLASS I[4]
Year ended
December 31,
1998 0.00% (0.81)% (0.81)% N/A
Five years
ended December
31, 1998 6.36% N/A N/A N/A
Ten years
ended December
31, 1998 8.85% N/A N/A N/A
Inception [#]
to year ended
December 31, 8.67% 6.48% 7.04% N/A
1998 [8]:
- --------------------------------------------------------
[*] The Standardized Return figures for Class A shares reflect the
deduction of the maximum initial sales charge of 4.75%. The Standardized Return
figures for Class B and C shares reflect the deduction of the applicable CDSC
imposed on a redemption of Class B or C shares held for the period. Class I
shares are not subject to an initial or a CDSC; therefore, the Non-Standardized
Return figures would be identical to the Standardized Return figures.
[**] The Non-Standardized Return figures do not reflect the deduction of
any initial sales charge or CDSC.
[#] Until December 31, 1994, MIMI served as investment adviser to Ivy Bond
Fund, which until that date was a series of Mackenzie Series Trust. The
inception date for the Fund (and the Class A shares of the Fund) was September
6, 1985; the inception date for the Class B and Class I shares of the Fund was
April 1, 1994; and the inception date for the Class C shares of the Fund was
April 30, 1996.
[1] The Standardized Return figures for the Class A shares reflect expense
reimbursement. Without expense reimbursement, the Standardized Return for Class
A shares for the period from inception through December 31, 1998 and the one,
five and ten year periods ended December 31, 1998 would have been 2.05%,
(4.75)%, 5.33%, and 8.18%, respectively.
[2] The Standardized Return figures for the Class B shares reflect expense
reimbursement. Without expense reimbursement, the Standardized Return for Class
B shares for the period from inception through December 31, 1998 and the one
year period ended December 31, 1998 would have been 6.15% and (5.77)%,
respectively. (Since the inception date for Class B shares of the Fund was April
1, 1994, there were no Class B shares outstanding for the duration of the five
year or ten year periods ending December 31, 1998.)
[3] The Standardized Return figures for the Class C shares reflect expense
reimbursement. Without expense reimbursement, the Standardized Return for Class
C shares for the period from inception through December 31, 1998 and the one
year ended December 31, 1998 would have been 7.04% and (1.81)%, respectively.
(Since the inception date for Class C shares of the Fund was April 30, 1996,
there were no Class C shares outstanding for the duration of the five year or
ten year periods ending December 31, 1998.)
[4] The Non-Standardized Return figures for Class A shares reflect expense
reimbursement. Without expense reimbursement, the Non-Standardized Return for
Class A shares for the period from inception through December 31, 1998 and the
one, five and ten year periods ended December 31, 1998 would have been 2.44%,
0.00%, 6.36%, and 8.70%, respectively.
[5] The Non-Standardized Return figures for Class B shares reflect expense
reimbursement. Without expense reimbursement, the Non-Standardized Return for
Class B shares for the period from inception through December 31, 1998 and the
one year ended December 31, 1998 would have been 6.48% and (0.81)%,
respectively. (Since the inception date for Class B shares of the Fund was April
1, 1994, there were no Class B shares outstanding for the duration of the five
year or ten year periods ending December 31, 1998.)
[6] The Non-Standardized Return figures for Class C shares reflect expense
reimbursement. Without expense reimbursement, the Non-Standardized Return for
Class C shares for the period from inception through December 31, 1998 and the
one year ending December 31, 1998 would have been 7.04% and (0.81)%,
respectively. (Since the inception date for Class C shares of the Fund was April
30, 1997, there were no Class C shares outstanding for the duration of the five
year or ten year periods ending December 31, 1998.)
[7] No Class I shares were outstanding during the time periods indicated.
[8] The total return for a period less than a full year is calculated on
an aggregate basis and is not annualized.
CUMULATIVE TOTAL RETURN. Cumulative total return is the cumulative rate of
return on a hypothetical initial investment of $1,000 in a specific class of
shares of Ivy Bond Fund or Ivy International Strategic Bond Fund for a specified
period. Cumulative total return quotations reflect changes in the price of a
Fund's shares and assume that all dividends and capital gains distributions
during the period were reinvested in the Fund's shares. Cumulative total return
is calculated by computing the cumulative rates of return of a hypothetical
investment in a specific class of shares of a Fund over such periods, according
to the following formula (cumulative total return is then expressed as a
percentage):
C = (ERV/P) - 1
Where: C = cumulative total return
P = a hypothetical initial investment of $1,000 to
purchase shares of a specific class
ERV = ending redeemable value: ERV is the value, at
the end of the applicable period, of a
hypothetical $1,000 investment made at the
beginning of the applicable period.
The following table summarizes the calculation of Cumulative Total Return
for Ivy Bond Fund for the periods indicated through December 31, 1998, assuming
the maximum 4.75% sales charge has been assessed.
SINCE
ONE YEAR FIVE YEARS TEN YEARS INCEPTION[*]
Class A (4.75)% 29.65% 122.36% 188.76%
Class B (5.77)% N/A N/A 32.78%
Class C (1.81)% N/A N/A 19.92%
Class I N/A N/A N/A N/A
The following table summarizes the calculation of Cumulative Total Return
for Ivy Bond Fund for the periods indicated through December 31, 1998, assuming
the maximum 4.75% sales charge has not been assessed.
ONE YEAR FIVE YEARS TEN YEARS SINCE
INCEPTION[*]
Class A 0.00% 36.12% 133.45% 203.16%
Class B (0.81)% N/A N/A 34.78%
Class C (0.81)% N/A N/A 19.92%
Class I N/A N/A N/A N/A
- ---------------------------
[*] Until December 31, 1994, MIMI served as investment adviser to Ivy Bond
Fund, which until that date was a series of Mackenzie Series Trust. The
inception date for Ivy Bond Fund (Class A shares) was September 6, 1985; the
inception date for the Class B and Class I shares of the Fund was April 1, 1994.
The inception date for Class C shares of the Fund was April 30, 1996.
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 each Fund will vary from time to time depending
on market conditions, the composition of the Fund's portfolio and operating
expenses of each Fund. These factors and possible differences in the methods
used in calculating performance quotations should be considered when comparing
performance information regarding a 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 each Fund's shares
and the risks associated with each 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.
Each 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
Ivy Bond Fund's and Ivy Money Market Fund's Portfolio of Investments as of
December 31, 1998, Statement of Assets and Liabilities as of December 31, 1998,
Statement of Operations for the fiscal year ended December 31, 1998, Statement
of Changes in Net Assets for the fiscal year ended December 31, 1998, Financial
Highlights, Notes to Financial Statements, and Report of Independent
Accountants, which are included in each Fund's December 31, 1998 Annual Report
to shareholders, are incorporated by reference into this SAI. Ivy International
Strategic Bond Fund's Statement of Assets and Liabilities as of April 28, 1999
and the notes thereto are attached hereto as Appendix B.
<PAGE>
APPENDIX A
DESCRIPTION OF STANDARD & POOR'S RATINGS GROUP ("S&P") AND
MOODY'S INVESTORS SERVICE, INC. ("MOODY'S") CORPORATE
BOND AND COMMERCIAL PAPER RATINGS
[From "Moody's Bond Record," November 1994 Issue (Moody's Investors Service,
New York, 1994), and "Standard & Poor's Municipal Ratings Handbook," October
1997 Issue (McGraw Hill, New York, 1997).]
MOODY'S:
(a) CORPORATE BONDS. Bonds rated Aaa by Moody's are judged by Moody's to
be of the best quality, carrying the smallest degree of investment risk.
Interest payments are protected by a large or exceptionally stable margin and
principal is secure. While the various protective elements are likely to change,
such changes as can be visualized are most unlikely to impair the fundamentally
strong position of such issues. Bonds rated Aa are judged by Moody's to be of
high quality by all standards. Aa bonds are rated lower than Aaa bonds because
margins of protection may not be as large as those of Aaa bonds, or fluctuations
of protective elements may be of greater amplitude, or there may be other
elements present which make the long-term risks appear somewhat larger than
those applicable to Aaa securities. Bonds which are rated A by Moody's possess
many favorable investment attributes and are to be considered as upper
medium-grade obligations. Factors giving security to principal and interest are
considered adequate, but elements may be present which suggest a susceptibility
to impairment sometime in the future. Bonds rated Baa by Moody's are considered
medium-grade obligations (i.e., they are neither highly protected nor poorly
secured). Interest payments and principal security appear adequate for the
present, but certain protective elements may be lacking or may be
characteristically unreliable over any great length of time. Such bonds lack
outstanding investment characteristics and in fact have speculative
characteristics as well. Bonds which are rated Ba are judged to have speculative
elements; their future cannot be considered well-assured. Often the protection
of interest and principal payments may be very moderate and thereby not well
safeguarded during both good and bad times over the future. Uncertainty of
position characterizes bonds in this class. Bonds which are rated B generally
lack characteristics of the desirable investment. Assurance of interest and
principal payments of or maintenance of other terms of the contract over any
long period of time may be small. Bonds which are rated Caa are of poor
standing. Such issues may be in default or there may be present elements of
danger with respect to principal or interest. Bonds which are rated Ca represent
obligations which are speculative in a high degree. Such issues are often in
default or have other marked shortcomings. Bonds which are rated C are the
lowest rated class of bonds and issues so rated can be regarded as having
extremely poor prospects of ever attaining any real investment standing.
(b) COMMERCIAL PAPER. The Prime rating is the highest commercial paper
rating assigned by Moody's. Among the factors considered by Moody's in assigning
ratings are the following: (1) evaluation of the management of the issuer; (2)
economic evaluation of the issuer's industry or industries and an appraisal of
speculative-type risks which may be inherent in certain areas; (3) evaluation of
the issuer's products in relation to competition and customer acceptance; (4)
liquidity; (5) amount and quality of long-term debt; (6) trend of earnings over
a period of ten years; (7) financial strength of a parent company and the
relationships which exist with the issuer; and (8) recognition by management of
obligations which may be present or may arise as a result of public interest
questions and preparations to meet such obligations. Issuers within this Prime
category may be given ratings 1, 2 or 3, depending on the relative strengths of
these factors. The designation of Prime-1 indicates the highest quality
repayment capacity of the rated issue. Issuers rated Prime-2 are deemed to have
a strong ability for repayment while issuers voted Prime-3 are deemed to have an
acceptable ability for repayment. Issuers rated Not Prime do not fall within any
of the Prime rating categories.
S&P:
(a) CORPORATE BONDS. An S&P corporate debt rating is a current assessment
of the creditworthiness of an obligor with respect to a specific obligation. The
ratings are based on current information furnished by the issuer or obtained by
S&P from other sources it considers reliable. The ratings described below may be
modified by the addition of a plus or minus sign to show relative standing
within the major rating categories.
Debt rated AAA has the highest rating assigned by S&P. Capacity to pay
interest and repay principal is extremely strong. Debt rated AA is judged by S&P
to have a very strong capacity to pay interest and repay principal and differs
from the highest rated issues only in small degree. Debt rated A by S&P has a
strong capacity to pay interest and repay principal, although it is somewhat
more susceptible to the adverse effects of changes in circumstances and economic
conditions than debt in higher rated categories.
Debt rated BBB by S&P is regarded by S&P as having an adequate capacity to
pay interest and repay principal. Although such bonds normally exhibit adequate
protection parameters, adverse economic conditions or changing circumstances are
more likely to lead to a weakened capacity to pay interest and repay principal
than debt in higher rated categories.
Debt rated BB, B, CCC, CC and C is regarded as having predominately
speculative characteristics with respect to capacity to pay interest and repay
principal. BB indicates the least degree of speculation and C the highest. While
such debt will likely have some quality and protective characteristics, these
are outweighed by large uncertainties or exposures to adverse conditions. Debt
rated BB has less near-term vulnerability to default than other speculative
issues. However, it faces major ongoing uncertainties or exposure to adverse
business, financial or economic conditions which could lead to inadequate
capacity to meet timely interest and principal payments. The BB rating category
is also used for debt subordinated to senior debt that is assigned an actual or
implied BBB- rating. Debt rated B has a greater vulnerability to default but
currently has the capacity to meet interest payments and principal repayments.
Adverse business, financial, or economic conditions will likely impair capacity
or willingness to pay interest and repay principal. The B rating category is
also used for debt subordinated to senior debt that is assigned an actual or
implied BB or BB- rating. Debt rated CCC has a currently identifiable
vulnerability to default, and is dependent upon favorable business, financial,
and economic conditions to meet timely payment of interest and repayment of
principal. In the event of adverse business, financial or economic conditions,
it is not likely to have the capacity to pay interest and repay principal. The
CCC rating category is also used for debt subordinated to senior debt that is
assigned an actual or implied B or B- rating. The rating CC typically is applied
to debt subordinated to senior debt which is assigned an actual or implied CCC
debt rating. The rating C typically is applied to debt subordinated to senior
debt which is assigned an actual or implied CCC- debt rating. The C rating may
be used to cover a situation where a bankruptcy petition has been filed, but
debt service payments are continued.
The rating CI is reserved for income bonds on which no interest is being
paid. Debt rated D is in payment default. The D rating category is used when
interest payments or principal payments are not made on the date due, even if
the applicable grace period has not expired, unless S&P believes that such
payments will be made during such grace period. The D rating also will be used
upon the filing of a bankruptcy petition if debt service payments are
jeopardized.
(b) COMMERCIAL PAPER. An S&P commercial paper rating is a current
assessment of the likelihood of timely payment of debt considered short-term in
the relevant market.
The commercial paper rating A-1 by S&P indicates that the degree of safety
regarding timely payment is strong. Those issues determined to possess extremely
strong safety characteristics are denoted with a plus sign (+) designation. For
commercial paper with an A-2 rating, the capacity for timely payment on issues
is satisfactory, but not as high as for issues designated A-1. Issues rated A-3
have adequate capacity for timely payment, but are more vulnerable to the
adverse effects of changes in circumstances than obligations carrying higher
designations.
Issues rated B are regarded as having only speculative capacity for timely
payment. The C rating is assigned to short-term debt obligations with a doubtful
capacity for payment. Debt rated D is in payment default. The D rating category
is used when interest payments or principal payments are not made on the date
due, even if the applicable grace period has not expired, unless S&P believes
such payments will be made during such grace period.
<PAGE>
APPENDIX B
STATEMENT OF ASSETS AND LIABILITIES
AS OF APRIL 28, 1999
AND REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
IVY INTERNATIONAL STRATEGIC BOND FUND
STATEMENT OF ASSETS AND LIABILITIES
APRIL 28, 1999
ASSETS
Cash............................................... $ 1,000,040
Prepaid offering cost.............................. 33,000
Prepaid blue sky fees.............................. 24,000
Total Assets.................................... 1,057,040
------------
LIABILITIES
Due to affiliate................................... 57,000
------------
NET ASSETS............................................ $ 1,000,040
=======
CLASS A:
Net asset value and redemption price per share
($10.00 / 1 share outstanding).................. $10.00
=======
Maximum offering price per share
($10.00 x 100 / 95.25)*......................... $10.50
=======
CLASS B:
Net asset value, offering price and redemption price** per share
($10.00 / 1 share outstanding).................. $10.00
=======
CLASS C:
Net asset value, offering price and redemption price*** per share
($10.00 / 1 share outstanding).................. $10.00
=======
CLASS I:
Net asset value, offering price and redemption price per share
($10.00 / 1 share outstanding).................. $10.00
=======
ADVISOR CLASS:
Net asset value, offering price and redemption price per share
($1,000,000.00 / 100,000 shares outstanding).... $ 10.00
=======
NET ASSETS CONSISTS OF:
Capital paid-in $1,000,040
=======
* On sales of more than $100,000 the offering price is reduced.
** Redemption price per share is equal to the net asset value per share
less any applicable contingent deferred sales charge, up to a maximum
of 5%.
*** Redemption price per share is equal to the net asset value per share less
any applicable contingent deferred sales charge, up to a maximum of 1%.
<PAGE>
The accompanying notes are an integral part of the financial statement.
IVY INTERNATIONAL STRATEGIC BOND FUND
NOTES TO STATEMENT OF ASSETS AND LIABILITIES
APRIL 28, 1999
1. ORGANIZATION: Ivy International Strategic Bond Fund is a non-diversified
series of shares of Ivy Fund. The shares of beneficial interest are assigned no
par value and an unlimited number of shares of Class A, Class B, Class C, Class
I and Advisor Class are authorized. Ivy Fund was organized as a Massachusetts
business trust under a Declaration of Trust dated December 21, 1983 and is
registered under the Investment Company Act of 1940, as amended, as an open-end
management investment company.
The Fund will commence operations on April 30, 1999. As of the date of this
report, operations have been limited to organizational matters and the issuance
of initial shares to Mackenzie Investment Management Inc. (MIMI).
2. ORGANIZATIONAL COSTS: The Fund incurred organizational expenses of $10,700,
comprised of $2,500 for auditing and $8,200 for legal. The full amount of
organizational expenses were assumed by MIMI and the Fund is not required to
reimburse MIMI.
3. OFFERING COST AND PREPAID BLUE SKY FEES: Offering cost, consisting of legal
fees, and blue sky fees will be amortized over a one year period beginning April
30, 1999, the date the Fund is expected to commence operations. Offering cost
and blue sky fees have been paid by MIMI and will be reimbursed by the Fund.
4. TRANSACTIONS WITH AFFILIATES: Ivy Management, Inc. (IMI), a wholly owned
subsidiary of MIMI, is the Manager and Investment Manager of the Fund. For the
current fiscal year, IMI contractually limits the Fund's total operating
expenses (excluding taxes, 12b-1 fees, brokerage commissions, interest,
litigation and indemnification expenses, and any other extraordinary expenses)
to an annual rate of 1.25% of its average net assets. For each of the following
nine years, IMI will ensure that these expenses do not exceed 2.50% of the
Fund's average net assets.
MIMI provides certain administrative, accounting and pricing services for the
Fund.
Ivy Mackenzie Distributors, Inc. (IMDI), a wholly owned subsidiary of MIMI, is
the underwriter and distributor of the Fund's shares, and as such, purchases
shares from the Fund at net asset value to settle orders from investment
dealers.
Ivy Mackenzie Services Corp. (IMSC), a wholly owned subsidiary of MIMI, is
the transfer and shareholder servicing agent for the Fund.
Officers of Ivy Fund are officers and/or employees of MIMI, IMI, IMDI and IMSC.
Such individuals are not compensated by the Fund for services in their capacity
as officers of Ivy Fund. Trustees of Ivy Fund who are not affiliated with MIMI
or IMI receive compensation from the Fund. No such amounts have been incurred as
of April 28, 1999.
<PAGE>
IVY BOND FUND
IVY INTERNATIONAL STRATEGIC BOND FUND
series of
IVY FUND
Via Mizner Financial Plaza, Suite 300
700 South Federal Highway
Boca Raton, Florida 33432
STATEMENT OF ADDITIONAL INFORMATION
ADVISOR CLASS SHARES
May 3, 1999
(as supplemented October 18, 1999)
Ivy Fund (the "Trust") is an open-end management investment company that
currently consists of nineteen fully managed portfolios, each of which (except
for Ivy South America Fund and Ivy International Strategic Bond Fund) is
diversified. This Statement of Additional Information ("SAI") relates to the
Advisor Class shares of Ivy Bond Fund and Ivy International Strategic Bond Fund
(each a "Fund"). The other seventeen 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 Advisor Class Shares of the Funds dated April 30, 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. Advisor
Class shares are only offered to certain investors (see the Prospectus.) The
Funds also offer Class A, B, C and 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. ("IMDI")
Via Mizner Financial Plaza, Suite 300
700 South Federal Highway
Boca Raton, Florida 33432
Telephone: (800) 456-5111
<PAGE>
TABLE OF CONTENTS
GENERAL INFORMATION..........................................................3
INVESTMENT OBJECTIVES, STRATEGIES AND RISKS..................................3
IVY BOND FUND..........................................................3
INVESTMENT RESTRICTIONS FOR IVY BOND FUND..............................4
IVY INTERNATIONAL STRATEGIC BOND FUND..................................7
INVESTMENT RESTRICTIONS FOR IVY INTERNATIONAL STRATEGIC BOND FUND......9
COMMON STOCKS.........................................................11
CONVERTIBLE SECURITIES................................................11
DEBT SECURITIES.......................................................12
IN GENERAL......................................................12
INVESTMENT-GRADE DEBT SECURITIES................................13
LOW-RATED DEBT SECURITIES.......................................13
U.S. GOVERNMENT SECURITIES......................................14
MUNICIPAL SECURITIES............................................15
ZERO COUPON BONDS...............................................15
FIRM COMMITMENT AGREEMENTS AND "WHEN-ISSUED" SECURITIES.........16
ILLIQUID SECURITIES...................................................16
FOREIGN SECURITIES....................................................17
DEPOSITORY RECEIPTS...................................................18
EMERGING MARKETS......................................................18
FOREIGN SOVEREIGN DEBT OBLIGATIONS....................................19
BRADY BONDS...........................................................20
LOAN PARTICIPATIONS AND ASSIGNMENTS...................................21
FOREIGN CURRENCIES....................................................21
FOREIGN CURRENCY EXCHANGE TRANSACTIONS................................22
REPURCHASE AGREEMENTS.................................................23
BANKING INDUSTRY AND SAVINGS AND LOAN OBLIGATIONS.....................23
COMMERCIAL PAPER......................................................24
BORROWING.............................................................24
SHORT SALES...........................................................24
OPTIONS TRANSACTIONS..................................................25
IN GENERAL......................................................25
WRITING OPTIONS ON INDIVIDUAL SECURITIES........................26
PURCHASING OPTIONS ON INDIVIDUAL SECURITIES.....................27
PURCHASING AND WRITING OPTIONS ON SECURITIES INDICES............27
RISKS OF OPTIONS TRANSACTIONS...................................28
FUTURES CONTRACTS AND OPTIONS ON FUTURES CONTRACTS....................29
IN GENERAL......................................................29
INTEREST RATE FUTURES CONTRACTS.................................30
OPTIONS ON INTEREST RATE FUTURES CONTRACTS......................31
SWAPS, CAPS, FLOORS AND COLLARS.................................31
FOREIGN CURRENCY FUTURES CONTRACTS AND RELATED OPTIONS..........32
RISKS ASSOCIATED WITH FUTURES AND RELATED OPTIONS...............33
SECURITIES INDEX FUTURES CONTRACTS....................................34
RISKS OF SECURITIES INDEX FUTURES...............................35
COMBINED TRANSACTIONS...........................................36
PORTFOLIO TURNOVER..........................................................36
TRUSTEES AND OFFICERS.......................................................37
PERSONAL INVESTMENTS BY EMPLOYEES OF IMI........................37
INVESTMENT ADVISORY AND OTHER SERVICES......................................37
BUSINESS MANAGEMENT AND INVESTMENT ADVISORY SERVICES..................37
DISTRIBUTION SERVICES.................................................39
RULE 18F-3 PLAN.................................................40
CUSTODIAN.............................................................40
FUND ACCOUNTING SERVICES..............................................40
TRANSFER AGENT AND DIVIDEND PAYING AGENT..............................41
ADMINISTRATOR.........................................................41
AUDITORS..............................................................41
BROKERAGE ALLOCATION........................................................41
CAPITALIZATION AND VOTING RIGHTS............................................42
SPECIAL RIGHTS AND PRIVILEGES...............................................44
AUTOMATIC INVESTMENT METHOD...........................................44
EXCHANGE OF SHARES....................................................44
RETIREMENT PLANS......................................................45
INDIVIDUAL RETIREMENT ACCOUNTS..................................46
ROTH IRAS.......................................................47
QUALIFIED PLANS.................................................47
DEFERRED COMPENSATION FOR PUBLIC SCHOOLS AND CHARITABLE
ORGANIZATIONS ("403(B)(7) ACCOUNT").............................48
SIMPLIFIED EMPLOYEE PENSION ("SEP") IRAS........................49
SIMPLE PLANS....................................................49
SYSTEMATIC WITHDRAWAL PLAN............................................49
GROUP SYSTEMATIC INVESTMENT PROGRAM...................................50
REDEMPTIONS.................................................................50
NET ASSET VALUE.............................................................51
TAXATION....................................................................53
OPTIONS, FUTURES AND FOREIGN CURRENCY FORWARD CONTRACTS...............54
CURRENCY FLUCTUATIONS -- "SECTION 988" GAINS OR LOSSES................55
INVESTMENT IN PASSIVE FOREIGN INVESTMENT COMPANIES....................55
DEBT SECURITIES ACQUIRED AT A DISCOUNT................................56
DISTRIBUTIONS.........................................................56
DISPOSITION OF SHARES.................................................57
FOREIGN WITHHOLDING TAXES.............................................58
BACKUP WITHHOLDING....................................................59
PERFORMANCE INFORMATION.....................................................59
YIELD.................................................................59
AVERAGE ANNUAL TOTAL RETURN.....................................60
CUMULATIVE TOTAL RETURN.........................................61
OTHER QUOTATIONS, COMPARISONS AND GENERAL INFORMATION...........61
FINANCIAL STATEMENTS........................................................62
APPENDIX A..................................................................63
<PAGE>
GENERAL INFORMATION
Ivy Bond Fund is organized as a separate, diversified portfolio of the
Trust, an open-end management investment company organized as a Massachusetts
business trust on December 21, 1983. Ivy International Strategic Bond Fund is
organized as a separate, non-diversified portfolio of the Trust. Ivy Bond Fund
commenced operations (Class A shares) on September 6, 1985. Advisor Class shares
were first offered on January 1, 1998. Ivy International Strategic Bond Fund
will commence operations (all classes) as of the date of this SAI.
Descriptions in this SAI of a particular investment practice or technique
in which a Fund may engage or a financial instrument which a Fund may purchase
are meant to describe the spectrum of investments that IMI, in its discretion,
might, but is not required to, use in managing the Funds' portfolio assets. IMI
may, in its discretion, at any time employ such practice, technique or
instrument for one or more funds but not for all funds advised by it.
Furthermore, it is possible that certain types of financial instruments or
investment techniques described herein may not be available, permissible,
economically feasible or effective for their intended purposes in some or all
markets, in which case a Fund would not use them. Certain practices, techniques,
or instruments may not be principal activities of a Fund but, to the extent
employed, could from time to time have a material impact on a Fund's
performance.
INVESTMENT OBJECTIVES, STRATEGIES AND RISKS
Each Fund has its own investment objectives and policies, which are
described in the Prospectus under the captions "Summary" and "Additional
Information About Strategies and Risks." Descriptions of each Fund's policies,
strategies and investment restrictions, as well as additional information
regarding the characteristics and risks associated with each
Fund's investment techniques, is set forth below.
Whenever an investment objective, policy or restriction set forth in the
Prospectus or this SAI states a maximum percentage of assets that may be
invested in any security or other asset or describes a policy regarding quality
standards, such percentage limitation or standard shall, unless otherwise
indicated, apply to a Fund only at the time a transaction is entered into.
Accordingly, if a percentage limitation is adhered to at the time of investment,
a later increase or decrease in the percentage which results from circumstances
not involving any affirmative action by a Fund, such as a change in market
conditions or a change in a Fund's asset level or other circumstances beyond a
Fund's control, will not be considered a violation.
IVY BOND FUND
The Fund seeks a high level of current income by investing primarily in
(i) investment grade corporate bonds (those rated Aaa, Aa, A or Baa by Moody's
Investors Service, Inc. ("Moody's") or AAA, AA, A or BBB by Standard & Poor's
Ratings Services ("S&P"), or, if unrated, considered by IMI to be of comparable
quality) and (ii) U.S. Government securities (including mortgage-backed
securities issued by U.S. Government agencies or instrumentalities) that mature
in more than 13 months. As a fundamental policy, the Fund normally invests at
least 65% of its total assets in these fixed income securities. For temporary
defensive purposes, the Fund may invest without limit in U.S. Government
securities maturing in 13 months or less, certificates of deposit, bankers'
acceptances, commercial paper and repurchase agreements. The Fund may also
invest up to 35% of its total assets in such money market securities in order to
meet redemptions or to maximize income to the Fund while it is arranging
longer-term investments.
The Fund may invest up to 35% of its net assets in corporate debt
securities, including zero coupon bonds (subject to the restrictions set forth
below), rated Ba or below by Moody's or BB or below by S&P, or, if unrated,
considered by IMI to be of comparable quality (commonly referred to as "high
yield" or "junk" bonds). The Fund will not invest in debt securities rated less
than C by either Moody's or S&P. See Appendix A for a description of Moody's and
S&P's corporate bond ratings.
The Fund may invest up to 5% of its net assets in dividend-paying common
and preferred stocks (including adjustable rate preferred stocks and securities
convertible into common stocks), municipal bonds, zero coupon bonds, and
securities sold on a "when-issued" or firm commitment basis. As a temporary
measure for extraordinary or emergency purposes, the Fund may borrow from banks
up to 10% of the value of its total assets.
The Fund may invest up to 20% of its net assets in debt securities of
foreign issuers, including non-U.S. dollar-denominated debt securities, American
Depository Receipts ("ADRs"), Global Depository ("GDRs"), American Depository
Shares ("ADSs") and Global Depository Shares ("GDSs"), Eurodollar securities and
debt securities issued, assumed or guaranteed by foreign governments or
political subdivisions or instrumentalities thereof. The Fund may also enter
into forward foreign currency contracts, but not for speculative purposes. The
Fund may not invest more than 15% of the value of its net assets in illiquid
securities.
The Fund may purchase put and call options, provided the premium paid for
such options does not exceed 10% of the Fund's net assets. The Fund may also
sell covered put options with respect to up to 50% of the value of its net
assets, and may write covered call options so long as not more than 20% of the
Fund's net assets in subject to being purchased upon the exercise of the calls.
For hedging purposes only, the Fund may engage in transactions in interest rate
futures contracts, currency futures contracts and options on interest rate
futures and currency futures contracts.
INVESTMENT RESTRICTIONS FOR IVY BOND FUND
The Fund's investment objectives as set forth in the "Summary" section of
the Prospectus, together with the investment restrictions set forth below, are
fundamental policies of the Fund and may not be changed without the approval of
a majority of the outstanding voting shares of the Fund. The Fund has adopted
the following fundamental investment restrictions:
(i) The Fund has elected to be classified as a diversified series of an
open-end investment company.
(ii) The Fund will not borrow money, except as permitted under the
Investment Company Act of 1940, as amended, and as interpreted or
modified by regulatory authority having jurisdiction, from time to
time.
(iii) The Fund will not issue senior securities, except as permitted under
the Investment Company Act of 1940, as amended, and as interpreted or
modified by regulatory authority having jurisdiction, from time to
time.
(iv) The Fund will not engage in the business of underwriting securities
issued by others, except to the extent that the Fund may be deemed to
be an underwriter in connection with the disposition of portfolio
securities.
(v) The Fund will not purchase or sell real estate (which term does not
include securities of companies that deal in real estate or mortgages
or investments secured by real estate or interests therein), except
that the Fund may hold and sell real estate acquired as a result of
the Fund's ownership of securities.
(vi) The Fund will not purchase physical commodities or contracts relating
to physical commodities, although the Fund may invest in commodities
futures contracts and options thereon to the extent permitted by the
Prospectus or this SAI.
(vii) The Fund will not make loans to other persons, except (a) loans of
portfolio securities, and (b) to the extent that entry into repurchase
agreements and the purchase of debt instruments or interests in
indebtedness in accordance with the Fund's investment objective and
policies may be deemed to be loans.
(viii) The Fund will not concentrate its investments in a particular
industry, as the term "concentrate" is interpreted in connection with
the Investment Company Act of 1940, as amended, and as interpreted or
modified by regulatory authority having jurisdiction, from time to
time.
ADDITIONAL RESTRICTIONS
The Fund has adopted the following additional restrictions, which are not
fundamental and which may be changed without shareholder approval, to the extent
permitted by applicable law, regulation or regulatory policy.
Under these restrictions, the Fund may not:
(i) purchase any security if, as a result, the Fund would then have more
than 5% of its total assets (taken at current value) invested in
securities of companies (including predecessors) less than three years
old;
(ii) purchase or sell real estate limited partnership interests;
(iii) purchase or retain securities of any company if officers and Trustees
of the Trust and officers and directors of Ivy Management, Inc. (the
Manager, with respect to Ivy Bond Fund), MIMI or Mackenzie Financial
Corporation who individually own more than 1/2 of 1% of the securities
of that company together own beneficially more than 5% of such
securities;
(iv) purchase or sell interests in oil, gas and mineral leases (other than
securities of companies that invest in or sponsor such programs);
(v) invest more than 15% of its net assets taken at market value at the
time of the investment in "illiquid securities." Illiquid securities
may include securities subject to legal or contractual restrictions on
resale (including private placements), repurchase agreements maturing
in more than seven days, certain options traded over the counter that
the Fund has purchased, securities being used to cover certain options
that the Fund has written, securities for which market quotations are
not readily available, or other securities which legally or in IMI's
opinion, subject to the Board's supervision, may be deemed illiquid,
but shall not include any instrument that, due to the existence of a
trading market, to the Fund's compliance with certain conditions
intended to provide liquidity, or to other factors, is liquid;
(vi) make investments in securities for the purpose of exercising control
over or management of the issuer;
(vii) purchase securities on margin, except such short-term credits as are
necessary for the clearance of transactions. The deposit or payment by
the Fund of initial or variation margin in connection with futures
contracts or relate options transactions is not considered the
purchase of a security on margin;
(viii) borrowamounts in excess of 10% of its total assets, taken at the lower
of cost or market value, and then only from banks as a temporary
measure for extraordinary or emergency purposes;
(ix) mortgage, pledge, hypothecate or in any manner transfer, as security
for indebtedness, any securities owned or held by the Fund (except as
may be necessary in connection with permitted borrowings and then not
in excess of 20% of the Fund's total assets); provided, however, this
does not prohibit escrow, collateral or margin arrangements in
connection with its use of options, short sales, futures contracts and
options on future contracts;
(x) participate on a joint or a joint and several basis in any trading
account in securities. The "bunching" of orders of the Fund -- or of
the Fund and of other accounts under the investment management of the
persons rendering investment advice to the Fund -- for the sale or
purchase of portfolio securities shall not be considered participation
in a joint securities trading account; or
(xi) make short sales of securities or maintain a short position
<PAGE>
IVY INTERNATIONAL STRATEGIC BOND FUND
The Fund is a non-diversified company whose investment objectives are to
seek total return by investing primarily in the debt securities of foreign
issuers and, consistent with that objective, to maximize current income. The
Fund will seek to achieve its investment objectives primarily through investment
in debt securities issued by foreign governments, government-related entities
and corporations. IMI will endeavor to achieve the Fund's investment objectives
through active management of country, sector and currency exposure.
The Fund seeks to achieve its objectives by investing primarily in a
managed portfolio of high quality bonds denominated in foreign currencies. At
least 65% of the Fund's total assets will normally be invested in bonds of
foreign issuers. In selecting bonds for the Fund's portfolio, IMI will consider
various factors, including yields, credit quality and the fundamental outlook
for currency and interest rate trends in different parts of the world. IMI may
also take into account the ability to hedge currency and local bond price risk.
To be considered a high quality bond in which the Fund primarily invests,
a bond must be rated at least BBB or better by S&P or Baa by Moody's or, if the
bond is unrated, it must be considered by IMI to be of comparable quality in
local currency terms.
The Fund may invest less than 35% of its net assets in debt securities
rated Ba or below by Moody's and/or BB or below by S&P or, if unrated,
considered by IMI to be of comparable quality. The Fund will not invest in debt
securities that, at the time of investment, are rated less than C by either
Moody's or S&P.
The Fund's investments may include: debt securities issued or guaranteed
by a foreign national government, its agencies, instrumentalities or political
subdivisions; debt securities issued or guaranteed by supranational
organizations (e.g., European Investment Bank, Inter-American Development Bank
or the World Bank); corporate debt securities; bank or bank holding company debt
securities; and other debt securities, including those convertible into common
stock. The Fund may also invest in zero coupon securities which do not provide
for the periodic payment of interest and are sold at significant discount from
face value.
The Fund may also purchase securities which are not publicly offered and
may be subject to regulations applicable to restricted securities. The Fund may
invest in fixed- and floating-rate issues such as loan participations and loan
assignments. In addition, 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 intends to diversify among several countries and market sectors,
and to have represented, in substantial proportions, debt exposure in not less
than three different countries other than the United States. Under normal
circumstances, the Fund will invest no more than 35% of the value of its total
assets in the debt securities of U.S. issuers. The Fund may engage in the use of
options, futures, forward foreign currency contracts and other derivatives
transactions, as described below, for hedging purposes, to seek to enhance
potential gain, or as substitutes for direct debt holdings. The Fund may also
engage in short sales of securities as a hedge for related securities whose
liquidity may be insufficient to render it cost effective to sell and repurchase
such securities (e.g., hedging a less liquid security of a corporate emerging
markets issuer by selling short the larger, more liquid issue of a sovereign
entity). The Fund may invest without limit in U.S. debt securities, including
short-term money market securities, for temporary defensive or emergency
purposes. It is not possible to predict the extent to which the Fund might
employ such optional strategies.
To protect against adverse movements of interest rates and for purposes of
liquidity, the Fund may also purchase short-term obligations denominated in U.S.
and foreign currencies such as, but not limited to, bank deposits, bankers'
acceptances, certificates of deposit, commercial paper, short-term government,
government agency, supranational agency and corporate obligations, and
repurchase agreements.
The Fund can use various techniques to increase or decrease its exposure
to changing security prices, interest rates, currency exchange rates, commodity
prices, or other factors that affect security values. These techniques may
involve derivative transactions such as buying and selling options and futures
contracts, entering into currency exchange, interest rate and other financial
futures contracts and related options, and purchasing indexed securities.
IMI can, in its discretion, use these practices to attempt to adjust the
risk and return characteristics of the Fund's portfolio of investments. If IMI
judges market conditions incorrectly or employs a strategy that does not
correlate well with the Fund's investments, these techniques could result in a
loss, regardless of whether the intent was to reduce risk or increase return.
These techniques may increase the volatility of the Fund and may involve a small
investment of cash relative to the magnitude of the risk assumed. In addition,
these techniques could result in a loss if the counterparty to the transaction
does not perform as promised.
The Fund may enter into repurchase agreements with selected banks and
broker/dealers. Under a repurchase agreement, the Fund acquires securities,
subject to the seller's agreement to repurchase at a specified time and price.
The Fund may purchase securities on a when-issued or forward delivery
basis, for payment and delivery at a later date. The price and yield generally
are fixed on the date of commitment to purchase. From the time of purchase until
settlement, no interest accrues to the Fund. At the time of settlement, the
market value of the security may differ from the purchase price.
The higher yields and high income sought by the Fund may be obtainable
from high yield, higher risk securities in the lower rating categories of the
established rating services. These securities are rated Ba or lower by Moody's
or BB or lower by S&P. The Fund may invest in securities rated as low as C by
Moody's or S&P, which may indicate that the obligations are speculative to a
high degree and often in default. Securities rated lower than Baa or BBB (and
comparable unrated securities) are commonly referred to as "high yield" or
"junk" bonds and are considered to be predominantly speculative with respect to
the issuer's continuing ability to meet principal and interest payments. Should
the rating of a portfolio security be downgraded, IMI will determine whether it
is in the Fund's best interest to retain or dispose of the security. However,
should any individual bond held by the Fund be downgraded below a rating of C,
IMI currently intends to dispose of such bond based on then existing market
conditions. See Appendix A for a more complete description of the ratings
assigned by Moody's and S&P and their respective characteristics.
The Fund may not borrow money in excess of 20% of its total assets, except
as a temporary measure for extraordinary or emergency purposes or except in
connection with reverse repurchase agreements. In addition, as a matter of
non-fundamental policy, the Fund may not invest more than 15% of its net assets
in illiquid securities. These instruments may be difficult to sell promptly at
an acceptable price, and the sale of certain of these instruments may be subject
to legal restrictions. Difficulty in selling these instruments may result in a
loss or may be costly to the Fund. A description of these and other policies and
restrictions is contained under "Investment Restrictions" below.
The Fund's investment objectives are 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 objectives and those investment restrictions
specifically identified as fundamental, all investment policies and practices
described in the Prospectus and in this SAI are non-fundamental, and may be
changed by the Board of Trustees without shareholder approval. There can be no
assurance that the Fund's objectives will be met. The different types of
securities and investment techniques used by the Fund involve varying degrees of
risk. For information about the particular risks associated with each type of
investment, see the descriptions of risk factors below, and the "Risk Factors
and Investment Techniques" section of the Prospectus.
INVESTMENT RESTRICTIONS FOR IVY INTERNATIONAL STRATEGIC BOND FUND
The Fund's investment objectives as set forth in the Prospectus under
"Investment Objectives and Policies," together with the investment restrictions
set forth below, are fundamental policies of the Fund and may not be changed
with respect to the Fund without the approval of a majority of the outstanding
voting shares of the Fund. The Fund has adopted the following fundamental
investment restrictions:
(i) The Fund will not borrow money, except as permitted under the
Investment Company Act of 1940, as amended, and as interpreted or
modified by regulatory authority having jurisdiction, from time to
time.
(ii) The Fund will not issue senior securities, except as permitted under
the Investment Company Act of 1940, as amended, and as interpreted or
modified by regulatory authority having jurisdiction, from time to
time.
(iii) The Fund will not engage in the business of underwriting securities
issued by others, except to the extent that the Fund may be deemed to
be an underwriter in connection with the disposition of portfolio
securities.
(iv) The Fund will not purchase or sell real estate (which term does not
include securities of companies that deal in real estate or mortgages
or investments secured by real estate or interests therein), except
that the Fund may hold and sell real estate acquired as a result of
the Fund's ownership of securities.
(v) The Fund will not purchase physical commodities or contracts relating
to physical commodities, although the Fund may invest in commodities
futures contracts and options thereon to the extent permitted by the
Prospectus and this SAI.
(vi) The Fund will not make loans to other persons, except (a) loans of
portfolio securities, and (b) to the extent that entry into repurchase
agreements and the purchase of debt instruments or interests in
indebtedness in accordance with the Fund's investment objective and
policies may be deemed to be loans.
(vii) The Fund will not concentrate its investments in a particular
industry, as the term "concentrate" is interpreted in connection with
the Investment Company Act of 1940, as amended, and as interpreted or
modified by regulatory authority having jurisdiction, from time to
time.
ADDITIONAL RESTRICTIONS
The Fund has adopted the following additional restrictions, which are not
fundamental and which may be changed without shareholder approval, to the extent
permitted by applicable law, regulation or regulatory policy.
Under these restrictions, the Fund may not:
(i) purchase or sell real estate limited partnership interests;
(ii) purchase or sell interests in oil, gas and mineral leases (other than
securities of companies that invest in or sponsor such programs);
(iii) invest more than 15% of its net assets taken at market value at the
time of the investment in "illiquid securities." Illiquid securities
may include securities subject to legal or contractual restrictions on
resale (including private placements), repurchase agreements maturing
in more than seven days, certain options traded over the counter that
the Fund has written, securities for which market quotations are not
readily available, or other securities which legally or in IMI's
opinion, subject to the Board's supervision, may be deemed illiquid,
but shall not include any instrument that, due to the existence of a
trading market or to other factors, is liquid;
(iv) purchase securities of other investment companies, except in
connection with a merger, consolidation or sale of assets, and except
that the Fund may purchase shares of other investment companies
subject to such restrictions as may be imposed by the Investment
Company Act of 1940 and rules thereunder;
(v) make investments in securities for the purpose of exercising control
or management of the issuer.
(vi) participate on a joint or a joint and several basis in any trading
account in securities. The "bunching" of orders of the Fund--or of the
Fund and of other accounts under the investment management of the
persons rendering investment advice to the Fund--for the sale or
purchase of portfolio securities shall not be considered participation
in a joint securities trading account;
(vii) purchase securities on margin, except such short-term credits as are
necessary for the clearance of transactions; the deposit or payment by
the Fund of initial or variation margin in connection with futures
contracts or related options transactions is not considered the
purchase of a security on margin;
(viii) borrowamounts in excess of 20% of its total assets, taken at the
lower of cost or market value, and then only from banks as a temporary
measure for extraordinary or emergency purposes or except in
connection with reverse repurchase agreements, provided that the Fund
maintains net asset coverage of at least 300% for all borrowings; and
(ix) mortgage, pledge, hypothecate or in any manner transfer, as security
for indebtedness, any securities owned or held by the Fund (except as
may be necessary in connection with permitted borrowings and then not
in excess of 20% of the Fund's total assets); provided, however, this
does not prohibit escrow, collateral or margin arrangements in
connection with its use of options, short sales, futures contracts and
options on future contracts.
COMMON STOCKS
Common stock can be issued by companies to raise cash; all common stock
shares represent a proportionate ownership interest in a company. As a result,
the value of common stock rises and falls with a company's success or failure.
The market value of common stock can fluctuate significantly, with smaller
companies being particularly susceptible to price swings. Transaction costs in
smaller company stocks may also be higher than those of larger companies.
CONVERTIBLE SECURITIES
The convertible securities in which a Fund may invest include corporate
bonds, notes, debentures, preferred stock and other securities that may be
converted or exchanged at a stated or determinable exchange ratio into
underlying shares of common stock. Investments in convertible securities can
provide income through interest and dividend payments as well as an opportunity
for capital appreciation by virtue of their conversion or exchange features.
Because convertible securities can be converted into equity securities, their
values will normally vary in some proportion with those of the underlying equity
securities. Convertible securities usually provide a higher yield than the
underlying equity, however, so that the price decline of a convertible security
may sometimes be less substantial than that of the underlying equity security.
The exchange ratio for any particular convertible security may be adjusted from
time to time due to stock splits, dividends, spin-offs, other corporate
distributions or scheduled changes in the exchange ratio. Convertible debt
securities and convertible preferred stocks, until converted, have general
characteristics similar to both debt and equity securities. Although to a lesser
extent than with debt securities generally, the market value of convertible
securities tends to decline as interest rates increase and, conversely, tends to
increase as interest rates decline. In addition, because of the conversion or
exchange feature, the market value of convertible securities typically changes
as the market value of the underlying common stock changes, and, therefore, also
tends to follow movements in the general market for equity securities. When the
market price of the underlying common stock increases, the price of a
convertible security tends to rise as a reflection of the value of the
underlying common stock, although typically not as much as the price of the
underlying common stock. While no securities investments are without risk,
investments in convertible securities generally entail less risk than
investments in common stock of the same issuer.
As debt securities, convertible securities are investments that provide
for a stream of income. Like all debt securities, there can be no assurance of
income or principal payments because the issuers of the convertible securities
may default on their obligations. Convertible securities generally offer lower
yields than non-convertible securities of similar quality because of their
conversion or exchange features.
Convertible securities generally are subordinated to other similar but
non-convertible securities of the same issuer, although convertible bonds, as
corporate debt obligations, are senior in right of payment to all equity
securities, and convertible preferred stock is senior to common stock, of the
same issuer. However, convertible bonds and convertible preferred stock
typically have lower coupon rates than similar non-convertible securities.
Convertible securities may be issued as fixed income obligations that pay
current income.
DEBT SECURITIES
IN GENERAL. Investment in debt securities involves both interest rate and
credit risk. Generally, the value of debt instruments rises and falls inversely
with fluctuations in interest rates. As interest rates decline, the value of
debt securities generally increases. Conversely, rising interest rates tend to
cause the value of debt securities to decrease. Bonds with longer maturities
generally are more volatile than bonds with shorter maturities. The market value
of debt securities also varies according to the relative financial condition of
the issuer. In general, lower-quality bonds offer higher yields due to the
increased risk that the issuer will be unable to meet its obligations on
interest or principal payments at the time called for by the debt instrument.
INVESTMENT-GRADE DEBT SECURITIES. Bonds rated Aaa by Moody's Investors
Service, Inc. ("Moody's") and AAA by Standard & Poor's Ratings Group ("S&P") are
judged to be of the best quality (i.e., capacity to pay interest and repay
principal is extremely strong). Bonds rated Aa/AA are considered to be of high
quality (i.e., capacity to pay interest and repay principal is very strong and
differs from the highest rated issues only to a small degree). Bonds rated A are
viewed as having many favorable investment attributes, but elements may be
present that suggest a susceptibility to the adverse effects of changes in
circumstances and economic conditions than debt in higher rated categories.
Bonds rated Baa/BBB (considered by Moody's to be "medium grade" obligations) are
considered to have an adequate capacity to pay interest and repay principal, but
certain protective elements may be lacking (i.e., such bonds lack outstanding
investment characteristics and have some speculative characteristics). A Fund
may invest in debt securities that are given an investment-grade rating by
Moody's or S&P, and may also invest in unrated debt securities that are
considered by IMI to be of comparable quality.
LOW-RATED DEBT SECURITIES. Securities rated lower than Baa by Moody's or
BBB by S&P, and comparable unrated securities (commonly referred to as "high
yield" or "junk" bonds), including many emerging markets bonds, are considered
to be predominantly speculative with respect to the issuer's continuing ability
to meet principal and interest payments. The lower the ratings of corporate debt
securities, the more their risks render them like equity securities. Such
securities carry a high degree of risk (including the possibility of default or
bankruptcy of the issuers of such securities), and generally involve greater
volatility of price and risk of principal and income (and may be less liquid)
than securities in the higher rating categories. (See Appendix A for a more
complete description of the ratings assigned by Moody's and S&P and their
respective characteristics.)
Lower rated and unrated securities are especially subject to adverse
changes in general economic conditions and to changes in the financial condition
of their issuers. Economic downturns may disrupt the high yield market and
impair the ability of issuers to repay principal and interest. Also, an increase
in interest rates would likely have an adverse impact on the value of such
obligations. During an economic downturn or period of rising interest rates,
highly leveraged issuers may experience financial stress which could adversely
affect their ability to service their principal and interest payment
obligations. Prices and yields of high yield securities will fluctuate over time
and, during periods of economic uncertainty, volatility of high yield securities
may adversely affect a Fund's net asset value. In addition, investments in high
yield zero coupon or pay-in-kind bonds, rather than income-bearing high yield
securities, may be more speculative and may be subject to greater fluctuations
in value due to changes in interest rates.
Changes in interest rates may have a less direct or dominant impact on
high yield bonds than on higher quality issues of similar maturities. However,
the price of high yield bonds can change significantly or suddenly due to a host
of factors including changes in interest rates, fundamental credit quality,
market psychology, government regulations, U.S. economic growth and, at times,
stock market activity. High yield bonds may contain redemption or call
provisions. If an issuer exercises these provisions in a declining interest rate
market, a Fund may have to replace the security with a lower yielding security.
The trading market for high yield securities may be thin to the extent
that there is no established retail secondary market or because of a decline in
the value of such securities. A thin trading market may limit the ability of a
Fund to accurately value high yield securities in the Fund's portfolio, could
adversely affect the price at which the Fund could sell such securities, and
cause large fluctuations in the daily net asset value of the Fund's shares.
Adverse publicity and investor perceptions, whether or not based on fundamental
analysis, may decrease the value and liquidity of low-rated debt securities,
especially in a thinly traded market. When secondary markets for high yield
securities become relatively less liquid, it may be more difficult to value the
securities, requiring additional research and elements of judgment. These
securities may also involve special registration responsibilities, liabilities
and costs, and liquidity and valuation difficulties.
Credit quality in the high yield securities market can change suddenly and
unexpectedly, and even recently issued credit ratings may not fully reflect the
actual risks posed by a particular high yield security. For these reasons, it is
the policy of IMI not to rely exclusively on ratings issued by established
credit rating agencies, but to supplement such ratings with its own independent
and on-going review of credit quality. The achievement of a Fund's investment
objectives by investment in such securities may be more dependent on IMI's
credit analysis than is the case for higher quality bonds. Should the rating of
a portfolio security be downgraded, IMI will determine whether it is in the best
interest of each Fund to retain or dispose of such security. However, should any
individual bond held by any Fund be downgraded below a rating of C, IMI
currently intends to dispose of such bond based on then existing market
conditions.
Prices for high yield securities may be affected by legislative and
regulatory developments. For example, Federal rules require savings and loan
institutions to gradually reduce their holdings of this type of security. Also,
Congress has from time to time considered legislation that would restrict or
eliminate the corporate tax deduction for interest payments in these securities
and regulate corporate restructurings. Such legislation may significantly
depress the prices of outstanding securities of this type.
U.S. GOVERNMENT SECURITIES. U.S. Government securities are obligations
of, or guaranteed by, the U.S. Government, its agencies or
instrumentalities. Securities guaranteed by the U.S. Government include:
(1) direct obligations of the U.S. Treasury (such as Treasury bills, notes,
and bonds) and (2) Federal agency obligations guaranteed as to principal and
interest by the U.S. Treasury (such as GNMA certificates, which are
mortgage-backed securities). When such securities are held to maturity, the
payment of principal and interest is unconditionally guaranteed by the U.S.
Government, and thus they are of the highest possible credit quality. U.S.
Government securities that are not held to maturity are subject to variations
in market value due to fluctuations in interest rates.
Mortgage-backed securities are securities representing part ownership of a
pool of mortgage loans. For example, GNMA certificates are such securities in
which the timely payment of principal and interest is guaranteed by the full
faith and credit of the U.S. Government. Although the mortgage loans in the pool
will have maturities of up to 30 years, the actual average life of the loans
typically will be substantially less because the mortgages will be subject to
principal amortization and may be prepaid prior to maturity. Prepayment rates
vary widely and may be affected by changes in market interest rates. In periods
of falling interest rates, the rate of prepayment tends to increase, thereby
shortening the actual average life of the security. Conversely, rising interest
rates tend to decrease the rate of prepayments, thereby lengthening the actual
average life of the security (and increasing the security's price volatility).
Accordingly, it is not possible to predict accurately the average life of a
particular pool. Reinvestment of prepayment may occur at higher or lower rates
than the original yield on the certificates. Due to the prepayment feature and
the need to reinvest prepayments of principal at current rates, mortgage-backed
securities can be less effective than typical bonds of similar maturities at
"locking in" yields during periods of declining interest rates, and may involve
significantly greater price and yield volatility than traditional debt
securities. Such securities may appreciate or decline in market value during
periods of declining or rising interest rates, respectively.
Securities issued by U.S. Government instrumentalities and certain Federal
agencies are neither direct obligations of nor guaranteed by the U.S. Treasury;
however, they involve Federal sponsorship in one way or another. Some are backed
by specific types of collateral, some are supported by the issuer's right to
borrow from the Treasury, some are supported by the discretionary authority of
the Treasury to purchase certain obligations of the issuer, others are supported
only by the credit of the issuing government agency or instrumentality. These
agencies and instrumentalities include, but are not limited to, Federal Land
Banks, Farmers Home Administration, Central Bank for Cooperatives, Federal
Intermediate Credit Banks, Federal Home Loan Banks, Federal National Mortgage
Association, Federal Home Loan Mortgage Association, and Student Loan Marketing
Association.
MUNICIPAL SECURITIES. Municipal securities are debt obligations that
generally have a maturity at the time of issue in excess of one year and are
issued to obtain funds for various public purposes. The two principal
classifications of municipal bonds are "general obligation" and "revenue" bonds.
General obligation bonds are secured by the issuer's pledge of its full faith,
credit and taxing power for the payment of principal and interest. Revenue bonds
are payable only from the revenues derived from a particular facility or class
of facilities, or, in some cases, from the proceeds of a special excise of a
specific revenue source. Industrial development bonds or private activity bonds
are issued by or on behalf of public authorities to obtain funds for
privately-operated facilities and are in most cases revenue bonds that generally
do not carry the pledge of the full faith and credit of the issuer of such
bonds, but depend for payment on the ability of the industrial user to meet its
obligations (or on any property pledged as security).
The market prices of municipal securities, like those of taxable debt
securities, go up and down when interest rates change. Thus, the net asset value
per share can be expected to fluctuate and shareholders may receive more or less
than their purchase price for shares they redeem.
ZERO COUPON BONDS. Zero coupon bonds are debt obligations issued without
any requirement for the periodic payment of interest. Zero coupon bonds are
issued at a significant discount from face value. The discount approximates the
total amount of interest the bonds would accrue and compound over the period
until maturity at a rate of interest reflecting the market rate at the time of
issuance. If a 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 a 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 each Fund on a
current basis, but is in effect compounded, the value of the securities of this
type is subject to greater fluctuations in response to changing interest rates
than the value of debt obligations which distribute income regularly.
FIRM COMMITMENT AGREEMENTS AND "WHEN-ISSUED" SECURITIES. New issues of
certain debt securities are often offered on a "when-issued" basis, meaning the
payment obligation and the interest rate are fixed at the time the buyer enters
into the commitment, but delivery and payment for the securities normally take
place after the date of the commitment to purchase. Firm commitment agreements
call for the purchase of securities at an agreed-upon price on a specified
future date. A Fund may use 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 such Fund's assets. In either instance, each Fund will
maintain in a segregated account with its Custodian cash or liquid securities
equal (on a daily market-to-market basis) to the amount of its commitment to
purchase the underlying securities.
ILLIQUID SECURITIES
The Funds may purchase securities other than in the open market. While
such purchases may often offer attractive opportunities for investment not
otherwise available on the open market, the securities so purchased are often
"restricted securities" or "not readily marketable" (i.e., they cannot be sold
to the public without registration under the Securities Act of 1933, as amended
(the "1933 Act"), or the availability of an exemption from registration (such as
Rule 144A) or because they are subject to other legal or contractual delays in
or restrictions on resale). This investment practice, therefore, could have the
effect of increasing the level of illiquidity of a Fund. It is the policy of
each Fund that illiquid securities (including repurchase agreements of more than
seven days duration, certain restricted securities, and other securities which
are not readily marketable) may not constitute, at the time of purchase, more
than 15% of the value of the Fund's net assets. The Trust's Board of Trustees
has approved guidelines for use by IMI in determining whether a security is
illiquid.
Generally speaking, restricted securities may be sold (i) only to
qualified institutional buyers; (ii) in a privately negotiated transaction to a
limited number of purchasers; (iii) in limited quantities after they have been
held for a specified period of time and other conditions are met pursuant to an
exemption from registration; or (iv) in a public offering for which a
registration statement is in effect under the 1933 Act. Issuers of restricted
securities may not be subject to the disclosure and other investor protection
requirements that would be applicable if their securities were publicly traded.
If adverse market conditions were to develop during the period between a 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, a
Fund may be required to bear all or part of the registration expenses. A Fund
may be deemed to be an "underwriter" for purposes of the 1933 Act when selling
restricted securities to the public and, in such event, the Fund may be liable
to purchasers of such securities if the registration statement prepared by the
issuer is materially inaccurate or misleading.
Since it is not possible to predict with assurance that the market for
securities eligible for resale under Rule 144A will continue to be liquid, IMI
will monitor such restricted securities subject to the supervision of the Board
of Trustees. Among the factors IMI may consider in reaching liquidity decisions
relating to Rule 144A securities are: (1) the frequency of trades and quotes for
the security; (2) the number of dealers wishing to purchase or sell the security
and the number of other potential purchasers; (3) dealer undertakings to make a
market in the security; and (4) the nature of the security and the nature of the
market for the security (i.e., the time needed to dispose of the security, the
method of soliciting offers, and the mechanics of the transfer).
FOREIGN SECURITIES
The securities of foreign issuers in which each Fund may invest include
non-U.S. dollar-denominated debt securities, Euro dollar securities, sponsored
and unsponsored American Depository Receipts ("ADRs"), Global Depository
Receipts ("GDRs"), American Depository Shares ("ADSs"), Global Depository Shares
("GDSs") and related depository instruments, and debt securities issued, assumed
or guaranteed by foreign governments or political subdivisions or
instrumentalities thereof. Shareholders should consider carefully the
substantial risks involved in investing in securities issued by companies and
governments of foreign nations, which are in addition to the usual risks
inherent in the Fund's domestic investments.
Although IMI intends to invest each Fund's assets only in nations that are
generally considered to have relatively stable and friendly governments, there
is the possibility of expropriation, nationalization, repatriation or
confiscatory taxation, taxation on income earned in a foreign country and other
foreign taxes, foreign exchange controls (which may include suspension of the
ability to transfer currency from a given country), default on foreign
government securities, political or social instability or diplomatic
developments which could affect investments in securities of issuers in those
nations. In addition, in many countries there is less publicly available
information about issuers than is available for U.S. companies. Moreover,
foreign companies are not generally subject to uniform accounting, auditing and
financial reporting standards, and auditing practices and requirements may not
be comparable to those applicable to U.S. companies. In many foreign countries,
there is less governmental supervision and regulation of business and industry
practices, stock exchanges, brokers, and listed companies than in the United
States. Foreign securities transactions may also be subject to higher brokerage
costs than domestic securities transactions. The foreign securities markets of
many of the countries in which each Fund may invest may also be smaller, less
liquid and subject to greater price volatility than those in the United States.
In addition, each Fund may encounter difficulties or be unable to pursue legal
remedies and obtain judgment in foreign courts.
Foreign bond markets have different clearance and settlement procedures
and in certain markets there have been times when settlements have been unable
to keep pace with the volume of securities transactions, making it difficult to
conduct such transactions. Delays in settlement could result in temporary
periods when assets of a Fund are uninvested and no return is earned thereon.
The inability of a 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 a Fund because of subsequent declines
in the value of the portfolio security or, if the Fund has entered into a
contract to sell the security, in possible liability to the purchaser. It may be
more difficult for each Fund's agents to keep currently informed about corporate
actions such as stock dividends or other matters that may affect the prices of
portfolio securities. Communications between the United States and foreign
countries may be less reliable than within the United States, thus increasing
the risk of delayed settlements of portfolio transactions or loss of
certificates for portfolio securities. Moreover, individual foreign economies
may differ favorably or unfavorably from the United States economy in such
respects as growth of gross national product, rate of inflation, capital
reinvestment, resource self-sufficiency and balance of payments position. IMI
seeks to mitigate the risks to each Fund associated with the foregoing
considerations through investment variation and continuous professional
management.
DEPOSITORY RECEIPTS
ADRs, GDRs, ADSs, GDSs and related securities are depository instruments,
the issuance of which is typically administered by a U.S. or foreign bank or
trust company. These instruments evidence ownership of underlying securities
issued by a U.S. or foreign corporation. ADRs are publicly traded on exchanges
or over-the-counter ("OTC") in the United States. Unsponsored programs are
organized independently and without the cooperation of the issuer of the
underlying securities. As a result, information concerning the issuer may not be
as current or as readily available as in the case of sponsored depository
instruments, and their prices may be more volatile than if they were sponsored
by the issuers of the underlying securities.
EMERGING MARKETS
Each 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 each Fund's performance favorably or unfavorably.
In recent years, many emerging market countries around the world have
undergone political changes that have reduced government's role in economic and
personal affairs and have stimulated investment and growth. Historically, there
is a strong direct correlation between economic growth and stock market returns.
While this is no guarantee of future performance, IMI believes that investment
opportunities (particularly in the energy, environmental services, natural
resources, basic materials, power, telecommunications and transportation
industries) may result within the evolving economies of emerging market
countries from which each Fund and its shareholders will benefit.
Investments in companies domiciled in developing countries may be subject
to potentially higher risks than investments in developed countries. Such risks
include (i) less social, political and economic stability; (ii) a small market
for securities and/or a low or nonexistent volume of trading, which result in a
lack of liquidity and in greater price volatility; (iii) certain national
policies that may restrict each 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 each 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, a 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 each 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
each 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
each Fund's cash and securities, each Fund's investment in such countries may be
limited or may be required to be effected through intermediaries. The risk of
loss through governmental confiscation may be increased in such countries.
FOREIGN SOVEREIGN DEBT OBLIGATIONS
Investment in sovereign debt can involve a high degree of risk. The
governmental entity that controls the repayment of sovereign debt may not be
able or willing to repay the principal and/or interest when due in accordance
with the terms of such debt. A governmental entity's willingness or ability to
repay principal and interest due in a timely manner may be affected by, among
other factors, its cash flow situation, the extent of its foreign reserves, the
availability of sufficient foreign exchange on the date a payment is due, the
relative size of the debt service burden to the economy as a whole, the
governmental entity's policy towards the International Monetary Fund, and the
political constraints to which a governmental entity may be subject.
Governmental entities may also be dependent on expected disbursements from
foreign governments, multilateral agencies and others abroad to reduce principal
and interest arrearages on their debt. The commitment on the part of these
governments, agencies and others to make such disbursements may be conditioned
on a governmental entity's implementation of economic reforms and/or economic
performance and the timely service of such debtor's obligations. Failure to
implement such reforms, achieve such levels of economic performance or repay
principal or interest when due may result in the cancellation of such third
parties' commitments to lend funds to the governmental entity, which may further
impair such debtor's ability or willingness to service it debts in a timely
manner. Consequently, governmental entities may default on their sovereign debt.
Holders of sovereign debt (including the Funds) may be request to participate in
the rescheduling of such debt and to extend further loans to governmental
entities. There is no bankruptcy proceeding by which sovereign debt on which
governmental entities have defaulted may be collected in whole or in part.
BRADY BONDS
Ivy International Strategic Bond Fund may invest in Brady Bonds, which are
securities created through the exchange of existing commercial bank loans to
public and private entities in certain emerging markets for new bonds in
connection with debt restructurings under a debt restructuring plan introduced
by former U.S. Secretary of the Treasury, Nicholas F. Brady (the `Brady Plan").
Brady Plan debt restructurings have been implemented to date in Argentina,
Brazil, Bulgaria, Costa Rica, the Dominican Republic, Ecuador, Jordan, Mexico,
Nigeria, Peru, the Philippines, Poland, Uruguay, and Venezuela.
Brady Bonds have been issued only recently, and for that reason do not
have a long payment history. Brady Bonds may be collateralized or
uncollateralized, are issued in various currencies (but primarily the U.S.
dollar) and are actively traded in over-the-counter secondary markets.
Dollar-denominated, collateralized Brady Bonds, which may be fixed-rate bonds or
floating-rate bonds, are generally collateralized in full as to principal by
U.S. Treasury zero coupon bonds having the same maturity as the cash or
securities in an amount that, in the case of fixed rate bonds, is equal to at
least one year of rolling interest payments or, in the case of floating rate
bonds, initially is equal to at least one year's rolling interest payments based
on the applicable interest rate at that time and is adjusted at regular
intervals thereafter.
Brady Bonds are often viewed as having three or four valuation components:
the collateralized repayment of principal at final maturity; the collateralized
interest payments; the uncollateralized interest payments; and any
uncollateralized repayment of principal at maturity (these uncollateralized
amounts constitute the "residual risk"). In light of the residual risk of Brady
Bonds and the history of defaults of countries issuing Brady Bonds, with respect
to commercial bank loans by public and private entities, investments in Brady
Bonds may be viewed as speculative.
LOAN PARTICIPATIONS AND ASSIGNMENTS
Ivy International Strategic Bond Fund may invest in fixed- and
floating-rate loans ("Loans") arranged through private negotiations between an
issuer of emerging market debt instruments and one or more financial
institutions ("Lenders"). The Fund's investments in Loans are expected in most
instances to be in the form of participations in Loans ("Participations") and
assignments of portions of Loans ("Assignments") from third parties.
Participations typically will result in the Fund having a contractual
relationship only with the Lender and not with the borrower. The Fund will have
the right to receive payments of principal, interest and any fees to which it is
entitled only from the Lender selling the Participation and only upon receipt by
the Lender of the payments from the borrower. In connection with purchasing
Participations, the Fund generally will have no right to enforce compliance by
the borrower with the terms of the loan agreement relating to the Loan, nor any
rights of set-off against the borrower, and the Fund may not directly benefit
from any collateral supporting the Loan in which it has purchased the
Participation. As a result, the Fund will assume the credit risk of both the
borrower and the Lender that is selling the Participation. In the event of the
insolvency of the Lender selling a Participation, the Fund may be treated as a
general creditor of the Lender and may not benefit from any set-off between the
Lender and the borrower. The Fund will acquire Participations only if the Lender
interpositioned between the Fund and the borrower is determined by the Adviser
to be creditworthy.
When the Fund purchases Assignments from Lenders, it will acquire direct
rights against the borrower on the Loan. Because Assignments are arranged
through private negotiations between potential assignees and potential
assignors, however, the rights and obligations acquired by the Fund as the
purchaser of an Assignment may differ from, and may be more limited than, those
held by the assigning Lender.
The Fund may have difficulty disposing of Assignments and Participation.
Because no liquid market for these obligations typically exists, the Fund
anticipates that these obligations could be sold only to a limited number of
institutional investors. The lack of a liquid secondary market will have an
adverse effect on the Fund's ability to dispose of particular Assignments or
Participations when necessary to meet the Fund's liquidity needs or in response
to a specific economic event, such as a deterioration in the creditworthiness of
the borrower. The lack of a liquid secondary market for Assignments and
Participations may also make it more difficult for the Fund to assign a value to
those securities for purposes of valuing the Fund's portfolio and calculating
its net asset value.
FOREIGN CURRENCIES
Investment in foreign securities usually will involve currencies of
foreign countries. Moreover, each 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 each of these Funds as measured in U.S. dollars may be
affected favorably or unfavorably by changes in foreign currency exchange rates
and exchange control regulations, and each Fund may incur costs in connection
with conversions between various currencies. Although each Fund's custodian
values the Fund's assets daily in terms of U.S. dollars, each Fund does not
intend to convert its holdings of foreign currencies into U.S. dollars on a
daily basis. Each 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 a Fund at one rate, while offering a lesser rate of exchange should the Fund
desire to resell that currency to the dealer. Each Fund will conduct its foreign
currency exchange transactions either on a spot (i.e., cash) basis at the spot
rate prevailing in the foreign currency exchange market, or through entering
into forward contracts to purchase or sell foreign currencies.
Because each Fund normally will be invested in both U.S. and foreign
securities markets, changes in each Fund's share price may have a low
correlation with movements in U.S. markets. Each Fund's share price will reflect
the movements of the different stock and bond markets in which it is invested
(both U.S. and foreign), and of the currencies in which the investments are
denominated. Thus, the strength or weakness of the U.S. dollar against foreign
currencies may account for part of each Fund's investment performance. U.S. and
foreign securities markets do not always move in step with each other, and the
total returns from different markets may vary significantly. In addition,
significant uncertainty surrounds the proposed introduction of the euro (a
common currency for the European Union) in January 1999 and its effect on the
value of securities denominated in local European currencies. These and other
currencies in which each Fund's assets are denominated may be devalued against
the U.S. dollar, resulting in a loss to a Fund.
FOREIGN CURRENCY EXCHANGE TRANSACTIONS
Each Fund may enter into forward foreign currency contracts in order to
protect against uncertainty in the level of future foreign exchange rates in the
purchase and sale of securities. A forward contract is an obligation to purchase
or sell a specific currency for an agreed price at a future date (usually less
than a year), and typically is individually negotiated and privately traded by
currency traders and their customers. A forward contract generally has no
deposit requirement, and no commissions are charged at any stage for trades.
Although foreign exchange dealers do not charge a fee for commissions, they do
realize a profit based on the difference between the price at which they are
buying and selling various currencies. Although these contracts are intended to
minimize the risk of loss due to a decline in the value of the hedged
currencies, at the same time, they tend to limit any potential gain which might
result should the value of such currencies increase.
While the Funds may enter into forward contracts to reduce currency
exchange risks, changes in currency exchange rates may result in poorer overall
performance for each of these Funds than if it had not engaged in such
transactions. Moreover, there may be an imperfect correlation between a 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 a Fund to
the risk of currency exchange loss.
The Funds may purchase currency forwards and combine such purchases with
sufficient cash or short-term securities to create unleveraged substitutes for
investments in foreign markets when deemed advantageous. Each Fund may also
combine the foregoing with bond futures or interest rate futures contracts to
create the economic equivalent of an unhedged foreign bond position.
The Funds may also cross-hedge currencies by entering into transactions to
purchase or sell one or more currencies that are expected to decline in value
relative to other currencies to which each Fund has or in which each Fund
expects to have portfolio exposure.
Currency transactions are subject to risks different from those of other
portfolio transactions. Because currency control is of great importance to the
issuing governments and influences economic planning and policy, purchases and
sales of currency and related instruments can be negatively affected by
government exchange controls, blockages, and manipulations or exchange
restrictions imposed by governments. These can result in losses to a Fund if it
is unable to deliver or receive currency or funds in settlement of obligations
and could also cause hedges it has entered into to be rendered useless,
resulting in full currency exposure as well as incurring transactions costs.
Buyers and sellers of currency futures are subject to the same risks that apply
to the use of futures generally. Further, settlement of a currency futures
contract for the purchase of most currencies must occur at a bank based in the
issuing nation. Trading options on currency futures is relatively new, and the
ability to establish and close out positions on such options is subject to the
maintenance of a liquid market which may not always be available. Currency
exchange rates may fluctuate based on factors extrinsic to that country's
economy.
REPURCHASE AGREEMENTS
Repurchase agreements are contracts under which a 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, each Fund is permitted to enter into repurchase
agreements only if the repurchase agreements are at least fully collateralized
with U.S. Government securities or other securities that IMI has approved for
use as collateral for repurchase agreements and the collateral must be
marked-to-market daily. Each Fund will enter into repurchase agreements only
with banks and broker-dealers deemed to be creditworthy by IMI under the
above-referenced guidelines. In the unlikely event of failure of the executing
bank or broker-dealer, a Fund could experience some delay in obtaining direct
ownership of the underlying collateral and might incur a loss if the value of
the security should decline, as well as costs in disposing of the security.
BANKING INDUSTRY AND SAVINGS AND LOAN OBLIGATIONS
Certificates of deposit are negotiable certificates issued against funds
deposited in a commercial bank for a definite period of time and earning a
specified return. Bankers' acceptances are negotiable drafts or bills of
exchange, normally drawn by an importer or exporter to pay for specific
merchandise, which are "accepted" by a bank (meaning, in effect, that the bank
unconditionally agrees to pay the face value of the instrument at maturity). In
addition to investing in certificates of deposit and bankers' acceptances, each
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. Each Fund's investments in certificates of deposit, time
deposits, and bankers' acceptance are limited to obligations of (i) banks having
total assets in excess of $1 billion, (ii) U.S. banks which do not meet the $1
billion asset requirement, if the principal amount of such obligation is fully
insured by the Federal Deposit Insurance Corporation (the "FDIC"), (iii) savings
and loan association which have total assets in excess of $1 billion and which
are members of the FDIC, and (iv) foreign banks if the obligation is, in IMI's
opinion, of an investment quality comparable to other debt securities which may
be purchased by a Fund. Each Fund's investments in certificates of deposit of
savings associations are limited to obligations of Federal and state-chartered
institutions whose total assets exceed $1 billion and whose deposits are insured
by the FDIC.
COMMERCIAL PAPER.
Commercial paper represents short-term unsecured promissory notes issued
in bearer form by bank holding companies, corporations and finance companies.
Each Fund may invest in commercial paper that is rated Prime-1 by Moody's
Investors Service, Inc. ("Moody's") or A-1 by Standard & Poor's Corporation
("S&P") or, if not rated by Moody's or S&P, is issued by companies having an
outstanding debt issue rated Aaa or Aa by Moody's or AAA or AA by S&P.
BORROWING
Borrowing may exaggerate the effect on a 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 each Fund's borrowings will be fixed, a Fund's assets may change in value
during the time a borrowing is outstanding, thus increasing exposure to capital
risk.
SHORT SALES
Ivy International Strategic Bond Fund may engage in short sale
transactions in fixed-income securities. Short selling involves the sale of
borrowed securities. At the time a short sale is effected, the Fund incurs an
obligation to replace the security borrowed at whatever its price may be at the
time that the Fund purchases it for delivery to the lender. When a short sale
transaction is closed out by delivery of the securities, any gain or loss on the
transaction is taxable as a short-term capital gain or loss. Until the security
is replaced, the Fund is required to pay to the lender amounts equal to any
dividends or interest which accrue during the period of the loan. To borrow the
security, the Fund also may be required to pay a premium, which would increase
the cost of the security sold. Until the Fund replaces a borrowed security in
connection with a short sale, the Fund will: (a) maintain daily a segregated
account containing cash or liquid securities, at such level that (i) the amount
deposited in the segregated account plus the amount deposited with the broker as
collateral will equal the current value of the security sold short and (ii) the
amount deposited in the segregated account plus the amount deposited with the
broker as collateral will not be less than the market value of the security at
the time it was sold short; or (b) otherwise cover its short position.
Since short selling can result in profits when bond prices generally
decline, Ivy International Strategic Bond Fund in this manner, can, to a certain
extent, hedge the market risk to the value of its other investments and protect
its equity in a declining market. However, the Fund could, at any given time,
suffer both a loss on the purchase or retention of one security, if that
security should decline in value, and a loss on a short sale of another
security, if the security sold short should increase in value. If the Fund sells
short one security to hedge a position in a similar security, the Fund could
experience a loss due to an increase in the price of the security sold short
resulting from an incorrectly perceived correlation between the two securities
or a correlation not present at the time of the short sale transaction.
Moreover, to the extent that in a generally rising market the Fund maintains
short positions in securities rising with the market, the net asset value of the
Fund would be expected to increase to a lesser extent than the net asset value
of an investment company that does not engage in short sales.
OPTIONS TRANSACTIONS
IN GENERAL. A call option is a short-term contract (having a duration of
less than one year) pursuant to which the purchaser, in return for the premium
paid, has the right to buy the security underlying the option at the specified
exercise price at any time during the term of the option. The writer of the call
option, who receives the premium, has the obligation, upon exercise of the
option, to deliver the underlying security against payment of the exercise
price. A put option is a similar contract pursuant to which the purchaser, in
return for the premium paid, has the right to sell the security underlying the
option at the specified exercise price at any time during the term of the
option. The writer of the put option, who receives the premium, has the
obligation, upon exercise of the option, to buy the underlying security at the
exercise price. The premium paid by the purchaser of an option will reflect,
among other things, the relationship of the exercise price to the market price
and volatility of the underlying security, the time remaining to expiration of
the option, supply and demand, and interest rates.
If the writer of a U.S. exchange-traded 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. Closing purchase transactions are not available for OTC
transactions. In order to terminate an obligation in an OTC transaction, the
Fund would negotiate directly with the counterparty.
Each 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 a Fund has written lapses unexercised, because a 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 a Fund, are taxable as ordinary income. See "Taxation."
Each 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 each Fund
and its counterparty (usually a securities dealer or a financial institution)
with no clearing organization guarantee. When a 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. Each 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. Each of these
Funds 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 for the options).
In view of the investment objectives of these Funds, each Fund generally would
write call options only in circumstances where the investment adviser to the
Fund does not anticipate significant appreciation of the underlying security in
the near future or has otherwise determined to dispose of the security.
A "covered" call option means generally that so long as a 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 each
Fund receives premium income from these activities, any appreciation realized on
an underlying security will be limited by the terms of the call option. Each
Fund may purchase call options on individual securities only to effect a
"closing purchase transaction."
As the writer of a call option, each 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 Funds may purchase put
options on underlying securities owned by the Funds as a defensive technique in
order to protect against an anticipated decline in the value of the securities.
Each of the Funds, 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 a 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 any Fund for
leverage purposes.
Each Fund may also purchase put options on underlying securities that they
own 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. A 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 Funds may write (sell) put options on individual securities only to
effect a "closing sale transaction."
PURCHASING AND WRITING OPTIONS ON SECURITIES INDICES. The Funds 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. Call
options on indices are similar to call 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 a Fund writes a call or put option on a stock index, the option is
"covered", in the case of a call, or "secured", in the case of a put, if the
Fund maintains in a segregated account with the Custodian cash or liquid
securities equal to the contract value. A call option is also covered if the
Fund holds a call on the same index as the call written where the exercise price
of the call held is (i) equal to or less than the exercise price of the call
written or (ii) greater than the exercise price of the call written, provided
that the Fund maintains in a segregated account with the Custodian the
difference in cash or liquid securities. A put option is also "secured" if the
Fund holds a put on the same index as the put written where the exercise price
of the put held is (i) equal to or greater than the exercise price of the put
written or (ii) less than the exercise price of the put written, provided that
the Fund maintains in a segregated account with the Custodian the difference in
cash or liquid securities.
RISKS OF OPTIONS TRANSACTIONS. The purchase and writing of options
involves certain risks. During the option period, the covered call writer has,
in return for the premium on the option, given up the opportunity to profit from
a price increase in the underlying securities above the exercise price, but, as
long as its obligation as a writer continues, has retained the risk of loss
should the price of the underlying security decline. The writer of a U.S. option
has no control over the time when it may be required to fulfill its obligation
as a writer of the option. Once an option writer has received an exercise
notice, it cannot effect a closing purchase transaction in order to terminate
its obligation under the option and must deliver the underlying securities (or
cash in the case of an index option) at the exercise price. If a put or call
option purchased by a 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 a Fund
seeks to close out an option position. Furthermore, if trading restrictions or
suspensions are imposed on the options markets, a 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. Transfer of an
OTC option is usually prohibited absent the consent of the original
counterparty. There is no assurance that a Fund will be able to close out an OTC
option position at a favorable price prior to its expiration. An OTC
counterparty may fail to deliver or to pay, as the case may be. In the event of
insolvency of the counterparty, a Fund might be unable to close out an OTC
option position at any time prior to its expiration. Although a Fund may be able
to offset to some extent any adverse effects of being unable to liquidate an
option position, the Fund may experience losses in some cases as a result of
such inability.
When conducted outside the U.S., options transactions may not be regulated
as rigorously as in the U.S., may not involve a clearing mechanism and related
guarantees, and are subject to the risk of governmental actions affecting
trading in, or the prices of, foreign securities, currencies and other
instruments. The value of such positions also could be adversely affected by:
(i) other complex foreign political, legal and economic factors, (ii) lesser
availability than in the U.S. of data on which to make trading decisions, (iii)
delays in a Fund's ability to act upon economic events occurring in foreign
markets during non-business hours in the U.S., (iv) the imposition of different
exercise and settlement terms and procedures and margin requirements than in the
U.S., and (v) lower trading volume and liquidity.
Each Fund's options activities also may have an impact upon the level
of their portfolio turnover and brokerage commissions. See "Portfolio
Turnover."
Each Fund's success in using options techniques depends, among other
things, on IMI's ability to predict accurately the direction and volatility of
price movements in the options and securities markets, and to select the proper
type, timing of use and duration of options.
FUTURES CONTRACTS AND OPTIONS ON FUTURES CONTRACTS
IN GENERAL. Each 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 a Fund, that Fund is required to deposit with its
custodian (or broker, if legally permitted) a specified amount of cash or liquid
securities ("initial margin"). The margin required for a futures contract is set
by the exchange on which the contract is traded and may be modified during the
term of the contract. The initial margin is in the nature of a performance bond
or good faith deposit on the futures contract which is returned to the Fund upon
termination of the contract, assuming all contractual obligations have been
satisfied. A futures contract held by a 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 a 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, each Fund
will mark-to-market its open futures position.
Each Fund is also required to deposit and maintain margin with respect to
put and call options on futures contracts written by it. Such margin deposits
will vary depending on the nature of the underlying futures contract (and the
related initial margin requirements), the current market value of the option,
and other futures positions held by the Fund.
Although some futures contracts call for making or taking delivery of the
underlying securities, generally these obligations are closed out prior to
delivery of offsetting purchases or sales of matching futures contracts (same
exchange, underlying security or index, and delivery month). If an offsetting
purchase price is less than the original sale price, each 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, each 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, each Fund will maintain with its
Custodian (and mark-to-market on a daily basis) cash or liquid securities that,
when added to the amounts deposited with a futures commission merchant ("FCM")
as margin, are equal to the market value of the futures contract. Alternatively,
a Fund may "cover" its position by purchasing a put option on the same futures
contract with a strike price as high as or higher than the price of the contract
held by the Fund, or, if lower, may cover the difference with cash or short-term
securities.
When selling a futures contract, each 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, a Fund may "cover" its position by owning the
instruments underlying the contract (or, in the case of an index futures
contract, a portfolio with a volatility substantially similar to that of the
index on which the futures contract is based), or by holding a call option
permitting the Fund to purchase the same futures contract at a price no higher
than the price of the contract written by the Fund (or at a higher price if the
difference is maintained in liquid assets with the Fund's custodian).
When selling a call option on a futures contract, each 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, a Fund may cover its position by entering into a
long position in the same futures contract at a price no higher than the strike
price of the call option, by owning the instruments underlying the futures
contract, or by holding a separate call option permitting the Fund to purchase
the same futures contract at a price not higher than the strike price of the
call option sold by the Fund, or covering the difference if the price is higher.
When selling a put option on a futures contract, each Fund will maintain
with its Custodian (and mark-to-market on a daily basis) cash or liquid
securities that equal the purchase price of the futures contract less any margin
on deposit. Alternatively, a Fund may cover the position either by entering into
a short position in the same futures contract, or by owning a separate put
option permitting it to sell the same futures contract so long as the strike
price of the purchased put option is the same or higher than the strike price of
the put option sold by the Fund, or, if lower, the Fund may hold securities to
cover the difference.
INTEREST RATE FUTURES CONTRACTS. An interest rate futures contract is an
agreement between parties to buy or sell a specified debt security at a set
price on a future date. The financial instruments that underlie interest rate
futures contracts include long-term U.S. Treasury bonds, U.S. Treasury notes,
and three-month U.S. Treasury bills. In the case of futures contracts traded on
U.S. exchanges, the exchange itself or an affiliated clearing corporation
assumes the opposite side of each transaction (i.e., as buyer or seller). A
futures contract may be satisfied or closed out by delivery or purchase, as the
case may be in the cash financial instrument or by payment of the change in cash
value of the index. Frequently, using futures to effect a particular strategy
instead of using the underlying or related security will result in lower
transaction costs being incurred.
Each Fund may sell interest rate futures contracts in order to hedge their
portfolio securities whose value may be sensitive to changes in interest rates.
In addition, each Fund could purchase and sell these futures contracts in order
to hedge its holdings in certain common stocks (such as utilities, banks and
savings and loan) whose value may be sensitive to change in interests rates.
Each Fund could sell interest rate futures contracts in anticipation of or doing
a market decline to attempt to offset the decrease in market value of its
securities that might otherwise result. When a Fund is not fully invested in
securities, it could purchase interest rate futures in order to gain rapid
market exposure that may in part or entirely offset increases in the cost of
securities that it intends to purchase. If such purchases are made, an
equivalent amount of interest rate futures contracts will be terminated by
offsetting sales. Each Fund may also maintain the futures contract as a
substitute for the underlying securities.
OPTIONS ON INTEREST RATE FUTURES CONTRACTS. Each Fund may also purchase
and write put and call options on interest rate futures contracts which are
traded on a U.S. exchange or board of trade and sell or purchase such options to
terminate an existing position. Options on interest rate futures give the
purchaser the right (but not the obligation), in return for the premium paid, to
assume a position in an interest rate futures contract at a specified exercise
price at a time during the period of the option.
Transactions in options on interest rate futures would enable each Fund to
hedge against the possibility that fluctuations in interest rates and other
factors may result in a general decline in prices of debt securities owned by
the Fund. Assuming that any decline in the securities being hedged in
accomplished by a rise in interest rates, the purchase of put options and sale
of call options on the futures contracts may generate gains which can partially
offset any decline in the value of the particular Fund's portfolio securities
which have been hedged. However, if after a Fund purchases or sells an option on
a futures contract, the value of the securities being hedged moves in the
opposite direction from that contemplated, the Fund may experience losses in the
form of premiums on such options which would partially offset gains the Fund
would have.
SWAPS, CAPS, FLOORS AND COLLARS. Ivy International Strategic Bond Fund may
enter into interest rate, currency, credit and index swaps and the purchase or
sale of related caps, floors and collars. The Fund expects to enter into these
transactions primarily to preserve a return or spread on a particular investment
or portion of its portfolio, to protect against currency fluctuations, as a
duration management technique or to protect against any increase in the price of
securities the Fund anticipates purchasing at a later date. The Fund intends to
use these transactions as hedges and not as speculative investments and will not
sell interest rate caps or floors where it does not own securities or other
instruments providing the income stream the Fund may be obligated to pay.
Interest rate swaps involve the exchange by the Fund with another party of their
respective commitments to pay or receive interest, e.g., an exchange of floating
rate payments for fixed rate payments with respect to a notional amount of
principal. A currency swap is an agreement to exchange cash flows on a notional
amount of two or more currencies based on the relative value differential among
them and an index swap is an agreement to swap cash flows on a notional amount
based on changes in the values of the reference indices. Credit swaps involve
the exchange by the Fund with a counterparty of their respective commitments to
pay or receive the difference in interest rates between a firm or country's rate
and the risk free rate. The purchase of a cap entitles the purchaser to receive
payments on a notional principal amount from the party selling such cap to the
extent that a specified index exceeds a predetermined interest rate or amount.
The purchase of a floor entitles the purchaser to receive payments on a notional
principal amount from the party selling such floor to the extent that a
specified index falls below a predetermined interest rate or amount. A collar is
a combination of a cap and a floor that preserves a certain return within a
predetermined range of interest rate or values.
Ivy International Strategic Bond Fund may enter credit protection swap
arrangements involving the sale by the Fund of a put option on a debt security
which is exercisable by the buyer upon certain events, such as a default by the
referenced creditor on the underlying debt or a bankruptcy event of the
creditor.
The Fund will usually enter into swaps on a net basis, i.e., the two
payment streams are netted out in a cash settlement on the payment date or dates
specified in the instrument, with the Fund receiving or paying, as the case may
be, only the net amount of the two payments. Inasmuch as these swaps, caps,
floors and collars are entered into for good faith hedging purposes, IMI and the
Fund believe such obligations do not constitute senior securities under the 1940
Act and, accordingly, will not treat them as being subject to its borrowing
restrictions. The Fund will not enter into any swap, cap, floor or collar
transaction unless, at the time of entering into such transaction, the unsecured
long-term debt of the counterparty, combined with any credit enhancements, is
rated at least A by S&P or Moody's or has an equivalent rating from a nationally
recognized statistical rating organization or is determined to be of equivalent
credit quality by IMI. If there is a default by the counterparty, the Fund may
have contractual remedies pursuant to the agreements related to the transaction.
The swap market has grown substantially in recent years with a large number of
banks and investment banking firms acting both as principals and as agents
utilizing standardized swap documentation. As a result, the swap market has
become relatively liquid. Caps, floors and collars are more recent innovations
for which standardized documentation has not yet been fully developed and,
accordingly, they are less liquid than swaps.
FOREIGN CURRENCY FUTURES CONTRACTS AND RELATED OPTIONS. The Funds 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 Funds 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 each 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. Each 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.
Each Fund will only enter into futures contracts and futures options which
are standardized and traded on a U.S. or foreign exchange, board of trade, or
similar entity or quoted on an automated quotation system. Each Fund will not
enter into a futures contract or purchase an option thereon if, immediately
thereafter, the aggregate initial margin deposits for futures contracts held by
the Fund plus premiums paid by it for open futures option positions, less the
amount by which any such positions are "in-the-money," would exceed 5% of the
liquidation value of the Fund's portfolio (or the Fund's net asset value), after
taking into account unrealized profits and unrealized losses on any such
contracts the Fund has entered into. A call option is "in-the-money" if the
value of the futures contract that is the subject of the option exceeds the
exercise price. A put option is "in-the-money" if the exercise price exceeds the
value of the futures contract that is the subject of the option. For additional
information about margin deposits required with respect to futures contracts and
options thereon, see "Futures Contracts and Options on Futures Contracts."
RISKS ASSOCIATED WITH FUTURES AND RELATED OPTIONS. There can be no
guarantee that there will be a correlation between price movements in the
hedging vehicle and in a 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 a
Fund seeks to close out a futures or a futures option position, and the Fund
would remain obligated to meet margin requirements until the position is closed.
In addition, there can be no assurance that an active secondary market will
continue to exist.
Currency futures contracts and options thereon may be traded on foreign
exchanges. Such transactions may not be regulated as effectively as similar
transactions in the United States; may not involve a clearing mechanism and
related guarantees; and are subject to the risk of governmental actions
affecting trading in, or the prices of, foreign securities. The value of such
position also could be adversely affected by (i) other complex foreign
political, legal and economic factors, (ii) lesser availability than in the
United States of data on which to make trading decisions, (iii) delays in a
Fund's ability to act upon economic events occurring in foreign markets during
non business hours in the United States, (iv) the imposition of different
exercise and settlement terms and procedures and margin requirements than in the
United States, and (v) lesser trading volume.
SECURITIES INDEX FUTURES CONTRACTS
Ivy International Strategic Bond Fund may enter into securities index
futures contracts as an efficient means of regulating the Fund's exposure to the
equity markets. The Fund will not engage in transactions in futures contracts
for speculation, but only as a hedge against changes resulting from market
conditions in the values of securities held in the Fund's portfolio or which it
intends to purchase. An index futures contract is a contract to buy or sell
units of an index at a specified future date at a price agreed upon when the
contract is made. Entering into a contract to buy units of an index is commonly
referred to as purchasing a contract or holding a long position in the index.
Entering into a contract to sell units of an index is commonly referred to as
selling a contract or holding a short position. The value of a unit is the
current value of the stock index. For example, the S&P 500 Index is composed of
500 selected common stocks, most of which are listed on the New York Stock
Exchange (the "Exchange"). The S&P 500 Index assigns relative weightings to the
500 common stocks included in the Index, and the Index fluctuates with changes
in the market values of the shares of those common stocks. In the case of the
S&P 500 Index, contracts are to buy or sell 500 units. Thus, if the value of the
S&P 500 Index were $150, one contract would be worth $75,000 (500 units x $150).
The index futures contract specifies that no delivery of the actual securities
making up the index will take place. Instead, settlement in cash must occur upon
the termination of the contract, with the settlement being the difference
between the contract price and the actual level of the stock index at the
expiration of the contract. For example, if the Fund enters into a futures
contract to buy 500 units of the S&P 500 Index at a specified future date at a
contract price of $150 and the S&P 500 Index is at $154 on that future date, the
Fund will gain $2,000 (500 units x gain of $4). If the Fund enters into a
futures contract to sell 500 units of the stock index at a specified future date
at a contract price of $150 and the S&P 500 Index is at $154 on that future
date, the Fund will lose $2,000 (500 units x loss of $4).
RISKS OF SECURITIES INDEX FUTURES. Ivy International Strategic Bond Fund's
success in using hedging techniques depends, among other things, on IMI's
ability to predict correctly the direction and volatility of price movements in
the futures and options markets as well as in the securities markets and to
select the proper type, time and duration of hedges. The skills necessary for
successful use of hedges are different from those used in the selection of
individual stocks.
The Fund's ability to hedge effectively all or a portion of its securities
through transactions in index futures (and therefore the extent of its gain or
loss on such transactions) depends on the degree to which price movements in the
underlying index correlate with price movements in the Fund's securities.
Inasmuch as such securities will not duplicate the components of an index, the
correlation probably will not be perfect. Consequently, the Fund will bear the
risk that the prices of the securities being hedged will not move in the same
amount as the hedging instrument. This risk will increase as the composition of
the Fund's portfolio diverges from the composition of the hedging instrument.
Although the Fund intends to establish positions in these instruments only
when there appears to be an active market, there is no assurance that a liquid
market will exist at a time when the Fund seeks to close a particular option or
futures position. Trading could be interrupted, for example, because of supply
and demand imbalances arising from a lack of either buyers or sellers. In
addition, the futures exchanges may suspend trading after the price has risen or
fallen more than the maximum amount specified by the exchange. In some cases,
the Fund may experience losses as a result of its inability to close out a
position, and it may have to liquidate other investments to meet its cash needs.
Although some index futures contracts call for making or taking delivery
of the underlying securities, generally these obligations are closed out prior
to delivery by offsetting purchases or sales of matching futures contracts (same
exchange, underlying security or index, and delivery month). If an offsetting
purchase price is less than the original sale price, the Fund generally realizes
a capital gain, or if it is more, the Fund generally realizes a capital loss.
Conversely, if an offsetting sale price is more than the original purchase
price, the Fund generally realizes a capital gain, or if it is less, the Fund
generally realizes a capital loss. The transaction costs must also be included
in these calculations.
The Fund will only enter into index futures contracts or futures options
that are standardized and traded on a U.S. or foreign exchange or board of
trade, or similar entity, or quoted on an automated quotation system. The Fund
will use futures contracts and related options only for "bona fide hedging"
purposes, as such term is defined in applicable regulations of the CFTC.
When purchasing an index futures contract, the Fund will maintain with its
Custodian (and mark-to-market on a daily basis) cash or liquid securities that,
when added to the amounts deposited with a futures commission merchant ("FCM")
as margin, are equal to the market value of the futures contract. Alternatively,
the Fund may "cover" its position by purchasing a put option on the same futures
contract with a strike price as high as or higher than the price of the contract
held by the Fund.
When selling an index futures contract, the Fund will maintain with its
Custodian (and mark-to-market on a daily basis) cash or liquid securities that,
when added to the amounts deposited with an FCM as margin, are equal to the
market value of the instruments underlying the contract. Alternatively, the Fund
may "cover" its position by owning the instruments underlying the contract (or,
in the case of an index futures contract, a portfolio with a volatility
substantially similar to that of the index on which the futures contract is
based), or by holding a call option permitting the Fund to purchase the same
futures contract at a price no higher than the price of the contract written by
the Fund (or at a higher price if the difference is maintained in cash or liquid
assets in a segregated account with the Fund's custodian).
COMBINED TRANSACTIONS. Each Fund may enter into multiple transactions,
including multiple options transactions, multiple futures transactions, multiple
currency transactions (including forward currency contracts) and multiple
interest rate transactions and some combination of futures, options, currency
and interest rate transactions ("component" transactions), instead of a single
transaction, as part of a single or combined strategy when, in the opinion of
IMI, it is in the best interests of a Fund to do so. A combined transaction will
usually contain elements of risk that are present in each of its component
transactions. Although combined transactions are normally entered into based on
IMI's judgment that the combined strategies will reduce risk or otherwise more
effectively achieve the desired portfolio management goal, it is possible that
the combination will instead increase such risks or hinder achievement of the
management objective.
PORTFOLIO TURNOVER
The Funds purchase 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, each
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 a 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.
Each Fund's portfolio turnover rate is calculated by dividing the lesser of
purchases or sales of portfolio securities for the most recently completed
fiscal year by the monthly average of the value of the portfolio securities
owned by the Fund during that year. For purposes of determining the Fund's
portfolio turnover rate, all securities whose maturities at the time of
acquisition were one year or less are excluded.
TRUSTEES AND OFFICERS
Each Fund's Board of Trustees (the "Board") is responsible for the
overall management of the Fund, including general supervision and review of the
Fund's investment activities. The Board, in turn, elects the officers who are
responsible for administering each Fund's day-to-day operations.
The Trustees and Executive Officers of the Trust, their business
addresses and principal occupations during the past five years are:
POSITION WITH BUSINESS AFFILIATIONS
NAME, ADDRESS, AGE THE TRUST AND PRINCIPAL OCCUPATIONS
John S. Anderegg, Jr. Trustee Chairman, Dynamics Research
60 Concord Street Corp. (instruments and controls);
Wilmington, MA 01887 Director, Burr-Brown Corp.
Age: 75 (operational amplifiers);
Director, Metritage Incorporated
(level measuring instruments);
Trustee of Mackenzie Series Trust
(1992-1998).
James W. Broadfoot President President,
700 South Federal Hwy. and Ivy Management Inc. (1996-
Suite 300 Trustee present); Senior Vice
Boca Raton, FL 33432 President, Ivy Management,
Age: 56 Inc. (1992-1996); Director and Senior
[*Deemed to be an Vice President, Mackenzie Investment
"interested person" Management Inc. (1995-present); Senior
of the Trust, as Vice President, Mackenzie Investment
defined under the Management Inc. (1990-1995).
1940 Act.]
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: 75 (insurance agency); Chairman,
Scott Management Company
(administrative services for
insurance companies); President,
The Channick Group (consultants
to insurance companies and
national trade associations);
Trustee of Mackenzie Series
Trust (1994-1998); Director of
The Mackenzie Funds Inc.
(1994-1995).
Frank W. DeFriece, Jr. Trustee Director, Manager and Vice
The Landmark Centre President, Director and
113 Landmark Lane, Fund Manager, Massengill-
Suite B DeFriece Foundation
Bristol, TN 37620-2285 (charitable organization)
Age: 78 (1950-present); Trustee and Vice
Chairman, East Tennessee Public
Communications Corp. (WSJK-TV)
(1984-present); Trustee of
Mackenzie Series Trust
(1985-1998); Director of The
Mackenzie Funds Inc. (1987-1995).
Roy J. Glauber Trustee Mallinckrodt Professor of
Lyman Laboratory Physics, Harvard
of Physics University (1974-present);
Harvard University Trustee of Mackenzie Series
Cambridge, MA 02138 Trust (1994-1997).
Age: 73
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: 69 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 Chairman -present); Senior Vice President
Boca Raton, FL 33432 and Director of Mackenzie
Age: 42 Investment Management, Inc. (1994-
[*Deemed to be an 1996); Senior Vice President and
"interested person" Treasurer of Mackenzie Investment
of the Trust, as defined Management, Inc. (1989-1994);
under the Senior Vice President and Director
1940 Act.] 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).
Edward M. Tighe Trustee Chief Executive Officer,
5900 N. Andrews Avenue CITCO Technology Management, Inc.
Suite 700 ("CITCO") (computer software develop-
Ft. Lauderdale, FL 33309 ment and consulting) (1999-present);
President and Director, Global
Technology Management, Inc. (CITCO's
predecessor) (1992-1998); Managing
Director, Global Mutual Fund Services,
Ltd. (financial services firm);
President, Director and Chief
Executive Officer, Global Mutual Fund
Services, Inc. (1994-present).
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).
COMPENSATION TABLE
IVY FUND
(FISCAL YEAR ENDED DECEMBER 31, 1998)
<TABLE>
<S> <C> <C> <C> <C>
PENSION OR
AGGREGATE RETIREMENT ESTIMATED TOTAL COMPENSATION
COMPENSATION BENEFITS ACCRUED ANNUAL ESTIMATED FROM TRUST AND FUND
NAME, FROM AS PART OF FUND ANNUAL BENEFITS COMPLEX PAID TO TRUSTEES
POSITION TRUST EXPENSES UPON RETIREMENT
John S. $18,000 N/A N/A $18,000
Anderegg, Jr.
(Trustee)
Paul H. $18,000 N/A N/A $18,000
Broyhill
(Trustee)
Keith J. $0 N/A N/A $0
Carlson
(Trustee and
President)
Stanley $18,000 N/A N/A $18,000
Channick
(Trustee)
Frank W. $18,000 N/A N/A $18,000
DeFriece, Jr.
(Trustee)
Roy J. $18,000 N/A N/A $18,000
Glauber
(Trustee)
Joseph G. $18,000 N/A N/A $18,000
Rosenthal
(Trustee)
Richard N. $18,000 N/A N/A $18,000
Silverman
(Trustee)
J. Brendan $17,000 N/A N/A $17,000
Swan
(Trustee)
C. William $0 N/A N/A $0
Ferris
(Secretary/
Treasurer)
</TABLE>
To the knowledge of the Trust, as of March 31, 1999, no shareholder
owned beneficially or of record 5% or more of any Fund's outstanding shares of
any class, with the following exceptions:
CLASS A
Of the outstanding Class A shares of :
Ivy Asia Pacific Fund, Merrill Lynch Pierce Fenner & Smith, 4800 Deer
Lake Drive E, 3rd Floor, Jacksonville, FL 32246, owned of record 40,174.921
shares (16.51%), and Michael G. Landry, 211 S. Gordon Rd., Ft.
Lauderdale, FL 33301, owned of record 12,443.882 shares (5.11%);
Ivy Bond Fund, Merrill Lynch Pierce Fenner & Smith, 4800 Deer Lake
Drive E, 3rd Floor, Jacksonville, FL 32246, owned of record 1,397,567.620 shares
(13.02%);
Ivy China Region Fund, Merrill Lynch Pierce Fenner & Smith, 4800 Deer
Lake Drive E, 3rd Floor, Jacksonville, FL 32246, owned of record 218,003.027
shares (13.26%), and Resources Trust Company, PO Box 3865, Englewood, CO
80155-3865, owned of record 186,351.290 shares (11.33%);
Ivy Developing Nations Fund, Donaldson Lufkin Jenrette Securities
Corporation Inc., PO Box 2052, Jersey City, NJ 07303-9998, owned of record
87,092.843 shares (11.31%), Donaldson Lufkin Jenrette Securities Corporation
Inc., PO Box 2052, Jersey City, NJ 07303-9998, owned of record 54,336.017 shares
(7.06%), and Merrill Lynch Pierce Fenner & Smith, 4800 Deer Lake Drive E, 3rd
Floor, Jacksonville, FL 32246, owned of record 41,198.769 shares (5.35%);
Ivy Global Natural Resources Fund, Carn & Co., Riggs Bank (TTEE) FBO
Care-Free Consolidated 401K Plan, PO Box 96211, Washington, DC 20090-6211, owned
of record 62,273.356 shares (29.71%), Carn & Co., Riggs Bank (TTEE) FBO Yazaki
Employee Savings & Retirement Plan, PO Box 96211, Washington, DC 20090-6211,
owned of record 22,533.136 shares (10.75%), and Mackenzie Investment Management
Inc., via Mizner Financial Plaza, 700 South Federal Highway, Suite 300, Boca
Raton, FL 33432, owned of record 11,957.023 shares (5.70%);
Ivy Global Science & Technology Fund, Donaldson Lufkin Jenrette
Securities Corporation Inc., PO Box 2052, Jersey City, NJ 07303-9998, owned of
record 99,948.978 shares (16.84%), Donaldson Lufkin Jenrette Securities
Corporation Inc., PO Box 2052, Jersey City, NJ 07303-9998, owned of record
65,325.391 shares (11.01%), and Merrill Lynch Pierce Fenner & Smith, 4800 Deer
Lake Drive E, 3rd Floor, Jacksonville, FL 32246, owned of record 31,922.542
shares (5.38%);
Ivy International Fund II, Merrill Lynch Pierce Fenner & Smith, 4800
Deer Lake Drive E, 3rd Floor, Jacksonville, FL 32246, owned of record
818,804.984 shares (34.10%);
Ivy International Fund, Charles Schwab & Co. Inc., 101 Montgomery
Street, San Francisco, CA 94104, owned of record 12,827,455.253 shares (35.28%),
and Merrill Lynch Pierce Fenner & Smith, 4800 Deer Lake Drive E, 3rd Floor,
Jacksonville, FL 32246, owned of record 6,083,813.996 shares (16.73%);
Ivy International Small Companies Fund, Donaldson Lufkin Jenrette
Securities Corporation Inc., PO Box 2052, Jersey City, NJ 07303-9998, owned of
record 19,762.181 shares (20.88%), and Mackenzie Investment Management Inc., via
Mizner Financial Plaza, 700 South Federal Highway, Suite 300, Boca Raton, FL
33432, owned of record 10,287.244 shares (10.87%).
Ivy Money Market Fund, Carn & Co., Riggs Bank (TTEE) FBO Plexus Corp
401K Plan, PO Box 96211, Washington, DC 20090-6211, owned of record
2,710,056.720 shares (13.19%), and Bear Stearns Securities Corp., 1 Metrotech
Center North, Brooklyn, NY 11201-3859, owned of record 1,432,318.960 shares
(6.97%).
Ivy Pan-Europe Fund, Mackenzie Investment Management Inc., via Mizner
Financial Plaza, 700 South Federal Highway, Suite 300, Boca Raton, FL 33432,
owned of record 37,553.145 shares (23.84%), and Merrill Lynch Pierce Fenner &
Smith, 4800 Deer Lake Drive E, 3rd Floor, Jacksonville, FL 32246, owned of
record 27,122.193 shares (17.22%);
Ivy South America Fund, Merrill Lynch Pierce Fenner & Smith, 4800 Deer
Lake Drive E, 3rd Floor, Jacksonville, FL 32246, owned of record 45,710.848
shares (17.87%), and Charles Schwab & Co. Inc., 101 Montgomery Street, San
Francisco, CA 94104, owned of record 19,471.113 shares (7.61%), and William A.
Maczko & Mildred E. Helm Maczko, 2100 S. Ocean Ln., #1412, Ft. Lauderdale, FL
33316, owned of record 14,174.070 shares (5.54%);
Ivy US Blue Chip Fund, Helen L. Medvin, 4712 Michael Ave., North
Olmsted, OH 44070, owned of record 10,253.846 shares (7.12%), Donaldson Lufkin
Jenrette Securities Corporation Inc., PO Box 2052, Jersey City, NJ 07303-9998,
owned of record 8,986.371 shares (6.24%), and Janney Montgomery Scott Inc.,
Estate of David Craig, 1801 Market Street, Philadelphia, PA 19103-1675, owned of
record 8,880.995 shares (6.17%).
Ivy US Emerging Growth Fund, Donaldson Lufkin Jenrette Securities
Corporation Inc., PO Box 2052, Jersey City, NJ 07303-9998, owned of record
86,774.211 shares (5.08%);
CLASS B
Of the outstanding Class B shares of:
Ivy Asia Pacific Fund, Merrill Lynch Pierce Fenner & Smith, 4800 Deer
Lake Drive E, 3rd Floor, Jacksonville, FL 32246, owned of record 141,298.083
shares (35.22%);
Ivy Bond Fund, Merrill Lynch Pierce Fenner & Smith, 4800 Deer Lake
Drive E, 3rd Floor, Jacksonville, FL 32246, owned of record 12,199,384.716
shares (48.92%);
Ivy China Region Fund, Merrill Lynch Pierce Fenner & Smith, 4800 Deer
Lake Drive E, 3rd Floor, Jacksonville, FL 32246, owned of record 107,725.641
shares (11.73%);
Ivy Developing Nations Fund, Merrill Lynch Pierce Fenner & Smith, 4800
Deer Lake Drive E, 3rd Floor, Jacksonville, FL 32246, owned of record
278,316.028 shares (28.37%);
Ivy Global Fund, Merrill Lynch Pierce Fenner & Smith, 4800 Deer Lake
Drive E, 3rd Floor, Jacksonville, FL 32246, owned of record 68,719.447 shares
(11.93%);
Ivy Global Natural Resources Fund, Merrill Lynch Pierce Fenner & Smith,
4800 Deer Lake Drive E, 3rd Floor, Jacksonville, FL 32246, owned of record
83,599.984 shares (38.05%);
Ivy Global Science & Technology Fund, Merrill Lynch Pierce Fenner &
Smith, 4800 Deer Lake Drive E, 3rd Floor, Jacksonville, FL 32246, owned of
record 40,990.672 shares (8.13%);
Ivy Growth Fund, Merrill Lynch Pierce Fenner & Smith, 4800 Deer Lake
Drive E, 3rd Floor, Jacksonville, FL 32246, owned of record 24,939.375 shares
(8.96%);
Ivy Growth with Income Fund, Merrill Lynch Pierce Fenner & Smith, 4800
Deer Lake Drive E, 3rd Floor, Jacksonville, FL 32246, owned of record
263,081.752 shares (15.31%);
Ivy International Fund II, Merrill Lynch Pierce Fenner & Smith, 4800
Deer Lake Drive E, 3rd Floor, Jacksonville, FL 32246, owned of record
4,986,169.823 shares (60.62%);
Ivy International Fund, Merrill Lynch Pierce Fenner & Smith, 4800 Deer
Lake Drive E, 3rd Floor, Jacksonville, FL 32246, owned of record 5,678,407.729
shares (45.59%).
Ivy International Small Companies Fund, Merrill Lynch Pierce Fenner &
Smith, 4800 Deer Lake Drive E, 3rd Floor, Jacksonville, FL 32246, owned of
record 24,340.066 shares (23.40%), PaineWebber, FBO B Carmage Walls Trust #10,
FBO Lissa Walls Trust and Cooper Walls TTEE, PO Box 42828, Houston, TX 77242,
owned of record 5,880.313 shares (5.65%), and PaineWebber, FBO B Carmage Walls
Trust #10, FBO Cooper Walls Trust and Cooper Walls TTEE, PO Box 42828, Houston,
TX 77242, owned of record 5,760.640 shares (5.53%);
Ivy Pan-Europe Fund, Merrill Lynch Pierce Fenner & Smith, 4800 Deer
Lake Drive E, 3rd Floor, Jacksonville, FL 32246, owned of record 66,847.392
shares (22.86%);
Ivy South America Fund, Merrill Lynch Pierce Fenner & Smith, 4800 Deer
Lake Drive E, 3rd Floor, Jacksonville, FL 32246, owned of record 46,359.136
shares (29.47%);
Ivy US Blue Chip Fund, Merrill Lynch Pierce Fenner & Smith, 4800 Deer
Lake Drive E, 3rd Floor, Jacksonville, FL 32246, owned of record 74,760.802
shares (18.62%), and Parker Hunter Incorporated, FBO Robert Crisci and Kathy
Crisci, PO Box 7629, 3525 Ellwood Road, New Castle, PA 16107-7629, owned of
record 24,779.090 shares (6.17%).
Ivy US Emerging Growth Fund, Merrill Lynch Pierce Fenner & Smith, 4800
Deer Lake Drive E, 3rd Floor, Jacksonville, FL 32246, owned of record
335,426.771 shares (21.10%);
CLASS C
Of the outstanding Class C shares of:
Ivy Asia Pacific Fund, Merrill Lynch Pierce Fenner & Smith, 4800 Deer
Lake Drive E, 3rd Floor, Jacksonville, FL 32246, owned of record 19,237.215
shares (5.33%);
Ivy Bond Fund, Merrill Lynch Pierce Fenner & Smith, 4800 Deer Lake
Drive E, 3rd Floor, Jacksonville, FL 32246, owned of record 725,233.869 shares
(74.69%);
Ivy China Region Fund, Merrill Lynch Pierce Fenner & Smith, 4800 Deer
Lake Drive E, 3rd Floor, Jacksonville, FL 32246, owned of record 30,474.251
shares (27.72%), and IBT, (custodian) FBO Roy O. Derminer, 2236 Abbottwoods Ln.,
Orange City, FL 32763, owned of record 8,275.708 shares (7.52%);
Ivy Developing Nations Fund, Merrill Lynch Pierce Fenner & Smith, 4800
Deer Lake Drive E, 3rd Floor, Jacksonville, FL 32246, owned of record 48,103,553
shares (11.99%);
Ivy Global Fund, Merrill Lynch Pierce Fenner & Smith, 4800 Deer Lake
Drive E, 3rd Floor, Jacksonville, FL 32246, owned of record 6,585.276 shares
(19.35%), Donaldson Lufkin Jenrette Securities Corporation Inc., PO Box 2052,
Jersey City, NJ 07303-9998, owned of record 3,909.907 shares (11.48%), Robert W.
Baird & Co. Inc., 777 East Wisconsin Avenue, Milwaukee, WI 53202-5391, owned of
record 3,436.408 shares (10.09%), IBT, (custodian) FBO Mattie A. Allen, 755
Selma Pl., San Diego, CA 92114-1711, owned of record 3,095.552 shares (9.09%),
Smith Barney Inc., 388 Greenwich Street, New York, NY 10013, owned of record
2,436.584 shares (7.15%), and PaineWebber, (custodian) FBO Robert D.
Cuthbertson, PO Box 3321, Weehawken, NJ 07087-8154, owned of record 1,705.476
shares (5.01%);
Ivy Global Natural Resources Fund, Raymond James & Assoc. Inc.,
(custodian) Raymond W. Simmons, 6296 104th Avenue, Pinellas Park, FL 33782,
owned of record 981.281 shares (19.43%), Raymond James & Assoc. Inc.,
(custodian) Diversified Dental P/S, FBO Al Pollock, 10641 1st Street E., Suite
204, Treasure Island, FL 33706, owned of record 910.166 shares (18.02%), Robert
W. Baird & Co. Inc., 777 E. Wisconsin Avenue, Milwaukee, WI 53202-5391, owned of
record 613.622 shares (12.15%), Robert W. Baird & Co. Inc., 777 E. Wisconsin
Avenue, Milwaukee, WI 53202-5391, owned of record 550.722 shares (10.90%), Nancy
J. Cleare, 9381 US Hwy. 19 N, Pinellas Park, FL 33782, owned of record 541.597
shares (10.72%), Resources Trust Co., (custodian) FBO Jon K. Loessin, PO Box
5900, Denver, CO 80217, owned of record 535.023 shares (10.59%), Ester C.
Wickes, 19 Fawn Hill Rd., Tuxedo, NY 10987, owned of record 350.772 shares
(6.94%), and IBT, (custodian) FBO Salvatore Disalvo, 311 Bridle Path Lane,
Annapolis, MD 21403-1638, owned of record 299.993 shares (5.94%);
Ivy Global Science & Technology Fund, Merrill Lynch Pierce Fenner &
Smith, 4800 Deer Lake Drive E, 3rd Floor, Jacksonville, FL 32246, owned of
record 38,011.661 shares (11.30%);
Ivy Growth Fund, Merrill Lynch Pierce Fenner & Smith, 4800 Deer Lake
Drive E, 3rd Floor, Jacksonville, FL 32246, owned of record 7,477.571 shares
(47.23%), IBT, (custodian) FBO Joseph L. Wright, 32211 Pierce Street, Garden
City, MI 48135, owned of record 3,938.282 shares (24.87%), PaineWebber, FBO
Cynthia N. Young, PO Box 3321, Weehawken, NJ 07087-8154, owned of record 853.551
shares (5.39%), and Martin S. Sawyer & Ruth C. Sawyer, 5910 Wilson Blvd., #413,
Arlington, VA 22205, owned of record 844.906 shares (5.33%);
Ivy Growth with Income Fund, Merrill Lynch Pierce Fenner & Smith, 4800
Deer Lake Drive E, 3rd Floor, Jacksonville, FL 32246, owned of record 11,534.267
shares (29.37%), Anthony L. Bassano & Marie E. Bassano, 8934 Bari Court, Port
Richie, FL 34668, owned of record 3,203.100 shares (8.15%), IBT, (custodian) FBO
Vytautas Snieckus, 1250 E 276th Street, Euclid, OH 44132, owned of record
2,645.907 shares (6.73%), PaineWebber, (custodian) FBO Patricia Cramer Russell,
PO Box 3321, Weehawken, NJ 07087-8154, owned of record 2,191.410 shares (5.58%),
IBT, (custodian) FBO Kevin D. Thistle, 1017 Glencrest Court, Saulkville, WI
53080, owned of record 2,130.626 shares (5.42%), and IBT, (custodian) FBO Carol
E. Greivell, 985 N Broadway, #67, Depere, WI 54115, owned of record 2,106.814
shares (5.36%);
Ivy International Fund II, Merrill Lynch Pierce Fenner & Smith, 4800
Deer Lake Drive E, 3rd Floor, Jacksonville, FL 32246, owned of record
2,908,557.453 shares (74.01%);
Ivy International Fund, Merrill Lynch Pierce Fenner & Smith, 4800 Deer
Lake Drive E, 3rd Floor, Jacksonville, FL 32246, owned of record 2,189,094.234
shares (64.38%);
Ivy International Small Companies Fund, Merrill Lynch Pierce Fenner &
Smith, 4800 Deer Lake Drive E, 3rd Floor, Jacksonville, FL 32246, owned of
record 87,014.649 shares (90.31%);
Ivy Money Market Fund, PaineWebber, FBO Bruce Blank, PO Box 3321,
Weehawken, NJ 07087-8154, owned of record 103,905.380 shares (17.65%), IBT
(custodian) FBO, Marcelette V. Manning, 1371 Mt. View Lane, Chula Vista, CA
91911, owned of record 65,194.630 shares (11.07%), IBT (custodian) FBO Diana
Rooney, 2441 S. 9th St., El Centro, CA 92243, owned of record 62,822.810 shares
(10.67%), Robert J. Laws & Katherine A. Laws, PO Box 723, Ramona, CA 92065,
owned of record 42,920.450 shares (7.29%), IBT (custodian) FBO Betty J. Carson,
1987 Higgins Lane, El Centro, CA 92243, owned of record 39,398.780 shares
(6.69%), Paul M. Benard, 40 Arrowhead Farm Road, Boxford, MA 01921, owned of
record 33,488.010 shares (5.68%), Diane C. Benard, 40 Arrowhead Farm Road,
Boxford, MA 01921, owned of record 33,488.010 shares (5.68%), and PaineWebber,
FBO Kathleen L. Diller, PO Box 3321, Weehawken, NJ 07087-8154, owned of record
30,238.920 shares (5.13%).
Ivy Pan-Europe Fund, Merrill Lynch Pierce Fenner & Smith, 4800 Deer
Lake Drive E, 3rd Floor, Jacksonville, FL 32246, owned of record 26,948.668
shares (44.12%), Resources Trust Company, FBO Terry K. Ramnanan, PO Box 5900,
Denver, CO 80217, owned of record 14,652.015 shares (23.99%), and Donaldson
Lufkin Jenrette Securities Corporation Inc., PO Box 2052, Jersey City, NJ
07303-9998, owned of record 4,663.657 shares (7.63%);
Ivy South America Fund, Merrill Lynch Pierce Fenner & Smith, 4800 Deer
Lake Drive E, 3rd Floor, Jacksonville, FL 32246, owned of record 10,956.813
shares (58.18%), Interstate/Johnson Lane, Interstate Tower, PO Box 1220,
Charlotte, NC 28201-1220, owned of record 2,617.801 shares (13.90%), Donaldson
Lufkin Jenrette Securities Corporation Inc., PO Box 2052, Jersey City, NJ
07303-9998, owned of record 2,318.301 shares (12.31%), Donaldson Lufkin Jenrette
Securities Corporation Inc., PO Box 2052, Jersey City, NJ 07303-9998, owned of
record 1,133.787 shares (6.02%), and Smith Barney Inc., 388 Greenwich Street,
New York, NY 10013, owned of record 966.121 shares (5.13%);
Ivy US Blue Chip Fund, Merrill Lynch Pierce Fenner & Smith, 4800 Deer
Lake Drive E, 3rd Floor, Jacksonville, FL 32246, owned of record 8,485.693
shares (10.18%), Donaldson Lufkin Jenrette Securities Corporation Inc., PO Box
2052, Jersey City, NJ 07303-9998, owned of record 6,066.012 shares (7.27%), IBT,
(custodian) FBO Roy O. Derminer, 2236 Abbottwoods LN, Orange City, FL 32763,
owned of record 4,517.953 shares (5.42%), and Donaldson Lufkin Jenrette
Securities Corporation Inc., PO Box 2052, Jersey City, NJ 07303-9998, owned of
record 4,412.541 shares (5.29%);
Ivy US Emerging Growth Fund, Merrill Lynch Pierce Fenner & Smith, 4800
Deer Lake Drive E, 3rd Floor, Jacksonville, FL 32246, owned of record 96,481.220
shares (30.56%);
CLASS I
Of the outstanding Class I shares of:
Ivy International Fund, The John E. Fetzer Institute Inc., 9292 W KL
Ave., Kalamazoo, MI 49009, owned of record 727,066.771 shares (19.12%), State
Street Bank, (TTEE) FBO Allison Engines, 200 Newport Ave., 7th Floor, North
Quincy, MA 02171, owned of record 292,309.556 shares (7.68%), Lynspen and
Company, PO Box 830804, Birmingham, AL 35283, owned of record 276,747.272 shares
(7.27%), and U A Local 447 Pension Trust Fund, 5841 Newman Ct., Sacramento, CA
95819, owned of record 240,427.057 shares (6.32%).
ADVISOR CLASS
Of the outstanding Advisor Class shares of:
Ivy Bond Fund, NFSC FEBO, C. William Ferris, Michael Landry/Keith
Carlson, 700 South Federal Highway, Boca Raton, FL 33432-6114, owned of record
13,944.569 shares (77.94%), and Donaldson Lufkin Jenrette Securities Corporation
Inc., PO Box 2052, Jersey City, NJ 07303-9998, owned of record 3,252.157 shares
(18.17%);
Ivy China Region Fund, Donaldson Lufkin Jenrette Securities Corporation
Inc., PO Box 2052, Jersey City, NJ 07303-9998, owned of record 1,354.000 shares
(84.59%), and Donaldson Lufkin Jenrette Securities Corporation Inc., PO Box
2052, Jersey City, NJ 07303-9998, owned of record 192.447 shares (12.02%).
Ivy Developing Nations Fund, NFSC FEBO, C. William Ferris, Michael
Landry/Keith Carlson, 700 South Federal Highway, Boca Raton, FL 33432-6114,
owned of record 14,362.134 shares (100%);
Ivy Global Fund, NFSC FEBO, C. William Ferris, Michael Landry/Keith
Carlson, 700 South Federal Highway, Boca Raton, FL 33432-6114, owned of record
30,007.844 shares (100%);
Ivy Global Science & Technology Fund, IBT, (custodian) FBO Deborah P.
Mason, 3406 Cypress Landing Dr., Valrico, FL 33594, owned of record 629.966
shares (36.59%), Donaldson Lufkin Jenrette Securities Corporation Inc., PO Box
2052, Jersey City, NJ 07303-9998, owned of record 534.539 shares (31.04%),
Donaldson Lufkin Jenrette Securities Corporation Inc., PO Box 2052, Jersey City,
NJ 07303-9998, owned of record 418.586 shares (24.31%), and Donaldson Lufkin
Jenrette Securities Corporation Inc., PO Box 2052, Jersey City, NJ 07303-9998,
owned of record 138.549 shares (8.04%);
Ivy Growth Fund, NFSC FEBO, C. William Ferris, Michael Landry/Keith
Carlson, 700 South Federal Highway, Boca Raton, FL 33432-6114, owned of record
16,572.658 shares (99.90%);
Ivy Growth with Income Fund, NFSC FEBO, C. William Ferris, Michael
Landry/Keith Carlson, 700 South Federal Highway, Boca Raton, FL 33432-6114,
owned of record 25,118.240 shares (100%);
Ivy International Fund II, Charles Scwab & Co. Inc., 101 Montgomery
Street, San Francisco, CA 94104, owned of record 7,913.113 shares (11.19%),
Donaldson Lufkin Jenrette Securities Corporation Inc., PO Box 2052, Jersey City,
NJ 07303-9998, owned of record 6,471.430 shares (9.15%), and Donaldson Lufkin
Jenrette Securities Corporation Inc., PO Box 2052, Jersey City, NJ 07303-9998,
owned of record 4,602.660 shares (6.50%);
Ivy Pan-Europe Fund, NFSC FEBO, C. William Ferris, Michael Landry/Keith
Carlson, 700 South Federal Highway, Boca Raton, FL 33432-6114, owned of record
3,424.319 shares (47.51%), Donaldson Lufkin Jenrette Securities Corporation
Inc., PO Box 2052, Jersey City, NJ 07303-9998, owned of record 1,191.422 shares
(16.53%), Donaldson Lufkin Jenrette Securities Corporation Inc., PO Box 2052,
Jersey City, NJ 07303-9998, owned of record 947.119 shares (13.14%), Donaldson
Lufkin Jenrette Securities Corporation Inc., PO Box 2052, Jersey City, NJ
07303-9998, owned of record 653.595 shares (9.06%), and Charles Schwab & Co.
Inc., 101 Montgomery Street, San Francisco, CA 94104,owned of record 406.639
shares (5.64%);
Ivy US Blue Chip Fund, Mackenzie Investment Management Inc., Via Mizner
Financial Plaza, 700 South Federal Highway, Suite 300, Boca Raton, FL 33432,
owned of record 50,001.000 shares (80.05%), NFSC FEBO, C. William Ferris,
Michael Landry/Keith Carlson, 700 South Federal Highway, Boca Raton, FL
33432-6114, owned of record 7,419.362 shares (11.87%), and Charles Scwab & Co.
Inc., 101 Montgomery Street, San Francisco, CA 94104, owned of record 3,678.690
shares (5.88%);
Ivy US Emerging Growth Fund, NFSC FEBO, C. William Ferris, Michael
Landry/Keith Carlson, 700 South Federal Highway, Boca Raton, FL 33432-6114,
owned of record 20,670.236 shares (84.78%), and Charles Schwab & Co. Inc., 101
Montgomery Street, San Francisco, CA 94104, owned of record 1,927.965 shares
(7.90%).
As of April 16, 1999, the Officers and Trustees of the Trust as a group
owned beneficially or of record less than 1% of the outstanding Class A, Class
B, Class C, Class I and Advisor Class shares of each of the nineteen Ivy funds
that are series of the Trust, except that the Officers and Trustees of the Trust
as a group owned 3.93%, 1.94%, 1.19%, and 2.09%, respectively, of Ivy Asia
Pacific Fund Class A shares, Ivy Global Natural Resources Fund Class A shares,
Ivy Money Market Fund Class A shares, and Ivy South America Fund Class A shares,
respectively, as of that date.
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 each Fund. Among other things,
the Code of Ethics, which generally complies with standards recommended by the
Investment Company Institute's Advisory Group on Personal Investing, prohibits
certain types of transactions absent prior approval, applies to portfolio
managers, traders, research analysts and others involved in the investment
advisory process, and imposes time periods during which personal transactions
may not be made in certain securities, and requires the submission of duplicate
broker confirmations and monthly reporting of securities transactions.
Exceptions to these and other provisions of the Code of Ethics may be granted in
particular circumstances after review by appropriate personnel.
INVESTMENT ADVISORY AND OTHER SERVICES
BUSINESS MANAGEMENT AND INVESTMENT ADVISORY SERVICES
IMI provides business management and investment advisory services to each
Fund pursuant to a Business Management and Investment Advisory Agreement (the
"Agreement"). IMI is a wholly owned subsidiary of Mackenzie Investment
Management Inc. ("MIMI"). MIMI, a Delaware corporation, has approximately 10% of
its outstanding common stock listed for trading on the Toronto Stock Exchange
("TSE"). MIMI is a subsidiary of Mackenzie Financial Corporation ("MFC"), 150
Bloor Street West, Toronto, Ontario, Canada, a public corporation organized
under the laws of Ontario whose shares are listed for trading on the TSE. MFC is
registered in Ontario as a mutual fund dealer and advises Ivy Global Natural
Resources Fund. IMI currently acts as manager and investment adviser to the
following additional investment companies registered under the 1940 Act (other
than the Funds): Ivy Asia Pacific Fund, Ivy China Region Fund, Ivy Developing
Nations Fund, Ivy European Opportunities Fund, Ivy Global Fund, Ivy Global
Science & Technology Fund, Ivy Growth Fund, Ivy Growth with Income Fund, Ivy
International Fund II, Ivy International Fund, Ivy International Small Companies
Fund, Ivy Money Market Fund, Ivy Pan-Europe Fund, Ivy South America Fund, Ivy US
Blue Chip Fund and Ivy US Emerging Growth Fund. IMI also provides business
management services to Ivy Global Natural Resources Fund.
The Agreement obligates IMI to make investments for the account of each
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 each 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 each Fund's Custodian and
monitor the services it provides to the Fund; (2) coordinate with and monitor
any other third parties furnishing services to each Fund; (3) provide each 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 each 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.
Ivy Bond Fund pays IMI a monthly fee for providing business management and
investment advisory services at an annual rate of 0.75% of the first $100
million of the Fund's average net assets, reduced to 0.50% of the Fund's average
net assets in excess of $100 million. During the fiscal years ended December 31,
1996, 1997 and 1998, Ivy Bond Fund paid IMI fees of $781,647, $800,555, and
$1,042,273, respectively. During the same periods, IMI reimbursed Fund expenses
in the amount of $0, $0, and $0, respectively.
Ivy International Strategic Bond Fund pays IMI a monthly fee for providing
business management and investment advisory services at an annual rate of 0.75%
of the Fund's average net assets.
Under the Agreement, the Trust pays the following expenses: (1) the fees
and expenses of the Trust's Independent Trustees; (2) the salaries and expenses
of any of the Trust's officers or employees who are not affiliated with IMI; (3)
interest expenses; (4) taxes and governmental fees, including any original issue
taxes or transfer taxes applicable to the sale or delivery of shares or
certificates therefor; (5) brokerage commissions and other expenses incurred in
acquiring or disposing of portfolio securities; (6) the expenses of registering
and qualifying shares for sale with the SEC and with various state securities
commissions; (7) accounting and legal costs; (8) insurance premiums; (9) fees
and expenses of the Trust's Custodian and Transfer Agent and any related
services; (10) expenses of obtaining quotations of portfolio securities and of
pricing shares; (11) expenses of maintaining the Trust's legal existence and of
shareholders' meetings; (12) expenses of preparation and distribution to
existing shareholders of periodic reports, proxy materials and prospectuses; and
(13) fees and expenses of membership in industry organizations.
IMI currently limits Ivy Bond 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.
IMI currently limits Ivy International Strategic Bond 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 1.25% of the Fund's average net
assets, which may lower the Fund's expenses and increase its yield.
The Agreement will continue in effect with respect to each Fund from year
to year, only so long as the continuance is specifically approved at least
annually (i) by the vote of a majority of the Independent Trustees and (ii)
either (a) by the vote of a majority of the outstanding voting securities (as
defined in the 1940 Act) of each 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 with respect to each Fund only if approved by the affirmative
vote of a majority of the outstanding voting securities of that Fund. See
"Capitalization and Voting Rights."
The Agreement may be terminated with respect to each 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 that Fund, on 60
days' written notice to IMI, or by IMI on 60 days' written notice to the Trust.
The Agreement shall terminate automatically in the event of its assignment.
DISTRIBUTION SERVICES
IMDI, a wholly owned subsidiary of MIMI, serves as the exclusive
distributor of Ivy Fund's shares pursuant to an Amended and Restated
Distribution Agreement with the Trust dated March 16, 1999, as amended from time
to time (the "Distribution Agreement"). IMDI distributes shares of each 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 each 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.
Each 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 each Fund's behalf. Each 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 each Fund's Net Asset Value next
computed after an authorized intermediary or the intermediary's authorized
designee accepts them.
Under the Distribution Agreement, each Fund bears, among other expenses,
the expenses of registering and qualifying its shares for sale under Federal and
state securities laws and preparing and distributing to existing shareholders
periodic reports, proxy materials and prospectuses.
The Distribution Agreement will continue in effect for successive one-year
periods, provided that such continuance is specifically approved at least
annually by the vote of a majority of the Independent Trustees, cast in person
at a meeting called for that purpose and by the vote of either a majority of the
entire Board or a majority of the outstanding voting securities of each Fund.
The Distribution Agreement may be terminated with respect to each Fund at any
time, without payment of any penalty, by IMDI on 60 days' written notice to that
Fund or by a Fund by vote of either a majority of the outstanding voting
securities of that 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. The
Board has adopted a Rule 18f-3 plan on behalf of each Fund. The key features of
the Rule 18f-3 plan are as follows: (i) shares of each class of each Fund
represent an equal pro rata interest in that 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 each Fund may be exchanged for shares of the same class
of another Ivy fund; and (iii) each Fund's Class B shares will convert
automatically into Class A shares of that 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 each 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 each Fund's foreign securities. With
respect to each Fund, the Custodian may receive, as partial payment for its
services to that 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 each Fund. As compensation for those
services, each Fund pays MIMI a monthly fee plus out-of-pocket expenses as
incurred. The monthly fee for each Fund is based upon the net assets of the Fund
at the preceding month end at the following rates: $1,250 when net assets are
$10 million and under; $2,500 when net assets are over $10 million to $40
million; $5,000 when net assets are over $40 million to $75 million; and $6,500
when net assets are over $75 million.
During the fiscal year ended December 31, 1998, Ivy Bond Fund paid MIMI
$102,796 under the agreement.
TRANSFER AGENT AND DIVIDEND PAYING AGENT
Pursuant to a Transfer Agency and Shareholder Service Agreement, Ivy
Mackenzie Services Corp. ("IMSC"), a wholly owned subsidiary of MIMI, is the
transfer agent for each Fund. Under the Agreement, Ivy Bond Fund pays a monthly
fee at an annual rate of $20.75 per open Class A, Class B, Class C and Advisor
Class account. Ivy International Strategic Bond Fund pays a monthly fee at an
annual rate of $20.00 for each Class A, Class B, Class C and Advisor Class
account. Each Fund pays a monthly fee at an annual rate of $10.25 per open Class
I account. In addition, each Fund pays a monthly fee at an annual rate of $4.58
per account that is closed plus certain out-of-pocket expenses. Such fees and
expenses for Ivy Bond Fund for the fiscal year ended December 31, 1998 totaled
$260,700. Certain broker-dealers that maintain shareholder accounts with each
Fund through an omnibus account provide transfer agent and other
shareholder-related services that would otherwise be provided by IMSC if the
individual accounts that comprise the omnibus account were opened by their
beneficial owners directly. IMSC pays such broker-dealers a per account fee for
each open account within the omnibus account, or a fixed rate (e.g., 0.10%) fee,
based on the average daily net asset value of the omnibus account (or a
combination thereof).
ADMINISTRATOR
Pursuant to an Administrative Services Agreement, MIMI provides certain
administrative services to each Fund. As compensation for these services, each
Fund pays MIMI a monthly fee at an annual rate of 0.10% of the Fund's average
daily net asset value of its Class A, Class B, Class C, and Advisor Class
Shares, and an annual rate of 0.01% of its average daily net assets for Class I.
Such fees for the fiscal year ended December 31, 1998 for Ivy Bond Fund totaled
$158,455.
AUDITORS
PricewaterhouseCoopers LLP, independent public accountants, has been
selected as auditors for the Trust. The audit services performed by
PricewaterhouseCoopers LLP include audits of the annual financial statements of
each of the funds of the Trust. Other services provided principally relate to
filings with the SEC and the preparation of the funds' tax returns.
BROKERAGE ALLOCATION
Subject to the overall supervision of the President and the Board, IMI
places orders for the purchase and sale of each 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 each
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 each Fund or the Trust. IMI may consider sales of shares of Ivy
funds as a factor in the selection of broker-dealers and may select
broker-dealers who provide it with research services. IMI will not, however,
execute brokerage transactions other than at the best price and execution.
During the fiscal years ended December 31, 1996, 1997 and 1998, Ivy Bond
Fund paid brokerage commissions of $398, $1,361, and $0, respectively.
Each Fund may, under some circumstances, accept securities in lieu of cash
as payment for Fund shares. Each 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 each 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 any Fund shares with
securities and may discontinue accepting securities as payment for any 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
each Fund, and the Fund shares will be sold for net asset value determined at
the same time the accepted securities are valued. The Trust will only accept
securities delivered in proper form and will not accept securities subject to
legal restrictions on transfer. The acceptance of securities by the Trust must
comply with the applicable laws of certain states.
CAPITALIZATION AND VOTING RIGHTS
The capitalization of the Trust consists of an unlimited number of shares
of beneficial interest (no par value per share). When issued, shares of each
class of each Fund are fully paid, non-assessable, redeemable and fully
transferable. No class of shares of any Fund has preemptive rights or
subscription rights.
The Amended and Restated Declaration of Trust permits the Trustees to
create separate series or portfolios and to divide any series or portfolio into
one or more classes. The Trustees have authorized nineteen series, each of which
represents a fund. The Trustees have further authorized the issuance of Class A,
Class B, and Class C shares for Ivy International Fund and Ivy Money Market Fund
and Class A, Class B, Class C and Advisor Class shares for Ivy Asia Pacific
Fund, Ivy Bond Fund, Ivy China Region Fund, Ivy Developing Nations Fund, Ivy
European Opportunities Fund Ivy Global Fund, Ivy Global Natural Resources Fund,
Ivy Global Science & Technology Fund, Ivy Growth Fund, Ivy Growth with Income
Fund, Ivy International Fund II, Ivy International Small Companies Fund, Ivy
International Strategic Bond Fund, Ivy Pan-Europe Fund, Ivy South America Fund,
Ivy US Blue Chip Fund and Ivy US Emerging Growth Fund, as well as Class I shares
for Ivy Bond Fund, Ivy European Opportunities Fund, Ivy Global Science &
Technology Fund, Ivy International Fund II, Ivy International Fund, Ivy
International Small Companies Fund, Ivy International Strategic Bond Fund and
Ivy US Blue Chip Fund.
Shareholders have the right to vote for the election of Trustees of the
Trust and on any and all matters on which they may be entitled to vote by law or
by the provisions of the Trust's By-Laws. The Trust is not required to hold a
regular annual meeting of shareholders, and it does not intend to do so. Shares
of each class of each Fund entitle their holders to one vote per share (with
proportionate voting for fractional shares). Shareholders of each Fund are
entitled to vote alone on matters that only affect that Fund. All classes of
shares of each 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 that funds differently, separate votes by the shareholders of each
fund are required. Approval of an investment advisory agreement and a change in
fundamental policies would be regarded as matters requiring separate voting by
the shareholders of each fund of the Trust. If the Trustees determine that a
matter does not affect the interests of a Fund, then the shareholders of that
Fund will not be entitled to vote on that matter. Matters that affect the Trust
in general, such as ratification of the selection of independent public
accountants, will be voted upon collectively by the shareholders of all funds of
the Trust.
As used in this SAI and the Prospectus, the phrase "majority vote of the
outstanding shares" of a 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 a Fund, the matter shall have been effectively acted upon
with respect to the Fund if a majority of the outstanding voting securities of
the Fund votes for the approval of the matter, notwithstanding that: (1) the
matter has not been approved by a majority of the outstanding voting securities
of any other fund of the Trust; or (2) the matter has not been approved by a
majority of the outstanding voting securities of the Trust.
The Amended and Restated Declaration of Trust provides that the holders of
not less than two-thirds of the outstanding shares of the Trust may remove a
person serving as trustee either by declaration in writing or at a meeting
called for such purpose. The Trustees are required to call a meeting for the
purpose of considering the removal of a person serving as Trustee if requested
in writing to do so by the holders of not less than 10% of the outstanding
shares of the Trust. Shareholders will be assisted in communicating with other
shareholders in connection with the removal of a Trustee as if Section 26(c) of
the Act were applicable.
The Trust's shares do not have cumulative voting rights and accordingly
the holders of more than 50% of the outstanding shares could elect the entire
Board, in which case the holders of the remaining shares would not be able to
elect any Trustees.
Under Massachusetts law, the Trust's shareholders could, under certain
circumstances, be held personally liable for the obligations of the Trust.
However, the Amended and Restated Declaration of Trust disclaims liability of
the shareholders, Trustees or officers of the Trust for acts or obligations of
the Trust, which are binding only on the assets and property of the Trust, and
requires that notice of the disclaimer be given in each contract or obligation
entered into or executed by the Trust or its Trustees. The Amended and Restated
Declaration of Trust provides for indemnification out of Fund property for all
loss and expense of any shareholder of a Fund held personally liable for the
obligations of the Fund. The risk of a shareholder of the Trust incurring
financial loss on account of shareholder liability is limited to circumstances
in which the Trust itself would be unable to meet its obligations and, thus,
should be considered remote. No series of the Trust is liable for the
obligations of any other series of the Trust.
SPECIAL RIGHTS AND PRIVILEGES
The Trust offers, and (except as noted below) bears the cost of providing,
to investors the following rights and privileges. The Trust reserves the right
to amend or terminate any one or more of these rights and privileges. Notice of
amendments to or terminations of rights and privileges will be provided to
shareholders in accordance with applicable law.
Certain of the rights and privileges described below refer to funds, other
than the Funds, whose shares are also distributed by IMDI. These funds are: Ivy
Asia Pacific Fund, Ivy China Region Fund, Ivy Developing Nations Fund, Ivy
European Opportunities Fund Ivy Global Fund, Ivy Global Natural Resources Fund,
Ivy Global Science & Technology Fund, Ivy Growth Fund, Ivy Growth with Income
Fund, Ivy International Fund II, Ivy International Fund, Ivy International Small
Companies Fund, Ivy Money Market Fund, Ivy Pan-Europe Fund, Ivy South America
Fund, Ivy US Blue Chip Fund and Ivy US Emerging Growth Fund (the other sixteen
series of the Trust). (Effective April 18, 1997, Ivy International Fund
suspended the offer of its shares to new investors). Shareholders should obtain
a current prospectus before exercising any right or privilege that may relate to
these funds.
AUTOMATIC INVESTMENT METHOD
The Automatic Investment Method, which enables a Fund shareholder to have
specified amounts automatically drawn each month from his or her bank for
investment in Fund shares, is available for all classes of shares, except Class
I. The minimum initial and subsequent investment under this method is $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 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 each 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 each 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 share. The minimum value of Advisor Class shares which may
be exchanged into an Ivy fund in which shares are not already held is $10,000.
No exchange out of any 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 that Fund to less than $10,000.
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.
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 each Fund may be used as a
funding medium for an Individual Retirement Account ("IRA"). Eligible
individuals may establish an IRA by adopting a model custodial account available
from IMSC, who may impose a charge for establishing the account. Individuals
should consult their tax advisers before investing IRA assets in an Ivy fund if
that fund primarily distributes exempt-interest dividends.
An individual who has not reached age 70-1/2 and who receives compensation
or earned income is eligible to contribute to an IRA, whether or not he or she
is an active participant in a retirement plan. An individual who receives a
distribution from another IRA, a qualified retirement plan, a qualified annuity
plan or a tax-sheltered annuity or custodial account ("403(b) plan") that
qualifies for "rollover" treatment is also eligible to establish an IRA by
rolling over the distribution either directly or within 60 days after its
receipt. Tax advice should be obtained in connection with planning a rollover
contribution to an IRA.
In general, an eligible individual may contribute up to the lesser of
$2,000 or 100% of his or her compensation or earned income to an IRA each year.
If a husband and wife are both employed, and both are under age 70-1/2, each may
set up his or her own IRA within these limits. If both earn at least $2,000 per
year, the maximum potential contribution is $4,000 per year for both. For years
after 1996, the result is similar even if one spouse has no earned income; if
the joint earned income of the spouses is at least $4,000, a contribution of up
to $2,000 may be made to each spouse's IRA. Rollover contributions are not
subject to these limits.
An individual may deduct his or her annual contributions to an IRA in
computing his or her Federal income tax within the limits described above,
provided he or she (or his or her spouse, if they file a joint Federal income
tax return) is not an active participant in a qualified retirement plan (such as
a qualified corporate, sole proprietorship, or partnership pension, profit
sharing, 401(k) or stock bonus plan), qualified annuity plan, 403(b) plan,
simplified employee pension, or governmental plan. If he or she (or his or her
spouse) is an active participant, whether the individual's contribution to an
IRA is fully deductible, partially deductible or not deductible depends on (i)
adjusted gross income and (ii) whether it is the individual or the individual's
spouse who is an active participant, in the case of married individuals filing
jointly. Contributions may be made up to the maximum permissible amount even if
they are not deductible. Rollover contributions are not includable in income for
Federal income tax purposes and therefore are not deductible from it.
Generally, earnings on an IRA are not subject to current Federal income
tax until distributed. Distributions attributable to tax-deductible
contributions and to IRA earnings are taxed as ordinary income. Distributions of
non-deductible contributions are not subject to Federal income tax. In general,
distributions from an IRA to an individual before he or she reaches age 59-1/2
are subject to a nondeductible penalty tax equal to 10% of the taxable amount of
the distribution. The 10% penalty tax does not apply to amounts withdrawn from
an IRA after the individual reaches age 59-1/2, becomes disabled or dies, or if
withdrawn in the form of substantially equal payments over the life or life
expectancy of the individual and his or her designated beneficiary, if any, or
rolled over into another IRA, amounts withdrawn and used to pay for deductible
medical expenses and amounts withdrawn by certain unemployed individuals not in
excess of amounts paid for certain health insurance premiums, amounts used to
pay certain qualified higher education expenses, and amounts used within 120
days of the date the distribution is received to pay for certain first-time
homebuyer expenses. Distributions must begin to be withdrawn not later than
April 1 of the calendar year following the calendar year in which the individual
reaches age 70-1/2. Failure to take certain minimum required distributions will
result in the imposition of a 50% non-deductible penalty tax.
ROTH IRAS: Shares of each 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
An Advisor Class 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 - $250), accompanied by a surrender to IMSC of all share
certificates then outstanding in such shareholder's name, properly endorsed by
the shareholder. To be eligible to elect a Withdrawal Plan, a shareholder must
continually maintain an account balance of at least $10,000 in his or her
account. A Withdrawal Plan may not be established if the investor is currently
participating in the Automatic Investment Method. 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 $250 each while the Withdrawal Plan is in effect.
An investor may terminate his or her participation in the Withdrawal Plan
at any time by delivering written notice to IMSC. If all shares held by the
investor are liquidated at any time, participation in the Withdrawal Plan will
terminate automatically. The Trust or IMSC may terminate the Withdrawal Plan
option at any time after reasonable notice to shareholders.
GROUP SYSTEMATIC INVESTMENT PROGRAM
Shares of each 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 a 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.
REDEMPTIONS
Shares of each 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 a 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 Funds.
The Trust may redeem those accounts of Advisor Class shareholders who have
maintained an investment of less than $10,000 in any 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 each 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.
Each 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, each Fund may be liable for any losses due to
unauthorized or fraudulent telephone instructions.
NET ASSET VALUE
The net asset value per share of each 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. Each Fund's liabilities, if not identifiable as belonging to
a particular class of the Fund, are allocated among that 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 each 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
any Fund's portfolio securities occur between the time when a foreign exchange
closes and the time when the Fund's net asset value is calculated (see following
paragraph), such securities may be valued at fair value as determined by IMI and
approved by the Board.
Portfolio securities are valued (and net asset value per share is
determined) as of the close of regular trading on the Exchange (normally 4:00
p.m., eastern time) on each day the Exchange is open for trading. The Exchange
and the Trust's offices are expected to be closed, and net asset value will not
be calculated, on the following national business holidays: New Year's Day,
Martin Luther King, Jr. Day, Presidents' Day, Good Friday, Memorial Day,
Independence Day, Labor Day, Thanksgiving Day and Christmas Day. On those days
when either or both of the Fund's Custodian or the Exchange close early as a
result of a partial holiday or otherwise, the Trust reserves the right to
advance the time on that day by which purchase and redemption requests must be
received.
The number of shares you receive when you place a purchase order, and the
payment you receive after submitting a redemption request, is based on each
Fund's net asset value next determined after your instructions are received in
proper form by IMSC or by your registered securities dealer. Each purchase and
redemption order is subject to any applicable sales charge. Since each Fund
invests in securities that are listed on foreign exchanges that may trade on
weekends or other days when the Fund does not price its shares, each Fund's net
asset value may change on days when shareholders will not be able to purchase or
redeem the Fund's shares. The sale of each 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 a Fund's best interest to do so.
TAXATION
The following is a general discussion of certain tax rules thought to be
applicable with respect to each 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 any Fund.
Each Fund intends to be taxed as a regulated investment company under
Subchapter M of the Code. Accordingly, each 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, each 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. Each 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, each 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, each 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 a 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 a 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 that Fund. If a 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 a 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 a 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 a 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 each 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 Funds may result in "straddles" for Federal income tax purposes. The
straddle rules may affect the character of gains or losses realized by each
Fund. In addition, losses realized by a 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 each Fund
are not entirely clear. The straddle rules may increase the amount of short-term
capital gain realized by the Funds, which is taxed as ordinary income when
distributed to shareholders.
A Fund may make one or more of the elections available under the Code
which are applicable to straddles. If a 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, each 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 each 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 each 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 a Fund's investment company taxable income
available to be distributed to its shareholders as ordinary income.
INVESTMENT IN PASSIVE FOREIGN INVESTMENT COMPANIES
The Funds may invest in shares of foreign corporations which may be
classified under the Code as passive foreign investment companies ("PFICs"). In
general, a foreign corporation is classified as a PFIC if at least one-half of
its assets constitute investment-type assets, or 75% or more of its gross income
is investment-type income. If a 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.
Each Fund may be eligible to elect alternative tax treatment with respect
to PFIC shares. A 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,
a 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 each 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 a 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. Each 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 a Fund may be treated as having
acquisition discount, or OID in the case of certain types of debt securities.
Generally, a 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. Each
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.
Each Fund generally will be required to distribute dividends to
shareholders representing discount on debt securities that is currently
includable in income, even though cash representing such income may not have
been received by the Fund. Cash to pay such dividends may be obtained from sales
proceeds of securities held by the Fund.
DISTRIBUTIONS
Distributions of investment company taxable income are taxable to a U.S.
shareholder as ordinary income, whether paid in cash or shares. Dividends paid
by a 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 a 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 a Fund on the distribution date. A
distribution of an amount in excess of any 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 a 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
a 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 any 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 a Fund's total assets at the close of its
taxable year consists of securities of foreign corporations, that 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 each Fund's taxable year whether the foreign taxes
paid by that 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 a Fund makes
the election described in the preceding paragraph, the source of the Fund's
income flows through to its shareholders. With respect to each 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 a 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 a 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 a 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
Each 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 each Fund or its shareholders. Shareholders are
advised to consult their own tax advisers with respect to the particular tax
consequences to them of an investment in any Fund.
PERFORMANCE INFORMATION
Performance information for each 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
Funds' 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 each 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 each Fund will be
based on all investment income attributable to that class earned during a
particular 30-day (or one month) period (including dividends and interest), less
expenses attributable to that class accrued during the period ("net investment
income"), and will be computed by dividing the net investment income per share
of that class earned during the period by the net asset value per share on the
last day of the period, according to the following formula:
YIELD = 2[({(a-b)/cd} + 1){superscript 6}-1]
Where: a = dividends and interest earned during the
period attributable to 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 net asset value per share on the last day
of the period.
The yield for Advisor Class shares of Ivy Bond Fund for the 30-day period
ended December 31, 1998 was (0.72)%.
AVERAGE ANNUAL TOTAL RETURN. Quotations of standardized average annual
total return ("Standardized Return") for a specific class of shares of each Fund
will be expressed in terms of the average annual compounded rate of return that
would cause a hypothetical investment in that class of each 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 each Fund, it is assumed that
all dividends and capital gains distributions made by that Fund are reinvested
at net asset value in additional Advisor Class shares during the designated
period. Standardized Return quotations for each 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%.
Each 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").
In determining the average annual total return for a specific class of
shares of the Fund, recurring fees, if any, that are charged to all shareholder
accounts are taken into consideration. For any account fees that vary with the
size of the account of the Fund, the account fee used for purposes of the
following computations is assumed to be the fee that would be charged to the
mean account size of the Fund.
The Standardized Return for Ivy Bond Fund Advisor Class shares for the
period from the date Advisor Class shares were first offered (January 1, 1998)
through December 31, 1998 was (0.30)%.
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 a Fund for a specified period. Cumulative total return quotations
reflect changes in the price of a Fund's shares and assume that all dividends
and capital gains distributions during the period were reinvested in the Fund's
shares. Cumulative total return is calculated by computing the cumulative rates
of return of a hypothetical investment in a specific class of shares of a Fund
over such periods, according to the following formula (cumulative total return
is then expressed as a percentage):
C = (ERV/P) - 1
Where: C = cumulative total return
P = a hypothetical initial investment of $1,000 to
purchase shares of a specific class
ERV = ending redeemable value: ERV is the value, at
the end of the applicable period, of a
hypothetical $1,000 investment made at the
beginning of the applicable period.
The Cumulative Total Return for Ivy Bond Fund Advisor Class Shares for the
period from the date Advisor Class shares were first offered (January 1, 1998)
through December 31, 1998 was (0.30)%.
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 each Fund will vary from time to time depending
on market conditions, the composition of the Fund's portfolio and operating
expenses of each Fund. These factors and possible differences in the methods
used in calculating performance quotations should be considered when comparing
performance information regarding a 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 each Fund's shares
and the risks associated with each 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.
Each 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
Ivy Bond Fund's Portfolio of Investments as of December 31, 1998,
Statement of Assets and Liabilities as of December 31, 1998, Statement of
Operations for the fiscal year ended December 31, 1998, Statement of Changes in
Net Assets for the fiscal year ended December 31, 1998, Financial Highlights,
Notes to Financial Statements, and Report of Independent Accountants, which are
included in Ivy Bond Fund's December 31, 1998 Annual Report to shareholders, are
incorporated by reference into this SAI. Ivy International Strategic Bond Fund's
Statement of Assets and Liabilities as of April 28, 1999 and the notes thereto
are attached hereto as Appendix B.
<PAGE>
APPENDIX A
DESCRIPTION OF STANDARD & POOR'S RATINGS GROUP ("S&P") AND
MOODY'S INVESTORS SERVICE, INC. ("MOODY'S") CORPORATE
BOND AND COMMERCIAL PAPER RATINGS
[From "Moody's Bond Record," November 1994 Issue (Moody's Investors Service,
New York, 1994), and "Standard & Poor's Municipal Ratings Handbook," October
1997 Issue (McGraw Hill, New York, 1997).]
MOODY'S:
(a) CORPORATE BONDS. Bonds rated Aaa by Moody's are judged by Moody's to
be of the best quality, carrying the smallest degree of investment risk.
Interest payments are protected by a large or exceptionally stable margin and
principal is secure. While the various protective elements are likely to change,
such changes as can be visualized are most unlikely to impair the fundamentally
strong position of such issues. Bonds rated Aa are judged by Moody's to be of
high quality by all standards. Aa bonds are rated lower than Aaa bonds because
margins of protection may not be as large as those of Aaa bonds, or fluctuations
of protective elements may be of greater amplitude, or there may be other
elements present which make the long-term risks appear somewhat larger than
those applicable to Aaa securities. Bonds which are rated A by Moody's possess
many favorable investment attributes and are to be considered as upper
medium-grade obligations. Factors giving security to principal and interest are
considered adequate, but elements may be present which suggest a susceptibility
to impairment sometime in the future. Bonds rated Baa by Moody's are considered
medium-grade obligations (i.e., they are neither highly protected nor poorly
secured). Interest payments and principal security appear adequate for the
present, but certain protective elements may be lacking or may be
characteristically unreliable over any great length of time. Such bonds lack
outstanding investment characteristics and in fact have speculative
characteristics as well. Bonds which are rated Ba are judged to have speculative
elements; their future cannot be considered well-assured. Often the protection
of interest and principal payments may be very moderate and thereby not well
safeguarded during both good and bad times over the future. Uncertainty of
position characterizes bonds in this class. Bonds which are rated B generally
lack characteristics of the desirable investment. Assurance of interest and
principal payments of or maintenance of other terms of the contract over any
long period of time may be small. Bonds which are rated Caa are of poor
standing. Such issues may be in default or there may be present elements of
danger with respect to principal or interest. Bonds which are rated Ca represent
obligations which are speculative in a high degree. Such issues are often in
default or have other marked shortcomings. Bonds which are rated C are the
lowest rated class of bonds and issues so rated can be regarded as having
extremely poor prospects of ever attaining any real investment standing.
(b) COMMERCIAL PAPER. The Prime rating is the highest commercial paper
rating assigned by Moody's. Among the factors considered by Moody's in assigning
ratings are the following: (1) evaluation of the management of the issuer; (2)
economic evaluation of the issuer's industry or industries and an appraisal of
speculative-type risks which may be inherent in certain areas; (3) evaluation of
the issuer's products in relation to competition and customer acceptance; (4)
liquidity; (5) amount and quality of long-term debt; (6) trend of earnings over
a period of ten years; (7) financial strength of a parent company and the
relationships which exist with the issuer; and (8) recognition by management of
obligations which may be present or may arise as a result of public interest
questions and preparations to meet such obligations. Issuers within this Prime
category may be given ratings 1, 2 or 3, depending on the relative strengths of
these factors. The designation of Prime-1 indicates the highest quality
repayment capacity of the rated issue. Issuers rated Prime-2 are deemed to have
a strong ability for repayment while issuers voted Prime-3 are deemed to have an
acceptable ability for repayment. Issuers rated Not Prime do not fall within any
of the Prime rating categories.
S&P:
(a) CORPORATE BONDS. An S&P corporate debt rating is a current assessment
of the creditworthiness of an obligor with respect to a specific obligation. The
ratings are based on current information furnished by the issuer or obtained by
S&P from other sources it considers reliable. The ratings described below may be
modified by the addition of a plus or minus sign to show relative standing
within the major rating categories.
Debt rated AAA has the highest rating assigned by S&P. Capacity to pay
interest and repay principal is extremely strong. Debt rated AA is judged by S&P
to have a very strong capacity to pay interest and repay principal and differs
from the highest rated issues only in small degree. Debt rated A by S&P has a
strong capacity to pay interest and repay principal, although it is somewhat
more susceptible to the adverse effects of changes in circumstances and economic
conditions than debt in higher rated categories.
Debt rated BBB by S&P is regarded by S&P as having an adequate capacity to
pay interest and repay principal. Although such bonds normally exhibit adequate
protection parameters, adverse economic conditions or changing circumstances are
more likely to lead to a weakened capacity to pay interest and repay principal
than debt in higher rated categories.
Debt rated BB, B, CCC, CC and C is regarded as having predominately
speculative characteristics with respect to capacity to pay interest and repay
principal. BB indicates the least degree of speculation and C the highest. While
such debt will likely have some quality and protective characteristics, these
are outweighed by large uncertainties or exposures to adverse conditions. Debt
rated BB has less near-term vulnerability to default than other speculative
issues. However, it faces major ongoing uncertainties or exposure to adverse
business, financial or economic conditions which could lead to inadequate
capacity to meet timely interest and principal payments. The BB rating category
is also used for debt subordinated to senior debt that is assigned an actual or
implied BBB- rating. Debt rated B has a greater vulnerability to default but
currently has the capacity to meet interest payments and principal repayments.
Adverse business, financial, or economic conditions will likely impair capacity
or willingness to pay interest and repay principal. The B rating category is
also used for debt subordinated to senior debt that is assigned an actual or
implied BB or BB- rating. Debt rated CCC has a currently identifiable
vulnerability to default, and is dependent upon favorable business, financial,
and economic conditions to meet timely payment of interest and repayment of
principal. In the event of adverse business, financial or economic conditions,
it is not likely to have the capacity to pay interest and repay principal. The
CCC rating category is also used for debt subordinated to senior debt that is
assigned an actual or implied B or B- rating. The rating CC typically is applied
to debt subordinated to senior debt which is assigned an actual or implied CCC
debt rating. The rating C typically is applied to debt subordinated to senior
debt which is assigned an actual or implied CCC- debt rating. The C rating may
be used to cover a situation where a bankruptcy petition has been filed, but
debt service payments are continued.
The rating CI is reserved for income bonds on which no interest is being
paid. Debt rated D is in payment default. The D rating category is used when
interest payments or principal payments are not made on the date due, even if
the applicable grace period has not expired, unless S&P believes that such
payments will be made during such grace period. The D rating also will be used
upon the filing of a bankruptcy petition if debt service payments are
jeopardized.
(b) COMMERCIAL PAPER. An S&P commercial paper rating is a current
assessment of the likelihood of timely payment of debt considered short-term in
the relevant market.
The commercial paper rating A-1 by S&P indicates that the degree of safety
regarding timely payment is strong. Those issues determined to possess extremely
strong safety characteristics are denoted with a plus sign (+) designation. For
commercial paper with an A-2 rating, the capacity for timely payment on issues
is satisfactory, but not as high as for issues designated A-1. Issues rated A-3
have adequate capacity for timely payment, but are more vulnerable to the
adverse effects of changes in circumstances than obligations carrying higher
designations.
Issues rated B are regarded as having only speculative capacity for timely
payment. The C rating is assigned to short-term debt obligations with a doubtful
capacity for payment. Debt rated D is in payment default. The D rating category
is used when interest payments or principal payments are not made on the date
due, even if the applicable grace period has not expired, unless S&P believes
such payments will be made during such grace period.
<PAGE>
APPENDIX B
STATEMENT OF ASSETS AND LIABILITIES
AS OF APRIL 28, 1999
AND REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
IVY INTERNATIONAL STRATEGIC BOND FUND
STATEMENT OF ASSETS AND LIABILITIES
APRIL 28, 1999
ASSETS
Cash............................................... $ 1,000,040
Prepaid offering cost.............................. 33,000
Prepaid blue sky fees.............................. 24,000
Total Assets.................................... 1,057,040
------------
LIABILITIES
Due to affiliate................................... 57,000
------------
NET ASSETS............................................ $ 1,000,040
=======
CLASS A:
Net asset value and redemption price per share
($10.00 / 1 share outstanding).................. $10.00
=======
Maximum offering price per share
($10.00 x 100 / 95.25)*......................... $10.50
=======
CLASS B:
Net asset value, offering price and redemption price** per share
($10.00 / 1 share outstanding).................. $10.00
=======
CLASS C:
Net asset value, offering price and redemption price*** per share
($10.00 / 1 share outstanding).................. $10.00
=======
CLASS I:
Net asset value, offering price and redemption price per share
($10.00 / 1 share outstanding).................. $10.00
=======
ADVISOR CLASS:
Net asset value, offering price and redemption price per share
($1,000,000.00 / 100,000 shares outstanding).... $10.00
=======
NET ASSETS CONSISTS OF:
Capital paid-in $1,000,040
=======
<PAGE>
* On sales of more than $100,000 the offering price is reduced.
** Redemption price per share is equal to the net asset value per share
less any applicable contingent deferred sales charge, up to a maximum
of 5%.
***Redemption price per share is equal to the net asset value per share less
any applicable contingent deferred sales charge, up to a maximum of 1%.
The accompanying notes are an integral part of the financial statement.
IVY INTERNATIONAL STRATEGIC BOND FUND
NOTES TO STATEMENT OF ASSETS AND LIABILITIES
APRIL 28, 1999
1. ORGANIZATION: Ivy International Strategic Bond Fund is a non-diversified
series of shares of Ivy Fund. The shares of beneficial interest are assigned no
par value and an unlimited number of shares of Class A, Class B, Class C, Class
I and Advisor Class are authorized. Ivy Fund was organized as a Massachusetts
business trust under a Declaration of Trust dated December 21, 1983 and is
registered under the Investment Company Act of 1940, as amended, as an open-end
management investment company.
The Fund will commence operations on April 30, 1999. As of the date of this
report, operations have been limited to organizational matters and the issuance
of initial shares to Mackenzie Investment Management Inc. (MIMI).
2. ORGANIZATIONAL COSTS: The Fund incurred organizational expenses of $10,700,
comprised of $2,500 for auditing and $8,200 for legal. The full amount of
organizational expenses were assumed by MIMI and the Fund is not required to
reimburse MIMI.
3. OFFERING COST AND PREPAID BLUE SKY FEES: Offering cost, consisting of legal
fees, and blue sky fees will be amortized over a one year period beginning April
30, 1999, the date the Fund is expected to commence operations. Offering cost
and blue sky fees have been paid by MIMI and will be reimbursed by the Fund.
4. TRANSACTIONS WITH AFFILIATES: Ivy Management, Inc. (IMI), a wholly owned
subsidiary of MIMI, is the Manager and Investment Manager of the Fund. For the
current fiscal year, IMI contractually limits the Fund's total operating
expenses (excluding taxes, 12b-1 fees, brokerage commissions, interest,
litigation and indemnification expenses, and any other extraordinary expenses)
to an annual rate of 1.25% of its average net assets. For each of the following
nine years, IMI will ensure that these expenses do not exceed 2.50% of the
Fund's average net assets.
MIMI provides certain administrative, accounting and pricing services for the
Fund.
Ivy Mackenzie Distributors, Inc. (IMDI), a wholly owned subsidiary of MIMI, is
the underwriter and distributor of the Fund's shares, and as such, purchases
shares from the Fund at net asset value to settle orders from investment
dealers.
Ivy Mackenzie Services Corp. (IMSC), a wholly owned subsidiary of MIMI, is
the transfer and shareholder servicing agent for the Fund.
Officers of Ivy Fund are officers and/or employees of MIMI, IMI, IMDI and IMSC.
Such individuals are not compensated by the Fund for services in their capacity
as officers of Ivy Fund. Trustees of Ivy Fund who are not affiliated with MIMI
or IMI receive compensation from the Fund. No such amounts have been incurred as
of April 28, 1999.
<PAGE>
IVY EUROPEAN OPPORTUNITIES FUND
IVY GLOBAL FUND
IVY GLOBAL NATURAL RESOURCES FUND
IVY GLOBAL SCIENCE & TECHNOLOGY FUND
IVY INTERNATIONAL FUND II
IVY INTERNATIONAL SMALL COMPANIES FUND
IVY PAN-EUROPE FUND
series of
IVY FUND
Via Mizner Financial Plaza, Suite 300
700 South Federal Highway
Boca Raton, Florida 33432
STATEMENT OF ADDITIONAL INFORMATION
May 3, 1999
(as supplemented October 18, 1999)
Ivy Fund (the "Trust") is an open-end management investment company that
currently consists of nineteen fully managed portfolios, each of which (except
for Ivy South America Fund and Ivy International Strategic Bond Fund) is
diversified. This Statement of Additional Information ("SAI") relates to the
Class A, B and C shares of Ivy Global Fund, Ivy Global Natural Resources Fund,
and Ivy Pan-Europe Fund, and to the Class A, B, C and I shares of Ivy European
Opportunities Fund, Ivy Global Science & Technology Fund, Ivy International Fund
II, and Ivy International Small Companies Fund (each a "Fund"). The other twelve
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 May 3, 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 Funds also offer 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. ("IMDI")
Via Mizner Financial Plaza, Suite 300
700 South Federal Highway
Boca Raton, Florida 33432
Telephone: (800) 456-5111
INVESTMENT ADVISER
(for Ivy Global Natural Resources Fund)
Mackenzie Financial Corporation ("MFC")
150 Bloor Street West
Suite 400
Toronto, Ontario
CANADA M5S3B5
Telephone: (416) 922-5322
<PAGE>
TABLE OF CONTENTS
GENERAL INFORMATION..........................................................3
INVESTMENT OBJECTIVES, STRATEGIES AND RISKS..................................4
IVY EUROPEAN OPPORTUNITIES FUND........................................4
INVESTMENT RESTRICTIONS FOR IVY EUROPEAN OPPORTUNITIES FUND............5
IVY GLOBAL FUND........................................................8
INVESTMENT RESTRICTIONS FOR IVY GLOBAL FUND............................9
IVY GLOBAL NATURAL RESOURCES FUND.....................................11
INVESTMENT RESTRICTIONS FOR IVY GLOBAL NATURAL RESOURCES FUND.........12
IVY GLOBAL SCIENCE & TECHNOLOGY FUND..................................14
INVESTMENT RESTRICTIONS FOR IVY GLOBAL SCIENCE & TECHNOLOGY FUND......15
IVY INTERNATIONAL FUND II.............................................17
INVESTMENT RESTRICTIONS FOR...........................................18
IVY INTERNATIONAL SMALL COMPANIES FUND................................20
INVESTMENT RESTRICTIONS FOR IVY INTERNATIONAL
SMALL COMPANIES FUND..................................................22
IVY PAN-EUROPE FUND...................................................24
INVESTMENT RESTRICTIONS FOR IVY PAN-EUROPE FUND.......................25
COMMON STOCKS.........................................................27
CONVERTIBLE SECURITIES................................................27
SMALL COMPANIES.......................................................28
NATURAL RESOURCES AND PHYSICAL COMMODITIES............................29
DEBT SECURITIES.......................................................30
IN GENERAL......................................................30
INVESTMENT-GRADE DEBT SECURITIES................................30
LOW-RATED DEBT SECURITIES.......................................30
U.S. GOVERNMENT SECURITIES......................................32
ZERO COUPON BONDS...............................................32
FIRM COMMITMENT AGREEMENTS AND "WHEN-ISSUED" SECURITIES.........33
ILLIQUID SECURITIES...................................................33
FOREIGN SECURITIES....................................................34
DEPOSITORY RECEIPTS...................................................35
EMERGING MARKETS......................................................35
FOREIGN SOVEREIGN DEBT OBLIGATIONS..............................37
BRADY BONDS.....................................................37
FOREIGN CURRENCIES....................................................38
FOREIGN CURRENCY EXCHANGE TRANSACTIONS................................38
OTHER INVESTMENT COMPANIES............................................39
REPURCHASE AGREEMENTS.................................................40
BANKING INDUSTRY AND SAVINGS AND LOAN OBLIGATIONS.....................40
COMMERCIAL PAPER......................................................40
BORROWING.............................................................41
WARRANTS..............................................................41
REAL ESTATE INVESTMENT TRUSTS (REITS).................................41
OPTIONS TRANSACTIONS..................................................41
IN GENERAL......................................................41
WRITING OPTIONS ON INDIVIDUAL SECURITIES........................42
PURCHASING OPTIONS ON INDIVIDUAL SECURITIES.....................43
RISKS OF OPTIONS TRANSACTIONS...................................43
FUTURES CONTRACTS AND OPTIONS ON FUTURES CONTRACTS....................45
IN GENERAL......................................................45
FOREIGN CURRENCY FUTURES CONTRACTS AND RELATED OPTIONS..........46
RISKS ASSOCIATED WITH FUTURES AND RELATED OPTIONS...............47
SECURITIES INDEX FUTURES CONTRACTS....................................48
RISKS OF SECURITIES INDEX FUTURES...............................49
COMBINED TRANSACTIONS...........................................50
PORTFOLIO TURNOVER..........................................................50
TRUSTEES AND OFFICERS.......................................................50
PERSONAL INVESTMENTS BY EMPLOYEES OF IMI..............................64
INVESTMENT ADVISORY AND OTHER SERVICES......................................65
BUSINESS MANAGEMENT AND INVESTMENT ADVISORY SERVICES..................65
DISTRIBUTION SERVICES.................................................67
RULE 18F-3 PLAN.................................................69
RULE 12B-1 DISTRIBUTION PLANS...................................69
CUSTODIAN.............................................................75
FUND ACCOUNTING SERVICES..............................................75
TRANSFER AGENT AND DIVIDEND PAYING AGENT..............................76
ADMINISTRATOR.........................................................76
AUDITORS..............................................................77
BROKERAGE ALLOCATION........................................................77
CAPITALIZATION AND VOTING RIGHTS............................................78
SPECIAL RIGHTS AND PRIVILEGES...............................................80
AUTOMATIC INVESTMENT METHOD...........................................80
EXCHANGE OF SHARES....................................................80
INITIAL SALES CHARGE SHARES.....................................81
CONTINGENT DEFERRED SALES CHARGE SHARES...............................81
CLASS A.........................................................81
CLASS B.........................................................81
CLASS C.........................................................82
CLASS I.........................................................82
ALL CLASSES.....................................................82
LETTER OF INTENT......................................................83
RETIREMENT PLANS......................................................84
INDIVIDUAL RETIREMENT ACCOUNTS..................................84
ROTH IRAS.......................................................85
QUALIFIED PLANS.................................................86
DEFERRED COMPENSATION FOR PUBLIC SCHOOLS AND CHARITABLE
ORGANIZATIONS ("403(B)(7) ACCOUNT").............................87
SIMPLIFIED EMPLOYEE PENSION ("SEP") IRAS........................87
SIMPLE PLANS....................................................87
REINVESTMENT PRIVILEGE................................................88
RIGHTS OF ACCUMULATION................................................88
SYSTEMATIC WITHDRAWAL PLAN............................................88
GROUP SYSTEMATIC INVESTMENT PROGRAM...................................89
REDEMPTIONS.................................................................90
CONVERSION OF CLASS B SHARES................................................91
NET ASSET VALUE.............................................................92
TAXATION....................................................................93
OPTIONS, FUTURES AND FOREIGN CURRENCY FORWARD CONTRACTS...............94
CURRENCY FLUCTUATIONS -- "SECTION 988" GAINS OR LOSSES................95
INVESTMENT IN PASSIVE FOREIGN INVESTMENT COMPANIES....................96
DEBT SECURITIES ACQUIRED AT A DISCOUNT................................96
DISTRIBUTIONS.........................................................97
DISPOSITION OF SHARES.................................................97
FOREIGN WITHHOLDING TAXES.............................................98
BACKUP WITHHOLDING....................................................99
PERFORMANCE INFORMATION.....................................................99
AVERAGE ANNUAL TOTAL RETURN..........................................100
CUMULATIVE TOTAL RETURN..............................................113
IVY GLOBAL FUND......................................................114
IVY GLOBAL NATURAL RESOURCES FUND....................................114
IVY GLOBAL SCIENCE & TECHNOLOGY FUND.................................115
IVY INTERNATIONAL FUND II............................................116
IVY INTERNATIONAL SMALL COMPANIES FUND...............................116
IVY PAN-EUROPE FUND..................................................117
OTHER QUOTATIONS, COMPARISONS AND GENERAL INFORMATION................117
FINANCIAL STATEMENTS.......................................................118
APPENDIX A.................................................................119
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GENERAL INFORMATION
Each Fund is organized as a separate, diversified portfolio of the Trust,
an open-end management investment company organized as a Massachusetts business
trust on December 21, 1983. Ivy Global Fund commenced operations (Class A
shares) on April 19, 1991. The inception dates for Ivy Global Fund's Class B and
Class C shares were April 1, 1994 and April 30, 1996, respectively. Ivy Global
Science & Technology Fund commenced operations on July 22, 1996. Ivy Global
Natural Resources Fund and Ivy International Small Companies Fund commenced
operations on January 1, 1997. Ivy International Fund II and Ivy Pan-Europe Fund
commenced operations on May 13, 1997. Class C shares of Pan-Europe Fund were
first issued on January 29, 1998. Ivy European Opportunities Fund will commence
operations as of the date of this SAI.
Descriptions in this SAI of a particular investment practice or technique
in which any Fund may engage or a financial instrument which any Fund may
purchase are meant to describe the spectrum of investments that IMI, in its
discretion, might, but is not required to, use in managing each Fund's portfolio
assets. IMI may, in its discretion, at any time employ such practice, technique
or instrument for one or more funds but not for all funds advised by it.
Furthermore, it is possible that certain types of financial instruments or
investment techniques described herein may not be available, permissible,
economically feasible or effective for their intended purposes in some or all
markets, in which case a Fund would not use them. Certain practices, techniques,
or instruments may not be principal activities of a Fund but, to the extent
employed, could from time to time have a material impact on that Fund's
performance.
INVESTMENT OBJECTIVES, STRATEGIES AND RISKS
Each Fund has its own investment objectives and policies, which are
described in the Prospectus under the captions "Summary" and "Additional
Information About Strategies and Risks." Descriptions of each Fund's policies,
strategies and investment restrictions, as well as additional information
regarding the characteristics and risks associated with each
Fund's investment techniques, are set forth below.
Whenever an investment objective, policy or restriction set forth in
the Prospectus or this SAI states a maximum percentage of assets that may be
invested in any security or other asset or describes a policy regarding quality
standards, such percentage limitation or standard shall, unless otherwise
indicated, apply to a Fund only at the time a transaction is entered into.
Accordingly, if a percentage limitation is adhered to at the time of investment,
a later increase or decrease in the percentage which results from circumstances
not involving any affirmative action by a Fund, such as a change in market
conditions or a change in a Fund's asset level or other circumstances beyond
a Fund's control, will not be considered a violation.
IVY EUROPEAN OPPORTUNITIES FUND
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.
These may include securities issued pursuant to initial public offerings
("IPOs"). The Fund may engage in short-term trading. 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 Services ("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 in accordance with the provisions of the
1940 Act. The Fund may also invest in other investment companies in accordance
with the provisions of the 1940 Act, and may invest up to 15% of its net assets
in illiquid securities.
For hedging purposes, 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 may also write or buy straddles or spreads.
INVESTMENT RESTRICTIONS FOR IVY EUROPEAN OPPORTUNITIES FUND
Ivy European Opportunities 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. The Fund has adopted the following
fundamental investment restrictions:
(i) The Fund has elected to be classified as a diversified
series of an open-end investment company.
(ii) The Fund will not borrow money, except as permitted under the
Investment Company Act of 1940, as amended, and as interpreted
or modified by regulatory authority having jurisdiction, from
time to time.
(iii) The Fund will not issue senior securities, except as permitted
under the Investment Company Act of 1940, as amended, and as
interpreted or modified by regulatory authority having
jurisdiction, from time to time.
(iv) The Fund will not engage in the business of underwriting
securities issued by others, except to the extent that the
Fund may be deemed to be an underwriter in connection with the
disposition of portfolio securities.
(v) The Fund will not purchase or sell real estate (which term
does not include securities of companies that deal in real
estate or mortgages or investments secured by real estate or
interests therein), except that the Fund may hold and sell
real estate acquired as a result of the Fund's ownership of
securities.
(vi) The Fund will not purchase physical commodities or contracts
relating to physical commodities, although the Fund may invest
in commodities futures contracts and options thereon to the
extent permitted by the Prospectus and this SAI.
(vii) The Fund will not make loans to other persons, except (a)
loans of portfolio securities, and (b) to the extent that
entry into repurchase agreements and the purchase of debt
instruments or interests in indebtedness in accordance with
the Fund's investment objective and policies may be deemed to
be loans.
(viii) The Fund will not concentrate its investments in a particular
industry, as the term "concentrate" is interpreted in
connection with the Investment Company Act of 1940, as
amended, and as interpreted or modified by regulatory
authority having jurisdiction, from time to time.
ADDITIONAL RESTRICTIONS
Ivy European Opportunities 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";
(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;
(vi) 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;
(vii) make investments in securities for the purpose of exercising control
over or management of the issuer; or
(viii) invest in interests in oil, gas and/or mineral exploration or
development programs (other than securities of companies that invest
in or sponsor such programs).
IVY GLOBAL FUND
Ivy Global Fund seeks long-term capital growth through a flexible
policy of investing in stocks and debt obligations of companies and governments
of any nation. Any income realized will be incidental. Under normal conditions,
the Fund will invest at least 65% of its total assets in the common stock of
companies throughout the world, with at least three different countries (one of
which may be the United States) represented in the Fund's overall portfolio
holdings. Although the Fund generally invests in common stock, it may also
invest in preferred stock, sponsored or unsponsored ADRs, GDRs, ADSs and GDSs,
and investment-grade debt securities (i.e., those rated Baa or higher by Moody's
or BBB or higher by S&P, or if unrated, considered by IMI to be of comparable
quality), including corporate bonds, notes, debentures, convertible bonds and
zero coupon bonds.
The Fund may invest less than 35% of its net assets in debt securities
rated Ba or below by Moody's or BB or below by S&P, or if unrated, considered by
IMI to be of comparable quality (commonly referred to as "high yield" or "junk"
bonds). The Fund will not invest in debt securities rated less than C by either
Moody's or S&P.
The Fund may invest in equity real estate investment trusts, warrants,
and securities issued on a "when-issued" or firm commitment basis, and may
engage in foreign currency exchange transactions and enter into forward foreign
currency contracts. The Fund may also invest in other investment companies in
accordance with the provisions of the 1940 Act, and may invest up to 15% of its
net assets in illiquid securities. The Fund may not invest more than 5% of its
total assets in restricted securities.
For temporary defensive purposes and during periods when IMI believes
that circumstances warrant, Ivy Global Fund may invest without limit in U.S.
Government securities, obligations issued by domestic or foreign banks
(including certificates of deposit, time deposits and bankers' acceptances), and
domestic or foreign commercial paper (which, if issued by a corporation, must be
rated Prime-1 by Moody's or A-1 by S&P, or if unrated has been issued by a
company that at the time of investment has an outstanding debt issue rated Aaa
or Aa by Moody's or AAA or AA by S&P). The Fund may also enter into repurchase
agreements, and, for temporary or emergency purposes, may borrow up to 10% of
the value of its total assets from banks.
The Fund may purchase put and call options on stock indices, provided
the premium paid for such options does not exceed 10% of the Fund's net assets.
The Fund may also sell covered put options with respect to up to 50% of the
value of its net assets, and may write covered call options so long as not more
than 20% of the Fund's net assets is subject to being purchased upon the
exercise of the calls. The Fund may also write and buy straddles and spreads.
For hedging purposes only, the Fund may engage in transactions in (and options
on) stock index and foreign currency futures contracts, provided that the Fund's
equivalent exposure in such contracts does not exceed 20% of its total assets.
INVESTMENT RESTRICTIONS FOR IVY GLOBAL FUND
Ivy Global Fund's investment objectives as set forth in the "Summary"
section of the Prospectus, together with the investment restrictions set forth
below, are fundamental policies of the Fund and may not be changed without the
approval of a majority of the outstanding voting shares of the Fund. The Fund
has adopted the following fundamental investment restrictions:
(i) The Fund has elected to be classified as a diversified series
of an open-end investment company.
(ii) The Fund will not borrow money, except as permitted under the
Investment Company Act of 1940, as amended, and as interpreted
or modified by regulatory authority having jurisdiction, from
time to time.
(iii) The Fund will not issue senior securities, except as permitted
under the Investment Company Act of 1940, as amended, and as
interpreted or modified by regulatory authority having
jurisdiction, from time to time.
(iv) The Fund will not engage in the business of underwriting
securities issued by others, except to the extent that the
Fund may be deemed to be an underwriter in connection with the
disposition of portfolio securities.
(v) The Fund will not purchase or sell real estate (which term
does not include securities of companies that deal in real
estate or mortgages or investments secured by real estate or
interests therein), except that the Fund may hold and sell
real estate acquired as a result of the Fund's ownership of
securities.
(vi) The Fund will not purchase physical commodities or contracts
relating to physical commodities, although the Fund may invest
in commodities futures contracts and options thereon to the
extent permitted by its Prospectus.
(vii) The Fund will not make loans to other persons, except (a)
loans of portfolio securities, and (b) to the extent that
entry into repurchase agreements and the purchase of debt
instruments or interests in indebtedness in accordance with
the Fund's investment objective and policies may be deemed to
be loans.
(viii) The Fund will not concentrate its investments in a particular
industry, as the term "concentrate" is interpreted in
connection with the Investment Company Act of 1940, as
amended, and as interpreted or modified by regulatory
authority having jurisdiction, from time to time.
ADDITIONAL RESTRICTIONS
Ivy Global 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.
(i) Under these restrictions, the Fund may not:
(ii) purchase or sell real estate limited partnership interests;
(iii) purchase or sell interests in oil, gas or mineral leases (other than
securities of companies that invest in or sponsor such programs);
(iv) invest in oil, gas and/or mineral exploration or development programs;
(v) 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;
(vi) make investments in securities for the purpose of exercising control
over or management of the issuer;
(vii) participate on a joint or a joint and several basis in any trading
account in securities. The "bunching" of orders of the Fund and of
other accounts under the investment management of the Manager for the
sale or purchase of portfolio securities shall not be considered
participation in a joint securities trading account;
(viii) borrow amounts in excess of 10% of its total assets, taken at the
lower of cost or market value, and then only from banks as a temporary
measure for extraordinary or emergency purposes. All borrowings will
be repaid before any additional investments are made;
(ix) purchase any security if, as a result, the Fund would then have more
than 5% of its total assets (taken at current value) invested in
securities restricted as to disposition under the Federal securities
laws; or
(x) purchase securities of another investment company, except in
connection with a merger, consolidation, reorganization or acquisition
of assets, and except that the Fund may invest in securities of other
investment companies subject to the restrictions in Section 12(d)(1)
of the Investment Company Act of 1940 (the "1940 Act").
The Fund does not interpret fundamental restriction (v) to prohibit
investment in real estate investment trusts.
IVY GLOBAL NATURAL RESOURCES FUND
Ivy Global Natural Resources Fund's investment objective is long-term
growth. Any income realized will be incidental. Under normal conditions, the
Fund invests at least 65% of its total assets in the equity securities of
companies throughout the world that own, explore or develop natural resources
and other basic commodities, or supply goods and services to such companies.
Under this investment policy, at least three different countries (one of which
may be the United States) will be represented in the Fund's overall portfolio
holdings. "Natural resources" generally include precious metals (such as gold,
silver and platinum), ferrous and nonferrous metals (such as iron, aluminum and
copper), strategic metals (such as uranium and titanium), coal, oil, natural
gases, timber, undeveloped real property and agricultural commodities. Although
the Fund generally invests in common stock, it may also invest in preferred
stock, securities convertible into common stock and sponsored or unsponsored
ADRs, GDRs, ADSs and GDSs. The Fund may also invest directly in precious metals
and other physical commodities. In selecting the Fund's investments, MFC will
seek to identify securities of companies that, in MFC's opinion, appear to be
undervalued relative to the value of the companies' natural resource holdings.
MFC believes that certain political and economic changes in the global
environment in recent years have had and will continue to have a profound effect
on global supply and demand of natural resources, and that rising demand from
developing markets and new sources of supply should create attractive investment
opportunities. In selecting the Fund's investments, MFC will seek to identify
securities of companies that, in MFC's opinion, appear to be undervalued
relative to the value of the companies' natural resource holdings.
For temporary defensive purposes, Ivy Global Natural Resources Fund may
invest without limit in cash or cash equivalents, such as bank obligations
(including certificates of deposit and bankers' acceptances), commercial paper,
short-term notes and repurchase agreements. For temporary or emergency purposes,
the Fund may borrow from banks in accordance with the provisions of the 1940
Act, but may not purchase securities at any time during which the value of the
Fund's outstanding loans exceeds 10% of the value of the Fund's total assets.
The Fund may engage in foreign currency exchange transactions and enter into
forward foreign currency contracts. The Fund may also invest in other investment
companies in accordance with the provisions of the 1940 Act, and may invest up
to 15% of its net assets in illiquid securities.
For hedging purposes only, the Fund may engage in transactions in (and
options on) foreign currency futures contracts, provided that the Fund's
equivalent exposure in such contracts does not exceed 15% of its total assets.
The Fund may also write or buy puts, calls, straddles or spreads.
INVESTMENT RESTRICTIONS FOR IVY GLOBAL NATURAL RESOURCES FUND
Ivy Global Natural Resources Fund's investment objectives as set forth in
the "Summary" section of the Prospectus, together with the investment
restrictions set forth below, are fundamental policies of the Fund and may not
be changed without the approval of a majority of the outstanding voting shares
of the Fund. The Fund has adopted the following fundamental investment
restrictions:
(i) The Fund has elected to be classified as a diversified series
of an open-end investment company.
(ii) The Fund will not borrow money, except as permitted under the
Investment Company Act of 1940, as amended, and as interpreted
or modified by regulatory authority having jurisdiction, from
time to time.
(iii) The Fund will not issue senior securities, except as permitted
under the Investment Company Act of 1940, as amended, and as
interpreted or modified by regulatory authority having
jurisdiction, from time to time.
(iv) The Fund will not engage in the business of underwriting
securities issued by others, except to the extent that the
Fund may be deemed to be an underwriter in connection with the
disposition of portfolio securities.
(v) The Fund will not purchase or sell real estate (which term
does not include securities of companies that deal in real
estate or mortgages or investments secured by real estate or
interests therein), except that the Fund may hold and sell
real estate acquired as a result of the Fund's ownership of
securities.
(vi) The Fund will not purchase physical commodities or contracts
relating to physical commodities, although the Fund may invest
in (a) commodities futures contracts and options thereon to
the extent permitted by the Prospectus and this SAI and (b)
commodities relating to natural resources, as described in the
Prospectus and this SAI.
(vii) The Fund will not make loans to other persons, except (a)
loans of portfolio securities, and (b) to the extent that
entry into repurchase agreements and the purchase of debt
instruments or interests in indebtedness in accordance with
the Fund's investment objective and policies may be deemed to
be loans.
(viii) The Fund will not concentrate its investments in a particular
industry, as the term "concentrate" is interpreted in
connection with the Investment Company Act of 1940, as
amended, and as interpreted or modified by regulatory
authority having jurisdiction, from time to time.
ADDITIONAL RESTRICTIONS
Ivy Global Natural Resources 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 IMI's
opinion, subject to the Board's supervision, may be deemed illiquid,
but shall not include any instrument that, due to the existence of a
trading market, to the Fund's compliance with certain conditions
intended to provide liquidity, or to other factors, is liquid;
(ii) purchase securities of other investment companies, except in
connection with a merger, consolidation or sale of assets, and except
that it may purchase shares of other investment companies subject to
such restrictions as may be imposed by the 1940 Act and rules
thereunder;
(iii) purchase or sell interests in oil, gas or mineral leases (other than
securities of companies that invest in or sponsor such programs);
(iv) invest in interests in oil, gas and/or mineral exploration or
development programs;
(v) sell securities short, except for short sales "against the box;"
(vi) borrow money, except for temporary or emergency purposes. The Fund may
not purchase securities at any time during which the value of the
Fund's outstanding loans exceeds 10% of the value of the Fund" total
assets;
(vii) participate on a joint or a joint and several basis in any trading
account in securities. The "bunching" of orders of the Fund and of
other accounts under the investment management of the Fund's
investment adviser for the sale or purchase of portfolio securities
shall not be considered participation in a joint securities trading
account;
(viii) 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; or
(ix) make investments in securities for the purpose of exercising control
over or management of the issuer.
Under the 1940 Act, the Fund is permitted, subject to its investment
restrictions, to borrow money only from banks. The Trust has no current
intention of borrowing amounts in excess of 5% of the Fund's assets. The Fund
will continue to interpret fundamental investment restriction (v) above to
prohibit investment in real estate limited partnership interests; this
restriction shall not, however, prohibit investment in readily marketable
securities of companies that invest in real estate or interests therein,
including real estate investment trusts.
IVY GLOBAL SCIENCE & TECHNOLOGY FUND
Ivy Global Science & Technology Fund's principal investment objective is
long-term capital growth. Any income realized will be incidental. Under normal
conditions, the Fund will invest at least 65% of its total assets in the common
stock of companies that are expected to benefit from the development,
advancement and use of science and technology. Under this investment policy, at
least three different countries (one of which may be the United States) will be
represented in the Fund's overall portfolio holdings. Industries likely to be
represented in the Fund's portfolio include computers and peripheral products,
software, electronic components and systems, telecommunications, media and
information services, pharmaceuticals, hospital supply and medical devices,
biotechnology, environmental services, chemicals and synthetic materials, and
defense and aerospace. The Fund may also invest in companies that are expected
to benefit indirectly from the commercialization of technological and scientific
advances. In recent years, rapid advances in these industries have stimulated
unprecedented growth. While this is no guarantee of future performance, IMI
believes that these industries offer substantial opportunities for long-term
capital appreciation. Investments made by the Fund may include securities issued
pursuant to IPOs. The Fund may also engage in short-term trading.
Although the Fund generally invests in common stock, it may also invest in
preferred stock, securities convertible into common stock, sponsored or
unsponsored ADRs, GDRs, ADSs and GDSs and investment-grade debt securities
(i.e., those rated Baa or higher by Moody's or BBB or higher by S&P, or if
unrated, considered by IMI to be of comparable quality), including corporate
bonds, notes, debentures, convertible bonds and zero coupon bonds. The fund may
also invest up to 5% of its net assets in debt securities that are rated Ba or
below by Moody's or BB or below by S&P, or if unrated, are considered by IMI to
be of comparable quality (commonly referred to as "high yield" or "junk" bonds).
The Fund will not invest in debt securities rated less than C by either Moody's
or S&P.
The Fund may invest in warrants, purchase securities on a "when-issued" or
firm commitment basis, engage in foreign currency exchange transactions and
enter into forward foreign currency contracts. The Fund may also invest (i) in
other investment companies in accordance with the provisions of the 1940 Act and
(ii) up to 15% of its net assets in illiquid securities.
For temporary defensive purposes and during periods when IMI believes that
circumstances warrant, Ivy Global Science & Technology Fund may invest without
limit in U.S. Government securities, obligations issued by domestic or foreign
banks (including certificates of deposit, time deposits and bankers'
acceptances), and domestic or foreign commercial paper (which, if issued by a
corporation, must be rated Prime-1 by Moody's or A-1 by S&P, or if unrated has
been issued by a company that at the time of investment has an outstanding debt
issue rated Aaa or Aa by Moody's or AAA or AA by S&P). The Fund may also enter
into repurchase agreements, and, for temporary or emergency purposes, may borrow
up to 10% of the value of its total assets from banks.
The Fund may purchase put and call options on stock indices and on
individual securities, provided the premium paid for such options does not
exceed 10% of the value of the Fund's net assets. The Fund may also sell covered
put options with respect to up to 50% of the value of its net assets, and may
write covered call options so long as not more than 20% of the Fund's net assets
is subject to being purchased upon the exercise of the calls. For hedging
purposes only, the Fund may engage in transactions in (and options on) stock
index and foreign currency futures contracts, provided that the Fund's
equivalent exposure in such contracts does not exceed 20% of the value of its
total assets.
INVESTMENT RESTRICTIONS FOR IVY GLOBAL SCIENCE & TECHNOLOGY FUND
Ivy Global Science & Technology Fund's investment objective, as set forth
in the "Summary" section of the Prospectus, and the investment restrictions set
forth below are fundamental policies of the Fund and may not be changed without
the approval of a majority (as defined in the 1940 Act) of the Fund's
outstanding voting shares. The Fund has adopted the following fundamental
investment restrictions:
(i) The Fund has elected to be classified as a diversified series
of an open-end investment company.
(ii) The Fund will not borrow money, except as permitted under the
Investment Company Act of 1940, as amended, and as interpreted
or modified by regulatory authority having jurisdiction, from
time to time.
(iii) The Fund will not issue senior securities, except as permitted
under the Investment Company Act of 1940, as amended, and as
interpreted or modified by regulatory authority having
jurisdiction, from time to time.
(iv) The Fund will not engage in the business of underwriting
securities issued by others, except to the extent that the
Fund may be deemed to be an underwriter in connection with the
disposition of portfolio securities.
(v) The Fund will not purchase or sell real estate (which term
does not include securities of companies that deal in real
estate or mortgages or investments secured by real estate or
interests therein), except that the Fund may hold and sell
real estate acquired as a result of the Fund's ownership of
securities.
(vi) The Fund will not purchase physical commodities or contracts
relating to physical commodities, although the Fund may invest
in commodities futures contracts and options thereon to the
extent permitted by the Prospectus and this SAI.
(vii) The Fund will not make loans to other persons, except (a)
loans of portfolio securities, and (b) to the extent that
entry into repurchase agreements and the purchase of debt
instruments or interests in indebtedness in accordance with
the Fund's investment objective and policies may be deemed to
be loans.
(viii) The Fund will not concentrate its investments in a particular
industry, as the term "concentrate" is interpreted in
connection with the Investment Company Act of 1940, as
amended, and as interpreted or modified by regulatory
authority having jurisdiction, from time to time.
ADDITIONAL RESTRICTIONS
Ivy Global Science & Technology Fund has adopted the following additional
restrictions, which are not fundamental and which may be changed without
shareholder approval to the extent permitted by applicable law, regulation or
regulatory policy. Under these restrictions, the Fund may not:
(i) invest in oil, gas or other mineral leases or exploration or
development programs;
(ii) invest in companies for the purpose of exercising control or
management;
(iii) invest more than 5% of its total assets in warrants, valued at the
lower of cost or market, or more than 2% of its total assets in
warrants, so valued, which are not listed on either the New York or
American Stock Exchanges;
(iv) invest more than 15% of its net assets taken at market value at the
time of investment in "illiquid securities." Illiquid securities may
include securities subject to legal or contractual restrictions on
resale (including private placements), repurchase agreements maturing
in more than seven days, certain options traded over the counter that
the Fund has purchased, securities being used to cover certain options
that a Fund has written, securities for which market quotations are
not readily available, or other securities which legally or in IMI's
opinion, subject to the Board's supervision, may be deemed illiquid,
but shall not include any instrument that, due to the existence of a
trading market, to the Fund's compliance with certain conditions
intended to provide liquidity, or to other factors, is liquid;
(v) borrow amounts in excess of 10% of its total assets, taken at the
lower of cost or market value, and then only from banks as a temporary
measure for emergency purposes.
(vi) purchase securities on margin;
(vii) sell securities short, except for short sales "against the box"; or
(viii) purchase from or sell to any of its officers or trustees, or firms
of which any of them are members or which they control, any securities
(other than capital stock of the Fund), but such persons or firms may
act as brokers for the Fund for customary commissions to the extent
permitted by the 1940 Act.
Under the 1940 Act, the Fund is permitted, subject to the above investment
restrictions, to borrow money only from banks. The Trust has no current
intention of borrowing amounts in excess of 5% of the Fund's assets. The Fund
will continue to interpret fundamental investment restriction (v) to prohibit
investment in real estate limited partnership interests; this restriction shall
not, however, prohibit investment readily marketable securities of companies
that invest in real estate or interests therein, including real estate
investment trusts.
IVY INTERNATIONAL FUND II
Ivy International Fund II's principal objective is long-term capital
growth primarily through investment in equity securities. Consideration of
current income is secondary to this principal objective. It is anticipated that
at least 65% of the Fund's total assets will be invested in common stocks (and
securities convertible into common stocks) principally traded in European,
Pacific Basin and Latin American markets. Under this investment policy, at least
three different countries (other than the United States) will be represented in
the Fund's overall portfolio holdings. For temporary defensive purposes, the
Fund may also invest in equity securities principally traded in U.S. markets.
IMI, the Fund's investment manager, invests the Fund's assets in a variety of
economic sectors, industry segments and individual securities in order to reduce
the effects of price volatility in any one area and to enable shareholders to
participate in markets that do not necessarily move in concert with U.S.
markets. IMI seeks to identify rapidly expanding foreign economies, and then
searches out growing industries and corporations, focusing on companies with
established records. Individual securities are selected based on value
indicators, such as a low price-earnings ratio, and are reviewed for fundamental
financial strength. Companies in which investments are made will generally have
at least $1 billion in capitalization and a solid history of operations.
When economic or market conditions warrants, the Fund may invest without
limit in U.S. Government securities, investment-grade debt securities (i.e.,
those rated Baa or higher by Moody's or BBB or higher by S&P, or if unrated,
considered by IMI to be of comparable quality), preferred stocks, sponsored or
unsponsored ADRs, GDRs, ADSs and GDSs, warrants, or cash or cash equivalents
such as bank obligations (including certificates of deposit and bankers'
acceptances), commercial paper, short-term notes and repurchase agreements. For
temporary or emergency purposes, the Fund may borrow up to 10% of the value of
its total assets from banks. The Fund may also purchase securities on a
"when-issued" or firm commitment basis, and may engage in foreign currency
exchange transactions and enter into forward foreign currency contracts. The
Fund may also invest up to 10% of its total assets in other investment companies
and up to 15% of its net assets in illiquid securities.
The Fund may purchase put and call options on securities and stock
indices, provided the premium paid for such options does not exceed 5% of the
Fund's net assets. The Fund may also sell covered put options with respect to up
to 10% of the value of its net assets, and may write covered call options so
long as not more than 25% of the Fund's net assets is subject to being purchased
upon the exercise of the calls. For hedging purposes only, the Fund may engage
in transactions in (and options on) stock index and foreign currency futures
contracts, provided that the Fund's equivalent exposure in such contracts does
not exceed 15% of its total assets.
INVESTMENT RESTRICTIONS FOR
IVY INTERNATIONAL FUND II
Ivy International Fund II's investment objectives as set forth in the
"Summary" section of the Prospectus, together with the investment restrictions
set forth below, are fundamental policies of the Fund and may not be changed
without the approval of a majority of the outstanding voting shares of the Fund.
Under these restrictions, the Fund may not:
(i) make an investment in securities of companies in any one industry
(except obligation of domestic banks or the U.S. Government, its
agencies, authorities, or instrumentalities) if such investment would
cause investments in such industry to exceed 25% of the market value
of the Fund's total assets at the time of such investment;
(ii) issue senior securities, except as appropriate to evidence
indebtedness which it is permitted to incur, and except to the extent
that shares of the separate classes or series of the Trust may be
deemed to be senior securities; provided that collateral arrangements
with respect to currency-related contracts, futures contracts, options
or other permitted investments, including deposits of initial and
variation margin, are not considered to be the issuance of senior
securities for purposes of this restriction;
(iii) participate in an underwriting or selling group in connection with the
public distribution of securities except for its own capital stock;
(iv) purchase from or sell to any of its officers or trustees, or firms of
which any of them are members or which they control, any securities
(other than capital stock of the Fund), but such persons or firms may
act as brokers for the Fund for customary commissions to the extent
permitted by the Investment Company Act of 1940;
(v) purchase securities on margin, except such short-term credits as are
necessary for the clearance of transactions, but the Fund may make
margin deposits in connection with transactions in options, futures
and options on futures;
(vi) make loans, except this restriction shall not prohibit (a) the
purchase and holding of a portion of an issue of publicly distributed
debt securities, (b) the entry into repurchase agreements with banks
or broker-dealers, or (c) the lending of the Fund's portfolio
securities in accordance with applicable guidelines established by the
Securities and Exchange Commission (the "SEC") and any guidelines
established by the Trust's Trustees;
(vii) borrow money, except as a temporary measure for extraordinary or
emergency purposes, and provided that the Fund maintains assets
coverage of 300% for all borrowings;
(viii) invest more than 5% of the value of its total assets in the securities
of any one issuer (except obligations of domestic banks or the U.S.
Government, its agencies, authorities and instrumentalities);
(ix) purchase the securities of any other open-end investment company,
except as part of a plan of merger or consolidations; or
(x) purchase or sell real estate or commodities and commodity contracts.
Ivy International Fund II will continue to interpret fundamental
investment restriction (x) above to prohibit investment in real estate limited
partnership interests; this restriction shall not, however, prohibit investment
in readily marketable securities of companies that invest in real estate or
interests therein, including real estate investment trusts.
Under the Investment Company Act of 1940, the Fund is permitted, subject
to its investment restrictions, to borrow money only from banks. The Trust has
no current intention of borrowing amounts in excess of 5% of the Fund's assets.
ADDITIONAL RESTRICTIONS
Ivy International Fund II has adopted the following additional
restrictions, which are not fundamental and which may be changed without
shareholder approval, to the extent permitted by applicable law, regulation or
regulatory policy.
Under these restrictions, the Fund may not:
(i) invest in oil, gas or other mineral leases or exploration or
development programs;
(ii) invest in companies for the purpose of exercising control of
management;
(iii) invest more than 5% of its total assets in warrants, valued at the
lower of cost or market, or more than 2% of its total assets in
warrants, so valued, which are not listed on either the New York or
American Stock Exchanges; or
(iv) sell securities short, except for short sales, "against the box."
IVY INTERNATIONAL SMALL COMPANIES FUND
Ivy International Small Companies Fund's principal investment objective is
long-term growth primarily through investment in foreign equity securities.
Consideration of current income is secondary to this principal objective. Under
normal circumstances the Fund invests at least 65% of its total assets in common
and preferred stocks (and securities convertible into common stocks) of foreign
issuers having total market capitalization of less than $1 billion. Under this
investment policy, at least three different countries (other than the United
States) will be represented in the Fund's overall portfolio holdings. For
temporary defensive purposes, the Fund may also invest in equity securities
principally traded in the United States. The Fund will invest its assets in a
variety of economic sectors, industry segments and individual securities in
order to reduce the effects of price volatility in any area and to enable
shareholders to participate in markets that do not necessarily move in concert
with the U.S. market. The factors that IMI considers in determining the
appropriate distribution of investments among various countries and regions
include prospects for relative economic growth, expected levels of inflation,
government policies influencing business conditions and the outlook for currency
relationships.
In selecting the Fund's investments, IMI will seek to identify securities
that are attractively priced relative to their intrinsic value. The intrinsic
value of a particular security is analyzed by reference to characteristics such
as relative price-earnings ratio, dividend yield and other relevant factors
(such as applicable financial, tax, social and political conditions).
When economic or market conditions warrant, the Fund may invest without
limit in U.S. Government securities, investment-grade debt securities, zero
coupon bonds, preferred stocks, warrants, or cash or cash equivalents such as
bank obligations (including certificates of deposit and bankers' acceptances),
commercial paper, short-term notes and repurchase agreements. The Fund may also
invest up to 5% of its net assets in debt securities rated Ba or below by
Moody's or BB or below by S&P, or if unrated, are considered by IMI to be of
comparable quality (commonly referred to as "high yield" or "junk" bonds). The
Fund will not invest in debt securities rated less than C by either Moody's or
S&P.
For temporary or emergency purposes, Ivy International Small Companies
Fund may borrow from banks in accordance with the provisions of the 1940 Act,
but may not purchase securities at any time during which the value of the Fund's
outstanding loans exceeds 10% of the value of the Fund's assets. The Fund may
engage in foreign currency exchange transactions and enter into forward foreign
currency contracts. The Fund may also invest in other investment companies in
accordance with the provisions of the 1940 Act, and may invest up to 15% of its
net assets in illiquid securities.
The Fund may purchase put and call options on securities and stock
indices, provided the premium paid for such options does not exceed 5% of the
Fund's net assets. The Fund may also sell covered put options with respect to up
to 10% of the value of its net assets, and may write covered call options so
long as not more than 25% of the Fund's net assets is subject to being purchased
upon the exercise of the calls. For hedging purposes only, the Fund may engage
in transactions in stock index and foreign currency futures contracts, provided
that the Fund's equivalent exposure in such contracts does not exceed 15% of its
total assets. The Fund may also write or buy straddles or spreads.
INVESTMENT RESTRICTIONS FOR IVY INTERNATIONAL SMALL COMPANIES FUND
Ivy International Small Companies Fund's investment objectives as set
forth in the "Summary" section of the Prospectus, together with the investment
restrictions set forth below, are fundamental policies of the Fund and may not
be changed without the approval of a majority of the outstanding voting shares
of the Fund. The Fund has adopted the following fundamental investment
restrictions:
(i) The Fund has elected to be classified as a diversified series
of an open-end investment company.
(ii) The Fund will not borrow money, except as permitted under the
Investment Company Act of 1940, as amended, and as interpreted
or modified by regulatory authority having jurisdiction, from
time to time.
(iii) The Fund will not issue senior securities, except as permitted
under the Investment Company Act of 1940, as amended, and as
interpreted or modified by regulatory authority having
jurisdiction, from time to time.
(iv) The Fund will not engage in the business of underwriting
securities issued by others, except to the extent that the
Fund may be deemed to be an underwriter in connection with the
disposition of portfolio securities.
(v) The Fund will not purchase or sell real estate (which term
does not include securities of companies that deal in real
estate or mortgages or investments secured by real estate or
interests therein), except that the Fund may hold and sell
real estate acquired as a result of the Fund's ownership of
securities.
(vi) The Fund will not purchase physical commodities or contracts
relating to physical commodities, although the Fund may invest
in commodities futures contracts and options thereon to the
extent permitted by the Prospectus and this SAI.
(vii) The Fund will not make loans to other persons, except (a)
loans of portfolio securities, and (b) to the extent that
entry into repurchase agreements and the purchase of debt
instruments or interests in indebtedness in accordance with
the Fund's investment objective and policies may be deemed to
be loans.
(viii) The Fund will not concentrate its investments in a particular
industry, as the term "concentrate" is interpreted in
connection with the Investment Company Act of 1940, as
amended, and as interpreted or modified by regulatory
authority having jurisdiction, from time to time.
ADDITIONAL RESTRICTIONS
Ivy International Small Companies Fund has adopted the following
additional restrictions, which are not fundamental and which may be changed
without shareholder approval, to the extent permitted by applicable law,
regulation or regulatory policy.
Under these restrictions, the Fund may not:
(i) purchase or sell real estate limited partnership interests;
(ii) purchase or sell interests in oil, gas and mineral leases (other than
securities of companies that invest in or sponsor such programs);
(iii) invest in oil, gas and/or mineral exploration or development programs;
(iv) invest more than 15% of its net assets taken at market value at the
time of the investment in "illiquid securities." Illiquid securities
may include securities subject to legal or contractual restrictions on
resale (including private placements), repurchase agreements maturing
in more than seven days, certain options traded over the counter that
the Fund has purchased, securities being used to cover certain options
that the Fund has written, securities for which market quotations are
not readily available, or other securities which legally or in IMI's
opinion, subject to the Board's supervision, may be deemed illiquid,
but shall not include any instrument that, due to the existence of a
trading market, to the Fund's compliance with certain conditions
intended to provide liquidity, or to other factors, is liquid;
(v) borrow money, except for temporary or emergency purposes. The Fund may
not purchase securities at any time during which the value of the
Fund's outstanding loans exceeds 10% of the value of the Fund's total
assets;
(vi) purchase securities of other investment companies, except in
connection with a merger, consolidation or sale of assets, and except
that the Fund may purchase shares of other investment companies
subject to such restrictions as may be imposed by the 1940 Act and
rules thereunder;
(vii) sell securities short, except for short sales "against the box;"
(viii) participate on a joint or a joint and several basis in any trading
account in securities. The "bunching" of orders of the Fund and of
other accounts under the investment management of the Fund's
investment adviser for the sale or purchase of portfolio securities
shall not be considered participation in a joint securities trading
account;
(ix) make investments in securities for the purpose of exercising control
over or management of the issuer; or
(x) 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.
IVY PAN-EUROPE FUND
Ivy Pan-Europe Fund's principal investment objective is long-term capital
growth. Consideration of current income is secondary to this principal
objective. The Fund seeks to achieve its investment objective by investing
primarily in the equity securities of companies domiciled or otherwise doing
business (as described below) in European countries. Under normal circumstances,
the Fund will invest at least 65% of its total assets in the equity securities
of "European companies," which include any issuer (a) that is organized under
the laws of a European country; (b) that derives 50% or more of its total
revenues from goods produced or sold, investments made or services performed in
Europe; or (c) for which the principal trading market is in Europe. The Fund may
also invest up to 35% of its total assets in the equity securities of issuers
domiciled outside of Europe. The equity securities in which the Fund may invest
include common stock, preferred stock and common stock equivalents such as
warrants and convertible debt securities. The Fund may also invest in sponsored
or unsponsored ADRs, European Depository Receipts ("EDRs"), GDRs, ADSs, European
Depository Shares ("EDSs") and GDSs. As a fundamental policy, the Fund does not
concentrate its investments in any particular industry.
The Fund may invest up to 35% of its net assets in debt securities, but
will not invest more than 20% of its net assets in debt securities rated Ba or
below by Moody's or BB or below by S&P, or if unrated, considered by IMI to be
of comparable quality (commonly referred to as "high yield" or "junk" bonds).
The Fund will not invest in debt securities rated less than C by either Moody's
or S&P. The Fund may also purchase securities on a "when issued" or firm
commitment basis, engage in foreign currency exchange transactions and enter
into forward foreign currency contracts. In addition, the Fund may invest up to
5% of its net assets in zero coupon bonds.
For temporary defensive purposes or when IMI believes that circumstances
warrant, the Fund may invest without limit in U.S. Government securities,
investment-grade debt securities (i.e., those rated Baa or higher by Moody's or
BBB or higher by S&P, or if unrated, considered by IMI to be of comparable
quality), warrants, and cash or cash equivalents such as domestic or foreign
bank obligations (including certificates of deposit, time deposits and bankers'
acceptances), short-term notes, repurchase agreements, and domestic or foreign
commercial paper (which, if issued by a corporation, must be rated Prime-1 by
Moody's or A-1 by S&P, or if unrated has been issued by a company that at the
time of investment has an outstanding debt issue rated Aaa or Aa by Moody's or
AAA or AA by S&P).
For temporary or emergency purposes, Ivy Pan-Europe Fund may borrow from
banks in accordance with the provisions of the 1940 Act, but may not purchase
securities at any time during which the value of the Fund's outstanding loans
exceeds 10% of the value of the Fund's total assets. The Fund may also invest in
other investment companies in accordance with the provisions of the 1940 Act,
and may invest up to 15% of its net assets in illiquid securities.
The Fund may purchase put and call options on securities and stock
indices, provided the premium paid for such options does not exceed 5% of the
Fund's net assets. The Fund may also sell covered put options with respect to up
to 10% of the value of its net assets, and may write covered call options so
long as not more than 25% of the Fund's net assets is subject to being purchased
upon the exercise of the calls. For hedging purposes only, the Fund may engage
in transactions in (and options on) stock index and foreign currency futures
contracts, provided that the Fund's equivalent exposure in such contracts does
not exceed 15% of its total assets. The Fund may also write or buy straddles or
spreads.
INVESTMENT RESTRICTIONS FOR IVY PAN-EUROPE FUND
Ivy Pan-Europe Fund's investment objectives as set forth in the "Summary"
section of the Prospectus, together with the investment restrictions set forth
below, are fundamental policies of the Fund and may not be changed without the
approval of a majority of the outstanding voting shares of the Fund. The Fund
has adopted the following fundamental investment restrictions:
(i) The Fund has elected to be classified as a diversified series of an
open-end investment company.
(ii) The Fund will not borrow money, except as permitted under the
Investment Company Act of 1940, as amended, and as interpreted or
modified by regulatory authority having jurisdiction, from time to
time.
(iii) The Fund will not issue senior securities, except as permitted under
the Investment Company Act of 1940, as amended, and as interpreted or
modified by regulatory authority having jurisdiction, from time to
time.
(iv) The Fund will not engage in the business of underwriting securities
issued by others, except to the extent that the Fund may be deemed to
be an underwriter in connection with the disposition of portfolio
securities.
(v) The Fund will not purchase or sell real estate (which term does not
include . securities of companies that deal in real estate or
mortgages or investments secured by real estate or interests therein),
except that the Fund may hold and sell real estate acquired as a
result of the Fund's ownership of securities.
(vi) The Fund will not purchase physical commodities or contracts relating
to physical commodities, although the Fund may invest in commodities
futures contracts and options thereon to the extent permitted by the
Prospectus and this SAI.
(vii) The Fund will not make loans to other persons, except (a) loans of
portfolio securities, and (b) to the extent that entry into repurchase
agreements and the purchase of debt instruments or interests in
indebtedness in accordance with the Fund's investment objective and
policies may be deemed to be loans.
(viii) The Fund will not concentrate its investments in a particular
industry, as the term "concentrate" is interpreted in connection with
the Investment Company Act of 1940, as amended, and as interpreted or
modified by regulatory authority having jurisdiction, from time to
time.
ADDITIONAL RESTRICTIONS
Ivy Pan-Europe Fund has adopted the following additional restrictions,
which are not fundamental and which may be changed without shareholder approval,
to the extent permitted by applicable law, regulation or regulatory policy.
Under these restrictions, the Fund may not:
(i) purchase or sell real estate limited partnership interests;
(ii) purchase or sell interests in oil, gas and mineral leases (other than
securities of companies that invest in or sponsor such programs);
(iii) invest in oil, gas and/or mineral exploration or development programs;
(iv) invest more than 15% of its net assets taken at market value at the
time of the investment in "illiquid securities." Illiquid securities
may include securities subject to legal or contractual restrictions on
resale (including private placements), repurchase agreements maturing
in more than seven days, certain options traded over the counter that
the Fund has purchased, securities being used to cover certain options
that the Fund has written, securities for which market quotations are
not readily available, or other securities which legally or in IMI's
opinion, subject to the Board's supervision, may be deemed illiquid,
but shall not include any instrument that, due to the existence of a
trading market, to the Fund's compliance with certain conditions
intended to provide liquidity, or to other factors, is ............
liquid;
(v) borrow money, except for temporary or emergency purposes. The Fund
may not purchase securities at any time during which the value of
the Fund's outstanding loans exceeds 10% of the value of the
Fund's total assets;
(vi) 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;
(vii) sell securities short, except for short sales "against the box";
(viii) 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 IMI, for the sale or
purchase of portfolio securities shall not be considered participation
in a joint securities trading account;
(ix) make investments in securities for the purpose of exercising control
over or management of the issuer; or
(x) 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.
COMMON STOCKS
Common stock can be issued by companies to raise cash; all common stock
shares represent a proportionate ownership interest in a company. As a result,
the value of common stock rises and falls with a company's success or failure.
The market value of common stock can fluctuate significantly, with smaller
companies being particularly susceptible to price swings. Transaction costs in
smaller company stocks may also be higher than those of larger companies.
CONVERTIBLE SECURITIES
The convertible securities in which each Fund may invest include corporate
bonds, notes, debentures, preferred stock and other securities that may be
converted or exchanged at a stated or determinable exchange ratio into
underlying shares of common stock. Investments in convertible securities can
provide income through interest and dividend payments as well as an opportunity
for capital appreciation by virtue of their conversion or exchange features.
Because convertible securities can be converted into equity securities, their
values will normally vary in some proportion with those of the underlying equity
securities. Convertible securities usually provide a higher yield than the
underlying equity, however, so that the price decline of a convertible security
may sometimes be less substantial than that of the underlying equity security.
The exchange ratio for any particular convertible security may be adjusted from
time to time due to stock splits, dividends, spin-offs, other corporate
distributions or scheduled changes in the exchange ratio. Convertible debt
securities and convertible preferred stocks, until converted, have general
characteristics similar to both debt and equity securities. Although to a lesser
extent than with debt securities generally, the market value of convertible
securities tends to decline as interest rates increase and, conversely, tends to
increase as interest rates decline. In addition, because of the conversion or
exchange feature, the market value of convertible securities typically changes
as the market value of the underlying common stock changes, and, therefore, also
tends to follow movements in the general market for equity securities. When the
market price of the underlying common stock increases, the price of a
convertible security tends to rise as a reflection of the value of the
underlying common stock, although typically not as much as the price of the
underlying common stock. While no securities investments are without risk,
investments in convertible securities generally entail less risk than
investments in common stock of the same issuer.
As debt securities, convertible securities are investments that provide
for a stream of income. Like all debt securities, there can be no assurance of
income or principal payments because the issuers of the convertible securities
may default on their obligations. Convertible securities generally offer lower
yields than non-convertible securities of similar quality because of their
conversion or exchange features.
Convertible securities generally are subordinated to other similar but
non-convertible securities of the same issuer, although convertible bonds, as
corporate debt obligations, are senior in right of payment to all equity
securities, and convertible preferred stock is senior to common stock, of the
same issuer. However, convertible bonds and convertible preferred stock
typically have lower coupon rates than similar non-convertible securities.
Convertible securities may be issued as fixed income obligations that pay
current income.
SMALL COMPANIES
Investing in smaller company stocks involves certain special
considerations and risks that are not usually associated with investing in
larger, more established companies. For example, the securities of small or new
companies may be subject to more abrupt or erratic market movements because they
tend to be thinly traded and are subject to a greater degree to changes in the
issuer's earnings and prospects. Small companies also tend to have limited
product lines, markets or financial resources. Transaction costs in smaller
company stocks also may be higher than those of larger companies.
INITIAL PUBLIC OFFERINGS
Securities issued through an initial public offering (IPO) can experience
an immediate drop in value if the demand for the securities does not continue to
support the offering price. Information about the issuers of IPO securities is
also difficult to acquire since they are new to the market and may not have
lengthy operating histories. A Fund may engage in short-term trading in
connection with its IPO investments, which could produce higher trading costs
and adverse tax consequences. The number of securities issued in an IPO is
limited, so it is likely that IPO securities will represent a smaller component
of a Fund's portfolio as the Fund's assets increase (and thus have a more
limited effect on the Fund's performance).
NATURAL RESOURCES AND PHYSICAL COMMODITIES
Since Ivy Global Natural Resources Fund normally invests a substantial
portion of its assets in securities of companies engaged in natural resources
activities, that Fund may be subject to greater risks and market fluctuations
than funds with more diversified portfolios. The value of the Fund's securities
will fluctuate in response to market conditions generally, and will be
particularly sensitive to the markets for those natural resources in which a
particular issuer is involved. The values of natural resources may also
fluctuate directly with respect to real and perceived inflationary trends and
various political developments. In selecting the Fund's portfolio of
investments, MFC will consider each company's ability to create new products,
secure any necessary regulatory approvals, and generate sufficient customer
demand. A company's failure to perform well in any one of these areas, however,
could cause its stock to decline sharply.
Natural resource industries throughout the world may be subject to greater
political, environmental and other governmental regulation than many other
industries. Changes in governmental policies and the need for regulatory
approvals may have an adverse effect on the products and services of natural
resources companies. For example, the exploration, development and distribution
of coal, oil and gas in the United States are subject to significant Federal and
state regulation, which may affect rates of return on such investments and the
kinds of services that may be offered to companies in those industries. In
addition, many natural resource companies have been subject to significant costs
associated with compliance with environmental and other safety regulations. Such
regulations may also hamper the development of new technologies. The direction,
type or effect of any future regulations affecting natural resource industries
are virtually impossible to predict.
Ivy Global Natural Resources Fund's investments in precious metals (such
as gold) and other physical commodities are considered speculative and subject
to special risk considerations, including substantial price fluctuations over
short periods of time. On the other hand, investments in precious metals coins
or bullion could help to moderate fluctuations in the value of the Fund's
portfolio, since the prices of precious metals have at times tended not to
fluctuate as widely as shares of issuers engaged in the mining of precious
metals. Because precious metals and other commodities do not generate investment
income, however, the return on such investments will be derived solely from the
appreciation and depreciation on such investments. The Fund may also incur
storage and other costs relating to its investments in precious metals and other
commodities, which may, under certain circumstances, exceed custodial and
brokerage costs associated with investments in other types of securities. When
the Fund purchases a precious metal, MFC currently intends that it will only be
in a form that is readily marketable. Under current U.S. tax law, the Fund may
not receive more than 10% of its yearly income from gains resulting from selling
precious metals or any other physical commodity. Accordingly, the Fund may be
required to hold its precious metals or sell them at a loss, or to sell its
portfolio securities at a gain, when for investment reasons it would not
otherwise do so.
DEBT SECURITIES
IN GENERAL Investment in debt securities involves both interest rate and
credit risk. Generally, the value of debt instruments rises and falls inversely
with fluctuations in interest rates. As interest rates decline, the value of
debt securities generally increases. Conversely, rising interest rates tend to
cause the value of debt securities to decrease. Bonds with longer maturities
generally are more volatile than bonds with shorter maturities. The market value
of debt securities also varies according to the relative financial condition of
the issuer. In general, lower-quality bonds offer higher yields due to the
increased risk that the issuer will be unable to meet its obligations on
interest or principal payments at the time called for by the debt instrument.
INVESTMENT-GRADE DEBT SECURITIES. Bonds rated Aaa by Moody's Investors
Service, Inc. ("Moody's") and AAA by Standard & Poor's Ratings Group ("S&P") are
judged to be of the best quality (i.e., capacity to pay interest and repay
principal is extremely strong). Bonds rated Aa/AA are considered to be of high
quality (i.e., capacity to pay interest and repay principal is very strong and
differs from the highest rated issues only to a small degree). Bonds rated A are
viewed as having many favorable investment attributes, but elements may be
present that suggest a susceptibility to the adverse effects of changes in
circumstances and economic conditions than debt in higher rated categories.
Bonds rated Baa/BBB (considered by Moody's to be "medium grade" obligations) are
considered to have an adequate capacity to pay interest and repay principal, but
certain protective elements may be lacking (i.e., such bonds lack outstanding
investment characteristics and have some speculative characteristics). Each Fund
may invest in debt securities that are given an investment-grade rating by
Moody's or S&P, and may also invest in unrated debt securities that are
considered by IMI to be of comparable quality.
LOW-RATED DEBT SECURITIES. Securities rated lower than Baa by Moody's or
BBB by S&P, and comparable unrated securities (commonly referred to as "high
yield" or "junk" bonds), including many emerging markets bonds, are considered
to be predominantly speculative with respect to the issuer's continuing ability
to meet principal and interest payments. The lower the ratings of corporate debt
securities, the more their risks render them like equity securities. Such
securities carry a high degree of risk (including the possibility of default or
bankruptcy of the issuers of such securities), and generally involve greater
volatility of price and risk of principal and income (and may be less liquid)
than securities in the higher rating categories. (See Appendix A for a more
complete description of the ratings assigned by Moody's and S&P and their
respective characteristics.)
Lower rated and unrated securities are especially subject to adverse
changes in general economic conditions and to changes in the financial condition
of their issuers. Economic downturns may disrupt the high yield market and
impair the ability of issuers to repay principal and interest. Also, an increase
in interest rates would likely have an adverse impact on the value of such
obligations. During an economic downturn or period of rising interest rates,
highly leveraged issuers may experience financial stress which could adversely
affect their ability to service their principal and interest payment
obligations. Prices and yields of high yield securities will fluctuate over time
and, during periods of economic uncertainty, volatility of high yield securities
may adversely affect a Fund's net asset value. In addition, investments in high
yield zero coupon or pay-in-kind bonds, rather than income-bearing high yield
securities, may be more speculative and may be subject to greater fluctuations
in value due to changes in interest rates.
Changes in interest rates may have a less direct or dominant impact on
high yield bonds than on higher quality issues of similar maturities. However,
the price of high yield bonds can change significantly or suddenly due to a host
of factors including changes in interest rates, fundamental credit quality,
market psychology, government regulations, U.S. economic growth and, at times,
stock market activity. High yield bonds may contain redemption or call
provisions. If an issuer exercises these provisions in a declining interest rate
market, a Fund may have to replace the security with a lower yielding security.
The trading market for high yield securities may be thin to the extent
that there is no established retail secondary market or because of a decline in
the value of such securities. A thin trading market may limit the ability of
each Fund to accurately value high yield securities in the Fund's portfolio,
could adversely affect the price at which a Fund could sell such securities, and
cause large fluctuations in the daily net asset value of a Fund's shares.
Adverse publicity and investor perceptions, whether or not based on fundamental
analysis, may decrease the value and liquidity of low-rated debt securities,
especially in a thinly traded market. When secondary markets for high yield
securities become relatively less liquid, it may be more difficult to value the
securities, requiring additional research and elements of judgment. These
securities may also involve special registration responsibilities, liabilities
and costs, and liquidity and valuation difficulties.
Credit quality in the high yield securities market can change suddenly and
unexpectedly, and even recently issued credit ratings may not fully reflect the
actual risks posed by a particular high yield security. For these reasons, it is
the policy of IMI not to rely exclusively on ratings issued by established
credit rating agencies, but to supplement such ratings with its own independent
and on-going review of credit quality. The achievement of each Fund's investment
objectives by investment in such securities may be more dependent on IMI's
credit analysis than is the case for higher quality bonds. Should the rating of
a portfolio security be downgraded, IMI will determine whether it is in the best
interest of each Fund to retain or dispose of such security. However, should any
individual bond held by any Fund be downgraded below a rating of C, IMI
currently intends to dispose of such bond based on then existing market
conditions.
Prices for high yield securities may be affected by legislative and
regulatory developments. For example, Federal rules require savings and loan
institutions to gradually reduce their holdings of this type of security. Also,
Congress has from time to time considered legislation that would restrict or
eliminate the corporate tax deduction for interest payments in these securities
and regulate corporate restructurings. Such legislation may significantly
depress the prices of outstanding securities of this type.
U.S. GOVERNMENT SECURITIES. U.S. Government securities are obligations
of, or guaranteed by, the U.S. Government, its agencies or instrumentalities.
Securities guaranteed by the U.S. Government include: (1) direct obligations of
the U.S. Treasury (such as Treasury bills, notes, and bonds) and (2) Federal
agency obligations guaranteed as to principal and interest by the U.S. Treasury
(such as GNMA certificates, which are mortgage-backed securities). When such
securities are held to maturity, the payment of principal and interest is
unconditionally guaranteed by the U.S. Government, and thus they are of the
highest possible credit quality. U.S. Government securities that are not held to
maturity are subject to variations in market value due to fluctuations in
interest rates.
Mortgage-backed securities are securities representing part ownership of a
pool of mortgage loans. For example, GNMA certificates are such securities in
which the timely payment of principal and interest is guaranteed by the full
faith and credit of the U.S. Government. Although the mortgage loans in the pool
will have maturities of up to 30 years, the actual average life of the loans
typically will be substantially less because the mortgages will be subject to
principal amortization and may be prepaid prior to maturity. Prepayment rates
vary widely and may be affected by changes in market interest rates. In periods
of falling interest rates, the rate of prepayment tends to increase, thereby
shortening the actual average life of the security. Conversely, rising interest
rates tend to decrease the rate of prepayments, thereby lengthening the actual
average life of the security (and increasing the security's price volatility).
Accordingly, it is not possible to predict accurately the average life of a
particular pool. Reinvestment of prepayment may occur at higher or lower rates
than the original yield on the certificates. Due to the prepayment feature and
the need to reinvest prepayments of principal at current rates, mortgage-backed
securities can be less effective than typical bonds of similar maturities at
"locking in" yields during periods of declining interest rates, and may involve
significantly greater price and yield volatility than traditional debt
securities. Such securities may appreciate or decline in market value during
periods of declining or rising interest rates, respectively.
Securities issued by U.S. Government instrumentalities and certain Federal
agencies are neither direct obligations of nor guaranteed by the U.S. Treasury;
however, they involve Federal sponsorship in one way or another. Some are backed
by specific types of collateral, some are supported by the issuer's right to
borrow from the Treasury, some are supported by the discretionary authority of
the Treasury to purchase certain obligations of the issuer, others are supported
only by the credit of the issuing government agency or instrumentality. These
agencies and instrumentalities include, but are not limited to, Federal Land
Banks, Farmers Home Administration, Central Bank for Cooperatives, Federal
Intermediate Credit Banks, Federal Home Loan Banks, Federal National Mortgage
Association, Federal Home Loan Mortgage Association, and Student Loan Marketing
Association.
ZERO COUPON BONDS. Zero coupon bonds are debt obligations issued without
any requirement for the periodic payment of interest. Zero coupon bonds are
issued at a significant discount from face value. The discount approximates the
total amount of interest the bonds would accrue and compound over the period
until maturity at a rate of interest reflecting the market rate at the time of
issuance. If a 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 a 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 each Fund on a
current basis, but is in effect compounded, the value of the securities of this
type is subject to greater fluctuations in response to changing interest rates
than the value of debt obligations which distribute income regularly.
FIRM COMMITMENT AGREEMENTS AND "WHEN-ISSUED" SECURITIES. New issues of
certain debt securities are often offered on a "when-issued" basis, meaning the
payment obligation and the interest rate are fixed at the time the buyer enters
into the commitment, but delivery and payment for the securities normally take
place after the date of the commitment to purchase. Firm commitment agreements
call for the purchase of securities at an agreed-upon price on a specified
future date. The Fund uses such investment techniques in order to secure what is
considered to be an advantageous price and yield to the Fund and not for
purposes of leveraging the Fund's assets. In either instance, the Fund will
maintain in a segregated account with its Custodian cash or liquid securities
equal (on a daily marked-to-market basis) to the amount of its commitment to
purchase the underlying securities.
ILLIQUID SECURITIES
Each Fund may purchase securities other than in the open market. While
such purchases may often offer attractive opportunities for investment not
otherwise available on the open market, the securities so purchased are often
"restricted securities" or "not readily marketable" (i.e., they cannot be sold
to the public without registration under the Securities Act of 1933, as amended
(the "1933 Act"), or the availability of an exemption from registration (such as
Rule 144A) or because they are subject to other legal or contractual delays in
or restrictions on resale). This investment practice, therefore, could have the
effect of increasing the level of illiquidity of each Fund. It is each Fund's
policy that illiquid securities (including repurchase agreements of more than
seven days duration, certain restricted securities, and other securities which
are not readily marketable) may not constitute, at the time of purchase, more
than 15% of the value of the Fund's net assets. The Trust's Board of Trustees
has approved guidelines for use by IMI in determining whether a security is
illiquid.
Generally speaking, restricted securities may be sold (i) only to
qualified institutional buyers; (ii) in a privately negotiated transaction to a
limited number of purchasers; (iii) in limited quantities after they have been
held for a specified period of time and other conditions are met pursuant to an
exemption from registration; or (iv) in a public offering for which a
registration statement is in effect under the 1933 Act. Issuers of restricted
securities may not be subject to the disclosure and other investor protection
requirements that would be applicable if their securities were publicly traded.
If adverse market conditions were to develop during the period between a 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, a
Fund may be required to bear all or part of the registration expenses. Each Fund
may be deemed to be an "underwriter" for purposes of the 1933 Act when selling
restricted securities to the public and, in such event, the Fund may be liable
to purchasers of such securities if the registration statement prepared by the
issuer is materially inaccurate or misleading.
Since it is not possible to predict with assurance that the market for
securities eligible for resale under Rule 144A will continue to be liquid, IMI
will monitor such restricted securities subject to the supervision of the Board
of Trustees. Among the factors IMI may consider in reaching liquidity decisions
relating to Rule 144A securities are: (1) the frequency of trades and quotes for
the security; (2) the number of dealers wishing to purchase or sell the security
and the number of other potential purchasers; (3) dealer undertakings to make a
market in the security; and (4) the nature of the security and the nature of the
market for the security (i.e., the time needed to dispose of the security, the
method of soliciting offers, and the mechanics of the transfer).
FOREIGN SECURITIES
The securities of foreign issuers in which each Fund may invest include
non-U.S. dollar-denominated debt securities, Euro dollar securities, sponsored
and unsponsored American Depository Receipts ("ADRs"), Global Depository
Receipts ("GDRs") and related depository instruments, American Depository Shares
("ADSs"), Global Depository Shares ("GDSs"), and debt securities issued, assumed
or guaranteed by foreign governments or political subdivisions or
instrumentalities thereof. Shareholders should consider carefully the
substantial risks involved in investing in securities issued by companies and
governments of foreign nations, which are in addition to the usual risks
inherent in each Fund's domestic investments.
Although IMI intends to invest each Fund's assets only in nations that are
generally considered to have relatively stable and friendly governments, there
is the possibility of expropriation, nationalization, repatriation or
confiscatory taxation, taxation on income earned in a foreign country and other
foreign taxes, foreign exchange controls (which may include suspension of the
ability to transfer currency from a given country), default on foreign
government securities, political or social instability or diplomatic
developments which could affect investments in securities of issuers in those
nations. In addition, in many countries there is less publicly available
information about issuers than is available for U.S. companies. Moreover,
foreign companies are not generally subject to uniform accounting, auditing and
financial reporting standards, and auditing practices and requirements may not
be comparable to those applicable to U.S. companies. In many foreign countries,
there is less governmental supervision and regulation of business and industry
practices, stock exchanges, brokers, and listed companies than in the United
States. Foreign securities transactions may also be subject to higher brokerage
costs than domestic securities transactions. The foreign securities markets of
many of the countries in which each Fund may invest may also be smaller, less
liquid and subject to greater price volatility than those in the United States.
In addition, each Fund may encounter difficulties or be unable to pursue legal
remedies and obtain judgment in foreign courts.
Foreign bond markets have different clearance and settlement procedures
and in certain markets there have been times when settlements have been unable
to keep pace with the volume of securities transactions, making it difficult to
conduct such transactions. Delays in settlement could result in temporary
periods when assets of a Fund are uninvested and no return is earned thereon.
The inability of a 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 a Fund because of subsequent declines
in the value of the portfolio security or, if the Fund has entered into a
contract to sell the security, in possible liability to the purchaser. It may be
more difficult for each Fund's agents to keep currently informed about corporate
actions such as stock dividends or other matters that may affect the prices of
portfolio securities. Communications between the United States and foreign
countries may be less reliable than within the United States, thus increasing
the risk of delayed settlements of portfolio transactions or loss of
certificates for portfolio securities. Moreover, individual foreign economies
may differ favorably or unfavorably from the United States economy in such
respects as growth of gross national product, rate of inflation, capital
reinvestment, resource self-sufficiency and balance of payments position. IMI
seeks to mitigate the risks to each Fund associated with the foregoing
considerations through investment variation and continuous professional
management.
DEPOSITORY RECEIPTS
ADRs, GDRs, ADSs, GDSs and related securities are depository instruments,
the issuance of which is typically administered by a U.S. or foreign bank or
trust company. These instruments evidence ownership of underlying securities
issued by a U.S. or foreign corporation. ADRs are publicly traded on exchanges
or over-the-counter ("OTC") in the United States. Unsponsored programs are
organized independently and without the cooperation of the issuer of the
underlying securities. As a result, information concerning the issuer may not be
as current or as readily available as in the case of sponsored depository
instruments, and their prices may be more volatile than if they were sponsored
by the issuers of the underlying securities.
EMERGING MARKETS
Each 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 each Fund's performance favorably or unfavorably.
In recent years, many emerging market countries around the world have
undergone political changes that have reduced government's role in economic and
personal affairs and have stimulated investment and growth. Historically, there
is a strong direct correlation between economic growth and stock market returns.
While this is no guarantee of future performance, IMI believes that investment
opportunities (particularly in the energy, environmental services, natural
resources, basic materials, power, telecommunications and transportation
industries) may result within the evolving economies of emerging market
countries from which each Fund and its shareholders will benefit.
Investments in companies domiciled in developing countries may be subject
to potentially higher risks than investments in developed countries. Such risks
include (i) less social, political and economic stability; (ii) a small market
for securities and/or a low or nonexistent volume of trading, which result in a
lack of liquidity and in greater price volatility; (iii) certain national
policies that may restrict each 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 each 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, each 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 each 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
each 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
each Fund's cash and securities, each 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 Ivy European Opportunities 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
Ivy European Opportunities 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.
FOREIGN CURRENCIES
Investment in foreign securities usually will involve currencies of
foreign countries. Moreover, each 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 each 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 each Fund may incur costs in connection with
conversions between various currencies. Although each Fund's custodian values
the Fund's assets daily in terms of U.S. dollars, each Fund does not intend to
convert its holdings of foreign currencies into U.S. dollars on a daily basis.
Each 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 a Fund at one
rate, while offering a lesser rate of exchange should the Fund desire to resell
that currency to the dealer. Each Fund will conduct its foreign currency
exchange transactions either on a spot (i.e., cash) basis at the spot rate
prevailing in the foreign currency exchange market, or through entering into
forward contracts to purchase or sell foreign currencies.
Because each Fund normally will be invested in both U.S. and foreign
securities markets, changes in each Fund's share price may have a low
correlation with movements in U.S. markets. Each Fund's share price will reflect
the movements of the different stock and bond markets in which it is invested
(both U.S. and foreign), and of the currencies in which the investments are
denominated. Thus, the strength or weakness of the U.S. dollar against foreign
currencies may account for part of each Fund's investment performance. U.S. and
foreign securities markets do not always move in step with each other, and the
total returns from different markets may vary significantly. In addition,
significant uncertainty surrounds the proposed introduction of the euro (a
common currency for the European Union) in January 1999 and its effect on the
value of securities denominated in local European currencies. These and other
currencies in which each Fund's assets are denominated may be devalued against
the U.S. dollar, resulting in a loss to each Fund.
FOREIGN CURRENCY EXCHANGE TRANSACTIONS
Each Fund may enter into forward foreign currency contracts in order to
protect against uncertainty in the level of future foreign exchange rates in the
purchase and sale of securities. A forward contract is an obligation to purchase
or sell a specific currency for an agreed price at a future date (usually less
than a year), and typically is individually negotiated and privately traded by
currency traders and their customers. A forward contract generally has no
deposit requirement, and no commissions are charged at any stage for trades.
Although foreign exchange dealers do not charge a fee for commissions, they do
realize a profit based on the difference between the price at which they are
buying and selling various currencies. Although these contracts are intended to
minimize the risk of loss due to a decline in the value of the hedged
currencies, at the same time, they tend to limit any potential gain which might
result should the value of such currencies increase.
While each Fund may enter into forward contracts to reduce currency
exchange risks, changes in currency exchange rates may result in poorer overall
performance for each Fund than if it had not engaged in such transactions.
Moreover, there may be an imperfect correlation between a Fund's portfolio
holdings of securities denominated in a particular currency and forward
contracts entered into by that Fund. An imperfect correlation of this type may
prevent a Fund from achieving the intended hedge or expose the Fund to the risk
of currency exchange loss.
Each Fund may purchase currency forwards and combine such purchases with
sufficient cash or short-term securities to create unleveraged substitutes for
investments in foreign markets when deemed advantageous. Each Fund may also
combine the foregoing with bond futures or interest rate futures contracts to
create the economic equivalent of an unhedged foreign bond position.
Each Fund may also cross-hedge currencies by entering into transactions to
purchase or sell one or more currencies that are expected to decline in value
relative to other currencies to which that Fund has or in which the Fund expects
to have portfolio exposure.
Currency transactions are subject to risks different from those of other
portfolio transactions. Because currency control is of great importance to the
issuing governments and influences economic planning and policy, purchases and
sales of currency and related instruments can be negatively affected by
government exchange controls, blockages, and manipulations or exchange
restrictions imposed by governments. These can result in losses to a Fund if it
is unable to deliver or receive currency or funds in settlement of obligations
and could also cause hedges it has entered into to be rendered useless,
resulting in full currency exposure as well as incurring transactions costs.
Buyers and sellers of currency futures are subject to the same risks that apply
to the use of futures generally. Further, settlement of a currency futures
contract for the purchase of most currencies must occur at a bank based in the
issuing nation. Trading options on currency futures is relatively new, and the
ability to establish and close out positions on such options is subject to the
maintenance of a liquid market which may not always be available. Currency
exchange rates may fluctuate based on factors extrinsic to that country's
economy.
OTHER INVESTMENT COMPANIES
Each Fund may invest up to 10% of its total assets in the shares of other
investment companies. As a shareholder of an investment company, a Fund would
bear its ratable shares of the fund's expenses (which often include an
asset-based management fee). Each Fund could also lose money by investing in
other investment companies, since the value of their respective investments and
the income they generate will vary daily based on prevailing market conditions.
REPURCHASE AGREEMENTS
Repurchase agreements are contracts under which a 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, each Fund is permitted to enter into repurchase
agreements only if the repurchase agreements are at least fully collateralized
with U.S. Government securities or other securities that IMI has approved for
use as collateral for repurchase agreements and the collateral must be
marked-to-market daily. Each Fund will enter into repurchase agreements only
with banks and broker-dealers deemed to be creditworthy by IMI under the
above-referenced guidelines. In the unlikely event of failure of the executing
bank or broker-dealer, a Fund could experience some delay in obtaining direct
ownership of the underlying collateral and might incur a loss if the value of
the security should decline, as well as costs in disposing of the security.
BANKING INDUSTRY AND SAVINGS AND LOAN OBLIGATIONS
Certificates of deposit are negotiable certificates issued against funds
deposited in a commercial bank for a definite period of time and earning a
specified return. Bankers' acceptances are negotiable drafts or bills of
exchange, normally drawn by an importer or exporter to pay for specific
merchandise, which are "accepted" by a bank (meaning, in effect, that the bank
unconditionally agrees to pay the face value of the instrument at maturity). In
addition to investing in certificates of deposit and bankers' acceptances, each
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. Each Fund's investments in certificates of deposit, time
deposits, and bankers' acceptance are limited to obligations of (i) banks having
total assets in excess of $1 billion, (ii) U.S. banks which do not meet the $1
billion asset requirement, if the principal amount of such obligation is fully
insured by the Federal Deposit Insurance Corporation (the "FDIC"), (iii) savings
and loan association which have total assets in excess of $1 billion and which
are members of the FDIC, and (iv) foreign banks if the obligation is, in IMI's
opinion, of an investment quality comparable to other debt securities which may
be purchased by a Fund. Each Fund's investments in certificates of deposit of
savings associations are limited to obligations of Federal and state-chartered
institutions whose total assets exceed $1 billion and whose deposits are insured
by the FDIC.
COMMERCIAL PAPER
Commercial paper represents short-term unsecured promissory notes issued
in bearer form by bank holding companies, corporations and finance companies.
Each Fund may invest in commercial paper that is rated Prime-1 by Moody's
Investors Service, Inc. ("Moody's") or A-1 by Standard & Poor's Corporation
("S&P") or, if not rated by Moody's or S&P, is issued by companies having an
outstanding debt issue rated Aaa or Aa by Moody's or AAA or AA by S&P.
BORROWING
Borrowing may exaggerate the effect on each 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 each Fund's borrowings will be fixed, each Fund's assets may change in value
during the time a borrowing is outstanding, thus increasing exposure to capital
risk.
WARRANTS
The holder of a warrant has the right, until the warrant expires, to
purchase a given number of shares of a particular issuer at a specified price.
Such investments can provide a greater potential for profit or loss than an
equivalent investment in the underlying security. However, prices of warrants do
not necessarily move in a tandem with the prices of the underlying securities,
and are, therefore, considered speculative investments. Warrants pay no
dividends and confer no rights other than a purchase option. Thus, if a warrant
held by any Fund were not exercised by the date of its expiration, the Fund
would lose the entire purchase price of the warrant.
REAL ESTATE INVESTMENT TRUSTS (REITS)
A REIT is a corporation, trust or association that invests in real estate
mortgages or equities for the benefit of its investors. REITs are dependent upon
management skill, may not be diversified and are subject to the risks of
financing projects. Such entities are also subject to heavy cash flow
dependency, defaults by borrowers, self-liquidation and the possibility of
failing to qualify for tax-free pass-through of income under the Internal
Revenue Code of 1986, as amended (the "Code"), and to maintain exemption from
the Investment Company Act of 1940 (the "1940 Act"). By investing in REITs
indirectly through Ivy Global Fund, a shareholder will bear not only his or her
proportionate share of the expenses of the Fund, but also, indirectly, similar
expenses of the REITs.
OPTIONS TRANSACTIONS
IN GENERAL. A call option is a short-term contract (having a duration of
less than one year) pursuant to which the purchaser, in return for the premium
paid, has the right to buy the security underlying the option at the specified
exercise price at any time during the term of the option. The writer of the call
option, who receives the premium, has the obligation, upon exercise of the
option, to deliver the underlying security against payment of the exercise
price. A put option is a similar contract pursuant to which the purchaser, in
return for the premium paid, has the right to sell the security underlying the
option at the specified exercise price at any time during the term of the
option. The writer of the put option, who receives the premium, has the
obligation, upon exercise of the option, to buy the underlying security at the
exercise price. The premium paid by the purchaser of an option will reflect,
among other things, the relationship of the exercise price to the market price
and volatility of the underlying security, the time remaining to expiration of
the option, supply and demand, and interest rates.
If the writer of a U.S. exchange-traded 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. Closing purchase transactions are not available for OTC
transactions. In order to terminate an obligations in an OTC transaction, Fund
would need to negotiate directly with the counterparty.
Each Fund will realize a gain (or a loss) on a closing purchase
transaction with respect to a call or a put previously written by that 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 a 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 each Fund, are taxable as ordinary income. See "Taxation."
Each Fund will realize a gain (or a loss) on a closing sale transaction
with respect to a call or a put previously purchased by that 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 each Fund
and its counterparty (usually a securities dealer or a financial institution)
with no clearing organization guarantee. When a 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. Each Fund may write (sell)
covered call options on each Fund's securities in an attempt to realize a
greater current return than would be realized on the securities alone. Each Fund
may also write covered call options to hedge a possible stock or bond market
decline (only to the extent of the premium paid to the Fund for the options). In
view of the investment objectives of each Fund, each Fund generally would write
call options only in circumstances where the investment adviser to the Fund does
not anticipate significant appreciation of the underlying security in the near
future or has otherwise determined to dispose of the security.
A "covered" call option means generally that so long as a Fund is
obligated as the writer of a call option, that 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 a
Fund receives premium income from these activities, any appreciation realized on
an underlying security will be limited by the terms of the call option. Each
Fund may purchase call options on individual securities only to effect a
"closing purchase transaction."
As the writer of a call option, a 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 a 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. Each Fund may purchase a put
option on an underlying security owned by that Fund as a defensive technique in
order to protect against an anticipated decline in the value of the security.
Each 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 a 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 any Fund for leverage purposes.
Each 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. A 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. Each Fund may write (sell) put options on individual securities only to
effect a "closing sale transaction."
RISKS OF OPTIONS TRANSACTIONS. The purchase and writing of options
involves certain risks. During the option period, the covered call writer has,
in return for the premium on the option, given up the opportunity to profit from
a price increase in the underlying securities above the exercise price, but, as
long as its obligation as a writer continues, has retained the risk of loss
should the price of the underlying security decline. The writer of a U.S. option
has no control over the time when it may be required to fulfill its obligation
as a writer of the option. Once an option writer has received an exercise
notice, it cannot effect a closing purchase transaction in order to terminate
its obligation under the option and must deliver the underlying securities (or
cash in the case of an index option) at the exercise price. If a put or call
option purchased by a 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 a Fund
seeks to close out an option position. Furthermore, if trading restrictions or
suspensions are imposed on the options markets, a 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. Transfer of an
OTC option is usually prohibited absent the consent of the original
counterparty. There is no assurance that a Fund will be able to close out an OTC
option position at a favorable price prior to its expiration. An OTC
counterparty may fail to deliver or to pay, as the case may be. In the event of
insolvency of the counterparty, a Fund might be unable to close out an OTC
option position at any time prior to its expiration. Although a Fund may be able
to offset to some extent any adverse effects of being unable to liquidate an
option position, a Fund may experience losses in some cases as a result of such
inability.
When conducted outside the U.S., options transactions may not be regulated
as rigorously as in the U.S., may not involve a clearing mechanism and related
guarantees, and are subject to the risk of governmental actions affecting
trading in, or the prices of, foreign securities, currencies and other
instruments. The value of such positions also could be adversely affected by:
(i) other complex foreign political, legal and economic factors, (ii) lesser
availability than in the U.S. of data on which to make trading decisions, (iii)
delays in each Fund's ability to act upon economic events occurring in foreign
markets during non-business hours in the U.S., (iv) the imposition of different
exercise and settlement terms and procedures and margin requirements than in the
U.S., and (v) lower trading volume and liquidity.
Each Fund's options activities also may have an impact upon the level
of its portfolio turnover and brokerage commissions. See "Portfolio
Turnover."
Each Fund's success in using options techniques depends, among other
things, on IMI's ability to predict accurately the direction and volatility of
price movements in the options and securities markets, and to select the proper
type, timing of use and duration of options.
FUTURES CONTRACTS AND OPTIONS ON FUTURES CONTRACTS
IN GENERAL. Each 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 a Fund, that Fund is required to deposit with its
custodian (or broker, if legally permitted) a specified amount of cash or liquid
securities ("initial margin"). The margin required for a futures contract is set
by the exchange on which the contract is traded and may be modified during the
term of the contract. The initial margin is in the nature of a performance bond
or good faith deposit on the futures contract which is returned to the Fund upon
termination of the contract, assuming all contractual obligations have been
satisfied. A futures contract held by a 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 a 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, each Fund
will mark-to-market its open futures position.
Each Fund is also required to deposit and maintain margin with respect to
put and call options on futures contracts written by it. Such margin deposits
will vary depending on the nature of the underlying futures contract (and the
related initial margin requirements), the current market value of the option,
and other futures positions held by the Fund.
Although some futures contracts call for making or taking delivery of the
underlying securities, generally these obligations are closed out prior to
delivery of offsetting purchases or sales of matching futures contracts (same
exchange, underlying security or index, and delivery month). If an offsetting
purchase price is less than the original sale price, each 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, each 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, each Fund will maintain with its
Custodian (and mark-to-market on a daily basis) cash or liquid securities that,
when added to the amounts deposited with a futures commission merchant ("FCM")
as margin, are equal to the market value of the futures contract. Alternatively,
each Fund may "cover" its position by purchasing a put option on the same
futures contract with a strike price as high as or higher than the price of the
contract held by the Fund, or, if lower, may cover the difference with cash or
short-term securities.
When selling a futures contract, each 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, each Fund may "cover" its position by owning the
instruments underlying the contract (or, in the case of an index futures
contract, a portfolio with a volatility substantially similar to that of the
index on which the futures contract is based), or by holding a call option
permitting the Fund to purchase the same futures contract at a price no higher
than the price of the contract written by the Fund (or at a higher price if the
difference is maintained in liquid assets with the Fund's custodian).
When selling a call option on a futures contract, each 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, a Fund may cover its position by entering into a
long position in the same futures contract at a price no higher than the strike
price of the call option, by owning the instruments underlying the futures
contract, or by holding a separate call option permitting the Fund to purchase
the same futures contract at a price not higher than the strike price of the
call option sold by the Fund, or covering the difference if the price is higher.
When selling a put option on a futures contract, each Fund will maintain
with its Custodian (and mark-to-market on a daily basis) cash or liquid
securities that equal the purchase price of the futures contract less any margin
on deposit. Alternatively, a Fund may cover the position either by entering into
a short position in the same futures contract, or by owning a separate put
option permitting it to sell the same futures contract so long as the strike
price of the purchased put option is the same or higher than the strike price of
the put option sold by the Fund, or, if lower, the Fund may hold securities to
cover the difference.
FOREIGN CURRENCY FUTURES CONTRACTS AND RELATED OPTIONS. Each 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.
Each 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. Each 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.
Each Fund will only enter into futures contracts and futures options which
are standardized and traded on a U.S. or foreign exchange, board of trade, or
similar entity or quoted on an automated quotation system. Each Fund will not
enter into a futures contract or purchase an option thereon if, immediately
thereafter, the aggregate initial margin deposits for futures contracts held by
the Fund plus premiums paid by it for open futures option positions, less the
amount by which any such positions are "in-the-money," would exceed 5% of the
liquidation value of the Fund's portfolio (or the Fund's net asset value), after
taking into account unrealized profits and unrealized losses on any such
contracts the Fund has entered into. A call option is "in-the-money" if the
value of the futures contract that is the subject of the option exceeds the
exercise price. A put option is "in-the-money" if the exercise price exceeds the
value of the futures contract that is the subject of the option. For additional
information about margin deposits required with respect to futures contracts and
options thereon, see "Futures Contracts and Options on Futures Contracts."
RISKS ASSOCIATED WITH FUTURES AND RELATED OPTIONS. There can be no
guarantee that there will be a correlation between price movements in the
hedging vehicle and in a 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 a
Fund seeks to close out a futures or a futures option position, and the Fund
would remain obligated to meet margin requirements until the position is closed.
In addition, there can be no assurance that an active secondary market will
continue to exist.
Currency futures contracts and options thereon may be traded on foreign
exchanges. Such transactions may not be regulated as effectively as similar
transactions in the United States; may not involve a clearing mechanism and
related guarantees; and are subject to the risk of governmental actions
affecting trading in, or the prices of, foreign securities. The value of such
position also could be adversely affected by (i) other complex foreign
political, legal and economic factors, (ii) lesser availability than in the
United States of data on which to make trading decisions, (iii) delays in a
Fund's ability to act upon economic events occurring in foreign markets during
non business hours in the United States, (iv) the imposition of different
exercise and settlement terms and procedures and margin requirements than in the
United States, and (v) lesser trading volume.
SECURITIES INDEX FUTURES CONTRACTS
Each Fund (except Ivy Global Natural Resources Fund) may enter into
securities index futures contracts as an efficient means of regulating the
Fund's exposure to the equity markets. Each Fund will not engage in transactions
in futures contracts for speculation, but only as a hedge against changes
resulting from market conditions in the values of securities held in the Fund's
portfolio or which it intends to purchase. An index futures contract is a
contract to buy or sell units of an index at a specified future date at a price
agreed upon when the contract is made. Entering into a contract to buy units of
an index is commonly referred to as purchasing a contract or holding a long
position in the index. Entering into a contract to sell units of an index is
commonly referred to as selling a contract or holding a short position. The
value of a unit is the current value of the stock index. For example, the S&P
500 Index is composed of 500 selected common stocks, most of which are listed on
the New York Stock Exchange (the "Exchange"). The S&P 500 Index assigns relative
weightings to the 500 common stocks included in the Index, and the Index
fluctuates with changes in the market values of the shares of those common
stocks. In the case of the S&P 500 Index, contracts are to buy or sell 500
units. Thus, if the value of the S&P 500 Index were $150, one contract would be
worth $75,000 (500 units x $150). The index futures contract specifies that no
delivery of the actual securities making up the index will take place. Instead,
settlement in cash must occur upon the termination of the contract, with the
settlement being the difference between the contract price and the actual level
of the stock index at the expiration of the contract. For example, if a 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
a 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. Each Fund's success in using hedging
techniques depends, among other things, on IMI's ability to predict correctly
the direction and volatility of price movements in the futures and options
markets as well as in the securities markets and to select the proper type, time
and duration of hedges. The skills necessary for successful use of hedges are
different from those used in the selection of individual stocks.
Each Fund's ability to hedge effectively all or a portion of its
securities through transactions in index futures (and therefore the extent of
its gain or loss on such transactions) depends on the degree to which price
movements in the underlying index correlate with price movements in the Fund's
securities. Inasmuch as such securities will not duplicate the components of an
index, the correlation probably will not be perfect. Consequently, each 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 each 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 a 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,
a 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, a 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, a 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.
Each 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. Each 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, each Fund will maintain with
its Custodian (and mark-to-market on a daily basis) cash or liquid securities
that, when added to the amounts deposited with a futures commission merchant
("FCM") as margin, are equal to the market value of the futures contract.
Alternatively, a 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, each Fund will maintain with its
Custodian (and mark-to-market on a daily basis) cash or liquid securities that,
when added to the amounts deposited with an FCM as margin, are equal to the
market value of the instruments underlying the contract. Alternatively, a 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. Each Fund may enter into multiple transactions,
including multiple options transactions, multiple futures transactions and
multiple currency transactions (including forward currency contracts) and some
combination of futures, options, and currency transactions ("component"
transactions), instead of a single transaction, as part of a single or combined
strategy when, in the opinion of IMI, it is in the best interests of the Fund to
do so. A combined transaction will usually contain elements of risk that are
present in each of its component transactions. Although combined transactions
are normally entered into based on IMI's judgment that the combined strategies
will reduce risk or otherwise more effectively achieve the desired portfolio
management goal, it is possible that the combination will instead increase such
risks or hinder achievement of the management objective.
PORTFOLIO TURNOVER
Each 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, each
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 a 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.
Each 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 each Fund's
portfolio turnover rate, all securities whose maturities at the time of
acquisition were one year or less are excluded.
TRUSTEES AND OFFICERS
Each Fund's Board of Trustees (the "Board") is responsible for the overall
management of the Fund, including general supervision and review of the Fund's
investment activities. The Board, in turn, elects the officers who are
responsible for administering each Fund's day-to-day operations.
The Trustees and Executive Officers of the Trust, their business
addresses and principal occupations during the past five years are:
POSITION WITH BUSINESS AFFILIATIONS
NAME, ADDRESS, AGE THE TRUST AND PRINCIPAL OCCUPATIONS
John S. Anderegg, Jr. Trustee Chairman, Dynamics Research
60 Concord Street Corp. (instruments and controls);
Wilmington, MA 01887 Director, Burr-Brown Corp.
Age: 75 (operational amplifiers);
Director, Metritage Incorporated
(level measuring instruments);
Trustee of Mackenzie Series Trust
(1992-1998).
James W. Broadfoot President President,
700 South Federal Hwy. and Ivy Management Inc. (1996-
Suite 300 Trustee present); Senior Vice
Boca Raton, FL 33432 President, Ivy Management,
Age: 56 Inc. (1992-1996); Director and Senior
[*Deemed to be an Vice President, Mackenzie Investment
"interested person" Management Inc. (1995-present); Senior
of the Trust, as Vice President, Mackenzie Investment
defined under the Management Inc. (1990-1995).
1940 Act.]
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: 75 (insurance agency); Chairman,
Scott Management Company
(administrative services for
insurance companies); President,
The Channick Group (consultants
to insurance companies and
national trade associations);
Trustee of Mackenzie Series
Trust (1994-1998); Director of
The Mackenzie Funds Inc.
(1994-1995).
Frank W. DeFriece, Jr. Trustee Director, Manager and Vice
The Landmark Centre President, Director and
113 Landmark Lane, Fund Manager, Massengill-
Suite B DeFriece Foundation
Bristol, TN 37620-2285 (charitable organization)
Age: 78 (1950-present); Trustee and Vice
Chairman, East Tennessee Public
Communications Corp. (WSJK-TV)
(1984-present); Trustee of
Mackenzie Series Trust
(1985-1998); Director of The
Mackenzie Funds Inc. (1987-1995).
Roy J. Glauber Trustee Mallinckrodt Professor of
Lyman Laboratory Physics, Harvard
of Physics University (1974-present);
Harvard University Trustee of Mackenzie Series
Cambridge, MA 02138 Trust (1994-1997).
Age: 73
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: 69 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 Chairman -present); Senior Vice President
Boca Raton, FL 33432 and Director of Mackenzie
Age: 42 Investment Management, Inc. (1994-
[*Deemed to be an 1996); Senior Vice President and
"interested person" Treasurer of Mackenzie Investment
of the Trust, as defined Management, Inc. (1989-1994);
under the Senior Vice President and Director
1940 Act.] 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).
Edward M. Tighe Trustee Chief Executive Officer,
5900 N. Andrews Avenue CITCO Technology Management, Inc.
Suite 700 ("CITCO") (computer software develop-
Ft. Lauderdale, FL 33309 ment and consulting) (1999-present);
President and Director, Global
Technology Management, Inc. (CITCO's
predecessor) (1992-1998); Managing
Director, Global Mutual Fund Services,
Ltd. (financial services firm);
President, Director and Chief
Executive Officer, Global Mutual Fund
Services, Inc. (1994-present).
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).
COMPENSATION TABLE
IVY FUND
(FISCAL YEAR ENDED DECEMBER 31, 1998)
<TABLE>
<S> <C> <C> <C> <C>
PENSION OR
AGGREGATE RETIREMENT ESTIMATED TOTAL COMPENSATION
COMPENSATION BENEFITS ACCRUED ANNUAL ESTIMATED FROM TRUST AND FUND
NAME, FROM AS PART OF FUND ANNUAL BENEFITS COMPLEX PAID TO TRUSTEES
POSITION TRUST EXPENSES UPON RETIREMENT
John S. $18,000 N/A N/A $18,000
Anderegg, Jr.
(Trustee)
Paul H. $18,000 N/A N/A $18,000
Broyhill
(Trustee)
Keith J. $0 N/A N/A $0
Carlson
(Trustee and
President)
Stanley $18,000 N/A N/A $18,000
Channick
(Trustee)
Frank W. $18,000 N/A N/A $18,000
DeFriece, Jr.
(Trustee)
Roy J. $18,000 N/A N/A $18,000
Glauber
(Trustee)
Joseph G. $18,000 N/A N/A $18,000
Rosenthal
(Trustee)
Richard N. $18,000 N/A N/A $18,000
Silverman
(Trustee)
J. Brendan $17,000 N/A N/A $17,000
Swan
(Trustee)
C. William $0 N/A N/A $0
Ferris
(Secretary/
Treasurer)
</TABLE>
<PAGE>
To the knowledge of the Trust, as of March 31, 1999, no shareholder
owned beneficially or of record 5% or more of any Fund's outstanding shares of
any class, with the following exceptions:
CLASS A
Of the outstanding Class A shares of :
Ivy Asia Pacific Fund, Merrill Lynch Pierce Fenner & Smith, 4800 Deer
Lake Drive E, 3rd Floor, Jacksonville, FL 32246, owned of record 40,174.921
shares (16.51%), and Michael G. Landry, 211 S. Gordon Rd., Ft.
Lauderdale, FL 33301, owned of record 12,443.882 shares (5.11%);
Ivy Bond Fund, Merrill Lynch Pierce Fenner & Smith, 4800 Deer Lake
Drive E, 3rd Floor, Jacksonville, FL 32246, owned of record 1,397,567.620 shares
(13.02%);
Ivy China Region Fund, Merrill Lynch Pierce Fenner & Smith, 4800 Deer
Lake Drive E, 3rd Floor, Jacksonville, FL 32246, owned of record 218,003.027
shares (13.26%), and Resources Trust Company, PO Box 3865, Englewood, CO
80155-3865, owned of record 186,351.290 shares (11.33%);
Ivy Developing Nations Fund, Donaldson Lufkin Jenrette Securities
Corporation Inc., PO Box 2052, Jersey City, NJ 07303-9998, owned of record
87,092.843 shares (11.31%), Donaldson Lufkin Jenrette Securities Corporation
Inc., PO Box 2052, Jersey City, NJ 07303-9998, owned of record 54,336.017 shares
(7.06%), and Merrill Lynch Pierce Fenner & Smith, 4800 Deer Lake Drive E, 3rd
Floor, Jacksonville, FL 32246, owned of record 41,198.769 shares (5.35%);
Ivy Global Natural Resources Fund, Carn & Co., Riggs Bank (TTEE) FBO
Care-Free Consolidated 401K Plan, PO Box 96211, Washington, DC 20090-6211, owned
of record 62,273.356 shares (29.71%), Carn & Co., Riggs Bank (TTEE) FBO Yazaki
Employee Savings & Retirement Plan, PO Box 96211, Washington, DC 20090-6211,
owned of record 22,533.136 shares (10.75%), and Mackenzie Investment Management
Inc., via Mizner Financial Plaza, 700 South Federal Highway, Suite 300, Boca
Raton, FL 33432, owned of record 11,957.023 shares (5.70%);
Ivy Global Science & Technology Fund, Donaldson Lufkin Jenrette
Securities Corporation Inc., PO Box 2052, Jersey City, NJ 07303-9998, owned of
record 99,948.978 shares (16.84%), Donaldson Lufkin Jenrette Securities
Corporation Inc., PO Box 2052, Jersey City, NJ 07303-9998, owned of record
65,325.391 shares (11.01%), and Merrill Lynch Pierce Fenner & Smith, 4800 Deer
Lake Drive E, 3rd Floor, Jacksonville, FL 32246, owned of record 31,922.542
shares (5.38%);
Ivy International Fund II, Merrill Lynch Pierce Fenner & Smith, 4800
Deer Lake Drive E, 3rd Floor, Jacksonville, FL 32246, owned of record
818,804.984 shares (34.10%);
Ivy International Fund, Charles Schwab & Co. Inc., 101 Montgomery
Street, San Francisco, CA 94104, owned of record 12,827,455.253 shares (35.28%),
and Merrill Lynch Pierce Fenner & Smith, 4800 Deer Lake Drive E, 3rd Floor,
Jacksonville, FL 32246, owned of record 6,083,813.996 shares (16.73%);
Ivy International Small Companies Fund, Donaldson Lufkin Jenrette
Securities Corporation Inc., PO Box 2052, Jersey City, NJ 07303-9998, owned of
record 19,762.181 shares (20.88%), and Mackenzie Investment Management Inc., via
Mizner Financial Plaza, 700 South Federal Highway, Suite 300, Boca Raton, FL
33432, owned of record 10,287.244 shares (10.87%).
Ivy Money Market Fund, Carn & Co., Riggs Bank (TTEE) FBO Plexus Corp
401K Plan, PO Box 96211, Washington, DC 20090-6211, owned of record
2,710,056.720 shares (13.19%), and Bear Stearns Securities Corp., 1 Metrotech
Center North, Brooklyn, NY 11201-3859, owned of record 1,432,318.960 shares
(6.97%).
Ivy Pan-Europe Fund, Mackenzie Investment Management Inc., via Mizner
Financial Plaza, 700 South Federal Highway, Suite 300, Boca Raton, FL 33432,
owned of record 37,553.145 shares (23.84%), and Merrill Lynch Pierce Fenner &
Smith, 4800 Deer Lake Drive E, 3rd Floor, Jacksonville, FL 32246, owned of
record 27,122.193 shares (17.22%);
Ivy South America Fund, Merrill Lynch Pierce Fenner & Smith, 4800 Deer
Lake Drive E, 3rd Floor, Jacksonville, FL 32246, owned of record 45,710.848
shares (17.87%), and Charles Schwab & Co. Inc., 101 Montgomery Street, San
Francisco, CA 94104, owned of record 19,471.113 shares (7.61%), and William A.
Maczko & Mildred E. Helm Maczko, 2100 S. Ocean Ln., #1412, Ft. Lauderdale, FL
33316, owned of record 14,174.070 shares (5.54%);
Ivy US Blue Chip Fund, Helen L. Medvin, 4712 Michael Ave., North
Olmsted, OH 44070, owned of record 10,253.846 shares (7.12%), Donaldson Lufkin
Jenrette Securities Corporation Inc., PO Box 2052, Jersey City, NJ 07303-9998,
owned of record 8,986.371 shares (6.24%), and Janney Montgomery Scott Inc.,
Estate of David Craig, 1801 Market Street, Philadelphia, PA 19103-1675, owned of
record 8,880.995 shares (6.17%).
Ivy US Emerging Growth Fund, Donaldson Lufkin Jenrette Securities
Corporation Inc., PO Box 2052, Jersey City, NJ 07303-9998, owned of record
86,774.211 shares (5.08%);
CLASS B
Of the outstanding Class B shares of:
Ivy Asia Pacific Fund, Merrill Lynch Pierce Fenner & Smith, 4800 Deer
Lake Drive E, 3rd Floor, Jacksonville, FL 32246, owned of record 141,298.083
shares (35.22%);
Ivy Bond Fund, Merrill Lynch Pierce Fenner & Smith, 4800 Deer Lake
Drive E, 3rd Floor, Jacksonville, FL 32246, owned of record 12,199,384.716
shares (48.92%);
Ivy China Region Fund, Merrill Lynch Pierce Fenner & Smith, 4800 Deer
Lake Drive E, 3rd Floor, Jacksonville, FL 32246, owned of record 107,725.641
shares (11.73%);
Ivy Developing Nations Fund, Merrill Lynch Pierce Fenner & Smith, 4800
Deer Lake Drive E, 3rd Floor, Jacksonville, FL 32246, owned of record
278,316.028 shares (28.37%);
Ivy Global Fund, Merrill Lynch Pierce Fenner & Smith, 4800 Deer Lake
Drive E, 3rd Floor, Jacksonville, FL 32246, owned of record 68,719.447 shares
(11.93%);
Ivy Global Natural Resources Fund, Merrill Lynch Pierce Fenner & Smith,
4800 Deer Lake Drive E, 3rd Floor, Jacksonville, FL 32246, owned of record
83,599.984 shares (38.05%);
Ivy Global Science & Technology Fund, Merrill Lynch Pierce Fenner &
Smith, 4800 Deer Lake Drive E, 3rd Floor, Jacksonville, FL 32246, owned of
record 40,990.672 shares (8.13%);
Ivy Growth Fund, Merrill Lynch Pierce Fenner & Smith, 4800 Deer Lake
Drive E, 3rd Floor, Jacksonville, FL 32246, owned of record 24,939.375 shares
(8.96%);
Ivy Growth with Income Fund, Merrill Lynch Pierce Fenner & Smith, 4800
Deer Lake Drive E, 3rd Floor, Jacksonville, FL 32246, owned of record
263,081.752 shares (15.31%);
Ivy International Fund II, Merrill Lynch Pierce Fenner & Smith, 4800
Deer Lake Drive E, 3rd Floor, Jacksonville, FL 32246, owned of record
4,986,169.823 shares (60.62%);
Ivy International Fund, Merrill Lynch Pierce Fenner & Smith, 4800 Deer
Lake Drive E, 3rd Floor, Jacksonville, FL 32246, owned of record 5,678,407.729
shares (45.59%).
Ivy International Small Companies Fund, Merrill Lynch Pierce Fenner &
Smith, 4800 Deer Lake Drive E, 3rd Floor, Jacksonville, FL 32246, owned of
record 24,340.066 shares (23.40%), PaineWebber, FBO B Carmage Walls Trust #10,
FBO Lissa Walls Trust and Cooper Walls TTEE, PO Box 42828, Houston, TX 77242,
owned of record 5,880.313 shares (5.65%), and PaineWebber, FBO B Carmage Walls
Trust #10, FBO Cooper Walls Trust and Cooper Walls TTEE, PO Box 42828, Houston,
TX 77242, owned of record 5,760.640 shares (5.53%);
Ivy Pan-Europe Fund, Merrill Lynch Pierce Fenner & Smith, 4800 Deer
Lake Drive E, 3rd Floor, Jacksonville, FL 32246, owned of record 66,847.392
shares (22.86%);
Ivy South America Fund, Merrill Lynch Pierce Fenner & Smith, 4800 Deer
Lake Drive E, 3rd Floor, Jacksonville, FL 32246, owned of record 46,359.136
shares (29.47%);
Ivy US Blue Chip Fund, Merrill Lynch Pierce Fenner & Smith, 4800 Deer
Lake Drive E, 3rd Floor, Jacksonville, FL 32246, owned of record 74,760.802
shares (18.62%), and Parker Hunter Incorporated, FBO Robert Crisci and Kathy
Crisci, PO Box 7629, 3525 Ellwood Road, New Castle, PA 16107-7629, owned of
record 24,779.090 shares (6.17%).
Ivy US Emerging Growth Fund, Merrill Lynch Pierce Fenner & Smith, 4800
Deer Lake Drive E, 3rd Floor, Jacksonville, FL 32246, owned of record
335,426.771 shares (21.10%);
CLASS C
Of the outstanding Class C shares of:
Ivy Asia Pacific Fund, Merrill Lynch Pierce Fenner & Smith, 4800 Deer
Lake Drive E, 3rd Floor, Jacksonville, FL 32246, owned of record 19,237.215
shares (5.33%);
Ivy Bond Fund, Merrill Lynch Pierce Fenner & Smith, 4800 Deer Lake
Drive E, 3rd Floor, Jacksonville, FL 32246, owned of record 725,233.869 shares
(74.69%);
Ivy China Region Fund, Merrill Lynch Pierce Fenner & Smith, 4800 Deer
Lake Drive E, 3rd Floor, Jacksonville, FL 32246, owned of record 30,474.251
shares (27.72%), and IBT, (custodian) FBO Roy O. Derminer, 2236 Abbottwoods Ln.,
Orange City, FL 32763, owned of record 8,275.708 shares (7.52%);
Ivy Developing Nations Fund, Merrill Lynch Pierce Fenner & Smith, 4800
Deer Lake Drive E, 3rd Floor, Jacksonville, FL 32246, owned of record 48,103,553
shares (11.99%);
Ivy Global Fund, Merrill Lynch Pierce Fenner & Smith, 4800 Deer Lake
Drive E, 3rd Floor, Jacksonville, FL 32246, owned of record 6,585.276 shares
(19.35%), Donaldson Lufkin Jenrette Securities Corporation Inc., PO Box 2052,
Jersey City, NJ 07303-9998, owned of record 3,909.907 shares (11.48%), Robert W.
Baird & Co. Inc., 777 East Wisconsin Avenue, Milwaukee, WI 53202-5391, owned of
record 3,436.408 shares (10.09%), IBT, (custodian) FBO Mattie A. Allen, 755
Selma Pl., San Diego, CA 92114-1711, owned of record 3,095.552 shares (9.09%),
Smith Barney Inc., 388 Greenwich Street, New York, NY 10013, owned of record
2,436.584 shares (7.15%), and PaineWebber, (custodian) FBO Robert D.
Cuthbertson, PO Box 3321, Weehawken, NJ 07087-8154, owned of record 1,705.476
shares (5.01%);
Ivy Global Natural Resources Fund, Raymond James & Assoc. Inc.,
(custodian) Raymond W. Simmons, 6296 104th Avenue, Pinellas Park, FL 33782,
owned of record 981.281 shares (19.43%), Raymond James & Assoc. Inc.,
(custodian) Diversified Dental P/S, FBO Al Pollock, 10641 1st Street E., Suite
204, Treasure Island, FL 33706, owned of record 910.166 shares (18.02%), Robert
W. Baird & Co. Inc., 777 E. Wisconsin Avenue, Milwaukee, WI 53202-5391, owned of
record 613.622 shares (12.15%), Robert W. Baird & Co. Inc., 777 E. Wisconsin
Avenue, Milwaukee, WI 53202-5391, owned of record 550.722 shares (10.90%), Nancy
J. Cleare, 9381 US Hwy. 19 N, Pinellas Park, FL 33782, owned of record 541.597
shares (10.72%), Resources Trust Co., (custodian) FBO Jon K. Loessin, PO Box
5900, Denver, CO 80217, owned of record 535.023 shares (10.59%), Ester C.
Wickes, 19 Fawn Hill Rd., Tuxedo, NY 10987, owned of record 350.772 shares
(6.94%), and IBT, (custodian) FBO Salvatore Disalvo, 311 Bridle Path Lane,
Annapolis, MD 21403-1638, owned of record 299.993 shares (5.94%);
Ivy Global Science & Technology Fund, Merrill Lynch Pierce Fenner &
Smith, 4800 Deer Lake Drive E, 3rd Floor, Jacksonville, FL 32246, owned of
record 38,011.661 shares (11.30%);
Ivy Growth Fund, Merrill Lynch Pierce Fenner & Smith, 4800 Deer Lake
Drive E, 3rd Floor, Jacksonville, FL 32246, owned of record 7,477.571 shares
(47.23%), IBT, (custodian) FBO Joseph L. Wright, 32211 Pierce Street, Garden
City, MI 48135, owned of record 3,938.282 shares (24.87%), PaineWebber, FBO
Cynthia N. Young, PO Box 3321, Weehawken, NJ 07087-8154, owned of record 853.551
shares (5.39%), and Martin S. Sawyer & Ruth C. Sawyer, 5910 Wilson Blvd., #413,
Arlington, VA 22205, owned of record 844.906 shares (5.33%);
Ivy Growth with Income Fund, Merrill Lynch Pierce Fenner & Smith, 4800
Deer Lake Drive E, 3rd Floor, Jacksonville, FL 32246, owned of record 11,534.267
shares (29.37%), Anthony L. Bassano & Marie E. Bassano, 8934 Bari Court, Port
Richie, FL 34668, owned of record 3,203.100 shares (8.15%), IBT, (custodian) FBO
Vytautas Snieckus, 1250 E 276th Street, Euclid, OH 44132, owned of record
2,645.907 shares (6.73%), PaineWebber, (custodian) FBO Patricia Cramer Russell,
PO Box 3321, Weehawken, NJ 07087-8154, owned of record 2,191.410 shares (5.58%),
IBT, (custodian) FBO Kevin D. Thistle, 1017 Glencrest Court, Saulkville, WI
53080, owned of record 2,130.626 shares (5.42%), and IBT, (custodian) FBO Carol
E. Greivell, 985 N Broadway, #67, Depere, WI 54115, owned of record 2,106.814
shares (5.36%);
Ivy International Fund II, Merrill Lynch Pierce Fenner & Smith, 4800
Deer Lake Drive E, 3rd Floor, Jacksonville, FL 32246, owned of record
2,908,557.453 shares (74.01%);
Ivy International Fund, Merrill Lynch Pierce Fenner & Smith, 4800 Deer
Lake Drive E, 3rd Floor, Jacksonville, FL 32246, owned of record 2,189,094.234
shares (64.38%);
Ivy International Small Companies Fund, Merrill Lynch Pierce Fenner &
Smith, 4800 Deer Lake Drive E, 3rd Floor, Jacksonville, FL 32246, owned of
record 87,014.649 shares (90.31%);
Ivy Money Market Fund, PaineWebber, FBO Bruce Blank, PO Box 3321,
Weehawken, NJ 07087-8154, owned of record 103,905.380 shares (17.65%), IBT
(custodian) FBO, Marcelette V. Manning, 1371 Mt. View Lane, Chula Vista, CA
91911, owned of record 65,194.630 shares (11.07%), IBT (custodian) FBO Diana
Rooney, 2441 S. 9th St., El Centro, CA 92243, owned of record 62,822.810 shares
(10.67%), Robert J. Laws & Katherine A. Laws, PO Box 723, Ramona, CA 92065,
owned of record 42,920.450 shares (7.29%), IBT (custodian) FBO Betty J. Carson,
1987 Higgins Lane, El Centro, CA 92243, owned of record 39,398.780 shares
(6.69%), Paul M. Benard, 40 Arrowhead Farm Road, Boxford, MA 01921, owned of
record 33,488.010 shares (5.68%), Diane C. Benard, 40 Arrowhead Farm Road,
Boxford, MA 01921, owned of record 33,488.010 shares (5.68%), and PaineWebber,
FBO Kathleen L. Diller, PO Box 3321, Weehawken, NJ 07087-8154, owned of record
30,238.920 shares (5.13%).
Ivy Pan-Europe Fund, Merrill Lynch Pierce Fenner & Smith, 4800 Deer
Lake Drive E, 3rd Floor, Jacksonville, FL 32246, owned of record 26,948.668
shares (44.12%), Resources Trust Company, FBO Terry K. Ramnanan, PO Box 5900,
Denver, CO 80217, owned of record 14,652.015 shares (23.99%), and Donaldson
Lufkin Jenrette Securities Corporation Inc., PO Box 2052, Jersey City, NJ
07303-9998, owned of record 4,663.657 shares (7.63%);
Ivy South America Fund, Merrill Lynch Pierce Fenner & Smith, 4800 Deer
Lake Drive E, 3rd Floor, Jacksonville, FL 32246, owned of record 10,956.813
shares (58.18%), Interstate/Johnson Lane, Interstate Tower, PO Box 1220,
Charlotte, NC 28201-1220, owned of record 2,617.801 shares (13.90%), Donaldson
Lufkin Jenrette Securities Corporation Inc., PO Box 2052, Jersey City, NJ
07303-9998, owned of record 2,318.301 shares (12.31%), Donaldson Lufkin Jenrette
Securities Corporation Inc., PO Box 2052, Jersey City, NJ 07303-9998, owned of
record 1,133.787 shares (6.02%), and Smith Barney Inc., 388 Greenwich Street,
New York, NY 10013, owned of record 966.121 shares (5.13%);
Ivy US Blue Chip Fund, Merrill Lynch Pierce Fenner & Smith, 4800 Deer
Lake Drive E, 3rd Floor, Jacksonville, FL 32246, owned of record 8,485.693
shares (10.18%), Donaldson Lufkin Jenrette Securities Corporation Inc., PO Box
2052, Jersey City, NJ 07303-9998, owned of record 6,066.012 shares (7.27%), IBT,
(custodian) FBO Roy O. Derminer, 2236 Abbottwoods LN, Orange City, FL 32763,
owned of record 4,517.953 shares (5.42%), and Donaldson Lufkin Jenrette
Securities Corporation Inc., PO Box 2052, Jersey City, NJ 07303-9998, owned of
record 4,412.541 shares (5.29%);
Ivy US Emerging Growth Fund, Merrill Lynch Pierce Fenner & Smith, 4800
Deer Lake Drive E, 3rd Floor, Jacksonville, FL 32246, owned of record 96,481.220
shares (30.56%);
CLASS I
Of the outstanding Class I shares of:
Ivy International Fund, The John E. Fetzer Institute Inc., 9292 W KL
Ave., Kalamazoo, MI 49009, owned of record 727,066.771 shares (19.12%), State
Street Bank, (TTEE) FBO Allison Engines, 200 Newport Ave., 7th Floor, North
Quincy, MA 02171, owned of record 292,309.556 shares (7.68%), Lynspen and
Company, PO Box 830804, Birmingham, AL 35283, owned of record 276,747.272 shares
(7.27%), and U A Local 447 Pension Trust Fund, 5841 Newman Ct., Sacramento, CA
95819, owned of record 240,427.057 shares (6.32%).
ADVISOR CLASS
Of the outstanding Advisor Class shares of:
Ivy Bond Fund, NFSC FEBO, C. William Ferris, Michael Landry/Keith
Carlson, 700 South Federal Highway, Boca Raton, FL 33432-6114, owned of record
13,944.569 shares (77.94%), and Donaldson Lufkin Jenrette Securities Corporation
Inc., PO Box 2052, Jersey City, NJ 07303-9998, owned of record 3,252.157 shares
(18.17%);
Ivy China Region Fund, Donaldson Lufkin Jenrette Securities Corporation
Inc., PO Box 2052, Jersey City, NJ 07303-9998, owned of record 1,354.000 shares
(84.59%), and Donaldson Lufkin Jenrette Securities Corporation Inc., PO Box
2052, Jersey City, NJ 07303-9998, owned of record 192.447 shares (12.02%).
Ivy Developing Nations Fund, NFSC FEBO, C. William Ferris, Michael
Landry/Keith Carlson, 700 South Federal Highway, Boca Raton, FL 33432-6114,
owned of record 14,362.134 shares (100%);
Ivy Global Fund, NFSC FEBO, C. William Ferris, Michael Landry/Keith
Carlson, 700 South Federal Highway, Boca Raton, FL 33432-6114, owned of record
30,007.844 shares (100%);
Ivy Global Science & Technology Fund, IBT, (custodian) FBO Deborah P.
Mason, 3406 Cypress Landing Dr., Valrico, FL 33594, owned of record 629.966
shares (36.59%), Donaldson Lufkin Jenrette Securities Corporation Inc., PO Box
2052, Jersey City, NJ 07303-9998, owned of record 534.539 shares (31.04%),
Donaldson Lufkin Jenrette Securities Corporation Inc., PO Box 2052, Jersey City,
NJ 07303-9998, owned of record 418.586 shares (24.31%), and Donaldson Lufkin
Jenrette Securities Corporation Inc., PO Box 2052, Jersey City, NJ 07303-9998,
owned of record 138.549 shares (8.04%);
Ivy Growth Fund, NFSC FEBO, C. William Ferris, Michael Landry/Keith
Carlson, 700 South Federal Highway, Boca Raton, FL 33432-6114, owned of record
16,572.658 shares (99.90%);
Ivy Growth with Income Fund, NFSC FEBO, C. William Ferris, Michael
Landry/Keith Carlson, 700 South Federal Highway, Boca Raton, FL 33432-6114,
owned of record 25,118.240 shares (100%);
Ivy International Fund II, Charles Scwab & Co. Inc., 101 Montgomery
Street, San Francisco, CA 94104, owned of record 7,913.113 shares (11.19%),
Donaldson Lufkin Jenrette Securities Corporation Inc., PO Box 2052, Jersey City,
NJ 07303-9998, owned of record 6,471.430 shares (9.15%), and Donaldson Lufkin
Jenrette Securities Corporation Inc., PO Box 2052, Jersey City, NJ 07303-9998,
owned of record 4,602.660 shares (6.50%);
Ivy Pan-Europe Fund, NFSC FEBO, C. William Ferris, Michael Landry/Keith
Carlson, 700 South Federal Highway, Boca Raton, FL 33432-6114, owned of record
3,424.319 shares (47.51%), Donaldson Lufkin Jenrette Securities Corporation
Inc., PO Box 2052, Jersey City, NJ 07303-9998, owned of record 1,191.422 shares
(16.53%), Donaldson Lufkin Jenrette Securities Corporation Inc., PO Box 2052,
Jersey City, NJ 07303-9998, owned of record 947.119 shares (13.14%), Donaldson
Lufkin Jenrette Securities Corporation Inc., PO Box 2052, Jersey City, NJ
07303-9998, owned of record 653.595 shares (9.06%), and Charles Schwab & Co.
Inc., 101 Montgomery Street, San Francisco, CA 94104,owned of record 406.639
shares (5.64%);
Ivy US Blue Chip Fund, Mackenzie Investment Management Inc., Via Mizner
Financial Plaza, 700 South Federal Highway, Suite 300, Boca Raton, FL 33432,
owned of record 50,001.000 shares (80.05%), NFSC FEBO, C. William Ferris,
Michael Landry/Keith Carlson, 700 South Federal Highway, Boca Raton, FL
33432-6114, owned of record 7,419.362 shares (11.87%), and Charles Scwab & Co.
Inc., 101 Montgomery Street, San Francisco, CA 94104, owned of record 3,678.690
shares (5.88%);
Ivy US Emerging Growth Fund, NFSC FEBO, C. William Ferris, Michael
Landry/Keith Carlson, 700 South Federal Highway, Boca Raton, FL 33432-6114,
owned of record 20,670.236 shares (84.78%), and Charles Schwab & Co. Inc., 101
Montgomery Street, San Francisco, CA 94104, owned of record 1,927.965 shares
(7.90%).
As of April 16, 1999, the Officers and Trustees of the Trust as a group
owned beneficially or of record less than 1% of the outstanding Class A, Class
B, Class C, Class I and Advisor Class shares of each of the nineteen Ivy funds
that are series of the Trust, except that the Officers and Trustees of the Trust
as a group owned 3.93%, 1.94%, 1.19%, and 2.09%, respectively, of Ivy Asia
Pacific Fund Class A shares, Ivy Global Natural Resources Fund Class A shares,
Ivy Money Market Fund Class A shares, and Ivy South America Fund Class A shares,
respectively, as of that date.
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 Funds. Among other things,
the Code of Ethics, which generally complies with standards recommended by the
Investment Company Institute's Advisory Group on Personal Investing, prohibits
certain types of transactions absent prior approval, applies to portfolio
managers, traders, research analysts and others involved in the investment
advisory process, and imposes time periods during which personal transactions
may not be made in certain securities, and requires the submission of duplicate
broker confirmations and monthly reporting of securities transactions.
Exceptions to these and other provisions of the Code of Ethics may be granted in
particular circumstances after review by appropriate personnel.
INVESTMENT ADVISORY AND OTHER SERVICES
BUSINESS MANAGEMENT AND INVESTMENT ADVISORY SERVICES
IMI is a wholly owned subsidiary of Mackenzie Investment Management Inc.
("MIMI"). MIMI, a Delaware corporation, has approximately 10% of its outstanding
common stock listed for trading on the Toronto Stock Exchange ("TSE"). MIMI is a
subsidiary of Mackenzie Financial Corporation ("MFC"), 150 Bloor Street West,
Toronto, Ontario, Canada, a public corporation organized under the laws of
Ontario and whose shares are listed for trading on the TSE. MFC provides
investment advisory services to the Fund pursuant to an Investment Advisory
Agreement, and IMI provides business management and investment advisory services
to each of the other Funds pursuant to a Business Management and Investment
Advisory Agreement (each an "Agreement"). IMI provides business management
services to Ivy Global Natural Resources Fund pursuant to a Business Management
Agreement (the "Management Agreement"). IMI currently acts as manager and
investment adviser to the following additional investment companies registered
under the 1940 Act: Ivy Asia Pacific Fund, Ivy Bond Fund, Ivy China Region Fund,
Ivy Developing Nations Fund, Ivy Growth Fund, Ivy Growth with Income Fund, Ivy
International Fund, Ivy International Strategic Bond Fund, Ivy Money Market
Fund, Ivy South America Fund, Ivy US Blue Chip Fund and Ivy US Emerging Growth
Fund.
The Agreements obligate IMI and MFC to make investments for the account of
each 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 and MFC also determine the securities
to be purchased or sold by each Fund and place orders with brokers or dealers
who deal in such securities.
Under the IMI Agreement and the Management Agreement, IMI also provides
certain business management services. IMI is obligated to (1) coordinate with
each Fund's Custodian and monitor the services it provides to each Fund; (2)
coordinate with and monitor any other third parties furnishing services to each
Fund; (3) provide each 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 each
Fund or by IMI acting in some other capacity pursuant to a separate agreement or
arrangements with the Fund; (5) maintain or supervise the maintenance by third
parties of such books and records of the Trust as may be required by applicable
Federal or state law; (6) authorize and permit IMI's directors, officers and
employees who may be elected or appointed as trustees or officers of the Trust
to serve in such capacities; and (7) take such other action with respect to the
Trust, after approval by the Trust as may be required by applicable law,
including without limitation the rules and regulations of the SEC and of state
securities commissions and other regulatory agencies. IMI is also responsible
for reviewing the activities of MFC to ensure that Ivy Global Natural Resources
Fund is operated in compliance with its investment objectives and policies and
with the 1940 Act.
Henderson Investment Management Limited ("Henderson"), 3 Finsbury Avenue,
London, England EC2M 2PA, serves as subadviser to Ivy European Opportunities
Fund under an Agreement with IMI. For its services, Henderson receives a fee
from IMI that is equal, on an annual basis, to .50% of the Fund's average net
assets. As of February 1, 1999, Henderson also serves as subadviser with respect
to 50% of the net assets of Ivy International Small Companies Fund, for which
Henderson receives a fee from IMI that is equal, on an annual basis, to .50% of
that portion of the Fund's assets that Henderson manages. Henderson is an
indirect, wholly owned subsidiary of AMP Limited, an Australian life insurance
and financial services company located in New South Wales, Australia.
Ivy Global Natural Resources Fund pays IMI a monthly fee for providing
business management services at an annual rate of 0.50% of the Fund's average
net assets. For investment advisory services, Ivy Global Natural Resources Fund
pays MFC a monthly fee at an annual rate of 0.50% of its average net assets.
During the fiscal years ended December 31, 1997 and 1998, Ivy Global
Natural Resources Fund paid IMI fees of $32,056 and $20,977, respectively.
During the fiscal years ended December 31, 1997 and 1998, IMI reimbursed Fund
expenses in the amount of $25,180 and $147,952, respectively. During the fiscal
years ended December 31, 1997 and 1998, the Fund paid MFC fees of $32,056 and
$20,977, respectively.
Each other Fund pays IMI a monthly fee for providing business management
and investment advisory services at an annual rate of 1.00% of the Fund's
average net assets.
During the fiscal years ended December 31, 1996, 1997 and 1998, Ivy Global
Fund paid IMI fees of $301,433, $383,981 and $275,958, respectively. During the
same periods, IMI reimbursed Fund expenses in the amount of $0, $0 and $98,102,
respectively.
During the period from July 22, 1996 (commencement of operations) to
December 31, 1996, and during the fiscal years ended December 31, 1997 and 1998,
Ivy Global Science & Technology Fund paid IMI fees of $20,965, $229,616 and
$280,079, respectively. During the same periods, IMI reimbursed Fund expenses in
the amount of $14,813, $0 and $0, respectively.
During the period from May 13, 1997 (commencement of operations) to
December 31, 1997 and the fiscal year ended December 31, 1998, Ivy International
Fund II paid IMI fees of $413,862 and $1,356,028, respectively. During the same
periods, IMI reimbursed Fund expenses in the amount of $123,177 and $186,536,
respectively.
During the fiscal years ended December 31, 1997 and 1998, Ivy
International Small Companies Fund paid IMI fees of $28,799 and $34,504,
respectively. During the same periods, IMI reimbursed Fund expenses in the
amount of $28,799 and $134,787, respectively.
During the period from May 13, 1997 (commencement of operations) to
December 31, 1997 and the fiscal year ended December 31, 1998, Ivy Pan-Europe
Fund paid IMI fees of $1,974 and $43,978, respectively. During the same periods,
IMI reimbursed Fund expenses in the amount of $1,974 and $148,399, respectively.
Under the Agreements, the Trust pays the following expenses: (1) the fees
and expenses of the Trust's Independent Trustees; (2) the salaries and expenses
of any of the Trust's officers or employees who are not affiliated with IMI; (3)
interest expenses; (4) taxes and governmental fees, including any original issue
taxes or transfer taxes applicable to the sale or delivery of shares or
certificates therefor; (5) brokerage commissions and other expenses incurred in
acquiring or disposing of portfolio securities; (6) the expenses of registering
and qualifying shares for sale with the SEC and with various state securities
commissions; (7) accounting and legal costs; (8) insurance premiums; (9) fees
and expenses of the Trust's Custodian and Transfer Agent and any related
services; (10) expenses of obtaining quotations of portfolio securities and of
pricing shares; (11) expenses of maintaining the Trust's legal existence and of
shareholders' meetings; (12) expenses of preparation and distribution to
existing shareholders of periodic reports, proxy materials and prospectuses; and
(13) fees and expenses of membership in industry organizations.
IMI currently limits each 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 that Fund's average net assets, which may lower each Fund's
expenses and increase its yield.
The Agreements will continue in effect with respect to each Fund from year
to year, only so long as the continuance is specifically approved at least
annually (i) by the vote of a majority of the Independent Trustees and (ii)
either (a) by the vote of a majority of the outstanding voting securities (as
defined in the 1940 Act) of that 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 with respect to each Fund only if approved by the affirmative
vote of a majority of the outstanding voting securities of that Fund. See
"Capitalization and Voting Rights."
The Agreements may be terminated with respect to each 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 a Fund, on 60 days'
written notice to IMI, or by IMI on 60 days' written notice to the Trust. Each
Agreement shall terminate automatically in the event of its assignment.
DISTRIBUTION SERVICES
IMDI, a wholly owned subsidiary of MIMI, serves as the exclusive
distributor of each Fund's shares pursuant to an Amended and Restated
Distribution Agreement with the Trust dated March 16, 1999, as amended from time
to time (the "Distribution Agreement"). IMDI distributes shares of each 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 each 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.
Each 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 each Fund's behalf. Each 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 each Fund's Net Asset Value next
computed after an authorized intermediary or the intermediary's authorized
designee accepts them.
Pursuant to the Distribution Agreement, IMDI is entitled to deduct a
commission on all Class A Fund shares sold equal to the difference, if any,
between the public offering price, as set forth in each 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, each Fund bears, among other expenses,
the expenses of registering and qualifying its shares for sale under Federal and
state securities laws and preparing and distributing to existing shareholders
periodic reports, proxy materials and prospectuses.
During the fiscal year ended December 31, 1998, IMDI received from sales
of Class A shares of Ivy Global Fund $17,112 in sales commissions, of which
$2,536 was retained after dealer allowances. During the fiscal year ended
December 31, 1998, IMDI received $73,203 in CDSCs on redemptions of Class B
shares of Ivy Global Fund. During the fiscal year ended December 31, 1998, IMDI
received $376 in CDSCs on redemptions of Class C shares of Ivy Global Fund.
During the fiscal year ended December 31, 1998, IMDI received from sales
of Class A shares of Ivy Global Natural Resources Fund $3,682 in sales
commissions, of which $580 was retained after dealer allowances. During the
fiscal year ended December 31, 1998, IMDI received $4,102 in CDSCs on
redemptions of Class B shares of Ivy Global Natural Resources Fund. During the
fiscal year ended December 31, 1998, IMDI received $69 in CDSCs on redemptions
of Class C shares of Ivy Global Natural Resources Fund.
During the fiscal year ended December 31, 1998, IMDI received from sales
of Class A shares of Ivy Global Science & Technology Fund $54,052 in sales
commissions, of which $7,170 was retained after dealer allowances. During the
fiscal year ended December 31, 1998, IMDI received $61,393 in CDSCs on
redemptions of Class B shares of Ivy Global Science & Technology Fund. During
the fiscal year ended December 31, 1998, IMDI received $3,300 in CDSCs on
redemptions of Class C shares of Ivy Global Science & Technology Fund.
During the fiscal year ended December 31, 1998, IMDI received from sales
of Class A shares of Ivy International Fund II $432,944 in sales commissions, of
which $31,170 was retained after dealer allowances. During the fiscal year ended
December 31, 1998, IMDI received $249,362 in CDSCs on redemptions of Class B
shares of Ivy International Fund II. During the fiscal year ended December 31,
1998, IMDI received $51,479 in CDSCs on redemptions of Class C shares of Ivy
International Fund II.
During the fiscal year ended December 31, 1998, IMDI received from sales
of Class A shares of Ivy International Small Companies Fund $7,460 in sales
commissions, of which $578 was retained after dealer allowances. During the
fiscal year ended December 31, 1998, IMDI received $3,384 in CDSCs on
redemptions of Class B shares of Ivy International Small Companies Fund. During
the fiscal year ended December 31, 1998, IMDI received $1,506 in CDSCs on
redemptions of Class C shares of Ivy International Small Companies Fund.
During the fiscal year ended December 31, 1998, IMDI received from sales
of Class A shares of Ivy Pan-Europe Fund $42,584 in sales commissions, of which
$5,031 was retained after dealer allowances. During the fiscal year ended
December 31, 1998, IMDI received $55,437 in CDSCs on redemptions of Class B
shares of Ivy International Pan-Europe Fund. During the fiscal year ended
December 31, 1998, IMDI received $631 in CDSCs on redemptions of Class C shares
of Ivy Pan-Europe 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 each Fund.
The Distribution Agreement may be terminated with respect to any Fund at any
time, without payment of any penalty, by IMDI on 60 days' written notice to the
Fund or by a 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. The
Board has adopted a Rule 18f-3 plan on behalf of each Fund. The key features of
the Rule 18f-3 plan are as follows: (i) shares of each class of each Fund
represent an equal pro rata interest in that 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 each Fund may be exchanged for shares of the same class
of another Ivy fund; and (iii) each Fund's Class B shares will convert
automatically into Class A shares of that 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 each
Fund, in accordance with Rule 12b-1 under the 1940 Act, separate Rule 12b-1
distribution plans pertaining to each 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 each Fund and its
shareholders. The Trustees of the Trust believe that the Plans should result in
greater sales and/or fewer redemptions of each Fund's shares, although it is
impossible to know for certain the level of sales and redemptions of any Fund's
shares in the absence of a Plan or under an alternative distribution
arrangement.
Under each Plan, each 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. This
fee constitutes reimbursement to IMDI for fees paid by IMDI. 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 each Fund's Class B and Class C Plans, each 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. This
fee constitutes compensation to IMDI and is not dependent on IMDI's expenses
incurred. 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 each Fund under each Plan shall not be materially increased without
the affirmative vote of the holders of a majority of the outstanding shares of
the relevant class; and (4) while each Plan is in effect, the selection and
nomination of Independent Trustees shall be committed to the discretion of the
Trustees who are not "interested persons" of the Trust.
IMDI may make payments for distribution assistance and for administrative
and accounting services from resources that may include the management fees paid
by each 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 each 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.
The Class B Plan and underwriting agreement were amended effective March
16, 1999 to permit IMDI to sell its right to receive distribution fees under the
Class B Plan and CDSCs to third parties. IMDI enters into such transactions to
finance the payment of commissions to brokers at the time of sale and other
distribution-related expenses. In connection with such amendments, the Trust has
agreed that the distribution fee will not be terminated or modified (including a
modification by change in the rules relating to the conversion of Class B shares
into shares of another class) for any reason (including a termination of the
underwriting agreement) except:
(i) to the extent required by a change in the 1940 Act, the rules or
regulations under the 1940 Act, or the Conduct Rules of the NASD, in
each case enacted, issued, or promulgated after March 16, 1999;
(ii) on a basis which does not alter the amount of the distribution
payments to IMDI computed with reference to Class B shares the date of
original issuance of which occurred on or before December 31, 1998;
(iii) in connection with a Complete Termination (as defined in the Class B
Plan); or
(iv) on a basis determined by the Board of Trustees acting in good faith so
long as (a) neither the Trust nor any successor trust or fund or any
trust or fund acquiring a substantial portion of the assets of the
Trust (collectively, the "Affected Funds") nor the sponsors of the
Affected Funds pay, directly or indirectly, as a fee, a trailer fee,
or by way of reimbursement, any fee, however denominated, to any
person for personal services, account maintenance services or other
shareholder services rendered to the holder of Class B shares of the
Affected Funds from and after the effective date of such modification
or termination, and (b) the termination or modification of the
distribution fee applies with equal effect to all outstanding Class B
shares from time to time of all Affected Funds regardless of the date
of issuance thereof.
In the amendments to the underwriting agreement, the Trust has also agreed
that it will not take any action to waive or change any CDSC in respect of any
Class B share the date of original issuance of which occurred on or before
December 31, 1998, except as provided in the Trust's prospectus or statement of
additional information, without the consent of IMDI and its transferees.
During the fiscal year ended December 31, 1998, Ivy Global Fund paid IMDI
$44,345 pursuant to its Class A plan. During the fiscal year ended December 31,
1998 Ivy Global Fund paid IMDI $90,354 pursuant to its Class B plan. During the
fiscal year ended December 31, 1998, the Fund paid IMDI $6,144 pursuant to its
Class C plan.
During the fiscal year ended December 31, 1998, IMDI expended the
following amounts in marketing Class A shares of Ivy Global Fund: advertising
$1,580; printing and mailing of prospectuses to persons other than current
shareholders, $4,120; compensation to dealers, $8,372; compensation to sales
personnel, $49,694; seminars and meetings, $2,093; travel and entertainment,
$3,947; general and administrative, $28,496; telephone, $1,453; and occupancy
and equipment rental, $4,244.
During the fiscal year ended December 31, 1998, IMDI expended the
following amounts in marketing Class B shares of Ivy Global Fund: advertising,
$805; printing and mailing of prospectuses to persons other than current
shareholders, $2,091; compensation to dealers, $48,238; compensation to sales
personnel, $25,262; seminars and meetings, $12,059; travel and entertainment,
$2,007; general and administrative, $14,473; telephone, $738; and occupancy and
equipment rental $2,150.
During the fiscal year ended December 31, 1998, IMDI expended the
following amounts in marketing Class C shares of Ivy Global Fund: advertising,
$55; printing and mailing of prospectuses to persons other than current
shareholders, $145; compensation to dealers, $2,852; compensation to sales
personnel, $1,687; seminars and meetings, $713; travel and entertainment, $133;
general administrative, $964; telephone, $49; and occupancy and equipment
rental, $144.
During the fiscal year ended December 31, 1998, Ivy Global Natural
Resources Fund paid IMDI $5,281 pursuant to its Class A plan. During the fiscal
year ended December 31, 1998 Ivy Global Natural Resources Fund paid IMDI $19,536
pursuant to its Class B plan. During the fiscal year ended December 31, 1998,
the Fund paid IMDI $932 pursuant to its Class C plan.
During the fiscal year ended December 31, 1998, IMDI expended the
following amounts in marketing Class A shares of Ivy Global Natural Resources
Fund: advertising $179; printing and mailing of prospectuses to persons other
than current shareholders, $4,001; compensation to dealers, $857; compensation
to sales personnel $5,622; seminars and meetings, $214; travel and
entertainment, $444; general and administrative, $3,244; telephone, $167; and
occupancy and equipment rental, $500.
During the fiscal year ended December 31, 1998, IMDI expended the
following amounts in marketing Class B shares of Ivy Global Natural Resources
Fund: advertising, $173; printing and mailing of prospectuses to persons other
than current shareholders, $3,705; compensation to dealers, $6,766; compensation
to sales personnel, $5,345; seminars and meetings, $1,692; travel and
entertainment, $423; general and administrative, $3,056; telephone, $155; and
occupancy and equipment rental $455.
During the fiscal year ended December 31, 1998, IMDI expended the
following amounts in marketing Class C shares of Ivy Global Natural Resources
Fund: advertising, $9; printing and mailing of prospectuses to persons other
than current shareholders, $180; compensation to dealers, $258; compensation to
sales personnel, $251; seminars and meetings, $64; travel and entertainment,
$19; general administrative, $144; telephone, $7; and occupancy and equipment
rental, $20.
During the fiscal year ended December 31, 1998, Ivy Global Science &
Technology Fund paid IMDI $31,407 pursuant to its Class A plan. During the
fiscal year ended December 31, 1998 Ivy Global Science & Technology Fund paid
IMDI $83,768 pursuant to its Class B plan. During the fiscal year ended December
31, 1998, the Fund paid IMDI $70,575 pursuant to its Class C plan.
During the fiscal year ended December 31, 1998, IMDI expended the
following amounts in marketing Class A shares of Ivy Global Science & Technology
Fund: advertising $1,152; printing and mailing of prospectuses to persons other
than current shareholders, $8,036; compensation to dealers, $6,521; compensation
to sales personnel $36,485; seminars and meetings, $1,630; travel and
entertainment, $2,912; general and administrative, $20,884; telephone, $1,060;
and occupancy and equipment rental, $3,061.
During the fiscal year ended December 31, 1998, IMDI expended the
following amounts in marketing Class B shares of Ivy Global Science & Technology
Fund: advertising, $759; printing and mailing of prospectuses to persons other
than current shareholders, $5,270; compensation to dealers, $56,200;
compensation to sales personnel, $23,952; seminars and meetings, $14,050; travel
and entertainment, $1,911; general and administrative, $13,690; telephone, $693;
and occupancy and equipment rental $2,001.
During the fiscal year ended December 31, 1998, IMDI expended the
following amounts in marketing Class C shares of Ivy Global Science & Technology
Fund: advertising, $640; printing and mailing of prospectuses to persons other
than current shareholders, $4,461; compensation to dealers, $33,039;
compensation to sales personnel, $20,289; seminars and meetings, $8,260; travel
and entertainment, $1,620; general administrative, $11,604; telephone, $588; and
occupancy and equipment rental, $1,696.
During the fiscal year ended December 31, 1998, Ivy International Fund II
paid IMDI $59,094 pursuant to its Class A plan. During the fiscal year ended
December 31, 1998 Ivy International Fund II paid IMDI $738,981 pursuant to its
Class B plan. During the fiscal year ended December 31, 1998, the Fund paid IMDI
$377,064 pursuant to its Class C plan.
During the fiscal year ended December 31, 1998, IMDI expended the
following amounts in marketing Class A shares of Ivy International Fund II:
advertising $1,992; printing and mailing of prospectuses to persons other than
current shareholders, $9,663; compensation to dealers, $11,030; compensation to
sales personnel $64,753; seminars and meetings, $2,757; travel and
entertainment, $5,212; general and administrative, $37,144; telephone, $1,881;
and occupancy and equipment rental, $5,371.
During the fiscal year ended December 31, 1998, IMDI expended the
following amounts in marketing Class B shares of Ivy International Fund II:
advertising, $6,200; printing and mailing of prospectuses to persons other than
current shareholders, $29,821; compensation to dealers, $491,360; compensation
to sales personnel, $201,942; seminars and meetings, $122,845; travel and
entertainment, $16,261; general and administrative, $115,875; telephone,
$5,868,and occupancy and equipment rental $16,750.
During the fiscal year ended December 31, 1998, IMDI expended the
following amounts in marketing Class C shares of Ivy International Fund II:
advertising, $3,134; printing and mailing of prospectuses to persons other than
current shareholders, $14,483; compensation to dealers, $178,008 compensation to
sales personnel, $102,332; seminars and meetings, $44,502; travel and
entertainment, $8,243; general administrative, $58,765; telephone, $2,979; and
occupancy and equipment rental, $8,508.
During the fiscal year ended December 31, 1998, Ivy International Small
Companies Fund paid IMDI $2,466 pursuant to its Class A plan. During the fiscal
year ended December 31, 1998 Ivy International Small Companies Fund paid IMDI
$10,562 pursuant to its Class B plan. During the fiscal year ended December 31,
1998, the Fund paid IMDI $15,077 pursuant to its Class C plan.
During the fiscal year ended December 31, 1998, IMDI expended the
following amounts in marketing Class A shares of Ivy International Small
Companies Fund: advertising $88; printing and mailing of prospectuses to persons
other than current shareholders, $2,438; compensation to dealers, $466;
compensation to sales personnel $2,785; seminars and meetings, $116; travel and
entertainment, $222; general and administrative, $1,595; telephone, $81; and
occupancy and equipment rental, $235.
During the fiscal year ended December 31, 1998, IMDI expended the
following amounts in marketing Class B shares of Ivy International Small
Companies Fund: advertising, $96; printing and mailing of prospectuses to
persons other than current shareholders, $2,566; compensation to dealers,
$6,294; compensation to sales personnel, $3,003; seminars and meetings, $1,573;
travel and entertainment, $240; general and administrative, $1,716; telephone,
$86; and occupancy and equipment rental $250.
During the fiscal year ended December 31, 1998, IMDI expended the
following amounts in marketing Class C shares of Ivy International Small
Companies Fund: advertising, $125; printing and mailing of prospectuses to
persons other than current shareholders, $3,578; compensation to dealers,
$4,465; compensation to sales personnel, $3,909; seminars and meetings, $1,116;
travel and entertainment, $311; general administrative, $2,237; telephone, $114;
and occupancy and equipment rental, $329.
During the fiscal year ended December 31, 1998, Ivy Pan-Europe Fund paid
IMDI $4,454 pursuant to its Class A plan. During the fiscal year ended December
31, 1998 Ivy Pan-Europe Fund paid IMDI $18,920 pursuant to its Class B plan.
During the fiscal year ended December 31, 1998, the Fund paid IMDI $6,909
pursuant to its Class C plan.
During the fiscal year ended December 31, 1998, IMDI expended the
following amounts in marketing Class A shares of Ivy Pan-Europe Fund:
advertising $157; printing and mailing of prospectuses to persons other than
current shareholders, $19,553; compensation to dealers, $885; compensation to
sales personnel $5,148; seminars and meetings, $221; travel and entertainment,
$416; general and administrative, $2,949; telephone, $148; and occupancy and
equipment rental, $421.
During the fiscal year ended December 31, 1998, IMDI expended the
following amounts in marketing Class B shares of Ivy Pan-Europe Fund:
advertising, $174; printing and mailing of prospectuses to persons other than
current shareholders, $10,978; compensation to dealers, $18,564; compensation to
sales personnel, $5,898; seminars and meetings, $4,641; travel and
entertainment, $480; general and administrative, $3,394; telephone, $171; and
occupancy and equipment rental $481.
During the fiscal year ended December 31, 1998, IMDI expended the
following amounts in marketing Class C shares of Ivy Pan-Europe Fund:
advertising, $66; printing and mailing of prospectuses to persons other than
current shareholders, $6,082; compensation to dealers, $5,687; compensation to
sales personnel, $2,115; seminars and meetings, $1,422; travel and
entertainment, $170; general administrative, $1,207; telephone, $61 and
occupancy and equipment rental, $171.
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 each 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 each Fund's foreign securities. With
respect to each Fund, the Custodian may receive, as partial payment for its
services to each 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 each Fund. As compensation for those
services, each Fund pays MIMI a monthly fee plus out-of-pocket expenses as
incurred. The monthly fee is based upon the net assets of the Fund at the
preceding month end at the following rates: $1,250 when net assets are $10
million and under; $2,500 when net assets are over $10 million to $40 million;
$5,000 when net assets are over $40 million to $75 million; and $6,500 when net
assets are over $75 million.
During the fiscal year ended December 31, 1998, Ivy Global Fund paid MIMI
$37,768 under the agreement.
During the fiscal year ended December 31, 1998, Ivy Global Natural
Resources Fund paid MIMI $19,850 under the agreement.
During the fiscal year ended December 31, 1998, Ivy Global Science &
Technology Fund paid MIMI $38,210 under the agreement.
During the fiscal year ended December 31, 1998, Ivy International Fund II
paid MIMI $101,019 under the agreement.
During the fiscal year ended December 31, 1998, Ivy International Small
Companies Fund paid MIMI $20,384 under the agreement.
During the fiscal year ended December 31, 1998, Ivy Pan-Europe Fund paid
MIMI $19,820 under the agreement.
TRANSFER AGENT AND DIVIDEND PAYING AGENT
Pursuant to a Transfer Agency and Shareholder Service Agreement, IMSC, a
wholly owned subsidiary of MIMI, is the transfer agent for each Fund. Under the
Agreement, each Fund pays a monthly fee at an annual rate of $20.00 for each
open Class A, Class B, Class C and Advisor Class account. Each Fund with Class I
shares pays a monthly fee at an annual rate of $10.25 per open Class I account.
In addition, each Fund pays a monthly fee at an annual rate of $4.58 per account
that is closed plus certain out-of-pocket expenses. Such fees and expenses for
the fiscal year ended December 31, 1998 for Ivy Global Fund totaled $74,574.
Such fees and expenses for the fiscal year ended December 31, 1998 for Ivy
Global Natural Resources Fund totaled $17,966. Such fees and expenses for the
fiscal year ended December 31, 1998 for Ivy Global Science & Technology Fund
totaled $63,868. Such fees and expenses for the fiscal year ended December 31,
1998 for Ivy International Fund II totaled $316,274. Such fees and expenses for
the fiscal year ended December 31, 1998 for Ivy International Small Companies
Fund totaled $11,287. Such fees and expenses for the fiscal year ended December
31, 1998 for Ivy Pan-Europe Fund totaled $8,191. Certain broker-dealers that
maintain shareholder accounts with each Fund through an omnibus account provide
transfer agent and other shareholder-related services that would otherwise be
provided by IMSC if the individual accounts that comprise the omnibus account
were opened by their beneficial owners directly. IMSC pays such broker-dealers a
per account fee for each open account within the omnibus account, or a fixed
rate (e.g., 0.10%) fee, based on the average daily net asset value of the
omnibus account (or a combination thereof).
ADMINISTRATOR
Pursuant to an Administrative Services Agreement, MIMI provides certain
administrative services to each Fund. As compensation for these services, each
Fund (except with respect to its Class I shares) pays MIMI a monthly fee at the
annual rate of 0.10% of the Fund's average daily net assets. Each Fund with
Class I shares pays MIMI a monthly fee at the annual rate of 0.01% of its
average daily net assets for Class I. Such fees for the fiscal year ended
December 31, 1998 for Ivy Global Fund totaled $27,596. Such fees for the fiscal
year ended December 31, 1998 for Ivy Global Natural Resources Fund totaled
$4,196. Such fees for the fiscal year ended December 31, 1998 for Ivy Global
Science & Technology Fund totaled $28,008. Such fees for the fiscal year ended
December 31, 1998 for Ivy International Fund II totaled $135,329. Such fees for
the fiscal year ended December 31, 1998 for Ivy International Small Companies
Fund totaled $3,450. Such fees for the fiscal year ended December 31, 1998 for
Ivy Pan-Europe Fund totaled $4,398.
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 each Fund.
AUDITORS
PricewaterhouseCoopers LLP, independent public accountants, has been
selected as auditors for the Trust. The audit services performed by
PricewaterhouseCoopers LLP include audits of the annual financial statements of
each of the funds of the Trust. Other services provided principally relate to
filings with the SEC and the preparation of the funds' tax returns.
BROKERAGE ALLOCATION
Subject to the overall supervision of the President and the Board, IMI (or
for Global Natural Resources Fund, MFC) places orders for the purchase and sale
of each 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 Funds 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 (or MFC) attempts to
deal directly with the principal market makers, except in those circumstances
where IMI (or MFC) believes that a better price and execution are available
elsewhere.
IMI (or MFC) selects broker-dealers to execute transactions and evaluates
the reasonableness of commissions on the basis of quality, quantity, and the
nature of the firms' professional services. Commissions to be charged and the
rendering of investment services, including statistical, research, and
counseling services by brokerage firms, are factors to be considered in the
placing of brokerage business. The types of research services provided by
brokers may include general economic and industry data, and information on
securities of specific companies. Research services furnished by brokers through
whom the Trust effects securities transactions may be used by IMI (or MFC) in
servicing all of its accounts. In addition, not all of these services may be
used by IMI (or MFC) in connection with the services it provides to the Fund or
the Trust. IMI (or MFC) may consider sales of shares of Ivy funds as a factor in
the selection of broker-dealers and may select broker-dealers who provide it
with research services. IMI (or MFC) will not, however, execute brokerage
transactions other than at the best price and execution.
During the fiscal years ended December 31, 1996, 1997 and 1998, Ivy Global
Fund paid brokerage commissions of $90,904, $123,985 and $76,661, respectively.
During the fiscal years ended December 31, 1997 and 1998, Ivy Global
Natural Resources Fund paid brokerage commissions of $128,646 and $49,752,
respectively.
During the period from July 22, 1996 (commencement of operations) to
December 31, 1996, and during the fiscal years ended December 31, 1997 and 1998,
Ivy Global Science & Technology Fund paid brokerage commissions of $37,065,
$99,546 and $110,302, respectively.
During the period from May 13, 1997 (commencement of operations) to
December 31, 1997, and the fiscal year ended December 31, 1998, Ivy
International Fund II paid brokerage commissions of $332,022 and $225,584,
respectively.
During the fiscal years ended December 31, 1997 and 1998, Ivy
International Small Companies Fund paid brokerage commission of $14,913 and
$5,087, respectively.
During the period from May 13, 1997 (commencement of operations) to
December 31, 1997, and the fiscal year ended December 31, 1998, Ivy Pan-Europe
Fund paid brokerage commissions of $491 and $11,639, respectively.
Brokerage commissions vary from year to year in accordance with the extent
to which a particular Fund is more or less actively traded.
Each Fund may, under some circumstances, accept securities in lieu of cash
as payment for Fund shares. Each 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 (or MFC) deems to be a desirable investment for each Fund.
While no minimum has been established, it is expected that each 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 any Fund shares with
securities and may discontinue accepting securities as payment for any 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
each Fund, and each Fund shares will be sold for net asset value determined at
the same time the accepted securities are valued. The Trust will only accept
securities delivered in proper form and will not accept securities subject to
legal restrictions on transfer. The acceptance of securities by the Trust must
comply with the applicable laws of certain states.
CAPITALIZATION AND VOTING RIGHTS
The capitalization of the Trust consists of an unlimited number of shares
of beneficial interest (no par value per share). When issued, shares of each
class of each Fund are fully paid, non-assessable, redeemable and fully
transferable. No class of shares of any Fund has preemptive rights or
subscription rights.
The Amended and Restated Declaration of Trust permits the Trustees to
create separate series or portfolios and to divide any series or portfolio into
one or more classes. The Trustees have authorized nineteen series, each of which
represents a fund. The Trustees have further authorized the issuance of Class A,
Class B, and Class C shares for Ivy International Fund and Ivy Money Market Fund
and Class A, Class B, Class C and Advisor Class shares for Ivy Asia Pacific
Fund, Ivy Bond Fund, Ivy China Region Fund, Ivy Developing Nations Fund, Ivy
European Opportunities Fund, Ivy Global Fund, Ivy Global Natural Resources Fund,
Ivy Global Science & Technology Fund, Ivy Growth Fund, Ivy Growth with Income
Fund, Ivy International Fund II, Ivy International Small Companies Fund, Ivy
International Strategic Bond Fund, Ivy Pan-Europe Fund, Ivy South America Fund,
Ivy US Blue Chip Fund, and Ivy US Emerging Growth Fund, as well as Class I
shares for Ivy Bond Fund, Ivy European Opportunities Fund, Ivy Global Science &
Technology Fund, Ivy International Fund II, Ivy International Fund, Ivy
International Small Companies Fund, Ivy International Strategic Bond Fund, and
Ivy US Blue Chip Fund.
Shareholders have the right to vote for the election of Trustees of the
Trust and on any and all matters on which they may be entitled to vote by law or
by the provisions of the Trust's By-Laws. The Trust is not required to hold a
regular annual meeting of shareholders, and it does not intend to do so. Shares
of each class of each Fund entitle their holders to one vote per share (with
proportionate voting for fractional shares). Shareholders of each Fund are
entitled to vote alone on matters that only affect that Fund. All classes of
shares of each Fund will vote together, except with respect to the distribution
plan applicable to the Fund's Class A, Class B or Class C shares or when a class
vote is required by the 1940 Act. On matters relating to all funds of the Trust,
but affecting the funds differently, separate votes by the shareholders of each
fund are required. Approval of an investment advisory agreement and a change in
fundamental policies would be regarded as matters requiring separate voting by
the shareholders of each fund of the Trust. If the Trustees determine that a
matter does not affect the interests of a Fund, then the shareholders of that
Fund will not be entitled to vote on that matter. Matters that affect the Trust
in general, such as ratification of the selection of independent public
accountants, will be voted upon collectively by the shareholders of all funds of
the Trust.
As used in this SAI and the Prospectus, the phrase "majority vote of the
outstanding shares" of a Fund means the vote of the lesser of: (1) 67% of the
shares of that 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 that Fund (or of the Trust).
With respect to the submission to shareholder vote of a matter requiring
separate voting by a Fund, the matter shall have been effectively acted upon
with respect to that Fund if a majority of the outstanding voting securities of
the Fund votes for the approval of the matter, notwithstanding that: (1) the
matter has not been approved by a majority of the outstanding voting securities
of any other fund of the Trust; or (2) the matter has not been approved by a
majority of the outstanding voting securities of the Trust.
The Amended and Restated Declaration of Trust provides that the holders of
not less than two-thirds of the outstanding shares of the Trust may remove a
person serving as trustee either by declaration in writing or at a meeting
called for such purpose. The Trustees are required to call a meeting for the
purpose of considering the removal of a person serving as Trustee if requested
in writing to do so by the holders of not less than 10% of the outstanding
shares of the Trust. Shareholders will be assisted in communicating with other
shareholders in connection with the removal of a Trustee as if Section 26(c) of
the Act were applicable.
The Trust's shares do not have cumulative voting rights and accordingly
the holders of more than 50% of the outstanding shares could elect the entire
Board, in which case the holders of the remaining shares would not be able to
elect any Trustees.
Under Massachusetts law, the Trust's shareholders could, under certain
circumstances, be held personally liable for the obligations of the Trust.
However, the Amended and Restated Declaration of Trust disclaims liability of
the shareholders, Trustees or officers of the Trust for acts or obligations of
the Trust, which are binding only on the assets and property of the Trust, and
requires that notice of the disclaimer be given in each contract or obligation
entered into or executed by the Trust or its Trustees. The Amended and Restated
Declaration of Trust provides for indemnification out of Fund property for all
loss and expense of any shareholder of any Fund held personally liable for the
obligations of that Fund. The risk of a shareholder of the Trust incurring
financial loss on account of shareholder liability is limited to circumstances
in which the Trust itself would be unable to meet its obligations and, thus,
should be considered remote. No series of the Trust is liable for the
obligations of any other series of the Trust.
SPECIAL RIGHTS AND PRIVILEGES
The Trust offers, and (except as noted below) bears the cost of providing,
to investors the following rights and privileges. The Trust reserves the right
to amend or terminate any one or more of these rights and privileges. Notice of
amendments to or terminations of rights and privileges will be provided to
shareholders in accordance with applicable law.
Certain of the rights and privileges described below refer to funds, other
than the Funds, whose shares are also distributed by IMDI. These funds are: Ivy
Asia Pacific Fund, Ivy Bond Fund, Ivy China Region Fund, Ivy Developing Nations
Fund, Ivy Growth Fund, Ivy Growth with Income Fund, Ivy International Fund, Ivy
International Strategic Bond Fund, Ivy Money Market Fund, Ivy South America
Fund, Ivy US Blue Chip Fund, and Ivy US Emerging Growth Fund (the other twelve
series of the Trust). (Effective April 18, 1997, Ivy International Fund
suspended the offer of its shares to new investors). Shareholders should obtain
a current prospectus before exercising any right or privilege that may relate to
these funds.
AUTOMATIC INVESTMENT METHOD
The Automatic Investment Method, which enables a Fund shareholder to have
specified amounts automatically drawn each month from his or her bank for
investment in Fund shares, is available for all classes of shares. The minimum
initial and subsequent investment under this method is $50 per month (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 each 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 a 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).
Each Fund may, from time to time, waive the initial sales charge on its
Class A shares sold to clients of The Legend Group and United Planners Financial
Services of America, Inc. This privilege will apply on to Class A Shares of a
Fund that are purchased using all or a portion of the proceeds obtained by such
clients through redemptions of shares of a mutual fund (other than one of the
Funds) on which a sales charge was paid (the "NAV transfer privilege").
Purchases eligible for the NAV transfer privilege must be made within 60 days of
redemption from the other fund, and the Class A shares purchased are subject to
a 1.00% CDSC on shares redeemed within the first year after purchase. The NAV
transfer privilege also applies to Fund shares purchased directly by clients of
such dealers as long as their accounts are linked to the dealer's master
account. The normal service fee, as described in the "Initial Sales Charge
Alternative - Class A Shares" section of the Prospectus, will be paid to those
dealers in connection with these purchases. IMDI may from time to time pay a
special cash incentive to The Legend Group or United Planners Financial Services
of America, Inc. in connection with sales of shares of a Fund by its registered
representatives under the NAV transfer privilege. Additional information on
sales charge reductions or waivers may be obtained from IMDI at the address
listed on the cover of this Statement of Additional Information.
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 any
Fund exercising the exchange privilege will continue to be subject to that
Fund's CDSC period following an exchange if such period is longer than the CDSC
period, if any, applicable to the new Class A shares.
For purposes of computing the CDSC that may be payable upon the redemption
of the new Class A shares, the holding period of the outstanding Class A shares
is "tacked" onto the holding period of the new Class A shares.
CLASS B: Class B shareholders may exchange their Class B shares
("outstanding Class B shares") for Class B shares of another Ivy fund ("new
Class B shares") on the basis of the relative net asset value per Class B share,
without the payment of any CDSC that would otherwise be due upon the redemption
of the outstanding Class B shares. Class B shareholders of any Fund exercising
the exchange privilege will continue to be subject to that Fund's CDSC schedule
(or period) following an exchange if such schedule is higher (or such period is
longer) than the CDSC schedule (or period) applicable to the new Class B shares.
Class B shares of any Fund acquired through an exchange of Class B shares
of another Ivy fund will be subject to that Fund's CDSC schedule (or period) if
such schedule is higher (or such period is longer) than the CDSC schedule (or
period) applicable to the Ivy fund from which the exchange was made.
For purposes of both the conversion feature and computing the CDSC that
may be payable upon the redemption of the new Class B shares (prior to
conversion), the holding period of the outstanding Class B shares is "tacked"
onto the holding period of the new Class B shares.
The following CDSC table applies to Class B shares of Ivy Asia Pacific
Fund, Ivy Bond Fund, Ivy China Region Fund, Ivy Developing Nations Fund, Ivy
European Opportunities Fund, Ivy Global Fund, Ivy Global Natural Resources Fund,
Ivy Global Science & Technology Fund, Ivy Growth Fund, Ivy Growth with Income
Fund, Ivy International Fund II, Ivy International Fund, Ivy International Small
Companies Fund, Ivy International Strategic Bond Fund, Ivy Pan-Europe Fund, Ivy
South America Fund, Ivy US Blue Chip Fund, and Ivy US Emerging Growth Fund.
CONTINGENT DEFERRED SALES CHARGE AS
A PERCENTAGE OF DOLLAR AMOUNT
YEAR SINCE PURCHASE SUBJECT TO CHARGE
First 5%
Second 4%
Third 3%
Fourth 3%
Fifth 2%
Sixth 1%
Seventh and thereafter 0%
CLASS C: Class C shareholders may exchange their Class C shares
("outstanding Class C shares") for Class C shares of another Ivy fund ("new
Class C shares") on the basis of the relative net asset value per Class C share,
without the payment of any CDSC that would otherwise be due upon redemption.
(Class C shares are subject to a CDSC of 1.00% if redeemed within one year of
the date of purchase.)
CLASS I: Subject to the restrictions set forth in the following paragraph,
Class I shareholders may exchange their outstanding Class I shares for Class I
shares of another Ivy Fund on the basis of the relative net asset value per
share.
ALL CLASSES: The minimum value of shares which may be exchanged into an
Ivy fund in which shares are not already held is $1,000. No exchange out of any
Fund (other than by a complete exchange of all Fund shares) may be made if it
would reduce the shareholder's interest in the Fund to less than $1,000.
Each exchange 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
any 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 a Fund. A Letter of Intent may be
submitted at the time of an initial purchase of Class A shares of a Fund or
within 90 days of the initial purchase, in which case the Letter of Intent will
be back dated. A shareholder may include, as an accumulation credit, the value
(at the applicable offering price) of all Class A shares of Ivy Asia Pacific
Fund, Ivy Bond Fund, Ivy China Region Fund, Ivy Developing Nations Fund, Ivy
European Opportunities Fund, Ivy Global Fund, Ivy Global Natural Resources Fund,
Ivy Global Science & Technology Fund, Ivy Growth Fund, Ivy Growth with Income
Fund, Ivy International Fund II, Ivy International Fund, Ivy International Small
Companies Fund, Ivy International Strategic Bond Fund, Ivy Pan-Europe Fund, Ivy
South America Fund, Ivy US Blue Chip Fund and Ivy US Emerging Growth Fund (and
shares that have been exchanged into Ivy Money Market Fund from any of the other
funds in the Ivy Funds) held of record by him or her as of the date of his or
her Letter of Intent. During the term of the Letter of Intent, the Transfer
Agent will hold Class A shares representing 5% of the indicated amount (less any
accumulation credit value) in escrow. The escrowed Class A shares will be
released when the full indicated amount has been purchased. If the full
indicated amount is not purchased during the term of the Letter of Intent, the
investor is required to pay IMDI an amount equal to the difference between the
dollar amount of sales charge that he or she has paid and that which he or she
would have paid on his or her aggregate purchases if the total of such purchases
had been made at a single time. Such payment will be made by an automatic
liquidation of Class A shares in the escrow account. A Letter of Intent does not
obligate the investor to buy or the Trust to sell the indicated amount of Class
A shares, and the investor should read carefully all the provisions of such
letter before signing.
RETIREMENT PLANS
Shares may be purchased in connection with several types of tax-deferred
retirement plans. Shares of more than one fund distributed by IMDI may be
purchased in a single application establishing a single account under the plan,
and shares held in such an account may be exchanged among the Ivy funds in
accordance with the terms of the applicable plan and the exchange privilege
available to all shareholders. Initial and subsequent purchase payments in
connection with tax-deferred retirement plans must be at least $25 per
participant.
The following fees will be charged to individual shareholder accounts as
described in the retirement prototype plan document:
Retirement Plan New Account Fee no fee
Retirement Plan Annual Maintenance Fee $10.00 per fund account
For shareholders whose retirement accounts are diversified across several
Ivy funds, the annual maintenance fee will be limited to not more than $20.
The following discussion describes the tax treatment of certain
tax-deferred retirement plans under current Federal income tax law. State income
tax consequences may vary. An individual considering the establishment of a
retirement plan should consult with an attorney and/or an accountant with
respect to the terms and tax aspects of the plan.
INDIVIDUAL RETIREMENT ACCOUNTS: Shares of each Fund may be used as a
funding medium for an Individual Retirement Account ("IRA"). Eligible
individuals may establish an IRA by adopting a model custodial account available
from IMSC, who may impose a charge for establishing the account. Individuals
should consult their tax advisers before investing IRA assets in an Ivy fund if
that fund primarily distributes exempt-interest dividends.
An individual who has not reached age 70-1/2 and who receives compensation
or earned income is eligible to contribute to an IRA, whether or not he or she
is an active participant in a retirement plan. An individual who receives a
distribution from another IRA, a qualified retirement plan, a qualified annuity
plan or a tax-sheltered annuity or custodial account ("403(b) plan") that
qualifies for "rollover" treatment is also eligible to establish an IRA by
rolling over the distribution either directly or within 60 days after its
receipt. Tax advice should be obtained in connection with planning a rollover
contribution to an IRA.
In general, an eligible individual may contribute up to the lesser of
$2,000 or 100% of his or her compensation or earned income to an IRA each year.
If a husband and wife are both employed, and both are under age 70-1/2, each may
set up his or her own IRA within these limits. If both earn at least $2,000 per
year, the maximum potential contribution is $4,000 per year for both. For years
after 1996, the result is similar even if one spouse has no earned income; if
the joint earned income of the spouses is at least $4,000, a contribution of up
to $2,000 may be made to each spouse's IRA. Rollover contributions are not
subject to these limits.
An individual may deduct his or her annual contributions to an IRA in
computing his or her Federal income tax within the limits described above,
provided he or she (or his or her spouse, if they file a joint Federal income
tax return) is not an active participant in a qualified retirement plan (such as
a qualified corporate, sole proprietorship, or partnership pension, profit
sharing, 401(k) or stock bonus plan), qualified annuity plan, 403(b) plan,
simplified employee pension, or governmental plan. If he or she (or his or her
spouse) is an active participant, whether the individual's contribution to an
IRA is fully deductible, partially deductible or not deductible depends on (i)
adjusted gross income and (ii) whether it is the individual or the individual's
spouse who is an active participant, in the case of married individuals filing
jointly. Contributions may be made up to the maximum permissible amount even if
they are not deductible. Rollover contributions are not includable in income for
Federal income tax purposes and therefore are not deductible from it.
Generally, earnings on an IRA are not subject to current Federal income
tax until distributed. Distributions attributable to tax-deductible
contributions and to IRA earnings are taxed as ordinary income. Distributions of
non-deductible contributions are not subject to Federal income tax. In general,
distributions from an IRA to an individual before he or she reaches age 59-1/2
are subject to a nondeductible penalty tax equal to 10% of the taxable amount of
the distribution. The 10% penalty tax does not apply to amounts withdrawn from
an IRA after the individual reaches age 59-1/2, becomes disabled or dies, or if
withdrawn in the form of substantially equal payments over the life or life
expectancy of the individual and his or her designated beneficiary, if any, or
rolled over into another IRA, amounts withdrawn and used to pay for deductible
medical expenses and amounts withdrawn by certain unemployed individuals not in
excess of amounts paid for certain health insurance premiums, amounts used to
pay certain qualified higher education expenses, and amounts used within 120
days of the date the distribution is received to pay for certain first-time
homebuyer expenses. Distributions must begin to be withdrawn not later than
April 1 of the calendar year following the calendar year in which the individual
reaches age 70-1/2. Failure to take certain minimum required distributions will
result in the imposition of a 50% non-deductible penalty tax.
ROTH IRAS: Shares of each 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 any Fund may reinvest all
or a part of the proceeds of the redemption back into Class A shares of the same
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 each Fund. See "Initial Sales Charge Alternative --
Class A Shares" in the Prospectus. The reduced sales charge is applicable to
investments made at one time by an individual, his or her spouse and children
under the age of 21, or a trustee or other fiduciary of a single trust estate or
single fiduciary account (including a pension, profit sharing or other employee
benefit trust created pursuant to a plan qualified under Section 401 of the
Code). Rights of Accumulation is also applicable to current purchases of all of
the funds of Ivy Fund (except Ivy Money Market Fund) by any of the persons
enumerated above, where the aggregate quantity of Class A shares of such funds
(and shares that have been exchanged into Ivy Money Market Fund from any of the
other funds in the Ivy funds) and of any other investment company distributed by
IMDI, previously purchased or acquired and currently owned, determined at the
higher of current offering price or amount invested, plus the Class A shares
being purchased, amounts to $50,000 or more for all funds other than Ivy Bond;
or $100,000 or more for Ivy Bond Fund.
At the time an investment takes place, IMSC must be notified by the
investor or his or her dealer that the investment qualifies for the reduced
sales charge on the basis of previous investments. The reduced sales charge is
subject to confirmation of the investor's holdings through a check of the
particular fund's records.
SYSTEMATIC WITHDRAWAL PLAN
A shareholder may establish a Systematic Withdrawal Plan (a "Withdrawal
Plan"), by telephone instructions or by delivery to IMSC of a written election
to have his or her shares withdrawn periodically, 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 each 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 a 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 each 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 each 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 any Fund convert to Class A shares once the Plan has reached
$5 million invested in Applicable Investments, or 10 years after the date of the
initial purchase by a participant under the Plan--the Plan will receive a Plan
level share conversion.
REDEMPTIONS
Shares of each 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 a Fund is not reasonably practicable or it is not reasonably
practicable for a 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 any Fund.
The Trust may redeem those accounts of shareholders who have maintained an
investment, including sales charges paid, of less than $1000 in any 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 a 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.
Each 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, a 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 each Fund will
automatically convert to Class A shares of the same Fund, based on the relative
net asset values per share of the two classes, no later than the month following
the eighth anniversary of the initial issuance of such Class B shares of the
Fund occurs. For the purpose of calculating the holding period required for
conversion of Class B shares, the date of initial issuance shall mean: (1) the
date on which such Class B shares were issued, or (2) for Class B shares
obtained through an exchange, or a series of exchanges, (subject to the exchange
privileges for Class B shares) the date on which the original Class B shares
were issued. For purposes of conversion of Class B shares, Class B shares
purchased through the reinvestment of dividends and capital gain distributions
paid in respect of Class B shares will be held in a separate sub-account. Each
time any Class B shares in the shareholder's regular account (other than those
shares in the sub-account) convert to Class A shares, a pro rata portion of the
Class B shares in the sub-account will also convert to Class A shares. The
portion will be determined by the ratio that the shareholder's Class B shares
converting to Class A shares bears to the shareholder's total Class B shares not
acquired through the reinvestment of dividends and capital gain distributions.
NET ASSET VALUE
The net asset value per share of each Fund is computed by dividing the
value of that 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 each Fund's aggregate net assets, receivables are valued at their
realizable amounts. Each 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
a Fund's portfolio securities occur between the time when a foreign exchange
closes and the time when that 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 a Fund's Custodian or the Exchange close early as a
result of a partial holiday or otherwise, the Trust reserves the right to
advance the time on that day by which purchase and redemption requests must be
received.
The number of shares you receive when you place a purchase order, and the
payment you receive after submitting a redemption request, is based on each
Fund's net asset value next determined after your instructions are received in
proper form by IMSC or by your registered securities dealer. Each purchase and
redemption order is subject to any applicable sales charge. Since each Fund
invests in securities that are listed on foreign exchanges that may trade on
weekends or other days when the Funds do not price their shares, each Fund's net
asset value may change on days when shareholders will not be able to purchase or
redeem that Fund's shares. The sale of each 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 a Fund's best interest to do so.
TAXATION
The following is a general discussion of certain tax rules thought to be
applicable with respect to each 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 any Fund.
Each Fund intends to be taxed as a regulated investment company under
Subchapter M of the Code. Accordingly, each 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, each 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. Each 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, each 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, each 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 a 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 each 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 a 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 a 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 a 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 each 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 each 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
each Fund may result in "straddles" for Federal income tax purposes. The
straddle rules may affect the character of gains or losses realized by each
Fund. In addition, losses realized by each 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 each Fund
are not entirely clear. The straddle rules may increase the amount of short-term
capital gain realized by each Fund, which is taxed as ordinary income when
distributed to shareholders.
Each Fund may make one or more of the elections available under the Code
which are applicable to straddles. If a 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, each 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 a 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 a 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 each Fund's investment company taxable income
available to be distributed to its shareholders as ordinary income.
INVESTMENT IN PASSIVE FOREIGN INVESTMENT COMPANIES
Each Fund may invest in shares of foreign corporations which may be
classified under the Code as passive foreign investment companies ("PFICs"). In
general, a foreign corporation is classified as a PFIC if at least one-half of
its assets constitute investment-type assets, or 75% or more of its gross income
is investment-type income. If a 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. A 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.
Each Fund may be eligible to elect alternative tax treatment with respect
to PFIC shares. Each 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, each 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 each 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 each 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. Each 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 each Fund may be treated as having
acquisition discount, or OID in the case of certain types of debt securities.
Generally, a 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. Each
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.
Each Fund generally will be required to distribute dividends to
shareholders representing discount on debt securities that is currently
includable in income, even though cash representing such income may not have
been received by each Fund. Cash to pay such dividends may be obtained from
sales proceeds of securities held by each 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 a 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 each 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 that Fund on the distribution date. A
distribution of an amount in excess of a 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 a 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
a 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 same 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 each 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 a Fund's total assets at the close of its
taxable year consists of securities of foreign corporations, that Fund will be
eligible and may elect to "pass-through" to its 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 each Fund's taxable year whether the foreign taxes
paid by that 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 a Fund makes
the election described in the preceding paragraph, the source of that Fund's
income flows through to its shareholders. With respect to each 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 each 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 a 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 a 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
Each Fund will be required to report to the Internal Revenue Service
("IRS") all taxable distributions as well as gross proceeds from the redemption
of that 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 a 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 each 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 any Fund.
PERFORMANCE INFORMATION
Performance information for the classes of shares of each 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 each 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 each 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.
AVERAGE ANNUAL TOTAL RETURN. Quotations of standardized average annual
total return ("Standardized Return") for a specific class of shares of each Fund
will be expressed in terms of the average annual compounded rate of return that
would cause a hypothetical investment in that class of that 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 each Fund, it is assumed that
all dividends and capital gains distributions made by that 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 each 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%.
Each Fund may, from time to time, include in advertisements, promotional
literature or reports to shareholders or prospective investors total return data
that are not calculated according to the formula set forth above
("Non-Standardized Return"). Neither initial nor CDSCs are taken into account in
calculating Non-Standardized Return; a sales charge, if deducted, would reduce
the return.
The following tables summarize the calculation of Standardized and
Non-Standardized Return for the Class A, Class B, Class C and Class I (where
applicable) shares of each Fund for the periods indicated. In determining the
average annual total return for a specific class of shares of each Fund,
recurring fees, if any, that are charged to all shareholder accounts are taken
into consideration. For any account fees that vary with the size of the account
of each Fund, the account fee used for purposes of the following computations is
assumed to be the fee that would be charged to the mean account size of the
Fund.
<PAGE>
IVY GLOBAL FUND
STANDARDIZED RETURN[*]
CLASS A[1] CLASS B[2] CLASS C[3]
Year ended
December 31,
1998 2.35% 2.69% 6.30%
Five years
ended December
31, 1998 3.03% N/A N/A
Inception [#]
to year ended
December 31, 6.78% 4.11% (0.06)%
1998[7]:
NON-STANDARDIZED RETURN[**]
CLASS A[4] CLASS B[5] CLASS C[6]
Year ended
December 31,
1998 8.59% 7.69% 7.30%
Five years
ended December
31, 1998 4.26% N/A N/A
Inception [#]
to year ended
December 31, 7.61% 4.46% (0.06)%
1998[7]:
- ---------------------------------------------------------------------
[*] The Standardized Return figures for Class A shares reflect the
deduction of the maximum initial sales charge of 5.75%. The Standardized Return
figures for Class B and C shares reflect the deduction of the applicable CDSC
imposed on redemption of Class B or C shares held for the period.
[**] The Non-Standardized Return figures do not reflect the deduction of
any initial sales charge or CDSC.
[#] The inception date for the Fund (Class A shares) was April 18, 1991.
The inception dates for the Class B and Class C shares of the Fund were April 1,
1994 and April 30, 1996, respectively. Until December 31, 1994, Mackenzie
Investment Management Inc. served as investment adviser to the Fund.
[1] The Standardized Return figures for the Class A shares reflect expense
reimbursement. Without expense reimbursement, the Standardized Return for Class
A shares for the period from inception through December 31, 1998 and the one and
five year periods ended December 31, 1998 would have been 6.10%, 1.90% and
2.87%, respectively.
[2] The Standardized Return figures for the Class B shares reflect expense
reimbursement. Without expense reimbursement, the Standardized Return for Class
B shares for the period from inception through December 31, 1998 and the one
year period ended December 31, 1998 would have been 3.96% and 2.31%,
respectively. (Since the inception date for Class B shares was April 1, 1994,
there were no Class B shares outstanding for the duration of the five year
period ended December 31, 1998.)
[3] The Standardized Return figures for the Class C shares reflect expense
reimbursement. Without expense reimbursement, the Standardized Return for Class
C shares for the period from inception through December 31, 1998 and the one
year period ended December 31, 1998 would have been (0.25)% and 5.74%,
respectively. (Since the inception date for Class C shares was April 30, 1996,
there were no outstanding Class C shares for the duration of the five year
period ended December 31, 1998.)
[4] The Non-Standardized Return figures for Class A shares reflect expense
reimbursement. Without expense reimbursement, the Non-Standardized Return for
Class A shares for the period from inception through December 31, 1998 and the
one and five year periods ended December 31, 1998 would have been 6.92%, 8.12%
and 4.10%, respectively.
[5] The Non-Standardized Return figures for Class B shares reflect expense
reimbursement. Without expense reimbursement, the Non-Standardized Return for
Class B shares for the period from inception through December 31, 1998 and the
one year period ended December 31, 1998 would have been 4.32% and 7.29%,
respectively. (Since the inception date for Class B shares was April 1, 1994,
there were no Class B shares outstanding for the duration of the five year
period ended December 31, 1998.)
[6] The Non-Standardized Return figures for Class C shares reflect expense
reimbursement. Without expense reimbursement, the Non-Standardized Return for
Class C shares for the period from inception through December 31, 1998 and the
one year period ended December 31, 1998 would have been (0.25)% and 6.74%,
respectively. (Since the inception date for Class C shares was April 30, 1996,
there were no outstanding Class C shares for the duration of the five year
period ended December 31, 1998.)
[7] The total return for a period less than a full year is calculated on
an aggregate basis and is not annualized.
IVY GLOBAL NATURAL RESOURCES FUND
STANDARDIZED RETURN[*]
CLASS A[1] CLASS B[2] CLASS C[3]
Year ended (33.41)% (33.33)% (31.19)%
December 31,
1998:
Inception [#] (15.68)% (15.45)% (14.17)%
to year ended
December 31,
1998[7]:
NON-STANDARDIZED RETURN[**]
CLASS A[4] CLASS B[5] CLASS C[6]
Year ended (29.35)% (29.82)% (30.49)%
December 31,
1998:
Inception [#] (13.11)% (13.67)% (14.17)%
to year ended
December 31,
1998[7]:
- ---------------------------------------------------------------------
[*] The Standardized Return figures for Class A shares reflect the
deduction of the maximum initial sales charge of 5.75%. The Standardized Return
figures for Class B and C shares reflect the deduction of the applicable CDSC
imposed on redemption of Class B or C shares held for the period.
[**] The Non-Standardized Return figures do not reflect the deduction of
any initial sales charge or CDSC.
[#] The inception date for the Fund was January 1, 1997.
[1] The Standardized Return figures for the Class A shares reflect expense
reimbursement. Without expense reimbursement, the Standardized Return for Class
A shares for the period from inception through December 31, 1998 and the one
year ended December 31, 1998 would have been (17.71)% and (36.53)%,
respectively.
[2] The Standardized Return figures for the Class B shares reflect expense
reimbursement. Without expense reimbursement, the Standardized Return for Class
B shares for the period from inception through December 31, 1998 and the one
year ended December 31, 1998 would have been (17.42)% and (36.35)%,
respectively.
[3] The Standardized Return figures for the Class C shares reflect expense
reimbursement. Without expense reimbursement, the Standardized Return for Class
C shares for the period from inception through December 31, 1998 and the one
year ended December 31, 1998 would have been (17.17)% and (35.88)%,
respectively.
[4] The Non-Standardized Return figures for Class A shares reflect expense
reimbursement. Without expense reimbursement, the Non-Standardized Return for
Class A shares for the period from inception through December 31, 1998 and the
one year ended December 31, 1998 would have been (15.23)% and (32.64)%,
respectively.
[5] The Non-Standardized Return figures for Class B shares reflect expense
reimbursement. Without expense reimbursement, the Non-Standardized Return for
Class B shares for the period from inception through December 31, 1998 and the
one year ended December 31, 1998 would have been (15.70)% and (32.98)%,
respectively.
[6] The Non-Standardized Return figures for Class C shares reflect expense
reimbursement. Without expense reimbursement, the Non-Standardized Return for
Class C shares for the period from inception through December 31, 1998 and the
one year ended December 31, 1998 would have been (17.17)% and (35.23)%,
respectively.
[7] The total return for a period less than a full year is calculated on
an aggregate basis and is not annualized.
IVY GLOBAL SCIENCE & TECHNOLOGY FUND
STANDARDIZED RETURN[*]
CLASS A[1] CLASS B[2] CLASS C[3] CLASS I[4]
Year ended
December 31,
1998 27.48% 29.20% 33.37% N/A
Inception [#]
to year ended
December 31, 38.96% 40.78% 41.64% N/A
1998: [8]
NON-STANDARDIZED RETURN[**]
CLASS A[5] CLASS B[6] CLASS C[7] CLASS I[4]
Year ended
December 31,
1998 35.26% 34.20% 34.37% N/A
Inception [#]
to year ended
December 31, 42.30% 41.45% 41.64% N/A
1998: [8]
- --------------------------------------------------------
[*] The Standardization Return figures for Class A shares reflect the
deduction of the maximum initial sales charge of 5.75%. The Standardized Return
figures for Class B and C shares reflect the deduction of the applicable CDSC
imposed on redemption of Class B or C shares held for the period. Class I shares
are not subject to an initial sales charge or a CDSC; therefore, the
Non-Standardized Return Figures would be identical to the Standardized Return
Figures.
[**] The Non-Standardized Return figures do not reflect the deduction of
any initial sales charge or CDSC.
[#] The inception date for the Fund (and Class A, Class B, Class C and
Class I shares of the Fund) was July 22, 1996.
[1] The Standardized Return figures for the Class A shares reflect expense
reimbursement. Without expense reimbursement, the Standardized Return for Class
A shares for the period from inception through December 31, 1998 and the one
year ended December 31, 1998 would have been 38.87% and 27.48%, respectively.
[2] The Standardized Return figures for the Class B shares reflect expense
reimbursement. Without expense reimbursement, the Standardized Return for Class
B shares for the period from inception through December 31, 1998 and the one
year ended December 31, 1998 would have been 40.73% and 29.20%, respectively.
[3] The Standardized Return figures for the Class C shares reflect expense
reimbursement. Without expense reimbursement, the Standardized Return for Class
C shares for the period from inception through December 31, 1998 and the one
year ended December 31, 1998 would have been 41.59% and 33.37%, respectively.
[4] Class I shares are not subject to an initial sales charge or a CDSC;
therefore the Non-Standardized and Standardized Return figures would be
identical. However, there were no outstanding Class I shares during the periods
indicated.
[5] The Non-Standardized Return figures for Class A shares reflect expense
reimbursement. Without expense reimbursement, the Non-Standardized Return for
Class A shares for the period from inception through December 31, 1998 and the
one year ended December 31, 1998 would have been 42.28% and 35.26%,
respectively.
[6] The Non-Standardized Return figures for Class B shares reflect expense
reimbursement. Without expense reimbursement, the Non-Standardized Return for
Class B shares for the period from inception through December 31, 1998 and the
one year ended December 31, 1998 would have been 41.48% and 34.20%,
respectively.
[7] The Non-Standardized Return figures for Class C shares reflect expense
reimbursement. Without expense reimbursement, the Non-Standardized Return for
Class C shares for the period from inception through December 31, 1998 and the
one year ended December 31, 1998 would have been 41.59% and 34.37%,
respectively.
[8] The total return for a period less than a full year is calculated on
an aggregate basis and is not annualized.
IVY INTERNATIONAL FUND II
STANDARDIZED RETURN[*]
CLASS A[1] CLASS B[2] CLASS C[3] CLASS I[4]
Year ended
December 31,
1998 0.50% 0.84% 4.79% N/A
Inception [#]
to year ended
December 31, (6.12)% (5.81)% (3.48)% N/A
1998[8]:
NON-STANDARDIZED RETURN[**]
CLASS A[5] CLASS B[6] CLASS C[7] CLASS I[4]
Year ended
December 31,
1998 6.63% 5.84% 5.79% N/A
Inception [#]
to year ended
December 31, (2.68)% (3.45)% (3.48)% N/A
1998[8]:
- --------------------------------------------------------
[*] The Standardized Return figures for Class A shares reflect the
deduction of the maximum initial sales charge of 5.75%. The Standardized Return
figures for Class B and C shares reflect the deduction of the applicable CDSC
imposed on redemption of Class B or C shares held for the period. Class I shares
are not subject to an initial sales change or to a CDSC; therefore, the
Non-Standardized Return Figures would be identical to the Standardized Return
Figures.
[**] The Non-Standardized Return figures do not reflect the deduction of
any initial sales charge or CDSC.
[#] The inception date for the Fund (and Class A, Class B, Class C and
Class I shares of the Fund) was May 13, 1997.
[1] The Standardized Return figures for the Class A shares reflect expense
reimbursement. Without expense reimbursement, the Standardized Return for Class
A shares for the period from inception through December 31, 1998 and the one
year ended December 31, 1998 would have been (6.20)% and 0.37%, respectively.
[2] The Standardized Return figures for the Class B shares reflect expense
reimbursement. Without expense reimbursement, the Standardized Return for Class
B shares for the period from inception through December 31, 1998 and the one
year ended December 31, 1998 would have been (5.89)% and 0.71%, respectively.
[3] The Standardized Return figures for the Class C shares reflect expense
reimbursement. Without expense reimbursement, the Standardized Return for Class
C shares for the period from inception through December 31, 1998 and the one
year ended December 31, 1998 would have been (3.56)% and 4.66%, respectively.
[4] Class I shares are not subject to an initial sales charge or a CDSC;
therefore the Non-Standardized and Standardized Return figures would be
identical. However, there were no outstanding Class I shares during the periods
indicated.
[5] The Non-Standardized Return figures for Class A shares reflect expense
reimbursement. Without expense reimbursement, the Non-Standardized Return for
Class A shares for the period from inception through December 31, 1998 and the
one year ended December 31, 1998 would have been (2.75)% and 6.49%,
respectively.
[6] The Non-Standardized Return figures for Class B shares reflect expense
reimbursement. Without expense reimbursement, the Non-Standardized Return for
Class B shares for the period from inception through December 31, 1998 and the
one year ended December 31, 1998 would have been (3.52)% and 5.71%,
respectively.
[7] The Non-Standardized Return figures for Class C shares reflect expense
reimbursement. Without expense reimbursement, the Non-Standardized Return for
Class C shares for the period from inception through December 31, 1998 and the
one year ended December 31, 1998 would have been (3.56)% and 5.66%,
respectively.
[8] The total return for a period less than a full year is calculated on
an aggregate basis and is not annualized.
IVY INTERNATIONAL SMALL COMPANIES FUND
STANDARDIZED RETURN[*]
CLASS A[1] CLASS B[2] CLASS C[3] CLASS I[4]
Year ended
December 31,
1998 (0.81)% (0.54)% 3.55% N/A
Inception [#]
to year ended
December 31, (6.88)% (6.73)% (4.72)% N/A
1998:
NON-STANDARDIZED RETURN[**]
CLASS A[5] CLASS B[6] CLASS C[7] CLASS I[4]
Year ended
December 31,
1998 5.24% 4.46% 4.55% N/A
Inception [#]
to year ended
December 31, (4.06)% (4.79)% (4.72)% N/A
1998:
- --------------------------------------------------------
[*] The Standardization Return figures for Class A shares reflect the
deduction of the maximum initial sales charge of 5.75%. The Standardized Return
figures for Class B and C shares reflect the deduction of the applicable CDSC
imposed on redemption of Class B or C shares held for the period.
[**] The Non-Standardized Return figures do not reflect the deduction of
any initial sales charge or CDSC.
[#] The inception date for Ivy International Small Companies Fund (and
Class A, Class B, Class C and Class I shares of the Fund) was January 1, 1997.
[1] The Standardized Return figures for the Class A shares reflect expense
reimbursement. Without expense reimbursement, the Standardized Return for Class
A shares for the period from inception through December 31, 1998 and the one
year ended December 31, 1998 would have been (9.63)% and (4.85)%, respectively.
[2] The Standardized Return figures for the Class B shares reflect expense
reimbursement. Without expense reimbursement, the Standardized Return for Class
B shares for the period from inception through December 31, 1998 and the one
year ended December 31, 1998 would have been (9.23)% and (4.44)%, respectively.
[3] The Standardized Return figures for the Class C shares reflect expense
reimbursement. Without expense reimbursement, the Standardized Return for Class
C shares for the period from inception through December 31, 1998 and the one
year ended December 31, 1998 would have been (7.85)% and (1.42)%, respectively.
[4] Class I shares are not subject to an initial sales charge or a CDSC;
therefore the Non-Standardized and Standardized Return figures would be
identical. However, there were no outstanding Class I shares during the periods
indicated.
[5] The Non-Standardized Return figures for Class A shares reflect expense
reimbursement. Without expense reimbursement, the Non-Standardized Return for
Class A shares for the period from inception through December 31, 1998 and the
one year ended December 31, 1998 would have been (6.90)% and 0.98%,
respectively.
[6] The Non-Standardized Return figures for Class B shares reflect expense
reimbursement. Without expense reimbursement, the Non-Standardized Return for
Class B shares for the period from inception through December 31, 1998 and the
one year ended December 31, 1998 would have been (7.34)% and 0.38%,
respectively.
[7] The Non-Standardized Return figures for Class C shares reflect expense
reimbursement. Without expense reimbursement, the Non-Standardized Return for
Class C shares for the period from inception through December 31, 1998 and the
one year ended December 31, 1998 would have been (7.85)% and (0.42)%,
respectively.
IVY PAN-EUROPE FUND
STANDARDIZED RETURN[*]
CLASS A[1] CLASS B[2] CLASS C[3]
Year ended
December 31,
1998: 0.59% 0.98% N/A
Inception [#]
to year ended
December 31, 3.71% 4.54% 1.67%
1998[7]:
NON-STANDARDIZED RETURN[**]
CLASS A[4] CLASS B[5] CLASS C[6]
Year ended
December 31,
1998: 6.72% 5.98% N/A
Inception [#]
to year ended
December 31, 7.55% 6.91% 2.38%
1998[7]:
- --------------------------------------------------------
[*] The Standardized Return figures for Class A shares reflect the
deduction of the maximum initial sales charge of 5.75%. The Standardized Return
figures for Class B and C shares reflect the deduction of the applicable CDSC
imposed on redemption of Class B or C shares held for the period.
[**] The Non-Standardized Return figures do not reflect the deduction of
any initial sales charge or CDSC.
[#] The inception date for the Fund (Class A and Class B shares) was May
13, 1997. Class C shares were first offered on January 29, 1998.
[1] The Standardized Return figures for the Class A shares reflect expense
reimbursement. Without expense reimbursement, the Standardized Return for Class
A shares for the period from inception through December 31, 1998 and the one
year ended December 31, 1998 would have been (3.92)% and (2.49)%, respectively.
[2] The Standardized Return figures for the Class B shares reflect expense
reimbursement. Without expense reimbursement, the Standardized Return for Class
B shares for the period from inception through December 31, 1998 and the one
year ended December 31, 1998 would have been 0.19% and (2.11)%, respectively.
[3] The Standardized Return figures for the Class C shares reflect expense
reimbursement. Without expense reimbursement, the Standardized Return for Class
C shares for the period from inception through December 31, 1998 would have been
1.09%.
[4] The Non-Standardized Return figures for Class A shares reflect expense
reimbursement. Without expense reimbursement, the Non-Standardized Return for
Class A shares for the period from inception through December 31, 1998 and the
one year ended December 31, 1998 would have been (0.34)% and 3.48%,
respectively.
[5] The Non-Standardized Return figures for Class B shares reflect expense
reimbursement. Without expense reimbursement, the Non-Standardized Return for
Class B shares for the period from inception through December 31, 1998 and the
one year ended December 31, 1998 would have been 2.45% and 2.75%, respectively.
[6] The Non-Standardized Return figures for Class C shares reflect expense
reimbursement. Without expense reimbursement, the Non-Standardized Return for
Class C shares for the period from inception through December 31, 1998 would
have been 2.09%.
[7] The total return for a period less than a full year is calculated on
an aggregate basis and is not annualized.
CUMULATIVE TOTAL RETURN. Cumulative total return is the cumulative rate of
return on a hypothetical initial investment of $1,000 in a specific class of
shares of a particular Fund for a specified period. Cumulative total return
quotations reflect changes in the price of a Fund's shares and assume that all
dividends and capital gains distributions during the period were reinvested in
Fund shares. Cumulative total return is calculated by computing the cumulative
rates of return of a hypothetical investment in a specific class of shares of a
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.
IVY GLOBAL FUND
The following table summarizes the calculation of Cumulative Total Return
for the periods indicated through December 31, 1998, assuming the maximum 5.75%
sales charge has been assessed.
ONE YEAR FIVE YEARS SINCE INCEPTION
Class A 2.35% 16.09% 65.88%
Class B 2.69% N/A 21.07%
Class C 6.30% N/A (0.15)%
The following table summarizes the calculation of Cumulative Total Return
for the periods indicated through December 31, 1998, assuming the maximum 5.75%
sales charge has not been assessed.
ONE YEAR FIVE YEARS SINCE INCEPTION[*]
Class A 8.59% 23.17% 76.00%
Class B 7.69% N/A 23.07%
Class C 7.30% N/A (0.15)%
- ---------------------------
[*] The inception date for the was (Class A shares of the Fund) was
April 18, 1993; the inception date for Class B shares of the Fund
was April 1, 1994; and the inception date for Class C shares of the
Fund was April 30, 1996. Until December 31, 1994, Mackenzie
Investment Management Inc. served as investment adviser to the Fund.
IVY GLOBAL NATURAL RESOURCES FUND
The following table summarizes the calculation of Cumulative Total Return
for Ivy Global Natural Resources Fund for the periods indicated through December
31, 1998, assuming the maximum 5.75% sales charge has been assessed.
ONE YEAR SINCE INCEPTION[*]
Class A (33.41)% (28.78)%
Class B (33.33)% (28.40)%
Class C (31.19)% (26.26)%
The following table summarizes the calculation of Cumulative Total Return
for Ivy Global Natural Resources Fund for the periods indicated through December
31, 1998, assuming the maximum 5.75% sales charge has not been assessed.
ONE YEAR SINCE INCEPTION[*]
Class A (29.35)% (24.44)%
Class B (29.82)% (25.41)%
Class C (30.49)% (26.26)%
- ---------------------------
[*] The inception date for the Fund was January 1, 1997.
IVY GLOBAL SCIENCE & TECHNOLOGY FUND
The following table summarizes the calculation of Cumulative Total Return
for the periods indicated through December 31, 1998, assuming the maximum 5.75%
sales charge has been assessed.
ONE YEAR SINCE INCEPTION[*]
Class A 27.48% 123.18%
Class B 29.20% 130.37%
Class C 33.37% 134.15%
Class I N/A N/A
The following table summarizes the calculation of Cumulative Total Return
for the periods indicated through December 31, 1998, assuming the maximum 5.75%
sales charge has not been assessed.
ONE YEAR SINCE INCEPTION[*]
Class A 35.26% 136.79%
Class B 34.20% 133.37%
Class C 34.37% 134.15%
Class I N/A N/A
- ---------------------------
[*] The inception date for the Fund (Class A, Class B, Class C and I
shares) was July 22, 1996.
IVY INTERNATIONAL FUND II
The following table summarizes the calculation of Cumulative Total Return
for the periods indicated through December 31, 1998, assuming the maximum 5.75%
sales charge has been assessed.
ONE YEAR SINCE INCEPTION [*]
Class A 0.50% (9.84)%
Class B 0.84% (9.35)%
Class C 4.79% (5.62)%
Class I N/A N/A
The following table summarizes the calculation of Cumulative Total Return
for the periods indicated through December 31, 1998, assuming the maximum 5.75%
sales charge has not been assessed.
ONE YEAR SINCE INCEPTION [*]
Class A 6.63% (4.34)%
Class B 5.84% (5.58)%
Class C 5.79% (5.62)%
Class I N/A N/A
- ---------------------------
[*] The inception date for the Fund (Class A, Class B, Class C and Class I
shares) was May 13, 1997.
IVY INTERNATIONAL SMALL COMPANIES FUND
The following table summarizes the calculation of Cumulative Total Return
for the periods indicated through December 31, 1998, assuming the maximum 5.75%
sales charge has been assessed.
ONE YEAR SINCE INCEPTION [*]
Class A (0.81)% (13.23)%
Class B (0.54)% (12.95)%
Class C 3.55% (9.19)%
Class I N/A N/A
The following table summarizes the calculation of Cumulative Total Return
for the periods indicated through December 31, 1998, assuming the maximum 5.75%
sales charge has not been assessed.
ONE YEAR SINCE INCEPTION [*]
Class A 5.24% (7.94)%
Class B (4.46)% (9.32)%
Class C 4.55% (9.19)%
Class I N/A N/A
- ---------------------------
[*] The inception date for the Fund (Class A, Class B, Class C and Class
I shares) was January 1, 1997.
IVY PAN-EUROPE FUND
The following table summarizes the calculation of Cumulative Total Return
for the periods indicated through December 31, 1998, assuming the maximum 5.75%
sales charge has been assessed.
ONE YEAR SINCE INCEPTION[*]
Class A (0.59)% 6.16%
Class B (0.98)% 7.55%
Class C N/A 2.38%
The following table summarizes the calculation of Cumulative Total Return
for the periods indicated through December 31, 1998, assuming the maximum 5.75%
sales charge has not been assessed.
ONE YEAR SINCE INCEPTION[*]
Class A 6.72% 12.64%
Class B 5.98% 11.55%
Class C N/A 2.38%
- ---------------------------
[*] The inception date for the Ivy Pan-Europe Fund (Class A and Class B
shares) was May 13, 1997. Class C shares were first offered on
January 29, 1998.
OTHER QUOTATIONS, COMPARISONS AND GENERAL INFORMATION. The foregoing
computation methods are prescribed for advertising and other communications
subject to SEC Rule 482. Communications not subject to this rule may contain a
number of different measures of performance, computation methods and
assumptions, including but not limited to: historical total returns; results of
actual or hypothetical investments; changes in dividends, distributions or share
values; or any graphic illustration of such data. These data may cover any
period of the Trust's existence and may or may not include the impact of sales
charges, taxes or other factors.
Performance quotations for each Fund will vary from time to time depending
on market conditions, the composition of that Fund's portfolio and operating
expenses of that Fund. These factors and possible differences in the methods
used in calculating performance quotations should be considered when comparing
performance information regarding a 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 each Fund's shares
and the risks associated with each 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.
Each 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
Each Fund's (except Ivy European Opportunities Fund) Portfolio of
Investments as of December 31, 1998, Statement of Assets and Liabilities as of
December 31, 1998, Statement of Operations for the fiscal year ended December
31, 1998, Statement of Changes in Net Assets for the fiscal year ended December
31, 1998, Financial Highlights, Notes to Financial Statements, and Report of
Independent Accountants, which are included in each Fund's December 31, 1998
Annual Report to shareholders, are incorporated by reference into this SAI. Ivy
European Opportunities Fund's Statement of Assets and Liabilities as of April
28, 1999 and the notes thereto are attached hereto as Appendix B.
<PAGE>
APPENDIX A
DESCRIPTION OF STANDARD & POOR'S RATINGS GROUP ("S&P") AND
MOODY'S INVESTORS SERVICE, INC. ("MOODY'S") CORPORATE
BOND AND COMMERCIAL PAPER RATINGS
[From "Moody's Bond Record," November 1994 Issue (Moody's Investors Service,
New York, 1994), and "Standard & Poor's Municipal Ratings Handbook," October
1997 Issue (McGraw Hill, New York, 1997).]
MOODY'S:
(a) CORPORATE BONDS. Bonds rated Aaa by Moody's are judged by Moody's to
be of the best quality, carrying the smallest degree of investment risk.
Interest payments are protected by a large or exceptionally stable margin and
principal is secure. While the various protective elements are likely to change,
such changes as can be visualized are most unlikely to impair the fundamentally
strong position of such issues. Bonds rated Aa are judged by Moody's to be of
high quality by all standards. Aa bonds are rated lower than Aaa bonds because
margins of protection may not be as large as those of Aaa bonds, or fluctuations
of protective elements may be of greater amplitude, or there may be other
elements present which make the long-term risks appear somewhat larger than
those applicable to Aaa securities. Bonds which are rated A by Moody's possess
many favorable investment attributes and are to be considered as upper
medium-grade obligations. Factors giving security to principal and interest are
considered adequate, but elements may be present which suggest a susceptibility
to impairment sometime in the future. Bonds rated Baa by Moody's are considered
medium-grade obligations (i.e., they are neither highly protected nor poorly
secured). Interest payments and principal security appear adequate for the
present, but certain protective elements may be lacking or may be
characteristically unreliable over any great length of time. Such bonds lack
outstanding investment characteristics and in fact have speculative
characteristics as well. Bonds which are rated Ba are judged to have speculative
elements; their future cannot be considered well-assured. Often the protection
of interest and principal payments may be very moderate and thereby not well
safeguarded during both good and bad times over the future. Uncertainty of
position characterizes bonds in this class. Bonds which are rated B generally
lack characteristics of the desirable investment. Assurance of interest and
principal payments of or maintenance of other terms of the contract over any
long period of time may be small. Bonds which are rated Caa are of poor
standing. Such issues may be in default or there may be present elements of
danger with respect to principal or interest. Bonds which are rated Ca represent
obligations which are speculative in a high degree. Such issues are often in
default or have other marked shortcomings. Bonds which are rated C are the
lowest rated class of bonds and issues so rated can be regarded as having
extremely poor prospects of ever attaining any real investment standing.
(b) COMMERCIAL PAPER. The Prime rating is the highest commercial paper
rating assigned by Moody's. Among the factors considered by Moody's in assigning
ratings are the following: (1) evaluation of the management of the issuer; (2)
economic evaluation of the issuer's industry or industries and an appraisal of
speculative-type risks which may be inherent in certain areas; (3) evaluation of
the issuer's products in relation to competition and customer acceptance; (4)
liquidity; (5) amount and quality of long-term debt; (6) trend of earnings over
a period of ten years; (7) financial strength of a parent company and the
relationships which exist with the issuer; and (8) recognition by management of
obligations which may be present or may arise as a result of public interest
questions and preparations to meet such obligations. Issuers within this Prime
category may be given ratings 1, 2 or 3, depending on the relative strengths of
these factors. The designation of Prime-1 indicates the highest quality
repayment capacity of the rated issue. Issuers rated Prime-2 are deemed to have
a strong ability for repayment while issuers voted Prime-3 are deemed to have an
acceptable ability for repayment. Issuers rated Not Prime do not fall within any
of the Prime rating categories.
S&P:
(a) CORPORATE BONDS. An S&P corporate debt rating is a current assessment
of the creditworthiness of an obligor with respect to a specific obligation. The
ratings are based on current information furnished by the issuer or obtained by
S&P from other sources it considers reliable. The ratings described below may be
modified by the addition of a plus or minus sign to show relative standing
within the major rating categories.
Debt rated AAA has the highest rating assigned by S&P. Capacity to pay
interest and repay principal is extremely strong. Debt rated AA is judged by S&P
to have a very strong capacity to pay interest and repay principal and differs
from the highest rated issues only in small degree. Debt rated A by S&P has a
strong capacity to pay interest and repay principal, although it is somewhat
more susceptible to the adverse effects of changes in circumstances and economic
conditions than debt in higher rated categories.
Debt rated BBB by S&P is regarded by S&P as having an adequate capacity to
pay interest and repay principal. Although such bonds normally exhibit adequate
protection parameters, adverse economic conditions or changing circumstances are
more likely to lead to a weakened capacity to pay interest and repay principal
than debt in higher rated categories.
Debt rated BB, B, CCC, CC and C is regarded as having predominately
speculative characteristics with respect to capacity to pay interest and repay
principal. BB indicates the least degree of speculation and C the highest. While
such debt will likely have some quality and protective characteristics, these
are outweighed by large uncertainties or exposures to adverse conditions. Debt
rated BB has less near-term vulnerability to default than other speculative
issues. However, it faces major ongoing uncertainties or exposure to adverse
business, financial or economic conditions which could lead to inadequate
capacity to meet timely interest and principal payments. The BB rating category
is also used for debt subordinated to senior debt that is assigned an actual or
implied BBB- rating. Debt rated B has a greater vulnerability to default but
currently has the capacity to meet interest payments and principal repayments.
Adverse business, financial, or economic conditions will likely impair capacity
or willingness to pay interest and repay principal. The B rating category is
also used for debt subordinated to senior debt that is assigned an actual or
implied BB or BB- rating. Debt rated CCC has a currently identifiable
vulnerability to default, and is dependent upon favorable business, financial,
and economic conditions to meet timely payment of interest and repayment of
principal. In the event of adverse business, financial or economic conditions,
it is not likely to have the capacity to pay interest and repay principal. The
CCC rating category is also used for debt subordinated to senior debt that is
assigned an actual or implied B or B- rating. The rating CC typically is applied
to debt subordinated to senior debt which is assigned an actual or implied CCC
debt rating. The rating C typically is applied to debt subordinated to senior
debt which is assigned an actual or implied CCC- debt rating. The C rating may
be used to cover a situation where a bankruptcy petition has been filed, but
debt service payments are continued.
The rating CI is reserved for income bonds on which no interest is being
paid. Debt rated D is in payment default. The D rating category is used when
interest payments or principal payments are not made on the date due, even if
the applicable grace period has not expired, unless S&P believes that such
payments will be made during such grace period. The D rating also will be used
upon the filing of a bankruptcy petition if debt service payments are
jeopardized.
(b) COMMERCIAL PAPER. An S&P commercial paper rating is a current
assessment of the likelihood of timely payment of debt considered short-term in
the relevant market.
The commercial paper rating A-1 by S&P indicates that the degree of safety
regarding timely payment is strong. Those issues determined to possess extremely
strong safety characteristics are denoted with a plus sign (+) designation. For
commercial paper with an A-2 rating, the capacity for timely payment on issues
is satisfactory, but not as high as for issues designated A-1. Issues rated A-3
have adequate capacity for timely payment, but are more vulnerable to the
adverse effects of changes in circumstances than obligations carrying higher
designations.
Issues rated B are regarded as having only speculative capacity for timely
payment. The C rating is assigned to short-term debt obligations with a doubtful
capacity for payment. Debt rated D is in payment default. The D rating category
is used when interest payments or principal payments are not made on the date
due, even if the applicable grace period has not expired, unless S&P believes
such payments will be made during such grace period.
<PAGE>
APPENDIX B
STATEMENT OF ASSETS AND LIABILITIES
AS OF APRIL 28, 1999
AND REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
IVY EUROPEAN OPPORTUNITIES FUND
STATEMENT OF ASSETS AND LIABILITIES
APRIL 28, 1999
ASSETS
Cash............................................... $ 500,040
Prepaid offering cost.............................. 16,500
Prepaid blue sky fees.............................. 43,000
Total Assets.................................... 559,540
--------------
LIABILITIES
Due to affiliate................................... 59,500
--------------
NET ASSETS............................................ $ 500,040
==============
CLASS A:
Net asset value and redemption price per share
($10.00 / 1 share outstanding).................. $10.00
=========
Maximum offering price per share
($10.00 x 100 / 94.25)*......................... $10.61
=========
CLASS B:
Net asset value, offering price and redemption
price** per share ($10.00/1 share outstanding)... $10.00
=========
CLASS C:
Net asset value, offering price and redemption
price*** per share ($10.00/1 share outstanding).. $10.00
=========
CLASS I:
Net asset value, offering price and redemption
price per share ($10.00/1 share outstanding)..... $10.00
=========
ADVISOR CLASS:
Net asset value, offering price and redemption
price per share ($500,000.00/50,000 shares
outstanding)........................................$10.00
=========
NET ASSETS CONSISTS OF:
Capital paid-in $500,040
=========
* On sales of more than $100,000 the offering price is reduced.
** Redemption price per share is equal to the net asset value per share
less any applicable contingent deferred sales charge, up to a
maximum of 5%.
*** Redemption price per share is equal to the net asset value per share less
any applicable contingent deferred sales charge, up to a maximum of 1%.
The accompanying notes are an integral part of the financial statement.
IVY EUROPEAN OPPORTUNITIES FUND
NOTES TO STATEMENT OF ASSETS AND LIABILITIES
APRIL 28, 1999
1. ORGANIZATION: Ivy European Opportunities Fund is a diversified series of
shares of Ivy Fund. The shares of beneficial interest are assigned no par value
and an unlimited number of shares of Class A, Class B, Class C, Class I and
Advisor Class are authorized. Ivy Fund was organized as a Massachusetts business
trust under a Declaration of Trust dated December 21, 1983 and is registered
under the Investment Company Act of 1940, as amended, as an open-end management
investment company.
The Fund will commence operations on April 30, 1999. As of the date of this
report, operations have been limited to organizational matters and the issuance
of initial shares to Mackenzie Investment Management Inc. (MIMI).
2. ORGANIZATIONAL COSTS: The Fund incurred organizational expenses of $7,100,
comprised of $2,500 for auditing and $4,600 for legal. The full amount of
organizational expenses were assumed by MIMI and the Fund is not required to
reimburse MIMI.
3. OFFERING COST AND PREPAID BLUE SKY FEES: Offering cost, consisting of legal
fees, and blue sky fees will be amortized over a one year period beginning April
30, 1999, the date the Fund is expected to commence operations. Offering cost
and blue sky fees have been paid by MIMI and will be reimbursed by the Fund.
4. TRANSACTIONS WITH AFFILIATES: Ivy Management, Inc. (IMI), a wholly owned
subsidiary of MIMI, is the Manager and Investment Manager of the Fund. For the
current fiscal year, IMI contractually limits the Fund's total operating
expenses (excluding taxes, 12b-1 fees, brokerage commissions, interest,
litigation and indemnification expenses, and any other extraordinary expenses)
to an annual rate of 1.95% of its average net assets. For each of the following
nine years IMI will ensure that these expenses do not exceed 2.50% of the Fund's
average net assets.
MIMI provides certain administrative, accounting and pricing services for the
Fund.
Ivy Mackenzie Distributors, Inc. (IMDI), a wholly owned subsidiary of MIMI, is
the underwriter and distributor of the Fund's shares, and as such, purchases
shares from the Fund at net asset value to settle orders from investment
dealers.
Ivy Mackenzie Services Corp. (IMSC), a wholly owned subsidiary of MIMI, is
the transfer and shareholder servicing agent for the Fund.
Officers of Ivy Fund are officers and/or employees of MIMI, IMI, IMDI and IMSC.
Such individuals are not compensated by the Fund for services in their capacity
as officers of Ivy Fund. Trustees of Ivy Fund who are not affiliated with MIMI
or IMI receive compensation from the Fund. No such amounts have been incurred as
of April 28, 1999.
<PAGE>
IVY EUROPEAN OPPORTUNITIES FUND
IVY GLOBAL FUND
IVY GLOBAL NATURAL RESOURCES FUND
IVY GLOBAL SCIENCE & TECHNOLOGY FUND
IVY INTERNATIONAL FUND II
IVY INTERNATIONAL SMALL COMPANIES FUND
IVY PAN-EUROPE 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
May 3, 1999
(as supplemented October 18, 1999)
Ivy Fund (the "Trust") is an open-end management investment company that
currently consists of nineteen fully managed portfolios, each of which (except
for Ivy South America Fund and Ivy International Strategic Bond Fund) is
diversified. This Statement of Additional Information ("SAI") relates to the
Advisor Class shares of Ivy European Opportunities Fund, Ivy Global Fund, Ivy
Global Natural Resources Fund, Ivy Global Science & Technology Fund, Ivy
International Fund II, Ivy International Small Companies Fund and Ivy Pan-Europe
Fund (each a "Fund"). The other twelve 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 Advisor Class shares of the Funds dated May 3, 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. Advisor
Class shares are only offered to certain investors (see Prospectus). The Funds
also offer Class A, B and C shares (and, in the case of Ivy European
Opportunities Fund, Ivy Global Science & Technology Fund, Ivy International Fund
II, and Ivy International Small Companies Fund, 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. ("IMDI")
Via Mizner Financial Plaza, Suite 300
700 South Federal Highway
Boca Raton, Florida 33432
Telephone: (800) 456-5111
INVESTMENT ADVISER
(for Ivy Global Natural Resources Fund)
Mackenzie Financial Corporation ("MFC")
150 Bloor Street West
Suite 400
Toronto, Ontario
CANADA M5S3B5
Telephone: (416) 922-5322
<PAGE>
TABLE OF CONTENTS
GENERAL INFORMATION..........................................................
INVESTMENT OBJECTIVES, STRATEGIES AND RISKS..................................
IVY EUROPEAN OPPORTUNITIES FUND........................................
INVESTMENT RESTRICTIONS FOR IVY EUROPEAN OPPORTUNITIES FUND
IVY GLOBAL FUND.............................
INVESTMENT RESTRICTIONS FOR IVY GLOBAL FUND.
IVY GLOBAL NATURAL RESOURCES FUND...........
INVESTMENT RESTRICTIONS FOR IVY GLOBAL NATURAL RESOURCES FUNDError!
IVY GLOBAL SCIENCE & TECHNOLOGY FUND........
INVESTMENT RESTRICTIONS FOR IVY GLOBAL SCIENCE & TECHNOLOGY FUND
IVY INTERNATIONAL FUND II...................
INVESTMENT RESTRICTIONS FOR.................
IVY INTERNATIONAL SMALL COMPANIES FUND......
INVESTMENT RESTRICTIONS FOR IVY INTERNATIONAL SMALL COMPANIES FUND
IVY PAN-EUROPE FUND.........................
INVESTMENT RESTRICTIONS FOR IVY PAN-EUROPE FUND
COMMON STOCKS.........................................................
CONVERTIBLE SECURITIES................................................
SMALL COMPANIES.......................................................
NATURAL RESOURCES AND PHYSICAL COMMODITIES............................
DEBT SECURITIES.....................................................
IN GENERAL....................................................
INVESTMENT-GRADE DEBT SECURITIES..............................
LOW-RATED DEBT SECURITIES.....................................
U.S. GOVERNMENT SECURITIES....................................
ZERO COUPON BONDS.............................................
FIRM COMMITMENT AGREEMENTS AND "WHEN-ISSUED" SECURITIES.......
ILLIQUID SECURITIES.................................................
FOREIGN SECURITIES..................................................
DEPOSITORY RECEIPTS.................................................
EMERGING MARKETS....................................................
FOREIGN SOVEREIGN DEBT OBLIGATIONS............................
BRADY BONDS...................................................
FOREIGN CURRENCIES..................................................
FOREIGN CURRENCY EXCHANGE TRANSACTIONS..............................
OTHER INVESTMENT COMPANIES..........................................
REPURCHASE AGREEMENTS...............................................
BANKING INDUSTRY AND SAVINGS AND LOAN OBLIGATIONS...................
COMMERCIAL PAPER....................................................
BORROWING...........................................................
WARRANTS............................................................
REAL ESTATE INVESTMENT TRUSTS (REITS)...............................
OPTIONS TRANSACTIONS................................................
IN GENERAL....................................................
WRITING OPTIONS ON INDIVIDUAL SECURITIES......................
PURCHASING OPTIONS ON INDIVIDUAL SECURITIES...................
RISKS OF OPTIONS TRANSACTIONS.................................
FUTURES CONTRACTS AND OPTIONS ON FUTURES CONTRACTS..................
IN GENERAL....................................................
FOREIGN CURRENCY FUTURES CONTRACTS AND RELATED OPTIONS........
RISKS ASSOCIATED WITH FUTURES AND RELATED OPTIONS.............
SECURITIES INDEX FUTURES CONTRACTS..................................
RISKS OF SECURITIES INDEX FUTURES.............................
COMBINED TRANSACTIONS.........................................
PORTFOLIO TURNOVER........................................................
TRUSTEES AND OFFICERS.....................................................
PERSONAL INVESTMENTS BY EMPLOYEES OF IMI............................
INVESTMENT ADVISORY AND OTHER SERVICES....................................
BUSINESS MANAGEMENT AND INVESTMENT ADVISORY SERVICES................
DISTRIBUTION SERVICES...............................................
RULE 18F-3 PLAN...............................................
CUSTODIAN...........................................................
FUND ACCOUNTING SERVICES............................................
TRANSFER AGENT AND DIVIDEND PAYING AGENT............................
ADMINISTRATOR.......................................................
AUDITORS............................................................
BROKERAGE ALLOCATION......................................................
CAPITALIZATION AND VOTING RIGHTS..........................................
SPECIAL RIGHTS AND PRIVILEGES.............................................
AUTOMATIC INVESTMENT METHOD.........................................
EXCHANGE OF SHARES..................................................
RETIREMENT PLANS....................................................
INDIVIDUAL RETIREMENT ACCOUNTS................................
ROTH IRAS.....................................................
QUALIFIED PLANS...............................................
DEFERRED COMPENSATION FOR PUBLIC SCHOOLS AND CHARITABLE
ORGANIZATIONS ("403(B)(7) ACCOUNT")...........................
SIMPLIFIED EMPLOYEE PENSION ("SEP") IRAS......................
SIMPLE PLANS..................................................
SYSTEMATIC WITHDRAWAL PLAN..........................................
GROUP SYSTEMATIC INVESTMENT PROGRAM.................................
REDEMPTIONS...............................................................
NET ASSET VALUE...........................................................
TAXATION..................................................................
OPTIONS, FUTURES AND FOREIGN CURRENCY FORWARD CONTRACTS.............
CURRENCY FLUCTUATIONS -- "SECTION 988" GAINS OR LOSSES..............
INVESTMENT IN PASSIVE FOREIGN INVESTMENT COMPANIES..................
DEBT SECURITIES ACQUIRED AT A DISCOUNT..............................
DISTRIBUTIONS.......................................................
DISPOSITION OF SHARES...............................................
FOREIGN WITHHOLDING TAXES...........................................
BACKUP WITHHOLDING..................................................
PERFORMANCE INFORMATION...................................................
AVERAGE ANNUAL TOTAL RETURN.........................................
CUMULATIVE TOTAL RETURN.............................................
OTHER QUOTATIONS, COMPARISONS AND GENERAL INFORMATION...............
FINANCIAL STATEMENTS......................................................
APPENDIX A................................................................
<PAGE>
GENERAL INFORMATION
Each Fund is organized as a separate, diversified portfolio of the Trust,
an open-end management investment company organized as a Massachusetts business
trust on December 21, 1983. Ivy Global Fund commenced operations (Class A
shares) on April 19, 1991. Ivy Global Science & Technology Fund commenced
operations on July 22, 1996. Ivy Global Natural Resources Fund and Ivy
International Small Companies Fund commenced operations on January 1, 1997. Ivy
International Fund II and Ivy Pan-Europe Fund commenced operations on May 13,
1997. Ivy European Opportunities Fund will commence operations (all classes) as
of the date of this SAI. Advisor Class shares of all Funds except Ivy European
Opportunities Fund were first offered on January 1, 1998.
Descriptions in this SAI of a particular investment practice or technique
in which any Fund may engage or a financial instrument which any Fund may
purchase are meant to describe the spectrum of investments that IMI, in its
discretion, might, but is not required to, use in managing each Fund's portfolio
assets. IMI may, in its discretion, at any time employ such practice, technique
or instrument for one or more funds but not for all funds advised by it.
Furthermore, it is possible that certain types of financial instruments or
investment techniques described herein may not be available, permissible,
economically feasible or effective for their intended purposes in some or all
markets, in which case a Fund would not use them. Certain practices, techniques,
or instruments may not be principal activities of a Fund but, to the extent
employed, could from time to time have a material impact on that Fund's
performance.
INVESTMENT OBJECTIVES, STRATEGIES AND RISKS
Each Fund has its own investment objectives and policies, which are
described in the Prospectus under the captions "Summary" and "Additional
Information About Strategies and Risks." Descriptions of each Fund's policies,
strategies and investment restrictions, as well as additional information
regarding the characteristics and risks associated with each
Fund's investment techniques, are set forth below.
Whenever an investment objective, policy or restriction set forth in the
Prospectus or this SAI states a maximum percentage of assets that may be
invested in any security or other asset or describes a policy regarding quality
standards, such percentage limitation or standard shall, unless otherwise
indicated, apply to the Fund only at the time a transaction is entered into.
Accordingly, if a percentage limitation is adhered to at the time of investment,
a later increase or decrease in the percentage which results from circumstances
not involving any affirmative action by the Fund, such as a change in market
conditions or a change in the Fund's asset level or other circumstances beyond
the Fund's control, will not be considered a violation.
IVY EUROPEAN OPPORTUNITIES FUND
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.
These may include securities issued pursuant to initial public offerings
("IPOs"). The Fund may engage in short-term trading. 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 Services ("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 in accordance with the provisions of the 1940
Act. The Fund may also invest in other investment companies in accordance with
the provisions of the 1940 Act, and may invest up to 15% of its net assets in
illiquid securities.
For hedging purposes, 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 may also write or buy straddles or spreads.
INVESTMENT RESTRICTIONS FOR IVY EUROPEAN OPPORTUNITIES FUND
Ivy European Opportunities 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. The Fund has adopted the following
fundamental investment restrictions:
(i) The Fund has elected to be classified as a diversified series
of an open-end investment company.
(ii) The Fund will not borrow money, except as permitted under the
Investment Company Act of 1940, as amended, and as interpreted
or modified by regulatory authority having jurisdiction, from
time to time.
(iii) The Fund will not issue senior securities, except as permitted
under the Investment Company Act of 1940, as amended, and as
interpreted or modified by regulatory authority having
jurisdiction, from time to time.
(iv) The Fund will not engage in the business of underwriting
securities issued by others, except to the extent that the
Fund may be deemed to be an underwriter in connection with the
disposition of portfolio securities.
(v) The Fund will not purchase or sell real estate (which term
does not include securities of companies that deal in real
estate or mortgages or investments secured by real estate or
interests therein), except that the Fund may hold and sell
real estate acquired as a result of the Fund's ownership of
securities.
(vi) The Fund will not purchase physical commodities or contracts
relating to physical commodities, although the Fund may invest
in commodities futures contracts and options thereon to the
extent permitted by the Prospectus and this SAI.
(vii) The Fund will not make loans to other persons, except (a)
loans of portfolio securities, and (b) to the extent that
entry into repurchase agreements and the purchase of debt
instruments or interests in indebtedness in accordance with
the Fund's investment objective and policies may be deemed to
be loans.
(viii) The Fund will not concentrate its investments in a particular
industry, as the term "concentrate" is interpreted in
connection with the Investment Company Act of 1940, as
amended, and as interpreted or modified by regulatory
authority having jurisdiction, from time to time.
ADDITIONAL RESTRICTIONS
Ivy European Opportunities 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";
(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;
(vi) 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;
(vii) make investments in securities for the purpose of exercising control
over or management of the issuer; or
(viii) invest in interests in oil, gas and/or mineral exploration or
development programs (other than securities of companies that invest
in or sponsor such programs).
IVY GLOBAL FUND
Ivy Global Fund seeks long-term capital growth through a flexible policy
of investing in stocks and debt obligations of companies and governments of any
nation. Any income realized will be incidental. Under normal conditions, the
Fund will invest at least 65% of its total assets in the common stock of
companies throughout the world, with at least three different countries (one of
which may be the United States) represented in the Fund's overall portfolio
holdings. Although the Fund generally invests in common stock, it may also
invest in preferred stock, sponsored or unsponsored ADRs, GDRs, ADSs and GDSs,
and investment-grade debt securities (i.e., those rated Baa or higher by Moody's
or BBB or higher by S&P, or if unrated, considered by IMI to be of comparable
quality), including corporate bonds, notes, debentures, convertible bonds and
zero coupon bonds.
The Fund may invest less than 35% of its net assets in debt securities
rated Ba or below by Moody's or BB or below by S&P, or if unrated, considered by
IMI to be of comparable quality (commonly referred to as "high yield" or "junk"
bonds). The Fund will not invest in debt securities rated less than C by either
Moody's or S&P.
The Fund may invest in equity real estate investment trusts, warrants, and
securities issued on a "when-issued" or firm commitment basis, and may engage in
foreign currency exchange transactions and enter into forward foreign currency
contracts. The Fund may also invest in other investment companies in accordance
with the provisions of the 1940 Act, and may invest up to 15% of its net assets
in illiquid securities. The Fund may not invest more than 5% of its total assets
in restricted securities.
For temporary defensive purposes and during periods when IMI believes that
circumstances warrant, Ivy Global Fund may invest without limit in U.S.
Government securities, obligations issued by domestic or foreign banks
(including certificates of deposit, time deposits and bankers' acceptances), and
domestic or foreign commercial paper (which, if issued by a corporation, must be
rated Prime-1 by Moody's or A-1 by S&P, or if unrated has been issued by a
company that at the time of investment has an outstanding debt issue rated Aaa
or Aa by Moody's or AAA or AA by S&P). The Fund may also enter into repurchase
agreements, and, for temporary or emergency purposes, may borrow up to 10% of
the value of its total assets from banks.
The Fund may purchase put and call options on stock indices, provided the
premium paid for such options does not exceed 10% of the Fund's net assets. The
Fund may also sell covered put options with respect to up to 50% of the value of
its net assets, and may write covered call options so long as not more than 20%
of the Fund's net assets is subject to being purchased upon the exercise of the
calls. The Fund may also write and buy straddles and spreads. For hedging
purposes only, the Fund may engage in transactions in (and options on) stock
index and foreign currency futures contracts, provided that the Fund's
equivalent exposure in such contracts does not exceed 20% of its total assets.
INVESTMENT RESTRICTIONS FOR IVY GLOBAL FUND
Ivy Global Fund's investment objectives as set forth in the "Summary"
section of the Prospectus, together with the investment restrictions set forth
below, are fundamental policies of the Fund and may not be changed without the
approval of a majority of the outstanding voting shares of the Fund. The Fund
has adopted the following fundamental investment restrictions:
(i) The Fund has elected to be classified as a diversified series of an
open-end investment company.
(ii) The Fund will not borrow money, except as permitted under the
Investment Company Act of 1940, as amended, and as interpreted or
modified by regulatory authority having jurisdiction, from time to
time.
(iii) The Fund will not issue senior securities, except as permitted under
the Investment Company Act of 1940, as amended, and as interpreted or
modified by regulatory authority having jurisdiction, from time to
time.
(iv) The Fund will not engage in the business of underwriting securities
issued by others, except to the extent that the Fund may be deemed to
be an underwriter in connection with the disposition of portfolio
securities.
(v) The Fund will not purchase or sell real estate (which term does not
include securities of companies that deal in real estate or mortgages
or investments secured by real estate or interests therein), except
that the Fund may hold and sell real estate acquired as a result of
the Fund's ownership of securities.
(vi) The Fund will not purchase physical commodities or contracts relating
to physical commodities, although the Fund may invest in commodities
futures contracts and options thereon to the extent permitted by its
Prospectus.
(vii) The Fund will not make loans to other persons, except (a) loans of
portfolio securities, and (b) to the extent that entry into repurchase
agreements and the purchase of debt instruments or interests in
indebtedness in accordance with the Fund's investment objective and
policies may be deemed to be loans.
(viii) The Fund will not concentrate its investments in a particular
industry, as the term "concentrate" is interpreted in connection with
the Investment Company Act of 1940, as amended, and as interpreted or
modified by regulatory authority having jurisdiction, from time to
time.
ADDITIONAL RESTRICTIONS
Ivy Global Fund has adopted the following additional restrictions, which
are not fundamental and which may be changed without shareholder approval, to
the extent permitted by applicable law, regulation or regulatory policy.
Under these restrictions, the Fund may not:
(i) purchase or sell real estate limited partnership interests;
(ii) purchase or sell interests in oil, gas or mineral leases (other than
securities of companies that invest in or sponsor such programs);
(iii) invest in oil, gas and/or mineral exploration or development programs;
(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 investments in securities for the purpose of exercising control
over or management of the issuer;
(vi) participate on a joint or a joint and several basis in any trading
account in securities. The "bunching" of orders of the Fund and of
other accounts under the investment management of the Manager for the
sale or purchase of portfolio securities shall not be considered
participation in a joint securities trading account;
(vii) borrow amounts in excess of 10% of its total assets, taken at the
lower of .. cost or market value, and then only from banks as a
temporary measure for extraordinary or emergency purposes. All
borrowings will be repaid ` before any additional investments are
made;
(viii) purchase any security if, as a result, the Fund would then have more
than 5% of its total assets (taken at current value) invested in
securities restricted as to disposition under the Federal securities
laws; or
(ix) purchase securities of another investment company, except in
connection with a merger, consolidation, reorganization or acquisition
of assets, and except that the Fund may invest in securities of other
investment companies subject to the restrictions in Section 12(d)(1)
of the Investment Company Act of 1940 (the "1940 Act").
The Fund does not interpret fundamental restriction (v) to prohibit
investment in real estate investment trusts.
IVY GLOBAL NATURAL RESOURCES FUND
Ivy Global Natural Resources Fund's investment objective is long-term
growth. Any income realized will be incidental. Under normal conditions, the
Fund invests at least 65% of its total assets in the equity securities of
companies throughout the world that own, explore or develop natural resources
and other basic commodities, or supply goods and services to such companies.
Under this investment policy, at least three different countries (one of which
may be the United States) will be represented in the Fund's overall portfolio
holdings. "Natural resources" generally include precious metals (such as gold,
silver and platinum), ferrous and nonferrous metals (such as iron, aluminum and
copper), strategic metals (such as uranium and titanium), coal, oil, natural
gases, timber, undeveloped real property and agricultural commodities. Although
the Fund generally invests in common stock, it may also invest in preferred
stock, securities convertible into common stock and sponsored or unsponsored
ADRs, GDRs, ADSs and GDSs. The Fund may also invest directly in precious metals
and other physical commodities. In selecting the Fund's investments, MFC will
seek to identify securities of companies that, in MFC's opinion, appear to be
undervalued relative to the value of the companies' natural resource holdings.
MFC believes that certain political and economic changes in the global
environment in recent years have had and will continue to have a profound effect
on global supply and demand of natural resources, and that rising demand from
developing markets and new sources of supply should create attractive investment
opportunities. In selecting the Fund's investments, MFC will seek to identify
securities of companies that, in MFC's opinion, appear to be undervalued
relative to the value of the companies' natural resource holdings.
For temporary defensive purposes, Ivy Global Natural Resources Fund may
invest without limit in cash or cash equivalents, such as bank obligations
(including certificates of deposit and bankers' acceptances), commercial paper,
short-term notes and repurchase agreements. For temporary or emergency purposes,
the Fund may borrow from banks in accordance with the provisions of the 1940
Act, but may not purchase securities at any time during which the value of the
Fund's outstanding loans exceeds 10% of the value of the Fund's total assets.
The Fund may engage in foreign currency exchange transactions and enter into
forward foreign currency contracts. The Fund may also invest in other investment
companies in accordance with the provisions of the 1940 Act, and may invest up
to 15% of its net assets in illiquid securities.
For hedging purposes only, the Fund may engage in transactions in (and
options on) foreign currency futures contracts, provided that the Fund's
equivalent exposure in such contracts does not exceed 15% of its total assets.
The Fund may also write or buy puts, calls, straddles or spreads.
INVESTMENT RESTRICTIONS FOR IVY GLOBAL NATURAL RESOURCES FUND
Ivy Global Natural Resources Fund's investment objectives as set forth in
the "Summary" section of the Prospectus, together with the investment
restrictions set forth below, are fundamental policies of the Fund and may not
be changed without the approval of a majority of the outstanding voting shares
of the Fund. The Fund has adopted the following fundamental investment
restrictions:
(i) The Fund has elected to be classified as a diversified series of an
open-end investment company.
(ii) The Fund will not borrow money, except as permitted under the
Investment Company Act of 1940, as amended, and as interpreted or
modified by regulatory authority having jurisdiction, from time to
time.
(iii) The Fund will not issue senior securities, except as permitted under
the Investment Company Act of 1940, as amended, and as interpreted or
modified by regulatory authority having jurisdiction, from time to
time.
(iv) The Fund will not engage in the business of underwriting securities
issued by others, except to the extent that the Fund may be deemed to
be an underwriter in connection with the disposition of portfolio
securities.
(v) The Fund will not purchase or sell real estate (which term does not
include securities of companies that deal in real estate or mortgages
or investments secured by real estate or interests therein), except
that the Fund may hold and sell real estate acquired as a result of
the Fund's ownership of securities.
(vi) The Fund will not purchase physical commodities or contracts relating
to physical commodities, although the Fund may invest in (a)
commodities futures contracts and options thereon to the extent
permitted by the Prospectus and this SAI and (b) commodities relating
to natural resources, as described in the Prospectus and this SAI.
(vii) The Fund will not make loans to other persons, except (a) loans of
portfolio securities, and (b) to the extent that entry into repurchase
agreements and the purchase of debt instruments or interests in
indebtedness in accordance with the Fund's investment objective and
policies may be deemed to be loans.
(viii) The Fund will not concentrate its investments in a particular
industry, as the term "concentrate" is interpreted in connection with
the Investment Company Act of 1940, as amended, and as interpreted or
modified by regulatory authority having jurisdiction, from time to
time.
ADDITIONAL RESTRICTIONS
Ivy Global Natural Resources 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 IMI's
opinion, subject to the Board's supervision, may be deemed illiquid,
but shall not include any instrument that, due to the existence of a
trading market, to the Fund's compliance with certain conditions
intended to provide liquidity, or to other factors, is liquid;
(ii) purchase securities of other investment companies, except in
connection with a merger, consolidation or sale of assets, and except
that it may purchase shares of other investment companies subject to
such restrictions as may be imposed by the 1940 Act and rules
thereunder;
(iii) purchase or sell interests in oil, gas or mineral leases (other than
securities of companies that invest in or sponsor such programs);
(iv) invest in interests in oil, gas and/or mineral exploration or
development programs;
(v) sell securities short, except for short sales "against the box;"
(vi) borrow money, except for temporary or emergency purposes. The Fund may
not purchase securities at any time during which the value of the
Fund's outstanding loans exceeds 10% of the value of the Fund" total
assets;
(vii) participate on a joint or a joint and several basis in any trading
account in securities. The "bunching" of orders of the Fund and of
other accounts under the investment management of the Fund's
investment adviser for the sale or purchase of portfolio securities
shall not be considered participation in a joint securities trading
account;
(viii) 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; or
(ix) make investments in securities for the purpose of exercising control
over or management of the issuer.
Under the 1940 Act, the Fund is permitted, subject to its investment
restrictions, to borrow money only from banks. The Trust has no current
intention of borrowing amounts in excess of 5% of the Fund's assets. The Fund
will continue to interpret fundamental investment restriction (v) above to
prohibit investment in real estate limited partnership interests; this
restriction shall not, however, prohibit investment in readily marketable
securities of companies that invest in real estate or interests therein,
including real estate investment trusts.
IVY GLOBAL SCIENCE & TECHNOLOGY FUND
Ivy Global Science & Technology Fund's principal investment objective is
long-term capital growth. Any income realized will be incidental. Under normal
conditions, the Fund will invest at least 65% of its total assets in the common
stock of companies that are expected to benefit from the development,
advancement and use of science and technology. Under this investment policy, at
least three different countries (one of which may be the United States) will be
represented in the Fund's overall portfolio holdings. Industries likely to be
represented in the Fund's portfolio include computers and peripheral products,
software, electronic components and systems, telecommunications, media and
information services, pharmaceuticals, hospital supply and medical devices,
biotechnology, environmental services, chemicals and synthetic materials, and
defense and aerospace. The Fund may also invest in companies that are expected
to benefit indirectly from the commercialization of technological and scientific
advances. In recent years, rapid advances in these industries have stimulated
unprecedented growth. While this is no guarantee of future performance, IMI
believes that these industries offer substantial opportunities for long-term
capital appreciation. Investments made by the Fund may include securities issued
pursuant to IPOs. The Fund may also engage in short-term trading.
Although the Fund generally invests in common stock, it may also invest in
preferred stock, securities convertible into common stock, sponsored or
unsponsored ADRs, GDRs, ADSs and GDSs and investment-grade debt securities
(i.e., those rated Baa or higher by Moody's or BBB or higher by S&P, or if
unrated, considered by IMI to be of comparable quality), including corporate
bonds, notes, debentures, convertible bonds and zero coupon bonds. The fund may
also invest up to 5% of its net assets in debt securities that are rated Ba or
below by Moody's or BB or below by S&P, or if unrated, are considered by IMI to
be of comparable quality (commonly referred to as "high yield" or "junk" bonds).
The Fund will not invest in debt securities rated less than C by either Moody's
or S&P.
The Fund may invest in warrants, purchase securities on a "when-issued" or
firm commitment basis, engage in foreign currency exchange transactions and
enter into forward foreign currency contracts. The Fund may also invest (i) in
other investment companies in accordance with the provisions of the 1940 Act and
(ii) up to 15% of its net assets in illiquid securities.
For temporary defensive purposes and during periods when IMI believes that
circumstances warrant, Ivy Global Science & Technology Fund may invest without
limit in U.S. Government securities, obligations issued by domestic or foreign
banks (including certificates of deposit, time deposits and bankers'
acceptances), and domestic or foreign commercial paper (which, if issued by a
corporation, must be rated Prime-1 by Moody's or A-1 by S&P, or if unrated has
been issued by a company that at the time of investment has an outstanding debt
issue rated Aaa or Aa by Moody's or AAA or AA by S&P). The Fund may also enter
into repurchase agreements, and, for temporary or emergency purposes, may borrow
up to 10% of the value of its total assets from banks.
The Fund may purchase put and call options on stock indices and on
individual securities, provided the premium paid for such options does not
exceed 10% of the value of the Fund's net assets. The Fund may also sell covered
put options with respect to up to 50% of the value of its net assets, and may
write covered call options so long as not more than 20% of the Fund's net assets
is subject to being purchased upon the exercise of the calls. For hedging
purposes only, the Fund may engage in transactions in (and options on) stock
index and foreign currency futures contracts, provided that the Fund's
equivalent exposure in such contracts does not exceed 20% of the value of its
total assets.
INVESTMENT RESTRICTIONS FOR IVY GLOBAL SCIENCE & TECHNOLOGY FUND
Ivy Global Science & Technology Fund's investment objective, as set forth
in the "Summary" section of the Prospectus, and the investment restrictions set
forth below are fundamental policies of the Fund and may not be changed without
the approval of a majority (as defined in the 1940 Act) of the Fund's
outstanding voting shares. The Fund has adopted the following fundamental
investment restrictions:
(i) The Fund has elected to be classified as a diversified series
of an open-end investment company.
(ii) The Fund will not borrow money, except as permitted under the
Investment Company Act of 1940, as amended, and as interpreted
or modified by regulatory authority having jurisdiction, from
time to time.
(iii) The Fund will not issue senior securities, except as permitted
under the Investment Company Act of 1940, as amended, and as
interpreted or modified by regulatory authority having
jurisdiction, from time to time.
(iv) The Fund will not engage in the business of underwriting
securities issued by others, except to the extent that the
Fund may be deemed to be an underwriter in connection with the
disposition of portfolio securities.
(v) The Fund will not purchase or sell real estate (which term
does not include securities of companies that deal in real
estate or mortgages or investments secured by real estate or
interests therein), except that the Fund may hold and sell
real estate acquired as a result of the Fund's ownership of
securities.
(vi) The Fund will not purchase physical commodities or contracts
relating to physical commodities, although the Fund may invest
in commodities futures contracts and options thereon to the
extent permitted by the Prospectus and this SAI.
(vii) The Fund will not make loans to other persons, except (a)
loans of portfolio securities, and (b) to the extent that
entry into repurchase agreements and the purchase of debt
instruments or interests in indebtedness in accordance with
the Fund's investment objective and policies may be deemed to
be loans.
(viii) The Fund will not concentrate its investments in a particular
industry, as the term "concentrate" is interpreted in
connection with the Investment Company Act of 1940, as
amended, and as interpreted or modified by regulatory
authority having jurisdiction, from time to time.
ADDITIONAL RESTRICTIONS
Ivy Global Science & Technology Fund has adopted the following additional
restrictions, which are not fundamental and which may be changed without
shareholder approval to the extent permitted by applicable law, regulation or
regulatory policy. Under these restrictions, the Fund may not:
(i) invest in oil, gas or other mineral leases or exploration or
development programs;
(ii) invest in companies for the purpose of exercising control or
management;
(iii) invest more than 5% of its total assets in warrants, valued at the
lower of cost or market, or more than 2% of its total assets in
warrants, so valued, which are not listed on either the New York or
American Stock Exchanges;
(iv) invest more than 15% of its net assets taken at market value at the
time of investment in "illiquid securities." Illiquid securities may
include securities subject to legal or contractual restrictions on
resale (including private placements), repurchase agreements maturing
in more than seven days, certain options traded over the counter that
the Fund has purchased, securities being used to cover certain options
that a Fund has written, securities for which market quotations are
not readily available, or other securities which legally or in IMI's
opinion, subject to the Board's supervision, may be deemed illiquid,
but shall not include any instrument that, due to the existence of a
trading market, to the Fund's compliance with certain conditions
intended to provide liquidity, or to other factors, is liquid;
(v) borrow amounts in excess of 10% of its total assets, taken at the
lower of cost or market value, and then only from banks as a temporary
measure for emergency purposes.
(vi) purchase securities on margin;
(vii) sell securities short, except for short sales "against the box"; or
(viii) purchase from or sell to any of its officers or trustees, or firms
of which any of them are members or which they control, any securities
(other than capital stock of the Fund), but such persons or firms may
act as brokers for the Fund for customary commissions to the extent
permitted by the 1940 Act.
Under the 1940 Act, the Fund is permitted, subject to the above investment
restrictions, to borrow money only from banks. The Trust has no current
intention of borrowing amounts in excess of 5% of the Fund's assets. The Fund
will continue to interpret fundamental investment restriction (v) to prohibit
investment in real estate limited partnership interests; this restriction shall
not, however, prohibit investment readily marketable securities of companies
that invest in real estate or interests therein, including real estate
investment trusts.
IVY INTERNATIONAL FUND II
Ivy International Fund II's principal objective is long-term capital
growth primarily through investment in equity securities. Consideration of
current income is secondary to this principal objective. It is anticipated that
at least 65% of the Fund's total assets will be invested in common stocks (and
securities convertible into common stocks) principally traded in European,
Pacific Basin and Latin American markets. Under this investment policy, at least
three different countries (other than the United States) will be represented in
the Fund's overall portfolio holdings. For temporary defensive purposes, the
Fund may also invest in equity securities principally traded in U.S. markets.
IMI, the Fund's investment manager, invests the Fund's assets in a variety of
economic sectors, industry segments and individual securities in order to reduce
the effects of price volatility in any one area and to enable shareholders to
participate in markets that do not necessarily move in concert with U.S.
markets. IMI seeks to identify rapidly expanding foreign economies, and then
searches out growing industries and corporations, focusing on companies with
established records. Individual securities are selected based on value
indicators, such as a low price-earnings ratio, and are reviewed for fundamental
financial strength. Companies in which investments are made will generally have
at least $1 billion in capitalization and a solid history of operations.
When economic or market conditions warrants, the Fund may invest without
limit in U.S. Government securities, investment-grade debt securities (i.e.,
those rated Baa or higher by Moody's or BBB or higher by S&P, or if unrated,
considered by IMI to be of comparable quality), preferred stocks, sponsored or
unsponsored ADRs, GDRs, ADSs and GDSs, warrants, or cash or cash equivalents
such as bank obligations (including certificates of deposit and bankers'
acceptances), commercial paper, short-term notes and repurchase agreements. For
temporary or emergency purposes, the Fund may borrow up to 10% of the value of
its total assets from banks. The Fund may also purchase securities on a
"when-issued" or firm commitment basis, and may engage in foreign currency
exchange transactions and enter into forward foreign currency contracts. The
Fund may also invest up to 10% of its total assets in other investment companies
and up to 15% of its net assets in illiquid securities.
The Fund may purchase put and call options on securities and stock
indices, provided the premium paid for such options does not exceed 5% of the
Fund's net assets. The Fund may also sell covered put options with respect to up
to 10% of the value of its net assets, and may write covered call options so
long as not more than 25% of the Fund's net assets is subject to being purchased
upon the exercise of the calls. For hedging purposes only, the Fund may engage
in transactions in (and options on) stock index and foreign currency futures
contracts, provided that the Fund's equivalent exposure in such contracts does
not exceed 15% of its total assets.
INVESTMENT RESTRICTIONS FOR
IVY INTERNATIONAL FUND II
Ivy International Fund II's investment objectives as set forth in the
"Summary" section of the Prospectus, together with the investment restrictions
set forth below, are fundamental policies of the Fund and may not be changed
without the approval of a majority of the outstanding voting shares of the Fund.
Under these restrictions, the Fund may not:
(i) make an investment in securities of companies in any one industry
(except obligation of domestic banks or the U.S. Government, its
agencies, authorities, or instrumentalities) if such investment would
cause investments in such industry to exceed 25% of the market value
of the Fund's total assets at the time of such investment;
(ii) issue senior securities, except as appropriate to evidence
indebtedness which it is permitted to incur, and except to the extent
that shares of the separate classes or series of the Trust may be
deemed to be senior securities; provided that collateral arrangements
with respect to currency-related contracts, futures contracts, options
or other permitted investments, including deposits of initial and
variation margin, are not considered to be the issuance of senior
securities for purposes of this restriction;
(iii) participate in an underwriting or selling group in connection with the
public distribution of securities except for its own capital stock;
(iv) purchase from or sell to any of its officers or trustees, or firms of
which any of them are members or which they control, any securities
(other than capital stock of the Fund), but such persons or firms may
act as brokers for the Fund for customary commissions to the extent
permitted by the Investment Company Act of 1940;
(v) purchase securities on margin, except such short-term credits as are
necessary for the clearance of transactions, but the Fund may make
margin deposits in connection with transactions in options, futures
and options on futures;
(vi) make loans, except this restriction shall not prohibit (a) the
purchase and holding of a portion of an issue of publicly distributed
debt securities, (b) the entry into repurchase agreements with banks
or broker-dealers, or (c) the lending of the Fund's portfolio
securities in accordance with applicable guidelines established by the
Securities and Exchange Commission (the "SEC") and any guidelines
established by the Trust's Trustees;
(vii) borrow money, except as a temporary measure for extraordinary or
emergency purposes, and provided that the Fund maintains assets
coverage of 300% for all borrowings;
(viii) invest more than 5% of the value of its total assets in the securities
of any one issuer (except obligations of domestic banks or the U.S.
Government, its agencies, authorities and instrumentalities);
(ix) purchase the securities of any other open-end investment company,
except as part of a plan of merger or consolidations; or
(x) purchase or sell real estate or commodities and commodity contracts.
Ivy International Fund II will continue to interpret fundamental
investment restriction (x) above to prohibit investment in real estate limited
partnership interests; this restriction shall not, however, prohibit investment
in readily marketable securities of companies that invest in real estate or
interests therein, including real estate investment trusts.
Under the Investment Company Act of 1940, the Fund is permitted, subject
to its investment restrictions, to borrow money only from banks. The Trust has
no current intention of borrowing amounts in excess of 5% of the Fund's assets.
ADDITIONAL RESTRICTIONS
Ivy International Fund II has adopted the following additional
restrictions, which are not fundamental and which may be changed without
shareholder approval, to the extent permitted by applicable law, regulation or
regulatory policy.
Under these restrictions, the Fund may not:
(i) invest in oil, gas or other mineral leases or exploration or
development programs;
(ii) invest in companies for the purpose of exercising control of
management;
(iii) invest more than 5% of its total assets in warrants, valued at the
lower of cost or market, or more than 2% of its total assets in
warrants, so valued, which are not listed on either the New York or
American Stock Exchanges; or
(iv) sell securities short, except for short sales, "against the box."
IVY INTERNATIONAL SMALL COMPANIES FUND
Ivy International Small Companies Fund's principal investment objective is
long-term growth primarily through investment in foreign equity securities.
Consideration of current income is secondary to this principal objective. Under
normal circumstances the Fund invests at least 65% of its total assets in common
and preferred stocks (and securities convertible into common stocks) of foreign
issuers having total market capitalization of less than $1 billion. Under this
investment policy, at least three different countries (other than the United
States) will be represented in the Fund's overall portfolio holdings. For
temporary defensive purposes, the Fund may also invest in equity securities
principally traded in the United States. The Fund will invest its assets in a
variety of economic sectors, industry segments and individual securities in
order to reduce the effects of price volatility in any area and to enable
shareholders to participate in markets that do not necessarily move in concert
with the U.S. market. The factors that IMI considers in determining the
appropriate distribution of investments among various countries and regions
include prospects for relative economic growth, expected levels of inflation,
government policies influencing business conditions and the outlook for currency
relationships.
In selecting the Fund's investments, IMI will seek to identify securities
that are attractively priced relative to their intrinsic value. The intrinsic
value of a particular security is analyzed by reference to characteristics such
as relative price-earnings ratio, dividend yield and other relevant factors
(such as applicable financial, tax, social and political conditions).
When economic or market conditions warrant, the Fund may invest without
limit in U.S. Government securities, investment-grade debt securities, zero
coupon bonds, preferred stocks, warrants, or cash or cash equivalents such as
bank obligations (including certificates of deposit and bankers' acceptances),
commercial paper, short-term notes and repurchase agreements. The Fund may also
invest up to 5% of its net assets in debt securities rated Ba or below by
Moody's or BB or below by S&P, or if unrated, are considered by IMI to be of
comparable quality (commonly referred to as "high yield" or "junk" bonds). The
Fund will not invest in debt securities rated less than C by either Moody's or
S&P.
For temporary or emergency purposes, Ivy International Small Companies
Fund may borrow from banks in accordance with the provisions of the 1940 Act,
but may not purchase securities at any time during which the value of the Fund's
outstanding loans exceeds 10% of the value of the Fund's assets. The Fund may
engage in foreign currency exchange transactions and enter into forward foreign
currency contracts. The Fund may also invest in other investment companies in
accordance with the provisions of the 1940 Act, and may invest up to 15% of its
net assets in illiquid securities.
The Fund may purchase put and call options on securities and stock
indices, provided the premium paid for such options does not exceed 5% of the
Fund's net assets. The Fund may also sell covered put options with respect to up
to 10% of the value of its net assets, and may write covered call options so
long as not more than 25% of the Fund's net assets is subject to being purchased
upon the exercise of the calls. For hedging purposes only, the Fund may engage
in transactions in stock index and foreign currency futures contracts, provided
that the Fund's equivalent exposure in such contracts does not exceed 15% of its
total assets. The Fund may also write or buy straddles or spreads.
INVESTMENT RESTRICTIONS FOR IVY INTERNATIONAL SMALL COMPANIES FUND
Ivy International Small Companies Fund's investment objectives as set
forth in the "Summary" section of the Prospectus, together with the investment
restrictions set forth below, are fundamental policies of the Fund and may not
be changed without the approval of a majority of the outstanding voting shares
of the Fund. The Fund has adopted the following fundamental investment
restrictions:
(i) The Fund has elected to be classified as a diversified series of an
open-end investment company.
(ii) The Fund will not borrow money, except as permitted under the
Investment Company Act of 1940, as amended, and as interpreted or
modified by regulatory authority having jurisdiction, from time to
time.
(iii) The Fund will not issue senior securities, except as permitted under
the Investment Company Act of 1940, as amended, and as interpreted or
modified by regulatory authority having jurisdiction, from time to
time.
(iv) The Fund will not engage in the business of underwriting securities
issued by others, except to the extent that the Fund may be deemed to
be an underwriter in connection with the disposition of portfolio
securities.
(v) The Fund will not purchase or sell real estate (which term does not
include . securities of companies that deal in real estate or
mortgages or investments secured by real estate or interests therein),
except that the Fund may hold and sell real estate acquired as a
result of the Fund's ownership of securities.
(vi) The Fund will not purchase physical commodities or contracts relating
to physical commodities, although the Fund may invest in commodities
futures contracts and options thereon to the extent permitted by the
Prospectus and this SAI.
(vii) The Fund will not make loans to other persons, except (a) loans of
portfolio securities, and (b) to the extent that entry into repurchase
agreements and the purchase of debt instruments or interests in
indebtedness in accordance with the Fund's investment objective and
policies may be deemed to be loans.
(viii) The Fund will not concentrate its investments in a particular
industry, as the term "concentrate" is interpreted in connection with
the Investment Company Act of 1940, as amended, and as interpreted or
modified by regulatory authority having jurisdiction, from time to
time.
ADDITIONAL RESTRICTIONS
Ivy International Small Companies Fund has adopted the following
additional restrictions, which are not fundamental and which may be changed
without shareholder approval, to the extent permitted by applicable law,
regulation or regulatory policy.
Under these restrictions, the Fund may not:
(i) purchase or sell real estate limited partnership interests;
(ii) purchase or sell interests in oil, gas and mineral leases (other than
securities of companies that invest in or sponsor such programs);
(iii) invest in oil, gas and/or mineral exploration or development programs;
(iv) invest more than 15% of its net assets taken at market value at the
time of the investment in "illiquid securities." Illiquid securities
may include securities subject to legal or contractual restrictions on
resale (including private placements), repurchase agreements maturing
in more than seven days, certain options traded over the counter that
the Fund has purchased, securities being used to cover certain options
that the Fund has written, securities for which market quotations are
not readily available, or other securities which legally or in IMI's
opinion, subject to the Board's supervision, may be deemed illiquid,
but shall not include any instrument that, due to the existence of a
trading market, to the Fund's compliance with certain conditions
intended to provide liquidity, or to other factors, is liquid;
(v) borrow money, except for temporary or emergency purposes. The Fund may
not purchase securities at any time during which the value of the
Fund's outstanding loans exceeds 10% of the value of the Fund's total
assets;
(vi) purchase securities of other investment companies, except in
connection with a merger, consolidation or sale of assets, and except
that the Fund may purchase shares of other investment companies
subject to such restrictions as may be imposed by the 1940 Act and
rules thereunder;
(vii) sell securities short, except for short sales "against the box;"
(viii) participate on a joint or a joint and several basis in any trading
account in securities. The "bunching" of orders of the Fund and of
other accounts under the investment management of the Fund's
investment adviser for the sale or purchase of portfolio securities
shall not be considered participation in a joint securities trading
account;
(ix) make investments in securities for the purpose of exercising control
over or management of the issuer; or
(x) 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.
IVY PAN-EUROPE FUND
Ivy Pan-Europe Fund's principal investment objective is long-term capital
growth. Consideration of current income is secondary to this principal
objective. The Fund seeks to achieve its investment objective by investing
primarily in the equity securities of companies domiciled or otherwise doing
business (as described below) in European countries. Under normal circumstances,
the Fund will invest at least 65% of its total assets in the equity securities
of "European companies," which include any issuer (a) that is organized under
the laws of a European country; (b) that derives 50% or more of its total
revenues from goods produced or sold, investments made or services performed in
Europe; or (c) for which the principal trading market is in Europe. The Fund may
also invest up to 35% of its total assets in the equity securities of issuers
domiciled outside of Europe. The equity securities in which the Fund may invest
include common stock, preferred stock and common stock equivalents such as
warrants and convertible debt securities. The Fund may also invest in sponsored
or unsponsored ADRs, European Depository Receipts ("EDRs"), GDRs, ADSs, European
Depository Shares ("EDSs") and GDSs. As a fundamental policy, the Fund does not
concentrate its investments in any particular industry.
The Fund may invest up to 35% of its net assets in debt securities, but
will not invest more than 20% of its net assets in debt securities rated Ba or
below by Moody's or BB or below by S&P, or if unrated, considered by IMI to be
of comparable quality (commonly referred to as "high yield" or "junk" bonds).
The Fund will not invest in debt securities rated less than C by either Moody's
or S&P. The Fund may also purchase securities on a "when issued" or firm
commitment basis, engage in foreign currency exchange transactions and enter
into forward foreign currency contracts. In addition, the Fund may invest up to
5% of its net assets in zero coupon bonds.
For temporary defensive purposes or when IMI believes that circumstances
warrant, the Fund may invest without limit in U.S. Government securities,
investment-grade debt securities (i.e., those rated Baa or higher by Moody's or
BBB or higher by S&P, or if unrated, considered by IMI to be of comparable
quality), warrants, and cash or cash equivalents such as domestic or foreign
bank obligations (including certificates of deposit, time deposits and bankers'
acceptances), short-term notes, repurchase agreements, and domestic or foreign
commercial paper (which, if issued by a corporation, must be rated Prime-1 by
Moody's or A-1 by S&P, or if unrated has been issued by a company that at the
time of investment has an outstanding debt issue rated Aaa or Aa by Moody's or
AAA or AA by S&P).
For temporary or emergency purposes, Ivy Pan-Europe Fund may borrow from
banks in accordance with the provisions of the 1940 Act, but may not purchase
securities at any time during which the value of the Fund's outstanding loans
exceeds 10% of the value of the Fund's total assets. The Fund may also invest in
other investment companies in accordance with the provisions of the 1940 Act,
and may invest up to 15% of its net assets in illiquid securities.
The Fund may purchase put and call options on securities and stock
indices, provided the premium paid for such options does not exceed 5% of the
Fund's net assets. The Fund may also sell covered put options with respect to up
to 10% of the value of its net assets, and may write covered call options so
long as not more than 25% of the Fund's net assets is subject to being purchased
upon the exercise of the calls. For hedging purposes only, the Fund may engage
in transactions in (and options on) stock index and foreign currency futures
contracts, provided that the Fund's equivalent exposure in such contracts does
not exceed 15% of its total assets. The Fund may also write or buy straddles or
spreads.
INVESTMENT RESTRICTIONS FOR IVY PAN-EUROPE FUND
Ivy Pan-Europe Fund's investment objectives as set forth in the "Summary"
section of the Prospectus, together with the investment restrictions set forth
below, are fundamental policies of the Fund and may not be changed without the
approval of a majority of the outstanding voting shares of the Fund. The Fund
has adopted the following fundamental investment restrictions:
(i) The Fund has elected to be classified as a diversified series of an
open-end investment company.
(ii) The Fund will not borrow money, except as permitted under the
Investment Company Act of 1940, as amended, and as interpreted or
modified by regulatory authority having jurisdiction, from time to
time.
(iii) The Fund will not issue senior securities, except as permitted under
the Investment Company Act of 1940, as amended, and as interpreted or
modified by regulatory authority having jurisdiction, from time to
time.
(iv) The Fund will not engage in the business of underwriting securities
issued by others, except to the extent that the Fund may be deemed to
be an underwriter in connection with the disposition of portfolio
securities.
(v) The Fund will not purchase or sell real estate (which term does not
include . securities of companies that deal in real estate or
mortgages or investments secured by real estate or interests therein),
except that the Fund may hold and sell real estate acquired as a
result of the Fund's ownership of securities.
(vi) The Fund will not purchase physical commodities or contracts relating
to physical commodities, although the Fund may invest in commodities
futures contracts and options thereon to the extent permitted by the
Prospectus and this SAI.
(vii) The Fund will not make loans to other persons, except (a) loans of
portfolio securities, and (b) to the extent that entry into repurchase
agreements and the purchase of debt instruments or interests in
indebtedness in accordance with the Fund's investment objective and
policies may be deemed to be loans.
(viii) The Fund will not concentrate its investments in a particular
industry, as the term "concentrate" is interpreted in connection with
the Investment Company Act of 1940, as amended, and as interpreted or
modified by regulatory authority having jurisdiction, from time to
time.
ADDITIONAL RESTRICTIONS
Ivy Pan-Europe Fund has adopted the following additional restrictions,
which are not fundamental and which may be changed without shareholder approval,
to the extent permitted by applicable law, regulation or regulatory policy.
Under these restrictions, the Fund may not:
(i) purchase or sell real estate limited partnership interests;
(ii) purchase or sell interests in oil, gas and mineral leases (other than
securities of companies that invest in or sponsor such programs);
(iii) invest in oil, gas and/or mineral exploration or development programs;
(iv) invest more than 15% of its net assets taken at market value at the
time of the investment in "illiquid securities." Illiquid securities
may include securities subject to legal or contractual restrictions on
resale (including private placements), repurchase agreements maturing
in more than seven days, certain options traded over the counter that
the Fund has purchased, securities being used to cover certain options
that the Fund has written, securities for which market quotations are
not readily available, or other securities which legally or in IMI's
opinion, subject to the Board's supervision, may be deemed illiquid,
but shall not include any instrument that, due to the existence of a
trading market, to the Fund's compliance with certain conditions
intended to provide liquidity, or to other factors, is ............
liquid;
(v) borrow money, except for temporary or emergency purposes. The Fund
may not purchase securities at any time during which the value of
the Fund's outstanding loans exceeds 10% of the value of the
Fund's total assets;
(vi) 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;
(vii) sell securities short, except for short sales "against the box";
(viii) 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 IMI, for the sale or
purchase of portfolio securities shall not be considered participation
in a joint securities trading account;
(ix) make investments in securities for the purpose of exercising control
over or management of the issuer; or
(x) 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.
COMMON STOCKS
Common stock can be issued by companies to raise cash; all common stock
shares represent a proportionate ownership interest in a company. As a result,
the value of common stock rises and falls with a company's success or failure.
The market value of common stock can fluctuate significantly, with smaller
companies being particularly susceptible to price swings. Transaction costs in
smaller company stocks may also be higher than those of larger companies.
CONVERTIBLE SECURITIES
The convertible securities in which each Fund may invest include corporate
bonds, notes, debentures, preferred stock and other securities that may be
converted or exchanged at a stated or determinable exchange ratio into
underlying shares of common stock. Investments in convertible securities can
provide income through interest and dividend payments as well as an opportunity
for capital appreciation by virtue of their conversion or exchange features.
Because convertible securities can be converted into equity securities, their
values will normally vary in some proportion with those of the underlying equity
securities. Convertible securities usually provide a higher yield than the
underlying equity, however, so that the price decline of a convertible security
may sometimes be less substantial than that of the underlying equity security.
The exchange ratio for any particular convertible security may be adjusted from
time to time due to stock splits, dividends, spin-offs, other corporate
distributions or scheduled changes in the exchange ratio. Convertible debt
securities and convertible preferred stocks, until converted, have general
characteristics similar to both debt and equity securities. Although to a lesser
extent than with debt securities generally, the market value of convertible
securities tends to decline as interest rates increase and, conversely, tends to
increase as interest rates decline. In addition, because of the conversion or
exchange feature, the market value of convertible securities typically changes
as the market value of the underlying common stock changes, and, therefore, also
tends to follow movements in the general market for equity securities. When the
market price of the underlying common stock increases, the price of a
convertible security tends to rise as a reflection of the value of the
underlying common stock, although typically not as much as the price of the
underlying common stock. While no securities investments are without risk,
investments in convertible securities generally entail less risk than
investments in common stock of the same issuer.
As debt securities, convertible securities are investments that provide
for a stream of income. Like all debt securities, there can be no assurance of
income or principal payments because the issuers of the convertible securities
may default on their obligations. Convertible securities generally offer lower
yields than non-convertible securities of similar quality because of their
conversion or exchange features.
Convertible securities generally are subordinated to other similar but
non-convertible securities of the same issuer, although convertible bonds, as
corporate debt obligations, are senior in right of payment to all equity
securities, and convertible preferred stock is senior to common stock, of the
same issuer. However, convertible bonds and convertible preferred stock
typically have lower coupon rates than similar non-convertible securities.
Convertible securities may be issued as fixed income obligations that pay
current income.
SMALL COMPANIES
Investing in smaller company stocks involves certain special
considerations and risks that are not usually associated with investing in
larger, more established companies. For example, the securities of small or new
companies may be subject to more abrupt or erratic market movements because they
tend to be thinly traded and are subject to a greater degree to changes in the
issuer's earnings and prospects. Small companies also tend to have limited
product lines, markets or financial resources. Transaction costs in smaller
company stocks also may be higher than those of larger companies.
INITIAL PUBLIC OFFERINGS
Securities issued through an initial public offering (IPO) can experience
an immediate drop in value if the demand for the securities does not continue to
support the offering price. Information about the issuers of IPO securities is
also difficult to acquire since they are new to the market and may not have
lengthy operating histories. A Fund may engage in short-term trading in
connection with its IPO investments, which could produce higher trading costs
and adverse tax consequences. The number of securities issued in an IPO is
limited, so it is likely that IPO securities will represent a smaller component
of a Fund's portfolio as the Fund's assets increase (and thus have a more
limited effect on the Fund's performance).
NATURAL RESOURCES AND PHYSICAL COMMODITIES
Since Ivy Global Natural Resources Fund normally invests a substantial
portion of its assets in securities of companies engaged in natural resources
activities, that Fund may be subject to greater risks and market fluctuations
than funds with more diversified portfolios. The value of the Fund's securities
will fluctuate in response to market conditions generally, and will be
particularly sensitive to the markets for those natural resources in which a
particular issuer is involved. The values of natural resources may also
fluctuate directly with respect to real and perceived inflationary trends and
various political developments. In selecting the Fund's portfolio of
investments, MFC will consider each company's ability to create new products,
secure any necessary regulatory approvals, and generate sufficient customer
demand. A company's failure to perform well in any one of these areas, however,
could cause its stock to decline sharply.
Natural resource industries throughout the world may be subject to greater
political, environmental and other governmental regulation than many other
industries. Changes in governmental policies and the need for regulatory
approvals may have an adverse effect on the products and services of natural
resources companies. For example, the exploration, development and distribution
of coal, oil and gas in the United States are subject to significant Federal and
state regulation, which may affect rates of return on such investments and the
kinds of services that may be offered to companies in those industries. In
addition, many natural resource companies have been subject to significant costs
associated with compliance with environmental and other safety regulations. Such
regulations may also hamper the development of new technologies. The direction,
type or effect of any future regulations affecting natural resource industries
are virtually impossible to predict.
Ivy Global Natural Resources Fund's investments in precious metals (such
as gold) and other physical commodities are considered speculative and subject
to special risk considerations, including substantial price fluctuations over
short periods of time. On the other hand, investments in precious metals coins
or bullion could help to moderate fluctuations in the value of the Fund's
portfolio, since the prices of precious metals have at times tended not to
fluctuate as widely as shares of issuers engaged in the mining of precious
metals. Because precious metals and other commodities do not generate investment
income, however, the return on such investments will be derived solely from the
appreciation and depreciation on such investments. The Fund may also incur
storage and other costs relating to its investments in precious metals and other
commodities, which may, under certain circumstances, exceed custodial and
brokerage costs associated with investments in other types of securities. When
the Fund purchases a precious metal, MFC currently intends that it will only be
in a form that is readily marketable. Under current U.S. tax law, the Fund may
not receive more than 10% of its yearly income from gains resulting from selling
precious metals or any other physical commodity. Accordingly, the Fund may be
required to hold its precious metals or sell them at a loss, or to sell its
portfolio securities at a gain, when for investment reasons it would not
otherwise do so.
DEBT SECURITIES
IN GENERAL Investment in debt securities involves both interest rate and
credit risk. Generally, the value of debt instruments rises and falls inversely
with fluctuations in interest rates. As interest rates decline, the value of
debt securities generally increases. Conversely, rising interest rates tend to
cause the value of debt securities to decrease. Bonds with longer maturities
generally are more volatile than bonds with shorter maturities. The market value
of debt securities also varies according to the relative financial condition of
the issuer. In general, lower-quality bonds offer higher yields due to the
increased risk that the issuer will be unable to meet its obligations on
interest or principal payments at the time called for by the debt instrument.
INVESTMENT-GRADE DEBT SECURITIES. Bonds rated Aaa by Moody's Investors
Service, Inc. ("Moody's") and AAA by Standard & Poor's Ratings Group ("S&P") are
judged to be of the best quality (i.e., capacity to pay interest and repay
principal is extremely strong). Bonds rated Aa/AA are considered to be of high
quality (i.e., capacity to pay interest and repay principal is very strong and
differs from the highest rated issues only to a small degree). Bonds rated A are
viewed as having many favorable investment attributes, but elements may be
present that suggest a susceptibility to the adverse effects of changes in
circumstances and economic conditions than debt in higher rated categories.
Bonds rated Baa/BBB (considered by Moody's to be "medium grade" obligations) are
considered to have an adequate capacity to pay interest and repay principal, but
certain protective elements may be lacking (i.e., such bonds lack outstanding
investment characteristics and have some speculative characteristics). Each Fund
may invest in debt securities that are given an investment-grade rating by
Moody's or S&P, and may also invest in unrated debt securities that are
considered by IMI to be of comparable quality.
LOW-RATED DEBT SECURITIES. Securities rated lower than Baa by Moody's or
BBB by S&P, and comparable unrated securities (commonly referred to as "high
yield" or "junk" bonds), including many emerging markets bonds, are considered
to be predominantly speculative with respect to the issuer's continuing ability
to meet principal and interest payments. The lower the ratings of corporate debt
securities, the more their risks render them like equity securities. Such
securities carry a high degree of risk (including the possibility of default or
bankruptcy of the issuers of such securities), and generally involve greater
volatility of price and risk of principal and income (and may be less liquid)
than securities in the higher rating categories. (See Appendix A for a more
complete description of the ratings assigned by Moody's and S&P and their
respective characteristics.)
Lower rated and unrated securities are especially subject to adverse
changes in general economic conditions and to changes in the financial condition
of their issuers. Economic downturns may disrupt the high yield market and
impair the ability of issuers to repay principal and interest. Also, an increase
in interest rates would likely have an adverse impact on the value of such
obligations. During an economic downturn or period of rising interest rates,
highly leveraged issuers may experience financial stress which could adversely
affect their ability to service their principal and interest payment
obligations. Prices and yields of high yield securities will fluctuate over time
and, during periods of economic uncertainty, volatility of high yield securities
may adversely affect a Fund's net asset value. In addition, investments in high
yield zero coupon or pay-in-kind bonds, rather than income-bearing high yield
securities, may be more speculative and may be subject to greater fluctuations
in value due to changes in interest rates.
Changes in interest rates may have a less direct or dominant impact on
high yield bonds than on higher quality issues of similar maturities. However,
the price of high yield bonds can change significantly or suddenly due to a host
of factors including changes in interest rates, fundamental credit quality,
market psychology, government regulations, U.S. economic growth and, at times,
stock market activity. High yield bonds may contain redemption or call
provisions. If an issuer exercises these provisions in a declining interest rate
market, a Fund may have to replace the security with a lower yielding security.
The trading market for high yield securities may be thin to the extent
that there is no established retail secondary market or because of a decline in
the value of such securities. A thin trading market may limit the ability of
each Fund to accurately value high yield securities in the Fund's portfolio,
could adversely affect the price at which a Fund could sell such securities, and
cause large fluctuations in the daily net asset value of a Fund's shares.
Adverse publicity and investor perceptions, whether or not based on fundamental
analysis, may decrease the value and liquidity of low-rated debt securities,
especially in a thinly traded market. When secondary markets for high yield
securities become relatively less liquid, it may be more difficult to value the
securities, requiring additional research and elements of judgment. These
securities may also involve special registration responsibilities, liabilities
and costs, and liquidity and valuation difficulties.
Credit quality in the high yield securities market can change suddenly and
unexpectedly, and even recently issued credit ratings may not fully reflect the
actual risks posed by a particular high yield security. For these reasons, it is
the policy of IMI not to rely exclusively on ratings issued by established
credit rating agencies, but to supplement such ratings with its own independent
and on-going review of credit quality. The achievement of each Fund's investment
objectives by investment in such securities may be more dependent on IMI's
credit analysis than is the case for higher quality bonds. Should the rating of
a portfolio security be downgraded, IMI will determine whether it is in the best
interest of each Fund to retain or dispose of such security. However, should any
individual bond held by any Fund be downgraded below a rating of C, IMI
currently intends to dispose of such bond based on then existing market
conditions.
Prices for high yield securities may be affected by legislative and
regulatory developments. For example, Federal rules require savings and loan
institutions to gradually reduce their holdings of this type of security. Also,
Congress has from time to time considered legislation that would restrict or
eliminate the corporate tax deduction for interest payments in these securities
and regulate corporate restructurings. Such legislation may significantly
depress the prices of outstanding securities of this type.
U.S. GOVERNMENT SECURITIES. U.S. Government securities are obligations
of, or guaranteed by, the U.S. Government, its agencies or instrumentalities.
Securities guaranteed by the U.S. Government include: (1) direct obligations of
the U.S. Treasury (such as Treasury bills, notes, and bonds) and (2) Federal
agency obligations guaranteed as to principal and interest by the U.S. Treasury
(such as GNMA certificates, which are mortgage-backed securities). When such
securities are held to maturity, the payment of principal and interest is
unconditionally guaranteed by the U.S. Government, and thus they are of the
highest possible credit quality. U.S. Government securities that are not held to
maturity are subject to variations in market value due to fluctuations in
interest rates.
Mortgage-backed securities are securities representing part ownership of a
pool of mortgage loans. For example, GNMA certificates are such securities in
which the timely payment of principal and interest is guaranteed by the full
faith and credit of the U.S. Government. Although the mortgage loans in the pool
will have maturities of up to 30 years, the actual average life of the loans
typically will be substantially less because the mortgages will be subject to
principal amortization and may be prepaid prior to maturity. Prepayment rates
vary widely and may be affected by changes in market interest rates. In periods
of falling interest rates, the rate of prepayment tends to increase, thereby
shortening the actual average life of the security. Conversely, rising interest
rates tend to decrease the rate of prepayments, thereby lengthening the actual
average life of the security (and increasing the security's price volatility).
Accordingly, it is not possible to predict accurately the average life of a
particular pool. Reinvestment of prepayment may occur at higher or lower rates
than the original yield on the certificates. Due to the prepayment feature and
the need to reinvest prepayments of principal at current rates, mortgage-backed
securities can be less effective than typical bonds of similar maturities at
"locking in" yields during periods of declining interest rates, and may involve
significantly greater price and yield volatility than traditional debt
securities. Such securities may appreciate or decline in market value during
periods of declining or rising interest rates, respectively.
Securities issued by U.S. Government instrumentalities and certain Federal
agencies are neither direct obligations of nor guaranteed by the U.S. Treasury;
however, they involve Federal sponsorship in one way or another. Some are backed
by specific types of collateral, some are supported by the issuer's right to
borrow from the Treasury, some are supported by the discretionary authority of
the Treasury to purchase certain obligations of the issuer, others are supported
only by the credit of the issuing government agency or instrumentality. These
agencies and instrumentalities include, but are not limited to, Federal Land
Banks, Farmers Home Administration, Central Bank for Cooperatives, Federal
Intermediate Credit Banks, Federal Home Loan Banks, Federal National Mortgage
Association, Federal Home Loan Mortgage Association, and Student Loan Marketing
Association.
ZERO COUPON BONDS. Zero coupon bonds are debt obligations issued without
any requirement for the periodic payment of interest. Zero coupon bonds are
issued at a significant discount from face value. The discount approximates the
total amount of interest the bonds would accrue and compound over the period
until maturity at a rate of interest reflecting the market rate at the time of
issuance. If a 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 a 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 each Fund on a
current basis, but is in effect compounded, the value of the securities of this
type is subject to greater fluctuations in response to changing interest rates
than the value of debt obligations which distribute income regularly.
FIRM COMMITMENT AGREEMENTS AND "WHEN-ISSUED" SECURITIES. New issues of
certain debt securities are often offered on a "when-issued" basis, meaning the
payment obligation and the interest rate are fixed at the time the buyer enters
into the commitment, but delivery and payment for the securities normally take
place after the date of the commitment to purchase. Firm commitment agreements
call for the purchase of securities at an agreed-upon price on a specified
future date. The Fund uses such investment techniques in order to secure what is
considered to be an advantageous price and yield to the Fund and not for
purposes of leveraging the Fund's assets. In either instance, the Fund will
maintain in a segregated account with its Custodian cash or liquid securities
equal (on a daily marked-to-market basis) to the amount of its commitment to
purchase the underlying securities.
ILLIQUID SECURITIES
Each Fund may purchase securities other than in the open market. While
such purchases may often offer attractive opportunities for investment not
otherwise available on the open market, the securities so purchased are often
"restricted securities" or "not readily marketable" (i.e., they cannot be sold
to the public without registration under the Securities Act of 1933, as amended
(the "1933 Act"), or the availability of an exemption from registration (such as
Rule 144A) or because they are subject to other legal or contractual delays in
or restrictions on resale). This investment practice, therefore, could have the
effect of increasing the level of illiquidity of each Fund. It is each Fund's
policy that illiquid securities (including repurchase agreements of more than
seven days duration, certain restricted securities, and other securities which
are not readily marketable) may not constitute, at the time of purchase, more
than 15% of the value of the Fund's net assets. The Trust's Board of Trustees
has approved guidelines for use by IMI in determining whether a security is
illiquid.
Generally speaking, restricted securities may be sold (i) only to
qualified institutional buyers; (ii) in a privately negotiated transaction to a
limited number of purchasers; (iii) in limited quantities after they have been
held for a specified period of time and other conditions are met pursuant to an
exemption from registration; or (iv) in a public offering for which a
registration statement is in effect under the 1933 Act. Issuers of restricted
securities may not be subject to the disclosure and other investor protection
requirements that would be applicable if their securities were publicly traded.
If adverse market conditions were to develop during the period between a 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, a
Fund may be required to bear all or part of the registration expenses. Each Fund
may be deemed to be an "underwriter" for purposes of the 1933 Act when selling
restricted securities to the public and, in such event, the Fund may be liable
to purchasers of such securities if the registration statement prepared by the
issuer is materially inaccurate or misleading.
Since it is not possible to predict with assurance that the market for
securities eligible for resale under Rule 144A will continue to be liquid, IMI
will monitor such restricted securities subject to the supervision of the Board
of Trustees. Among the factors IMI may consider in reaching liquidity decisions
relating to Rule 144A securities are: (1) the frequency of trades and quotes for
the security; (2) the number of dealers wishing to purchase or sell the security
and the number of other potential purchasers; (3) dealer undertakings to make a
market in the security; and (4) the nature of the security and the nature of the
market for the security (i.e., the time needed to dispose of the security, the
method of soliciting offers, and the mechanics of the transfer).
FOREIGN SECURITIES
The securities of foreign issuers in which each Fund may invest include
non-U.S. dollar-denominated debt securities, Euro dollar securities, sponsored
and unsponsored American Depository Receipts ("ADRs"), Global Depository
Receipts ("GDRs") and related depository instruments, American Depository Shares
("ADSs"), Global Depository Shares ("GDSs"), and debt securities issued, assumed
or guaranteed by foreign governments or political subdivisions or
instrumentalities thereof. Shareholders should consider carefully the
substantial risks involved in investing in securities issued by companies and
governments of foreign nations, which are in addition to the usual risks
inherent in each Fund's domestic investments.
Although IMI intends to invest each Fund's assets only in nations that are
generally considered to have relatively stable and friendly governments, there
is the possibility of expropriation, nationalization, repatriation or
confiscatory taxation, taxation on income earned in a foreign country and other
foreign taxes, foreign exchange controls (which may include suspension of the
ability to transfer currency from a given country), default on foreign
government securities, political or social instability or diplomatic
developments which could affect investments in securities of issuers in those
nations. In addition, in many countries there is less publicly available
information about issuers than is available for U.S. companies. Moreover,
foreign companies are not generally subject to uniform accounting, auditing and
financial reporting standards, and auditing practices and requirements may not
be comparable to those applicable to U.S. companies. In many foreign countries,
there is less governmental supervision and regulation of business and industry
practices, stock exchanges, brokers, and listed companies than in the United
States. Foreign securities transactions may also be subject to higher brokerage
costs than domestic securities transactions. The foreign securities markets of
many of the countries in which each Fund may invest may also be smaller, less
liquid and subject to greater price volatility than those in the United States.
In addition, each Fund may encounter difficulties or be unable to pursue legal
remedies and obtain judgment in foreign courts.
Foreign bond markets have different clearance and settlement procedures
and in certain markets there have been times when settlements have been unable
to keep pace with the volume of securities transactions, making it difficult to
conduct such transactions. Delays in settlement could result in temporary
periods when assets of a Fund are uninvested and no return is earned thereon.
The inability of a 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 a Fund because of subsequent declines
in the value of the portfolio security or, if the Fund has entered into a
contract to sell the security, in possible liability to the purchaser. It may be
more difficult for each Fund's agents to keep currently informed about corporate
actions such as stock dividends or other matters that may affect the prices of
portfolio securities. Communications between the United States and foreign
countries may be less reliable than within the United States, thus increasing
the risk of delayed settlements of portfolio transactions or loss of
certificates for portfolio securities. Moreover, individual foreign economies
may differ favorably or unfavorably from the United States economy in such
respects as growth of gross national product, rate of inflation, capital
reinvestment, resource self-sufficiency and balance of payments position. IMI
seeks to mitigate the risks to each Fund associated with the foregoing
considerations through investment variation and continuous professional
management.
DEPOSITORY RECEIPTS
ADRs, GDRs, ADSs, GDSs and related securities are depository instruments,
the issuance of which is typically administered by a U.S. or foreign bank or
trust company. These instruments evidence ownership of underlying securities
issued by a U.S. or foreign corporation. ADRs are publicly traded on exchanges
or over-the-counter ("OTC") in the United States. Unsponsored programs are
organized independently and without the cooperation of the issuer of the
underlying securities. As a result, information concerning the issuer may not be
as current or as readily available as in the case of sponsored depository
instruments, and their prices may be more volatile than if they were sponsored
by the issuers of the underlying securities.
EMERGING MARKETS
Each 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 each Fund's performance favorably or unfavorably.
In recent years, many emerging market countries around the world have
undergone political changes that have reduced government's role in economic and
personal affairs and have stimulated investment and growth. Historically, there
is a strong direct correlation between economic growth and stock market returns.
While this is no guarantee of future performance, IMI believes that investment
opportunities (particularly in the energy, environmental services, natural
resources, basic materials, power, telecommunications and transportation
industries) may result within the evolving economies of emerging market
countries from which each Fund and its shareholders will benefit.
Investments in companies domiciled in developing countries may be subject
to potentially higher risks than investments in developed countries. Such risks
include (i) less social, political and economic stability; (ii) a small market
for securities and/or a low or nonexistent volume of trading, which result in a
lack of liquidity and in greater price volatility; (iii) certain national
policies that may restrict each 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 each 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, each 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 each 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
each 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
each Fund's cash and securities, each 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 Ivy European Opportunities 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
Ivy European Opportunities 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.
FOREIGN CURRENCIES
Investment in foreign securities usually will involve currencies of
foreign countries. Moreover, each 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 each 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 each Fund may incur costs in connection with
conversions between various currencies. Although each Fund's custodian values
the Fund's assets daily in terms of U.S. dollars, each Fund does not intend to
convert its holdings of foreign currencies into U.S. dollars on a daily basis.
Each 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 a Fund at one
rate, while offering a lesser rate of exchange should the Fund desire to resell
that currency to the dealer. Each Fund will conduct its foreign currency
exchange transactions either on a spot (i.e., cash) basis at the spot rate
prevailing in the foreign currency exchange market, or through entering into
forward contracts to purchase or sell foreign currencies.
Because each Fund normally will be invested in both U.S. and foreign
securities markets, changes in each Fund's share price may have a low
correlation with movements in U.S. markets. Each Fund's share price will reflect
the movements of the different stock and bond markets in which it is invested
(both U.S. and foreign), and of the currencies in which the investments are
denominated. Thus, the strength or weakness of the U.S. dollar against foreign
currencies may account for part of each Fund's investment performance. U.S. and
foreign securities markets do not always move in step with each other, and the
total returns from different markets may vary significantly. In addition,
significant uncertainty surrounds the proposed introduction of the euro (a
common currency for the European Union) in January 1999 and its effect on the
value of securities denominated in local European currencies. These and other
currencies in which each Fund's assets are denominated may be devalued against
the U.S. dollar, resulting in a loss to each Fund.
FOREIGN CURRENCY EXCHANGE TRANSACTIONS
Each Fund may enter into forward foreign currency contracts in order to
protect against uncertainty in the level of future foreign exchange rates in the
purchase and sale of securities. A forward contract is an obligation to purchase
or sell a specific currency for an agreed price at a future date (usually less
than a year), and typically is individually negotiated and privately traded by
currency traders and their customers. A forward contract generally has no
deposit requirement, and no commissions are charged at any stage for trades.
Although foreign exchange dealers do not charge a fee for commissions, they do
realize a profit based on the difference between the price at which they are
buying and selling various currencies. Although these contracts are intended to
minimize the risk of loss due to a decline in the value of the hedged
currencies, at the same time, they tend to limit any potential gain which might
result should the value of such currencies increase.
While each Fund may enter into forward contracts to reduce currency
exchange risks, changes in currency exchange rates may result in poorer overall
performance for each Fund than if it had not engaged in such transactions.
Moreover, there may be an imperfect correlation between a Fund's portfolio
holdings of securities denominated in a particular currency and forward
contracts entered into by that Fund. An imperfect correlation of this type may
prevent a Fund from achieving the intended hedge or expose the Fund to the risk
of currency exchange loss.
Each Fund may purchase currency forwards and combine such purchases with
sufficient cash or short-term securities to create unleveraged substitutes for
investments in foreign markets when deemed advantageous. Each Fund may also
combine the foregoing with bond futures or interest rate futures contracts to
create the economic equivalent of an unhedged foreign bond position.
Each Fund may also cross-hedge currencies by entering into transactions to
purchase or sell one or more currencies that are expected to decline in value
relative to other currencies to which that Fund has or in which the Fund expects
to have portfolio exposure.
Currency transactions are subject to risks different from those of other
portfolio transactions. Because currency control is of great importance to the
issuing governments and influences economic planning and policy, purchases and
sales of currency and related instruments can be negatively affected by
government exchange controls, blockages, and manipulations or exchange
restrictions imposed by governments. These can result in losses to a Fund if it
is unable to deliver or receive currency or funds in settlement of obligations
and could also cause hedges it has entered into to be rendered useless,
resulting in full currency exposure as well as incurring transactions costs.
Buyers and sellers of currency futures are subject to the same risks that apply
to the use of futures generally. Further, settlement of a currency futures
contract for the purchase of most currencies must occur at a bank based in the
issuing nation. Trading options on currency futures is relatively new, and the
ability to establish and close out positions on such options is subject to the
maintenance of a liquid market which may not always be available. Currency
exchange rates may fluctuate based on factors extrinsic to that country's
economy.
OTHER INVESTMENT COMPANIES
Each Fund may invest up to 10% of its total assets in the shares of other
investment companies. As a shareholder of an investment company, a Fund would
bear its ratable shares of the fund's expenses (which often include an
asset-based management fee). Each Fund could also lose money by investing in
other investment companies, since the value of their respective investments and
the income they generate will vary daily based on prevailing market conditions.
REPURCHASE AGREEMENTS
Repurchase agreements are contracts under which a 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, each Fund is permitted to enter into repurchase
agreements only if the repurchase agreements are at least fully collateralized
with U.S. Government securities or other securities that IMI has approved for
use as collateral for repurchase agreements and the collateral must be
marked-to-market daily. Each Fund will enter into repurchase agreements only
with banks and broker-dealers deemed to be creditworthy by IMI under the
above-referenced guidelines. In the unlikely event of failure of the executing
bank or broker-dealer, a Fund could experience some delay in obtaining direct
ownership of the underlying collateral and might incur a loss if the value of
the security should decline, as well as costs in disposing of the security.
BANKING INDUSTRY AND SAVINGS AND LOAN OBLIGATIONS
Certificates of deposit are negotiable certificates issued against funds
deposited in a commercial bank for a definite period of time and earning a
specified return. Bankers' acceptances are negotiable drafts or bills of
exchange, normally drawn by an importer or exporter to pay for specific
merchandise, which are "accepted" by a bank (meaning, in effect, that the bank
unconditionally agrees to pay the face value of the instrument at maturity). In
addition to investing in certificates of deposit and bankers' acceptances, each
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. Each Fund's investments in certificates of deposit, time
deposits, and bankers' acceptance are limited to obligations of (i) banks having
total assets in excess of $1 billion, (ii) U.S. banks which do not meet the $1
billion asset requirement, if the principal amount of such obligation is fully
insured by the Federal Deposit Insurance Corporation (the "FDIC"), (iii) savings
and loan association which have total assets in excess of $1 billion and which
are members of the FDIC, and (iv) foreign banks if the obligation is, in IMI's
opinion, of an investment quality comparable to other debt securities which may
be purchased by a Fund. Each Fund's investments in certificates of deposit of
savings associations are limited to obligations of Federal and state-chartered
institutions whose total assets exceed $1 billion and whose deposits are insured
by the FDIC.
COMMERCIAL PAPER
Commercial paper represents short-term unsecured promissory notes issued
in bearer form by bank holding companies, corporations and finance companies.
Each Fund may invest in commercial paper that is rated Prime-1 by Moody's
Investors Service, Inc. ("Moody's") or A-1 by Standard & Poor's Corporation
("S&P") or, if not rated by Moody's or S&P, is issued by companies having an
outstanding debt issue rated Aaa or Aa by Moody's or AAA or AA by S&P.
BORROWING
Borrowing may exaggerate the effect on each 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 each Fund's borrowings will be fixed, each Fund's assets may change in value
during the time a borrowing is outstanding, thus increasing exposure to capital
risk.
WARRANTS
The holder of a warrant has the right, until the warrant expires, to
purchase a given number of shares of a particular issuer at a specified price.
Such investments can provide a greater potential for profit or loss than an
equivalent investment in the underlying security. However, prices of warrants do
not necessarily move in a tandem with the prices of the underlying securities,
and are, therefore, considered speculative investments. Warrants pay no
dividends and confer no rights other than a purchase option. Thus, if a warrant
held by any Fund were not exercised by the date of its expiration, the Fund
would lose the entire purchase price of the warrant.
REAL ESTATE INVESTMENT TRUSTS (REITS)
A REIT is a corporation, trust or association that invests in real estate
mortgages or equities for the benefit of its investors. REITs are dependent upon
management skill, may not be diversified and are subject to the risks of
financing projects. Such entities are also subject to heavy cash flow
dependency, defaults by borrowers, self-liquidation and the possibility of
failing to qualify for tax-free pass-through of income under the Internal
Revenue Code of 1986, as amended (the "Code"), and to maintain exemption from
the Investment Company Act of 1940 (the "1940 Act"). By investing in REITs
indirectly through Ivy Global Fund, a shareholder will bear not only his or her
proportionate share of the expenses of the Fund, but also, indirectly, similar
expenses of the REITs.
OPTIONS TRANSACTIONS
IN GENERAL. A call option is a short-term contract (having a duration of
less than one year) pursuant to which the purchaser, in return for the premium
paid, has the right to buy the security underlying the option at the specified
exercise price at any time during the term of the option. The writer of the call
option, who receives the premium, has the obligation, upon exercise of the
option, to deliver the underlying security against payment of the exercise
price. A put option is a similar contract pursuant to which the purchaser, in
return for the premium paid, has the right to sell the security underlying the
option at the specified exercise price at any time during the term of the
option. The writer of the put option, who receives the premium, has the
obligation, upon exercise of the option, to buy the underlying security at the
exercise price. The premium paid by the purchaser of an option will reflect,
among other things, the relationship of the exercise price to the market price
and volatility of the underlying security, the time remaining to expiration of
the option, supply and demand, and interest rates.
If the writer of a U.S. exchange-traded 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. Closing purchase transactions are not available for OTC
transactions. In order to terminate an obligation in an OTC transaction, a Fund
would negotiate directly with the counterparty.
Each Fund will realize a gain (or a loss) on a closing purchase
transaction with respect to a call or a put previously written by that 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 a 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 each Fund, are taxable as ordinary income. See "Taxation."
Each Fund will realize a gain (or a loss) on a closing sale transaction
with respect to a call or a put previously purchased by that 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 each Fund
and its counterparty (usually a securities dealer or a financial institution)
with no clearing organization guarantee. When a 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. Each Fund may write (sell)
covered call options on each Fund's securities in an attempt to realize a
greater current return than would be realized on the securities alone. Each Fund
may also write covered call options to hedge a possible stock or bond market
decline (only to the extent of the premium paid to the Fund for the options). In
view of the investment objectives of each Fund, each Fund generally would write
call options only in circumstances where the investment adviser to the Fund does
not anticipate significant appreciation of the underlying security in the near
future or has otherwise determined to dispose of the security.
A "covered" call option means generally that so long as a Fund is
obligated as the writer of a call option, that 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 a
Fund receives premium income from these activities, any appreciation realized on
an underlying security will be limited by the terms of the call option. Each
Fund may purchase call options on individual securities only to effect a
"closing purchase transaction."
As the writer of a call option, a 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 a 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. Each Fund may purchase a put
option on an underlying security owned by that Fund as a defensive technique in
order to protect against an anticipated decline in the value of the security.
Each 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 a 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 any Fund for leverage purposes.
Each 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. A 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. Each Fund may write (sell) put options on individual securities only to
effect a "closing sale transaction."
RISKS OF OPTIONS TRANSACTIONS. The purchase and writing of options
involves certain risks. During the option period, the covered call writer has,
in return for the premium on the option, given up the opportunity to profit from
a price increase in the underlying securities above the exercise price, but, as
long as its obligation as a writer continues, has retained the risk of loss
should the price of the underlying security decline. The writer of a U.S. option
has no control over the time when it may be required to fulfill its obligation
as a writer of the option. Once an option writer has received an exercise
notice, it cannot effect a closing purchase transaction in order to terminate
its obligation under the option and must deliver the underlying securities (or
cash in the case of an index option) at the exercise price. If a put or call
option purchased by a 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 a Fund
seeks to close out an option position. Furthermore, if trading restrictions or
suspensions are imposed on the options markets, a 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. Transfer of an
OTC option is usually prohibited absent the consent of the original
counterparty. There is no assurance that a Fund will be able to close out an OTC
option position at a favorable price prior to its expiration. An OTC
counterparty may fail to deliver or to pay, as the case may be. In the event of
insolvency of the counterparty, a Fund might be unable to close out an OTC
option position at any time prior to its expiration. Although a Fund may be able
to offset to some extent any adverse effects of being unable to liquidate an
option position, a Fund may experience losses in some cases as a result of such
inability.
When conducted outside the U.S., options transactions may not be regulated
as rigorously as in the U.S., may not involve a clearing mechanism and related
guarantees, and are subject to the risk of governmental actions affecting
trading in, or the prices of, foreign securities, currencies and other
instruments. The value of such positions also could be adversely affected by:
(i) other complex foreign political, legal and economic factors, (ii) lesser
availability than in the U.S. of data on which to make trading decisions, (iii)
delays in each Fund's ability to act upon economic events occurring in foreign
markets during non-business hours in the U.S., (iv) the imposition of different
exercise and settlement terms and procedures and margin requirements than in the
U.S., and (v) lower trading volume and liquidity.
Each Fund's options activities also may have an impact upon the level
of its portfolio turnover and brokerage commissions. See "Portfolio Turnover."
Each Fund's success in using options techniques depends, among other
things, on IMI's ability to predict accurately the direction and volatility of
price movements in the options and securities markets, and to select the proper
type, timing of use and duration of options.
FUTURES CONTRACTS AND OPTIONS ON FUTURES CONTRACTS
IN GENERAL. Each 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 a Fund, that Fund is required to deposit with its
custodian (or broker, if legally permitted) a specified amount of cash or liquid
securities ("initial margin"). The margin required for a futures contract is set
by the exchange on which the contract is traded and may be modified during the
term of the contract. The initial margin is in the nature of a performance bond
or good faith deposit on the futures contract which is returned to the Fund upon
termination of the contract, assuming all contractual obligations have been
satisfied. A futures contract held by a 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 a 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, each Fund
will mark-to-market its open futures position.
Each Fund is also required to deposit and maintain margin with respect to
put and call options on futures contracts written by it. Such margin deposits
will vary depending on the nature of the underlying futures contract (and the
related initial margin requirements), the current market value of the option,
and other futures positions held by the Fund.
Although some futures contracts call for making or taking delivery of the
underlying securities, generally these obligations are closed out prior to
delivery of offsetting purchases or sales of matching futures contracts (same
exchange, underlying security or index, and delivery month). If an offsetting
purchase price is less than the original sale price, each 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, each 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, each Fund will maintain with its
Custodian (and mark-to-market on a daily basis) cash or liquid securities that,
when added to the amounts deposited with a futures commission merchant ("FCM")
as margin, are equal to the market value of the futures contract. Alternatively,
each Fund may "cover" its position by purchasing a put option on the same
futures contract with a strike price as high as or higher than the price of the
contract held by the Fund, or, if lower, may cover the difference with cash or
short-term securities.
When selling a futures contract, each 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, each Fund may "cover" its position by owning the
instruments underlying the contract (or, in the case of an index futures
contract, a portfolio with a volatility substantially similar to that of the
index on which the futures contract is based), or by holding a call option
permitting the Fund to purchase the same futures contract at a price no higher
than the price of the contract written by the Fund (or at a higher price if the
difference is maintained in liquid assets with the Fund's custodian).
When selling a call option on a futures contract, each 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, a Fund may cover its position by entering into a
long position in the same futures contract at a price no higher than the strike
price of the call option, by owning the instruments underlying the futures
contract, or by holding a separate call option permitting the Fund to purchase
the same futures contract at a price not higher than the strike price of the
call option sold by the Fund, or covering the difference if the price is higher.
When selling a put option on a futures contract, each Fund will maintain
with its Custodian (and mark-to-market on a daily basis) cash or liquid
securities that equal the purchase price of the futures contract less any margin
on deposit. Alternatively, a Fund may cover the position either by entering into
a short position in the same futures contract, or by owning a separate put
option permitting it to sell the same futures contract so long as the strike
price of the purchased put option is the same or higher than the strike price of
the put option sold by the Fund, or, if lower, the Fund may hold securities to
cover the difference.
FOREIGN CURRENCY FUTURES CONTRACTS AND RELATED OPTIONS. Each 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.
Each 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. Each 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.
Each Fund will only enter into futures contracts and futures options which
are standardized and traded on a U.S. or foreign exchange, board of trade, or
similar entity or quoted on an automated quotation system. Each Fund will not
enter into a futures contract or purchase an option thereon if, immediately
thereafter, the aggregate initial margin deposits for futures contracts held by
the Fund plus premiums paid by it for open futures option positions, less the
amount by which any such positions are "in-the-money," would exceed 5% of the
liquidation value of the Fund's portfolio (or the Fund's net asset value), after
taking into account unrealized profits and unrealized losses on any such
contracts the Fund has entered into. A call option is "in-the-money" if the
value of the futures contract that is the subject of the option exceeds the
exercise price. A put option is "in-the-money" if the exercise price exceeds the
value of the futures contract that is the subject of the option. For additional
information about margin deposits required with respect to futures contracts and
options thereon, see "Futures Contracts and Options on Futures Contracts."
RISKS ASSOCIATED WITH FUTURES AND RELATED OPTIONS. There can be no
guarantee that there will be a correlation between price movements in the
hedging vehicle and in a 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 a
Fund seeks to close out a futures or a futures option position, and the Fund
would remain obligated to meet margin requirements until the position is closed.
In addition, there can be no assurance that an active secondary market will
continue to exist.
Currency futures contracts and options thereon may be traded on foreign
exchanges. Such transactions may not be regulated as effectively as similar
transactions in the United States; may not involve a clearing mechanism and
related guarantees; and are subject to the risk of governmental actions
affecting trading in, or the prices of, foreign securities. The value of such
position also could be adversely affected by (i) other complex foreign
political, legal and economic factors, (ii) lesser availability than in the
United States of data on which to make trading decisions, (iii) delays in a
Fund's ability to act upon economic events occurring in foreign markets during
non business hours in the United States, (iv) the imposition of different
exercise and settlement terms and procedures and margin requirements than in the
United States, and (v) lesser trading volume.
SECURITIES INDEX FUTURES CONTRACTS
Each Fund (except Ivy Global Natural Resources Fund) may enter into
securities index futures contracts as an efficient means of regulating the
Fund's exposure to the equity markets. Each Fund will not engage in transactions
in futures contracts for speculation, but only as a hedge against changes
resulting from market conditions in the values of securities held in the Fund's
portfolio or which it intends to purchase. An index futures contract is a
contract to buy or sell units of an index at a specified future date at a price
agreed upon when the contract is made. Entering into a contract to buy units of
an index is commonly referred to as purchasing a contract or holding a long
position in the index. Entering into a contract to sell units of an index is
commonly referred to as selling a contract or holding a short position. The
value of a unit is the current value of the stock index. For example, the S&P
500 Index is composed of 500 selected common stocks, most of which are listed on
the New York Stock Exchange (the "Exchange"). The S&P 500 Index assigns relative
weightings to the 500 common stocks included in the Index, and the Index
fluctuates with changes in the market values of the shares of those common
stocks. In the case of the S&P 500 Index, contracts are to buy or sell 500
units. Thus, if the value of the S&P 500 Index were $150, one contract would be
worth $75,000 (500 units x $150). The index futures contract specifies that no
delivery of the actual securities making up the index will take place. Instead,
settlement in cash must occur upon the termination of the contract, with the
settlement being the difference between the contract price and the actual level
of the stock index at the expiration of the contract. For example, if a 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
a 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. Each Fund's success in using hedging
techniques depends, among other things, on IMI's ability to predict correctly
the direction and volatility of price movements in the futures and options
markets as well as in the securities markets and to select the proper type, time
and duration of hedges. The skills necessary for successful use of hedges are
different from those used in the selection of individual stocks.
Each Fund's ability to hedge effectively all or a portion of its
securities through transactions in index futures (and therefore the extent of
its gain or loss on such transactions) depends on the degree to which price
movements in the underlying index correlate with price movements in the Fund's
securities. Inasmuch as such securities will not duplicate the components of an
index, the correlation probably will not be perfect. Consequently, each 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 each 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 a 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,
a 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, a 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, a 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.
Each 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. Each 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, each Fund will maintain with
its Custodian (and mark-to-market on a daily basis) cash or liquid securities
that, when added to the amounts deposited with a futures commission merchant
("FCM") as margin, are equal to the market value of the futures contract.
Alternatively, a 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, each Fund will maintain with its
Custodian (and mark-to-market on a daily basis) cash or liquid securities that,
when added to the amounts deposited with an FCM as margin, are equal to the
market value of the instruments underlying the contract. Alternatively, a 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. Each Fund may enter into multiple transactions,
including multiple options transactions, multiple futures transactions and
multiple currency transactions (including forward currency contracts) and some
combination of futures, options, and currency transactions ("component"
transactions), instead of a single transaction, as part of a single or combined
strategy when, in the opinion of IMI, it is in the best interests of the Fund to
do so. A combined transaction will usually contain elements of risk that are
present in each of its component transactions. Although combined transactions
are normally entered into based on IMI's judgment that the combined strategies
will reduce risk or otherwise more effectively achieve the desired portfolio
management goal, it is possible that the combination will instead increase such
risks or hinder achievement of the management objective.
PORTFOLIO TURNOVER
Each 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, each
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 a 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.
Each 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 each Fund's
portfolio turnover rate, all securities whose maturities at the time of
acquisition were one year or less are excluded.
TRUSTEES AND OFFICERS
Each Fund's Board of Trustees (the "Board") is responsible for the overall
management of the Fund, including general supervision and review of the Fund's
investment activities. The Board, in turn, elects the officers who are
responsible for administering each Fund's day-to-day operations.
The Trustees and Executive Officers of the Trust, their business
addresses and principal occupations during the past five years are:
POSITION WITH BUSINESS AFFILIATIONS
NAME, ADDRESS, AGE THE TRUST AND PRINCIPAL OCCUPATIONS
John S. Anderegg, Jr. Trustee Chairman, Dynamics Research
60 Concord Street Corp. (instruments and controls);
Wilmington, MA 01887 Director, Burr-Brown Corp.
Age: 75 (operational amplifiers);
Director, Metritage Incorporated
(level measuring instruments);
Trustee of Mackenzie Series Trust
(1992-1998).
James W. Broadfoot President President,
700 South Federal Hwy. and Ivy Management Inc. (1996-
Suite 300 Trustee present); Senior Vice
Boca Raton, FL 33432 President, Ivy Management,
Age: 56 Inc. (1992-1996); Director and Senior
[*Deemed to be an Vice President, Mackenzie Investment
"interested person" Management Inc. (1995-present); Senior
of the Trust, as Vice President, Mackenzie Investment
defined under the Management Inc. (1990-1995).
1940 Act.]
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: 75 (insurance agency); Chairman,
Scott Management Company
(administrative services for
insurance companies); President,
The Channick Group (consultants
to insurance companies and
national trade associations);
Trustee of Mackenzie Series
Trust (1994-1998); Director of
The Mackenzie Funds Inc.
(1994-1995).
Frank W. DeFriece, Jr. Trustee Director, Manager and Vice
The Landmark Centre President, Director and
113 Landmark Lane, Fund Manager, Massengill-
Suite B DeFriece Foundation
Bristol, TN 37620-2285 (charitable organization)
Age: 78 (1950-present); Trustee and Vice
Chairman, East Tennessee Public
Communications Corp. (WSJK-TV)
(1984-present); Trustee of
Mackenzie Series Trust
(1985-1998); Director of The
Mackenzie Funds Inc. (1987-1995).
Roy J. Glauber Trustee Mallinckrodt Professor of
Lyman Laboratory Physics, Harvard
of Physics University (1974-present);
Harvard University Trustee of Mackenzie Series
Cambridge, MA 02138 Trust (1994-1997).
Age: 73
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: 69 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 Chairman -present); Senior Vice President
Boca Raton, FL 33432 and Director of Mackenzie
Age: 42 Investment Management, Inc. (1994-
[*Deemed to be an 1996); Senior Vice President and
"interested person" Treasurer of Mackenzie Investment
of the Trust, as defined Management, Inc. (1989-1994);
under the Senior Vice President and Director
1940 Act.] 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).
Edward M. Tighe Trustee Chief Executive Officer,
5900 N. Andrews Avenue CITCO Technology Management, Inc.
Suite 700 ("CITCO") (computer software develop-
Ft. Lauderdale, FL 33309 ment and consulting) (1999-present);
President and Director, Global
Technology Management, Inc. (CITCO's
predecessor) (1992-1998); Managing
Director, Global Mutual Fund Services,
Ltd. (financial services firm);
President, Director and Chief
Executive Officer, Global Mutual Fund
Services, Inc. (1994-present).
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).
COMPENSATION TABLE
IVY FUND
(FISCAL YEAR ENDED DECEMBER 31, 1998)
<TABLE>
<S> <C> <C> <C> <C>
PENSION OR
AGGREGATE RETIREMENT ESTIMATED TOTAL COMPENSATION
COMPENSATION BENEFITS ACCRUED ANNUAL ESTIMATED FROM TRUST AND FUND
NAME, FROM AS PART OF FUND ANNUAL BENEFITS COMPLEX PAID TO TRUSTEES
POSITION TRUST EXPENSES UPON RETIREMENT
John S. $18,000 N/A N/A $18,000
Anderegg, Jr.
(Trustee)
Paul H. $18,000 N/A N/A $18,000
Broyhill
(Trustee)
Keith J. $0 N/A N/A $0
Carlson
(Trustee and
President)
Stanley $18,000 N/A N/A $18,000
Channick
(Trustee)
Frank W. $18,000 N/A N/A $18,000
DeFriece, Jr.
(Trustee)
Roy J. $18,000 N/A N/A $18,000
Glauber
(Trustee)
Joseph G. $18,000 N/A N/A $18,000
Rosenthal
(Trustee)
Richard N. $18,000 N/A N/A $18,000
Silverman
(Trustee)
J. Brendan $17,000 N/A N/A $17,000
Swan
(Trustee)
C. William $0 N/A N/A $0
Ferris
(Secretary/
Treasurer)
</TABLE>
<PAGE>
To the knowledge of the Trust, as of March 31, 1999, no shareholder
owned beneficially or of record 5% or more of any Fund's outstanding shares of
any class, with the following exceptions:
CLASS A
Of the outstanding Class A shares of :
Ivy Asia Pacific Fund, Merrill Lynch Pierce Fenner & Smith, 4800 Deer
Lake Drive E, 3rd Floor, Jacksonville, FL 32246, owned of record 40,174.921
shares (16.51%), and Michael G. Landry, 211 S. Gordon Rd., Ft.
Lauderdale, FL 33301, owned of record 12,443.882 shares (5.11%);
Ivy Bond Fund, Merrill Lynch Pierce Fenner & Smith, 4800 Deer Lake
Drive E, 3rd Floor, Jacksonville, FL 32246, owned of record 1,397,567.620 shares
(13.02%);
Ivy China Region Fund, Merrill Lynch Pierce Fenner & Smith, 4800 Deer
Lake Drive E, 3rd Floor, Jacksonville, FL 32246, owned of record 218,003.027
shares (13.26%), and Resources Trust Company, PO Box 3865, Englewood, CO
80155-3865, owned of record 186,351.290 shares (11.33%);
Ivy Developing Nations Fund, Donaldson Lufkin Jenrette Securities
Corporation Inc., PO Box 2052, Jersey City, NJ 07303-9998, owned of record
87,092.843 shares (11.31%), Donaldson Lufkin Jenrette Securities Corporation
Inc., PO Box 2052, Jersey City, NJ 07303-9998, owned of record 54,336.017 shares
(7.06%), and Merrill Lynch Pierce Fenner & Smith, 4800 Deer Lake Drive E, 3rd
Floor, Jacksonville, FL 32246, owned of record 41,198.769 shares (5.35%);
Ivy Global Natural Resources Fund, Carn & Co., Riggs Bank (TTEE) FBO
Care-Free Consolidated 401K Plan, PO Box 96211, Washington, DC 20090-6211, owned
of record 62,273.356 shares (29.71%), Carn & Co., Riggs Bank (TTEE) FBO Yazaki
Employee Savings & Retirement Plan, PO Box 96211, Washington, DC 20090-6211,
owned of record 22,533.136 shares (10.75%), and Mackenzie Investment Management
Inc., via Mizner Financial Plaza, 700 South Federal Highway, Suite 300, Boca
Raton, FL 33432, owned of record 11,957.023 shares (5.70%);
Ivy Global Science & Technology Fund, Donaldson Lufkin Jenrette
Securities Corporation Inc., PO Box 2052, Jersey City, NJ 07303-9998, owned of
record 99,948.978 shares (16.84%), Donaldson Lufkin Jenrette Securities
Corporation Inc., PO Box 2052, Jersey City, NJ 07303-9998, owned of record
65,325.391 shares (11.01%), and Merrill Lynch Pierce Fenner & Smith, 4800 Deer
Lake Drive E, 3rd Floor, Jacksonville, FL 32246, owned of record 31,922.542
shares (5.38%);
Ivy International Fund II, Merrill Lynch Pierce Fenner & Smith, 4800
Deer Lake Drive E, 3rd Floor, Jacksonville, FL 32246, owned of record
818,804.984 shares (34.10%);
Ivy International Fund, Charles Schwab & Co. Inc., 101 Montgomery
Street, San Francisco, CA 94104, owned of record 12,827,455.253 shares (35.28%),
and Merrill Lynch Pierce Fenner & Smith, 4800 Deer Lake Drive E, 3rd Floor,
Jacksonville, FL 32246, owned of record 6,083,813.996 shares (16.73%);
Ivy International Small Companies Fund, Donaldson Lufkin Jenrette
Securities Corporation Inc., PO Box 2052, Jersey City, NJ 07303-9998, owned of
record 19,762.181 shares (20.88%), and Mackenzie Investment Management Inc., via
Mizner Financial Plaza, 700 South Federal Highway, Suite 300, Boca Raton, FL
33432, owned of record 10,287.244 shares (10.87%).
Ivy Money Market Fund, Carn & Co., Riggs Bank (TTEE) FBO Plexus Corp
401K Plan, PO Box 96211, Washington, DC 20090-6211, owned of record
2,710,056.720 shares (13.19%), and Bear Stearns Securities Corp., 1 Metrotech
Center North, Brooklyn, NY 11201-3859, owned of record 1,432,318.960 shares
(6.97%).
Ivy Pan-Europe Fund, Mackenzie Investment Management Inc., via Mizner
Financial Plaza, 700 South Federal Highway, Suite 300, Boca Raton, FL 33432,
owned of record 37,553.145 shares (23.84%), and Merrill Lynch Pierce Fenner &
Smith, 4800 Deer Lake Drive E, 3rd Floor, Jacksonville, FL 32246, owned of
record 27,122.193 shares (17.22%);
Ivy South America Fund, Merrill Lynch Pierce Fenner & Smith, 4800 Deer
Lake Drive E, 3rd Floor, Jacksonville, FL 32246, owned of record 45,710.848
shares (17.87%), and Charles Schwab & Co. Inc., 101 Montgomery Street, San
Francisco, CA 94104, owned of record 19,471.113 shares (7.61%), and William A.
Maczko & Mildred E. Helm Maczko, 2100 S. Ocean Ln., #1412, Ft. Lauderdale, FL
33316, owned of record 14,174.070 shares (5.54%);
Ivy US Blue Chip Fund, Helen L. Medvin, 4712 Michael Ave., North
Olmsted, OH 44070, owned of record 10,253.846 shares (7.12%), Donaldson Lufkin
Jenrette Securities Corporation Inc., PO Box 2052, Jersey City, NJ 07303-9998,
owned of record 8,986.371 shares (6.24%), and Janney Montgomery Scott Inc.,
Estate of David Craig, 1801 Market Street, Philadelphia, PA 19103-1675, owned of
record 8,880.995 shares (6.17%).
Ivy US Emerging Growth Fund, Donaldson Lufkin Jenrette Securities
Corporation Inc., PO Box 2052, Jersey City, NJ 07303-9998, owned of record
86,774.211 shares (5.08%);
CLASS B
Of the outstanding Class B shares of:
Ivy Asia Pacific Fund, Merrill Lynch Pierce Fenner & Smith, 4800 Deer
Lake Drive E, 3rd Floor, Jacksonville, FL 32246, owned of record 141,298.083
shares (35.22%);
Ivy Bond Fund, Merrill Lynch Pierce Fenner & Smith, 4800 Deer Lake
Drive E, 3rd Floor, Jacksonville, FL 32246, owned of record 12,199,384.716
shares (48.92%);
Ivy China Region Fund, Merrill Lynch Pierce Fenner & Smith, 4800 Deer
Lake Drive E, 3rd Floor, Jacksonville, FL 32246, owned of record 107,725.641
shares (11.73%);
Ivy Developing Nations Fund, Merrill Lynch Pierce Fenner & Smith, 4800
Deer Lake Drive E, 3rd Floor, Jacksonville, FL 32246, owned of record
278,316.028 shares (28.37%);
Ivy Global Fund, Merrill Lynch Pierce Fenner & Smith, 4800 Deer Lake
Drive E, 3rd Floor, Jacksonville, FL 32246, owned of record 68,719.447 shares
(11.93%);
Ivy Global Natural Resources Fund, Merrill Lynch Pierce Fenner & Smith,
4800 Deer Lake Drive E, 3rd Floor, Jacksonville, FL 32246, owned of record
83,599.984 shares (38.05%);
Ivy Global Science & Technology Fund, Merrill Lynch Pierce Fenner &
Smith, 4800 Deer Lake Drive E, 3rd Floor, Jacksonville, FL 32246, owned of
record 40,990.672 shares (8.13%);
Ivy Growth Fund, Merrill Lynch Pierce Fenner & Smith, 4800 Deer Lake
Drive E, 3rd Floor, Jacksonville, FL 32246, owned of record 24,939.375 shares
(8.96%);
Ivy Growth with Income Fund, Merrill Lynch Pierce Fenner & Smith, 4800
Deer Lake Drive E, 3rd Floor, Jacksonville, FL 32246, owned of record
263,081.752 shares (15.31%);
Ivy International Fund II, Merrill Lynch Pierce Fenner & Smith, 4800
Deer Lake Drive E, 3rd Floor, Jacksonville, FL 32246, owned of record
4,986,169.823 shares (60.62%);
Ivy International Fund, Merrill Lynch Pierce Fenner & Smith, 4800 Deer
Lake Drive E, 3rd Floor, Jacksonville, FL 32246, owned of record 5,678,407.729
shares (45.59%).
Ivy International Small Companies Fund, Merrill Lynch Pierce Fenner &
Smith, 4800 Deer Lake Drive E, 3rd Floor, Jacksonville, FL 32246, owned of
record 24,340.066 shares (23.40%), PaineWebber, FBO B Carmage Walls Trust #10,
FBO Lissa Walls Trust and Cooper Walls TTEE, PO Box 42828, Houston, TX 77242,
owned of record 5,880.313 shares (5.65%), and PaineWebber, FBO B Carmage Walls
Trust #10, FBO Cooper Walls Trust and Cooper Walls TTEE, PO Box 42828, Houston,
TX 77242, owned of record 5,760.640 shares (5.53%);
Ivy Pan-Europe Fund, Merrill Lynch Pierce Fenner & Smith, 4800 Deer
Lake Drive E, 3rd Floor, Jacksonville, FL 32246, owned of record 66,847.392
shares (22.86%);
Ivy South America Fund, Merrill Lynch Pierce Fenner & Smith, 4800 Deer
Lake Drive E, 3rd Floor, Jacksonville, FL 32246, owned of record 46,359.136
shares (29.47%);
Ivy US Blue Chip Fund, Merrill Lynch Pierce Fenner & Smith, 4800 Deer
Lake Drive E, 3rd Floor, Jacksonville, FL 32246, owned of record 74,760.802
shares (18.62%), and Parker Hunter Incorporated, FBO Robert Crisci and Kathy
Crisci, PO Box 7629, 3525 Ellwood Road, New Castle, PA 16107-7629, owned of
record 24,779.090 shares (6.17%).
Ivy US Emerging Growth Fund, Merrill Lynch Pierce Fenner & Smith, 4800
Deer Lake Drive E, 3rd Floor, Jacksonville, FL 32246, owned of record
335,426.771 shares (21.10%);
CLASS C
Of the outstanding Class C shares of:
Ivy Asia Pacific Fund, Merrill Lynch Pierce Fenner & Smith, 4800 Deer
Lake Drive E, 3rd Floor, Jacksonville, FL 32246, owned of record 19,237.215
shares (5.33%);
Ivy Bond Fund, Merrill Lynch Pierce Fenner & Smith, 4800 Deer Lake
Drive E, 3rd Floor, Jacksonville, FL 32246, owned of record 725,233.869 shares
(74.69%);
Ivy China Region Fund, Merrill Lynch Pierce Fenner & Smith, 4800 Deer
Lake Drive E, 3rd Floor, Jacksonville, FL 32246, owned of record 30,474.251
shares (27.72%), and IBT, (custodian) FBO Roy O. Derminer, 2236 Abbottwoods Ln.,
Orange City, FL 32763, owned of record 8,275.708 shares (7.52%);
Ivy Developing Nations Fund, Merrill Lynch Pierce Fenner & Smith, 4800
Deer Lake Drive E, 3rd Floor, Jacksonville, FL 32246, owned of record 48,103,553
shares (11.99%);
Ivy Global Fund, Merrill Lynch Pierce Fenner & Smith, 4800 Deer Lake
Drive E, 3rd Floor, Jacksonville, FL 32246, owned of record 6,585.276 shares
(19.35%), Donaldson Lufkin Jenrette Securities Corporation Inc., PO Box 2052,
Jersey City, NJ 07303-9998, owned of record 3,909.907 shares (11.48%), Robert W.
Baird & Co. Inc., 777 East Wisconsin Avenue, Milwaukee, WI 53202-5391, owned of
record 3,436.408 shares (10.09%), IBT, (custodian) FBO Mattie A. Allen, 755
Selma Pl., San Diego, CA 92114-1711, owned of record 3,095.552 shares (9.09%),
Smith Barney Inc., 388 Greenwich Street, New York, NY 10013, owned of record
2,436.584 shares (7.15%), and PaineWebber, (custodian) FBO Robert D.
Cuthbertson, PO Box 3321, Weehawken, NJ 07087-8154, owned of record 1,705.476
shares (5.01%);
Ivy Global Natural Resources Fund, Raymond James & Assoc. Inc.,
(custodian) Raymond W. Simmons, 6296 104th Avenue, Pinellas Park, FL 33782,
owned of record 981.281 shares (19.43%), Raymond James & Assoc. Inc.,
(custodian) Diversified Dental P/S, FBO Al Pollock, 10641 1st Street E., Suite
204, Treasure Island, FL 33706, owned of record 910.166 shares (18.02%), Robert
W. Baird & Co. Inc., 777 E. Wisconsin Avenue, Milwaukee, WI 53202-5391, owned of
record 613.622 shares (12.15%), Robert W. Baird & Co. Inc., 777 E. Wisconsin
Avenue, Milwaukee, WI 53202-5391, owned of record 550.722 shares (10.90%), Nancy
J. Cleare, 9381 US Hwy. 19 N, Pinellas Park, FL 33782, owned of record 541.597
shares (10.72%), Resources Trust Co., (custodian) FBO Jon K. Loessin, PO Box
5900, Denver, CO 80217, owned of record 535.023 shares (10.59%), Ester C.
Wickes, 19 Fawn Hill Rd., Tuxedo, NY 10987, owned of record 350.772 shares
(6.94%), and IBT, (custodian) FBO Salvatore Disalvo, 311 Bridle Path Lane,
Annapolis, MD 21403-1638, owned of record 299.993 shares (5.94%);
Ivy Global Science & Technology Fund, Merrill Lynch Pierce Fenner &
Smith, 4800 Deer Lake Drive E, 3rd Floor, Jacksonville, FL 32246, owned of
record 38,011.661 shares (11.30%);
Ivy Growth Fund, Merrill Lynch Pierce Fenner & Smith, 4800 Deer Lake
Drive E, 3rd Floor, Jacksonville, FL 32246, owned of record 7,477.571 shares
(47.23%), IBT, (custodian) FBO Joseph L. Wright, 32211 Pierce Street, Garden
City, MI 48135, owned of record 3,938.282 shares (24.87%), PaineWebber, FBO
Cynthia N. Young, PO Box 3321, Weehawken, NJ 07087-8154, owned of record 853.551
shares (5.39%), and Martin S. Sawyer & Ruth C. Sawyer, 5910 Wilson Blvd., #413,
Arlington, VA 22205, owned of record 844.906 shares (5.33%);
Ivy Growth with Income Fund, Merrill Lynch Pierce Fenner & Smith, 4800
Deer Lake Drive E, 3rd Floor, Jacksonville, FL 32246, owned of record 11,534.267
shares (29.37%), Anthony L. Bassano & Marie E. Bassano, 8934 Bari Court, Port
Richie, FL 34668, owned of record 3,203.100 shares (8.15%), IBT, (custodian) FBO
Vytautas Snieckus, 1250 E 276th Street, Euclid, OH 44132, owned of record
2,645.907 shares (6.73%), PaineWebber, (custodian) FBO Patricia Cramer Russell,
PO Box 3321, Weehawken, NJ 07087-8154, owned of record 2,191.410 shares (5.58%),
IBT, (custodian) FBO Kevin D. Thistle, 1017 Glencrest Court, Saulkville, WI
53080, owned of record 2,130.626 shares (5.42%), and IBT, (custodian) FBO Carol
E. Greivell, 985 N Broadway, #67, Depere, WI 54115, owned of record 2,106.814
shares (5.36%);
Ivy International Fund II, Merrill Lynch Pierce Fenner & Smith, 4800
Deer Lake Drive E, 3rd Floor, Jacksonville, FL 32246, owned of record
2,908,557.453 shares (74.01%);
Ivy International Fund, Merrill Lynch Pierce Fenner & Smith, 4800 Deer
Lake Drive E, 3rd Floor, Jacksonville, FL 32246, owned of record 2,189,094.234
shares (64.38%);
Ivy International Small Companies Fund, Merrill Lynch Pierce Fenner &
Smith, 4800 Deer Lake Drive E, 3rd Floor, Jacksonville, FL 32246, owned of
record 87,014.649 shares (90.31%);
Ivy Money Market Fund, PaineWebber, FBO Bruce Blank, PO Box 3321,
Weehawken, NJ 07087-8154, owned of record 103,905.380 shares (17.65%), IBT
(custodian) FBO, Marcelette V. Manning, 1371 Mt. View Lane, Chula Vista, CA
91911, owned of record 65,194.630 shares (11.07%), IBT (custodian) FBO Diana
Rooney, 2441 S. 9th St., El Centro, CA 92243, owned of record 62,822.810 shares
(10.67%), Robert J. Laws & Katherine A. Laws, PO Box 723, Ramona, CA 92065,
owned of record 42,920.450 shares (7.29%), IBT (custodian) FBO Betty J. Carson,
1987 Higgins Lane, El Centro, CA 92243, owned of record 39,398.780 shares
(6.69%), Paul M. Benard, 40 Arrowhead Farm Road, Boxford, MA 01921, owned of
record 33,488.010 shares (5.68%), Diane C. Benard, 40 Arrowhead Farm Road,
Boxford, MA 01921, owned of record 33,488.010 shares (5.68%), and PaineWebber,
FBO Kathleen L. Diller, PO Box 3321, Weehawken, NJ 07087-8154, owned of record
30,238.920 shares (5.13%).
Ivy Pan-Europe Fund, Merrill Lynch Pierce Fenner & Smith, 4800 Deer
Lake Drive E, 3rd Floor, Jacksonville, FL 32246, owned of record 26,948.668
shares (44.12%), Resources Trust Company, FBO Terry K. Ramnanan, PO Box 5900,
Denver, CO 80217, owned of record 14,652.015 shares (23.99%), and Donaldson
Lufkin Jenrette Securities Corporation Inc., PO Box 2052, Jersey City, NJ
07303-9998, owned of record 4,663.657 shares (7.63%);
Ivy South America Fund, Merrill Lynch Pierce Fenner & Smith, 4800 Deer
Lake Drive E, 3rd Floor, Jacksonville, FL 32246, owned of record 10,956.813
shares (58.18%), Interstate/Johnson Lane, Interstate Tower, PO Box 1220,
Charlotte, NC 28201-1220, owned of record 2,617.801 shares (13.90%), Donaldson
Lufkin Jenrette Securities Corporation Inc., PO Box 2052, Jersey City, NJ
07303-9998, owned of record 2,318.301 shares (12.31%), Donaldson Lufkin Jenrette
Securities Corporation Inc., PO Box 2052, Jersey City, NJ 07303-9998, owned of
record 1,133.787 shares (6.02%), and Smith Barney Inc., 388 Greenwich Street,
New York, NY 10013, owned of record 966.121 shares (5.13%);
Ivy US Blue Chip Fund, Merrill Lynch Pierce Fenner & Smith, 4800 Deer
Lake Drive E, 3rd Floor, Jacksonville, FL 32246, owned of record 8,485.693
shares (10.18%), Donaldson Lufkin Jenrette Securities Corporation Inc., PO Box
2052, Jersey City, NJ 07303-9998, owned of record 6,066.012 shares (7.27%), IBT,
(custodian) FBO Roy O. Derminer, 2236 Abbottwoods LN, Orange City, FL 32763,
owned of record 4,517.953 shares (5.42%), and Donaldson Lufkin Jenrette
Securities Corporation Inc., PO Box 2052, Jersey City, NJ 07303-9998, owned of
record 4,412.541 shares (5.29%);
Ivy US Emerging Growth Fund, Merrill Lynch Pierce Fenner & Smith, 4800
Deer Lake Drive E, 3rd Floor, Jacksonville, FL 32246, owned of record 96,481.220
shares (30.56%);
CLASS I
Of the outstanding Class I shares of:
Ivy International Fund, The John E. Fetzer Institute Inc., 9292 W KL
Ave., Kalamazoo, MI 49009, owned of record 727,066.771 shares (19.12%), State
Street Bank, (TTEE) FBO Allison Engines, 200 Newport Ave., 7th Floor, North
Quincy, MA 02171, owned of record 292,309.556 shares (7.68%), Lynspen and
Company, PO Box 830804, Birmingham, AL 35283, owned of record 276,747.272 shares
(7.27%), and U A Local 447 Pension Trust Fund, 5841 Newman Ct., Sacramento, CA
95819, owned of record 240,427.057 shares (6.32%).
ADVISOR CLASS
Of the outstanding Advisor Class shares of:
Ivy Bond Fund, NFSC FEBO, C. William Ferris, Michael Landry/Keith
Carlson, 700 South Federal Highway, Boca Raton, FL 33432-6114, owned of record
13,944.569 shares (77.94%), and Donaldson Lufkin Jenrette Securities Corporation
Inc., PO Box 2052, Jersey City, NJ 07303-9998, owned of record 3,252.157 shares
(18.17%);
Ivy China Region Fund, Donaldson Lufkin Jenrette Securities Corporation
Inc., PO Box 2052, Jersey City, NJ 07303-9998, owned of record 1,354.000 shares
(84.59%), and Donaldson Lufkin Jenrette Securities Corporation Inc., PO Box
2052, Jersey City, NJ 07303-9998, owned of record 192.447 shares (12.02%).
Ivy Developing Nations Fund, NFSC FEBO, C. William Ferris, Michael
Landry/Keith Carlson, 700 South Federal Highway, Boca Raton, FL 33432-6114,
owned of record 14,362.134 shares (100%);
Ivy Global Fund, NFSC FEBO, C. William Ferris, Michael Landry/Keith
Carlson, 700 South Federal Highway, Boca Raton, FL 33432-6114, owned of record
30,007.844 shares (100%);
Ivy Global Science & Technology Fund, IBT, (custodian) FBO Deborah P.
Mason, 3406 Cypress Landing Dr., Valrico, FL 33594, owned of record 629.966
shares (36.59%), Donaldson Lufkin Jenrette Securities Corporation Inc., PO Box
2052, Jersey City, NJ 07303-9998, owned of record 534.539 shares (31.04%),
Donaldson Lufkin Jenrette Securities Corporation Inc., PO Box 2052, Jersey City,
NJ 07303-9998, owned of record 418.586 shares (24.31%), and Donaldson Lufkin
Jenrette Securities Corporation Inc., PO Box 2052, Jersey City, NJ 07303-9998,
owned of record 138.549 shares (8.04%);
Ivy Growth Fund, NFSC FEBO, C. William Ferris, Michael Landry/Keith
Carlson, 700 South Federal Highway, Boca Raton, FL 33432-6114, owned of record
16,572.658 shares (99.90%);
Ivy Growth with Income Fund, NFSC FEBO, C. William Ferris, Michael
Landry/Keith Carlson, 700 South Federal Highway, Boca Raton, FL 33432-6114,
owned of record 25,118.240 shares (100%);
Ivy International Fund II, Charles Scwab & Co. Inc., 101 Montgomery
Street, San Francisco, CA 94104, owned of record 7,913.113 shares (11.19%),
Donaldson Lufkin Jenrette Securities Corporation Inc., PO Box 2052, Jersey City,
NJ 07303-9998, owned of record 6,471.430 shares (9.15%), and Donaldson Lufkin
Jenrette Securities Corporation Inc., PO Box 2052, Jersey City, NJ 07303-9998,
owned of record 4,602.660 shares (6.50%);
Ivy Pan-Europe Fund, NFSC FEBO, C. William Ferris, Michael Landry/Keith
Carlson, 700 South Federal Highway, Boca Raton, FL 33432-6114, owned of record
3,424.319 shares (47.51%), Donaldson Lufkin Jenrette Securities Corporation
Inc., PO Box 2052, Jersey City, NJ 07303-9998, owned of record 1,191.422 shares
(16.53%), Donaldson Lufkin Jenrette Securities Corporation Inc., PO Box 2052,
Jersey City, NJ 07303-9998, owned of record 947.119 shares (13.14%), Donaldson
Lufkin Jenrette Securities Corporation Inc., PO Box 2052, Jersey City, NJ
07303-9998, owned of record 653.595 shares (9.06%), and Charles Schwab & Co.
Inc., 101 Montgomery Street, San Francisco, CA 94104,owned of record 406.639
shares (5.64%);
Ivy US Blue Chip Fund, Mackenzie Investment Management Inc., Via Mizner
Financial Plaza, 700 South Federal Highway, Suite 300, Boca Raton, FL 33432,
owned of record 50,001.000 shares (80.05%), NFSC FEBO, C. William Ferris,
Michael Landry/Keith Carlson, 700 South Federal Highway, Boca Raton, FL
33432-6114, owned of record 7,419.362 shares (11.87%), and Charles Scwab & Co.
Inc., 101 Montgomery Street, San Francisco, CA 94104, owned of record 3,678.690
shares (5.88%);
Ivy US Emerging Growth Fund, NFSC FEBO, C. William Ferris, Michael
Landry/Keith Carlson, 700 South Federal Highway, Boca Raton, FL 33432-6114,
owned of record 20,670.236 shares (84.78%), and Charles Schwab & Co. Inc., 101
Montgomery Street, San Francisco, CA 94104, owned of record 1,927.965 shares
(7.90%).
As of April 16, 1999, the Officers and Trustees of the Trust as a group
owned beneficially or of record less than 1% of the outstanding Class A, Class
B, Class C, Class I and Advisor Class shares of each of the nineteen Ivy funds
that are series of the Trust, except that the Officers and Trustees of the Trust
as a group owned 3.93%, 1.94%, 1.19%, and 2.09%, respectively, of Ivy Asia
Pacific Fund Class A shares, Ivy Global Natural Resources Fund Class A shares,
Ivy Money Market Fund Class A shares, and Ivy South America Fund Class A shares,
respectively, as of that date.
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 Funds. Among other things,
the Code of Ethics, which generally complies with standards recommended by the
Investment Company Institute's Advisory Group on Personal Investing, prohibits
certain types of transactions absent prior approval, applies to portfolio
managers, traders, research analysts and others involved in the investment
advisory process, and imposes time periods during which personal transactions
may not be made in certain securities, and requires the submission of duplicate
broker confirmations and monthly reporting of securities transactions.
Exceptions to these and other provisions of the Code of Ethics may be granted in
particular circumstances after review by appropriate personnel.
INVESTMENT ADVISORY AND OTHER SERVICES
BUSINESS MANAGEMENT AND INVESTMENT ADVISORY SERVICES
IMI is a wholly owned subsidiary of Mackenzie Investment Management Inc.
("MIMI"). MIMI, a Delaware corporation, has approximately 10% of its outstanding
common stock listed for trading on the Toronto Stock Exchange ("TSE"). MIMI is a
subsidiary of Mackenzie Financial Corporation ("MFC"), 150 Bloor Street West,
Toronto, Ontario, Canada, a public corporation organized under the laws of
Ontario and whose shares are listed for trading on the TSE. MFC provides
investment advisory services to the Fund pursuant to an Investment Advisory
Agreement, and IMI provides business management and investment advisory services
to each of the other Funds pursuant to a Business Management and Investment
Advisory Agreement (each an "Agreement"). IMI provides business management
services to Ivy Global Natural Resources Fund pursuant to a Business Management
Agreement (the "Management Agreement"). IMI currently acts as manager and
investment adviser to the following additional investment companies registered
under the 1940 Act: Ivy Asia Pacific Fund, Ivy Bond Fund, Ivy China Region Fund,
Ivy Developing Nations Fund, Ivy Growth Fund, Ivy Growth with Income Fund, Ivy
International Fund, Ivy International Strategic Bond Fund, Ivy Money Market
Fund, Ivy South America Fund, Ivy US Blue Chip Fund and Ivy US Emerging Growth
Fund.
The Agreements obligate IMI and MFC to make investments for the account of
each 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 and MFC also determine the securities
to be purchased or sold by each Fund and place orders with brokers or dealers
who deal in such securities.
Under the IMI Agreement and the Management Agreement, IMI also provides
certain business management services. IMI is obligated to (1) coordinate with
each Fund's Custodian and monitor the services it provides to each Fund; (2)
coordinate with and monitor any other third parties furnishing services to each
Fund; (3) provide each 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 each
Fund or by IMI acting in some other capacity pursuant to a separate agreement or
arrangements with the Fund; (5) maintain or supervise the maintenance by third
parties of such books and records of the Trust as may be required by applicable
Federal or state law; (6) authorize and permit IMI's directors, officers and
employees who may be elected or appointed as trustees or officers of the Trust
to serve in such capacities; and (7) take such other action with respect to the
Trust, after approval by the Trust as may be required by applicable law,
including without limitation the rules and regulations of the SEC and of state
securities commissions and other regulatory agencies. IMI is also responsible
for reviewing the activities of MFC to ensure that Ivy Global Natural Resources
Fund is operated in compliance with its investment objectives and policies and
with the 1940 Act.
Henderson Investment Management Limited ("Henderson"), 3 Finsbury Avenue,
London, England EC2M 2PA, serves as subadviser to Ivy European Opportunities
Fund under an Agreement with IMI. For its services, Henderson receives a fee
from IMI that is equal, on an annual basis, to .50% of the Fund's average net
assets. As of February 1, 1999, Henderson also serves as subadviser with respect
to 50% of the net assets of Ivy International Small Companies Fund, for which
Henderson receives a fee from IMI that is equal, on an annual basis, to .50% of
that portion of the Fund's assets that Henderson manages. Henderson is an
indirect, wholly owned subsidiary of AMP Limited, an Australian life insurance
and financial services company located in New South Wales, Australia.
Ivy Global Natural Resources Fund pays IMI a monthly fee for providing
business management services at an annual rate of 0.50% of the Fund's average
net assets. For investment advisory services, Ivy Global Natural Resources Fund
pays MFC a monthly fee at an annual rate of 0.50% of its average net assets.
During the fiscal years ended December 31, 1997 and 1998, Ivy Global
Natural Resources Fund paid IMI fees of $32,056 and $20,977, respectively.
During the same periods, IMI reimbursed Fund expenses in the amount of $25,180
and $147,952, respectively. During the fiscal years ended December 31, 1997 and
1998, Ivy Global Natural Resources Fund paid MFC fees of $32,056 and $20,977,
respectively.
Each other Fund pays IMI a monthly fee for providing business management
and investment advisory services at an annual rate of 1.00% of the Fund's
average net assets.
During the fiscal years ended December 31, 1996, 1997 and 1998, Ivy Global
Fund paid IMI fees of $301,433, $383,981 and $275,958, respectively. During the
same periods, IMI reimbursed Fund expenses in the amount of $0, $0 and $98,102,
respectively.
During the period from July 22, 1996 (commencement of operations) to
December 31, 1996, and during the fiscal years ended December 31, 1997 and 1998,
Ivy Global Science & Technology Fund paid IMI fees of $20,965, $229,616 and
$280,079, respectively. During the same periods, IMI reimbursed Fund expenses in
the amount of $14,813, $0 and $0, respectively.
During the period from May 13, 1997 (commencement of operations) to
December 31, 1997 and the fiscal year ended December 31, 1998, Ivy International
Fund II paid IMI fees of $413,862 and $1,356,028, respectively. During these
periods IMI reimbursed Fund expenses in the amount of $123,177 and $186,536,
respectively.
During the fiscal years ended December 31, 1997 and 1998, Ivy
International Small Companies Fund paid IMI fees of $28,799 and $34,504,
respectively. During these periods IMI reimbursed Fund expenses in the amount of
$28,799 and $134,787, respectively.
During the period from May 13, 1997 (commencement of operations) to
December 31, 1997 and the fiscal year ended December 31, 1998, Ivy Pan-Europe
Fund paid IMI fees of $1,974 and $43,978, respectively. During these periods IMI
reimbursed Fund expenses in the amount of $1,974 and $148,399, respectively.
Under the Agreements, the Trust pays the following expenses: (1) the fees
and expenses of the Trust's Independent Trustees; (2) the salaries and expenses
of any of the Trust's officers or employees who are not affiliated with IMI; (3)
interest expenses; (4) taxes and governmental fees, including any original issue
taxes or transfer taxes applicable to the sale or delivery of shares or
certificates therefor; (5) brokerage commissions and other expenses incurred in
acquiring or disposing of portfolio securities; (6) the expenses of registering
and qualifying shares for sale with the SEC and with various state securities
commissions; (7) accounting and legal costs; (8) insurance premiums; (9) fees
and expenses of the Trust's Custodian and Transfer Agent and any related
services; (10) expenses of obtaining quotations of portfolio securities and of
pricing shares; (11) expenses of maintaining the Trust's legal existence and of
shareholders' meetings; (12) expenses of preparation and distribution to
existing shareholders of periodic reports, proxy materials and prospectuses; and
(13) fees and expenses of membership in industry organizations.
IMI currently limits each 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 that Fund's average net assets, which may lower each Fund's
expenses and increase its yield.
The Agreements will continue in effect with respect to each Fund from year
to year, only so long as the continuance is specifically approved at least
annually (i) by the vote of a majority of the Independent Trustees and (ii)
either (a) by the vote of a majority of the outstanding voting securities (as
defined in the 1940 Act) of that 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 with respect to each Fund only if approved by the affirmative
vote of a majority of the outstanding voting securities of that Fund. See
"Capitalization and Voting Rights."
The Agreements may be terminated with respect to each 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 a Fund, on 60 days'
written notice to IMI, or by IMI on 60 days' written notice to the Trust. Each
Agreement shall terminate automatically in the event of its assignment.
DISTRIBUTION SERVICES
IMDI, a wholly owned subsidiary of MIMI, serves as the exclusive
distributor of each Fund's shares pursuant to an Amended and Restated
Distribution Agreement with the Trust dated March 16, 1999, as amended from time
to time (the "Distribution Agreement"). IMDI distributes shares of each 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 each 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.
Each 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 each Fund's behalf. Each 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 each Fund's Net Asset Value next
computed after an authorized intermediary or the intermediary's authorized
designee accepts them.
Under the Distribution Agreement, each Fund bears, among other expenses,
the expenses of registering and qualifying its shares for sale under Federal and
state securities laws and preparing and distributing to existing shareholders
periodic reports, proxy materials and prospectuses.
The Distribution Agreement will continue in effect for successive one-year
periods, provided that such continuance is specifically approved at least
annually by the vote of a majority of the Independent Trustees, cast in person
at a meeting called for that purpose and by the vote of either a majority of the
entire Board or a majority of the outstanding voting securities of each Fund.
The Distribution Agreement may be terminated with respect to any Fund at any
time, without payment of any penalty, by IMDI on 60 days' written notice to the
Fund or by a 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.
If the Distribution Agreement is terminated (or not renewed) with respect
to any of the Ivy funds (or class of shares thereof), it may continue in effect
with respect to any other fund (or class of shares thereof) as to which it has
not been terminated (or has been renewed).
RULE 18F-3 PLAN. On February 23, 1995, the SEC adopted Rule 18f-3 under
the 1940 Act, which permits a registered open-end investment company to issue
multiple classes of shares in accordance with a written plan approved by the
investment company's board of directors/trustees and filed with the SEC. The
Board has adopted a Rule 18f-3 plan on behalf of each Fund. The key features of
the Rule 18f-3 plan are as follows: (i) shares of each class of each Fund
represent an equal pro rata interest in that 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 each Fund may be exchanged for shares of the same class
of another Ivy fund; and (iii) each Fund's Class B shares will convert
automatically into Class A shares of that 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 each 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 each Fund's foreign securities. With
respect to each Fund, the Custodian may receive, as partial payment for its
services to each 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 each Fund. As compensation for those
services, each Fund pays MIMI a monthly fee plus out-of-pocket expenses as
incurred. The monthly fee is based upon the net assets of the Fund at the
preceding month end at the following rates: $1,250 when net assets are $10
million and under; $2,500 when net assets are over $10 million to $40 million;
$5,000 when net assets are over $40 million to $75 million; and $6,500 when net
assets are over $75 million.
During the fiscal year ended December 31, 1998, Ivy Global Fund paid MIMI
$37,768 under the agreement.
During the fiscal year ended December 31, 1998, Ivy Global Natural
Resources Fund paid MIMI $19,850 under the agreement.
During the fiscal year ended December 31, 1998, Ivy Global Science &
Technology Fund paid MIMI $38,210 under the agreement.
During the fiscal year ended December 31, 1998, Ivy International Fund II
paid MIMI $101,019 under the agreement.
During the fiscal year ended December 31, 1998, Ivy International Small
Companies Fund paid MIMI $20,384 under the agreement.
During the fiscal year ended December 31, 1998, Ivy Pan-Europe Fund paid
MIMI $19,820 under the agreement.
TRANSFER AGENT AND DIVIDEND PAYING AGENT
Pursuant to a Transfer Agency and Shareholder Service Agreement, IMSC, a
wholly owned subsidiary of MIMI, is the transfer agent for each Fund. Under the
Agreement, each Fund pays a monthly fee at an annual rate of $20.00 for each
open Class A, Class B, Class C, and Advisor Class account. Each Fund with Class
I shares pays a monthly fee at an annual rate of $10.25 per open Class I
account. In addition, each Fund pays a monthly fee at an annual rate of $4.58
per account that is closed plus certain out-of-pocket expenses. Such fees and
expenses for the fiscal year ended December 31, 1998 for Ivy Global Fund totaled
$74,574. Such fees and expenses for the fiscal year ended December 31, 1998 for
Ivy Global Natural Resources Fund totaled $17,966. Such fees and expenses for
the fiscal year ended December 31, 1998 for Ivy Global Science & Technology Fund
totaled $63,868. Such fees and expenses for the fiscal year ended December 31,
1998 for Ivy International Fund II totaled $316,274. Such fees and expenses for
the fiscal year ended December 31, 1998 for Ivy International Small Companies
Fund totaled $11,287. Such fees and expenses for the fiscal year ended December
31, 1998 for Ivy Pan-Europe Fund totaled $8,191. Certain broker-dealers that
maintain shareholder accounts with each Fund through an omnibus account provide
transfer agent and other shareholder-related services that would otherwise be
provided by IMSC if the individual accounts that comprise the omnibus account
were opened by their beneficial owners directly. IMSC pays such broker-dealers a
per account fee for each open account within the omnibus account, or a fixed
rate (e.g., 0.10%) fee, based on the average daily net asset value of the
omnibus account (or a combination thereof).
ADMINISTRATOR
Pursuant to an Administrative Services Agreement, MIMI provides certain
administrative services to each Fund. As compensation for these services, each
Fund pays MIMI a monthly fee at the annual rate of 0.10% of the Fund's average
daily net asset value of its Class A, Class B, Class C, and Advisor Class
shares. Each Fund with Class I shares pays MIMI a monthly fee at the annual rate
of 0.01% of its average daily net assets for Class I. Such fees for the fiscal
year ended December 31, 1998 for Ivy Global Fund totaled $27,596. Such fees for
the fiscal year ended December 31, 1998 for Ivy Global Natural Resources Fund
totaled $4,196. Such fees for the fiscal year ended December 31, 1998 for Ivy
Global Science & Technology Fund totaled $28,008. Such fees for the fiscal year
ended December 31, 1998 for Ivy International Fund II totaled $135,329. Such
fees for the fiscal year ended December 31, 1998 for Ivy International Small
Companies Fund totaled $3,450. Such fees for the fiscal year ended December 31,
1998 for Ivy Pan-Europe Fund totaled $4,398.
AUDITORS
PricewaterhouseCoopers LLP, independent public accountants, has been
selected as auditors for the Trust. The audit services performed by
PricewaterhouseCoopers LLP include audits of the annual financial statements of
each of the funds of the Trust. Other services provided principally relate to
filings with the SEC and the preparation of the funds' tax returns.
BROKERAGE ALLOCATION
Subject to the overall supervision of the President and the Board, IMI (or
for Global Natural Resources Fund, MFC) places orders for the purchase and sale
of each 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 Funds 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 (or MFC) attempts to
deal directly with the principal market makers, except in those circumstances
where IMI (or MFC) believes that a better price and execution are available
elsewhere.
IMI (or MFC) selects broker-dealers to execute transactions and evaluates
the reasonableness of commissions on the basis of quality, quantity, and the
nature of the firms' professional services. Commissions to be charged and the
rendering of investment services, including statistical, research, and
counseling services by brokerage firms, are factors to be considered in the
placing of brokerage business. The types of research services provided by
brokers may include general economic and industry data, and information on
securities of specific companies. Research services furnished by brokers through
whom the Trust effects securities transactions may be used by IMI (or MFC) in
servicing all of its accounts. In addition, not all of these services may be
used by IMI (or MFC) in connection with the services it provides to the Fund or
the Trust. IMI (or MFC) may consider sales of shares of Ivy funds as a factor in
the selection of broker-dealers and may select broker-dealers who provide it
with research services. IMI (or MFC) will not, however, execute brokerage
transactions other than at the best price and execution.
During the fiscal years ended December 31, 1996, 1997 and 1998, Ivy Global
Fund paid brokerage commissions of $90,904, $123,985 and $76,661, respectively.
During the fiscal years ended December 31, 1997 and 1998, Ivy Global
Natural Resources Fund paid brokerage commissions of $128,646 and $49,752,
respectively.
During the period from July 22, 1996 (commencement of operations) to
December 31, 1996, and during the fiscal years ended December 31, 1997 and 1998,
Ivy Global Science & Technology Fund paid brokerage commissions of $37,065,
$99,546 and $110,302, respectively.
During the period from May 13, 1997 (commencement of operations) to
December 31, 1997, and the fiscal year ended December 31, 1998, Ivy
International Fund II paid brokerage commissions of $332,022 and $225,584,
respectively.
During the fiscal years ended December 31, 1997 and 1998, Ivy
International Small Companies Fund paid brokerage commission of $14,913 and
$5,087, respectively.
During the period from May 13, 1997 (commencement of operations) to
December 31, 1997, and the fiscal year ended December 31, 1998, Ivy Pan-Europe
Fund paid brokerage commissions of $491 and $11,639, respectively.
Each Fund may, under some circumstances, accept securities in lieu of cash
as payment for Fund shares. Each 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 (or MFC) deems to be a desirable investment for each Fund.
While no minimum has been established, it is expected that each 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 any Fund shares with
securities and may discontinue accepting securities as payment for any 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
each Fund, and each Fund shares will be sold for net asset value determined at
the same time the accepted securities are valued. The Trust will only accept
securities delivered in proper form and will not accept securities subject to
legal restrictions on transfer. The acceptance of securities by the Trust must
comply with the applicable laws of certain states.
CAPITALIZATION AND VOTING RIGHTS
The capitalization of the Trust consists of an unlimited number of shares
of beneficial interest (no par value per share). When issued, shares of each
class of each Fund are fully paid, non-assessable, redeemable and fully
transferable. No class of shares of any Fund has preemptive rights or
subscription rights.
The Amended and Restated Declaration of Trust permits the Trustees to
create separate series or portfolios and to divide any series or portfolio into
one or more classes. The Trustees have authorized nineteen series, each of which
represents a fund. The Trustees have further authorized the issuance of Class A,
Class B, and Class C shares for Ivy International Fund and Ivy Money Market Fund
and Class A, Class B, Class C and Advisor Class shares for Ivy Asia Pacific
Fund, Ivy Bond Fund, Ivy China Region Fund, Ivy Developing Nations Fund, Ivy
European Opportunities Fund, Ivy Global Fund, Ivy Global Natural Resources Fund,
Ivy Global Science & Technology Fund, Ivy Growth Fund, Ivy Growth with Income
Fund, Ivy International Fund II, Ivy International Small Companies Fund, Ivy
International Strategic Bond Fund, Ivy Pan-Europe Fund, Ivy South America Fund,
Ivy US Blue Chip Fund, and Ivy US Emerging Growth Fund, as well as Class I
shares for Ivy Bond Fund, Ivy European Opportunities Fund, Ivy Global Science &
Technology Fund, Ivy International Fund II, Ivy International Fund, Ivy
International Small Companies Fund, Ivy International Strategic Bond Fund, and
Ivy US Blue Chip Fund.
Shareholders have the right to vote for the election of Trustees of the
Trust and on any and all matters on which they may be entitled to vote by law or
by the provisions of the Trust's By-Laws. The Trust is not required to hold a
regular annual meeting of shareholders, and it does not intend to do so. Shares
of each class of each Fund entitle their holders to one vote per share (with
proportionate voting for fractional shares). Shareholders of each Fund are
entitled to vote alone on matters that only affect that Fund. All classes of
shares of each Fund will vote together, except with respect to the distribution
plan applicable to the Fund's Class A, Class B or Class C shares or when a class
vote is required by the 1940 Act. On matters relating to all funds of the Trust,
but affecting the funds differently, separate votes by the shareholders of each
fund are required. Approval of an investment advisory agreement and a change in
fundamental policies would be regarded as matters requiring separate voting by
the shareholders of each fund of the Trust. If the Trustees determine that a
matter does not affect the interests of a Fund, then the shareholders of that
Fund will not be entitled to vote on that matter. Matters that affect the Trust
in general, such as ratification of the selection of independent public
accountants, will be voted upon collectively by the shareholders of all funds of
the Trust.
As used in this SAI and the Prospectus, the phrase "majority vote of the
outstanding shares" of a Fund means the vote of the lesser of: (1) 67% of the
shares of that 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 that Fund (or of the Trust).
With respect to the submission to shareholder vote of a matter requiring
separate voting by a Fund, the matter shall have been effectively acted upon
with respect to that Fund if a majority of the outstanding voting securities of
the Fund votes for the approval of the matter, notwithstanding that: (1) the
matter has not been approved by a majority of the outstanding voting securities
of any other fund of the Trust; or (2) the matter has not been approved by a
majority of the outstanding voting securities of the Trust.
The Amended and Restated Declaration of Trust provides that the holders of
not less than two-thirds of the outstanding shares of the Trust may remove a
person serving as trustee either by declaration in writing or at a meeting
called for such purpose. The Trustees are required to call a meeting for the
purpose of considering the removal of a person serving as Trustee if requested
in writing to do so by the holders of not less than 10% of the outstanding
shares of the Trust. Shareholders will be assisted in communicating with other
shareholders in connection with the removal of a Trustee as if Section 26(c) of
the Act were applicable.
The Trust's shares do not have cumulative voting rights and accordingly
the holders of more than 50% of the outstanding shares could elect the entire
Board, in which case the holders of the remaining shares would not be able to
elect any Trustees.
Under Massachusetts law, the Trust's shareholders could, under certain
circumstances, be held personally liable for the obligations of the Trust.
However, the Amended and Restated Declaration of Trust disclaims liability of
the shareholders, Trustees or officers of the Trust for acts or obligations of
the Trust, which are binding only on the assets and property of the Trust, and
requires that notice of the disclaimer be given in each contract or obligation
entered into or executed by the Trust or its Trustees. The Amended and Restated
Declaration of Trust provides for indemnification out of Fund property for all
loss and expense of any shareholder of any Fund held personally liable for the
obligations of that Fund. The risk of a shareholder of the Trust incurring
financial loss on account of shareholder liability is limited to circumstances
in which the Trust itself would be unable to meet its obligations and, thus,
should be considered remote. No series of the Trust is liable for the
obligations of any other series of the Trust.
SPECIAL RIGHTS AND PRIVILEGES
The Trust offers, and (except as noted below) bears the cost of providing,
to investors the following rights and privileges. The Trust reserves the right
to amend or terminate any one or more of these rights and privileges. Notice of
amendments to or terminations of rights and privileges will be provided to
shareholders in accordance with applicable law.
Certain of the rights and privileges described below refer to funds, other
than the Funds, whose shares are also distributed by IMDI. These funds are: Ivy
Asia Pacific Fund, Ivy Bond Fund, Ivy China Region Fund, Ivy Developing Nations
Fund, Ivy Growth Fund, Ivy Growth with Income Fund, Ivy International Fund, Ivy
International Strategic Bond Fund, Ivy Money Market Fund, Ivy South America
Fund, Ivy US Blue Chip Fund, and Ivy US Emerging Growth Fund (the other twelve
series of the Trust). (Effective April 18, 1997, Ivy International Fund
suspended the offer of its shares to new investors). Shareholders should obtain
a current prospectus before exercising any right or privilege that may relate to
these funds.
AUTOMATIC INVESTMENT METHOD
The Automatic Investment Method, which enables a Fund shareholder to have
specified amounts automatically drawn each month from his or her bank for
investment in Fund shares, is available for all classes of shares except Class
I. The minimum initial and subsequent investment under this method is $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, shareholders of each 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 a 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 share. The minimum value of Advisor Class shares which may
be exchanged into an Ivy fund in which shares are not already held is $10,000.
No exchange out of any 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 that Fund to less than $10,000.
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.
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 each Fund may be used as a
funding medium for an Individual Retirement Account ("IRA"). Eligible
individuals may establish an IRA by adopting a model custodial account available
from IMSC, who may impose a charge for establishing the account. Individuals
should consult their tax advisers before investing IRA assets in an Ivy fund if
that fund primarily distributes exempt-interest dividends.
An individual who has not reached age 70-1/2 and who receives compensation
or earned income is eligible to contribute to an IRA, whether or not he or she
is an active participant in a retirement plan. An individual who receives a
distribution from another IRA, a qualified retirement plan, a qualified annuity
plan or a tax-sheltered annuity or custodial account ("403(b) plan") that
qualifies for "rollover" treatment is also eligible to establish an IRA by
rolling over the distribution either directly or within 60 days after its
receipt. Tax advice should be obtained in connection with planning a rollover
contribution to an IRA.
In general, an eligible individual may contribute up to the lesser of
$2,000 or 100% of his or her compensation or earned income to an IRA each year.
If a husband and wife are both employed, and both are under age 70-1/2, each may
set up his or her own IRA within these limits. If both earn at least $2,000 per
year, the maximum potential contribution is $4,000 per year for both. For years
after 1996, the result is similar even if one spouse has no earned income; if
the joint earned income of the spouses is at least $4,000, a contribution of up
to $2,000 may be made to each spouse's IRA. Rollover contributions are not
subject to these limits.
An individual may deduct his or her annual contributions to an IRA in
computing his or her Federal income tax within the limits described above,
provided he or she (or his or her spouse, if they file a joint Federal income
tax return) is not an active participant in a qualified retirement plan (such as
a qualified corporate, sole proprietorship, or partnership pension, profit
sharing, 401(k) or stock bonus plan), qualified annuity plan, 403(b) plan,
simplified employee pension, or governmental plan. If he or she (or his or her
spouse) is an active participant, whether the individual's contribution to an
IRA is fully deductible, partially deductible or not deductible depends on (i)
adjusted gross income and (ii) whether it is the individual or the individual's
spouse who is an active participant, in the case of married individuals filing
jointly. Contributions may be made up to the maximum permissible amount even if
they are not deductible. Rollover contributions are not includable in income for
Federal income tax purposes and therefore are not deductible from it.
Generally, earnings on an IRA are not subject to current Federal income
tax until distributed. Distributions attributable to tax-deductible
contributions and to IRA earnings are taxed as ordinary income. Distributions of
non-deductible contributions are not subject to Federal income tax. In general,
distributions from an IRA to an individual before he or she reaches age 59-1/2
are subject to a nondeductible penalty tax equal to 10% of the taxable amount of
the distribution. The 10% penalty tax does not apply to amounts withdrawn from
an IRA after the individual reaches age 59-1/2, becomes disabled or dies, or if
withdrawn in the form of substantially equal payments over the life or life
expectancy of the individual and his or her designated beneficiary, if any, or
rolled over into another IRA, amounts withdrawn and used to pay for deductible
medical expenses and amounts withdrawn by certain unemployed individuals not in
excess of amounts paid for certain health insurance premiums, amounts used to
pay certain qualified higher education expenses, and amounts used within 120
days of the date the distribution is received to pay for certain first-time
homebuyer expenses. Distributions must begin to be withdrawn not later than
April 1 of the calendar year following the calendar year in which the individual
reaches age 70-1/2. Failure to take certain minimum required distributions will
result in the imposition of a 50% non-deductible penalty tax.
ROTH IRAS: Shares of each 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 -
$250), 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. 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 $250 each while the Withdrawal Plan is in effect.
An investor may terminate his or her participation in the Withdrawal Plan
at any time by delivering written notice to IMSC. If all shares held by the
investor are liquidated at any time, participation in the Withdrawal Plan will
terminate automatically. The Trust or IMSC may terminate the Withdrawal Plan
option at any time after reasonable notice to shareholders.
GROUP SYSTEMATIC INVESTMENT PROGRAM
Shares of each 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 a Fund are purchased in conjunction with
IRAs (see "How to Buy Shares" in the Prospectus), such group systematic
investment programs are not entitled to special tax benefits under the Code. The
Trust reserves the right to refuse purchases at any time or suspend the offering
of shares in connection with group systematic investment programs, and to
restrict the offering of shareholder privileges, such as check writing,
simplified redemptions and other optional privileges, as described in the
Prospectus, to shareholders using group systematic investment programs.
With respect to each shareholder account established on or after September
15, 1972 under a group systematic investment program, the Trust and IMI each
currently charge a maintenance fee of $3.00 (or portion thereof) that for each
twelve-month period (or portion thereof) that the account is maintained. The
Trust may collect such fee (and any fees due to IMI) through a deduction from
distributions to the shareholders involved or by causing on the date the fee is
assessed a redemption in each such shareholder account sufficient to pay such
fee. The Trust reserves the right to change these fees from time to time without
advance notice.
<PAGE>
REDEMPTIONS
Shares of each 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 a Fund is not reasonably practicable or it is not reasonably
practicable for a 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 any Fund.
The Trust may redeem those Advisor Class accounts of shareholders who have
maintained an investment of less than $10,000 in any 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 a 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.
Each 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, a Fund may be liable for any losses due to
unauthorized or fraudulent telephone instructions.
NET ASSET VALUE
The net asset value per share of each Fund is computed by dividing the
value of that 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 each Fund's aggregate net assets, receivables are valued at their
realizable amounts. Each 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
a Fund's portfolio securities occur between the time when a foreign exchange
closes and the time when that 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 a Fund's Custodian or the Exchange close early as a
result of a partial holiday or otherwise, the Trust reserves the right to
advance the time on that day by which purchase and redemption requests must be
received.
The number of shares you receive when you place a purchase order, and the
payment you receive after submitting a redemption request, is based on each
Fund's net asset value next determined after your instructions are received in
proper form by IMSC or by your registered securities dealer. Since each Fund
invests in securities that are listed on foreign exchanges that may trade on
weekends or other days when the Funds do not price their shares, each Fund's net
asset value may change on days when shareholders will not be able to purchase or
redeem that Fund's shares. The sale of each 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 a Fund's best interest to do so.
TAXATION
The following is a general discussion of certain tax rules thought to be
applicable with respect to each 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 any Fund.
Each Fund intends to be taxed as a regulated investment company under
Subchapter M of the Code. Accordingly, each 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, each 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. Each 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, each 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, each 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 a 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 each 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 a 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 a 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 a 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 each 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 each 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
each Fund may result in "straddles" for Federal income tax purposes. The
straddle rules may affect the character of gains or losses realized by each
Fund. In addition, losses realized by each 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 each Fund
are not entirely clear. The straddle rules may increase the amount of short-term
capital gain realized by each Fund, which is taxed as ordinary income when
distributed to shareholders.
Each Fund may make one or more of the elections available under the Code
which are applicable to straddles. If a 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, each 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 a 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 a 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 each Fund's investment company taxable income
available to be distributed to its shareholders as ordinary income.
INVESTMENT IN PASSIVE FOREIGN INVESTMENT COMPANIES
Each Fund may invest in shares of foreign corporations which may be
classified under the Code as passive foreign investment companies ("PFICs"). In
general, a foreign corporation is classified as a PFIC if at least one-half of
its assets constitute investment-type assets, or 75% or more of its gross income
is investment-type income. If a 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. A 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.
Each Fund may be eligible to elect alternative tax treatment with respect
to PFIC shares. Each 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, each 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 each 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 each 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. Each 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 each Fund may be treated as having
acquisition discount, or OID in the case of certain types of debt securities.
Generally, a 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. Each
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.
Each Fund generally will be required to distribute dividends to
shareholders representing discount on debt securities that is currently
includable in income, even though cash representing such income may not have
been received by each Fund. Cash to pay such dividends may be obtained from
sales proceeds of securities held by each 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 a 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 each 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 that Fund on the distribution date. A
distribution of an amount in excess of a 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 a 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
a 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 same 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 each 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 a Fund's total assets at the close of its
taxable year consists of securities of foreign corporations, that Fund will be
eligible and may elect to "pass-through" to its 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 each Fund's taxable year whether the foreign taxes
paid by that 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 a Fund makes
the election described in the preceding paragraph, the source of that Fund's
income flows through to its shareholders. With respect to each 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 each 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 a 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 a 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
Each Fund will be required to report to the Internal Revenue Service
("IRS") all taxable distributions as well as gross proceeds from the redemption
of that 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 a 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 each 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 any Fund.
PERFORMANCE INFORMATION
Performance information for the classes of shares of each 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 each 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 each 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.
AVERAGE ANNUAL TOTAL RETURN. Quotations of standardized average annual
total return ("Standardized Return") for a specific class of shares of each Fund
will be expressed in terms of the average annual compounded rate of return that
would cause a hypothetical investment in that class of that 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 each Fund, it is assumed that
all dividends and capital gains distributions made by that Fund are reinvested
at net asset value in additional Advisor Class shares during the designated
period. Standardized Return quotations for each 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%.
Each 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").
In determining the average annual total return for a specific class of
shares of each Fund, recurring fees, if any, that are charged to all shareholder
accounts are taken into consideration. For any account fees that vary with the
size of the account of each Fund, the account fee used for purposes of the
following computations is assumed to be the fee that would be charged to the
mean account size of the Fund.
The Standardized Return for the Advisor Class shares of Ivy Global Fund
for the period from the date Advisor Class shares were first offered (January 1,
1998) through December 31, 1998 was (10.19)%. This figure reflects expense
reimbursement. Without expense reimbursement, the Standardized Return would have
been (10.41)%.
The Standardized Return for the Advisor Class shares of Ivy Global Science
& Technology Fund for the period from the date Advisor Class shares were first
offered (January 1, 1998) through December 31, 1998 was 16.99%.
The Standardized Return for the Advisor Class shares of Ivy International
Fund II for the period from the date Advisor Class shares were first offered
(January 1, 1998) through December 31, 1998 was (0.15)%. This figure reflects
expense reimbursement. Without expense reimbursement, the Standardized Return
would have been (0.24)%.
The Standardized Return for the Advisor Class shares of Ivy Pan-Europe
Fund for the period from the date Advisor Class shares were first offered
(January 1, 1998) through December 31, 1998 was (8.37)%. This figure reflects
expense reimbursement. Without expense reimbursement, the Standardized Return
would have been (11.98)%.
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 a particular Fund for a specified period. Cumulative total return
quotations reflect changes in the price of a Fund's shares and assume that all
dividends and capital gains distributions during the period were reinvested in
Fund shares. Cumulative total return is calculated by computing the cumulative
rates of return of a hypothetical investment in a specific class of shares of a
Fund over such periods, according to the following formula (cumulative total
return is then expressed as a percentage):
C = (ERV/P) - 1
Where: C = cumulative total return
P = a hypothetical initial investment of $1,000 to
purchase shares of a specific class
ERV = ending redeemable value: ERV is the
value, at the end of the applicable period, of a
hypothetical $1,000 investment made at the
beginning of the applicable period.
The Cumulative Total Return for the Advisor Class shares of Ivy Global
Fund for the period from the date Advisor Class shares were first offered
(January 1, 1998) through December 31, 1998 was (10.19)%.
The Cumulative Total Return for the Advisor Class shares of Ivy Global
Science & Technology Fund for the period from the date Advisor Class shares were
first offered (January 1, 1998) through December 31, 1998 was 16.99%.
The Cumulative Total Return for the Advisor Class shares of Ivy
International Fund II for the period from the date Advisor Class shares were
first offered (January 1, 1998) through December 31, 1998 was (0.15)%.
The Cumulative Total Return for the Advisor Class shares of Ivy Pan-Europe
Fund for the period from the date Advisor Class shares were first offered
(January 1, 1998) through December 31, 1998 was (8.37)%.
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 each Fund will vary from time to time depending
on market conditions, the composition of that Fund's portfolio and operating
expenses of that Fund. These factors and possible differences in the methods
used in calculating performance quotations should be considered when comparing
performance information regarding a 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 each Fund's shares
and the risks associated with each 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.
Each 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
Each Fund's (except Ivy European Opportunities Fund) Portfolio of
Investments as of December 31, 1998, Statement of Assets and Liabilities as of
December 31, 1998, Statement of Operations for the fiscal year ended December
31, 1998, Statement of Changes in Net Assets for the fiscal year ended December
31, 1998, Financial Highlights, Notes to Financial Statements, and Report of
Independent Accountants, which are included in each Fund's December 31, 1998
Annual Report to shareholders, are incorporated by reference into this SAI. Ivy
European Opportunities Fund's Statement of Assets and Liabilities as of April
28, 1999 and the notes thereto are attached hereto as Appendix B.
<PAGE>
APPENDIX A
DESCRIPTION OF STANDARD & POOR'S RATINGS GROUP ("S&P") AND
MOODY'S INVESTORS SERVICE, INC. ("MOODY'S") CORPORATE
BOND AND COMMERCIAL PAPER RATINGS
[From "Moody's Bond Record," November 1994 Issue (Moody's Investors Service,
New York, 1994), and "Standard & Poor's Municipal Ratings Handbook," October
1997 Issue (McGraw Hill, New York, 1997).]
MOODY'S:
(a) CORPORATE BONDS. Bonds rated Aaa by Moody's are judged by Moody's to
be of the best quality, carrying the smallest degree of investment risk.
Interest payments are protected by a large or exceptionally stable margin and
principal is secure. While the various protective elements are likely to change,
such changes as can be visualized are most unlikely to impair the fundamentally
strong position of such issues. Bonds rated Aa are judged by Moody's to be of
high quality by all standards. Aa bonds are rated lower than Aaa bonds because
margins of protection may not be as large as those of Aaa bonds, or fluctuations
of protective elements may be of greater amplitude, or there may be other
elements present which make the long-term risks appear somewhat larger than
those applicable to Aaa securities. Bonds which are rated A by Moody's possess
many favorable investment attributes and are to be considered as upper
medium-grade obligations. Factors giving security to principal and interest are
considered adequate, but elements may be present which suggest a susceptibility
to impairment sometime in the future. Bonds rated Baa by Moody's are considered
medium-grade obligations (i.e., they are neither highly protected nor poorly
secured). Interest payments and principal security appear adequate for the
present, but certain protective elements may be lacking or may be
characteristically unreliable over any great length of time. Such bonds lack
outstanding investment characteristics and in fact have speculative
characteristics as well. Bonds which are rated Ba are judged to have speculative
elements; their future cannot be considered well-assured. Often the protection
of interest and principal payments may be very moderate and thereby not well
safeguarded during both good and bad times over the future. Uncertainty of
position characterizes bonds in this class. Bonds which are rated B generally
lack characteristics of the desirable investment. Assurance of interest and
principal payments of or maintenance of other terms of the contract over any
long period of time may be small. Bonds which are rated Caa are of poor
standing. Such issues may be in default or there may be present elements of
danger with respect to principal or interest. Bonds which are rated Ca represent
obligations which are speculative in a high degree. Such issues are often in
default or have other marked shortcomings. Bonds which are rated C are the
lowest rated class of bonds and issues so rated can be regarded as having
extremely poor prospects of ever attaining any real investment standing.
(b) COMMERCIAL PAPER. The Prime rating is the highest commercial paper
rating assigned by Moody's. Among the factors considered by Moody's in assigning
ratings are the following: (1) evaluation of the management of the issuer; (2)
economic evaluation of the issuer's industry or industries and an appraisal of
speculative-type risks which may be inherent in certain areas; (3) evaluation of
the issuer's products in relation to competition and customer acceptance; (4)
liquidity; (5) amount and quality of long-term debt; (6) trend of earnings over
a period of ten years; (7) financial strength of a parent company and the
relationships which exist with the issuer; and (8) recognition by management of
obligations which may be present or may arise as a result of public interest
questions and preparations to meet such obligations. Issuers within this Prime
category may be given ratings 1, 2 or 3, depending on the relative strengths of
these factors. The designation of Prime-1 indicates the highest quality
repayment capacity of the rated issue. Issuers rated Prime-2 are deemed to have
a strong ability for repayment while issuers voted Prime-3 are deemed to have an
acceptable ability for repayment. Issuers rated Not Prime do not fall within any
of the Prime rating categories.
S&P:
(a) CORPORATE BONDS. An S&P corporate debt rating is a current assessment
of the creditworthiness of an obligor with respect to a specific obligation. The
ratings are based on current information furnished by the issuer or obtained by
S&P from other sources it considers reliable. The ratings described below may be
modified by the addition of a plus or minus sign to show relative standing
within the major rating categories.
Debt rated AAA has the highest rating assigned by S&P. Capacity to pay
interest and repay principal is extremely strong. Debt rated AA is judged by S&P
to have a very strong capacity to pay interest and repay principal and differs
from the highest rated issues only in small degree. Debt rated A by S&P has a
strong capacity to pay interest and repay principal, although it is somewhat
more susceptible to the adverse effects of changes in circumstances and economic
conditions than debt in higher rated categories.
Debt rated BBB by S&P is regarded by S&P as having an adequate capacity to
pay interest and repay principal. Although such bonds normally exhibit adequate
protection parameters, adverse economic conditions or changing circumstances are
more likely to lead to a weakened capacity to pay interest and repay principal
than debt in higher rated categories.
Debt rated BB, B, CCC, CC and C is regarded as having predominately
speculative characteristics with respect to capacity to pay interest and repay
principal. BB indicates the least degree of speculation and C the highest. While
such debt will likely have some quality and protective characteristics, these
are outweighed by large uncertainties or exposures to adverse conditions. Debt
rated BB has less near-term vulnerability to default than other speculative
issues. However, it faces major ongoing uncertainties or exposure to adverse
business, financial or economic conditions which could lead to inadequate
capacity to meet timely interest and principal payments. The BB rating category
is also used for debt subordinated to senior debt that is assigned an actual or
implied BBB- rating. Debt rated B has a greater vulnerability to default but
currently has the capacity to meet interest payments and principal repayments.
Adverse business, financial, or economic conditions will likely impair capacity
or willingness to pay interest and repay principal. The B rating category is
also used for debt subordinated to senior debt that is assigned an actual or
implied BB or BB- rating. Debt rated CCC has a currently identifiable
vulnerability to default, and is dependent upon favorable business, financial,
and economic conditions to meet timely payment of interest and repayment of
principal. In the event of adverse business, financial or economic conditions,
it is not likely to have the capacity to pay interest and repay principal. The
CCC rating category is also used for debt subordinated to senior debt that is
assigned an actual or implied B or B- rating. The rating CC typically is applied
to debt subordinated to senior debt which is assigned an actual or implied CCC
debt rating. The rating C typically is applied to debt subordinated to senior
debt which is assigned an actual or implied CCC- debt rating. The C rating may
be used to cover a situation where a bankruptcy petition has been filed, but
debt service payments are continued.
The rating CI is reserved for income bonds on which no interest is being
paid. Debt rated D is in payment default. The D rating category is used when
interest payments or principal payments are not made on the date due, even if
the applicable grace period has not expired, unless S&P believes that such
payments will be made during such grace period. The D rating also will be used
upon the filing of a bankruptcy petition if debt service payments are
jeopardized.
(b) COMMERCIAL PAPER. An S&P commercial paper rating is a current
assessment of the likelihood of timely payment of debt considered short-term in
the relevant market.
The commercial paper rating A-1 by S&P indicates that the degree of safety
regarding timely payment is strong. Those issues determined to possess extremely
strong safety characteristics are denoted with a plus sign (+) designation. For
commercial paper with an A-2 rating, the capacity for timely payment on issues
is satisfactory, but not as high as for issues designated A-1. Issues rated A-3
have adequate capacity for timely payment, but are more vulnerable to the
adverse effects of changes in circumstances than obligations carrying higher
designations.
Issues rated B are regarded as having only speculative capacity for timely
payment. The C rating is assigned to short-term debt obligations with a doubtful
capacity for payment. Debt rated D is in payment default. The D rating category
is used when interest payments or principal payments are not made on the date
due, even if the applicable grace period has not expired, unless S&P believes
such payments will be made during such grace period.
<PAGE>
APPENDIX B
STATEMENT OF ASSETS AND LIABILITIES
AS OF APRIL 28, 1999
AND REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
IVY EUROPEAN OPPORTUNITIES FUND
STATEMENT OF ASSETS AND LIABILITIES
APRIL 28, 1999
ASSETS
Cash............................................... $ 500,040
Prepaid offering cost.............................. 16,500
Prepaid blue sky fees.............................. 43,000
Total Assets.................................... 559,540
------------
LIABILITIES
Due to affiliate................................... 59,500
------------
NET ASSETS............................................ $ 500,040
==============
CLASS A:
Net asset value and redemption price per share
($10.00 / 1 share outstanding).................. $10.00
=======
Maximum offering price per share
($10.00 x 100 / 94.25)*......................... $10.61
=======
CLASS B:
Net asset value, offering price and redemption price** per share
($10.00 / 1 share outstanding).................. $10.00
=======
CLASS C:
Net asset value, offering price and redemption price*** per share
($10.00 / 1 share outstanding).................. $10.00
=======
CLASS I:
Net asset value, offering price and redemption price per share
($10.00 / 1 share outstanding).................. $10.00
=======
ADVISOR CLASS:
Net asset value, offering price and redemption price per share
($500,000.00 / 50,000 shares outstanding)....... $10.00
=======
NET ASSETS CONSISTS OF:
Capital paid-in $500,040
=======
<PAGE>
* On sales of more than $100,000 the offering price is reduced.
** Redemption price per share is equal to the net asset value per share
less any applicable contingent deferred sales charge, up to a maximum of 5%.
*** Redemption price per share is equal to the net asset value per share less
any applicable contingent deferred sales charge, up to a maximum of 1%.
The accompanying notes are an integral part of the financial statement.
IVY EUROPEAN OPPORTUNITIES FUND
NOTES TO STATEMENT OF ASSETS AND LIABILITIES
APRIL 28, 1999
1. ORGANIZATION: Ivy European Opportunities Fund is a diversified series of
shares of Ivy Fund. The shares of beneficial interest are assigned no par value
and an unlimited number of shares of Class A, Class B, Class C, Class I and
Advisor Class are authorized. Ivy Fund was organized as a Massachusetts business
trust under a Declaration of Trust dated December 21, 1983 and is registered
under the Investment Company Act of 1940, as amended, as an open-end management
investment company.
The Fund will commence operations on April 30, 1999. As of the date of this
report, operations have been limited to organizational matters and the issuance
of initial shares to Mackenzie Investment Management Inc. (MIMI).
2. ORGANIZATIONAL COSTS: The Fund incurred organizational expenses of $7,100,
comprised of $2,500 for auditing and $4,600 for legal. The full amount of
organizational expenses were assumed by MIMI and the Fund is not required to
reimburse MIMI.
3. OFFERING COST AND PREPAID BLUE SKY FEES: Offering cost, consisting of legal
fees, and blue sky fees will be amortized over a one year period beginning April
30, 1999, the date the Fund is expected to commence operations. Offering cost
and blue sky fees have been paid by MIMI and will be reimbursed by the Fund.
4. TRANSACTIONS WITH AFFILIATES: Ivy Management, Inc. (IMI), a wholly owned
subsidiary of MIMI, is the Manager and Investment Manager of the Fund. For the
current fiscal year, IMI contractually limits the Fund's total operating
expenses (excluding taxes, 12b-1 fees, brokerage commissions, interest,
litigation and indemnification expenses, and any other extraordinary expenses)
to an annual rate of 1.95% of its average net assets. For each of the following
nine years, IMI will ensure that these expenses do not exceed 2.50% of the
Fund's average net assets.
MIMI provides certain administrative, accounting and pricing services for the
Fund.
Ivy Mackenzie Distributors, Inc. (IMDI), a wholly owned subsidiary of MIMI, is
the underwriter and distributor of the Fund's shares, and as such, purchases
shares from the Fund at net asset value to settle orders from investment
dealers.
Ivy Mackenzie Services Corp. (IMSC), a wholly owned subsidiary of MIMI, is
the transfer and shareholder servicing agent for the Fund.
Officers of Ivy Fund are officers and/or employees of MIMI, IMI, IMDI and IMSC.
Such individuals are not compensated by the Fund for services in their capacity
as officers of Ivy Fund. Trustees of Ivy Fund who are not affiliated with MIMI
or IMI receive compensation from the Fund. No such amounts have been incurred as
of April 28, 1999.
<PAGE>
IVY INTERNATIONAL FUND
a series of
IVY FUND
Via Mizner Financial Plaza, Suite 300
700 South Federal Highway
Boca Raton, Florida 33432
STATEMENT OF ADDITIONAL INFORMATION
May 3, 1999
(as supplemented October 18, 1999)
Ivy Fund (the "Trust") is an open-end management investment company that
currently consists of nineteen fully managed portfolios, each of which (except
for Ivy South America Fund and Ivy International Strategic Bond Fund) is
diversified. This Statement of Additional Information ("SAI") relates to the
Class A, B, C and I shares of Ivy International Fund (the "Fund"). The other
eighteen portfolios of the Trust are described in separate prospectuses and
SAIs.
This SAI is not a prospectus and should be read in conjunction with the
prospectus for the Fund dated April 30, 1999 (the "Prospectus"), which may be
obtained upon request and without charge from the Trust at the Distributor's
address and telephone number printed below.
INVESTMENT MANAGER
Ivy Management, Inc. ("IMI")
Via Mizner Financial Plaza, Suite 300
700 South Federal Highway
Boca Raton, Florida 33432
Telephone: (800) 777-6472
DISTRIBUTOR
Ivy Mackenzie Distributors, Inc. ("IMDI")
Via Mizner Financial Plaza, Suite 300
700 South Federal Highway
Boca Raton, Florida 33432
Telephone: (800) 456-5111
<PAGE>
TABLE OF CONTENTS
GENERAL INFORMATION..........................................................1
INVESTMENT OBJECTIVES, STRATEGIES AND RISKS..................................1
COMMON STOCKS..........................................................2
CONVERTIBLE SECURITIES.................................................2
DEBT SECURITIES........................................................3
IN GENERAL.......................................................3
INVESTMENT-GRADE DEBT SECURITIES.................................3
U.S. GOVERNMENT SECURITIES.......................................4
FIRM COMMITMENT AGREEMENTS AND "WHEN-ISSUED"SECURITIES...........4
ILLIQUID SECURITIES....................................................5
FOREIGN SECURITIES.....................................................6
DEPOSITORY RECEIPTS....................................................7
EMERGING MARKETS.......................................................7
FOREIGN CURRENCIES.....................................................8
FOREIGN CURRENCY EXCHANGE TRANSACTIONS.................................9
OTHER INVESTMENT COMPANIES............................................10
REPURCHASE AGREEMENTS.................................................10
BANKING INDUSTRY AND SAVINGS AND LOAN OBLIGATIONS.....................10
COMMERCIAL PAPER......................................................11
BORROWING.............................................................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
FOREIGN CURRENCY FUTURES CONTRACTS AND RELATED OPTIONS..........17
RISKS ASSOCIATED WITH FUTURES AND RELATED OPTIONS...............18
SECURITIES INDEX FUTURES CONTRACTS....................................18
RISKS OF SECURITIES INDEX FUTURES...............................19
COMBINED TRANSACTIONS...........................................20
INVESTMENT RESTRICTIONS.....................................................20
PORTFOLIO TURNOVER..........................................................23
TRUSTEES AND OFFICERS.......................................................23
PERSONAL INVESTMENTS BY EMPLOYEES OF IMI........................23
INVESTMENT ADVISORY AND OTHER SERVICES......................................24
BUSINESS MANAGEMENT AND INVESTMENT ADVISORY SERVICES..................24
SUBADVISORY CONTRACT............................................25
DISTRIBUTION SERVICES.................................................26
RULE 18F-3 PLAN.................................................27
RULE 12B-1 DISTRIBUTION PLANS...................................27
CUSTODIAN.............................................................30
FUND ACCOUNTING SERVICES..............................................30
TRANSFER AGENT AND DIVIDEND PAYING AGENT..............................31
ADMINISTRATOR.........................................................31
AUDITORS..............................................................31
BROKERAGE ALLOCATION........................................................31
CAPITALIZATION AND VOTING RIGHTS............................................32
SPECIAL RIGHTS AND PRIVILEGES...............................................34
AUTOMATIC INVESTMENT METHOD...........................................34
EXCHANGE OF SHARES....................................................35
INITIAL SALES CHARGE SHARES.....................................35
CONTINGENT DEFERRED SALES CHARGE SHARES.........................35
CLASS A.........................................................35
CLASS B.........................................................36
CLASS C.........................................................37
CLASS I.........................................................37
ALL CLASSES.....................................................37
LETTER OF INTENT......................................................37
RETIREMENT PLANS......................................................38
INDIVIDUAL RETIREMENT ACCOUNTS..................................38
ROTH IRAS.......................................................40
QUALIFIED PLANS.................................................40
DEFERRED COMPENSATION FOR PUBLIC SCHOOLS AND CHARITABLE
ORGANIZATIONS ("403(B)(7) ACCOUNT").............................41
SIMPLIFIED EMPLOYEE PENSION ("SEP") IRAS........................42
SIMPLE PLANS....................................................42
REINVESTMENT PRIVILEGE................................................42
RIGHTS OF ACCUMULATION................................................42
SYSTEMATIC WITHDRAWAL PLAN............................................43
GROUP SYSTEMATIC INVESTMENT PROGRAM...................................43
REDEMPTIONS.................................................................44
CONVERSION OF CLASS B SHARES................................................46
NET ASSET VALUE.............................................................46
TAXATION....................................................................47
OPTIONS, FUTURES AND FOREIGN CURRENCY FORWARD CONTRACTS...............48
CURRENCY FLUCTUATIONS -- "SECTION 988" GAINS OR LOSSES................50
INVESTMENT IN PASSIVE FOREIGN INVESTMENT COMPANIES....................50
DEBT SECURITIES ACQUIRED AT A DISCOUNT................................51
DISTRIBUTIONS.........................................................51
DISPOSITION OF SHARES.................................................52
FOREIGN WITHHOLDING TAXES.............................................52
BACKUP WITHHOLDING....................................................53
PERFORMANCE INFORMATION.....................................................54
AVERAGE ANNUAL TOTAL RETURN.....................................54
CUMULATIVE TOTAL RETURN.........................................58
OTHER QUOTATIONS, COMPARISONS AND GENERAL INFORMATION...........59
FINANCIAL STATEMENTS........................................................59
APPENDIX A..................................................................60
<PAGE>
GENERAL INFORMATION
The Fund is organized as a separate, diversified portfolio of the Trust,
an open-end management investment company organized as a Massachusetts business
trust on December 21, 1983. The Fund commenced operations (Class A shares) on
April 21, 1986. The inception date for Class B and Class I shares was October
23, 1993. The inception date for Class C shares was April 30, 1996.
Descriptions in this Statement of a particular investment practice or
technique in which the Fund may engage or a financial instrument which the Fund
may purchase are meant to describe the spectrum of investments that IMI, in its
discretion, might, but is not required to, use in managing the Fund's portfolio
assets. IMI may, in its discretion, at any time employ such practice, technique
or instrument for one or more funds but not for all funds advised by it.
Furthermore, it is possible that certain types of financial instruments or
investment techniques described herein may not be available, permissible,
economically feasible or effective for their intended purposes in some or all
markets, in which case the Fund would not use them. Certain practices,
techniques, or instruments may not be principal activities of the Fund but, to
the extent employed, could from time to time have a material impact on the
Fund's performance.
INVESTMENT OBJECTIVES, STRATEGIES AND RISKS
The Fund has its own investment objectives and policies, which are
described in the Prospectus under the captions "Summary" and "Additional
Information About Strategies and Risks." Additional information regarding the
characteristics and risks associated with the Fund's investment
techniques is set forth below.
Sales of shares of the Fund to new investors have been suspended. See
"How to Buy Shares."
The Fund's principal objective is long-term capital growth primarily
through investment in equity securities. Consideration of current income is
secondary to this principal objective. It is anticipated that at least 65% of
the Fund's total assets will be invested in common stocks (and securities
convertible into common stocks) principally traded in European, Pacific Basin
and Latin American markets. Under this investment policy, at least three
different countries (other than the United States) will be represented in the
Fund's overall portfolio holdings. For temporary defensive purposes, the Fund
may also invest in equity securities principally traded in U.S. markets.
The Fund's subadviser, Northern Cross Investments Limited ("Northern
Cross"), invests the Fund's assets in a variety of economic sectors, industry
segments and individual securities to reduce the effects of price volatility in
any one area and to enable shareholders to participate in markets that do not
necessarily move in concert with U.S. markets. Northern Cross seeks to identify
rapidly expanding foreign economies, and then searches out growing industries
and corporations, focusing on companies with established records. Individual
securities are selected based on value indicators, such as a low price-earnings
ratio, and are reviewed for fundamental financial strength. Companies in which
investments are made will generally have at least $1 billion in capitalization
and a solid history of operations.
When economic or market conditions warrant, the Fund may invest without
limit in U.S. Government securities, investment-grade debt securities (i.e.,
those rated Baa or higher by Moody's or BBB or higher by S&P, or if unrated,
considered by Northern Cross to be of comparable quality), preferred stocks,
sponsored or unsponsored ADRs, GDRs, ADSs and GDSs, warrants, or cash or cash
equivalents such as bank obligations (including certificates of deposit and
bankers' acceptances), commercial paper, short-term notes and repurchase
agreements. For temporary or emergency purposes, the Fund may borrow up to 10%
of the value of its total assets from banks. The Fund may also purchase
securities on a "when-issued" or firm commitment basis, and may engage in
foreign currency exchange transactions and enter into forward foreign currency
contracts. The Fund may also invest in other investment companies in accordance
with the provisions of the 1940 Act and up to 15% of its net assets in illiquid
securities.
The Fund may purchase put and call options on securities and stock
indices, provided the premium paid for such options does not exceed 5% of the
Fund's net assets. The Fund may also sell covered put options with respect to up
to 10% of the value of its net assets, and may write covered call options so
long as not more than 25% of the Fund's net assets is subject to being purchased
upon the exercise of the calls. For hedging purposes only, the Fund may engage
in transactions in (and options on) stock index and foreign currency futures
contracts, provided that the Fund's equivalent exposure in such contracts does
not exceed 15% of its total assets.
COMMON STOCKS
Common stock can be issued by companies to raise cash; all common stock
shares represent a proportionate ownership interest in a company. As a result,
the value of common stock rises and falls with a company's success or failure.
The market value of common stock can fluctuate significantly, with smaller
companies being particularly susceptible to price swings. Transaction costs in
smaller company stocks may also be higher than those of larger companies.
CONVERTIBLE SECURITIES
The convertible securities in which the Fund may invest include corporate
bonds, notes, debentures, preferred stock and other securities that may be
converted or exchanged at a stated or determinable exchange ratio into
underlying shares of common stock. Investments in convertible securities can
provide income through interest and dividend payments as well as an opportunity
for capital appreciation by virtue of their conversion or exchange features.
Because convertible securities can be converted into equity securities, their
values will normally vary in some proportion with those of the underlying equity
securities. Convertible securities usually provide a higher yield than the
underlying equity, however, so that the price decline of a convertible security
may sometimes be less substantial than that of the underlying equity security.
The exchange ratio for any particular convertible security may be adjusted from
time to time due to stock splits, dividends, spin-offs, other corporate
distributions or scheduled changes in the exchange ratio. Convertible debt
securities and convertible preferred stocks, until converted, have general
characteristics similar to both debt and equity securities. Although to a lesser
extent than with debt securities generally, the market value of convertible
securities tends to decline as interest rates increase and, conversely, tends to
increase as interest rates decline. In addition, because of the conversion or
exchange feature, the market value of convertible securities typically changes
as the market value of the underlying common stock changes, and, therefore, also
tends to follow movements in the general market for equity securities. When the
market price of the underlying common stock increases, the price of a
convertible security tends to rise as a reflection of the value of the
underlying common stock, although typically not as much as the price of the
underlying common stock. While no securities investments are without risk,
investments in convertible securities generally entail less risk than
investments in common stock of the same issuer.
As debt securities, convertible securities are investments that provide
for a stream of income. Like all debt securities, there can be no assurance of
income or principal payments because the issuers of the convertible securities
may default on their obligations. Convertible securities generally offer lower
yields than non-convertible securities of similar quality because of their
conversion or exchange features.
Convertible securities generally are subordinated to other similar but
non-convertible securities of the same issuer, although convertible bonds, as
corporate debt obligations, are senior in right of payment to all equity
securities, and convertible preferred stock is senior to common stock, of the
same issuer. However, convertible bonds and convertible preferred stock
typically have lower coupon rates than similar non-convertible securities.
Convertible securities may be issued as fixed income obligations that pay
current income.
DEBT SECURITIES
IN GENERAL. Investment in debt securities involves both interest rate and
credit risk. Generally, the value of debt instruments rises and falls inversely
with fluctuations in interest rates. As interest rates decline, the value of
debt securities generally increases. Conversely, rising interest rates tend to
cause the value of debt securities to decrease. Bonds with longer maturities
generally are more volatile than bonds with shorter maturities. The market value
of debt securities also varies according to the relative financial condition of
the issuer. In general, lower-quality bonds offer higher yields due to the
increased risk that the issuer will be unable to meet its obligations on
interest or principal payments at the time called for by the debt instrument.
INVESTMENT-GRADE DEBT SECURITIES. Bonds rated Aaa by Moody's Investors
Service, Inc. ("Moody's") and AAA by Standard & Poor's Ratings Group ("S&P") are
judged to be of the best quality (i.e., capacity to pay interest and repay
principal is extremely strong). Bonds rated Aa/AA are considered to be of high
quality (i.e., capacity to pay interest and repay principal is very strong and
differs from the highest rated issues only to a small degree). Bonds rated A are
viewed as having many favorable investment attributes, but elements may be
present that suggest a susceptibility to the adverse effects of changes in
circumstances and economic conditions than debt in higher rated categories.
Bonds rated Baa/BBB (considered by Moody's to be "medium grade" obligations) are
considered to have an adequate capacity to pay interest and repay principal, but
certain protective elements may be lacking (i.e., such bonds lack outstanding
investment characteristics and have some speculative characteristics). The Fund
may invest in debt securities that are given an investment-grade rating by
Moody's or S&P, and may also invest in unrated debt securities that are
considered by IMI to be of comparable quality.
U.S. GOVERNMENT SECURITIES. U.S. Government securities are obligations
of, or guaranteed by, the U.S. Government, its agencies or
instrumentalities. Securities guaranteed by the U.S. Government include:
(1) direct obligations of the U.S. Treasury (such as Treasury bills, notes,
and bonds) and (2) Federal agency obligations guaranteed as to principal and
interest by the U.S. Treasury (such as GNMA certificates, which are
mortgage-backed securities). When such securities are held to maturity, the
payment of principal and interest is unconditionally guaranteed by the U.S.
Government, and thus they are of the highest possible credit quality. U.S.
Government securities that are not held to maturity are subject to variations
in market value due to fluctuations in interest rates.
Mortgage-backed securities are securities representing part ownership of a
pool of mortgage loans. For example, GNMA certificates are such securities in
which the timely payment of principal and interest is guaranteed by the full
faith and credit of the U.S. Government. Although the mortgage loans in the pool
will have maturities of up to 30 years, the actual average life of the loans
typically will be substantially less because the mortgages will be subject to
principal amortization and may be prepaid prior to maturity. Prepayment rates
vary widely and may be affected by changes in market interest rates. In periods
of falling interest rates, the rate of prepayment tends to increase, thereby
shortening the actual average life of the security. Conversely, rising interest
rates tend to decrease the rate of prepayments, thereby lengthening the actual
average life of the security (and increasing the security's price volatility).
Accordingly, it is not possible to predict accurately the average life of a
particular pool. Reinvestment of prepayment may occur at higher or lower rates
than the original yield on the certificates. Due to the prepayment feature and
the need to reinvest prepayments of principal at current rates, mortgage-backed
securities can be less effective than typical bonds of similar maturities at
"locking in" yields during periods of declining interest rates, and may involve
significantly greater price and yield volatility than traditional debt
securities. Such securities may appreciate or decline in market value during
periods of declining or rising interest rates, respectively.
Securities issued by U.S. Government instrumentalities and certain Federal
agencies are neither direct obligations of nor guaranteed by the U.S. Treasury;
however, they involve Federal sponsorship in one way or another. Some are backed
by specific types of collateral, some are supported by the issuer's right to
borrow from the Treasury, some are supported by the discretionary authority of
the Treasury to purchase certain obligations of the issuer, others are supported
only by the credit of the issuing government agency or instrumentality. These
agencies and instrumentalities include, but are not limited to, Federal Land
Banks, Farmers Home Administration, Central Bank for Cooperatives, Federal
Intermediate Credit Banks, Federal Home Loan Banks, Federal National Mortgage
Association, Federal Home Loan Mortgage Association, and Student Loan Marketing
Association.
FIRM COMMITMENT AGREEMENTS AND "WHEN-ISSUED" SECURITIES. New issues of
certain debt securities are often offered on a "when-issued" basis, meaning the
payment obligation and the interest rate are fixed at the time the buyer enters
into the commitment, but delivery and payment for the securities normally take
place after the date of the commitment to purchase. Firm commitment agreements
call for the purchase of securities at an agreed-upon price on a specified
future date. The Fund uses such investment techniques in order to secure what is
considered to be an advantageous price and yield to the Fund and not for
purposes of leveraging the Fund's assets. In either instance, the Fund will
maintain in a segregated account with its Custodian cash or liquid securities
equal (on a daily marked-to-market basis) to the amount of its commitment to
purchase the underlying securities.
ILLIQUID SECURITIES
The Fund may purchase securities other than in the open market. While such
purchases may often offer attractive opportunities for investment not otherwise
available on the open market, the securities so purchased are often "restricted
securities" or "not readily marketable" (i.e., they cannot be sold to the public
without registration under the Securities Act of 1933, as amended (the "1933
Act"), or the availability of an exemption from registration (such as Rule 144A)
or because they are subject to other legal or contractual delays in or
restrictions on resale). This investment practice, therefore, could have the
effect of increasing the level of illiquidity of the Fund. It is the Fund's
policy that illiquid securities (including repurchase agreements of more than
seven days duration, certain restricted securities, and other securities which
are not readily marketable) may not constitute, at the time of purchase, more
than 15% of the value of the Fund's net assets. The Trust's Board of Trustees
has approved guidelines for use by IMI in determining whether a security is
illiquid.
Generally speaking, restricted securities may be sold (i) only to
qualified institutional buyers; (ii) in a privately negotiated transaction to a
limited number of purchasers; (iii) in limited quantities after they have been
held for a specified period of time and other conditions are met pursuant to an
exemption from registration; or (iv) in a public offering for which a
registration statement is in effect under the 1933 Act. Issuers of restricted
securities may not be subject to the disclosure and other investor protection
requirements that would be applicable if their securities were publicly traded.
If adverse market conditions were to develop during the period between the
Fund's decision to sell a restricted or illiquid security and the point at which
the Fund is permitted or able to sell such security, the Fund might obtain a
price less favorable than the price that prevailed when it decided to sell.
Where a registration statement is required for the resale of restricted
securities, the Fund may be required to bear all or part of the registration
expenses. The Fund may be deemed to be an "underwriter" for purposes of the 1933
Act when selling restricted securities to the public and, in such event, the
Fund may be liable to purchasers of such securities if the registration
statement prepared by the issuer is materially inaccurate or misleading.
Since it is not possible to predict with assurance that the market for
securities eligible for resale under Rule 144A will continue to be liquid, IMI
will monitor such restricted securities subject to the supervision of the Board
of Trustees. Among the factors IMI may consider in reaching liquidity decisions
relating to Rule 144A securities are: (1) the frequency of trades and quotes for
the security; (2) the number of dealers wishing to purchase or sell the security
and the number of other potential purchasers; (3) dealer undertakings to make a
market in the security; and (4) the nature of the security and the nature of the
market for the security (i.e., the time needed to dispose of the security, the
method of soliciting offers, and the mechanics of the transfer).
FOREIGN SECURITIES
The securities of foreign issuers in which the Fund may invest include
non-U.S. dollar-denominated debt securities, Euro dollar securities, sponsored
and unsponsored American Depository Receipts ("ADRs"), Global Depository
Receipts ("GDRs"), American Depository Shares ("ADSs"), Global Depository Shares
("GDSs") and related depository instruments, and debt securities issued, assumed
or guaranteed by foreign governments or political subdivisions or
instrumentalities thereof. Shareholders should consider carefully the
substantial risks involved in investing in securities issued by companies and
governments of foreign nations, which are in addition to the usual risks
inherent in the Fund's domestic investments.
Although IMI intends to invest the Fund's assets only in nations that are
generally considered to have relatively stable and friendly governments, there
is the possibility of expropriation, nationalization, repatriation or
confiscatory taxation, taxation on income earned in a foreign country and other
foreign taxes, foreign exchange controls (which may include suspension of the
ability to transfer currency from a given country), default on foreign
government securities, political or social instability or diplomatic
developments which could affect investments in securities of issuers in those
nations. In addition, in many countries there is less publicly available
information about issuers than is available for U.S. companies. Moreover,
foreign companies are not generally subject to uniform accounting, auditing and
financial reporting standards, and auditing practices and requirements may not
be comparable to those applicable to U.S. companies. In many foreign countries,
there is less governmental supervision and regulation of business and industry
practices, stock exchanges, brokers, and listed companies than in the United
States. Foreign securities transactions may also be subject to higher brokerage
costs than domestic securities transactions. The foreign securities markets of
many of the countries in which the Fund may invest may also be smaller, less
liquid and subject to greater price volatility than those in the United States.
In addition, the Fund may encounter difficulties or be unable to pursue legal
remedies and obtain judgment in foreign courts.
Foreign bond markets have different clearance and settlement procedures
and in certain markets there have been times when settlements have been unable
to keep pace with the volume of securities transactions, making it difficult to
conduct such transactions. Delays in settlement could result in temporary
periods when assets of the Fund are uninvested and no return is earned thereon.
The inability of the Fund to make intended security purchases due to settlement
problems could cause the Fund to miss attractive investment opportunities.
Further, the inability to dispose of portfolio securities due to settlement
problems could result either in losses to the Fund because of subsequent
declines in the value of the portfolio security or, if the Fund has entered into
a contract to sell the security, in possible liability to the purchaser. It may
be more difficult for the Fund's agents to keep currently informed about
corporate actions such as stock dividends or other matters that may affect the
prices of portfolio securities. Communications between the United States and
foreign countries may be less reliable than within the United States, thus
increasing the risk of delayed settlements of portfolio transactions or loss of
certificates for portfolio securities. Moreover, individual foreign economies
may differ favorably or unfavorably from the United States economy in such
respects as growth of gross national product, rate of inflation, capital
reinvestment, resource self-sufficiency and balance of payments position. IMI
seeks to mitigate the risks to the Fund associated with the foregoing
considerations through investment variation and continuous professional
management.
DEPOSITORY RECEIPTS
ADRs, GDRs, ADSs, GDSs and related securities are depository instruments,
the issuance of which is typically administered by a U.S. or foreign bank or
trust company. These instruments evidence ownership of underlying securities
issued by a U.S. or foreign corporation. ADRs are publicly traded on exchanges
or over-the-counter ("OTC") in the United States. Unsponsored programs are
organized independently and without the cooperation of the issuer of the
underlying securities. As a result, information concerning the issuer may not be
as current or as readily available as in the case of sponsored depository
instruments, and their prices may be more volatile than if they were sponsored
by the issuers of the underlying securities.
EMERGING MARKETS
The Fund could have significant investments in securities traded in
emerging markets. Investors should recognize that investing in such countries
involves special considerations, in addition to those set forth above, that are
not typically associated with investing in United States securities and that may
affect the Fund's performance favorably or unfavorably.
In recent years, many emerging market countries around the world have
undergone political changes that have reduced government's role in economic and
personal affairs and have stimulated investment and growth. Historically, there
is a strong direct correlation between economic growth and stock market returns.
While this is no guarantee of future performance, IMI believes that investment
opportunities (particularly in the energy, environmental services, natural
resources, basic materials, power, telecommunications and transportation
industries) may result within the evolving economies of emerging market
countries from which the Fund and its shareholders will benefit.
Investments in companies domiciled in developing countries may be subject
to potentially higher risks than investments in developed countries. Such risks
include (i) less social, political and economic stability; (ii) a small market
for securities and/or a low or nonexistent volume of trading, which result in a
lack of liquidity and in greater price volatility; (iii) certain national
policies that may restrict the Fund's investment opportunities, including
restrictions on investment in issuers or industries deemed sensitive to national
interests; (iv) foreign taxation; (v) the absence of developed structures
governing private or foreign investment or allowing for judicial redress for
injury to private property; (vi) the absence, until relatively recently in
certain Eastern European countries, of a capital market structure or
market-oriented economy; (vii) the possibility that recent favorable economic
developments in Eastern Europe may be slowed or reversed by unanticipated
political or social events in such countries; and (viii) the possibility that
currency devaluations could adversely affect the value of the Fund's
investments. Further, many emerging markets have experienced and continue to
experience high rates of inflation.
Despite the dissolution of the Soviet Union, the Communist Party may
continue to exercise a significant role in certain Eastern European countries.
To the extent of the Communist Party's influence, investments in such countries
will involve risks of nationalization, expropriation and confiscatory taxation.
The communist governments of a number of Eastern European countries expropriated
large amounts of private property in the past, in many cases without adequate
compensation, and there can be no assurance that such expropriation will not
occur in the future. In the event of such expropriation, the Fund could lose a
substantial portion of any investments it has made in the affected countries.
Further, few (if any) accounting standards exist in Eastern European countries.
Finally, even though certain Eastern European currencies may be convertible into
U.S. dollars, the conversion rates may be artificial in relation to the actual
market values and may be adverse to the Fund's net asset value.
Certain Eastern European countries that do not have well-established
trading markets are characterized by an absence of developed legal structures
governing private and foreign investments and private property. In addition,
certain countries require governmental approval prior to investments by foreign
persons, or limit the amount of investment by foreign persons in a particular
company, or limit the investment of foreign persons to only a specific class of
securities of a company that may have less advantageous terms than securities of
the company available for purchase by nationals.
Authoritarian governments in certain Eastern European countries may
require that a governmental or quasi-governmental authority act as custodian of
the Fund's assets invested in such country. To the extent such governmental or
quasi-governmental authorities do not satisfy the requirements of the Investment
Company Act of 1940, as amended (the "1940 Act"), with respect to the custody of
the Fund's cash and securities, the Fund's investment in such countries may be
limited or may be required to be effected through intermediaries. The risk of
loss through governmental confiscation may be increased in such countries.
FOREIGN CURRENCIES
Investment in foreign securities usually will involve currencies of
foreign countries. Moreover, the Fund may temporarily hold funds in bank
deposits in foreign currencies during the completion of investment programs and
may purchase forward foreign currency contracts. Because of these factors, the
value of the assets of the Fund as measured in U.S. dollars may be affected
favorably or unfavorably by changes in foreign currency exchange rates and
exchange control regulations, and the Fund may incur costs in connection with
conversions between various currencies. Although the Fund's custodian values the
Fund's assets daily in terms of U.S. dollars, the Fund does not intend to
convert its holdings of foreign currencies into U.S. dollars on a daily basis.
The Fund will do so from time to time, however, and investors should be aware of
the costs of currency conversion. Although foreign exchange dealers do not
charge a fee for conversion, they do realize a profit based on the difference
(the "spread") between the prices at which they are buying and selling various
currencies. Thus, a dealer may offer to sell a foreign currency to the Fund at
one rate, while offering a lesser rate of exchange should the Fund desire to
resell that currency to the dealer. The Fund will conduct its foreign currency
exchange transactions either on a spot (i.e., cash) basis at the spot rate
prevailing in the foreign currency exchange market, or through entering into
forward contracts to purchase or sell foreign currencies.
Because the Fund normally will be invested in both U.S. and foreign
securities markets, changes in the Fund's share price may have a low
correlation with movements in U.S. markets. The Fund's share price will
reflect the movements of the different stock and bond markets in which it is
invested (both U.S. and foreign), and of the currencies in which the
investments are denominated. Thus, the strength or weakness of the U.S.
dollar against foreign currencies may account for part of the Fund's
investment performance. U.S. and foreign securities markets do not always
move in step with each other, and the total returns from different markets
may vary significantly.
FOREIGN CURRENCY EXCHANGE TRANSACTIONS
The Fund may enter into forward foreign currency contracts in order to
protect against uncertainty in the level of future foreign exchange rates in the
purchase and sale of securities. A forward contract is an obligation to purchase
or sell a specific currency for an agreed price at a future date (usually less
than a year), and typically is individually negotiated and privately traded by
currency traders and their customers. A forward contract generally has no
deposit requirement, and no commissions are charged at any stage for trades.
Although foreign exchange dealers do not charge a fee for commissions, they do
realize a profit based on the difference between the price at which they are
buying and selling various currencies. Although these contracts are intended to
minimize the risk of loss due to a decline in the value of the hedged
currencies, at the same time, they tend to limit any potential gain which might
result should the value of such currencies increase.
While the Fund may enter into forward contracts to reduce currency
exchange risks, changes in currency exchange rates may result in poorer overall
performance for the Fund than if it had not engaged in such transactions.
Moreover, there may be an imperfect correlation between the Fund's portfolio
holdings of securities denominated in a particular currency and forward
contracts entered into by the Fund. An imperfect correlation of this type may
prevent the Fund from achieving the intended hedge or expose the Fund to the
risk of currency exchange loss.
The Fund may purchase currency forwards and combine such purchases with
sufficient cash or short-term securities to create unleveraged substitutes for
investments in foreign markets when deemed advantageous. The Fund may also
combine the foregoing with bond futures or interest rate futures contracts to
create the economic equivalent of an unhedged foreign bond position.
The Fund may also cross-hedge currencies by entering into transactions to
purchase or sell one or more currencies that are expected to decline in value
relative to other currencies to which the Fund has or in which the Fund expects
to have portfolio exposure.
Currency transactions are subject to risks different from those of other
portfolio transactions. Because currency control is of great importance to the
issuing governments and influences economic planning and policy, purchases and
sales of currency and related instruments can be negatively affected by
government exchange controls, blockages, and manipulations or exchange
restrictions imposed by governments. These can result in losses to the Fund if
it is unable to deliver or receive currency or funds in settlement of
obligations and could also cause hedges it has entered into to be rendered
useless, resulting in full currency exposure as well as incurring transactions
costs. Buyers and sellers of currency futures are subject to the same risks that
apply to the use of futures generally. Further, settlement of a currency futures
contract for the purchase of most currencies must occur at a bank based in the
issuing nation. Trading options on currency futures is relatively new, and the
ability to establish and close out positions on such options is subject to the
maintenance of a liquid market which may not always be available. Currency
exchange rates may fluctuate based on factors extrinsic to that country's
economy.
OTHER INVESTMENT COMPANIES
The Fund may invest up to 10% of its total assets in the shares of other
investment companies. As a shareholder of an investment company, the Fund would
bear its ratable shares of the fund's expenses (which often include an
asset-based management fee). The Fund could also lose money by investing in
other investment companies, since the value of their respective investments and
the income they generate will vary daily based on prevailing market conditions.
REPURCHASE AGREEMENTS
Repurchase agreements are contracts under which the Fund buys a money
market instrument and obtains a simultaneous commitment from the seller to
repurchase the instrument at a specified time and at an agreed-upon yield. Under
guidelines approved by the Board, the Fund is permitted to enter into repurchase
agreements only if the repurchase agreements are at least fully collateralized
with U.S. Government securities or other securities that IMI has approved for
use as collateral for repurchase agreements and the collateral must be
marked-to-market daily. The Fund will enter into repurchase agreements only with
banks and broker-dealers deemed to be creditworthy by IMI under the
above-referenced guidelines. In the unlikely event of failure of the executing
bank or broker-dealer, the Fund could experience some delay in obtaining direct
ownership of the underlying collateral and might incur a loss if the value of
the security should decline, as well as costs in disposing of the security.
BANKING INDUSTRY AND SAVINGS AND LOAN OBLIGATIONS
Certificates of deposit are negotiable certificates issued against funds
deposited in a commercial bank for a definite period of time and earning a
specified return. Bankers' acceptances are negotiable drafts or bills of
exchange, normally drawn by an importer or exporter to pay for specific
merchandise, which are "accepted" by a bank (meaning, in effect, that the bank
unconditionally agrees to pay the face value of the instrument at maturity). In
addition to investing in certificates of deposit and bankers' acceptances, the
Fund may invest in time deposits in banks or savings and loan associations. Time
deposits are generally similar to certificates of deposit, but are
uncertificated. The Fund's investments in certificates of deposit, time
deposits, and bankers' acceptance are limited to obligations of (i) banks having
total assets in excess of $1 billion, (ii) U.S. banks which do not meet the $1
billion asset requirement, if the principal amount of such obligation is fully
insured by the Federal Deposit Insurance Corporation (the "FDIC"), (iii) savings
and loan association which have total assets in excess of $1 billion and which
are members of the FDIC, and (iv) foreign banks if the obligation is, in IMI's
opinion, of an investment quality comparable to other debt securities which may
be purchased by the Fund. The Fund's investments in certificates of deposit of
savings associations are limited to obligations of Federal and state-chartered
institutions whose total assets exceed $1 billion and whose deposits are insured
by the FDIC.
COMMERCIAL PAPER
Commercial paper represents short-term unsecured promissory notes issued
in bearer form by bank holding companies, corporations and finance companies.
The Fund may invest in commercial paper that is rated Prime-1 by Moody's
Investors Service, Inc. ("Moody's") or A-1 by Standard & Poor's Corporation
("S&P") or, if not rated by Moody's or S&P, is issued by companies having an
outstanding debt issue rated Aaa or Aa by Moody's or AAA or AA by S&P.
BORROWING
Borrowing may exaggerate the effect on the Fund's net asset value of any
increase or decrease in the value of the Fund's portfolio securities. Money
borrowed will be subject to interest costs (which may include commitment fees
and/or the cost of maintaining minimum average balances). Although the principal
of the Fund's borrowings will be fixed, the Fund's assets may change in value
during the time a borrowing is outstanding, thus increasing exposure to capital
risk.
WARRANTS
The holder of a warrant has the right, until the warrant expires, to
purchase a given number of shares of a particular issuer at a specified price.
Such investments can provide a greater potential for profit or loss than an
equivalent investment in the underlying security. However, prices of warrants do
not necessarily move in a tandem with the prices of the underlying securities,
and are, therefore, considered speculative investments. Warrants pay no
dividends and confer no rights other than a purchase option. Thus, if a warrant
held by the Fund were not exercised by the date of its expiration, the Fund
would lose the entire purchase price of the warrant.
OPTIONS TRANSACTIONS
IN GENERAL. A call option is a short-term contract (having a duration of
less than one year) pursuant to which the purchaser, in return for the premium
paid, has the right to buy the security underlying the option at the specified
exercise price at any time during the term of the option. The writer of the call
option, who receives the premium, has the obligation, upon exercise of the
option, to deliver the underlying security against payment of the exercise
price. A put option is a similar contract pursuant to which the purchaser, in
return for the premium paid, has the right to sell the security underlying the
option at the specified exercise price at any time during the term of the
option. The writer of the put option, who receives the premium, has the
obligation, upon exercise of the option, to buy the underlying security at the
exercise price. The premium paid by the purchaser of an option will reflect,
among other things, the relationship of the exercise price to the market price
and volatility of the underlying security, the time remaining to expiration of
the option, supply and demand, and interest rates.
If the writer of a U.S. exchange-traded 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. Closing purchase transactions are not available for OTC
transactions. In order to terminate an obligation in an OTC transaction, the
Fund would need to negotiate this result with the counterparty to the
transaction.
The Fund will realize a gain (or a loss) on a closing purchase transaction
with respect to a call or a put previously written by the Fund if the premium,
plus commission costs, paid by the Fund to purchase the call or the put is less
(or greater) than the premium, less commission costs, received by the Fund on
the sale of the call or the put. A gain also will be realized if a call or a put
that the Fund has written lapses unexercised, because the Fund would retain the
premium. Any such gains (or losses) are considered short-term capital gains (or
losses) for Federal income tax purposes. Net short-term capital gains, when
distributed by the Fund, are taxable as ordinary income. See "Taxation."
The Fund will realize a gain (or a loss) on a closing sale transaction
with respect to a call or a put previously purchased by the Fund if the premium,
less commission costs, received by the Fund on the sale of the call or the put
is greater (or less) than the premium, plus commission costs, paid by the Fund
to purchase the call or the put. If a put or a call expires unexercised, it will
become worthless on the expiration date, and the Fund will realize a loss in the
amount of the premium paid, plus commission costs. Any such gain or loss will be
long-term or short-term gain or loss, depending upon the Fund's holding period
for the option.
Exchange-traded options generally have standardized terms and are issued
by a regulated clearing organization (such as the Options Clearing Corporation),
which, in effect, guarantees the completion of every exchange-traded option
transaction. In contrast, the terms of OTC options are negotiated by the Fund
and its counterparty (usually a securities dealer or a financial institution)
with no clearing organization guarantee. When the Fund purchases an OTC option,
it relies on the party from whom it has purchased the option (the
"counterparty") to make delivery of the instrument underlying the option. If the
counterparty fails to do so, the Fund will lose any premium paid for the option,
as well as any expected benefit of the transaction. Accordingly, IMI will assess
the creditworthiness of each counterparty to determine the likelihood that the
terms of the OTC option will be satisfied.
WRITING OPTIONS ON INDIVIDUAL SECURITIES. The Fund may write (sell)
covered call options on the Fund's securities in an attempt to realize a greater
current return than would be realized on the securities alone. The Fund may also
write covered call options to hedge a possible stock or bond market decline
(only to the extent of the premium paid to the Fund for the options). In view of
the investment objectives of the Fund, the Fund generally would write call
options only in circumstances where the investment adviser to the Fund does not
anticipate significant appreciation of the underlying security in the near
future or has otherwise determined to dispose of the security.
A "covered" call option means generally that so long as the Fund is
obligated as the writer of a call option, the Fund will (i) own the underlying
securities subject to the option, or (ii) have the right to acquire the
underlying securities through immediate conversion or exchange of convertible
preferred stocks or convertible debt securities owned by the Fund. Although the
Fund receives premium income from these activities, any appreciation realized on
an underlying security will be limited by the terms of the call option. The Fund
may purchase call options on individual securities only to effect a "closing
purchase transaction."
As the writer of a call option, the Fund receives a premium for
undertaking the obligation to sell the underlying security at a fixed price
during the option period, if the option is exercised. So long as the Fund
remains obligated as a writer of a call option, it forgoes the opportunity to
profit from increases in the market price of the underlying security above the
exercise price of the option, except insofar as the premium represents such a
profit (and retains the risk of loss should the value of the underlying security
decline).
PURCHASING OPTIONS ON INDIVIDUAL SECURITIES. The Fund may purchase a put
option on an underlying security owned by the Fund as a defensive technique in
order to protect against an anticipated decline in the value of the security.
The Fund, as the holder of the put option, may sell the underlying security at
the exercise price regardless of any decline in its market price. In order for a
put option to be profitable, the market price of the underlying security must
decline sufficiently below the exercise price to cover the premium and
transaction costs that the Fund must pay. These costs will reduce any profit the
Fund might have realized had it sold the underlying security instead of buying
the put option. The premium paid for the put option would reduce any capital
gain otherwise available for distribution when the security is eventually sold.
The purchase of put options will not be used by the Fund for leverage purposes.
The Fund may also purchase a put option on an underlying security that it
owns and at the same time write a call option on the same security with the same
exercise price and expiration date. Depending on whether the underlying security
appreciates or depreciates in value, the Fund would sell the underlying security
for the exercise price either upon exercise of the call option written by it or
by exercising the put option held by it. The Fund would enter into such
transactions in order to profit from the difference between the premium received
by the Fund for the writing of the call option and the premium paid by the Fund
for the purchase of the put option, thereby increasing the Fund's current
return. The Fund may write (sell) put options on individual securities only to
effect a "closing sale transaction."
PURCHASING AND WRITING OPTIONS ON SECURITIES INDICES. The Fund may
purchase and sell (write) put and call options on securities indices. An index
assigns relative values to the securities included in the index and the index
fluctuates with changes in the market values of the securities so included. Call
options on indices are similar to call options on individual securities, except
that, rather than giving the purchaser the right to take delivery of an
individual security at a specified price, they give the purchaser the right to
receive cash. The amount of cash is equal to the difference between the closing
price of the index and the exercise price of the option, expressed in dollars,
times a specified multiple (the "multiplier"). The writer of the option is
obligated, in return for the premium received, to make delivery of this amount.
The multiplier for an index option performs a function similar to the unit
of trading for a stock option. It determines the total dollar value per contract
of each point in the difference between the exercise price of an option and the
current level of the underlying index. A multiplier of 100 means that a
one-point difference will yield $100. Options on different indices have
different multipliers.
When the Fund writes a call or put option on a stock index, the option is
"covered", in the case of a call, or "secured", in the case of a put, if the
Fund maintains in a segregated account with the Custodian cash or liquid
securities equal to the contract value. A call option is also covered if the
Fund holds a call on the same index as the call written where the exercise price
of the call held is (i) equal to or less than the exercise price of the call
written or (ii) greater than the exercise price of the call written, provided
that the Fund maintains in a segregated account with the Custodian the
difference in cash or liquid securities. A put option is also "secured" if the
Fund holds a put on the same index as the put written where the exercise price
of the put held is (i) equal to or greater than the exercise price of the put
written or (ii) less than the exercise price of the put written, provided that
the Fund maintains in a segregated account with the Custodian the difference in
cash or liquid securities.
RISKS OF OPTIONS TRANSACTIONS. The purchase and writing of options
involves certain risks. During the option period, the covered call writer has,
in return for the premium on the option, given up the opportunity to profit from
a price increase in the underlying securities above the exercise price, but, as
long as its obligation as a writer continues, has retained the risk of loss
should the price of the underlying security decline. The writer of a U.S. option
has no control over the time when it may be required to fulfill its obligation
as a writer of the option. Once an option writer has received an exercise
notice, it cannot effect a closing purchase transaction in order to terminate
its obligation under the option and must deliver the underlying securities (or
cash in the case of an index option) at the exercise price. If a put or call
option purchased by the Fund is not sold when it has remaining value, and if the
market price of the underlying security (or index), in the case of a put,
remains equal to or greater than the exercise price or, in the case of a call,
remains less than or equal to the exercise price, the Fund will lose its entire
investment in the option. Also, where a put or call option on a particular
security (or index) is purchased to hedge against price movements in a related
security (or securities), the price of the put or call option may move more or
less than the price of the related security (or securities). In this regard,
there are differences between the securities and options markets that could
result in an imperfect correlation between these markets, causing a given
transaction not to achieve its objective.
There can be no assurance that a liquid market will exist when the Fund
seeks to close out an option position. Furthermore, if trading restrictions or
suspensions are imposed on the options markets, the Fund may be unable to close
out a position. Finally, trading could be interrupted, for example, because of
supply and demand imbalances arising from a lack of either buyers or sellers, or
the options exchange could suspend trading after the price has risen or fallen
more than the maximum amount specified by the exchange. Closing transactions can
be made for OTC options only by negotiating directly with the counterparty or by
a transaction in the secondary market, if any such market exists. Transfer of an
OTC option is usually prohibited absent the consent of the original
counterparty. 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. An OTC
counterparty may fail to deliver or to pay, as the case may be. In the event of
insolvency of the counterparty, the Fund might be unable to close out an OTC
option position at any time prior to its expiration. Although the Fund may be
able to offset to some extent any adverse effects of being unable to liquidate
an option position, the Fund may experience losses in some cases as a result of
such inability.
When conducted outside the U.S., options transactions may not be regulated
as rigorously as in the U.S., may not involve a clearing mechanism and related
guarantees, and are subject to the risk of governmental actions affecting
trading in, or the prices of, foreign securities, currencies and other
instruments. The value of such positions also could be adversely affected by:
(i) other complex foreign political, legal and economic factors, (ii) lesser
availability than in the U.S. of data on which to make trading decisions, (iii)
delays in the Fund's ability to act upon economic events occurring in foreign
markets during non-business hours in the U.S., (iv) the imposition of different
exercise and settlement terms and procedures and margin requirements than in the
U.S., and (v) lower trading volume and liquidity.
The Fund's options activities also may have an impact upon the level of
its portfolio turnover and brokerage commissions. See "Portfolio Turnover."
The Fund's success in using options techniques depends, among other
things, on IMI's ability to predict accurately the direction and volatility of
price movements in the options and securities markets, and to select the proper
type, timing of use and duration of options.
FUTURES CONTRACTS AND OPTIONS ON FUTURES CONTRACTS
IN GENERAL. The Fund may enter into futures contracts and options on
futures contracts for hedging purposes. A futures contract provides for the
future sale by one party and purchase by another party of a specified quantity
of a commodity at a specified price and time. When a purchase or sale of a
futures contract is made by the Fund, the Fund is required to deposit with its
custodian (or broker, if legally permitted) a specified amount of cash or liquid
securities ("initial margin"). The margin required for a futures contract is set
by the exchange on which the contract is traded and may be modified during the
term of the contract. The initial margin is in the nature of a performance bond
or good faith deposit on the futures contract which is returned to the Fund upon
termination of the contract, assuming all contractual obligations have been
satisfied. A futures contract held by the Fund is valued daily at the official
settlement price of the exchange on which it is traded. Each day the Fund pays
or receives cash, called "variation margin," equal to the daily change in value
of the futures contract. This process is known as "marking to market." Variation
margin does not represent a borrowing or loan by the Fund but is instead a
settlement between the Fund and the broker of the amount one would owe the other
if the futures contract expired. In computing daily net asset value, the Fund
will mark-to-market its open futures position.
The Fund is also required to deposit and maintain margin with respect to
put and call options on futures contracts written by it. Such margin deposits
will vary depending on the nature of the underlying futures contract (and the
related initial margin requirements), the current market value of the option,
and other futures positions held by the Fund.
Although some futures contracts call for making or taking delivery of the
underlying securities, generally these obligations are closed out prior to
delivery of offsetting purchases or sales of matching futures contracts (same
exchange, underlying security or index, and delivery month). If an offsetting
purchase price is less than the original sale price, the Fund generally realizes
a capital gain, or if it is more, the Fund generally realizes a capital loss.
Conversely, if an offsetting sale price is more than the original purchase
price, the Fund generally realizes a capital gain, or if it is less, the Fund
generally realizes a capital loss. The transaction costs must also be included
in these calculations.
When purchasing a futures contract, the Fund will maintain with its
Custodian (and mark-to-market on a daily basis) cash or liquid securities that,
when added to the amounts deposited with a futures commission merchant ("FCM")
as margin, are equal to the market value of the futures contract. Alternatively,
the Fund may "cover" its position by purchasing a put option on the same futures
contract with a strike price as high as or higher than the price of the contract
held by the Fund, or, if lower, may cover the difference with cash or short-term
securities.
When selling a futures contract, the Fund will maintain with its Custodian
in a segregated account (and mark-to-market on a daily basis) cash or liquid
securities that, when added to the amounts deposited with an FCM as margin, are
equal to the market value of the instruments underlying the contract.
Alternatively, the Fund may "cover" its position by owning the instruments
underlying the contract (or, in the case of an index futures contract, a
portfolio with a volatility substantially similar to that of the index on which
the futures contract is based), or by holding a call option permitting the Fund
to purchase the same futures contract at a price no higher than the price of the
contract written by the Fund (or at a higher price if the difference is
maintained in liquid assets with the Fund's custodian).
When selling a call option on a futures contract, the Fund will maintain
with its Custodian in a segregated account (and mark-to-market on a daily basis)
cash or liquid securities that, when added to the amounts deposited with an FCM
as margin, equal the total market value of the futures contract underlying the
call option. Alternatively, the Fund may cover its position by entering into a
long position in the same futures contract at a price no higher than the strike
price of the call option, by owning the instruments underlying the futures
contract, or by holding a separate call option permitting the Fund to purchase
the same futures contract at a price not higher than the strike price of the
call option sold by the Fund, or covering the difference if the price is higher.
When selling a put option on a futures contract, the Fund will maintain
with its Custodian (and mark-to-market on a daily basis) cash or liquid
securities that equal the purchase price of the futures contract less any margin
on deposit. Alternatively, the Fund may cover the position either by entering
into a short position in the same futures contract, or by owning a separate put
option permitting it to sell the same futures contract so long as the strike
price of the purchased put option is the same or higher than the strike price of
the put option sold by the Fund, or, if lower, the Fund may hold securities to
cover the difference.
FOREIGN CURRENCY FUTURES CONTRACTS AND RELATED OPTIONS. The Fund may
engage in foreign currency futures contracts and related options transactions
for hedging purposes. A foreign currency futures contract provides for the
future sale by one party and purchase by another party of a specified quantity
of a foreign currency at a specified price and time.
An option on a foreign currency futures contract gives the holder the
right, in return for the premium paid, to assume a long position (call) or short
position (put) in a futures contract at a specified exercise price at any time
during the period of the option. Upon the exercise of a call option, the holder
acquires a long position in the futures contract and the writer is assigned the
opposite short position. In the case of a put option, the opposite is true.
The Fund may purchase call and put options on foreign currencies as a
hedge against changes in the value of the U.S. dollar (or another currency) in
relation to a foreign currency in which portfolio securities of the Fund may be
denominated. A call option on a foreign currency gives the buyer the right to
buy, and a put option the right to sell, a certain amount of foreign currency at
a specified price during a fixed period of time. The Fund may invest in options
on foreign currency which are either listed on a domestic securities exchange or
traded on a recognized foreign exchange.
In those situations where foreign currency options may not be readily
purchased (or where such options may be deemed illiquid) in the currency in
which the hedge is desired, the hedge may be obtained by purchasing an option on
a "surrogate" currency, i.e., a currency where there is tangible evidence of a
direct correlation in the trading value of the two currencies. A surrogate
currency's exchange rate movements parallel that of the primary currency.
Surrogate currencies are used to hedge an illiquid currency risk, when no liquid
hedge instruments exist in world currency markets for the primary currency.
The Fund will only enter into futures contracts and futures options which
are standardized and traded on a U.S. or foreign exchange, board of trade, or
similar entity or quoted on an automated quotation system. The Fund will not
enter into a futures contract or purchase an option thereon if, immediately
thereafter, the aggregate initial margin deposits for futures contracts held by
the Fund plus premiums paid by it for open futures option positions, less the
amount by which any such positions are "in-the-money," would exceed 5% of the
liquidation value of the Fund's portfolio (or the Fund's net asset value), after
taking into account unrealized profits and unrealized losses on any such
contracts the Fund has entered into. A call option is "in-the-money" if the
value of the futures contract that is the subject of the option exceeds the
exercise price. A put option is "in-the-money" if the exercise price exceeds the
value of the futures contract that is the subject of the option. For additional
information about margin deposits required with respect to futures contracts and
options thereon, see "Futures Contracts and Options on Futures Contracts."
RISKS ASSOCIATED WITH FUTURES AND RELATED OPTIONS. There can be no
guarantee that there will be a correlation between price movements in the
hedging vehicle and in the Fund's portfolio securities being hedged. In
addition, there are significant differences between the securities and futures
markets that could result in an imperfect correlation between the markets,
causing a given hedge not to achieve its objectives. The degree of imperfection
of correlation depends on circumstances such as variations in speculative market
demand for futures and futures options on securities, including technical
influences in futures trading and futures options, and differences between the
financial instruments being hedged and the instruments underlying the standard
contracts available for trading in such respects as interest rate levels,
maturities, and creditworthiness of issuers. A decision as to whether, when and
how to hedge involves the exercise of skill and judgment, and even a
well-conceived hedge may be unsuccessful to some degree because of market
behavior or unexpected interest rate trends.
Futures exchanges may limit the amount of fluctuation permitted in certain
futures contract prices during a single trading day. The daily limit establishes
the maximum amount that the price of a futures contract may vary either up or
down from the previous day's settlement price at the end of the current trading
session. Once the daily limit has been reached in a futures contract subject to
the limit, no more trades may be made on that day at a price beyond that limit.
The daily limit governs only price movements during a particular trading day and
therefore does not limit potential losses because the limit may work to prevent
the liquidation of unfavorable positions. For example, futures prices have
occasionally moved to the daily limit for several consecutive trading days with
little or no trading, thereby preventing prompt liquidation of positions and
subjecting some holders of futures contracts to substantial losses.
There can be no assurance that a liquid market will exist at a time when
the Fund seeks to close out a futures or a futures option position, and the Fund
would remain obligated to meet margin requirements until the position is closed.
In addition, there can be no assurance that an active secondary market will
continue to exist.
Currency futures contracts and options thereon may be traded on foreign
exchanges. Such transactions may not be regulated as effectively as similar
transactions in the United States; may not involve a clearing mechanism and
related guarantees; and are subject to the risk of governmental actions
affecting trading in, or the prices of, foreign securities. The value of such
position also could be adversely affected by (i) other complex foreign
political, legal and economic factors, (ii) lesser availability than in the
United States of data on which to make trading decisions, (iii) delays in the
Fund's ability to act upon economic events occurring in foreign markets during
non business hours in the United States, (iv) the imposition of different
exercise and settlement terms and procedures and margin requirements than in the
United States, and (v) lesser trading volume.
SECURITIES INDEX FUTURES CONTRACTS
The Fund may enter into securities index futures contracts as an efficient
means of regulating the Fund's exposure to the equity markets. The Fund will not
engage in transactions in futures contracts for speculation, but only as a hedge
against changes resulting from market conditions in the values of securities
held in the Fund's portfolio or which it intends to purchase. An index futures
contract is a contract to buy or sell units of an index at a specified future
date at a price agreed upon when the contract is made. Entering into a contract
to buy units of an index is commonly referred to as purchasing a contract or
holding a long position in the index. Entering into a contract to sell units of
an index is commonly referred to as selling a contract or holding a short
position. The value of a unit is the current value of the stock index. For
example, the S&P 500 Index is composed of 500 selected common stocks, most of
which are listed on the New York Stock Exchange (the "Exchange"). The S&P 500
Index assigns relative weightings to the 500 common stocks included in the
Index, and the Index fluctuates with changes in the market values of the shares
of those common stocks. In the case of the S&P 500 Index, contracts are to buy
or sell 500 units. Thus, if the value of the S&P 500 Index were $150, one
contract would be worth $75,000 (500 units x $150). The index futures contract
specifies that no delivery of the actual securities making up the index will
take place. Instead, settlement in cash must occur upon the termination of the
contract, with the settlement being the difference between the contract price
and the actual level of the stock index at the expiration of the contract. For
example, if the Fund enters into a futures contract to buy 500 units of the S&P
500 Index at a specified future date at a contract price of $150 and the S&P 500
Index is at $154 on that future date, the Fund will gain $2,000 (500 units x
gain of $4). If the Fund enters into a futures contract to sell 500 units of the
stock index at a specified future date at a contract price of $150 and the S&P
500 Index is at $154 on that future date, the Fund will lose $2,000 (500 units x
loss of $4).
RISKS OF SECURITIES INDEX FUTURES. The Fund's success in using hedging
techniques depends, among other things, on IMI's ability to predict correctly
the direction and volatility of price movements in the futures and options
markets as well as in the securities markets and to select the proper type, time
and duration of hedges. The skills necessary for successful use of hedges are
different from those used in the selection of individual stocks.
The Fund's ability to hedge effectively all or a portion of its securities
through transactions in index futures (and therefore the extent of its gain or
loss on such transactions) depends on the degree to which price movements in the
underlying index correlate with price movements in the Fund's securities.
Inasmuch as such securities will not duplicate the components of an index, the
correlation probably will not be perfect. Consequently, the Fund will bear the
risk that the prices of the securities being hedged will not move in the same
amount as the hedging instrument. This risk will increase as the composition of
the Fund's portfolio diverges from the composition of the hedging instrument.
Although the Fund intends to establish positions in these instruments only
when there appears to be an active market, there is no assurance that a liquid
market will exist at a time when the Fund seeks to close a particular option or
futures position. Trading could be interrupted, for example, because of supply
and demand imbalances arising from a lack of either buyers or sellers. In
addition, the futures exchanges may suspend trading after the price has risen or
fallen more than the maximum amount specified by the exchange. In some cases,
the Fund may experience losses as a result of its inability to close out a
position, and it may have to liquidate other investments to meet its cash needs.
Although some index futures contracts call for making or taking delivery
of the underlying securities, generally these obligations are closed out prior
to delivery by offsetting purchases or sales of matching futures contracts (same
exchange, underlying security or index, and delivery month). If an offsetting
purchase price is less than the original sale price, the Fund generally realizes
a capital gain, or if it is more, the Fund generally realizes a capital loss.
Conversely, if an offsetting sale price is more than the original purchase
price, the Fund generally realizes a capital gain, or if it is less, the Fund
generally realizes a capital loss. The transaction costs must also be included
in these calculations.
The Fund will only enter into index futures contracts or futures options
that are standardized and traded on a U.S. or foreign exchange or board of
trade, or similar entity, or quoted on an automated quotation system. The Fund
will use futures contracts and related options only for "bona fide hedging"
purposes, as such term is defined in applicable regulations of the CFTC.
When purchasing an index futures contract, the Fund will maintain with its
Custodian (and mark-to-market on a daily basis) cash or liquid securities that,
when added to the amounts deposited with a futures commission merchant ("FCM")
as margin, are equal to the market value of the futures contract. Alternatively,
the Fund may "cover" its position by purchasing a put option on the same futures
contract with a strike price as high as or higher than the price of the contract
held by the Fund.
When selling an index futures contract, the Fund will maintain with its
Custodian (and mark-to-market on a daily basis) cash or liquid securities that,
when added to the amounts deposited with an FCM as margin, are equal to the
market value of the instruments underlying the contract. Alternatively, the Fund
may "cover" its position by owning the instruments underlying the contract (or,
in the case of an index futures contract, a portfolio with a volatility
substantially similar to that of the index on which the futures contract is
based), or by holding a call option permitting the Fund to purchase the same
futures contract at a price no higher than the price of the contract written by
the Fund (or at a higher price if the difference is maintained in cash or liquid
assets in a segregated account with the Fund's custodian).
COMBINED TRANSACTIONS. The Fund may enter into multiple transactions,
including multiple options transactions, multiple futures transactions, and
multiple currency transactions (including forward currency contracts) and some
combination of futures, options, and currency transactions ("component"
transactions), instead of a single transaction, as part of a single or combined
strategy when, in the opinion of IMI, it is in the best interests of the Fund to
do so. A combined transaction will usually contain elements of risk that are
present in each of its component transactions. Although combined transactions
are normally entered into based on IMI's judgment that the combined strategies
will reduce risk or otherwise more effectively achieve the desired portfolio
management goal, it is possible that the combination will instead increase such
risks or hinder achievement of the management objective.
INVESTMENT RESTRICTIONS
The Fund's investment objectives as set forth in the Prospectus under
"Summary," and the investment restrictions set forth below, are fundamental
policies of the Fund and may not be changed without the approval of a majority
(as defined in the 1940 Act) of the outstanding voting shares of the Fund. The
Fund has adopted the following fundamental investment restrictions:
(i) The Fund has elected to be classified as a diversified series of an
open-end investment company.
(ii) The Fund will not borrow money, except as permitted under the
Investment Company Act of 1940, as amended, and as interpreted or
modified by regulatory authority having jurisdiction, from time to
time.
(iii) The Fund will not issue senior securities, except as permitted under
the Investment Company Act of 1940, as amended, and as interpreted or
modified by regulatory authority having jurisdiction, from time to
time.
(iv) The Fund will not engage in the business of underwriting securities
issued by others, except to the extent that the Fund may be deemed to
be an underwriter in connection with the disposition of portfolio
securities.
(v) The Fund will not purchase or sell real estate (which term does not
include securities of companies that deal in real estate or mortgages
or investments secured by real estate or interests therein), except
that the Fund may hold and sell real estate acquired as a result of
the Fund's ownership of securities.
(vi) The Fund will not purchase physical commodities or contracts relating
to physical commodities, although the Fund may invest in commodities
futures contracts and options thereon to the extent permitted by the
Prospectus and this SAI.
(vii) The Fund will not make loans to other persons, except (a) loans of
portfolio securities, and (b) to the extent that entry into repurchase
agreements and the purchase of debt instruments or interests in
indebtedness in accordance with the Fund's investment objective and
policies may be deemed to be loans.
(viii) The Fund will not concentrate its investments in a particular
industry, as the term "concentrate" is interpreted in connection with
the Investment Company Act of 1940, as amended, and as interpreted or
modified by regulatory authority having jurisdiction, from time to
time.
ADDITIONAL RESTRICTIONS
The Fund has adopted the following additional restrictions, which are not
fundamental and which may be changed without shareholder approval, to the extent
permitted by applicable law, regulation or regulatory policy.
Under these restrictions, the Fund may not:
(i) invest in oil, gas or other mineral leases or exploration or
development programs;
(ii) invest in companies for the purpose of exercising control of
management;
(iii) invest more than 5% of its total assets in warrants, valued at the
lower of cost or market, or more than 2% of its total assets in
warrants, so valued, which are not listed on either the New York or
American Stock Exchanges;
(iv) borrow money, except for temporary purposes where investment
transactions might advantageously require it. Any such loan may not be
for a period in excess of 60 days, and the aggregate amount of all
outstanding loans may not at any time exceed 10% of the value of the
total assets of the Fund at the time any such loan is made;
(v) purchase securities on margin;
(vi) sell securities short;
(vii) purchase from or sell to any of its officers or trustees, or firms of
which any of them are members or which they control, any securities
(other than capital stock of the Fund), but such persons or firms may
act as brokers for the Fund for customary commissions to the extent
permitted by the 1940 Act;
(viii) invest more than 5% of the value of its total assets in the securities
of any one issuer (except obligations of domestic banks or the U.S.
Government, its agencies, authorities, and instrumentalities);
(ix) hold more than 10% of the voting securities of any one issuer (except
obligations of domestic banks or the U.S. Government, its agencies,
authorities and instrumentalities); or
(x) purchase the securities of any other open-end investment company,
except as part of a plan of merger or consolidation.
Under the Investment Company Act of 1940, the Fund is permitted,
subject to its investment restrictions, to borrow money only from banks. The
Trust has no current intention of borrowing amounts in excess of 5% of the
Fund's assets. Whenever an investment objective, policy or restriction set forth
in the Prospectus or this SAI states a maximum percentage of assets that may be
invested in any security or other asset or describes a policy regarding quality
standards, such percentage limitation or standard shall, unless otherwise
indicated, apply to the Fund only at the time a transaction is entered into.
Accordingly, if a percentage limitation is adhered to at the time of investment,
a later increase or decrease in the percentage which results from circumstances
not involving any affirmative action by the Fund, such as a change in market
conditions or a change in the Fund's asset level or other circumstances beyond
the Fund's control, will not be considered a violation. The Fund will continue
to interpret fundamental investment restriction (v) above to prohibit investment
in real estate limited partnership interests; this restriction shall not,
however, prohibit investment in readily marketable securities of companies that
invest in real estate or interests therein, including real estate investment
trusts.
PORTFOLIO TURNOVER
The Fund purchases securities that are believed by IMI to have above
average potential for capital appreciation. Common stocks are disposed of in
situations where it is believed that potential for such appreciation has
lessened or that other common stocks have a greater potential. Therefore, the
Fund may purchase and sell securities without regard to the length of time the
security is to be, or has been, held. A change in securities held by the Fund is
known as "portfolio turnover" and may involve the payment by the Fund of dealer
markup or underwriting commission and other transaction costs on the sale of
securities, as well as on the reinvestment of the proceeds in other securities.
The Fund's portfolio turnover rate is calculated by dividing the lesser of
purchases or sales of portfolio securities for the most recently completed
fiscal year by the monthly average of the value of the portfolio securities
owned by the Fund during that year. For purposes of determining the Fund's
portfolio turnover rate, all securities whose maturities at the time of
acquisition were one year or less are excluded.
TRUSTEES AND OFFICERS
Each Fund's Board of Trustees (the "Board") is responsible for the
overall management of the Fund, including general supervision and review of the
Fund's investment activities. The Board, in turn, elects the officers who are
responsible for administering each Fund's day-to-day operations.
The Trustees and Executive Officers of the Trust, their business
addresses and principal occupations during the past five years are:
POSITION WITH BUSINESS AFFILIATIONS
NAME, ADDRESS, AGE THE TRUST AND PRINCIPAL OCCUPATIONS
John S. Anderegg, Jr. Trustee Chairman, Dynamics Research
60 Concord Street Corp. (instruments and controls);
Wilmington, MA 01887 Director, Burr-Brown Corp.
Age: 75 (operational amplifiers);
Director, Metritage Incorporated
(level measuring instruments);
Trustee of Mackenzie Series Trust
(1992-1998).
James W. Broadfoot President President,
700 South Federal Hwy. and Ivy Management Inc. (1996-
Suite 300 Trustee present); Senior Vice
Boca Raton, FL 33432 President, Ivy Management,
Age: 56 Inc. (1992-1996); Director and Senior
[*Deemed to be an Vice President, Mackenzie Investment
"interested person" Management Inc. (1995-present); Senior
of the Trust, as Vice President, Mackenzie Investment
defined under the Management Inc. (1990-1995).
1940 Act.]
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: 75 (insurance agency); Chairman,
Scott Management Company
(administrative services for
insurance companies); President,
The Channick Group (consultants
to insurance companies and
national trade associations);
Trustee of Mackenzie Series
Trust (1994-1998); Director of
The Mackenzie Funds Inc.
(1994-1995).
Frank W. DeFriece, Jr. Trustee Director, Manager and Vice
The Landmark Centre President, Director and
113 Landmark Lane, Fund Manager, Massengill-
Suite B DeFriece Foundation
Bristol, TN 37620-2285 (charitable organization)
Age: 78 (1950-present); Trustee and Vice
Chairman, East Tennessee Public
Communications Corp. (WSJK-TV)
(1984-present); Trustee of
Mackenzie Series Trust
(1985-1998); Director of The
Mackenzie Funds Inc. (1987-1995).
Roy J. Glauber Trustee Mallinckrodt Professor of
Lyman Laboratory Physics, Harvard
of Physics University (1974-present);
Harvard University Trustee of Mackenzie Series
Cambridge, MA 02138 Trust (1994-1997).
Age: 73
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: 69 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 Chairman -present); Senior Vice President
Boca Raton, FL 33432 and Director of Mackenzie
Age: 42 Investment Management, Inc. (1994-
[*Deemed to be an 1996); Senior Vice President and
"interested person" Treasurer of Mackenzie Investment
of the Trust, as defined Management, Inc. (1989-1994);
under the Senior Vice President and Director
1940 Act.] 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).
Edward M. Tighe Trustee Chief Executive Officer,
5900 N. Andrews Avenue CITCO Technology Management, Inc.
Suite 700 ("CITCO") (computer software develop-
Ft. Lauderdale, FL 33309 ment and consulting) (1999-present);
President and Director, Global
Technology Management, Inc. (CITCO's
predecessor) (1992-1998); Managing
Director, Global Mutual Fund Services,
Ltd. (financial services firm);
President, Director and Chief
Executive Officer, Global Mutual Fund
Services, Inc. (1994-present).
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).
COMPENSATION TABLE
IVY FUND
(FISCAL YEAR ENDED DECEMBER 31, 1998)
<TABLE>
<S> <C> <C> <C> <C>
PENSION OR
AGGREGATE RETIREMENT ESTIMATED TOTAL COMPENSATION
COMPENSATION BENEFITS ACCRUED ANNUAL ESTIMATED FROM TRUST AND FUND
NAME, FROM AS PART OF FUND ANNUAL BENEFITS COMPLEX PAID TO TRUSTEES
POSITION TRUST EXPENSES UPON RETIREMENT
John S. $18,000 N/A N/A $18,000
Anderegg, Jr.
(Trustee)
Paul H. $18,000 N/A N/A $18,000
Broyhill
(Trustee)
Keith J. $0 N/A N/A $0
Carlson
(Trustee and
President)
Stanley $18,000 N/A N/A $18,000
Channick
(Trustee)
Frank W. $18,000 N/A N/A $18,000
DeFriece, Jr.
(Trustee)
Roy J. $18,000 N/A N/A $18,000
Glauber
(Trustee)
Joseph G. $18,000 N/A N/A $18,000
Rosenthal
(Trustee)
Richard N. $18,000 N/A N/A $18,000
Silverman
(Trustee)
J. Brendan $17,000 N/A N/A $17,000
Swan
(Trustee)
C. William $0 N/A N/A $0
Ferris
(Secretary/
Treasurer)
</TABLE>
To the knowledge of the Trust, as of March 31, 1999, no shareholder
owned beneficially or of record 5% or more of any Fund's outstanding shares of
any class, with the following exceptions:
CLASS A
Of the outstanding Class A shares of :
Ivy Asia Pacific Fund, Merrill Lynch Pierce Fenner & Smith, 4800 Deer
Lake Drive E, 3rd Floor, Jacksonville, FL 32246, owned of record 40,174.921
shares (16.51%), and Michael G. Landry, 211 S. Gordon Rd., Ft.
Lauderdale, FL 33301, owned of record 12,443.882 shares (5.11%);
Ivy Bond Fund, Merrill Lynch Pierce Fenner & Smith, 4800 Deer Lake
Drive E, 3rd Floor, Jacksonville, FL 32246, owned of record 1,397,567.620 shares
(13.02%);
Ivy China Region Fund, Merrill Lynch Pierce Fenner & Smith, 4800 Deer
Lake Drive E, 3rd Floor, Jacksonville, FL 32246, owned of record 218,003.027
shares (13.26%), and Resources Trust Company, PO Box 3865, Englewood, CO
80155-3865, owned of record 186,351.290 shares (11.33%);
Ivy Developing Nations Fund, Donaldson Lufkin Jenrette Securities
Corporation Inc., PO Box 2052, Jersey City, NJ 07303-9998, owned of record
87,092.843 shares (11.31%), Donaldson Lufkin Jenrette Securities Corporation
Inc., PO Box 2052, Jersey City, NJ 07303-9998, owned of record 54,336.017 shares
(7.06%), and Merrill Lynch Pierce Fenner & Smith, 4800 Deer Lake Drive E, 3rd
Floor, Jacksonville, FL 32246, owned of record 41,198.769 shares (5.35%);
Ivy Global Natural Resources Fund, Carn & Co., Riggs Bank (TTEE) FBO
Care-Free Consolidated 401K Plan, PO Box 96211, Washington, DC 20090-6211, owned
of record 62,273.356 shares (29.71%), Carn & Co., Riggs Bank (TTEE) FBO Yazaki
Employee Savings & Retirement Plan, PO Box 96211, Washington, DC 20090-6211,
owned of record 22,533.136 shares (10.75%), and Mackenzie Investment Management
Inc., via Mizner Financial Plaza, 700 South Federal Highway, Suite 300, Boca
Raton, FL 33432, owned of record 11,957.023 shares (5.70%);
Ivy Global Science & Technology Fund, Donaldson Lufkin Jenrette
Securities Corporation Inc., PO Box 2052, Jersey City, NJ 07303-9998, owned of
record 99,948.978 shares (16.84%), Donaldson Lufkin Jenrette Securities
Corporation Inc., PO Box 2052, Jersey City, NJ 07303-9998, owned of record
65,325.391 shares (11.01%), and Merrill Lynch Pierce Fenner & Smith, 4800 Deer
Lake Drive E, 3rd Floor, Jacksonville, FL 32246, owned of record 31,922.542
shares (5.38%);
Ivy International Fund II, Merrill Lynch Pierce Fenner & Smith, 4800
Deer Lake Drive E, 3rd Floor, Jacksonville, FL 32246, owned of record
818,804.984 shares (34.10%);
Ivy International Fund, Charles Schwab & Co. Inc., 101 Montgomery
Street, San Francisco, CA 94104, owned of record 12,827,455.253 shares (35.28%),
and Merrill Lynch Pierce Fenner & Smith, 4800 Deer Lake Drive E, 3rd Floor,
Jacksonville, FL 32246, owned of record 6,083,813.996 shares (16.73%);
Ivy International Small Companies Fund, Donaldson Lufkin Jenrette
Securities Corporation Inc., PO Box 2052, Jersey City, NJ 07303-9998, owned of
record 19,762.181 shares (20.88%), and Mackenzie Investment Management Inc., via
Mizner Financial Plaza, 700 South Federal Highway, Suite 300, Boca Raton, FL
33432, owned of record 10,287.244 shares (10.87%).
Ivy Money Market Fund, Carn & Co., Riggs Bank (TTEE) FBO Plexus Corp
401K Plan, PO Box 96211, Washington, DC 20090-6211, owned of record
2,710,056.720 shares (13.19%), and Bear Stearns Securities Corp., 1 Metrotech
Center North, Brooklyn, NY 11201-3859, owned of record 1,432,318.960 shares
(6.97%).
Ivy Pan-Europe Fund, Mackenzie Investment Management Inc., via Mizner
Financial Plaza, 700 South Federal Highway, Suite 300, Boca Raton, FL 33432,
owned of record 37,553.145 shares (23.84%), and Merrill Lynch Pierce Fenner &
Smith, 4800 Deer Lake Drive E, 3rd Floor, Jacksonville, FL 32246, owned of
record 27,122.193 shares (17.22%);
Ivy South America Fund, Merrill Lynch Pierce Fenner & Smith, 4800 Deer
Lake Drive E, 3rd Floor, Jacksonville, FL 32246, owned of record 45,710.848
shares (17.87%), and Charles Schwab & Co. Inc., 101 Montgomery Street, San
Francisco, CA 94104, owned of record 19,471.113 shares (7.61%), and William A.
Maczko & Mildred E. Helm Maczko, 2100 S. Ocean Ln., #1412, Ft. Lauderdale, FL
33316, owned of record 14,174.070 shares (5.54%);
Ivy US Blue Chip Fund, Helen L. Medvin, 4712 Michael Ave., North
Olmsted, OH 44070, owned of record 10,253.846 shares (7.12%), Donaldson Lufkin
Jenrette Securities Corporation Inc., PO Box 2052, Jersey City, NJ 07303-9998,
owned of record 8,986.371 shares (6.24%), and Janney Montgomery Scott Inc.,
Estate of David Craig, 1801 Market Street, Philadelphia, PA 19103-1675, owned of
record 8,880.995 shares (6.17%).
Ivy US Emerging Growth Fund, Donaldson Lufkin Jenrette Securities
Corporation Inc., PO Box 2052, Jersey City, NJ 07303-9998, owned of record
86,774.211 shares (5.08%);
CLASS B
Of the outstanding Class B shares of:
Ivy Asia Pacific Fund, Merrill Lynch Pierce Fenner & Smith, 4800 Deer
Lake Drive E, 3rd Floor, Jacksonville, FL 32246, owned of record 141,298.083
shares (35.22%);
Ivy Bond Fund, Merrill Lynch Pierce Fenner & Smith, 4800 Deer Lake
Drive E, 3rd Floor, Jacksonville, FL 32246, owned of record 12,199,384.716
shares (48.92%);
Ivy China Region Fund, Merrill Lynch Pierce Fenner & Smith, 4800 Deer
Lake Drive E, 3rd Floor, Jacksonville, FL 32246, owned of record 107,725.641
shares (11.73%);
Ivy Developing Nations Fund, Merrill Lynch Pierce Fenner & Smith, 4800
Deer Lake Drive E, 3rd Floor, Jacksonville, FL 32246, owned of record
278,316.028 shares (28.37%);
Ivy Global Fund, Merrill Lynch Pierce Fenner & Smith, 4800 Deer Lake
Drive E, 3rd Floor, Jacksonville, FL 32246, owned of record 68,719.447 shares
(11.93%);
Ivy Global Natural Resources Fund, Merrill Lynch Pierce Fenner & Smith,
4800 Deer Lake Drive E, 3rd Floor, Jacksonville, FL 32246, owned of record
83,599.984 shares (38.05%);
Ivy Global Science & Technology Fund, Merrill Lynch Pierce Fenner &
Smith, 4800 Deer Lake Drive E, 3rd Floor, Jacksonville, FL 32246, owned of
record 40,990.672 shares (8.13%);
Ivy Growth Fund, Merrill Lynch Pierce Fenner & Smith, 4800 Deer Lake
Drive E, 3rd Floor, Jacksonville, FL 32246, owned of record 24,939.375 shares
(8.96%);
Ivy Growth with Income Fund, Merrill Lynch Pierce Fenner & Smith, 4800
Deer Lake Drive E, 3rd Floor, Jacksonville, FL 32246, owned of record
263,081.752 shares (15.31%);
Ivy International Fund II, Merrill Lynch Pierce Fenner & Smith, 4800
Deer Lake Drive E, 3rd Floor, Jacksonville, FL 32246, owned of record
4,986,169.823 shares (60.62%);
Ivy International Fund, Merrill Lynch Pierce Fenner & Smith, 4800 Deer
Lake Drive E, 3rd Floor, Jacksonville, FL 32246, owned of record 5,678,407.729
shares (45.59%).
Ivy International Small Companies Fund, Merrill Lynch Pierce Fenner &
Smith, 4800 Deer Lake Drive E, 3rd Floor, Jacksonville, FL 32246, owned of
record 24,340.066 shares (23.40%), PaineWebber, FBO B Carmage Walls Trust #10,
FBO Lissa Walls Trust and Cooper Walls TTEE, PO Box 42828, Houston, TX 77242,
owned of record 5,880.313 shares (5.65%), and PaineWebber, FBO B Carmage Walls
Trust #10, FBO Cooper Walls Trust and Cooper Walls TTEE, PO Box 42828, Houston,
TX 77242, owned of record 5,760.640 shares (5.53%);
Ivy Pan-Europe Fund, Merrill Lynch Pierce Fenner & Smith, 4800 Deer
Lake Drive E, 3rd Floor, Jacksonville, FL 32246, owned of record 66,847.392
shares (22.86%);
Ivy South America Fund, Merrill Lynch Pierce Fenner & Smith, 4800 Deer
Lake Drive E, 3rd Floor, Jacksonville, FL 32246, owned of record 46,359.136
shares (29.47%);
Ivy US Blue Chip Fund, Merrill Lynch Pierce Fenner & Smith, 4800 Deer
Lake Drive E, 3rd Floor, Jacksonville, FL 32246, owned of record 74,760.802
shares (18.62%), and Parker Hunter Incorporated, FBO Robert Crisci and Kathy
Crisci, PO Box 7629, 3525 Ellwood Road, New Castle, PA 16107-7629, owned of
record 24,779.090 shares (6.17%).
Ivy US Emerging Growth Fund, Merrill Lynch Pierce Fenner & Smith, 4800
Deer Lake Drive E, 3rd Floor, Jacksonville, FL 32246, owned of record
335,426.771 shares (21.10%);
CLASS C
Of the outstanding Class C shares of:
Ivy Asia Pacific Fund, Merrill Lynch Pierce Fenner & Smith, 4800 Deer
Lake Drive E, 3rd Floor, Jacksonville, FL 32246, owned of record 19,237.215
shares (5.33%);
Ivy Bond Fund, Merrill Lynch Pierce Fenner & Smith, 4800 Deer Lake
Drive E, 3rd Floor, Jacksonville, FL 32246, owned of record 725,233.869 shares
(74.69%);
Ivy China Region Fund, Merrill Lynch Pierce Fenner & Smith, 4800 Deer
Lake Drive E, 3rd Floor, Jacksonville, FL 32246, owned of record 30,474.251
shares (27.72%), and IBT, (custodian) FBO Roy O. Derminer, 2236 Abbottwoods Ln.,
Orange City, FL 32763, owned of record 8,275.708 shares (7.52%);
Ivy Developing Nations Fund, Merrill Lynch Pierce Fenner & Smith, 4800
Deer Lake Drive E, 3rd Floor, Jacksonville, FL 32246, owned of record 48,103,553
shares (11.99%);
Ivy Global Fund, Merrill Lynch Pierce Fenner & Smith, 4800 Deer Lake
Drive E, 3rd Floor, Jacksonville, FL 32246, owned of record 6,585.276 shares
(19.35%), Donaldson Lufkin Jenrette Securities Corporation Inc., PO Box 2052,
Jersey City, NJ 07303-9998, owned of record 3,909.907 shares (11.48%), Robert W.
Baird & Co. Inc., 777 East Wisconsin Avenue, Milwaukee, WI 53202-5391, owned of
record 3,436.408 shares (10.09%), IBT, (custodian) FBO Mattie A. Allen, 755
Selma Pl., San Diego, CA 92114-1711, owned of record 3,095.552 shares (9.09%),
Smith Barney Inc., 388 Greenwich Street, New York, NY 10013, owned of record
2,436.584 shares (7.15%), and PaineWebber, (custodian) FBO Robert D.
Cuthbertson, PO Box 3321, Weehawken, NJ 07087-8154, owned of record 1,705.476
shares (5.01%);
Ivy Global Natural Resources Fund, Raymond James & Assoc. Inc.,
(custodian) Raymond W. Simmons, 6296 104th Avenue, Pinellas Park, FL 33782,
owned of record 981.281 shares (19.43%), Raymond James & Assoc. Inc.,
(custodian) Diversified Dental P/S, FBO Al Pollock, 10641 1st Street E., Suite
204, Treasure Island, FL 33706, owned of record 910.166 shares (18.02%), Robert
W. Baird & Co. Inc., 777 E. Wisconsin Avenue, Milwaukee, WI 53202-5391, owned of
record 613.622 shares (12.15%), Robert W. Baird & Co. Inc., 777 E. Wisconsin
Avenue, Milwaukee, WI 53202-5391, owned of record 550.722 shares (10.90%), Nancy
J. Cleare, 9381 US Hwy. 19 N, Pinellas Park, FL 33782, owned of record 541.597
shares (10.72%), Resources Trust Co., (custodian) FBO Jon K. Loessin, PO Box
5900, Denver, CO 80217, owned of record 535.023 shares (10.59%), Ester C.
Wickes, 19 Fawn Hill Rd., Tuxedo, NY 10987, owned of record 350.772 shares
(6.94%), and IBT, (custodian) FBO Salvatore Disalvo, 311 Bridle Path Lane,
Annapolis, MD 21403-1638, owned of record 299.993 shares (5.94%);
Ivy Global Science & Technology Fund, Merrill Lynch Pierce Fenner &
Smith, 4800 Deer Lake Drive E, 3rd Floor, Jacksonville, FL 32246, owned of
record 38,011.661 shares (11.30%);
Ivy Growth Fund, Merrill Lynch Pierce Fenner & Smith, 4800 Deer Lake
Drive E, 3rd Floor, Jacksonville, FL 32246, owned of record 7,477.571 shares
(47.23%), IBT, (custodian) FBO Joseph L. Wright, 32211 Pierce Street, Garden
City, MI 48135, owned of record 3,938.282 shares (24.87%), PaineWebber, FBO
Cynthia N. Young, PO Box 3321, Weehawken, NJ 07087-8154, owned of record 853.551
shares (5.39%), and Martin S. Sawyer & Ruth C. Sawyer, 5910 Wilson Blvd., #413,
Arlington, VA 22205, owned of record 844.906 shares (5.33%);
Ivy Growth with Income Fund, Merrill Lynch Pierce Fenner & Smith, 4800
Deer Lake Drive E, 3rd Floor, Jacksonville, FL 32246, owned of record 11,534.267
shares (29.37%), Anthony L. Bassano & Marie E. Bassano, 8934 Bari Court, Port
Richie, FL 34668, owned of record 3,203.100 shares (8.15%), IBT, (custodian) FBO
Vytautas Snieckus, 1250 E 276th Street, Euclid, OH 44132, owned of record
2,645.907 shares (6.73%), PaineWebber, (custodian) FBO Patricia Cramer Russell,
PO Box 3321, Weehawken, NJ 07087-8154, owned of record 2,191.410 shares (5.58%),
IBT, (custodian) FBO Kevin D. Thistle, 1017 Glencrest Court, Saulkville, WI
53080, owned of record 2,130.626 shares (5.42%), and IBT, (custodian) FBO Carol
E. Greivell, 985 N Broadway, #67, Depere, WI 54115, owned of record 2,106.814
shares (5.36%);
Ivy International Fund II, Merrill Lynch Pierce Fenner & Smith, 4800
Deer Lake Drive E, 3rd Floor, Jacksonville, FL 32246, owned of record
2,908,557.453 shares (74.01%);
Ivy International Fund, Merrill Lynch Pierce Fenner & Smith, 4800 Deer
Lake Drive E, 3rd Floor, Jacksonville, FL 32246, owned of record 2,189,094.234
shares (64.38%);
Ivy International Small Companies Fund, Merrill Lynch Pierce Fenner &
Smith, 4800 Deer Lake Drive E, 3rd Floor, Jacksonville, FL 32246, owned of
record 87,014.649 shares (90.31%);
Ivy Money Market Fund, PaineWebber, FBO Bruce Blank, PO Box 3321,
Weehawken, NJ 07087-8154, owned of record 103,905.380 shares (17.65%), IBT
(custodian) FBO, Marcelette V. Manning, 1371 Mt. View Lane, Chula Vista, CA
91911, owned of record 65,194.630 shares (11.07%), IBT (custodian) FBO Diana
Rooney, 2441 S. 9th St., El Centro, CA 92243, owned of record 62,822.810 shares
(10.67%), Robert J. Laws & Katherine A. Laws, PO Box 723, Ramona, CA 92065,
owned of record 42,920.450 shares (7.29%), IBT (custodian) FBO Betty J. Carson,
1987 Higgins Lane, El Centro, CA 92243, owned of record 39,398.780 shares
(6.69%), Paul M. Benard, 40 Arrowhead Farm Road, Boxford, MA 01921, owned of
record 33,488.010 shares (5.68%), Diane C. Benard, 40 Arrowhead Farm Road,
Boxford, MA 01921, owned of record 33,488.010 shares (5.68%), and PaineWebber,
FBO Kathleen L. Diller, PO Box 3321, Weehawken, NJ 07087-8154, owned of record
30,238.920 shares (5.13%).
Ivy Pan-Europe Fund, Merrill Lynch Pierce Fenner & Smith, 4800 Deer
Lake Drive E, 3rd Floor, Jacksonville, FL 32246, owned of record 26,948.668
shares (44.12%), Resources Trust Company, FBO Terry K. Ramnanan, PO Box 5900,
Denver, CO 80217, owned of record 14,652.015 shares (23.99%), and Donaldson
Lufkin Jenrette Securities Corporation Inc., PO Box 2052, Jersey City, NJ
07303-9998, owned of record 4,663.657 shares (7.63%);
Ivy South America Fund, Merrill Lynch Pierce Fenner & Smith, 4800 Deer
Lake Drive E, 3rd Floor, Jacksonville, FL 32246, owned of record 10,956.813
shares (58.18%), Interstate/Johnson Lane, Interstate Tower, PO Box 1220,
Charlotte, NC 28201-1220, owned of record 2,617.801 shares (13.90%), Donaldson
Lufkin Jenrette Securities Corporation Inc., PO Box 2052, Jersey City, NJ
07303-9998, owned of record 2,318.301 shares (12.31%), Donaldson Lufkin Jenrette
Securities Corporation Inc., PO Box 2052, Jersey City, NJ 07303-9998, owned of
record 1,133.787 shares (6.02%), and Smith Barney Inc., 388 Greenwich Street,
New York, NY 10013, owned of record 966.121 shares (5.13%);
Ivy US Blue Chip Fund, Merrill Lynch Pierce Fenner & Smith, 4800 Deer
Lake Drive E, 3rd Floor, Jacksonville, FL 32246, owned of record 8,485.693
shares (10.18%), Donaldson Lufkin Jenrette Securities Corporation Inc., PO Box
2052, Jersey City, NJ 07303-9998, owned of record 6,066.012 shares (7.27%), IBT,
(custodian) FBO Roy O. Derminer, 2236 Abbottwoods LN, Orange City, FL 32763,
owned of record 4,517.953 shares (5.42%), and Donaldson Lufkin Jenrette
Securities Corporation Inc., PO Box 2052, Jersey City, NJ 07303-9998, owned of
record 4,412.541 shares (5.29%);
Ivy US Emerging Growth Fund, Merrill Lynch Pierce Fenner & Smith, 4800
Deer Lake Drive E, 3rd Floor, Jacksonville, FL 32246, owned of record 96,481.220
shares (30.56%);
CLASS I
Of the outstanding Class I shares of:
Ivy International Fund, The John E. Fetzer Institute Inc., 9292 W KL
Ave., Kalamazoo, MI 49009, owned of record 727,066.771 shares (19.12%), State
Street Bank, (TTEE) FBO Allison Engines, 200 Newport Ave., 7th Floor, North
Quincy, MA 02171, owned of record 292,309.556 shares (7.68%), Lynspen and
Company, PO Box 830804, Birmingham, AL 35283, owned of record 276,747.272 shares
(7.27%), and U A Local 447 Pension Trust Fund, 5841 Newman Ct., Sacramento, CA
95819, owned of record 240,427.057 shares (6.32%).
ADVISOR CLASS
Of the outstanding Advisor Class shares of:
Ivy Bond Fund, NFSC FEBO, C. William Ferris, Michael Landry/Keith
Carlson, 700 South Federal Highway, Boca Raton, FL 33432-6114, owned of record
13,944.569 shares (77.94%), and Donaldson Lufkin Jenrette Securities Corporation
Inc., PO Box 2052, Jersey City, NJ 07303-9998, owned of record 3,252.157 shares
(18.17%);
Ivy China Region Fund, Donaldson Lufkin Jenrette Securities Corporation
Inc., PO Box 2052, Jersey City, NJ 07303-9998, owned of record 1,354.000 shares
(84.59%), and Donaldson Lufkin Jenrette Securities Corporation Inc., PO Box
2052, Jersey City, NJ 07303-9998, owned of record 192.447 shares (12.02%).
Ivy Developing Nations Fund, NFSC FEBO, C. William Ferris, Michael
Landry/Keith Carlson, 700 South Federal Highway, Boca Raton, FL 33432-6114,
owned of record 14,362.134 shares (100%);
Ivy Global Fund, NFSC FEBO, C. William Ferris, Michael Landry/Keith
Carlson, 700 South Federal Highway, Boca Raton, FL 33432-6114, owned of record
30,007.844 shares (100%);
Ivy Global Science & Technology Fund, IBT, (custodian) FBO Deborah P.
Mason, 3406 Cypress Landing Dr., Valrico, FL 33594, owned of record 629.966
shares (36.59%), Donaldson Lufkin Jenrette Securities Corporation Inc., PO Box
2052, Jersey City, NJ 07303-9998, owned of record 534.539 shares (31.04%),
Donaldson Lufkin Jenrette Securities Corporation Inc., PO Box 2052, Jersey City,
NJ 07303-9998, owned of record 418.586 shares (24.31%), and Donaldson Lufkin
Jenrette Securities Corporation Inc., PO Box 2052, Jersey City, NJ 07303-9998,
owned of record 138.549 shares (8.04%);
Ivy Growth Fund, NFSC FEBO, C. William Ferris, Michael Landry/Keith
Carlson, 700 South Federal Highway, Boca Raton, FL 33432-6114, owned of record
16,572.658 shares (99.90%);
Ivy Growth with Income Fund, NFSC FEBO, C. William Ferris, Michael
Landry/Keith Carlson, 700 South Federal Highway, Boca Raton, FL 33432-6114,
owned of record 25,118.240 shares (100%);
Ivy International Fund II, Charles Scwab & Co. Inc., 101 Montgomery
Street, San Francisco, CA 94104, owned of record 7,913.113 shares (11.19%),
Donaldson Lufkin Jenrette Securities Corporation Inc., PO Box 2052, Jersey City,
NJ 07303-9998, owned of record 6,471.430 shares (9.15%), and Donaldson Lufkin
Jenrette Securities Corporation Inc., PO Box 2052, Jersey City, NJ 07303-9998,
owned of record 4,602.660 shares (6.50%);
Ivy Pan-Europe Fund, NFSC FEBO, C. William Ferris, Michael Landry/Keith
Carlson, 700 South Federal Highway, Boca Raton, FL 33432-6114, owned of record
3,424.319 shares (47.51%), Donaldson Lufkin Jenrette Securities Corporation
Inc., PO Box 2052, Jersey City, NJ 07303-9998, owned of record 1,191.422 shares
(16.53%), Donaldson Lufkin Jenrette Securities Corporation Inc., PO Box 2052,
Jersey City, NJ 07303-9998, owned of record 947.119 shares (13.14%), Donaldson
Lufkin Jenrette Securities Corporation Inc., PO Box 2052, Jersey City, NJ
07303-9998, owned of record 653.595 shares (9.06%), and Charles Schwab & Co.
Inc., 101 Montgomery Street, San Francisco, CA 94104,owned of record 406.639
shares (5.64%);
Ivy US Blue Chip Fund, Mackenzie Investment Management Inc., Via Mizner
Financial Plaza, 700 South Federal Highway, Suite 300, Boca Raton, FL 33432,
owned of record 50,001.000 shares (80.05%), NFSC FEBO, C. William Ferris,
Michael Landry/Keith Carlson, 700 South Federal Highway, Boca Raton, FL
33432-6114, owned of record 7,419.362 shares (11.87%), and Charles Scwab & Co.
Inc., 101 Montgomery Street, San Francisco, CA 94104, owned of record 3,678.690
shares (5.88%);
Ivy US Emerging Growth Fund, NFSC FEBO, C. William Ferris, Michael
Landry/Keith Carlson, 700 South Federal Highway, Boca Raton, FL 33432-6114,
owned of record 20,670.236 shares (84.78%), and Charles Schwab & Co. Inc., 101
Montgomery Street, San Francisco, CA 94104, owned of record 1,927.965 shares
(7.90%).
As of April 16, 1999, the Officers and Trustees of the Trust as a group
owned beneficially or of record less than 1% of the outstanding Class A, Class
B, Class C, Class I and Advisor Class shares of each of the nineteen Ivy funds
that are series of the Trust, except that the Officers and Trustees of the Trust
as a group owned 3.93%, 1.94%, 1.19%, and 2.09%, respectively, of Ivy Asia
Pacific Fund Class A shares, Ivy Global Natural Resources Fund Class A shares,
Ivy Money Market Fund Class A shares, and Ivy South America Fund Class A shares,
respectively, as of that date.
PERSONAL INVESTMENTS BY EMPLOYEES OF IMI. Employees of IMI are permitted
to make personal securities transactions, subject to the requirements and
restrictions set forth in IMI's Code of Ethics and Business Conduct Policy (the
"Code of Ethics"). The Code of Ethics is designed to identify and address
certain conflicts of interest between personal investment activities and the
interests of investment advisory clients such as the Fund. Among other things,
the Code of Ethics, which generally complies with standards recommended by the
Investment Company Institute's Advisory Group on Personal Investing, prohibits
certain types of transactions absent prior approval, applies to portfolio
managers, traders, research analysts and others involved in the investment
advisory process, and imposes time periods during which personal transactions
may not be made in certain securities, and requires the submission of duplicate
broker confirmations and monthly reporting of securities transactions.
Exceptions to these and other provisions of the Code of Ethics may be granted in
particular circumstances after review by appropriate personnel.
INVESTMENT ADVISORY AND OTHER SERVICES
BUSINESS MANAGEMENT AND INVESTMENT ADVISORY SERVICES
IMI provides business management and investment advisory services to the
Fund pursuant to a Business Management and Investment Advisory Agreement (the
"Agreement"). IMI is a wholly owned subsidiary of Mackenzie Investment
Management Inc. ("MIMI"). MIMI, a Delaware corporation, has approximately 10% of
its outstanding common stock listed for trading on the Toronto Stock Exchange
("TSE"). MIMI is a subsidiary of Mackenzie Financial Corporation ("MFC"), 150
Bloor Street West, Toronto, Ontario, Canada, a public corporation organized
under the laws of Ontario whose shares are listed for trading on the TSE. MFC is
registered in Ontario as a mutual fund dealer and advises Ivy Global Natural
Resources Fund. IMI currently acts as manager and investment adviser to the
following additional investment companies registered under the 1940 Act (other
than the Fund): Ivy Asia Pacific Fund, Ivy Bond Fund, Ivy China Region Fund, Ivy
Developing Nations Fund, Ivy European Opportunities Fund, Ivy Global Fund, Ivy
Global Science & Technology Fund, Ivy Growth Fund, Ivy Growth with Income Fund,
Ivy International Fund II, Ivy International Small Companies Fund, Ivy
International Strategic Bond Fund, Ivy Money Market Fund, Ivy Pan-Europe Fund,
Ivy South America Fund, Ivy US Blue Chip Fund and Ivy US Emerging Growth Fund.
IMI also provides business management services to Ivy Global Natural Resources
Fund.
The Agreement obligates IMI to make investments for the account of the
Fund in accordance with its best judgment and within the investment objectives
and restrictions set forth in the Prospectus, the 1940 Act and the provisions of
the Code relating to regulated investment companies, subject to policy decisions
adopted by the Board. IMI also determines the securities to be purchased or sold
by the Fund and places orders with brokers or dealers who deal in such
securities.
Under the Agreement, IMI also provides certain business management
services. IMI is obligated to (1) coordinate with the Fund's Custodian and
monitor the services it provides to the Fund; (2) coordinate with and monitor
any other third parties furnishing services to the Fund; (3) provide the Fund
with necessary office space, telephones and other communications facilities as
are adequate for the Fund's needs; (4) provide the services of individuals
competent to perform administrative and clerical functions that are not
performed by employees or other agents engaged by the Fund or by IMI acting in
some other capacity pursuant to a separate agreement or arrangements with the
Fund; (5) maintain or supervise the maintenance by third parties of such books
and records of the Trust as may be required by applicable Federal or state law;
(6) authorize and permit IMI's directors, officers and employees who may be
elected or appointed as trustees or officers of the Trust to serve in such
capacities; and (7) take such other action with respect to the Trust, after
approval by the Trust as may be required by applicable law, including without
limitation the rules and regulations of the SEC and of state securities
commissions and other regulatory agencies.
The Fund pays IMI a monthly fee for providing business management and
investment advisory services at an annual rate of 1.00% of the Fund's average
net assets, reduced to 0.90% for average daily net assets over $2.5 billion.
For the fiscal years ended December 31, 1996, 1997 and 1998, the Fund paid
IMI fees of $9,157,858, $22,898,279 and $26,278,962, respectively.
Under the Agreement, the Trust pays the following expenses: (1) the fees
and expenses of the Trust's Independent Trustees; (2) the salaries and expenses
of any of the Trust's officers or employees who are not affiliated with IMI; (3)
interest expenses; (4) taxes and governmental fees, including any original issue
taxes or transfer taxes applicable to the sale or delivery of shares or
certificates therefor; (5) brokerage commissions and other expenses incurred in
acquiring or disposing of portfolio securities; (6) the expenses of registering
and qualifying shares for sale with the SEC and with various state securities
commissions; (7) accounting and legal costs; (8) insurance premiums; (9) fees
and expenses of the Trust's Custodian and Transfer Agent and any related
services; (10) expenses of obtaining quotations of portfolio securities and of
pricing shares; (11) expenses of maintaining the Trust's legal existence and of
shareholders' meetings; (12) expenses of preparation and distribution to
existing shareholders of periodic reports, proxy materials and prospectuses; and
(13) fees and expenses of membership in industry organizations.
The Agreement will continue in effect with respect to the Fund from year
to year, only so long as the continuance is specifically approved at least
annually (i) by the vote of a majority of the Independent Trustees and (ii)
either (a) by the vote of a majority of the outstanding voting securities (as
defined in the 1940 Act) of the Fund or (b) by the vote of a majority of the
entire Board. If the question of continuance of the Agreement (or adoption of
any new agreement) is presented to the shareholders, continuance (or adoption)
shall be effected only if approved by the affirmative vote of a majority of the
outstanding voting securities of the Fund. See "Capitalization and Voting
Rights."
The Agreement may be terminated with respect to the Fund at any time,
without payment of any penalty, by the vote of a majority of the Board, or by a
vote of a majority of the outstanding voting securities of the Fund, on 60 days'
written notice to IMI, or by IMI on 60 days' written notice to the Trust. The
Agreement shall terminate automatically in the event of its assignment.
SUBADVISORY CONTRACT . The Trust and IMI, on behalf of the Fund, have
entered into a subadvisory contract with an independent investment adviser (the
"Subadvisory Contract") under which the subadviser develops, recommends and
implements an investment program and strategy for the Fund's portfolio and is
responsible for making all portfolio security and brokerage decisions, subject
to the supervision of IMI and, ultimately, the Board. Fees payable under the
Subadvisory Contract accrue daily and are paid quarterly by IMI. Effective April
1, 1993, Northern Cross serves as subadviser for the Fund's portfolio pursuant
to the Subadvisory Contract. As compensation for its services, Northern Cross is
paid a fee by IMI at the annual rate of 0.60% of the Fund's average net assets
for assets up to $1.5 billion. The annual fee is reduced to 0.55% of the next $1
billion in average daily net assets. For assets over $2.5 billion, Northern
Cross is paid at an annual rate equal to 0.50% of the Fund's average daily net
assets. As compensation for advisory services rendered for the fiscal years
ended December 31, 1996, 1997 and 1998, IMI paid Northern Cross $5,494,715,
$13,738,967 and $15,139,876, respectively. Northern Cross, wholly-owned and
operated by Hakan Castegren, is the successor to the investment advisory
functions of Boston Overseas Investors, Inc. ("BOI"), which also was
wholly-owned and operated by Hakan Castegren. Boston Investor Services, Inc.,
the successor to the administrative and research functions of BOI, provides
administrative and research services to Northern Cross.
Any amendment to the current Subadvisory Contract requires approval by
votes of (a) a majority of the outstanding voting securities of the Fund
affected thereby and (b) a majority of the Trustees who are not interested
persons of the Trust or of any other party to such Contract. The Subadvisory
Contract terminates automatically in the event of its assignment (as defined in
the 1940 Act) or upon termination of the Agreement. Also, the Subadvisory
Contract may be terminated by not more than 60 days' nor less than 30 days'
written notice by either the Trust or IMI or upon not less than 120 days' notice
by the Subadviser. The Subadvisory Contract provides that IMI or the Subadviser
shall not be liable to the Trust, to any shareholder of the Trust, or to any
other person, except for loss resulting from willful misfeasance, bad faith,
gross negligence or reckless disregard of duty.
The Subadvisory Contract will continue in effect (subject to provisions
for earlier termination as described above) only if such continuance is approved
at least annually (a) by a majority of the Trustees who are not interested
persons of the Trust or of any other party to the Contract and (b) by either (i)
a majority of all of the Trustees of the Trust or (ii) a vote of a majority of
the outstanding voting securities of any Fund affected thereby. On September
18-19, 1998, the Board, including a majority of the Independent Trustees, last
approved the continuance of the Subadvisory Contract.
DISTRIBUTION SERVICES
IMDI, a wholly owned subsidiary of MIMI, serves as the exclusive
distributor of Ivy Fund's shares pursuant to an Amended and Restated
Distribution Agreement with the Trust dated March 16, 1999, as amended from time
to time (the "Distribution Agreement"). 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 each Fund's behalf. Each 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 each Fund's Net Asset Value next
computed after an authorized intermediary or the intermediary's authorized
designee accepts them.
Pursuant to the Distribution Agreement, IMDI is entitled to deduct a
commission on all Class A Fund shares sold equal to the difference, if any,
between the public offering price, as set forth in the Fund's then-current
prospectus, and the net asset value on which such price is based. Out of that
commission, IMDI may reallow to dealers such concession as IMDI may determine
from time to time. In addition, IMDI is entitled to deduct a CDSC on the
redemption of Class A shares sold without an initial sales charge and Class B
and Class C shares, in accordance with, and in the manner set forth in, the
Prospectus.
Under the Distribution Agreement, the Fund bears, among other expenses,
the expenses of registering and qualifying its shares for sale under federal and
state securities laws and preparing and distributing to existing shareholders
periodic reports, proxy materials and prospectuses.
During the fiscal year ended December 31, 1998, IMDI received from sales
of Class A shares of the Fund $457,543 in sales commissions, of which $50,268
was retained after dealer allowances. During the fiscal year ended December 31,
1998, IMDI received $2,081,051 in CDSCs on redemptions of Class B shares of the
Fund. During the fiscal year ended December 31, 1998, IMDI received $67,501 in
CDSCs on redemptions of Class C shares of the Fund.
The Distribution Agreement will continue in effect for successive one-year
periods, provided that such continuance is specifically approved at least
annually by the vote of a majority of the Independent Trustees, cast in person
at a meeting called for that purpose and by the vote of either a majority of the
entire Board or a majority of the outstanding voting securities of the Fund. The
Distribution Agreement may be terminated with respect to the Fund at any time,
without payment of any penalty, by IMDI on 60 days' written notice to the Fund
or by the Fund by vote of either a majority of the outstanding voting securities
of the Fund or a majority of the Independent Trustees on 60 days' written notice
to IMDI. The Distribution Agreement shall terminate automatically in the event
of its assignment.
RULE 18F-3 PLAN. On February 23, 1995, the SEC adopted Rule 18f-3 under
the 1940 Act, which permits a registered open-end investment company to issue
multiple classes of shares in accordance with a written plan approved by the
investment company's board of directors/trustees and filed with the SEC. The
Board has 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. This
fee constitutes reimbursement to IMDI for service fees paid by IMDI. 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. This
fee constitutes compensation to IMDI and is not dependent on expenses incurred
by IMDI. IMDI may reallow to dealers all or a portion of the service and
distribution fees as IMDI may determine from time to time. The distribution fee
compensates IMDI for expenses incurred in connection with activities primarily
intended to result in the sale of the Fund's Class B or Class C shares,
including the printing of prospectuses and reports for persons other than
existing shareholders and the preparation, printing and distribution of sales
literature and advertising materials. Pursuant to each Class B and Class C Plan,
IMDI may include interest, carrying or other finance charges in its calculation
of distribution expenses, if not prohibited from doing so pursuant to an order
of or a regulation adopted by the SEC.
Among other things, each Plan provides that (1) IMDI will submit to the
Board at least quarterly, and the Trustees will review, written reports
regarding all amounts expended under the Plan and the purposes for which such
expenditures were made; (2) each Plan will continue in effect only so long as
such continuance is approved at least annually, and any material amendment
thereto is approved, by the votes of a majority of the Board, including the
Independent Trustees, cast in person at a meeting called for that purpose; (3)
payments by the Fund under each Plan shall not be materially increased without
the affirmative vote of the holders of a majority of the outstanding shares of
the relevant class; and (4) while each Plan is in effect, the selection and
nomination of Independent Trustees shall be committed to the discretion of the
Trustees who are not "interested persons" of the Trust.
IMDI may make payments for distribution assistance and for administrative
and accounting services from resources that may include the management fees paid
by the Fund. IMDI also may make payments (such as the service fee payments
described above) to unaffiliated broker-dealers for services rendered in the
distribution of the Fund's shares. To qualify for such payments, shares may be
subject to a minimum holding period. However, no such payments will be made to
any dealer or broker if at the end of each year the amount of shares held does
not exceed a minimum amount. The minimum holding period and minimum level of
holdings will be determined from time to time by IMDI.
A report of the amount expended pursuant to each Plan, and the purposes
for which such expenditures were incurred, must be made to the Board for its
review at least quarterly.
The Class B Plan and underwriting agreement were amended effective March
16, 1999 to permit IMDI to sell its right to receive distribution fees under the
Class B Plan and CDSCs to third parties. IMDI enters into such transactions to
finance the payment of commissions to brokers at the time of sale and other
distribution-related expenses. In connection with such amendments, the Trust has
agreed that the distribution fee will not be terminated or modified (including a
modification by change in the rules relating to the conversion of Class B shares
into shares of another class) for any reason (including a termination of the
underwriting agreement) except:
(i) to the extent required by a change in the 1940 Act, the rules or
regulations under the 1940 Act, or the Conduct Rules of the NASD, in
each case enacted, issued, or promulgated after March 16, 1999;
(ii) on a basis which does not alter the amount of the distribution
payments to IMDI computed with reference to Class B shares the date of
original issuance of which occurred on or before December 31, 1998;
(iii) in connection with a Complete Termination (as defined in the Class B
Plan); or
(iv) on a basis determined by the Board of Trustees acting in good faith so
long as (a) neither the Trust nor any successor trust or fund or any
trust or fund acquiring a substantial portion of the assets of the
Trust (collectively, the "Affected Funds") nor the sponsors of the
Affected Funds pay, directly or indirectly, as a fee, a trailer fee,
or by way of reimbursement, any fee, however denominated, to any
person for personal services, account maintenance services or other
shareholder services rendered to the holder of Class B shares of the
Affected Funds from and after the effective date of such modification
or termination, and (b) the termination or modification of the
distribution fee applies with equal effect to all outstanding Class B
shares from time to time of all Affected Funds regardless of the date
of issuance thereof.
In the amendments to the underwriting agreement, the Trust has also agreed
that it will not take any action to waive or change any CDSC in respect of any
Class B share the date of original issuance of which occurred on or before
December 31, 1998, except as provided in the Trust's prospectus or statement of
additional information, without the consent of IMDI and its transferees.
During the fiscal year ended December 31, 1998, the Fund paid IMDI
$4,046,911 pursuant to its Class A plan. During the fiscal year ended December
31, 1998 the Fund paid IMDI $5,706,821 pursuant to its Class B plan. During the
fiscal year ended December 31, 1998, the Fund paid IMDI $1,716,708 pursuant to
its Class C plan.
During the fiscal year ended December 31, 1998, IMDI expended the
following amounts in marketing Class A shares of the Fund: advertising $168,977;
printing and mailing of prospectuses to persons other than current shareholders,
$378,037; compensation to dealers, $872,299; compensation to sales personnel
$5,345,357; seminars and meetings, $218,075; travel and entertainment, $426,555;
general and administrative, $3,058,638; telephone, $155,188; and occupancy and
equipment rental, $448,099.
During the fiscal year ended December 31, 1998, IMDI expended the
following amounts in marketing Class B shares of the Fund: advertising, $51,074;
printing and mailing of prospectuses to persons other than current shareholders,
$115,419; compensation to dealers, $3,195,137; compensation to sales personnel,
$1,616,138; seminars and meetings, $798,784; travel and entertainment, $128,908;
general and administrative, $925,228; telephone, $46,983; and occupancy and
equipment rental $135,879.
During the fiscal year ended December 31, 1998, IMDI expended the
following amounts in marketing Class C shares of the Fund: advertising, $15,328;
printing and mailing of prospectuses to persons other than current shareholders,
$34,747; compensation to dealers, $604,559; compensation to sales personnel,
$484,116; seminars and meetings, $151,140; travel and entertainment, $38,598;
general administrative, $277,069; telephone, $14,068; and occupancy and
equipment rental, $40,700.
Each Plan may be amended at any time with respect to the class of shares
of the Fund to which the Plan relates by vote of the Trustees, including a
majority of the Independent Trustees, cast in person at a meeting called for the
purpose of considering such amendment. Each Plan may be terminated at any time
with respect to the class of shares of the Fund to which the Plan relates,
without payment of any penalty, by vote of a majority of the Independent
Trustees, or by vote of a majority of the outstanding voting securities of that
class.
If the Distribution Agreement or the Distribution Plans are terminated (or
not renewed) with respect to any of the Ivy funds (or class of shares thereof),
each may continue in effect with respect to any other fund (or Class of shares
thereof) as to which they have not been terminated (or have been renewed).
CUSTODIAN
Pursuant to a Custodian Agreement with the Trust, Brown Brothers Harriman
& Co. (the "Custodian"), a private bank and member of the principal securities
exchanges, located at 40 Water Street, Boston, Massachusetts 02109 (the
"Custodian"), maintains custody of the assets of the Fund held in the United
States. Rules adopted under the 1940 Act permit the Trust to maintain its
foreign securities and cash in the custody of certain eligible foreign banks and
securities depositories. Pursuant to those rules, the Custodian has entered into
subcustodial agreements for the holding of the Fund's foreign securities. With
respect to the Fund, the Custodian may receive, as partial payment for its
services to the Fund, a portion of the Trust's brokerage business, subject to
its ability to provide best price and execution.
FUND ACCOUNTING SERVICES
Pursuant to a Fund Accounting Services Agreement, MIMI provides certain
accounting and pricing services for the Fund. As compensation for those
services, the Fund pays MIMI a monthly fee plus out-of-pocket expenses as
incurred. The monthly fee is based upon the net assets of the Fund at the
preceding month end at the following rates: $1,250 when net assets are $10
million and under; $2,500 when net assets are over $10 million to $40 million;
$5,000 when net assets are over $40 million to $75 million; and $6,500 when net
assets are over $75 million.
During the fiscal year ended December 31, 1998, the Fund paid MIMI
$216,241 under the agreement.
TRANSFER AGENT AND DIVIDEND PAYING AGENT
Pursuant to a Transfer Agency and Shareholder Service Agreement, Ivy
Mackenzie Services Corp. ("IMSC"), a wholly owned subsidiary of MIMI, is the
transfer agent for the Fund. Under the Agreement, the Fund pays a monthly fee at
an annual rate of $20.00 for each open Class A, Class B and Class C account. The
Fund pays $10.25 per open Class I account. In addition, the Fund pays a monthly
fee at an annual rate of $4.58 per account that is closed plus certain
out-of-pocket expenses. Such fees and expenses for the fiscal year ended
December 31, 1998 for the Fund totaled $3,577,962. Certain broker-dealers that
maintain shareholder accounts with the Fund through an omnibus account provide
transfer agent and other shareholder-related services that would otherwise be
provided by IMSC if the individual accounts that comprise the omnibus account
were opened by their beneficial owners directly. IMSC pays such broker-dealers a
per account fee for each open account within the omnibus account, or a fixed
rate (e.g., 0.10%) fee, based on the average daily net asset value of the
omnibus account (or a combination thereof).
ADMINISTRATOR
Pursuant to an Administrative Services Agreement, MIMI provides certain
administrative services to the Fund. As compensation for these services, the
Fund (except with respect to its Class I shares) pays MIMI a monthly fee at the
annual rate of 0.10% of the Fund's average daily net assets. The Fund pays MIMI
a monthly fee at the annual rate of 0.01% of its average daily net assets for
Class I. Such fees for the fiscal year ended December 31, 1998 for the Fund
totaled $2,514,615.
Outside of providing administrative services to the Trust, as described
above, MIMI may also act on behalf of IMDI in paying commissions to
broker-dealers with respect to sales of Class B and Class C shares of the Fund.
AUDITORS
PricewaterhouseCoopers LLP, independent public accountants, has been
selected as auditors for the Trust. The audit services performed by
PricewaterhouseCoopers LLP include audits of the annual financial statements of
each of the funds of the Trust. Other services provided principally relate to
filings with the SEC and the preparation of the funds' tax returns.
BROKERAGE ALLOCATION
Subject to the overall supervision of the President and the Board, IMI
and/or Northern Cross places orders for the purchase and sale of the Fund's
portfolio securities. All portfolio transactions are effected at the best price
and execution obtainable. Purchases and sales of debt securities are usually
principal transactions and therefore, brokerage commissions are usually not
required to be paid by the Fund for such purchases and sales (although the price
paid generally includes undisclosed compensation to the dealer). The prices paid
to underwriters of newly-issued securities usually include a concession paid by
the issuer to the underwriter, and purchases of after-market securities from
dealers normally reflect the spread between the bid and asked prices. In
connection with OTC transactions, IMI and/or Northern Cross attempts to deal
directly with the principal market makers, except in those circumstances where
IMI and/or Northern Cross believes that a better price and execution are
available elsewhere.
IMI and/or Northern Cross selects broker-dealers to execute transactions
and evaluates the reasonableness of commissions on the basis of quality,
quantity, and the nature of the firms' professional services. Commissions to be
charged and the rendering of investment services, including statistical,
research, and counseling services by brokerage firms, are factors to be
considered in the placing of brokerage business. The types of research services
provided by brokers may include general economic and industry data, and
information on securities of specific companies. Research services furnished by
brokers through whom the Trust effects securities transactions may be used by
IMI and/or Northern Cross in servicing all of its accounts. In addition, not all
of these services may be used by IMI and/or Northern Cross in connection with
the services it provides to the Fund or the Trust. IMI and/or Northern Cross may
consider sales of shares of Ivy funds as a factor in the selection of
broker-dealers and may select broker-dealers who provide it with research
services. IMI and/or Northern Cross will not, however, execute brokerage
transactions other than at the best price and execution.
During the fiscal years ended December 31, 1996, 1997 and 1998, the Fund
paid brokerage commissions of $1,709,643, $2,987,187 and $1,728,009,
respectively.
The Fund may, under some circumstances, accept securities in lieu of cash
as payment for Fund shares. The Fund will accept securities only to increase its
holdings in a portfolio security or to take a new portfolio position in a
security that IMI and/or Northern Cross deems to be a desirable investment for
the Fund. While no minimum has been established, it is expected that the Fund
will not accept securities having an aggregate value of less than $1 million.
The Trust may reject in whole or in part any or all offers to pay for the Fund
shares with securities and may discontinue accepting securities as payment for
the Fund shares at any time without notice. The Trust will value accepted
securities in the manner and at the same time provided for valuing portfolio
securities of the Fund, and the Fund shares will be sold for net asset value
determined at the same time the accepted securities are valued. The Trust will
only accept securities delivered in proper form and will not accept securities
subject to legal restrictions on transfer. The acceptance of securities by the
Trust must comply with the applicable laws of certain states.
CAPITALIZATION AND VOTING RIGHTS
The capitalization of the Trust consists of an unlimited number of shares
of beneficial interest (no par value per share). When issued, shares of each
class of the Fund are fully paid, non-assessable, redeemable and fully
transferable. No class of shares of the Fund has preemptive rights or
subscription rights.
The Amended and Restated Declaration of Trust permits the Trustees to
create separate series or portfolios and to divide any series or portfolio into
one or more classes. The Trustees have authorized nineteen series, each of which
represents a fund. The Trustees have further authorized the issuance of Class A,
Class B, and Class C shares for the Fund and Ivy Money Market Fund and Class A,
Class B, Class C and Advisor Class shares for Ivy Asia Pacific Fund, Ivy Bond
Fund, Ivy China Region Fund, Ivy Developing Nations Fund, Ivy European
Opportunities Fund Ivy Global Fund, Ivy Global Natural Resources Fund, Ivy
Global Science & Technology Fund, Ivy Growth Fund, Ivy Growth with Income Fund,
Ivy International Fund II, Ivy International Small Companies Fund, Ivy
International Strategic Bond Fund, Ivy Pan-Europe Fund, Ivy South America Fund,
Ivy US Blue Chip Fund and Ivy US Emerging Growth Fund, as well as Class I shares
for the Fund, Ivy Bond Fund, Ivy European Opportunities Fund, Ivy Global Science
& Technology Fund, Ivy International Fund II, Ivy International Small Companies
Fund, Ivy International Strategic Bond Fund and Ivy US Blue Chip Fund.
Shareholders have the right to vote for the election of Trustees of the
Trust and on any and all matters on which they may be entitled to vote by law or
by the provisions of the Trust's By-Laws. The Trust is not required to hold a
regular annual meeting of shareholders, and it does not intend to do so. Shares
of each class of the Fund entitle their holders to one vote per share (with
proportionate voting for fractional shares). Shareholders of the Fund are
entitled to vote alone on matters that only affect the Fund. All classes of
shares of the Fund will vote together, except with respect to the distribution
plan applicable to the Fund's Class A, Class B or Class C shares or when a class
vote is required by the 1940 Act. On matters relating to all funds of the Trust,
but affecting the funds differently, separate votes by the shareholders of each
fund are required. Approval of an investment advisory agreement and a change in
fundamental policies would be regarded as matters requiring separate voting by
the shareholders of each fund of the Trust. If the Trustees determine that a
matter does not affect the interests of the Fund, then the shareholders of the
Fund will not be entitled to vote on that matter. Matters that affect the Trust
in general, such as ratification of the selection of independent public
accountants, will be voted upon collectively by the shareholders of all funds of
the Trust.
As used in this SAI and the Prospectus, the phrase "majority vote of the
outstanding shares" of the Fund means the vote of the lesser of: (1) 67% of the
shares of the Fund (or of the Trust) present at a meeting if the holders of more
than 50% of the outstanding shares are present in person or by proxy; or (2)
more than 50% of the outstanding shares of the Fund (or of the Trust).
With respect to the submission to shareholder vote of a matter requiring
separate voting by the Fund, the matter shall have been effectively acted upon
with respect to the Fund if a majority of the outstanding voting securities of
the Fund votes for the approval of the matter, notwithstanding that: (1) the
matter has not been approved by a majority of the outstanding voting securities
of any other fund of the Trust; or (2) the matter has not been approved by a
majority of the outstanding voting securities of the Trust.
The Amended and Restated Declaration of Trust provides that the holders of
not less than two-thirds of the outstanding shares of the Trust may remove a
person serving as trustee either by declaration in writing or at a meeting
called for such purpose. The Trustees are required to call a meeting for the
purpose of considering the removal of a person serving as Trustee if requested
in writing to do so by the holders of not less than 10% of the outstanding
shares of the Trust. Shareholders will be assisted in communicating with other
shareholders in connection with the removal of a Trustee as if Section 26(c) of
the Act were applicable.
The Trust's shares do not have cumulative voting rights and accordingly
the holders of more than 50% of the outstanding shares could elect the entire
Board, in which case the holders of the remaining shares would not be able to
elect any Trustees.
Under Massachusetts law, the Trust's shareholders could, under certain
circumstances, be held personally liable for the obligations of the Trust.
However, the Amended and Restated Declaration of Trust disclaims liability of
the shareholders, Trustees or officers of the Trust for acts or obligations of
the Trust, which are binding only on the assets and property of the Trust, and
requires that notice of the disclaimer be given in each contract or obligation
entered into or executed by the Trust or its Trustees. The Amended and Restated
Declaration of Trust provides for indemnification out of Fund property for all
loss and expense of any shareholder of the Fund held personally liable for the
obligations of the Fund. The risk of a shareholder of the Trust incurring
financial loss on account of shareholder liability is limited to circumstances
in which the Trust itself would be unable to meet its obligations and, thus,
should be considered remote. No series of the Trust is liable for the
obligations of any other series of the Trust.
SPECIAL RIGHTS AND PRIVILEGES
The Trust offers, and (except as noted below) bears the cost of providing,
to investors the following rights and privileges. The Trust reserves the right
to amend or terminate any one or more of these rights and privileges. Notice of
amendments to or terminations of rights and privileges will be provided to
shareholders in accordance with applicable law.
Certain of the rights and privileges described below refer to funds, other
than the Fund, whose shares are also distributed by IMDI. These funds are: Ivy
Asia Pacific Fund, Ivy Bond Fund, Ivy China Region Fund, Ivy Developing Nations
Fund, Ivy European Opportunities Fund, Ivy Global Fund, Ivy Global Natural
Resources Fund, Ivy Global Science & Technology Fund, Ivy Growth Fund, Ivy
Growth with Income Fund, Ivy International Fund II, Ivy International Small
Companies Fund, Ivy International Strategic Bond Fund, Ivy Money Market Fund,
Ivy Pan-Europe Fund, Ivy South America Fund, Ivy US Blue Chip Fund and Ivy US
Emerging Growth Fund (the other eighteen series of the Trust). Shareholders
should obtain a current prospectus before exercising any right or privilege that
may relate to these funds.
Effective April 18, 1997, the Fund suspended the offer of its shares to
new investors. Shares of the Fund are available for purchase only by existing
shareholders of the Fund. Once a shareholder's account has been liquidated, the
shareholder may not invest in the Fund at a later date.
AUTOMATIC INVESTMENT METHOD
The Automatic Investment Method, which enables a Fund shareholder to have
specified amounts automatically drawn each month from his or her bank for
investment in Fund shares, is available for all classes of shares, except Class
I. The minimum initial and subsequent investment under this method is $50 per
month (except in the case of a tax qualified retirement plan for which the
minimum initial and subsequent investment is $25 per month). A shareholder may
terminate the Automatic Investment Method at any time upon delivery to IMSC of
telephone instructions or written notice. See "Automatic Investment Method" in
the Prospectus. To begin the plan, complete Sections 6A and 7B of the Account
Application.
EXCHANGE OF SHARES
As described in the Prospectus, shareholders of the Fund have an exchange
privilege with other Ivy funds. Before effecting an exchange, shareholders of
the Fund should obtain and read the currently effective prospectus for the Ivy
fund into which the exchange is to be made.
INITIAL SALES CHARGE SHARES. Class A shareholders may exchange their Class
A shares ("outstanding Class A shares") for Class A shares of another Ivy fund
("new Class A Shares") on the basis of the relative net asset value per Class A
share, plus an amount equal to the difference, if any, between the sales charge
previously paid on the outstanding Class A shares and the sales charge payable
at the time of the exchange on the new Class A shares. (The additional sales
charge will be waived for Class A shares that have been invested for a period of
12 months or longer.) Class A shareholders may also exchange their shares for
shares of Ivy Money Market Fund (no initial sales charge will be assessed at the
time of such an exchange).
Each Fund may, from time to time, waive the initial sales charge on its
Class A shares sold to clients of The Legend Group and United Planners Financial
Services of America, Inc. This privilege will apply only to Class A Shares of a
Fund that are purchased using all or a portion of the proceeds obtained by such
clients through redemptions of shares of a mutual fund (other than one of the
Funds) on which a sales charge was paid (the "NAV transfer privilege").
Purchases eligible for the NAV transfer privilege must be made with in 60 days
of redemption from the other fund, and the Class A shares purchased are subject
to a 1.00% CDSC on shares redeemed within the first year after purchase. The NAV
transfer privilege also applies to Fund shares purchased directly by clients of
such dealers as long as their accounts are linked to the dealer's master
account. The normal service fee, as described in the "Initial Sales Charge
Alternative - Class A Shares" section of the Prospectus, will be paid to those
dealers in connection with these purchases. IMDI may from time to time pay a
special cash incentive to The Legend Group or United Planners Financial Services
of America, Inc. in connection with sales of shares of a Fund by its registered
representative under the NAV transfer privilege. Additional information on sales
charge reductions or waivers may be obtained from IMDI at the address listed on
the cover of this Statement of Additional Information.
CONTINGENT DEFERRED SALES CHARGE SHARES
CLASS A: Class A shareholders may exchange their Class A shares that are
subject to a contingent deferred sales charge ("CDSC"), as described in the
Prospectus ("outstanding Class A shares"), for Class A shares of another Ivy
fund ("new Class A shares") on the basis of the relative net asset value per
Class A share, without the payment of any CDSC that would otherwise be due upon
the redemption of the outstanding Class A shares. Class A shareholders of the
Fund exercising the exchange privilege will continue to be subject to that
Fund's CDSC period following an exchange if such period is longer than the CDSC
period, if any, applicable to the new Class A shares.
For purposes of computing the CDSC that may be payable upon the redemption
of the new Class A shares, the holding period of the outstanding Class A shares
is "tacked" onto the holding period of the new Class A shares.
CLASS B: Class B shareholders may exchange their Class B shares
("outstanding Class B shares") for Class B shares of another Ivy fund ("new
Class B shares") on the basis of the relative net asset value per Class B share,
without the payment of any CDSC that would otherwise be due upon the redemption
of the outstanding Class B shares. Class B shareholders of the Fund exercising
the exchange privilege will continue to be subject to that Fund's CDSC schedule
(or period) following an exchange if such schedule is higher (or such period is
longer) than the CDSC schedule (or period) applicable to the new Class B shares.
Class B shares of the Fund acquired through an exchange of Class B shares
of another Ivy fund will be subject to that Fund's CDSC schedule (or period) if
such schedule is higher (or such period is longer) than the CDSC schedule (or
period) applicable to the Ivy fund from which the exchange was made.
For purposes of both the conversion feature and computing the CDSC that
may be payable upon the redemption of the new Class B shares (prior to
conversion), the holding period of the outstanding Class B shares is "tacked"
onto the holding period of the new Class B shares.
The following CDSC table applies to Class B shares of Ivy Asia Pacific
Fund, Ivy Bond Fund, Ivy China Region Fund, Ivy Developing Nations Fund, Ivy
European Opportunities Fund, Ivy Global Fund, Ivy Global Natural Resources Fund,
Ivy Global Science & Technology Fund, Ivy Growth Fund, Ivy Growth with Income
Fund, Ivy International Fund II, Ivy International Fund, Ivy International Small
Companies Fund, Ivy International Strategic Bond Fund, Ivy Pan-Europe Fund, Ivy
South America Fund, Ivy US Blue Chip Fund and Ivy US Emerging Growth Fund:
CONTINGENT DEFERRED SALES CHARGE AS
A PERCENTAGE OF DOLLAR AMOUNT
YEAR SINCE PURCHASE SUBJECT TO CHARGE
First 5%
Second 4%
Third 3%
Fourth 3%
Fifth 2%
Sixth 1%
Seventh and thereafter 0%
CLASS C: Class C shareholders may exchange their Class C shares
("outstanding Class C shares") for Class C shares of another Ivy fund ("new
Class C shares") on the basis of the relative net asset value per Class C share,
without the payment of any CDSC that would otherwise be due upon redemption.
(Class C shares are subject to a CDSC of 1.00% if redeemed within one year of
the date of purchase.)
CLASS I : Subject to the restrictions set forth in the following
paragraph, Class I shareholders may exchange their outstanding Class I shares
for Class I shares of another Ivy fund on the basis of the relative net asset
value per share.
ALL CLASSES: The minimum value of shares which may be exchanged into an
Ivy fund in which shares are not already held is $1,000 ($5,000,000 in the case
of Class I shares). No exchange out of the Fund (other than by a complete
exchange of all Fund shares) may be made if it would reduce the shareholder's
interest in the Fund to less than $1,000 ($250,000 in the case of Class I
shares).
Each exchange will be made on the basis of the relative net asset value
per share of the Ivy funds involved in the exchange next computed following
receipt by IMSC of telephone instructions by IMSC or a properly executed
request. Exchanges, whether written or telephonic, must be received by IMSC by
the close of regular trading on the Exchange (normally 4:00 p.m., eastern time)
to receive the price computed on the day of receipt. Exchange requests received
after that time will receive the price next determined following receipt of the
request. The exchange privilege may be modified or terminated at any time, upon
at least 60 days' notice to the extent required by applicable law. See
"Redemptions."
An exchange of shares between any of the Ivy funds will result in a
taxable gain or loss. Generally, this will be a capital gain or loss (long-term
or short-term, depending on the holding period of the shares) in the amount of
the difference between the net asset value of the shares surrendered and the
shareholder's tax basis for those shares. However, in certain circumstances,
shareholders will be ineligible to take sales charges into account in computing
taxable gain or loss on an exchange. See "Taxation."
With limited exceptions, gain realized by a tax-deferred retirement plan
will not be taxable to the plan and will not be taxed to the participant until
distribution. Each investor should consult his or her tax adviser regarding the
tax consequences of an exchange transaction.
LETTER OF INTENT
Reduced sales charges apply to initial investments in Class A shares of
the Fund made pursuant to a non-binding Letter of Intent. A Letter of Intent may
be submitted by an individual, his or her spouse and children under the age of
21, or a trustee or other fiduciary of a single trust estate or single fiduciary
account. See the Account Application in the Prospectus. Any investor may submit
a Letter of Intent stating that he or she will invest, over a period of 13
months, at least $50,000 in Class A shares of the Fund. A Letter of Intent may
be submitted at the time of an initial purchase of Class A shares of the Fund or
within 90 days of the initial purchase, in which case the Letter of Intent will
be back dated. A shareholder may include, as an accumulation credit, the value
(at the applicable offering price) of all Class A shares of Ivy Asia Pacific
Fund, Ivy Bond Fund, Ivy China Region Fund, Ivy Developing Nations Fund, Ivy
European Opportunities Fund, Ivy Global Fund, Ivy Global Natural Resources Fund,
Ivy Global Science & Technology Fund, Ivy Growth Fund, Ivy Growth with Income
Fund, Ivy International Fund II, Ivy International Fund, Ivy International Small
Companies Fund, Ivy International Strategic Bond Fund, Ivy Pan-Europe Fund, Ivy
South America Fund, Ivy US Blue Chip Fund and Ivy US Emerging Growth Fund (and
shares that have been exchanged into Ivy Money Market Fund from any of the other
funds in the Ivy funds) held of record by him or her as of the date of his or
her Letter of Intent. During the term of the Letter of Intent, the Transfer
Agent will hold Class A shares representing 5% of the indicated amount (less any
accumulation credit value) in escrow. The escrowed Class A shares will be
released when the full indicated amount has been purchased. If the full
indicated amount is not purchased during the term of the Letter of Intent, the
investor is required to pay IMDI an amount equal to the difference between the
dollar amount of sales charge that he or she has paid and that which he or she
would have paid on his or her aggregate purchases if the total of such purchases
had been made at a single time. Such payment will be made by an automatic
liquidation of Class A shares in the escrow account. A Letter of Intent does not
obligate the investor to buy or the Trust to sell the indicated amount of Class
A shares, and the investor should read carefully all the provisions of such
letter before signing.
RETIREMENT PLANS
Shares may be purchased in connection with several types of tax-deferred
retirement plans. Shares of more than one fund distributed by IMDI may be
purchased in a single application establishing a single account under the plan,
and shares held in such an account may be exchanged among the Ivy funds in
accordance with the terms of the applicable plan and the exchange privilege
available to all shareholders. Initial and subsequent purchase payments in
connection with tax-deferred retirement plans must be at least $25 per
participant.
The following fees will be charged to individual shareholder accounts as
described in the retirement prototype plan document:
Retirement Plan New Account Fee no fee
Retirement Plan Annual Maintenance Fee $10.00 per fund account
For shareholders whose retirement accounts are diversified across several
Ivy funds, the annual maintenance fee will be limited to not more than $20.
The following discussion describes the tax treatment of certain
tax-deferred retirement plans under current Federal income tax law. State income
tax consequences may vary. An individual considering the establishment of a
retirement plan should consult with an attorney and/or an accountant with
respect to the terms and tax aspects of the plan.
INDIVIDUAL RETIREMENT ACCOUNTS: Shares of the Fund may be used as a
funding medium for an Individual Retirement Account ("IRA"). Eligible
individuals may establish an IRA by adopting a model custodial account available
from IMSC, who may impose a charge for establishing the account. Individuals
should consult their tax advisers before investing IRA assets in an Ivy fund if
that fund primarily distributes exempt-interest dividends.
An individual who has not reached age 70-1/2 and who receives compensation
or earned income is eligible to contribute to an IRA, whether or not he or she
is an active participant in a retirement plan. An individual who receives a
distribution from another IRA, a qualified retirement plan, a qualified annuity
plan or a tax-sheltered annuity or custodial account ("403(b) plan") that
qualifies for "rollover" treatment is also eligible to establish an IRA by
rolling over the distribution either directly or within 60 days after its
receipt. Tax advice should be obtained in connection with planning a rollover
contribution to an IRA.
In general, an eligible individual may contribute up to the lesser of
$2,000 or 100% of his or her compensation or earned income to an IRA each year.
If a husband and wife are both employed, and both are under age 70-1/2, each may
set up his or her own IRA within these limits. If both earn at least $2,000 per
year, the maximum potential contribution is $4,000 per year for both. For years
after 1996, the result is similar even if one spouse has no earned income; if
the joint earned income of the spouses is at least $4,000, a contribution of up
to $2,000 may be made to each spouse's IRA. Rollover contributions are not
subject to these limits.
An individual may deduct his or her annual contributions to an IRA in
computing his or her Federal income tax within the limits described above,
provided he or she (or his or her spouse, if they file a joint Federal income
tax return) is not an active participant in a qualified retirement plan (such as
a qualified corporate, sole proprietorship, or partnership pension, profit
sharing, 401(k) or stock bonus plan), qualified annuity plan, 403(b) plan,
simplified employee pension, or governmental plan. If he or she (or his or her
spouse) is an active participant, whether the individual's contribution to an
IRA is fully deductible, partially deductible or not deductible depends on (i)
adjusted gross income and (ii) whether it is the individual or the individual's
spouse who is an active participant, in the case of married individuals filing
jointly. Contributions may be made up to the maximum permissible amount even if
they are not deductible. Rollover contributions are not includable in income for
Federal income tax purposes and therefore are not deductible from it.
Generally, earnings on an IRA are not subject to current Federal income
tax until distributed. Distributions attributable to tax-deductible
contributions and to IRA earnings are taxed as ordinary income. Distributions of
non-deductible contributions are not subject to Federal income tax. In general,
distributions from an IRA to an individual before he or she reaches age 59-1/2
are subject to a nondeductible penalty tax equal to 10% of the taxable amount of
the distribution. The 10% penalty tax does not apply to amounts withdrawn from
an IRA after the individual reaches age 59-1/2, becomes disabled or dies, or if
withdrawn in the form of substantially equal payments over the life or life
expectancy of the individual and his or her designated beneficiary, if any, or
rolled over into another IRA, amounts withdrawn and used to pay for deductible
medical expenses and amounts withdrawn by certain unemployed individuals not in
excess of amounts paid for certain health insurance premiums, amounts used to
pay certain qualified higher education expenses, and amounts used within 120
days of the date the distribution is received to pay for certain first-time
homebuyer expenses. Distributions must begin to be withdrawn not later than
April 1 of the calendar year following the calendar year in which the individual
reaches age 70-1/2. Failure to take certain minimum required distributions will
result in the imposition of a 50% non-deductible penalty tax.
ROTH IRAS: Shares of the Fund also may be used as a funding medium for a
Roth Individual Retirement Account ("Roth IRA"). A Roth IRA is similar in
numerous ways to the regular (traditional) IRA, described above. Some of the
primary differences are as follows.
A single individual earning below $95,000 can contribute up to $2,000 per
year to a Roth IRA. The maximum contribution amount diminishes and gradually
falls to zero for single filers with adjusted gross incomes ranging from $95,000
to $110,000. Married couples earning less than $150,000 combined, and filing
jointly, can contribute a full $4,000 per year ($2,000 per IRA). The maximum
contribution amount for married couples filing jointly phases out from $150,000
to $160,000. An individual whose adjusted gross income exceeds the maximum
phase-out amount cannot contribute to a Roth IRA.
An eligible individual can contribute money to a traditional IRA and a
Roth IRA as long as the total contribution to all IRAs does not exceed $2,000.
Contributions to a Roth IRA are not deductible. Contributions to a Roth IRA may
be made even after the individual for whom the account is maintained has
attained age 70 1/2.
No distributions are required to be taken prior to the death of the
original account holder. If a Roth IRA has been established for a minimum of
five years, distributions can be taken tax-free after reaching age 59 1/2, for a
first-time home purchase ($10,000 maximum, one time use), or upon death or
disability. All other distributions from a Roth IRA (other than the amount of
nondeductible contributions) are taxable and subject to a 10% tax penalty unless
an exception applies. Exceptions to the 10% penalty include: reaching age 59
1/2, death, disability, deductible medical expenses, the purchase of health
insurance for certain unemployed individual and qualified higher education
expenses.
An individual with an income of less than $100,000 (who is not married
filing separately) can roll his or her existing IRA into a Roth IRA. However,
the individual must pay taxes on the taxable amount in his or her traditional
IRA. After 1998, all taxes on such a rollover will have to be paid in the tax
year in which the rollover is made.
QUALIFIED PLANS: For those self-employed individuals who wish to purchase
shares of one or more Ivy funds through a qualified retirement plan, a Custodial
Agreement and a Retirement Plan are available from IMSC. The Retirement Plan may
be adopted as a profit sharing plan or a money purchase pension plan. A profit
sharing plan permits an annual contribution to be made in an amount determined
each year by the self-employed individual within certain limits prescribed by
law. A money purchase pension plan requires annual contributions at the level
specified in the Custodial Agreement. There is no set-up fee for qualified plans
and the annual maintenance fee is $20.00 per account.
In general, if a self-employed individual has any common law employees,
employees who have met certain minimum age and service requirements must be
covered by the Retirement Plan. A self-employed individual generally must
contribute the same percentage of income for common law employees as for himself
or herself.
A self-employed individual may contribute up to the lesser of $30,000 or
25% of compensation or earned income to a money purchase pension plan or to a
combination profit sharing and money purchase pension plan arrangement each year
on behalf of each participant. To be deductible, total contributions to a profit
sharing plan generally may not exceed 15% of the total compensation or earned
income of all participants in the plan, and total contributions to a combination
money purchase-profit sharing arrangement generally may not exceed 25% of the
total compensation or earned income of all participants. The amount of
compensation or earned income of any one participant that may be included in
computing the deduction is limited (generally to $150,000 for benefits accruing
in plan years beginning after 1993, with annual inflation adjustments). A
self-employed individual's contributions to a retirement plan on his or her own
behalf must be deducted in computing his or her earned income.
Corporate employers may also adopt the Custodial Agreement and Retirement
Plan for the benefit of their eligible employees. Similar contribution and
deduction rules apply to corporate employers.
Distributions from the Retirement Plan generally are made after a
participant's separation from service. A 10% penalty tax generally applies to
distributions to an individual before he or she reaches age 59-1/2, unless the
individual (1) has reached age 55 and separated from service; (2) dies; (3)
becomes disabled; (4) uses the withdrawal to pay tax-deductible medical
expenses; (5) takes the withdrawal as part of a series of substantially equal
payments over his or her life expectancy or the joint life expectancy of himself
or herself and a designated beneficiary; or (6) rolls over the distribution.
The Transfer Agent will arrange for Investors Bank & Trust to furnish
custodial services to the employer and any participating employees.
DEFERRED COMPENSATION FOR PUBLIC SCHOOLS AND CHARITABLE ORGANIZATIONS
("403(B)(7) ACCOUNT"): Section 403(b)(7) of the Internal Revenue Code of 1986,
as amended (the "Code") permits public school systems and certain charitable
organizations to use mutual fund shares held in a custodial account to fund
deferred compensation arrangements with their employees. A custodial account
agreement is available for those employers whose employees wish to purchase
shares of the Trust in conjunction with such an arrangement. The special
application for a 403(b)(7) Account is available from IMSC.
Distributions from the 403(b)(7) Account may be made only following death,
disability, separation from service, attainment of age 59-1/2, or incurring a
financial hardship. A 10% penalty tax generally applies to distributions to an
individual before he or she reaches age 59-1/2, unless the individual (1) has
reached age 55 and separated from service; (2) dies or becomes disabled; (3)
uses the withdrawal to pay tax-deductible medical expenses; (4) takes the
withdrawal as part of a series of substantially equal payments over his or her
life expectancy or the joint life expectancy of himself or herself and a
designated beneficiary; or (5) rolls over the distribution. There is no set-up
fee for 403(b)(7) Accounts and the annual maintenance fee is $20.00 per account.
SIMPLIFIED EMPLOYEE PENSION ("SEP") IRAS: An employer may deduct
contributions to a SEP up to the lesser of $30,000 or 15% of compensation. SEP
accounts generally are subject to all rules applicable to IRA accounts, except
the deduction limits, and are subject to certain employee participation
requirements. No new salary reduction SEPs ("SARSEPs") may be established after
1996, but existing SARSEPs may continue to be maintained, and non-salary
reduction SEPs may continue to be established as well as maintained after 1996.
SIMPLE PLANS: An employer may establish a SIMPLE IRA or a SIMPLE 401(k)
for years after 1996. An employee can make pre-tax salary reduction
contributions to a SIMPLE Plan, up to $6,000 a year (as indexed). Subject to
certain limits, the employer will either match a portion of employee
contributions, or will make a contribution equal to 2% of each employee's
compensation without regard to the amount the employee contributes. An employer
cannot maintain a SIMPLE Plan for its employees if the employer maintains or
maintained any other qualified retirement plan with respect to which any
contributions or benefits have been credited.
REINVESTMENT PRIVILEGE
Shareholders who have redeemed Class A shares of the Fund may reinvest all
or a part of the proceeds of the redemption back into Class A shares of the Fund
at net asset value (without a sales charge) within 60 days from the date of
redemption. This privilege may be exercised only once. The reinvestment will be
made at the net asset value next determined after receipt by IMSC of the
reinvestment order accompanied by the funds to be reinvested. No compensation
will be paid to any sales personnel or dealer in connection with the
transaction.
Any redemption is a taxable event. A loss realized on a redemption
generally may be disallowed for tax purposes if the reinvestment privilege is
exercised within 30 days after the redemption. In certain circumstances,
shareholders will be ineligible to take sales charges into account in
computing taxable gain or loss on a redemption if the reinvestment privilege
is exercised. See "Taxation."
RIGHTS OF ACCUMULATION
A scale of reduced sales charges applies to any investment of $50,000 or
more in Class A shares of the Fund. See "Initial Sales Charge Alternative --
Class A Shares" in the Prospectus. The reduced sales charge is applicable to
investments made at one time by an individual, his or her spouse and children
under the age of 21, or a trustee or other fiduciary of a single trust estate or
single fiduciary account (including a pension, profit sharing or other employee
benefit trust created pursuant to a plan qualified under Section 401 of the
Code). Rights of Accumulation is also applicable to current purchases of all of
the funds of Ivy Fund (except Ivy Money Market Fund) by any of the persons
enumerated above, where the aggregate quantity of Class A shares of such funds
(and shares that have been exchanged into Ivy Money Market Fund from any of the
other funds in the Ivy funds) and of any other investment company distributed by
IMDI, previously purchased or acquired and currently owned, determined at the
higher of current offering price or amount invested, plus the Class A shares
being purchased, amounts to $50,000 or more for all funds other than Ivy Bond
Fund; or $100,000 or more for Ivy Bond Fund.
At the time an investment takes place, IMSC must be notified by the
investor or his or her dealer that the investment qualifies for the reduced
sales charge on the basis of previous investments. The reduced sales charge is
subject to confirmation of the investor's holdings through a check of the
particular fund's records.
SYSTEMATIC WITHDRAWAL PLAN
A shareholder (except shareholders with accounts in Class I) may establish
a Systematic Withdrawal Plan (a "Withdrawal Plan"), by telephone instructions or
by delivery to IMSC of a written election to have his or her shares withdrawn
periodically, accompanied by a surrender to IMSC of all share certificates then
outstanding in such shareholder's name, properly endorsed by the shareholder. To
be eligible to elect a Withdrawal Plan, a shareholder must have at least $5,000
in his or her account. A Withdrawal Plan may not be established if the investor
is currently participating in the Automatic Investment Method. A Withdrawal Plan
may involve the depletion of a shareholder's principal, depending on the amount
withdrawn.
A redemption under a Withdrawal Plan is a taxable event. Shareholders
contemplating participating in a Withdrawal Plan should consult their tax
advisers.
Additional investments made by investors participating in a Withdrawal
Plan must equal at least $1,000 each while the Withdrawal Plan is in effect.
Making additional purchases while a Withdrawal Plan is in effect may be
disadvantageous to the investor because of applicable initial sales charges or
CDSCs.
An investor may terminate his or her participation in the Withdrawal Plan
at any time by delivering written notice to IMSC. If all shares held by the
investor are liquidated at any time, participation in the Withdrawal Plan will
terminate automatically. The Trust or IMSC may terminate the Withdrawal Plan
option at any time after reasonable notice to shareholders.
GROUP SYSTEMATIC INVESTMENT PROGRAM
Shares of the Fund may be purchased in connection with investment programs
established by employee or other groups using systematic payroll deductions or
other systematic payment arrangements. The Trust does not itself organize, offer
or administer any such programs. However, it may, depending upon the size of the
program, waive the minimum initial and additional investment requirements for
purchases by individuals in conjunction with programs organized and offered by
others. Unless shares of the Fund are purchased in conjunction with IRAs (see
"How to Buy Shares" in the Prospectus), such group systematic investment
programs are not entitled to special tax benefits under the Code. The Trust
reserves the right to refuse purchases at any time or suspend the offering of
shares in connection with group systematic investment programs, and to restrict
the offering of shareholder privileges, such as check writing, simplified
redemptions and other optional privileges, as described in the Prospectus, to
shareholders using group systematic investment programs.
With respect to each shareholder account established on or after September
15, 1972 under a group systematic investment program, the Trust and IMI each
currently charge a maintenance fee of $3.00 (or portion thereof) that for each
twelve-month period (or portion thereof) that the account is maintained. The
Trust may collect such fee (and any fees due to IMI) through a deduction from
distributions to the shareholders involved or by causing on the date the fee is
assessed a redemption in each such shareholder account sufficient to pay such
fee. The Trust reserves the right to change these fees from time to time without
advance notice.
Class A shares of the Fund are made available to Merrill Lynch Daily K
Plan (the "Plan") participants at NAV without an initial sales charge if:
(i) the Plan is recordkept on a daily valuation basis by Merrill Lynch
and, on the date the Plan Sponsor signs the Merrill Lynch
Recordkeeping Service Agreement, the Plan has $3 million or more in
assets invested in broker/dealer funds not advised or managed by
Merrill Lynch Asset Management, L.P. ("MLAM") that are made available
pursuant to a Service Agreement between Merrill Lynch and the fund's
principal underwriter or distributor and in funds advised or managed
by MLAM (collectively, the "Applicable Investments");
(ii) the Plan is recordkept on a daily valuation basis by an independent
recordkeeper whose services are provided through a contract or
alliance arrangement with Merrill Lynch, and on the date the Plan
Sponsor signs the Merrill Lynch Recordkeeping Service Agreement, the
Plan has $3 million or more in assets, excluding money market funds,
invested in Applicable Investments; or
(iii) the Plan has 500 or more eligible employees, as determined by Merrill
Lynch plan conversion manager, on the date the Plan Sponsor signs the
Merrill Lynch Recordkeeping Service Agreement.
Alternatively, Class B shares of the Fund are made available to Plan
participants at NAV without a CDSC if the Plan conforms with the requirements
for eligibility set forth in (i) through (iii) above but either does not meet
the $3 million asset threshold or does not have 500 or more eligible employees.
Plans recordkept on a daily basis by Merrill Lynch or an independent
recordkeeper under a contract with Merrill Lynch that are currently investing in
Class B shares of the Fund convert to Class A shares once the Plan has reached
$5 million invested in Applicable Investments, or 10 years after the date of the
initial purchase by a participant under the Plan--the Plan will receive a Plan
level share conversion.
REDEMPTIONS
Shares of the Fund are redeemed at their net asset value next determined
after a proper redemption request has been received by IMSC, less any applicable
CDSC.
Unless a shareholder requests that the proceeds of any redemption be wired
to his or her bank account, payment for shares tendered for redemption is made
by check within seven days after tender in proper form, except that the Trust
reserves the right to suspend the right of redemption or to postpone the date of
payment upon redemption beyond seven days, (i) for any period during which the
Exchange is closed (other than customary weekend and holiday closings) or during
which trading on the Exchange is restricted, (ii) for any period during which an
emergency exists as determined by the SEC as a result of which disposal of
securities owned by the Fund is not reasonably practicable or it is not
reasonably practicable for the Fund to fairly determine the value of its net
assets, or (iii) for such other periods as the SEC may by order permit for the
protection of shareholders of the Fund.
The Trust may redeem those accounts of shareholders who have maintained an
investment, including sales charges paid, of less than $1,000 in the Fund for a
period of more than 12 months. All accounts below that minimum will be redeemed
simultaneously when MIMI deems it advisable. The $1,000 balance will be
determined by actual dollar amounts invested by the shareholder, unaffected by
market fluctuations. The Trust will notify any such shareholder by certified
mail of its intention to redeem such account, and the shareholder shall have 60
days from the date of such letter to invest such additional sums as shall raise
the value of such account above that minimum. Should the shareholder fail to
forward such sum within 60 days of the date of the Trust's letter of
notification, the Trust will redeem the shares held in such account and transmit
the redemption in value thereof to the shareholder. However, those shareholders
who are investing pursuant to the Automatic Investment Method will not be
redeemed automatically unless they have ceased making payments pursuant to the
plan for a period of at least six consecutive months, and these shareholders
will be given six-months' notice by the Trust before such redemption.
Shareholders in a qualified retirement, pension or profit sharing plan who wish
to avoid tax consequences must "rollover" any sum so redeemed into another
qualified plan within 60 days. The Trustees of the Trust may change the minimum
account size.
If a shareholder has given authorization for telephonic redemption
privilege, shares can be redeemed and proceeds sent by Federal wire to a single
previously designated bank account. Delivery of the proceeds of a wire
redemption request of $250,000 or more may be delayed by the Fund for up to
seven days if deemed appropriate under then-current market conditions. The Trust
reserves the right to change this minimum or to terminate the telephonic
redemption privilege without prior notice. The Trust cannot be responsible for
the efficiency of the Federal wire system of the shareholder's dealer of record
or bank. The shareholder is responsible for any charges by the shareholder's
bank.
The Fund employs reasonable procedures that require personal
identification prior to acting on redemption or exchange instructions
communicated by telephone to confirm that such instructions are genuine. In the
absence of such instructions, the Fund may be liable for any losses due to
unauthorized or fraudulent telephone instructions.
CONVERSION OF CLASS B SHARES
As described in the Prospectus, Class B shares of the Fund will
automatically convert to Class A shares of the Fund, based on the relative net
asset values per share of the two classes, no later than the month following the
eighth anniversary of the initial issuance of such Class B shares of the Fund
occurs. For the purpose of calculating the holding period required for
conversion of Class B shares, the date of initial issuance shall mean: (1) the
date on which such Class B shares were issued, or (2) for Class B shares
obtained through an exchange, or a series of exchanges, (subject to the exchange
privileges for Class B shares) the date on which the original Class B shares
were issued. For purposes of conversion of Class B shares, Class B shares
purchased through the reinvestment of dividends and capital gain distributions
paid in respect of Class B shares will be held in a separate sub-account. Each
time any Class B shares in the shareholder's regular account (other than those
shares in the sub-account) convert to Class A shares, a pro rata portion of the
Class B shares in the sub-account will also convert to Class A shares. The
portion will be determined by the ratio that the shareholder's Class B shares
converting to Class A shares bears to the shareholder's total Class B shares not
acquired through the reinvestment of dividends and capital gain distributions.
NET ASSET VALUE
The net asset value per share of the Fund is computed by dividing the
value of the Fund's aggregate net assets (i.e., its total assets less its
liabilities) by the number of the Fund's shares outstanding. For purposes of
determining the Fund's aggregate net assets, receivables are valued at their
realizable amounts. The Fund's liabilities, if not identifiable as belonging to
a particular class of the Fund, are allocated among the Fund's several classes
based on their relative net asset size. Liabilities attributable to a particular
class are charged to that class directly. The total liabilities for a class are
then deducted from the class's proportionate interest in the Fund's assets, and
the resulting amount is divided by the number of shares of the class outstanding
to produce its net asset value per share.
A security listed or traded on a recognized stock exchange or The Nasdaq
Stock Market, Inc. ("Nasdaq") is valued at the security's last sale price on the
exchange on which the security is principally traded. If no sale is reported at
that time, the average between the last bid and asked price (the "Calculated
Mean") is used. Unless otherwise noted herein, the value of a foreign security
is determined in its national currency as of the normal close of trading on the
foreign exchange on which it is traded or as of the close of regular trading on
the Exchange, if that is earlier, and that value is then converted into its U.S.
dollar equivalent at the foreign exchange rate in effect at noon, eastern time,
on the day the value of the foreign security is determined. All other securities
for which OTC market quotations are readily available are valued at the
Calculated Mean.
A debt security normally is valued on the basis of quotes obtained from at
least two dealers (or one dealer who has made a market in the security) or
pricing services that take into account appropriate valuation factors. Interest
is accrued daily. Money market instruments are valued at amortized cost, which
the Board believes approximates market value.
An exchange-traded option is valued at the last sale price on the exchange
on which it is principally traded, if available, and otherwise is valued at the
last sale price on the other exchange(s). If there were no sales on any
exchange, the option shall be valued at the Calculated Mean, if possible, and
otherwise at the last offering price, in the case of a written option, and the
last bid price, in the case of a purchased option. An OTC option is valued at
the last offering price, in the case of a written option, and the last bid
price, in the case of a purchased option. Exchange listed and widely-traded OTC
futures (and options thereon) are valued at the most recent settlement price.
Securities and other assets for which market prices are not readily
available are priced at their "fair value" as determined by IMI in accordance
with procedures approved by the Board. Trading in securities on many foreign
securities exchanges is normally completed before the close of regular trading
on the Exchange. Trading on foreign exchanges may not take place on all days on
which there is regular trading on the Exchange, or may take place on days on
which there is no regular trading on the Exchange (e.g., any of the national
business holidays identified below). If events materially affecting the value of
the Fund's portfolio securities occur between the time when a foreign exchange
closes and the time when the Fund's net asset value is calculated (see following
paragraph), such securities may be valued at fair value as determined by IMI and
approved by the Board.
Portfolio securities are valued (and net asset value per share is
determined) as of the close of regular trading on the Exchange (normally 4:00
p.m., eastern time) on each day the Exchange is open for trading. The Exchange
and the Trust's offices are expected to be closed, and net asset value will not
be calculated, on the following national business holidays: New Year's Day,
Martin Luther King, Jr. Day, Presidents' Day, Good Friday, Memorial Day,
Independence Day, Labor Day, Thanksgiving Day and Christmas Day. On those days
when either or both of the Fund's Custodian or the Exchange close early as a
result of a partial holiday or otherwise, the Trust reserves the right to
advance the time on that day by which purchase and redemption requests must be
received.
The number of shares you receive when you place a purchase order, and the
payment you receive after submitting a redemption request, is based on the
Fund's net asset value next determined after your instructions are received in
proper form by IMSC or by your registered securities dealer. Each purchase and
redemption order is subject to any applicable sales charge. Since the Fund
invests in securities that are listed on foreign exchanges that may trade on
weekends or other days when the Fund does not price its shares, the Fund's net
asset value may change on days when shareholders will not be able to purchase or
redeem the Fund's shares. The sale of the Fund's shares will be suspended during
any period when the determination of its net asset value is suspended pursuant
to rules or orders of the SEC and may be suspended by the Board whenever in its
judgment it is in the Fund's best interest to do so.
TAXATION
The following is a general discussion of certain tax rules thought to be
applicable with respect to the Fund. It is merely a summary and is not an
exhaustive discussion of all possible situations or of all potentially
applicable taxes. Accordingly, shareholders and prospective shareholders should
consult a competent tax adviser about the tax consequences to them of investing
in the Fund.
The Fund intends to be taxed as a regulated investment company under
Subchapter M of the Code. Accordingly, the Fund must, among other things, (a)
derive in each taxable year at least 90% of its gross income from dividends,
interest, payments with respect to certain securities loans, and gains from the
sale or other disposition of stock, securities or foreign currencies, or other
income derived with respect to its business of investing in such stock,
securities or currencies; and (b) diversify its holdings so that, at the end of
each fiscal quarter, (i) at least 50% of the market value of the Fund's assets
is represented by cash, U.S. Government securities, the securities of other
regulated investment companies and other securities, with such other securities
limited, in respect of any one issuer, to an amount not greater than 5% of the
value of the Fund's total assets and 10% of the outstanding voting securities of
such issuer, and (ii) not more than 25% of the value of its total assets is
invested in the securities of any one issuer (other than U.S. Government
securities and the securities of other regulated investment companies).
As a regulated investment company, the Fund generally will not be subject
to U.S. Federal income tax on its income and gains that it distributes to
shareholders, if at least 90% of its investment company taxable income (which
includes, among other items, dividends, interest and the excess of any
short-term capital gains over long-term capital losses) for the taxable year is
distributed. The Fund intends to distribute all such income.
Amounts not distributed on a timely basis in accordance with a calendar
year distribution requirement are subject to a nondeductible 4% excise tax at
the Fund level. To avoid the tax, the Fund must distribute during each calendar
year, (1) at least 98% of its ordinary income (not taking into account any
capital gains or losses) for the calendar year (2) at least 98% of its capital
gains in excess of its capital losses (adjusted for certain ordinary losses) for
a one-year period generally ending on October 31 of the calendar year, and (3)
all ordinary income and capital gains for previous years that were not
distributed during such years. To avoid application of the excise tax, the Fund
intends to make distributions in accordance with the calendar year distribution
requirements. A distribution will be treated as paid on December 31 of the
current calendar year if it is declared by the Fund in October, November or
December of the year with a record date in such a month and paid by the Fund
during January of the following year. Such distributions will be taxable to
shareholders in the calendar year the distributions are declared, rather than
the calendar year in which the distributions are received.
OPTIONS, FUTURES AND FOREIGN CURRENCY FORWARD CONTRACTS
The taxation of equity options and OTC options on debt securities is
governed by Code section 1234. Pursuant to Code section 1234, the premium
received by the Fund for selling a put or call option is not included in income
at the time of receipt. If the option expires, the premium is short-term capital
gain to the Fund. If the Fund enters into a closing transaction, the difference
between the amount paid to close out its position and the premium received is
short-term capital gain or loss. If a call option written by the Fund is
exercised, thereby requiring the Fund to sell the underlying security, the
premium will increase the amount realized upon the sale of such security and any
resulting gain or loss will be a capital gain or loss, and will be long-term or
short-term depending upon the holding period of the security. With respect to a
put or call option that is purchased by the Fund, if the option is sold, any
resulting gain or loss will be a capital gain or loss, and will be long-term or
short-term, depending upon the holding period of the option. If the option
expires, the resulting loss is a capital loss and is long-term or short-term,
depending upon the holding period of the option. If the option is exercised, the
cost of the option, in the case of a call option, is added to the basis of the
purchased security and, in the case of a put option, reduces the amount realized
on the underlying security in determining gain or loss.
Some of the options, futures and foreign currency forward contracts in
which the Fund may invest may be "section 1256 contracts." Gains (or losses) on
these contracts generally are considered to be 60% long-term and 40% short-term
capital gains or losses; however, as described below, foreign currency gains or
losses arising from certain section 1256 contracts are ordinary in character.
Also, section 1256 contracts held by the Fund at the end of each taxable year
(and on certain other dates prescribed in the Code) are "marked-to-market" with
the result that unrealized gains or losses are treated as though they were
realized.
The transactions in options, futures and forward contracts undertaken by
the Fund may result in "straddles" for Federal income tax purposes. The straddle
rules may affect the character of gains or losses realized by the Fund. In
addition, losses realized by the Fund on positions that are part of a straddle
may be deferred under the straddle rules, rather than being taken into account
in calculating the taxable income for the taxable year in which such losses are
realized. Because only a few regulations implementing the straddle rules have
been promulgated, the consequences of such transactions to the Fund are not
entirely clear. The straddle rules may increase the amount of short-term capital
gain realized by the Fund, which is taxed as ordinary income when distributed to
shareholders.
The Fund may make one or more of the elections available under the Code
which are applicable to straddles. If the Fund makes any of the elections, the
amount, character and timing of the recognition of gains or losses from the
affected straddle positions will be determined under rules that vary according
to the election(s) made. The rules applicable under certain of the elections may
operate to accelerate the recognition of gains or losses from the affected
straddle positions.
Because application of the straddle rules may affect the character of
gains or losses, defer losses and/or accelerate the recognition of gains or
losses from the affected straddle positions, the amount which must be
distributed to shareholders as ordinary income or long-term capital gain may be
increased or decreased substantially as compared to a fund that did not engage
in such transactions.
Notwithstanding any of the foregoing, the Fund may recognize gain (but not
loss) from a constructive sale of certain "appreciated financial positions" if
the Fund enters into a short sale, offsetting notional principal contract,
futures or forward contract transaction with respect to the appreciated position
or substantially identical property. Appreciated financial positions subject to
this constructive sale treatment are interests (including options, futures and
forward contracts and short sales) in stock, partnership interests, certain
actively traded trust instruments and certain debt instruments. Constructive
sale treatment of appreciated financial positions does not apply to certain
transactions closed in the 90-day period ending with the 30th day after the
close of the Fund's taxable year, if certain conditions are met.
CURRENCY FLUCTUATIONS -- "SECTION 988" GAINS OR LOSSES
Gains or losses attributable to fluctuations in exchange rates which
occur between the time the Fund accrues receivables or liabilities denominated
in a foreign currency and the time the Fund actually collects such receivables
or pays such liabilities generally are treated as ordinary income or ordinary
loss. Similarly, on disposition of some investments, including debt securities
denominated in a foreign currency and certain options, futures and forward
contracts, gains or losses attributable to fluctuations in the value of the
foreign currency between the date of acquisition of the security or contract and
the date of disposition also are treated as ordinary gain or loss. These gains
and losses, referred to under the Code as "section 988" gains or losses,
increase or decrease the amount of the Fund's investment company taxable income
available to be distributed to its shareholders as ordinary income.
INVESTMENT IN PASSIVE FOREIGN INVESTMENT COMPANIES
The Fund may invest in shares of foreign corporations which may be
classified under the Code as passive foreign investment companies ("PFICs"). In
general, a foreign corporation is classified as a PFIC if at least one-half of
its assets constitute investment-type assets, or 75% or more of its gross income
is investment-type income. If the Fund receives a so-called "excess
distribution" with respect to PFIC stock, the Fund itself may be subject to a
tax on a portion of the excess distribution, whether or not the corresponding
income is distributed by the Fund to shareholders. In general, under the PFIC
rules, an excess distribution is treated as having been realized ratably over
the period during which a Fund held the PFIC shares. The Fund itself will be
subject to tax on the portion, if any, of an excess distribution that is so
allocated to prior Fund taxable years and an interest factor will be added to
the tax, as if the tax had been payable in such prior taxable years. Certain
distributions from a PFIC as well as gain from the sale of PFIC shares are
treated as excess distributions. Excess distributions are characterized as
ordinary income even though, absent application of the PFIC rules, certain
excess distributions might have been classified as capital gain.
The Fund may be eligible to elect alternative tax treatment with respect
to PFIC shares. The Fund may elect to mark to market its PFIC shares, resulting
in the shares being treated as sold at fair market value on the last business
day of each taxable year. Any resulting gain would be reported as ordinary
income; any resulting loss and any loss from an actual disposition of the shares
would be reported as ordinary loss to the extent of any net gains reported in
prior years. Under another election that currently is available in some
circumstances, the Fund generally would be required to include in its gross
income its share of the earnings of a PFIC on a current basis, regardless of
whether distributions are received from the PFIC in a given year.
DEBT SECURITIES ACQUIRED AT A DISCOUNT
Some of the debt securities (with a fixed maturity date of more than one
year from the date of issuance) that may be acquired by the Fund may be treated
as debt securities that are issued originally at a discount. Generally, the
amount of the original issue discount ("OID") is treated as interest income and
is included in income over the term of the debt security, even though payment of
that amount is not received until a later time, usually when the debt security
matures.
Some of the debt securities (with a fixed maturity date of more than one
year from the date of issuance) that may be acquired by the Fund in the
secondary market may be treated as having market discount. Generally, gain
recognized on the disposition of, and any partial payment of principal on, a
debt security having market discount is treated as ordinary income to the extent
the gain, or principal payment, does not exceed the "accrued market discount" on
such debt security. In addition, the deduction of any interest expenses
attributable to debt securities having market discount may be deferred. Market
discount generally accrues in equal daily installments. The Fund may make one or
more of the elections applicable to debt securities having market discount,
which could affect the character and timing of recognition of income.
Some debt securities (with a fixed maturity date of one year or less from
the date of issuance) that may be acquired by the Fund may be treated as having
acquisition discount, or OID in the case of certain types of debt securities.
Generally, the Fund will be required to include the acquisition discount, or
OID, in income over the term of the debt security, even though payment of that
amount is not received until a later time, usually when the debt security
matures. The Fund may make one or more of the elections applicable to debt
securities having acquisition discount, or OID, which could affect the character
and timing of recognition of income.
The Fund generally will be required to distribute dividends to
shareholders representing discount on debt securities that is currently
includable in income, even though cash representing such income may not have
been received by the Fund. Cash to pay such dividends may be obtained from sales
proceeds of securities held by the Fund.
DISTRIBUTIONS
Distributions of investment company taxable income are taxable to a U.S.
shareholder as ordinary income, whether paid in cash or shares. Dividends paid
by the Fund to a corporate shareholder, to the extent such dividends are
attributable to dividends received from U.S. corporations by the Fund, may
qualify for the dividends received deduction. However, the revised alternative
minimum tax applicable to corporations may reduce the value of the dividends
received deduction. Distributions of net capital gains (the excess of net
long-term capital gains over net short-term capital losses), if any, designated
by the Fund as capital gain dividends, are taxable to shareholders as long-term
capital gains whether paid in cash or in shares, and regardless of how long the
shareholder has held the Fund's shares; such distributions are not eligible for
the dividends received deduction. Shareholders receiving distributions in the
form of newly issued shares will have a cost basis in each share received equal
to the net asset value of a share of the Fund on the distribution date. A
distribution of an amount in excess of the Fund's current and accumulated
earnings and profits will be treated by a shareholder as a return of capital
which is applied against and reduces the shareholder's basis in his or her
shares. To the extent that the amount of any such distribution exceeds the
shareholder's basis in his or her shares, the excess will be treated by the
shareholder as gain from a sale or exchange of the shares. Shareholders will be
notified annually as to the U.S. Federal tax status of distributions and
shareholders receiving distributions in the form of newly issued shares will
receive a report as to the net asset value of the shares received.
If the net asset value of shares is reduced below a shareholder's cost as
a result of a distribution by the Fund, such distribution generally will be
taxable even though it represents a return of invested capital. Shareholders
should be careful to consider the tax implications of buying shares just prior
to a distribution. The price of shares purchased at this time may reflect the
amount of the forthcoming distribution. Those purchasing just prior to a
distribution will receive a distribution which generally will be taxable to
them.
DISPOSITION OF SHARES
Upon a redemption, sale or exchange of his or her shares, a shareholder
will realize a taxable gain or loss depending upon his or her basis in the
shares. Such gain or loss will be treated as capital gain or loss if the shares
are capital assets in the shareholder's hands and, if so, will be long-term or
short-term, depending upon the shareholder's holding period for the shares. Any
loss realized on a redemption sale or exchange will be disallowed to the extent
the shares disposed of are replaced (including through reinvestment of
dividends) within a period of 61 days beginning 30 days before and ending 30
days after the shares are disposed of. In such a case, the basis of the shares
acquired will be adjusted to reflect the disallowed loss. Any loss realized by a
shareholder on the sale of Fund shares held by the shareholder for six-months or
less will be treated for tax purposes as a long-term capital loss to the extent
of any distributions of capital gain dividends received or treated as having
been received by the shareholder with respect to such shares.
In some cases, shareholders will not be permitted to take all or portion
of their sales loads into account for purposes of determining the amount of gain
or loss realized on the disposition of their shares. This prohibition generally
applies where (1) the shareholder incurs a sales load in acquiring the shares of
the Fund, (2) the shares are disposed of before the 91st day after the date on
which they were acquired, and (3) the shareholder subsequently acquires shares
in the Fund or another regulated investment company and the otherwise applicable
sales charge is reduced under a "reinvestment right" received upon the initial
purchase of Fund shares. The term "reinvestment right" means any right to
acquire shares of one or more regulated investment companies without the payment
of a sales load or with the payment of a reduced sales charge. Sales charges
affected by this rule are treated as if they were incurred with respect to the
shares acquired under the reinvestment right. This provision may be applied to
successive acquisitions of fund shares.
FOREIGN WITHHOLDING TAXES
Income received by the Fund from sources within a foreign country may be
subject to withholding and other taxes imposed by that country.
If more than 50% of the value of the Fund's total assets at the close of
its taxable year consists of securities of foreign corporations, the Fund will
be eligible and may elect to "pass-through" to the Fund's shareholders the
amount of foreign income and similar taxes paid by the Fund. Pursuant to this
election, a shareholder will be required to include in gross income (in addition
to taxable dividends actually received) his or her pro rata share of the foreign
income and similar taxes paid by the Fund, and will be entitled either to deduct
his or her pro rata share of foreign income and similar taxes in computing his
or her taxable income or to use it as a foreign tax credit against his or her
U.S. Federal income taxes, subject to limitations. No deduction for foreign
taxes may be claimed by a shareholder who does not itemize deductions. Foreign
taxes generally may not be deducted by a shareholder that is an individual in
computing the alternative minimum tax. Each shareholder will be notified within
60 days after the close of the Fund's taxable year whether the foreign taxes
paid by the Fund will "pass-through" for that year and, if so, such notification
will designate (1) the shareholder's portion of the foreign taxes paid to each
such country and (2) the portion of the dividend which represents income derived
from sources within each such country.
Generally, except in the case of certain electing individual taxpayers who
have limited creditable foreign taxes and no foreign source income other than
passive investment-type income, a credit for foreign taxes is subject to the
limitation that it may not exceed the shareholder's U.S. tax attributable to his
or her total foreign source taxable income. For this purpose, if the Fund makes
the election described in the preceding paragraph, the source of the Fund's
income flows through to its shareholders. With respect to the Fund, gains from
the sale of securities generally will be treated as derived from U.S. sources
and section 988 gains will be treated as ordinary income derived from U.S.
sources. The limitation on the foreign tax credit is applied separately to
foreign source passive income, including foreign source passive income received
from the Fund. In addition, the foreign tax credit may offset only 90% of the
revised alternative minimum tax imposed on corporations and individuals.
Furthermore, the foreign tax credit is eliminated with respect to foreign taxes
withheld on dividends if the dividend-paying shares or the shares of the Fund
are held by the Fund or the shareholder, as the case may be, for less than 16
days (46 days in the case of preferred shares) during the 30-day period (90-day
period for preferred shares) beginning 15 days (45 days for preferred shares)
before the shares become ex-dividend. In addition, if the Fund fails to satisfy
these holding period requirements, it cannot elect to pass through to
shareholders the ability to claim a deduction for related foreign taxes.
The foregoing is only a general description of the foreign tax credit
under current law. Because application of the credit depends on the particular
circumstances of each shareholder, shareholders are advised to consult their own
tax advisers.
BACKUP WITHHOLDING
The Fund will be required to report to the Internal Revenue Service
("IRS") all taxable distributions as well as gross proceeds from the redemption
of the Fund's shares, except in the case of certain exempt shareholders. All
such distributions and proceeds will be subject to withholding of Federal income
tax at a rate of 31% ("backup withholding") in the case of non-exempt
shareholders if (1) the shareholder fails to furnish the Fund with and to
certify the shareholder's correct taxpayer identification number or social
security number, (2) the IRS notifies the shareholder or the Fund that the
shareholder has failed to report properly certain interest and dividend income
to the IRS and to respond to notices to that effect, or (3) when required to do
so, the shareholder fails to certify that he or she is not subject to backup
withholding. If the withholding provisions are applicable, any such
distributions or proceeds, whether reinvested in additional shares or taken in
cash, will be reduced by the amounts required to be withheld.
Distributions may also be subject to additional state, local and foreign
taxes depending on each shareholder's particular situation. Non-U.S.
shareholders may be subject to U.S. tax rules that differ significantly from
those summarized above. This discussion does not purport to deal with all of the
tax consequences applicable to the Fund or shareholders. Shareholders are
advised to consult their own tax advisers with respect to the particular tax
consequences to them of an investment in the Fund.
PERFORMANCE INFORMATION
Performance information for the classes of shares of the Fund may be
compared, in reports and promotional literature, to: (i) the S&P 500 Index, the
Dow Jones Industrial Average ("DJIA"), or other unmanaged indices so that
investors may compare the Fund's results with those of a group of unmanaged
securities widely regarded by investors as representative of the securities
markets in general; (ii) other groups of mutual funds tracked by Lipper
Analytical Services, a widely used independent research firm that ranks mutual
funds by overall performance, investment objectives and assets, or tracked by
other services, companies, publications or other criteria; and (iii) the
Consumer Price Index (measure for inflation) to assess the real rate of return
from an investment in the Fund. Unmanaged indices may assume the reinvestment of
dividends but generally do not reflect deductions or administrative and
management costs and expenses. Performance rankings are based on historical
information and are not intended to indicate future performance.
AVERAGE ANNUAL TOTAL RETURN. Quotations of standardized average annual
total return ("Standardized Return") for a specific class of shares of the Fund
will be expressed in terms of the average annual compounded rate of return that
would cause a hypothetical investment in that class of the Fund made on the
first day of a designated period to equal the ending redeemable value ("ERV") of
such hypothetical investment on the last day of the designated period, according
to the following formula:
P(1 + T){superscript n} = ERV
Where: P = a hypothetical initial
payment of $1,000 to purchase shares of a
specific class
T = the average annual total return of shares of
that class
n = the number of years
ERV = the ending redeemable value of a
hypothetical $1,000 payment made at the beginning
of the period.
For purposes of the above computation for the Fund, it is assumed that all
dividends and capital gains distributions made by the Fund are reinvested at net
asset value in additional shares of the same class during the designated period.
In calculating the ending redeemable value for Class A shares and assuming
complete redemption at the end of the applicable period, the maximum 5.75% sales
charge is deducted from the initial $1,000 payment and, for Class B and Class C
shares, the applicable CDSC imposed upon redemption of Class B or Class C shares
held for the period is deducted. Standardized Return quotations for the Fund do
not take into account any required payments for federal or state income taxes.
Standardized Return quotations for Class B shares for periods of over eight
years will reflect conversion of the Class B shares to Class A shares at the end
of the eighth year. Standardized Return quotations are determined to the nearest
1/100 of 1%.
The Fund may, from time to time, include in advertisements, promotional
literature or reports to shareholders or prospective investors total return data
that are not calculated according to the formula set forth above
("Non-Standardized Return"). Neither initial nor CDSCs are taken into account in
calculating Non-Standardized Return; a sales charge, if deducted, would reduce
the return.
The following table summarizes the calculation of Standardized and
Non-Standardized Return for the Class A, Class B, Class C and Class I shares of
the Fund for the periods indicated. In determining the average annual total
return for a specific class of shares of the Fund, recurring fees, if any, that
are charged to all shareholder accounts are taken into consideration. For any
account fees that vary with the size of the account of the Fund, the account fee
used for purposes of the following computations is assumed to be the fee that
would be charged to the mean account size of the Fund.
STANDARDIZED RETURN[*]
CLASS A[1] CLASS B[2] CLASS C[3] CLASS I[4]
Year ended
December 31,
1998 1.17% 1.43% 5.46% 7.75%
Five years
ended December
31, 1998 9.37% 9.51% N/A 10.81%
Ten years ended
December 31,
1998 11.73% N/A N/A N/A
Inception [#]
to ear ended
December 31, 13.93% 10.82% 10.30% 11.77%
1998[8]:
NON-STANDARDIZED RETURN[**]
CLASS A[5] CLASS B[6] CLASS C[7] CLASS I[4]
Year ended
December 31,
1998 7.34% 6.43% 6.46% 7.75%
Five years
ended December
31, 1998 10.67% 9.73% N/A 10.81%
Ten years ended
December 31,
1998 12.40% N/A N/A N/A
Inception [#]
to year ended
December 31, 14.46% 10.91% 10.30% 11.77%
1998[8]:
- --------------------------------------------------------
[*] The Standardized Return figures for Class A shares reflect the
deduction of the maximum initial sales charge of 5.75%. The Standardized Return
figures for Class B and C shares reflect the deduction of the applicable CDSC
imposed on redemption of Class B or C shares held for the period. Class I shares
are not subject to an initial sales change or to a CDSC; therefore, the
Non-Standardized Return Figures are identical to the Standarized Return Figures.
[**] The Non-Standardized Return figures do not reflect the deduction of
any initial sales charge or CDSC.
[#] The inception date for the Fund (Class A shares) was April 21, 1986.
The inception date for Class B and Class I shares was October 23, 1993. The
inception date for Class C shares was April 30, 1996.
[1] The Standardized Return figures for the Class A shares reflect expense
reimbursement. Without expense reimbursement, the Standardized Return for Class
A shares for the period from inception through December 31, 1998 and the one,
five and ten year periods ended December 31, 1998 would have been 13.92%, 1.17%,
9.37%, and 11.72%, respectively.
[2] The Standardized Return figures for the Class B shares reflect expense
reimbursement. Without expense reimbursement, the Standardized Return for Class
B shares for the period from inception through December 31, 1998 and the one and
five year periods ended December 31, 1998 would have been 10.82%, 1.43% and
9.51%, respectively. Since the inception date for Class B shares was October 23,
1993, there were no Class B shares outstanding for the duration of the ten year
period ended December 31, 1998.
[3] The Standardized Return figures for the Class C shares reflect expense
reimbursement. Without expense reimbursement, the Standardized Return for Class
C shares for the period from inception through December 31, 1998 and the one
year period ended December 31, 1998 would have been 10.30% and 5.46%,
respectively. Since the inception date for Class C shares was April 30, 1996,
there were no Class C shares outstanding for the duration of the five and ten
year periods ended December 31, 1998.
[4] Class I shares are not subject to an initial sales charge or a CDSC;
therefore the Non-Standardized and Standardized Return figures are identical.
[5] The Non-Standardized Return figures for Class A shares reflect expense
reimbursement. Without expense reimbursement, the Non-Standardized Return for
Class A shares for the period from inception through December 31, 1998 and the
one, five and ten year periods ended December 31, 1998 would have been 14.45%,
7.34%, 10.67%, and 12.39%, respectively.
[6] The Non-Standardized Return figures for Class B shares reflect expense
reimbursement. Without expense reimbursement, the Non-Standardized Return for
Class B shares for the period from inception through December 31, 1998 and the
one and five year periods ended December 31, 1998 would have been 10.91%, 6.43%,
and 9.73%, respectively. Since the inception date for Class B shares was October
23, 1993, there were no Class B shares outstanding for the duration of the ten
year period ended December 31, 1998.
[7] The Non-Standardized Return figures for Class C shares reflect expense
reimbursement. Without expense reimbursement, the Non-Standardized Return for
Class C shares for the period from inception through December 31, 1998 and the
one year period ended December 31, 1998 would have been 10.30% and 6.46%,
respectively.
[8] The total return for a period less than a full year is calculated on
an aggregate basis and is not annualized.
CUMULATIVE TOTAL RETURN. Cumulative total return is the cumulative rate of
return on a hypothetical initial investment of $1,000 in a specific class of
shares of the Fund for a specified period. Cumulative total return quotations
reflect changes in the price of the Fund's shares and assume that all dividends
and capital gains distributions during the period were reinvested in the Fund
shares. Cumulative total return is calculated by computing the cumulative rates
of return of a hypothetical investment in a specific class of shares of the Fund
over such periods, according to the following formula (cumulative total return
is then expressed as a percentage):
C = (ERV/P) - 1
Where: C = cumulative total return
P = a hypothetical initial
investment of $1,000 to purchase shares of a
specific class
ERV = ending redeemable value: ERV is the
value, at the end of the applicable period, of a
hypothetical $1,000 investment made at the
beginning of the applicable period.
The following table summarizes the calculation of Cumulative Total Return
for the periods indicated through December 31, 1998, assuming the maximum 5.75%
sales charge has been assessed.
SINCE
ONE YEAR FIVE YEARS TEN YEARS INCEPTION [*]
Class A 1.17% 56.50% 203.25% 422.46%
Class B 1.43% 57.05% N/A 70.22%
Class C 5.46% N/A N/A 29.93%
Class I 7.75% N/A N/A 78.22%
The following table summarizes the calculation of Cumulative Total Return for
the periods indicated through December 31, 1998, assuming the maximum 5.75%
sales charge has not been assessed.
SINCE
ONE YEAR FIVE YEARS TEN YEARS INCEPTION [*]
Class A 7.34% 66.04% 221.75% 454.33%
Class B 6.43% 59.05% N/A 71.22%
Class C 6.46% N/A N/A 29.93%
Class I 7.75% N/A N/A 78.22%
- ---------------------------
[*] The inception date for the Fund (Class A shares) was April 21, 1986.
The inception date for Class B and Class I shares was October 23, 1993. The
inception date for Class C shares was April 30, 1996.
OTHER QUOTATIONS, COMPARISONS AND GENERAL INFORMATION. The foregoing
computation methods are prescribed for advertising and other communications
subject to SEC Rule 482. Communications not subject to this rule may contain a
number of different measures of performance, computation methods and
assumptions, including but not limited to: historical total returns; results of
actual or hypothetical investments; changes in dividends, distributions or share
values; or any graphic illustration of such data. These data may cover any
period of the Trust's existence and may or may not include the impact of sales
charges, taxes or other factors.
Performance quotations for the Fund will vary from time to time depending
on market conditions, the composition of the Fund's portfolio and operating
expenses of the Fund. These factors and possible differences in the methods used
in calculating performance quotations should be considered when comparing
performance information regarding the Fund's shares with information published
for other investment companies and other investment vehicles. Performance
quotations should also be considered relative to changes in the value of the
Fund's shares and the risks associated with the Fund's investment objectives and
policies. At any time in the future, performance quotations may be higher or
lower than past performance quotations and there can be no assurance that any
historical performance quotation will continue in the future.
The Fund may also cite endorsements or use for comparison its performance
rankings and listings reported in such newspapers or business or consumer
publications as, among others: AAII Journal, Barron's, Boston Business Journal,
Boston Globe, Boston Herald, Business Week, Consumer's Digest, Consumer Guide
Publications, Changing Times, Financial Planning, Financial World, Forbes,
Fortune, Growth Fund Guide, Houston Post, Institutional Investor, International
Fund Monitor, Investor's Daily, Los Angeles Times, Medical Economics, Miami
Herald, Money Mutual Fund Forecaster, Mutual Fund Letter, Mutual Fund Source
Book, Mutual Fund Values, National Underwriter, Nelson's Directory of Investment
Managers, New York Times, Newsweek, No Load Fund Investor, No Load Fund* X,
Oakland Tribune, Pension World, Pensions and Investment Age, Personal Investor,
Rugg and Steele, Time, U.S. News and World Report, USA Today, The Wall Street
Journal, and Washington Post.
FINANCIAL STATEMENTS
The Fund's Portfolio of Investments as of December 31, 1998, Statement of
Assets and Liabilities as of December 31, 1998, Statement of Operations for the
fiscal year ended December 31, 1998, Statement of Changes in Net Assets for the
fiscal year ended December 31, 1998, Financial Highlights, Notes to Financial
Statements, and Report of Independent Accountants, which are included in the
Fund's December 31, 1998 Annual Report to shareholders, are incorporated by
reference into this SAI.
<PAGE>
APPENDIX A
DESCRIPTION OF STANDARD & POOR'S RATINGS GROUP ("S&P") AND
MOODY'S INVESTORS SERVICE, INC. ("MOODY'S") CORPORATE
BOND AND COMMERCIAL PAPER RATINGS
[From "Moody's Bond Record," November 1994 Issue (Moody's Investors Service,
New York, 1994), and "Standard & Poor's Municipal Ratings Handbook," October
1997 Issue (McGraw Hill, New York, 1997).]
MOODY'S:
(a) CORPORATE BONDS. Bonds rated Aaa by Moody's are judged by Moody's to
be of the best quality, carrying the smallest degree of investment risk.
Interest payments are protected by a large or exceptionally stable margin and
principal is secure. While the various protective elements are likely to change,
such changes as can be visualized are most unlikely to impair the fundamentally
strong position of such issues. Bonds rated Aa are judged by Moody's to be of
high quality by all standards. Aa bonds are rated lower than Aaa bonds because
margins of protection may not be as large as those of Aaa bonds, or fluctuations
of protective elements may be of greater amplitude, or there may be other
elements present which make the long-term risks appear somewhat larger than
those applicable to Aaa securities. Bonds which are rated A by Moody's possess
many favorable investment attributes and are to be considered as upper
medium-grade obligations. Factors giving security to principal and interest are
considered adequate, but elements may be present which suggest a susceptibility
to impairment sometime in the future. Bonds rated Baa by Moody's are considered
medium-grade obligations (i.e., they are neither highly protected nor poorly
secured). Interest payments and principal security appear adequate for the
present, but certain protective elements may be lacking or may be
characteristically unreliable over any great length of time. Such bonds lack
outstanding investment characteristics and in fact have speculative
characteristics as well. Bonds which are rated Ba are judged to have speculative
elements; their future cannot be considered well-assured. Often the protection
of interest and principal payments may be very moderate and thereby not well
safeguarded during both good and bad times over the future. Uncertainty of
position characterizes bonds in this class. Bonds which are rated B generally
lack characteristics of the desirable investment. Assurance of interest and
principal payments of or maintenance of other terms of the contract over any
long period of time may be small. Bonds which are rated Caa are of poor
standing. Such issues may be in default or there may be present elements of
danger with respect to principal or interest. Bonds which are rated Ca represent
obligations which are speculative in a high degree. Such issues are often in
default or have other marked shortcomings. Bonds which are rated C are the
lowest rated class of bonds and issues so rated can be regarded as having
extremely poor prospects of ever attaining any real investment standing.
(b) COMMERCIAL PAPER. The Prime rating is the highest commercial paper
rating assigned by Moody's. Among the factors considered by Moody's in assigning
ratings are the following: (1) evaluation of the management of the issuer; (2)
economic evaluation of the issuer's industry or industries and an appraisal of
speculative-type risks which may be inherent in certain areas; (3) evaluation of
the issuer's products in relation to competition and customer acceptance; (4)
liquidity; (5) amount and quality of long-term debt; (6) trend of earnings over
a period of ten years; (7) financial strength of a parent company and the
relationships which exist with the issuer; and (8) recognition by management of
obligations which may be present or may arise as a result of public interest
questions and preparations to meet such obligations. Issuers within this Prime
category may be given ratings 1, 2 or 3, depending on the relative strengths of
these factors. The designation of Prime-1 indicates the highest quality
repayment capacity of the rated issue. Issuers rated Prime-2 are deemed to have
a strong ability for repayment while issuers voted Prime-3 are deemed to have an
acceptable ability for repayment. Issuers rated Not Prime do not fall within any
of the Prime rating categories.
S&P:
(a) CORPORATE BONDS. An S&P corporate debt rating is a current assessment
of the creditworthiness of an obligor with respect to a specific obligation. The
ratings are based on current information furnished by the issuer or obtained by
S&P from other sources it considers reliable. The ratings described below may be
modified by the addition of a plus or minus sign to show relative standing
within the major rating categories.
Debt rated AAA has the highest rating assigned by S&P. Capacity to pay
interest and repay principal is extremely strong. Debt rated AA is judged by S&P
to have a very strong capacity to pay interest and repay principal and differs
from the highest rated issues only in small degree. Debt rated A by S&P has a
strong capacity to pay interest and repay principal, although it is somewhat
more susceptible to the adverse effects of changes in circumstances and economic
conditions than debt in higher rated categories.
Debt rated BBB by S&P is regarded by S&P as having an adequate capacity to
pay interest and repay principal. Although such bonds normally exhibit adequate
protection parameters, adverse economic conditions or changing circumstances are
more likely to lead to a weakened capacity to pay interest and repay principal
than debt in higher rated categories.
Debt rated BB, B, CCC, CC and C is regarded as having predominately
speculative characteristics with respect to capacity to pay interest and repay
principal. BB indicates the least degree of speculation and C the highest. While
such debt will likely have some quality and protective characteristics, these
are outweighed by large uncertainties or exposures to adverse conditions. Debt
rated BB has less near-term vulnerability to default than other speculative
issues. However, it faces major ongoing uncertainties or exposure to adverse
business, financial or economic conditions which could lead to inadequate
capacity to meet timely interest and principal payments. The BB rating category
is also used for debt subordinated to senior debt that is assigned an actual or
implied BBB- rating. Debt rated B has a greater vulnerability to default but
currently has the capacity to meet interest payments and principal repayments.
Adverse business, financial, or economic conditions will likely impair capacity
or willingness to pay interest and repay principal. The B rating category is
also used for debt subordinated to senior debt that is assigned an actual or
implied BB or BB- rating. Debt rated CCC has a currently identifiable
vulnerability to default, and is dependent upon favorable business, financial,
and economic conditions to meet timely payment of interest and repayment of
principal. In the event of adverse business, financial or economic conditions,
it is not likely to have the capacity to pay interest and repay principal. The
CCC rating category is also used for debt subordinated to senior debt that is
assigned an actual or implied B or B- rating. The rating CC typically is applied
to debt subordinated to senior debt which is assigned an actual or implied CCC
debt rating. The rating C typically is applied to debt subordinated to senior
debt which is assigned an actual or implied CCC- debt rating. The C rating may
be used to cover a situation where a bankruptcy petition has been filed, but
debt service payments are continued.
The rating CI is reserved for income bonds on which no interest is being
paid. Debt rated D is in payment default. The D rating category is used when
interest payments or principal payments are not made on the date due, even if
the applicable grace period has not expired, unless S&P believes that such
payments will be made during such grace period. The D rating also will be used
upon the filing of a bankruptcy petition if debt service payments are
jeopardized.
(b) COMMERCIAL PAPER. An S&P commercial paper rating is a current
assessment of the likelihood of timely payment of debt considered short-term in
the relevant market.
The commercial paper rating A-1 by S&P indicates that the degree of safety
regarding timely payment is strong. Those issues determined to possess extremely
strong safety characteristics are denoted with a plus sign (+) designation. For
commercial paper with an A-2 rating, the capacity for timely payment on issues
is satisfactory, but not as high as for issues designated A-1. Issues rated A-3
have adequate capacity for timely payment, but are more vulnerable to the
adverse effects of changes in circumstances than obligations carrying higher
designations.
Issues rated B are regarded as having only speculative capacity for timely
payment. The C rating is assigned to short-term debt obligations with a doubtful
capacity for payment. Debt rated D is in payment default. The D rating category
is used when interest payments or principal payments are not made on the date
due, even if the applicable grace period has not expired, unless S&P believes
such payments will be made during such grace period.
